<PAGE> 1
As filed with the Securities and Exchange Commission on January 4, 2000
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
Registration Statement Under the Securities Act of 1933
Integrated Communication Networks, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
4813
(Primary Standard Industrial Classification Code Number)
33-0670130
(I.R.S. Employer Identification Number)
27061 Aliso Creek Road, Suite 100
Aliso Viejo, CA 92656
(949) 349-1770
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
David Chadwick, President and CEO
Integrated Communication Networks, Inc.
27061 Aliso Creek Road, Suite 100
Aliso Viejo, CA 92656
(949) 349-1770
(Name, Address Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copy to:
Barry Dastin, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP
1900 Avenue of the Stars
Los Angeles, CA 90067
<PAGE> 2
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective as determined
by market conditions.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED TO BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock(2) 921,429 shares $10.125 $ 9,329,469 $ 2,463
Common stock(3) 350,000 shares $10.125 $ 3,543,750 $ 936
Common stock(4) 100,000 shares $10.125 $ 1,012,500 $ 267
Common stock(5) 5,943,633 shares $10.125 $ 60,179,284 $15,887
Common stock(6) 80,000 shares $12.50 $ 1,000,000 $ 264
Common stock(7) 80,000 shares $15.00 $ 1,200,000 $ 317
Common stock(8) 1,100,000 shares $10.125 $ 11,137,500 $ 2,940
Common stock(9) 200,000 shares $13.75 $ 2,750,000 $ 726
Common stock(10) 5,000,000 shares $10.125 $ 50,625,000 $13,365
- -------------------------------------------------------------------------------------------------
Total: 13,775,062 shares $140,777,503 $37,165
- -------------------------------------------------------------------------------------------------
</TABLE>
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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.
(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low prices of the common stock reported on the
National Quotation Bureau's "Pink Sheets" on December 28, 1999 and calculated in
accordance with Rule 457(g) promulgated under the Securities Act of 1933, as
amended.
(2) Issuable upon exercise of the phoneXchange Warrants. Includes an
indeterminate number of shares which may become issuable in the event of a stock
split, stock dividend or similar transaction involving the common stock pursuant
to certain antidilution provisions contained in the Warrants.
(3) Issuable upon exercise of the September 2004 Warrants. Includes an
indeterminate number of shares which may become issuable in the event of a stock
split, stock dividend or similar transaction involving the common stock pursuant
to certain antidilution provisions contained in the Warrants.
(4) Issuable upon exercise of the Sakaran Warrants. Includes an indeterminate
number of shares which may become issuable in the event of a stock split, stock
dividend or similar transaction involving the common stock pursuant to certain
antidilution provisions contained in the Warrants.
(5) Issuable upon exercise of the February 2004 Warrants. Includes an
indeterminate number of shares which may become issuable in the event of a stock
split, stock dividend or similar transaction involving the common stock pursuant
to certain antidilution provisions contained in the Warrants.
(6) Issuable upon exercise of the $12.50 Warrants. Includes an indeterminate
number of shares which may become issuable in the event of a stock split, stock
dividend or similar transaction involving the common stock pursuant to certain
antidilution provisions contained in the Warrants.
(7) Issuable upon exercise of the $15.00 Warrants. Includes an indeterminate
number of shares which may become issuable in the event of a stock split, stock
dividend or similar transaction involving the common stock pursuant to certain
antidilution provisions contained in the Warrants.
(8) Issuable upon conversion of the Company's 4% Convertible Debentures and, at
our option, shares that may be issued in payment of the annual 4% interest
payment in kind at the assumed conversion price of $8 per share. The actual
number of shares issuable upon conversion of the Debentures could be greater or
less and is based on a conversion price equal to the 80% of the averaged three
lowest bid prices during the 20 trading days immediately prior to the date of
conversion, except that the conversion price cannot be higher than $10.00 per
share. The conversion price would have been $8.00 if the date of conversion was
December 9, 1999 based on a closing bid price of $10.00 per share. Includes an
indeterminate number of shares which may become issuable in the event of a stock
split, stock dividend or similar transaction involving the common stock pursuant
to certain antidilution provisions contained in the Debentures, as well as
450,000 shares which may become issuable in the event the conversion price is
less than $8.00.
(9) Issuable upon exercise of the May Davis Warrants. Includes an indeterminate
number of shares which may become issuable in the event of a stock split, stock
dividend or similar transaction involving the common stock pursuant to certain
antidilution provisions contained in the Warrants.
(10) Issuable upon conversion of 500,000 shares of the Series A-1 Preferred
Stock. Includes an indeterminate number of shares which may become issuable in
the event of a stock split, stock dividend or similar transaction involving the
common stock pursuant to certain antidilution provisions contained in the Series
A-1 Preferred Stock.
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated January 4, 2000
Prospectus
13,775,062 shares
Integrated Communication Networks, Inc.
Common Stock
Upon exercise of certain warrants and/or upon conversion of certain
convertible securities currently outstanding, we will issue up to 13,775,062
shares of common stock to certain securityholders listed on pages 15 and 16
of this prospectus. We will receive up to $21,644,479 (subject to certain
cashless exercise rights available to certain warrant holders) from the exercise
of the warrants as described in "The Offering." There is no assurance that any
of such warrants will be exercised.
The selling securityholders named in this prospectus may offer and sell
the shares as detailed in the "Plan of Distribution." We will not receive any
proceeds from the sale of the common stock.
Our common stock is listed on the National Quotation Bureau's "Pink
Sheets" under the symbol "ICNW." We have applied to list our common stock on the
NASDAQ SmallCap Market under the symbol "ICNW." On December 28, 1999, the
closing sales price of our common stock on the Pink Sheets was $10.125.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. WE URGE
YOU TO READ THE "RISK FACTORS" SECTION OF THIS PROSPECTUS BEGINNING ON PAGE 7
WHICH DESCRIBES THE SPECIFIC RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMPANY
AS WELL AS WITH THESE PARTICULAR SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF 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 January 4, 2000.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 6
Capitalization............................................................. 7
Summary Financial Information.............................................. 7
Risk Factors............................................................... 7
Special Note Regarding Forward-Looking Statements.......................... 14
Use of Proceeds............................................................ 15
Selling Security Holders................................................... 15
Plan of Distribution....................................................... 17
Description of Securities.................................................. 18
Description of Business.................................................... 21
Description of Property.................................................... 30
Legal Proceedings.......................................................... 31
Market for Common Equity and Related Stockholder Matters................... 31
Selected Financial Data.................................................... 32
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 32
Changes in and Disagreements with Accountants.............................. 33
Directors, Executive Officers, Promoters and Control Persons............... 34
Executive Compensation..................................................... 37
Security Ownership of Certain Beneficial Owners and Management............. 38
Certain Relationships and Related Transactions............................. 41
Shares Available For Future Sale........................................... 41
Experts.................................................................... 41
Where You Can Find More Information........................................ 42
Index To Audited Financial Statements......................................F-1
</TABLE>
This prospectus includes statistical data, including FCC and U.S.
Department of Commerce data, concerning the telecommunications industry.
Although we believe that these sources are reliable, we have not independently
verified their data.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION BEGINNING ON
PAGE [ ].
INTEGRATED COMMUNICATION NETWORKS, INC.
We are a provider of domestic and international long distance and
related telecommunications services. Through our majority-owned subsidiary,
phoneXchange, Inc., we are actively developing a telecommunications network
through acquisitions and internal growth for the purpose of offering a variety
of reliable, high quality, value added telecommunications services at
competitive prices. We also plan to launch call center services that will
provide various international multi-lingual services twenty-four hours a day,
seven days a week.
We had no revenues for the period from January 16, 1997 to February 28,
1999. We began material operations on February 28, 1999 when we purchased 85.14%
of the issued and outstanding shares of common stock of phoneXchange, Inc., a
voice and data services carrier, in exchange for shares of our common stock and
warrants to purchase additional shares of our common stock. See "Certain
Relationships and Related Transactions."
We operate our business through two majority owned subsidiaries,
phoneXchange, Inc. and Internet Call Centers, Inc. ("ICCI"). phoneXchange is a
publicly traded company that offers domestic and international switched voice
and data services on a wholesale basis, primarily to U.S. based carriers, agents
and resellers. phoneXchange provides domestic and international long distance
service to more than 200 foreign markets through termination relationships,
international gateway switches, leased and owned transmission facilities, and
resale arrangements with other long distance providers. ICCI was created as a
joint venture and is owned 60% by us and 40% by Global Industry Development &
Trade Ltd., a British Virgin Islands company. We currently anticipate that ICCI
will commence operations in the first quarter of 2000. ICCI expects to offer
web-based and toll-free call center services, allowing its customers to
outsource their customer management and support activities. ICCI anticipates
using the Internet, telephone, facsimile, email and remote video links to
provide sales, service and billing operations in an effort to serve customers
quickly, efficiently and cost-effectively.
Our executive offices are located at 27061 Aliso Creek Road, Suite
100, Aliso Viejo, CA 92656. Our telephone number is 949-349-1770. Our website
address is www.icnwusa.com. The information on this website is not incorporated
by reference into this prospectus.
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THE OFFERING
Under this prospectus, the selling security holders may sell shares of
our common stock. They may acquire these shares by conversion or exercise of
securities in the following manner:
<TABLE>
<CAPTION>
Common Stock Overlying Security
- ------------ ------------------
<S> <C>
921,429 shares phoneXchange Warrants; exercisable at $4.50/share
350,000 shares September 2004 Warrants; exercisable at $4.50/share
100,000 shares Sakaran Warrants; exercisable at $7.50/share
5,943,633 shares February 2004 Warrants; exercisable at $1.72/share
80,000 shares $12.50 Warrants; exercisable at $12.50/share
80,000 shares $15.00 Warrants; exercisable at $15.00/share
1,100,000 shares 4% Convertible Debentures; convertible at $8.00/share,
subject to fluctuations in our stock price
200,000 shares May Davis Warrants; exercisable at $13.75/share
5,000,000 shares Series A-1 Preferred Stock
Total: up to 13,775,062 shares of common stock.
</TABLE>
CAPITALIZATION
The following table sets forth the consolidated cash and capitalization of the
Company on a historical basis as of September 30, 1999 and as adjusted to
reflect the issuance and sale of the shares of common stock pursuant to this
offering (see note "a" below). This table should be read in conjunction with
"Use of Proceeds," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our consolidated
financial statements and other financial data included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
September 30,
September 30, 1999
1999 As Adjusted (a)
----------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Long-term liabilities, less current portion 147,616 147,616
Shareholders' equity (deficit):
Preferred stock, $.01 par value, authorized 20,000,000 shares
Series A preferred stock, 50,000 shares authorized,
issued and outstanding -0- at September 30, 1999 -- --
Series A-1 12% convertible redeemable preferred stock,
7,500,000 shares authorized, issued and outstanding
3,267,974 shares at September 30, 1999 32,680 27,680
Preferred stock subscribed 2,125,000 2,125,000
Common stock, $.01 par value:
Authorized - 250,000,000 shares: Issued and outstanding 3,327,030
at September 30, 1999 33,270 166,271
Additional paid-in capital 23,265,317 49,269,291
Retained earnings (deficit) (11,906,874) (11,906,874)
==================================
Total shareholders' equity (deficit) 13,549,393 39,681,368
==================================
</TABLE>
(a) Adjusted to reflect the exercise of warrants to purchase 7,675,062
shares of the Company's common stock for proceeds of $21,644,475. Also
adjusted to reflect the conversion of 500,000 shares of the Company's
Series A-1 12% Convertible Redeemable Preferred Stock into 5,000,000
shares of the Company's common stock. Also adjusted to reflect the
proceeds from the issuance of the Company's 4% Convertible Debenture
and assumed conversion into 625,000 shares of the Company's common
stock. Does not include conversion of the Company's remaining 2,667,974
Series A-1 12% Convertible Redeemable Preferred Stock or options to
purchase 1,100,000 shares of the Company's common stock.
SUMMARY FINANCIAL INFORMATION
The following summary historical financial data for the two years ended December
31, 1998 were derived from our audited financial statements. The financial data
for the nine months ended September 30, 1998 and 1999 were derived from our
unaudited financial statements and in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of financial position and results of operations for these
periods. Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire year.
The summary data should be read together with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our consolidated financial statements and other financial data
presented elsewhere in this prospectus.
EBITDA consists of income (loss) before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in the
industry. EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered an alternative to
net income as a measure of performance or to cash flow as a measure of
liquidity. EBITDA is not necessarily comparable with similarly titled measures
for other companies.
Summary Consolidated Financial Information
(In dollars)
<TABLE>
<CAPTION>
Year Ended For The Nine Months
December 31, Ended September 30,
----------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues $ -- $ -- $ -- $ 624,832
----------- ----------- ----------- -----------
Gross profit -- -- -- (629,907)
----------- ----------- ----------- -----------
Income (loss) form operations (8,100,100) (6,999) -- (3,804,974)
----------- ----------- ----------- -----------
Net income (loss) $(8,100,100) $ (6,999) $ -- $(3,766,442)
----------- ----------- ----------- -----------
Basic and diluted earnings (loss) per share $ (173.28) $ (0.00) $ -- $ (1.32)
=========== =========== =========== ===========
Weighted average common shares outstanding 46,747 5,262,000 5,262,000 2,856,868
=========== =========== =========== ===========
OTHER FINANCIAL DATA:
EBITDA $(8,100,100) $ (6,999) $ -- $(2,903,198)
Net cash provided by (used in) operating activities (100) -- -- (2,985,175)
Net cash used in investing activities 100 -- -- (1,412,155)
Net cash used by (used in) financing activities $ -- $ -- $ -- $ 4,495,860
</TABLE>
<TABLE>
<CAPTION>
September 30,
September 30, 1999
Consolidated Balance Sheet Data: 1999 As Adjusted (a)
-------------------------------
<S> <C> <C>
(unaudited) (unaudited)
Working capital $ 34,681 $26,154,156
Total assets 16,031,187 42,150,662
Long-term liabilities, net of current portion 147,616 147,616
Stockholders' equity (deficit) $13,549,393 $39,668,868
</TABLE>
(a) Adjusted to reflect the exercise of warrants to purchase 7,675,061
shares of the Company's common stock for proceeds of $21,644,475. Also
adjusted to reflect the conversion of 500,000 shares of the Company's
Series A-1, 12% Convertible, Redeemable Preferred Stock into 5,000,000
shares of the Company's common stock. Also adjusted to reflect the
proceeds from the issuance of the Company's 4% Convertible Debenture
and assumed conversion into 625,000 shares of the Company's common
stock. Does not include conversion of the Company's remaining
2,667,974 Series A-1, 12% Convertible, Redeemable Preferred Stock or
options to purchase 1,100,000 shares of the Company's common stock.
RISK FACTORS
The shares of common stock being offered by this prospectus are highly
speculative and involve a high degree of risk. You should carefully consider the
risks described below and the other information in this prospectus before
deciding to invest in these securities.
WE HAVE A LIMITED OPERATING HISTORY, MAKING IT DIFFICULT TO PREDICT OUR FUTURE
GROWTH AND OPERATING RESULTS.
We were incorporated in January 1997 and began material operations on
February 28, 1999 when we purchased 85.14% of the issued and outstanding shares
of common stock of phoneXchange, Inc. Our management team and other employees
have worked for us for only a short period of time. Therefore, we have only a
limited operating history with which you may evaluate our business. Our success
is largely dependent upon our ability to establish and improve operating
efficiencies and overall capacity and to generate substantial sales revenues and
adequate cash-flows from operations. There is no assurance that we will be
successful in any of these areas. In addition, we have in the past and may again
in the future encounter unanticipated problems, including distribution,
marketing and technological difficulties. Some
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<PAGE> 8
of these problems may be beyond our financial and technical abilities to resolve
which could have a materially adverse effect on our results of operations and
prospects.
WE HAVE ACCUMULATED SUBSTANTIAL NET LOSSES AND WE MAY SUSTAIN SUBSTANTIAL LOSSES
IN THE FUTURE.
From our inception in January 1997 through September 30, 1999, we
generated $642,832 in sales revenues. During the same period we had an
accumulated net loss of approximately $(11,906,874). We expect to incur losses
through the fourth quarter of 1999 and there can be no assurance that losses
will not continue in the year 2000.
OUR BUSINESS REQUIRES SUBSTANTIAL CAPITAL EXPENDITURES.
The development of our business requires substantial capital
expenditures. A substantial part of these expenditures are incurred before any
related revenues are realized. Capital expenditures and other operating
expenditures will result in negative cash flow and operating losses until and
unless we develop an adequate customer base and revenue stream. In addition, if
we do not develop an adequate customer base, we would not achieve profitability
or generate sufficient cash flow to meet our working capital, capital
expenditure and debt service requirements.
Master Lease Agreement with Lucent Technologies. While the amended
financing agreement is expected to be approved and executed prior to January 31,
2000, there is no assurance that any increase or extension will be approved. If
such increase or extension is not approved, we may not be able to maintain our
current and projected growth.
OUR SALES AND OPERATING RESULTS IN FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS, CAUSING OUR STOCK PRICE TO FALL.
Our quarterly sales and operating results are difficult to predict and
may continue to fluctuate significantly from quarter to quarter. If our
quarterly sales or operating results fall below the expectations of securities
analysts or investors, the price of our common stock could fall substantially.
A CHANGE IN OUR METHOD OF ACCOUNTING COULD RESULT IN A SIGNIFICANT REDUCTION IN
OUR STATED ASSETS AND OUR SHAREHOLDERS' EQUITY.
In connection with our acquisition of 85.14% of phoneXchange, Inc. and
the acquisition of certain other assets in exchange for stock (see Note 1 to
Consolidated Financial Statements), we recorded $8,489,694 in "goodwill (net)"
based upon the purchase method of accounting. This "goodwill" represents
approximately 61% of our total assets. While we do not intend to change our
method of accounting, if we restate our financial statements utilizing the
pooling of interest method of accounting or otherwise write-off or write down
such "goodwill," the change in accounting treatment will significantly reduce
our present stated assets. As a result, the accounting change will also reduce
the amount of stated shareholders' equity as reflected in our audited
consolidated financial statements.
OUR BUSINESS STRATEGY DEPENDS ON OUR ABILITY TO EXPAND THROUGH ACQUISITIONS.
Our strategy includes pursuing acquisition candidates that complement
our existing product lines and geographic presence. The success of this strategy
depends on the continued
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availability of suitable acquisition targets and subjects us to significant
risks. We compete for acquisition opportunities with larger companies who have
significantly greater financial resources. Competition for acquisitions may
result in higher prices and less advantageous terms than were negotiated in the
past. Pursuing acquisitions could place significant demands on our financial and
management resources, may disrupt our ongoing business and may require that we
incur additional debt. Acquisitions may also require the integration of
financial and technical systems, network and other physical facilities and
personnel. There can be no assurance that we will find attractive acquisition
candidates in the future or succeed in integrating acquired businesses, reducing
costs or increasing profitability.
WE MIGHT BE UNABLE TO IMPLEMENT OUR EXPANSION PLANS, WHICH INVOLVE MANY RISKS.
To successfully implement our goal of expanding and enhancing our
business operations, we will need to:
o successfully implement our marketing strategies;
o continue the development, expansion and integration of our network;
o obtain satisfactory and cost-effective ownership interests and lease
rights from, and establish interconnection arrangements with,
competitors that own transmission lines;
o hire, retain and motivate highly productive sales personnel and
independent sales agents;
o enhance and expand our service features and offerings; and
o continue to attract and hire experienced corporate professionals.
Our ability to attract and retain customers also requires us to provide
reliable, high-quality telecommunications services at competitive prices and
personalized customer support. If we fail to successfully implement our
expansion plans, we might have to reduce or delay our planned capital
expenditures, sell assets, sell additional equity or debt securities or
refinance or restructure our debt. Any sale of assets to raise money to meet our
financial obligations could also occur on unfavorable terms. As a result, our
business and the price of our common stock would be materially adversely
affected.
DIFFICULTIES IN EXPANDING OUR NETWORKS COULD INCREASE OUR ESTIMATED COSTS AND
DELAY SCHEDULED COMPLETION.
The expansion of our existing networks and the construction of networks
in new markets is a significant undertaking. This will require that we install
and operate additional facilities, switches and related equipment.
Administrative, technical, operational, regulatory and other problems that could
arise might be more difficult to address and solve due to the scope and
complexity of our planned expansion. We are also dependent on timely performance
by third-party suppliers and contractors, including suppliers of network
equipment. Many of these factors are beyond our control. As a result, our
network build-out might not be completed as planned, for the costs or in the
time frame that we currently estimate.
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WE WILL NEED TO INCUR ADDITIONAL DEBT TO CONTINUE OUR OPERATIONS AND FINANCING
MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS OR AT ALL.
We believe that we must continue to enhance and expand our network in
order to maintain our competitive position and continue to meet the increasing
demands for service, quality, capacity and competitive pricing. Our ability to
grow depends, in part, on our ability to purchase and lease network capacity,
inventory, equipment and possibly, to acquire other companies, which requires
significant capital expenditures. We believe that, based upon our present
business plan, proposed financing, and our existing cash resources and expected
cash flow from operating activities, we will not have sufficient cash to meet
our currently anticipated working capital and capital expenditure requirements
for the next 12 months. There can be no assurance that we will be able to raise
needed capital on favorable terms or at all. If we are unable to obtain
additional capital, we may be required to reduce the scope of our anticipated
expansion, which could have a material adverse effect on our business, financial
condition or results of operations.
WE RELY ON A LIMITED NUMBER OF CUSTOMERS AND THE LOSS OF ANY CUSTOMER COULD HAVE
A SIGNIFICANT IMPACT ON OUR REVENUES.
While the list of our most significant customers varies from quarter to
quarter, three customers accounted for 100% of our revenues for the 9 months
ended September 30, 1999. As a result, the loss of any significant customer
could have a significant negative impact on our revenues from operations. We
could lose a significant customer for many reasons, including:
o the entrance into the market of significant new competitors with lower
rates,
o downward pressure on the overall costs of transmitting international
calls,
o transmission quality problems,
o changes in U.S. or foreign regulations, or
o unexpected increases in our cost structure as a result of expenses
related to installing a global network or otherwise.
WE DEPEND ON THE EFFORTS OF SENIOR MANAGEMENT AND HIGHLY SKILLED EMPLOYEES.
Our success depends to a significant degree upon the efforts of senior
management personnel and a group of employees with longstanding industry
relationships and technical knowledge of our operations. We do not maintain key
man life insurance with respect to any of our executive officers. We believe
that our future success will depend in large part upon our continuing ability to
attract and retain highly skilled personnel. Competition for qualified,
high-level telecommunications personnel is intense and there can be no assurance
that we will be successful in attracting and retaining needed personnel. The
loss of the services of one or more of our key individuals, or our failure to
attract and retain other key personnel, could materially adversely affect our
business, operating results and financial condition.
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INTENSE COMPETITION COULD REDUCE THE DEMAND FOR OUR SERVICES.
The international telecommunications industry is intensely competitive.
International wholesale telecommunications providers compete on the basis of
price, customer service, transmission quality and breadth of service offerings.
Many of our competitors have substantially greater resources and are better
equipped than us. We compete directly with AT&T Corp., MCI WorldCom Corp. and
Sprint Corporation as well as other U.S.-based and foreign long distance
providers, including the Regional Bell Operating Companies. We also compete with
smaller, emerging carriers in both the prepaid card retail market and in the
wholesale market, including IDT Corporation, STAR Telecom, RSL Communications,
Pacific Gateway Exchange, Inc., FaciliCom International, Inc. and Telegroup,
Inc. Further, the number of competitors is likely to increase as a result of
opportunities created by the Basic Telecommunications Agreement concluded by
members of the WTO in February 1997. We may be unable to compete successfully
against these companies or their products and services.
IF WE ARE UNABLE TO KEEP UP WITH RAPID CHANGE IN OUR INDUSTRY, OUR REVENUES MAY
DECREASE.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of competitive products and services, such
as the use of the Internet for international voice and data communications. We
are unable to predict which technological development will challenge our
competitive position or the amount of expenditures that will be required to
respond to a rapidly changing technological environment. If we fail to respond
to developments in our industry quickly and in a cost effective manner, our
technology could become obsolete and we may lose existing customers and fail to
attract new customers.
A significant portion of our sales relate to the prepaid card market,
which is also subject to rapid technological change, introduction of new
products and services, competition from new sales channels and evolving industry
standards. Our success will depend, in significant part, on our ability to make
timely and cost-effective enhancements and additions to our technology and to
introduce new products and services that meet customer demands. The
proliferation of new telecommunications technology, including personal and voice
communication services over the Internet, may reduce demand for long distance
services, including prepaid cards. There can be no assurance that we will be
successful in responding to these or other technological changes, evolving
industry standards or to new products and services offered by our competitors.
Our inability to respond to these changes could have a material adverse effect
on our business, financial condition or results of operations.
WE PROVIDE SERVICES TO THE INTERNATIONAL MARKET, WHICH SUBJECTS US TO RISKS FROM
REGULATORY, FINANCIAL, OPERATIONAL AND POLITICAL SITUATIONS.
We expect to generate a substantial potion of our future revenues by
providing international telecommunication services to customers on a wholesale
basis. The international nature of our operations involve certain risks, such
as:
o changes in U.S. and foreign government regulations,
o changes in U.S. and foreign telecommunications standards,
o dependence on foreign partners,
o changes in tariffs, taxes and other trade barriers,
o the potential for nationalization and economic downturns, and
o political instability in foreign countries.
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<PAGE> 12
In addition, our businesses could be adversely affected by a reversal
in the current trend toward deregulation of telecommunications carriers. We will
be increasingly subject to these risks to the extent that we proceed with the
planned expansion of our international operations.
We will increasingly rely on foreign partners to terminate our traffic
in foreign countries and to assist in installing transmission facilities and
network switches, complying with local regulations, obtaining required licenses,
and assisting with customer and vendor relationships. We may have limited
recourse if our foreign partners do not perform under their contractual
arrangements. Our arrangements with foreign partners may expose us to
significant legal, regulatory or economic risks.
Governments of many countries exercise substantial influence over
various aspects of the telecommunications market. In some cases, the government
owns or controls companies that are or may become competitors or companies (such
as national telephone companies) upon which we and our foreign partners may
depend for required interconnections to local telephone networks and other
services. Accordingly, government actions in the future could have a material
adverse effect on our operations. In highly regulated countries where we are not
dealing directly with the dominant local exchange carrier, the dominant carrier
may have the ability to terminate service to either us or our foreign partner
and, if this occurs, we may have limited or no recourse. In countries where
competition is not yet fully established and we are dealing with an alternative
operator, foreign laws may prohibit or impede new operators from offering
services.
Our revenues and the cost of long distance services are sensitive to
foreign currency fluctuations. We expect that an increasing portion of our net
revenue and expenses will be denominated in currencies other than U.S. dollars.
If that becomes the case, changes in exchange rates may have a significant
effect on our results of operations.
DAMAGE TO OUR NETWORK COULD CAUSE INTERRUPTIONS OF SERVICE AND RESULT IN REDUCED
REVENUE AND HARM TO OUR REPUTATION.
Any system or network failure that causes interruptions in our
operations could have a material adverse effect on our business, financial
condition or results of operations. Our operations are dependent on our ability
to successfully integrate new and emerging technologies and equipment into our
network, which could increase the risk of system failure and cause a strain on
our networks. In addition, our hardware and other equipment could be damaged by
natural disasters, intentional acts of vandalism and other sources of power loss
and
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<PAGE> 13
telecommunications failures. We have taken a number of steps to prevent our
network from being affected by natural disasters, including building redundant
systems for power supply to our switching equipment. However, there can be no
assurance that any of these systems will prevent our switches from becoming
disabled in the event of an earthquake, power outage or otherwise. The failure
of our network, or a significant decrease in telephone traffic resulting from
effects of a natural or man-made disaster, could have a material adverse effect
on our relationships with their customers and our business, operating results
and financial condition.
YEAR 2000 COMPUTER PROGRAM FAILURES COULD INTERRUPT OUR BUSINESS AND DAMAGE OUR
RELATIONSHIP WITH CUSTOMERS.
We have not experienced material adverse effects due to year 2000
compliance problems. However, no assurances can be given that we will not detect
unanticipated year 2000 compliance problems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD AFFECT OUR ABILITY TO
PROVIDE SERVICES.
United States Regulation. As a provider of domestic and international
long distance telecommunications services, we are subject to varying degrees of
regulation in each of the jurisdictions in which we operate. In the U.S., we are
subject to the provisions of the Communications Act, as amended by the
Telecommunications Act of 1996 and the Federal Communications Commission (the
"FCC") regulations promulgated thereunder. We are also subject to the applicable
laws and regulations of the various states administered by the relevant state
authorities. Currently, the FCC and relevant state authorities regulate
ownership of transmission facilities, provision of services and the terms and
conditions under which we provide services. We are required by federal and state
law and regulations to file tariffs listing the rates, terms and conditions for
the services we provide and we are subject to a variety of FCC policies and
rules. See "Description of Business -- Government Regulation."
Foreign Regulation. Many foreign countries have adopted or may adopt
laws or regulatory requirements regarding our services. Compliance with these
regulations may be difficult or expensive, and could force us to choose less
cost-effective routing alternatives which could have a material adverse effect
on our business, operating results and financial condition. We currently plan to
provide a limited range of services in Mexico and the Philippines, as permitted
by regulatory conditions in those markets, and to expand our operations as these
markets liberalize regulations to permit competition in the full range of
telecommunications services. There can be no assurance that the regulatory
regime in these countries will provide us with practical opportunities to
compete in the near future, or at all, or that we will be able to take advantage
of any such liberalization in a timely manner or at all.
WE HAVE NEVER PAID AND DO NOT EXPECT TO PAY DIVIDENDS
We have not previously paid any dividends on our common stock and
intend to follow a policy of retaining all of our cash flow from operations, if
any, to finance the development and expansion of our business.
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<PAGE> 14
SHARES AVAILABLE FOR FUTURE SALE
There are 5,867,780 shares of our common stock outstanding as of
December 15, 1999. In addition, the shares offered hereby will be available for
immediate sale in the public market as of the effective date of the registration
statement, of which this prospectus is a part. Of the presently outstanding
shares of common stock, we estimate that approximately 2,274,012 are free
trading and the balance are "Restricted Securities" as defined under the
Securities Act of 1933 and Rule 144. In general, under Rule 144 a person who has
satisfied a one year holding period, under certain circumstances, may sell
within any three-month period a number of shares which does not exceed the
greater of one percent of the then outstanding shares of that class of
securities or the average weekly trading volume in such shares during the four
calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity or other limitation by a
person who is not an affiliate of the Company and who has satisfied a two year
holding period. Any sales of a substantial amount of common stock in the open
market, under Rule 144 or otherwise, could have a significant adverse effect on
the market price of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus that are not
historical facts, including some statements made in the sections of this
prospectus entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Business,"
are statements of future expectations and other forward-looking statements
pursuant to Section 27A of the Securities Act of 1933. Words such as "believe,"
"expect," "intend," "plan," "anticipate," "likely," "will," and similar
expressions are intended to identify these forward-looking statements. These
statements are based on management's current views and assumptions and involve
known and unknown risks and uncertainties that could cause actual results,
performance or events to differ materially from those expressed or implied in
those statements, including:
o the rate of expansion of our network and/or customer base;
o inaccuracies in our forecasts of telecommunications traffic or
customers;
o loss of a customer that provides us with significant revenues;
o loss of sales representatives, dealers or agents;
o highly competitive market conditions;
o changes in or developments under laws, regulations, licensing
requirements or telecommunications standards;
o changes in technology;
o changes in the availability of transmission facilities;
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<PAGE> 15
o changes in retail or wholesale telecommunications rates;
o loss of the services of key officers; and
o general economic conditions.
This list of important factors is not exhaustive. We do not intend to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. See also "Risk Factors" for additional
cautionary statements identifying important factors with respect to
forward-looking statements contained in this prospectus that could cause actual
results to differ materially from results or expectations referred to in the
forward-looking statements.
USE OF PROCEEDS
We will not receive any proceeds from any sales by the selling
stockholders of common stock under this prospectus. If all the warrants to
purchase the common stock covered by this prospectus are exercised for the
maximum number of shares of common stock issuable thereunder, we would receive
gross proceeds of approximately $21,644,479. There are no underwriting
discounts, commissions or other material sales expenses we would incur upon
exercise of the warrants. This amount would be used by us for working capital
purposes and to finance our network expansion, including carrier deposits. We
are not currently negotiating any network expansion agreements.
SELLING SECURITY HOLDERS
The following table sets forth the information as of December 15, 1999
concerning the security holders whose common stock, receivable either on
exercise of warrants or on conversion of our 4% Convertible Debentures and
Series A-1 Preferred Stock, is offered in this offering:
<TABLE>
<CAPTION>
Securities Owned Amount Amount Owned Percentage
Name Before Offering Offered After Offering of Class
- ---- ---------------- ------- -------------- ----------
<S> <C> <C> <C> <C>
Rebecca LLC 1,260,000(1) 1,260,000 -- --
May Davis Group, Inc. 200,000(2) 200,000 -- --
Corporate Financial 17,534,533(3) 5,078,633 12,455,900 26.3%
Enterprises, Inc.
American Equities, LLC 3,906,670(4) 1,130,000 2,776,670 5.8%
Jamie Mazur 5,846,960(5) 1,695,000 4,151,960 8.8%
Emily Mazur 3,897,970(4) 1,130,000 2,767,970 5.8%
Jennifer Mazur 3,897,970(4) 1,130,000 2,767,970 5.8%
Trent Mazur 3,897,970(4) 1,130,000 2,767,970 5.8%
Elie Sakaran 100,000(6) 100,000 -- --
David Chadwick 1,462,500(7) 487,500 975,000 2.1%
James E. Rott 489,822(8) 126,786 363,036 *
Paul E. Hyde 253,572(9) 126,786 126,786 *
Gary L. Killoran 489,822(8) 126,786 363,036 *
Mike W. DuBrock 46,428(10) 10,714 35,714 *
Anna Marie Yates 26,428(11) 10,714 15,714 *
John C. Gurthrie 21,428(12) 10,714 10,714 *
Adrian A. Merril 21,428(12) 10,714 10,714 *
Thomas Nelson 21,428(12) 10,714 10,714 *
</TABLE>
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<PAGE> 16
- --------------
* Less than 1%
(1) Includes 625,000 shares of common stock issuable upon conversion of the 4%
Convertible Debentures at any time commencing April 1, 2000, 80,000 shares
issuable upon exercise of the $12.50 Warrants at any time after November 22,
1999 but before November 22, 2001, and 80,000 shares issuable upon exercise of
the $15.00 Warrants at any time after November 22, 1999 but before November 22,
2001 and an additional 475,000 shares which may become issuable as a result of
fluctuation in closing prices reports of our common stock (as required by the
terms of a Registration Rights Agreement between the Company and the holder of
our 4% Convertible Debentures). (See "Description of Securities -- 4%
Convertible Debentures").
(2) Issuable upon exercise of the May Davis Warrants at any time after November
22, 1999 but before November 22, 2004.
(3) Includes 1,000,000 shares of common stock, 350,000 shares of common stock
issuable upon exercise of the September 2004 Warrants at any time commencing
December 31, 2000 and ending September 1, 2004, 2,478,633 shares exercisable
upon exercise of the February 2004 Warrants at any time commencing December 31,
2000 and ending February 22, 2004, and 2,250,000 shares of common stock issuable
upon conversion of 225,000 shares of the Series A-1 Preferred Stock convertible
at any time after December 31, 2000, at the option of the holder.
(4) Includes 630,000 shares of common stock issuable upon exercise of the
February 2004 Warrants at any time commencing December 31, 2000 and ending
February 22, 2004 and 500,000 shares of common stock issuable upon conversion of
50,000 shares of the Series A-1 Preferred Stock convertible at any time after
December 31, 2000, at the option of the holder.
(5) Includes 945,000 shares of common stock issuable upon exercise of the
February 2004 Warrants at any time commencing December 31, 2000 and ending
February 22, 2004 and 750,000 shares of common stock issuable upon conversion of
75,000 shares of the Series A-1 Preferred Stock convertible at any time after
December 31, 2000, at the option of the holder.
(6) Represents shares issuable upon exercise of the Sakaran Warrants at any time
commencing July 1, 1999 and ending July 1, 2000.
(7) Represents 487,500 shares of common stock, and 487,500 shares of common
stock issuable upon exercise of the phoneXchange Warrants at any time commencing
December 31, 2000 and ending February 22, 2004 and 487,500 shares of common
stock issuable upon exercise of options at any time commencing July 22, 1999 and
ending July 22, 2004.
(8) Represents 126,786 shares of common stock, and 126,786 shares of common
stock issuable upon exercise of the phoneXchange Warrants at any time commencing
December 31, 2000 and ending February 22, 2004 and 236,250 shares of common
stock issuable upon exercise of options at any time commencing July 22, 1999
and ending July 22, 2004.
(9) Represents 126,786 shares of common stock, and 126,786 shares of common
stock issuable upon exercise of the phoneXchange Warrants at any time
commencing December 31, 2000 and ending February 22, 2004.
(10) Represents 10,714 shares of common stock, and 10,714 shares of common
stock issuable upon exercise of the phoneXchange Warrants at any time
commencing December 31, 2000 and ending February 22, 2004 and 25,000 shares of
common stock issuable upon exercise of options at any time commencing July 22,
1999 and ending July 22, 2004.
(11) Represents 10,714 shares of common stock, and 10,714 shares of common
stock issuable upon exercise of the phoneXchange Warrants at any time
commencing December 31, 2000 and ending February 22, 2004 and 5,000 shares of
common stock issuable upon exercise of options at any time commencing July 22,
1999 and ending July 22, 2004.
(12) Represents 10,714 shares of common stock, and 10,714 shares of common stock
issuable upon exercise of the phoneXchange Warrants at any time commencing
December 31, 2000 and ending February 22, 2004.
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<PAGE> 17
Elie Sakaran and Corporate Financial Enterprises, Inc. currently
provide consulting services to us. Jamie, Jennifer, Emily and Trent Mazur are
siblings, and Emily and Trent Mazur's shares are held by their mother, Michelle
Mazur, as custodian. David Chadwick is our President, Chief Executive Officer
and Chairman of our Board of Directors, James Rott is our Chief Operations
Officer, Paul E. Hyde is a Vice President and member of our Board of Directors,
Gary L. Killoran is our Chief Financial Officer, Secretary, Treasurer and member
of our Board of Directors, Mike W. DuBrock is our Controller and Annamarie Yates
is our Carrier Account Manager. John C. Gurthrie, Adrian A. Merril and Thomas
Nelson are not employees of the Company.
PLAN OF DISTRIBUTION
The selling security holders may offer their shares of common stock at
various times in one or more of the following transactions:
o in the over-the-counter market or such other markets or
exchanges as our common stock may be listed or quoted;
o in transactions other than in the over-the-counter market or
such other markets or exchanges as our common stock may be
listed or quoted;
o in privately negotiated transactions;
o in connection with short sales of our shares;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and
exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or
over-the-counter options; or
o in a combination of any of the above transactions.
The selling security holders may sell their shares of common stock at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices or at fixed prices.
When the selling security holders sell their shares of common stock, we
will prepare a prospectus supplement if necessary. A prospectus supplement would
list the number of shares of common stock being offered and the terms of the
offering, including the proposed selling price to the public. The selling
security holders may use broker-dealers to sell their shares. If this happens,
broker-dealers will either receive discounts or commissions from the selling
security holders, or they will receive commissions from purchasers of shares for
whom they acted as agents.
In connection with this registration of common stock, we will pay all
of the expenses, including fees and expenses with respect to required Securities
and Exchange Commission and
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<PAGE> 18
Nasdaq filings and in compliance with applicable state securities or blue sky
laws. We will not pay underwriting discounts and selling commissions, if any, or
the fees and expenses of any counsel or other advisors for the selling security
holders.
DESCRIPTION OF SECURITIES
The description of our capital stock is subject to Nevada law and to
provisions contained in our articles of incorporation and bylaws. Copies of our
articles of incorporation and bylaws have been filed as exhibits to the
registration statement of which this prospectus forms a part. You should refer
to those documents for a more detailed description of the provisions summarized
below.
GENERAL
The Company is authorized to issue 250,000,000 shares of common stock,
$.01 par value per share, and 20,000,000 shares of preferred stock, $.01 par
value per share. Of the authorized preferred stock, 7,500,000 shares are
designated as 12% Convertible Redeemable Preferred Stock, Series A-1 (the
"Series A-1 Preferred Stock") and 50,000 shares are designated as Series A
Preferred Stock (the "Series A Preferred Stock"). On December 1, 1999, there
were 5,867,780 shares of common stock issued and outstanding. This amount does
not include 7,315,061 shares of common stock subject to outstanding warrants and
1,100,000 shares of common stock issuable upon exercise of outstanding options.
As of December 1, 1999, 3,167,974 shares of Series A-1 Preferred Stock were
issued and outstanding and no shares of the Series A Preferred Stock were issued
and outstanding.
COMMON STOCK
Each share of the Company's common stock entitles the holder thereof to
one vote, either in person or by proxy, on all matters submitted to a vote of
stockholders. The holders are not permitted to vote their shares cumulatively.
Accordingly, the holders of a majority of the issued and outstanding shares of
common stock can elect all of the directors of the Company, subject to the
voting and other rights of any outstanding shares of preferred stock.
All shares of common stock are entitled to participate ratably in
dividends when and as declared by the Company's Board of Directors out of the
funds legally available therefor. Any such dividends may be paid in cash,
property or additional shares of common stock. Holders of common stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the dissolution, whether voluntary or
involuntary, of the Company, each share of common stock is entitled to share
ratably in any assets available for distribution to holders of the equity
securities of the Company after satisfaction of all debts and other liabilities,
including any liquidation preferences held by holders of preferred stock.
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<PAGE> 19
PREFERRED STOCK
GENERAL
Our Board may issue up to 20,000,000 shares of preferred stock with
preferences, powers and rights (including voting rights) senior to the rights of
holders of common stock. The rights of holders of the preferred stock offered
may be adversely affected by the rights of holders of any shares of preferred
stock that may be issued in the future. Our Board may cause shares of preferred
stock to be issued in public or private transactions for any proper corporate
purpose, which may include issuances to obtain additional financing in
connection with acquisitions or otherwise, and issuances to our officers,
directors and employees and our subsidiaries pursuant to benefit plans or
otherwise. Shares of preferred stock we issue may have the effect, under certain
circumstances, alone or in combination with certain other provisions of our
Articles of Incorporation, of rendering more difficult or discouraging an
acquisition of us deemed undesirable by our Board.
SERIES A PREFERRED STOCK
The Board of Directors is authorized to issue up to 50,000 shares of
Series A Preferred Stock with a stated value of $3.00 per share. Subject to the
approval of the Board of Directors, the Series A Preferred Stock shall accrue
dividends at a rate of 8% per year, payable in shares of common stock of the
Company. The Series A Preferred Stock is convertible into common stock at the
direction of the Company, at the rate of one share of common stock for each
share of Series A Preferred. The Series A Preferred Stock can be redeemed at the
direction of the Company, at a price of $3.00 for each share.
The Series A Preferred Stock has no voting rights, except as required
by the General Corporation Law of the State of Nevada. The Series A Preferred
Stock is not entitled to payment of any amount in the event of liquidation. As
to dividends, the Series A Preferred Stock is superior in right of payment to
the common stock.
SERIES A-1 PREFERRED STOCK
The Board of Directors of the Company is authorized to issue 7,500,000
shares of 12% Convertible Redeemable Preferred Stock, Series A-1 (the "Series
A-1 Preferred Stock"). The Series A-1 Preferred Stock accrues dividends at a
rate of 12% per year, payable on a quarterly basis in shares of common stock of
the Company, commencing June 1, 1999. The Series A-1 Preferred Stock is
convertible at any time after December 31, 2000, at the option of the holder
into shares of common stock at the rate of 10 shares of common stock for each
share of Series A-1 Preferred Stock. The Series A-1 Preferred Stock is
redeemable at any time after January 1, 2000 at the option of the holder, out of
funds legally available therefor, at an amount equal to $1.76, plus an amount
equal to accrued and unpaid dividends, if any, to (and including) the date fixed
for redemption, whether or not earned or declared.
The holders of Series A-1 Preferred Stock are entitled to ten votes for
each share of Series A-1 Preferred Stock on all matters submitted to the
stockholders of the Company. With respect to matters affecting only the Series
A-1 Preferred Stock, each share shall be entitled to one vote. The Series A-1
Preferred Stock is superior in right of payment in the event of liquidation and
with respect to dividends to the common stock of the Company and any other stock
ranking junior to the Series A-1 Preferred Stock. The liquidation value of the
Series A-1 Preferred Stock is $1.53 per share plus any accrued and unpaid
dividends.
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WARRANTS AND OPTIONS
As of December 15, 1999, there were warrants and options outstanding to
purchase an aggregate of 8,775,062 shares of common stock of the Company at
exercise prices ranging from $1.72 to $13.75. The warrants contain provisions
for the adjustment of the exercise prices and number of shares of common stock
issuable upon exercise in certain events, including sale of common stock at less
than the exercise price or, in certain cases, fair market value, stock
dividends, stock splits, reorganizations, reclassifications or mergers. The
warrants and options expire on various dates between November 22, 2001 and
November 22, 2004. The holders of warrants are entitled to registration rights
on the underlying shares, to purchase 7,675,062 shares of common stock. See
"Selling Security Holders."
4% CONVERTIBLE DEBENTURES
As of December 15, 1999, there were an aggregate of $5.0 million
principal amount of our 4% Convertible Debentures outstanding. The Debentures
bear interest at the rate of 4% per annum, payable in cash or common stock, at
our option, upon conversion. The Debentures automatically convert into common
stock on December 2, 2004 at the then effective conversion price. The holders of
the Debentures have the right, at any time after April 1, 2000, to convert all
or any portion of the Debentures into common stock at the lesser of (i) 80% of
the averaged three lowest closing bid prices, as reported by Bloomberg, LP, for
the common stock for the 20 trading days immediately preceding the conversion
date, or (ii) $10.00. The Debentures contain provisions requiring us to pay
liquidated damages of up to $100,000 per month to the holders of the Debentures
in the event we fail to timely deliver common stock to the holders upon proper
conversion, or if we fail to register the shares of common stock underlying the
Debentures prior to March 2, 2000. We have the right to redeem the Debentures at
any time for 120% of the principal amount of the Debentures, plus accrued
interest up to the date of redemption. In the event that we breach any provision
of the Debentures, the holders have the right to declare all amounts owing under
the Debentures immediately due and payable.
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DESCRIPTION OF BUSINESS
BACKGROUND
We originally incorporated under the name Theatre, Inc. on January 16,
1997. On April 16, 1998, Theatre, Inc. entered into an Agreement and Plan of
Merger with Phonetime Resources, Inc. Phonetime Resources, Inc. merged into
Theatre, Inc. and Theatre, Inc. was the surviving corporation. The purpose of
the merger was to effect a domicile change. On May 8, 1998, Theatre, Inc., doing
business as Global Access Pagers, Inc., entered into an Agreement and Plan of
Merger with Global Access Pagers, Inc., a Nevada corporation. Upon completion of
the merger, Global Access Pagers, Inc. ceased to exist and Theatre, Inc. changed
its name to Global Access Pagers, Inc. On January 27, 1999, the transaction
relating to the merger was rescinded and 3,475,000 issued shares of common stock
of the surviving entity were returned and canceled.
LONG DISTANCE SERVICES - PHONEXCHANGE, INC.
THE MARKET
General. International telecommunications has become an increasingly
important segment of the telecommunications market. We believe that the
following trends will continue to drive growth in the international
telecommunications industry:
o Deregulation and privatization of international
telecommunications markets
o Stable or declining international telephone rates
o Globalization of major carriers through market expansion and
mergers, and transition to a multilateral trading system
through joint ventures and strategic alliances
o Diversification of services through technological innovation
o Increased international trade and travel
The evolving deregulation of telecommunications markets throughout the
world has coincided with substantial technological innovation. The proliferation
of digital fiber-optic cable in and between major markets has significantly
increased transmission capacity, speed and flexibility. Improvements in computer
software and processing technology allow for a broad range of enhanced voice and
data services. We believe that we will be able to benefit from these advances
without the burden of older, inflexible switching systems owned by many of the
larger and more established telecommunications providers.
Regulatory Environment. Legislation and international agreements that
have been adopted since the beginning of 1996, which are expected to lead to the
liberalization of the majority of the world's telecommunication markets,
include:
o The U.S. Telecommunications Act signed February 1996,
established parameters for the implementation of full
competition in the U.S. national long distance market.
o The European Union Full Competitive Directive, adopted in
March 1996, abolished exclusive rights for the provision of
voice telephony services throughout the European Union and
public telecommunications operators of any member country by
January 1, 1998.
o The World Trade Organization Agreement, signed February 1997,
created a framework under which over 69 countries committed to
liberalize their telecommunications laws in order to permit
increased competition and, in most cases, foreign ownership in
their telecommunications markets, beginning February 5, 1998.
We hope to capitalize on current market opportunities created by the
foregoing initiatives, as well as the reduction of restrictions on the ability
of alternate carriers, such as phoneXchange, to provide telecommunications
services in international markets. In many markets, local telecommunications
operators have charged relatively high, non-competitive prices to long
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<PAGE> 22
distance callers in exchange for limited services. The transition to a
multilateral trading system will bring benefits in terms of greater choice and
lower prices. The International Telecommunication Union projects substantially
increased international minutes of use and revenue by the year 2000. These
projections are based in part on the current market conditions and the belief
that reduced pricing will result in a substantial increase in the demand for
telecommunications services in most markets.
Target Markets. phoneXchange has initially targeted the following
markets based on information contained in the August 1998 Federal Communications
Report "Trends in the U.S. International Telecommunications Industry" (the
"Communications Report"), the perceived ease of entry into these markets and
potential consumer demand:
o Mexico: This represented 12.5% of the international long
distance market in 1996 or 198 million minutes of use per
month with an annual growth rate of 17.6% since 1991. The 1998
forecast of the Mexican market contained in the Communications
Report is 400 million minutes of use per month or 19% of the
international market.
o South America: This represented 8.3% of the international long
distance market in 1996 or 132 million minutes of use per
month with an annual growth rate of 22% since 1991. The 1998
forecast of the South American market contained in the
Communications Report is 190 million minutes of use per month
or 9% of the international market.
o Asia, including Hong Kong, the Republic of Korea and the
Philippines: This represented 19.6% of the international long
distance market in 1996 or 313 million minutes of use per
month with an annual growth rate of 24.5% since 1991. The 1998
forecast of the Asia market contained in the Communications
Report is 467 million minutes of use per month or 22.1% of the
international market.
o Hong Kong: This represented 2.8% of the international
long distance market in 1996 or 45 million minutes of
use per month with an annual growth rate of 41.4%
since 1991. The 1998 forecast of the Hong Kong market
contained in the Communications Report is 82 million
minutes of use per month or 3.9% of the international
market.
o Republic of Korea: This represented 2% of the
international long distance market in 1996 or 32
million minutes of use per month with an annual
growth rate of 15.7% since 1991. The 1998 forecast of
the Republic of Korea market contained in the
Communications Report is 42 million minutes of use
per month or 2.2% of the international market.
o Philippines: This represented 1.8% of the
international long distance market in 1996 or 29
million minutes of use per month with an annual
growth rate of 13.8% since 1991. The 1998 forecast of
the Philippines market contained in the
Communications Report is 42 million minutes of use
per month or 2% of the international market.
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<PAGE> 23
Currently, we have entered into contracts to provide 41 million and 1.5
million minutes per month in the Latin American and Asian-Pacific markets,
respectively. See "Services/Competitive Advantages -- Sales" below.
PHONEXCHANGE NETWORK DESCRIPTION
General. phoneXchange has built a flexible and scalable switch-based
network utilizing ATM/IP. ATM/IP is a switch-based transmission standard that is
used for mission critical and time sensitive data, such as voice and video.
phoneXchange relies on a combination of leased and owned transmission
facilities, various foreign termination relationships, and resale agreements
with other long distance providers. The backbone of the network is fully
redundant and fault tolerant providing no single point of failure through its
switching facilities and points of presence in Los Angeles, New York, Dallas and
Mexico City. phoneXchange provides carrier-grade quality service and routes
traffic to its ultimate destination on a least cost basis. phoneXchange's
network uses products and technologies that support a variety of standard
network user interfaces and will allow for expansion to meet future growth
needs.
phoneXchange's network operations center uses technology and network
management solutions that allow it to control remote switching and transport
facilities. The ability to operate remotely allows technicians to manage the
entire network as a single entity. The network operations center is staffed
twenty-four hours per day, seven days per week.
Master Lease Agreement with Lucent Technologies. On July 30, 1999,
phoneXchange and Lucent Technologies, Inc. InterNetworking Systems signed a
Master Lease Agreement pursuant to which Lucent would provide to us up to $10
million in credit for leasing Lucent equipment. Descriptions of the Master Lease
Agreement are qualified in their entirety by reference to the definitive
agreement filed as an exhibit to the registration statement to which this
prospectus forms a part. The agreement provided phoneXchange with credit of $3
million on execution to finance the lease of telecommunications equipment from
Lucent. An additional $7 million was to have been made available for equipment
leases once phoneXchange provides either (a) verification that a minimum of $5
million of new equity was raised by September 30, 1999; or (b) verification that
phoneXchange has demonstrated cash flow coverage of at least 1.25 times lease
payments on a rolling three months average. We have not met either requirement.
We are currently attempting to negotiate an extension of these requirements and
an increase in the total financing to $25 million. While the amended financing
agreement is expected to be approved and executed prior to January 31, 2000,
there is no assurance that any increase or extension will be approved. If such
increase or extension is not approved, we may not be able to maintain our
current and projected growth.
The Lucent AC 120 Series Multi-Service ATM and IP Switching Equipment.
The Lucent AC 120 Series Switching Solution offers multi-voice compression
equipment that consolidates voice, data, video and fax and allows for band-width
optimization. The Lucent AC 120 Switching Solution provides dynamic routing
capabilities, international and multi-vendor signaling compatibility,
sophisticated voice adaptation techniques and cost savings via compression while
delivering carrier grade quality of service.
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<PAGE> 24
The Lucent Switching System provides combined packet switching and
international gateway communication functionality in a single integrated
switching platform for North America. The system supports all key national and
international signaling interfaces and is equipped with Lucent NavisCore and
NavisAccess network management systems for developing and deploying the next
generation of enhanced services.
Cronus TSC 100 Trunk Signaling Converter. The Cronus TSC 100 Trunk
Signaling Converter allows phoneXchange's network to provide connectivity
between incompatible switches or network components. The system provides full
support for both protocol and rate conversion, as well as crossover connection
capability. It allows for user configurable framing and signaling parameters and
diagnostic software. It has support for multi-signaling protocols used in over
60 countries, in addition to the ability to develop custom protocols ensuring
compatibility with the network's evolving requirements.
Switching Facilities and Points of Presence. The deployment of
phoneXchange's network began in Los Angeles to serve the largest carrier and
customer demand. Los Angeles is currently on-line in the form of three NACT
tandem switches combined with the Lucent AC 120 Concentrators. The Dallas
network is also on-line via the Lucent AC 120 Concentrators. The Mexico City
network is currently on-line utilizing the Lucent AC 120 Concentrators and the
Cronus TSC 100 Trunk Signaling Converter. We are currently in the process of
expanding this network's capacity and termination relationships to accommodate
customer demand. The New York network is currently on-line utilizing the Lucent
AC 120 Concentrator and the Miami network is expected to go on-line by March 31,
2000, each with a multi-service ATM/IP switch with connection to phoneXchange's
ATM network. We expect to implement points of presence in Germany and the
Philippines by March 31, 2000 through the joint venture described in "PROSPECTUS
SUMMARY" above. To further improve service and increase capacity, we intend to
upgrade all of our switching facilities to Lucent's Soft Switch Signaling Source
7 (SS7) for higher carrier grade access and more efficient connectivity. There
can be no assurance, however, that we will be able to successfully bring the
Miami network on-line or implement points of presence in Germany or the
Philippines. Failure to successfully launch any or all of these networks or
points of presence could have a material adverse effect on our business,
operating results and financial condition.
SERVICES/COMPETITIVE ADVANTAGES
Wholesale Carrier Services. Our majority owned subsidiary phoneXchange,
Inc. sells domestic and international long distance service on a wholesale basis
to other facilities-based carriers and resellers who seek high quality service
at competitive rates. phoneXchange provides domestic and international long
distance service to over 200 foreign markets through termination relationships,
international gateway switches, leased and owned transmission facilities, and
resale arrangements with other long distance providers.
Wholesale Prepaid Services. In addition to the wholesale carrier
services, phoneXchange provides domestic and international long distance
services to brokers, agents and resellers of prepaid long distance telephone
services including prepaid phone cards.
Customer Support. phoneXchange provides multilingual customer service
available twenty-four hours a day, seven days a week. phoneXchange uses a
state-of-the-art internal
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<PAGE> 25
software system that provides real-time access to on-screen call records,
complete with historical detail, to track, resolve, protect and support the
individual needs of its customers. Some areas of high customer demand include
account histories, prepaid calling card balances, wholesale and retail rate
structuring, activity tracking, resolution of technical problems and billing.
Billing Services. phoneXchange offers billing services that include
timely and accurate invoices, traffic management reports and weekly call detail
records. The management reports and call detail records include information that
customers can use to analyze their markets and profitability by destination and
origination. phoneXchange currently offers a variety of ways for delivery of
management reports, invoices and call records, as well as assistance in
interpreting the data provided.
REPORTING SYSTEMS.
The management team of phoneXchange uses its real-time reporting system
to determine traffic patterns and switch capacities in order to terminate
traffic cost-effectively. Monitoring customer usage and vendor trunk reports
allows phoneXchange to manage gross margins and pricing. The reporting software
compiles call, price, and cost data into a variety of reports, which both
customers and phoneXchange's management team can use in these operations. All
call data, and resulting billing data, are backed up daily and stored
redundantly. The following reports can be generated as needed:
o Customer usage: detailing usage by destination, in order to
track sales and respond to any rating or routing variances for
a particular customer or destination.
o Country usage: detailing number of minutes, average cost and
call lengths.
o Vendor rate tables: Audited for contractual accuracy and
allows management to determine and establish least cost
routing.
o Vendor usage: Facilitates the auditing and verification of
vendor invoices.
In addition, all call data can be transported into third party software for
further analysis.
Marketing. We market our service through our experienced direct sales
force and account management team who leverage the long-term industry
relationships of our senior management. phoneXchange reaches its customers
primarily through relationships gained through years of experience in the
telecommunications industry, domestic and international trade shows and industry
trade associations. We target second and third-tier providers of international
long distance service who are unable to develop their own network and who desire
to diversify the vendors from which they obtain service for redundancy and
quality purposes.
Customers enter into carrier agreements with phoneXchange whereby they
commit to a minimum amount of minutes of use per month (generally from 1.0
million to 10.0 million minutes) or a minimum dollar requirement per month.
These contracts customarily have a term of one year. Upon execution of the
carrier agreement and prior to service, phoneXchange generally requires either a
cash deposit or letter of credit.
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<PAGE> 26
phoneXchange believes it can offer competitive prices by aggregating the
minutes of use from its various termination agreements and through the use of
direct circuits and compression technology, while maintaining margins as the
volume of traffic on its network increases. The savings are expected to be
offset by downward pressure on our wholesale prices to its customers due to
increased competition.
Sales. We currently have commitments under contract to provide service to
the Latin American market for 41.0 million minutes of use per month with an
average contract commitment of 6.8 million minutes of use per month. We also
have non-binding letters of intent to provide service to the Latin American
market for 24.0 million minutes of use per month with an average commitment of
3.4 million minutes of use per month. We have commitments under contract to
provide service to the Asian-Pacific markets for 1.5 million minutes of use per
month. We also have non-binding letters of intent to provide service to the
Asian-Pacific market for 3.5 million minutes of use per month with an average
commitment of 875,000 minutes of use per month. These contracts typically last
for an initial term of one year.
Our switches offer long distance service to customers who sell
prepaid calling cards. We currently have commitments under contract under our
Prepaid platform to provide 5.5 million minutes of use per month to the Latin
American market and 1.5 million minutes of use per month to the Asian-Pacific
market.
CALL CENTER SERVICES - INTERNET CALL CENTERS, INC.
THE MARKET
Teleservices, such as call centers, facilitate direct communication between
companies and their current and prospective customers. There are several forces
that drive corporations to outsource call center activities. Many corporations,
which rely heavily on communicating with customers, may be overwhelmed with the
demands on their internal systems. In addition, outsourcing eliminates a
company's exposure to rapidly changing computer telephony technology and often
permits enhanced customer service. ICCI will be targeting small and medium sized
corporations that may not have the resources to implement call centers.
ICCI NETWORK DESCRIPTION
ICCI is a development stage company that anticipates offering a variety of
call center services. The call center is evolving into a customer interaction
center where, in addition to calling, customers can send E-mail, conduct
videoconferences or shop on-line. Until recently, all telephony equipment for
call centers and business phone systems came in proprietary bundles of hardware
and software. To add a feature or function, customers had to wait for the vendor
to develop the feature or add an interface to another company's equipment.
Providing access to databases outside the call center was also complicated. ICCI
will use the network of its sister company, phoneXchange, to transport voice and
data traffic to its call centers. This network meets the requirements of the
Generally Accepted System Security Principles (GASSP) and will incorporate the
most recent technological advances in this business segment.
ICCI intends to build its call centers around each customer's sales and
service needs. ICCI has determined that the system that best meets its needs is
Lucent's Centre Vu(R) Compact Call Center Software Suite and ICCI intends to
negotiate a purchase contract for this software.
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<PAGE> 27
ICCI intends to seek financing of such purchase from either Lucent or our joint
venture partner. There is no assurance, however, that any such financing will be
available on acceptable terms, if at all. Building on the performance and
flexibility of Lucent's software, ICCI can select from a powerful assortment of
features and capabilities, specifically designed to enhance call center
operations. These features allow agents to handle both inbound and outbound
calls and include Expected Wait Time and sophisticated routing algorithms
designed to help customers reach the appropriate destination and agent best
qualified to handle their call. Lucent's technology combines Internet commerce
and customer service, allowing ICCI to save network costs and agent time by
offloading basic information requests to the Internet, while allowing customers
easy access to "live" agents when required. CentreVu(R) allows customers to
navigate ICCI's call center using a variety of interactive menus and multimedia
response capabilities and offers bulletin boards, announcements and a variety of
customer-directed routing options to deliver quicker and more effective service.
To get the caller to the best agent at the least cost, Lucent's software
considers a range of variables such as the media the caller is using, the skill
set of the next available agents in all locations, caller location and likely
wait time, and the time and cost of routing the call and then selects the best
call center. We believe that our network will allow ICCI to provide customer
service and floor supervisor staff from an overseas multilingual speaking
location at a fraction of the cost of using U.S. based operations to provide
such services and staff. We intend, however, to keep all critical systems,
sales, client service support, help desks, monitoring, billing, computer
information systems and business infrastructure in our domestic headquarters.
SERVICES
ICCI has not yet commenced operations. ICCI expects to provide
international multi-lingual services starting in the first quarter of 2000
through its call center locations twenty-four hours a day, seven days a week.
The services to be offered include:
<TABLE>
<CAPTION>
Inbound Outbound
------- --------
<S> <C>
Customer Service Help Desk Marketing Research and Surveys
Catalog Orders Telemarketing/Telesales
Product Technical Information Direct Sales of Products and Services
New Product Information New Product Introduction
Consumer/Advertising Response Credit Card Applications
Order Processing Full Account Management
Direct Mail Support Lead Generation
Event Registration Trade Show Follow-up
Promotional Product Handling Fundraising
Third Party Verification
</TABLE>
ICCI intends to offer both dedicated and overflow services. Dedicated
service will be available to customers who want to use ICCI's call center as its
primary service. Overflow service will be available to customers who want to use
ICCI's services to fill their overflow capacity. We view the following
industries as attractive marketing targets: Internet, catalog, computer and data
processing, entertainment, financial services, health care providers,
pharmaceuticals, transportation, subscription and publishing.
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<PAGE> 28
By offering both inbound and outbound services, ICCI believes it can
offer customers the opportunity to increase revenues through effective selling,
cross-selling and up-selling on a global scale. We have selected hardware and
software applications for implementation in its network that it believes will
enhance the productivity of its customer service representatives. We expect that
ICCI's call centers will be able to rapidly respond to market conditions and
coverage as well as provide clients with enhanced market testing capabilities
and account management.
GOVERNMENT REGULATION
As a provider of domestic and international long distance
telecommunications services, we are subject to varying degrees of regulation in
each of the jurisdictions in which we operate. As a non-dominant carrier lacking
substantial power to influence market prices in the U.S., we are generally
subject to less regulation than a carrier that has such power. In the U.S.,
provision of our services is subject to the provisions of the Communications
Act, as amended by the Telecommunications Act of 1996 and the Federal
Communications Commission (the "FCC") regulations promulgated thereunder, as
well as the applicable laws and regulations of the various states administered
by the relevant state authorities. The recent trend in the U.S., for both
federal and state regulation of telecommunications service providers, has been
in the direction of reducing regulation. Nonetheless, the FCC and relevant state
authorities continue to regulate ownership of transmission facilities, provision
of services and the terms and conditions under which our services are provided.
Non-dominant carriers, like us, are required by federal and state law and
regulations to file tariffs listing the rates, terms and conditions for the
services they provide. We are also subject to the FCC policies and rules
discussed below.
FCC International Settlements Policy ("ISP"). The ISP governs the
permissible arrangements between U.S. carriers and foreign carriers to exchange
traffic and settle the cost of terminating traffic over each other's networks.
The ISP requires that U.S. carriers receive an equal share of the accounting
rate and receive inbound traffic in proportion to the volume of U.S. outbound
traffic which they generate. The ISP is primarily intended to deter dominant
foreign carriers from discriminating against competing U.S. carriers by, for
example, favoring the foreign carrier's U.S. affiliate. We may provide services
over international private lines without complying with the ISP, but only
between the United States and countries specifically approved by the FCC for
this activity. See "-- FCC International Private Line Resale Policy" below.
FCC International Private Line Resale Policy. The FCC's international
private line ("IPL") resale policy permits a carrier to connect IPLs to the
public switched telephone network ("PSTN") at one or both ends to provide
switched services, commonly known as International Simple Resale ("ISR"). A
carrier generally may only offer ISR services to a foreign country if the FCC
has determined that (a) the country is a member of the World Trade Organization
("WTO") and at least 50% of the U.S. billed and settled traffic to that country
is settled at or below the FCC's benchmark settlement rate or (b) the country is
not a WTO member, but it offers U.S. carriers equivalent opportunities to engage
in ISR and at least 50% of the U.S. billed and settled traffic is settled at or
below the applicable benchmark. Upon grant of any such ISR application to a
given country, the FCC's rules permit us to provide ISR service to that country.
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<PAGE> 29
If ISR is not permitted on a route, absent prior FCC consent, U.S.
facilities-based international carriers must terminate switched telephone
traffic in accordance with the FCC's ISP.
FCC Policies on Transit and Refile. We use both transit and refile
arrangements to terminate our international traffic. Transit arrangements occur
when traffic originating from one country and terminating in another is routed
through a third country with the consent of all three countries. The FCC
routinely approves transit arrangements by U.S. international carriers. Refile
arrangements occur when the destination country does not consent to receiving
traffic from the originating country and does not realize that it is receiving
traffic from the originating country. The FCC's rules currently permit carriers
in many cases to use ISR facilities to route traffic via a third country for
refile through the PSTN. However, the extent to which carriers, may enter into
refile arrangements consistent with the ISP is currently under review by the
FCC. We currently terminate traffic only with carriers authorized by the ISP or
ISR policy. However, our future plans to expand into other countries may be
affected by any change in FCC policy.
FCC Policies on Use of Pay Phones. A portion of our customers use pay
phones to access services. The Communications Act requires long distance
carriers like us to compensate pay phone owners when a pay phone is used to
originate a telephone call through a toll-free number. Recent regulations
adopted under the Communications Act mandate compensation in the amount of
$0.284 per call, although the basis for this compensation is currently being
reconsidered by the FCC pursuant to a court order. We pass these costs on to our
customers who use pay phones. However, there can be no assurance that we will be
able to successfully pass these costs on to our customers or that these charges
will not have a material adverse effect on our business, operating results and
financial condition.
Recent and Potential FCC Actions. Regulatory action that may be taken
in the future by the FCC may intensify the competition we face, impose
additional operating costs, disrupt certain transmission arrangements or
otherwise require us to modify our operations. The FCC is encouraging new market
entrants by implementing the WTO Basic Telecommunications Agreement (the "WTO
Agreement") and through other actions. The FCC may approve pending mergers which
could produce more effective competitors in our markets. The FCC may increase
regulatory fees charged to us and our competitors by eliminating the exemption
for carrier revenues obtained from other carriers from certain fees or through
other actions, which could raise our costs of service without assurance that we
could pass such fee increases through to our customers. Such increase or other
action could have a material adverse effect on our business, operating results
and financial condition.
State Regulation. Our intrastate long distance telecommunications
operations are subject to various state laws and regulations, including prior
certification, notification, registration and/or tariff requirements. The vast
majority of states require that companies apply for certification to provide
intrastate telecommunications services. In most jurisdictions, companies also
must file and obtain prior regulatory approval of tariffs for intrastate
services. Certificates of authority can generally be conditioned, modified or
revoked by state regulatory authorities for failure to comply with state laws
and regulations. Fines and other penalties may also be imposed for such
violations. As of the date of this report, we believe we are in material
compliance with all applicable state laws and regulations.
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<PAGE> 30
Foreign Regulation. Foreign countries, either independently or jointly as
members of the International Telecommunication Union ("ITU"), or other
supra-national organizations such as the European Union or the WTO, may have
adopted or may adopt laws or regulatory requirements regarding our services.
Compliance with these regulations may be difficult or expensive, and could force
us to choose less cost-effective routing alternatives which could have a
material adverse effect on our business, operating results and financial
condition. We currently plan to provide a limited range of services in Mexico
and the Philippines, as permitted by regulatory conditions in those markets, and
to expand our operations as these markets liberalize regulations to permit
competition in the full range of telecommunications services. There can be no
assurance that the regulatory regime in these countries will provide us with
practical opportunities to compete in the near future, or at all, or that we
will be able to take advantage of any such liberalization in a timely manner or
at all.
Regulation of Customers. Our customers are also subject to domestic or
foreign regulations that may affect their ability to deliver traffic to us.
Future regulatory actions could materially adversely affect the volume of
traffic received from a major customer, which could have a material adverse
effect on our business, operating results and financial condition.
Taxation of Sale and Use of Prepaid Cards. We have been required to and
have collected a three percent (3%) federal excise tax on sales of Prepaid Cards
to our distributors. The taxation of the sale and use of Prepaid Cards is
evolving and is not specifically addressed by the laws of many of the states in
which we do business. In states that do impose taxes on Prepaid Cards, the most
common method of calculation and payment is predicated on usage of the Prepaid
Card and the revenue generated from the underlying long distance service that is
provided. Other states impose taxes on the face value of the Prepaid Card when
sold to consumers, with collection and remittance made by the retailer at the
point of sale. In the states where we do the majority of our business, taxes on
Prepaid Cards are based on their usage. We believe that we have adequate
reserves to pay any state taxes we may ultimately be required to pay.
EMPLOYEES
As of December 1, 1999, we employed approximately 26 employees. We believe
that our future success will depend on our continued ability to attract and
retain highly skilled and qualified employees. None of our employees are
currently represented by a collective bargaining agreement. We believe that our
relations with our employees are good.
DESCRIPTION OF PROPERTY
We lease our principle office at 27061 Aliso Creek Road, Suite 100, Aliso
Viejo, California 92656. The lease agreement is for a five (5) year term which
expires April 1, 2005 and covers approximately 17,097 square feet. The current
monthly lease rate is approximately $23,772 which increases annually at the rate
of 4%.
We also lease certain switching facilities in Los Angeles. The lease
agreement is for a five (5) year term which expires May 31, 2002 and covers
approximately 1,350 square feet. The current monthly lease rate is
approximately $2,705 which increases annually at the rate of 4%.
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<PAGE> 31
LEGAL PROCEEDINGS
On August 30, 1999, a claim was filed against us by J&W Ventures, Inc.,
alleging that we are in breach of contract as to the purchase of certain
telecommunications equipment. The plaintiff is seeking $4,685,000 in damages. We
have filed a cross-complaint seeking rescission and damages, asserting that J&W
Ventures, Inc. breached certain representations and warranties. We intend to
vigorously contest the litigation and to pursue our own remedies fully. While no
assurance can be given regarding the outcome of this matter, we believe that we
have strong and meritorious defenses to the claims asserted. However, a
determination that we breached our contract with J&W Ventures, Inc. could have a
material adverse effect on our business, operating results and financial
condition.
Pursuant to the J&W Ventures Asset Purchase Agreement, we paid $300,000 in
cash, issued 441,600 shares of common stock and were obligated to designate a
new series of preferred stock, $2.50 par value, and issue 850,000 shares of such
preferred stock (this is recorded on our September 30, 1999 balance sheet as
preferred stock subscribed). Pending the outcome of the litigation between the
parties, we have placed a stop transfer order on the common stock issued, and
have not designated or issued any preferred stock to the J&W Ventures sellers.
We have not made any reserve on our balance sheet in connection with this
litigation.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GENERAL
Our common stock is traded on the National Quotation Bureau's Pink Sheets.
We have applied to list our common stock on the NASDAQ Small Cap Market under
the symbol "ICNW."
MARKET PRICE
The following table sets forth the range of high and low closing bid prices
per share of our common stock as reported by National Quotation Bureau, L.L.C.
for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year 1997 High Bid Low Bid
- ---------------- -------- -------
<S> <C> <C>
First Quarter $1,600.00 $300.00
Second Quarter 450.00 300.00
Third Quarter 450.00 300.00
Fourth Quarter 350.00 100.00
Fiscal Year 1998 High Bid Low Bid
- ---------------- -------- -------
First Quarter $ 125.00 $ 25.00
Second Quarter $ 37.50 $ 5.00
Third Quarter $ 6.50 $ 4.75
Fourth Quarter $ 6.75 $ 3.75
Fiscal Year 1999 High Bid Low Bid
- ---------------- -------- -------
First Quarter $ 7.75 $ 4.875
Second Quarter $ 6.75 $ 4.00
Third Quarter $ 10.4375 $ 5.375
Fourth Quarter $ 11.00 $ 9.00
</TABLE>
The above prices have been adjusted to reflect a 1 for 40 reverse stock
split effective April 21, 1998 and a 1 for 10 reverse stock split effective June
11, 1998. Further, the above prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
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<PAGE> 32
HOLDERS
As of December 1, 1999, there were 5,867,780 shares of common stock
issued and outstanding, which were held by approximately 759 holders of record,
and 3,167,974 shares of Series A-1 Preferred Stock issued and outstanding, which
were held by 6 holders of record. No shares of Series A Preferred Stock were
issued and outstanding.
DIVIDEND POLICY
We have not paid any dividends on our common stock and do not expect to
do so in the foreseeable future. We intend to apply our earnings, if any, in
expanding our operations and related activities.
The payment of cash dividends in the future will be at the discretion
of the Board of Directors and will depend upon such factors as earning levels,
capital requirements, our financial condition and other factors deemed relevant
by the Board of Directors. In addition, our ability to pay dividends is limited
pursuant to the Series A-1 Preferred Stock, the Series A Preferred Stock, and
may become limited under future series of preferred stock or loan agreements
which may restrict or prohibit the payment of cash dividends.
SELECTED FINANCIAL DATA
The following selected historical financial data for the two years ended
December 31, 1998 were derived from our audited financial statements. The
financial data for the nine months ended September 30, 1998 and 1999 were
derived from our unaudited financial statements and in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of financial position and results
of operations for these periods. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year. The selected financial data should be read
together with "Summary Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our consolidated
financial statements and other financial data presented elsewhere in this
prospectus.
EBITDA consists of income (loss) before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in the
industry. EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered an alternative to
net income as a measure of performance or to cash flow as a measure of
liquidity. EBITDA is not necessarily comparable with similarly titled measures
for other companies.
Selected Consolidated Financial Information
(In dollars)
<TABLE>
<CAPTION>
Year ended For The Nine Months
December 31, Ended September 30,
----------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues $ -- $ -- $ -- $ 624,832
Cost of services -- -- -- 1,254,739
----------- ----------- ----------- -----------
Gross profit -- -- -- (629,907)
----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative expenses 300,100 6,999 -- 2,056,691
Depreciation and amortization -- -- -- 901,776
Write-off of assets 7,800,000 -- -- 216,600
----------- ----------- ----------- -----------
Total operating expenses 8,100,100 6,999 -- 3,175,067
----------- ----------- ----------- -----------
Income (loss) from operations (8,100,100) (6,999) -- (3,804,974)
----------- ----------- ----------- -----------
Other income (expense) -- -- -- 38,532
----------- ----------- ----------- -----------
Income (loss) before income taxes (8,100,100) (6,999) -- (3,766,442)
----------- ----------- ----------- -----------
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $(8,100,100) $ (6,999) $ -- $(3,766,442)
----------- ----------- ----------- -----------
Basic and diluted earnings (loss) per share $ (173.28) $ (0.00) $ -- $ (1.32)
----------- ----------- ----------- -----------
Weighted average common shares outstanding 46,747 5,262,000 5,262,000 2,856,868
=========== =========== =========== ===========
OTHER FINANCIAL DATA:
EBITDA $(8,100,100) $ (6,999) $ -- $(2,903,198)
Net cash provided by (used in) operating activities (100) -- -- (2,985,175)
Net cash used in investing activities 100 -- -- (1,412,155)
Net cash used by (used in) financing activities $ -- $ -- $ -- $ 4,495,860
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------ ------------
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Working capital (deficit) $ -- $ (6,999) $ 34,681
Total assets -- -- 16,031,187
Total long-term liabilities, net of current portion -- -- 147,616
Retained earnings (deficit) (8,100,100) (8,107,099) (11,906,874)
Stockholders' equity (deficit) $ -- $ -- $ 13,549,393
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our consolidated
financial statements and the other financial data appearing elsewhere in this
prospectus. Integrated Communication Networks, Inc., which was incorporated on
January 16, 1997 began operations through the Company's acquisition of its
majority owned subsidiary phoneXchange, Inc. in February 1999. We began offering
long distance services in March 1999 by reselling the services of other long
distance carriers. Integrated Communication Networks, Inc. is a leading
facilities-based long distance communications provider. We offer domestic and
international wholesale long distance services, including switched, private
line, special access and prepaid long distance services, to other
telecommunications carriers and agents and brokers of prepaid phone cards. We
operate long distance switching centers in Los Angeles, Dallas, Mexico City and
New York. For the year ended December 31, 1998 and for the period from January
16, 1997(inception) to December 31, 1997, the Company had no revenue and no
material operations. The following is management's discussion and analysis of
financial condition and results of operations for the nine months ended
September 1999 and 1998, respectively.
Revenue: We generate the majority of our revenue from: (1) the sale of wholesale
services, largely to other telecommunications carriers seeking overflow
capacity; and (2) the sale of prepaid long distance service to agents and
brokers of prepaid phone cards. Revenue for the nine months ended September 30,
1999 increased $624,832, to $624,832 from $-0- for the nine months ended
September 30, 1998. This increase is due to the fact that we began operations in
March of 1999. Revenues from prepaid long distance services represented
approximately 100% and -0-% of our total revenue for the nine months ended
September 30, 1999 and 1998. During the past several years, market prices for
telecommunications services have been declining, which is a trend that we
believe will likely continue. This decline will have a negative effect on our
revenue and gross margin, which may not be offset completely by savings from
decreases in our cost of services.
Cost of Services: Cost of services includes the fixed costs of leased facilities
and the variable costs of origination, termination and access services provided
through local exchange carriers and other long distance telecommunications
companies. Cost of services for the nine months ended September 30, 1999
increased $1,254,739, to $1,254,739 from $-0- for the nine months ended
September 30, 1998. This increase is due to the fact that we began operations in
March of 1999. In addition to incurring the costs associated with the
origination, transmission and termination from other carriers, we have also
incurred the costs associated with establishing our own transmission network and
termination relationships primarily in the Latin America market. By establishing
our own transmission network and termination relationships, which became
operational in the forth quarter of 1999, we will be able to carry a significant
portion of our international long distance traffic over our own facilities,
thereby reducing our costs of services by decreasing payments to other carriers
for the use of their facilities. We are continuing to install switching and
transmission equipment, which will allow us to increase the percentage of the
long distance services we provide on our own network, thereby improving our
margins.
Operating Expenses: Our primary operating expense categories include selling,
general and administrative expenses. Selling, general and administrative
expenses include all infrastructure costs, such as selling expenses, customer
support, corporate administration, personnel network maintenance, depreciation
and amortization and a write-off of certain assets. Selling expenses include
commissions for our direct sales program. Selling expenses also include
commissions paid to our dealers and agents, which are based upon a fixed
percentage of the customers' monthly billings.
Selling, general and administrative expenses for the nine months ended September
30, 1999 increased $2,056,691 to $2,056,691 from $-0- for the nine months ended
September 30, 1998. The increase in selling, general and administrative expenses
during the first nine months of 1999 is largely attributable to the significant
investments in human resources and increased marketing and advertising efforts
associated with the continued expansion of our services. Since these investments
often occur in advance of the realization of significant revenue from
operations, they have the effect of increasing selling, general and
administrative expenses as a percentage of revenue. These investments in
infrastructure and support are intended to provide us with the ability to
continue to expand into new markets, maximize customer retention and provide for
growth. In addition, we have hired additional personnel to facilitate the
deployment of our network.
Depreciation and amortization is primarily related to switching equipment,
facilities, computer equipment and software, and is expected to increase as we
incur substantial capital expenditures to continue the expansion of our network
facilities. Depreciation and amortization also includes the amortization of
goodwill related to the Company's acquisition of phoneXchange, Inc. and certain
telecommunications equipment. Depreciation and amortization expenses for the
nine months ended September 30, 1999 increased $901,776 to $901,776 from $-0-
for the nine months ended September 30, 1998. The increase in depreciation and
amortization during the first nine months of 1999 is largely attributable to the
amortization of goodwill which increased $407,698 for the nine months ended
September 30, 1999 from $-0- for the nine months ended September 30, 1998. In
addition, depreciation has increased primarily due to capital expenditures
related to the establishment and expansion of our network, operations center and
support infrastructure to accommodate increased traffic volume and expanded
service offerings. The Company wrote-off certain assets previously acquired in
the amount of $216,600 for the nine months ended September 30, 1999.
Income Taxes: We generated a net loss for 1997 and 1998, and during the nine
months ended September 30, 1999 and 1998. Based upon our plans to expand through
the construction and expansion of our network, customer base and product
offerings, we expect this trend to continue. Given these circumstances and the
level of taxable income expected to be generated from reversing temporary
differences, we have established a valuation allowance for the deferred tax
assets associated with these net operating losses
EBITDA: EBITDA for the nine months ended September 30, 1999 decreased
$2,903,198, to $(2,903,198) from $-0- for the nine months ended September 30,
1998. The decrease in EBITDA during 1999 was primarily attributable to costs
associated with establishing our own transmission network and termination
relationships primarily in the Latin America market, significant investments in
human resources and increased marketing and advertising efforts associated with
the continued expansion of our services.
Liquidity and Capital Resources: Cash Flows for the nine months ended September
30, 1999: Cash used in operating activities was $(2,985,175). This primarily
resulted from a net loss of $(3,766,422) offset by depreciation and amortization
of $901,776. Cash used in investing activities was $1,412,155, primarily
consisting of $1,430,588 in capital expenditures. Net cash provided by financing
activities was $4,495,860. This increase in cash was primarily due to proceeds
of short-term debt of $331,965, proceeds of long-term debt of $1,573,181,
proceeds from the issuance of preferred stock of $1,950,001 and proceeds from
issuance of common stock of a subsidiary of $750,000, which were partially
offset by principal payments on long-term debt of $79,791 and principal payments
of capital lease obligations of $29,496.
Master Lease Agreement with Lucent Technologies. On July 30, 1999, phoneXchange
and Lucent Technologies, Inc. InterNetworking Systems signed a Master Lease
Agreement pursuant to which Lucent would provide to us up to $10 million in
credit for leasing Lucent equipment. Descriptions of the Master Lease Agreement
are qualified in their entirety by reference to the definitive agreement filed
as an exhibit to the registration statement to which this prospectus forms a
part. The agreement provided phoneXchange with credit of $3 million on execution
to finance the lease of telecommunications equipment from Lucent. An additional
$7 million was to have been made available for equipment leases once
phoneXchange provides either (a) verification that a minimum of $5 million of
new equity was raised by September 30, 1999; or (b) verification that
phoneXchange has demonstrated cash flow coverage of at least 1.25 times lease
payments on a rolling three months average. We have not met either requirement.
We are currently attempting to negotiate an extension of these requirements and
an increase in the total financing to $25 million. While the amended financing
agreement is expected to be approved and executed prior to January 31, 2000,
there is no assurance that any increase or extension will be approved. If such
increase or extension is not approved, we may not be able to maintain our
current and projected growth.
Effects of New Accounting Standards: In 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information", which are
both effective for fiscal years beginning after December 15, 1997. SFAS No. 130
addresses reporting amounts of other comprehensive income and SFAS No. 131
addresses reporting segment information. As of January 1, 1998, we implemented
SFAS No. 130. There are no material differences between net income and
comprehensive income as defined by SFAS 130 for the periods presented. SFAS 131
uses a management approach to report financial and descriptive information about
a company's operating segments. Operating segments are revenue-producing
components of the enterprise for which separate financial information is
produced internally for the company's management. Under this definition, we
operated, for the years ended December 31, 1997, 1998, as a single segment.
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities". We expect to adopt SFAS No. 133 effective January 1, 2000.
We do not expect any significant additional disclosure requirements or other
financial statement impacts to result from the adoption of SFAS No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal-Use", which requires the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal-use. We adopted the provisions of SOP 98-1 in
our financial statements as of January 1, 1999. In April 1998, the AICPA issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities", which
requires that costs related to start-up activities be expensed as incurred. We
adopted the provisions of SOP 98-5 in our financial statements as of January 1,
1999. Prior to 1999, we expensed start-up costs and therefore, the adoption of
SOP 98-5 will have no impact on our financial statements.
Inflation: We do not believe inflation has had a significant impact on our
operations.
32
<PAGE> 33
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company selected Jack Olesk, CPA to audit its consolidated
financial statements for the fiscal year ended December 31, 1998 and 1997. The
Company's interim September 30, 1999 financial statements were audited by Brad
Haynes, CPA. The decision to change auditors was approved by the Chief Financial
Officer of the Company. Mr. Olesk's report contained no adverse opinion or
disclaimer of opinion and was not modified as to uncertainty, audit scope or
33
<PAGE> 34
accounting principles. The Company believes that there were no disagreements
with Mr. Olesk on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of Mr. Olesk, would have caused him to make reference to the
subject matter of the disagreements in connection with his report.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information regarding the
executive officers and directors of the Company. All officers serve at the
pleasure of the Board of Directors. Directors serve until the next annual
meeting of stockholders and until the election and qualification of their
successors. See "Description of Securities -- Preferred Stock."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David J. Chadwick 40 President and Chief Executive Officer and Chairman
Gary L. Killoran 34 Secretary, Treasurer, Chief Financial Officer and Director
James E. Rott 56 Chief Operations Officer
Paul E. Hyde 40 Vice President and Director
Thomas C. Scott 52 Vice President of Sales and Marketing
Albert R. Kashani 29 Director
Joseph Vaughn-Perling 32 Director
</TABLE>
There are no family relationships among the directors and officers
indicated above.
David J. Chadwick joined the Company as President and CEO and a member
of the Board of Directors on February 8, 1999. Since April 7, 1998, Mr. Chadwick
has also been President and CEO of phoneXchange, Inc. From 1997 to present, Mr.
Chadwick has been President and CEO of C/Net: Solutions, Inc. From 1994 to 1996,
he was co-founder, Vice President and Secretary of Chadmoore Wireless Group,
Inc., a publicly traded company. Corporate responsibilities included mergers and
acquisitions, procurement and consolidation of FCC licensed spectrum and
oversight of FCC regulatory requirements and SEC reporting. From 1993 to 1994,
Mr. Chadwick was Vice President of Engineering for American Digital
Communications, also a publicly traded company. Operational duties included path
engineering, frequency coordinating, FCC regulatory filings, network property
procurement, overseeing contract personnel and supervision of technicians. He
was involved from 1990 to 1993 in the engineering and implementation of analog
and digital microwave radio, multi-pair cable, coaxial cable and fiber optic
transmission media for Contel Cellular, Pac-Tel Cellular (AirTouch), U.S.
West/New Vector and L.A. Cellular. Mr. Chadwick is a network design engineer and
has been involved in development and operational management of satellite,
microwave, SMR/ESMR, PCS and cellular systems. Mr. Chadwick holds a Bachelor of
Arts degree in Public
34
<PAGE> 35
Administration Business from the University of Mississippi, Oxford, Mississippi
and has over 16 years of experience in the telecommunications industry.
Gary L. Killoran joined the Company as Treasurer, Secretary and Chief
Financial Officer on February 8, 1999. He was elected to the Board of Directors
on March 1, 1999. From January 1, 1999, Mr. Killoran has also been Secretary,
Treasurer and Chief Financial Officer of phoneXchange, Inc. From 1997 through
1998, Mr. Killoran operated Camden Financial Group, Inc., a company he founded,
which developed business plans, financial projection and pro forma financial
statements for various telecommunications companies. From 1995 to 1997, Mr.
Killoran was Secretary, Treasurer, Chief Financial Officer and Director for
Chadmoore Wireless Group, Inc. Mr. Killoran assisted with taking the company
public and was responsible for SEC and state regulatory reporting. Mr. Killoran
was responsible for developing financial projections involving national
deployment strategies, negotiation and execution of purchase contracts, vendor
financing agreements and acquisitions. Mr. Killoran was also responsible for
financial controls, internal and external audits, risk management, treasury
management and tax planning and reporting, and employee benefits plans. From
1988 to 1995, Mr. Killoran began with Centel Corporation in the Financial
Reporting Department and quickly moved up to Sprint Cellular's Regional
Accounting Manager for the West Region. Mr. Killoran received his Bachelor of
Arts degree in Business Administration Accounting from the University of
Wisconsin at Madison in 1988 and has over 11 years of experience in accounting
and finance in both publicly traded and privately held companies in the
telecommunications industry.
James E. Rott joined the Company as Chief Operations Officer on
February 8, 1999. From April 7, 1998 until December 31, 1998, Mr. Rott was Chief
Operating Officer of phoneXchange. Mr. Rott is a certified public accountant and
has extensive experience and background in corporate, financial services and
public accounting environments. From 1992 to the present, Mr. Rott has also been
the Principal Financial Consultant for Southwind Financial Corporation in
Irvine, California, providing accounting, tax, debt financing and computer
system consultation services to corporate clientele. From 1985 to 1990, Mr. Rott
held the position of Senior Vice President and Chief Financial Officer of Beach
Savings Bank in Fountain Valley, California, directing all financial reporting
functions as well as the loan serving and saving operations. Mr. Rott was
responsible for the direction of the treasury, cash management, audit,
regulatory reporting and investments. In addition, he managed deposit
acquisition, bank borrowing relationships, investment and hedging activities and
asset liability monitoring. From 1983 to 1985, Mr. Rott was the Vice President
and Chief Financial Officer of Heartland Savings and Loan Association in El
Cajon, California. His affiliations include American Institute of CPA's,
California Society of CPA's, Washington Society of CPA's and Mortgage Banking
Association. Mr. Rott graduated from the University of Washington, Seattle, with
a Bachelor of Arts degree in Administration Accounting.
Paul E. Hyde joined the Company as Vice President on February 8, 1999.
From April 7, 1998, Mr. Hyde has been Vice President of phoneXchange. On October
15, 1999, Mr. Hyde was elected to the Board of Directors. Mr. Hyde has more than
18 years of experience in the telecommunications industry, the past 13 years in
the cellular and SMR two-way radio industry. From 1996 to 1997, he was General
Manager and Vice President for Comserv, Inc. From 1993 to 1996, Mr. Hyde was
General Manager and Vice President of Operations for Chadmoore Communications of
Tennessee, who purchased General Communications in 1994. From 1984 to
35
<PAGE> 36
1993, Mr. Hyde was sales manager for General Communications Radio Sales and
Service and was responsible for marketing BellSouth's first cellular service in
Memphis, Tennessee, and Ericsson's first digital system in Tennessee. Mr. Hyde
was awarded top salesperson nationally with Uniden America for two years and was
able to make General Communications the top dealer in its region for five years.
Thomas C. Scott joined the Company as Vice President of Sales and
Marketing on October 11, 1999. From 1994 to 1999 Mr. Scott was Vice President
North American Carrier Division with Primus/TresCom where he was responsible for
the North American Carrier Division. Mr. Scott developed all sales channels and
international facilities-based customer service with the emphasis in Latin
America. From 1990 to 1994, Mr. Scott was an Executive Vice President with North
American Telecom. Mr. Scott developed direct and agent sales forces in Latin
America, as well as developing MIS, marketing and customer service. From 1986 to
1990, Mr. Scott was Area Sales Manager for MetroMedia/ITT and surpassed his
quotas yearly. From 1983 to 1986, Mr. Scott was with MCI/SBS as National Account
Manager. Mr. Scott was responsible for enrolling companies, such as, Texaco,
American General Insurance, NL Industries and Shell Oil, to MCI's National
Account Service Program. From 1970 to 1981, Mr. Scott worked for AT&T where he
was promoted five times and worked closely with new business and revenue
retention for the Kraft Foods Division of the Dart/Kraft National Account. Mr.
Scott is a graduate of De Paul University with a Bachelor of Science degree in
Accounting.
Albert R. Kashani was elected to the Board of Directors on September
11, 1999. Mr. Kashani is an attorney and since March 1998, he has specialized in
transactional and business litigation matters. From 1995 to 1998, Mr. Kashani
was a tax consultant at Ernst & Young, LLP in Los Angeles. From 1991 to the
present, Mr. Kashani has also been a principal executive officer of Menorah
Fusing & Services, Inc., a clothing interlining business, and its predecessors.
In 1988, Mr. Kashani founded Torina, Inc., a clothing manufacturing company. Mr.
Kashani received his Bachelor of Arts degree in Economics from California State
University, Northridge, in 1992, and graduated from the University of Southern
California Law Center in 1995.
Joseph Vaughn-Perling was elected to the Board of Directors on
September 11, 1999 and has over 15 years of experience in the telecommunications
and data processing industry. He has served as Senior Applications Architect,
Staff Support Manager, Senior Computer Scientist, Computer Technologist, Chief
Technical Officer, Computer Analyst and Technical and Software Consultant for
Global Fortune 500 companies. Since 1997 Mr. Vaughn-Perling has worked for
Infonet Incorporated where he is currently Senior Application Architect of
Marketing, designing and implementing global communication infrastructure
systems and the applications that power them. From 1995 to 1997 he was LAN/WAN
Technologist - Research and Development for Internet technologies for William
O'Neil & Co. From 1994 to 1995 he was Chief Technical Officer for Dolphin
Developments. He also serves on the Board of Advisors for Platt College, a
technical college with several campuses in Southern California. Mr.
Vaughn-Perling attended the University of California, Los Angeles (UCLA) and
received his Bachelors of Arts Degree in Psychology and Cognitive Science.
BOARD COMMITTEES
We have a compensation committee currently composed of Messrs.
Vaughn-Perling and Kashani. The compensation committee reviews and acts on
matters relating to compensation
36
<PAGE> 37
levels and benefit plans for our executive officers and key employees, including
salary and stock options. The compensation committee is also responsible for
granting stock options and other awards to be made under incentive compensation
plans. The compensation committee was established as of January 1, 2000.
We also have an audit committee currently composed of Messrs. Killoran,
Vaughn-Perling and Kashani. The audit committee assists in selecting our
independent auditors and in designating services to be performed by, and
maintaining effective communication with, those auditors.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The Company entered into employment agreements with the current CEO and
three other executive officers effective as of February 8, 1999 and with a fifth
executive officer effective as of October 11, 1999. See "-- Employment
Agreements" below.
Summary Compensation Information
The following table sets forth information concerning the cash and
non-cash compensation during fiscal years 1999 and 1998 of: (1) our Chief
Executive Officer (2) and our four other most highly compensated executive
officers during 1999 and whose salary and bonus exceeded $100,000 during 1999.
None of the executive officers of the registrant received any compensation in
1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------------------------
Other Securities
Fiscal Annual Underlying
Name and Principal Position Year Salary ($) Bonus($) Compensation($) Options (Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David J. Chadwick 1999 $195,000 $ 25,000 $33,228 (a) 487,500
Chief Executive Officer, President and Chairman of the Board 1998 - - - -
Gary L. Killoran 1999 $130,000 $ 17,500 $ 353 (b) 236,250
Chief Financial Officer, Secretary, Treasurer and Director 1998 - - - -
James E. Rott 1999 $120,000 $ 10,000 $ 587 (c) 236,250
Chief Operations Officer 1998 - - - -
Paul E. Hyde 1999 $120,000 $ 10,000 $ 310 (d) -
Vice President and Director 1998 - - - -
Thomas Scott 1999 $ 28,557 $ 10,000 $ - 100,000
Vice President Sales & Marketing 1998 - - - -
</TABLE>
(a) Includes $32,870 car allowance, $48 life insurance premium cost and $310
disability insurance cost
(b) Includes $43 life insurance premium cost and $310 disability insurance cost
(c) Includes $277 life insurance premium cost and $310 disability insurance cost
(d) Includes $310 disability insurance cost
Option Grants
The following table sets forth information regarding options granted
during fiscal year 1999 to the executive officers named in the compensation
table above.
Option Grants During Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Potential Realizable
Value of Assumed
Annual Rates Of
Number of Percent of Stock Price
Securities Total Options Appreciation For
Underlying Granted To Exercise Option Term (b) Market Price
Options Employees In Price Per Expiration ------------------------------ At Grant
Name Granted Fiscal Year Share($/Sh)(a) Date 5% ($) 10% ($) Date 0%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David J. Chadwick 487,500 (c) 44.3% $ 3.37 7/22/04 $1,856,928 $ 2,773,445 $ 5.625
Gary L. Killoran 236,250 (d) 21.5% $ 3.37 7/22/04 $ 899,896 $ 1,344,054 $ 5.625
James E. Rott 236,250 (d) 21.5% $ 3.37 7/22/04 $ 899,896 $ 1,344,054 $ 5.625
Thomas Scott 100,000 (e) 9.1% $ 8.56 10/13/04 $ - $ - $ -
</TABLE>
(a) The exercise price may be paid in cash or by any other means determined by
the Board of Directors.
(b) The compounding assumes an exercise period equal to the expiration date of
the respective option. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock. The amounts
reflected in this table may not necessarily be achieved.
(c) The Company issued options to purchase 487,500 shares of common stock
exercisable at any time commencing July 22, 1999 and ending July 22, 2004.
(d) The Company issued options to purchase 236,250 shares of common stock
exercisable at any time commencing July 22, 1999 and ending July 22, 2004.
(e) On October 11, 1999, the Company issued options to purchase 100,000 shares
of common stock at an exercise price of $8.56, which was the current market
price on the date granted. The options will vest at a rate of one-third per
year over a three-year period and have a term of five years.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are not currently
compensated for meeting attendance, but are entitled to reimbursement for their
travel expenses. The Company has, however, compensated Directors for their
services through the grant of common stock and intends to continue this practice
until it institutes a more formal compensation program. On September 13, 1999,
the Company issued 5,000 restricted shares of its common stock to each of
Messrs. Vaughn-Perling and Kashani. On September 24, 1999, the Company issued
500 restricted shares of its common stock to Mr. McGuirk, who has since resigned
from the Board of Directors. Directors who are employees of the Company receive
no additional compensation for their services as Directors of the Company.
EMPLOYMENT AGREEMENTS
Global Access Pagers, Inc., the predecessor to the Company, entered
into employment agreements made as of January 4, 1999 with each of David
Chadwick - President and CEO, James Rott - Chief Operating Officer, Paul Hyde -
Vice President, and Gary Killoran - Chief Financial Officer. Pursuant to these
agreements, David Chadwick was guaranteed an annual salary of $180,000 and each
of James Rott, Paul Hyde and Gary Killoran were guaranteed an annual salary of
$120,000. In addition, on October 11, 1999, the Company entered into an
employment agreement with Thomas Scott, pursuant to which he will serve as the
Company's Vice President of Sales and Marketing. Mr. Scott will receive an
annual salary of $150,000, and non-qualified options to purchase 100,000 shares
of common stock at an exercise price of $8.56.
37
<PAGE> 38
$8-9/16 per share. The options will vest at a rate of one-third per year over a
three year period and have a term of five years.
The employment agreements for each of the above executives provides for
an annual review by the Board of Directors for upward adjustments of no less
than 5% per year as long as the Company has positive net income from operations.
The term of each employment agreement is for a period of three years.
BENEFIT PLANS
On July 22, 1999, the Board of Directors of the Company authorized the
grant of options to purchase up to 1,000,000 shares of the Company's common
stock at an exercise price of $3.375 to various employees. These options all
vest on grant and have a five year term. On October 13, 1999, the Board of
Directors authorized the grant of options to purchase 100,000 shares of common
stock to Thomas Scott in connection with his employment agreement. See
"-- Employment Agreements" above.
The Board of Directors intends to approve, subject to approval by a
majority of the shareholders, an Incentive Stock Option Plan authorizing the
grant of qualified and non-qualified options and restricted stock awards for up
to 1,000,000 shares of the Company's common stock. Such plan will be submitted
to the Company's shareholders at the next annual shareholder's meeting.
Otherwise, the Company does not have any pension plan, profit sharing plan, or
similar plans for the benefit of its officers and directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's common stock as of December 1, 1999 by (i)
each person who is currently a director, (ii) each executive officer of the
Company, (iii) all current directors and officers as a group and (iv) each
person known to the Company to be a beneficial owner of five percent (5%) or
more of its outstanding common stock as of December 1, 1999. Except as otherwise
noted, it is believed by the Company that all persons have full voting and
investment power with respect to the shares indicated. The table below does not
give effect to (i) common stock issuable upon conversion of 7,315,062 warrants
to purchase common stock, none of which is exercisable within the 60 days
following December 1, 1999, (ii) options to purchase 100,000 shares of common
stock, none of which are exercisable within the 60 days following December 1,
1999, or (iii) common stock issuable upon conversion of 3,167,974 shares of
preferred stock, none of which is convertible within the 60 days following
December 1, 1999.
38
<PAGE> 39
<TABLE>
<CAPTION>
Percentage Beneficially Owned
-----------------------------
Shares Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Financial Enterprises, Inc.
2224 Main Street
Santa Monica, California 90405 1,000,000 17.0% 2.1%
David Chadwick*
27061 Aliso Creek Road Suite 100
Aliso Viejo, California 92656 975,000(1) 15.3% 2.1%
Gary Killoran*
27061 Aliso Creek Road Suite 100
Aliso Viejo, California 92656 363,036(2) 5.9% 0.8%
James Rott*
27061 Aliso Creek Road Suite 100
Aliso Viejo, California 92656 363,036(2) 5.9% 0.8%
Paul Hyde*
27061 Aliso Creek Road Suite 100
Aliso Viejo, California 92656 126,786 2.2% 0.3%
Thomas Scott*
27061 Aliso Creek Road Suite 100
Aliso Viejo, California 92656 -- 0.0% 0.0%
Albert R. Kashani*
269 S. Beverly Drive #185
Beverly Hills, CA 90212 5,000 0.1% 0.0%
Joseph Vaughn-Perling*
2100 E. Grand Ave.
El Segundo, CA 90245 5,000 0.1% 0.0%
J&W Ventures
16248 Gulf Blvd
Reddington, FL 33709 441,600(3) 7.5% 0.9%
*Officers & Directors as a group
(7 persons) 1,837,858 26.9% 3.8%
</TABLE>
- ---------------
(1) Includes beneficial ownership of 487,500 shares of common stock which may
be acquired pursuant to options exercisable at or within 60 days after
December 15, 1999.
(2) Includes beneficial ownership of 236,250 shares of common stock which may
be acquired pursuant to options exercisable at or within 60 days after
December 15, 1999.
(3) J&W Ventures claims beneficial ownership to these shares pursuant to the
terms of an Asset Purchase Agreement entered into with the Company. The
shares were issued but the Company has issued a stop transfer order and is
currently suing to rescind the agreement and cancel the shares. See "Legal
Proceedings" above.
39
<PAGE> 40
The following table sets forth certain information concerning the
beneficial ownership of the Company's Series A-1 preferred stock by each person
known to the Company to be a beneficial owner of five percent (5%) or more of
its outstanding Series A-1 preferred stock as of December 1, 1999. No shares of
the Series A-1 preferred stock are owned by any directors or executive officers
of the Company. Except as otherwise noted, it is believed by the Company that
all persons have full voting and investment power with respect to the shares
indicated.
<TABLE>
<CAPTION>
SHARES OF SERIES A-1 PREFERRED
STOCK BENEFICIALLY OWNED
----------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF SHARES OWNED
- ---------------- ---------------- -----------------------
<S> <C> <C>
Corporate Financial(1) 1,370,590 43.3%
Enterprises, Inc.
2224 Main Street
Santa Monica, CA 90405
American Equities, LLC(2) 326,797 10.3%
3172 Abington Drive
Beverly Hills, California 90210
Jamie Mazur(3) 490,196 15.5%
2224 Main Street
Santa Monica, CA 90405
Emily Mazur(3) 326,797 10.3%
2224 Main Street
Santa Monica, CA 90405
Jennifer Mazur(3) 326,797 10.3%
2224 Main Street
Santa Monica, CA 90405
Trent Mazur(3) 326,797 10.3%
2224 Main Street
Santa Monica, CA 90405
</TABLE>
- --------------
(1) Corporate Financial Enterprises, Inc. is a private investment banking
and consulting firm owned by Mr. Regis Possino.
(2) American Equities, LLC is a private investment banking and consulting
firm owned by Mr. and Mrs. Reid Breitman.
(3) Jamie, Jennifer, Emily and Trent Mazur are siblings. Emily and Trent
Mazur are minors, and their shares are held by their mother, Michele
Mazur, as guardian.
40
<PAGE> 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
David Chadwick, Gary Killoran, Paul Hyde and James Rott are executive
officers of the Company and part owners of C/Net: Solutions, Inc., a private
company formed on January 1, 1998. From January 1, 1998 through April 21, 1998,
C/Net advanced $110,412 to phoneXchange and C/Net has continued to periodically
lend additional money to phoneXchange. On April 21, 1998, the parties entered
into an Advance Agreement pursuant to which C/Net agreed to continue to lend
money to phoneXchange without interest, and phoneXchange agreed to repay the
entire amount of the outstanding debt on demand at any time.
CERTAIN SALES OF EQUITY SECURITIES OF PHONEXCHANGE, INC.
In August and September 1999, phoneXchange issued 17,364 shares of its
restricted common stock in exchange for 17,923 shares of restricted common stock
of the Company.
The Company's subsidiary, phoneXchange, participated in a Chapter 11
Plan of Reorganization of One Stop Wireless of America, Inc. and Pre-Paid
Cellular, Inc. Among other things, the Plan called for phoneXchange to purchase
$750,000 in cash and certain telephone switching equipment, computer equipment,
cellular telephones and office furniture and equipment valued at approximately
$750,000 in exchange for 200,000 shares of phoneXchange common stock. The United
States Bankruptcy Court, Central District of California and Santa Ana Division
confirmed the Plan on June 29, 1999 and the shares were released from escrow on
that date.
Pursuant to an Asset Purchase Agreement dated June 2, 1999, between the
Company and SEL Group, a subsidiary of General Telephony Ltd., the Company
purchased certain telecommunications switching equipment for a total aggregate
purchase price of $1,266,250. The agreement calls for a cash payment of $300,000
and the issuance of 161,175 shares of phoneXchange common stock and warrants to
purchase an additional 161,175 shares of phoneXchange common stock at $10.00 per
share, exercisable for three years. The warrants were subsequently canceled in
exchange for 24,075 shares of phoneXchange common stock, bringing SEL Groups
ownership to 185,250 shares of phoneXchange common stock. On September 22, 1999,
the Company purchased SEL Group's 185,250 shares of phoneXchange common stock in
exchange for 185,250 shares of the Company's common stock.
Subsequent to the Company's purchase of 85.14% of phoneXchange, Inc.,
there were subsequent issuances of phoneXchange stock noted above, which diluted
the Company's ownership of phoneXchange, Inc. We currently own 529,250 shares of
807,012 shares issued and outstanding or 65.6%. However, we have lent
phoneXchange approximately $5,065,544 since January 1999. Such obligation is
convertible at our option into common stock of phoneXchange at a conversion
price equal to 60% of the closing bid price of phoneXchange's common stock on
the date of conversion. Based on the closing price of phoneXchange's common
stock on December 31, 1999, we could have converted the loan into 8,442,573
shares of phoneXchange common stock, which would bring our ownership percentage
to 97%.
SHARES AVAILABLE FOR FUTURE SALE
There are 5,867,780 shares of our common stock outstanding as of
December 15, 1999. In addition, the shares offered hereby will be available for
immediate sale in the public market as of the effective date of the registration
statement, of which this prospectus is a part. Of the presently outstanding
shares of common stock, we estimate that approximately 2,274,012 are free
trading and the balance are "Restricted Securities" as defined under the
Securities Act of 1933 and Rule 144. In general, under Rule 144 a person who has
satisfied a one year holding period, under certain circumstances, may sell
within any three-month period a number of shares which does not exceed the
greater of one percent of the then outstanding shares of that class of
securities or the average weekly trading volume in such shares during the four
calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity or other limitation by a
person who is not an affiliate of the Company and who has satisfied a two year
holding period. Any sales of a substantial amount of common stock in the open
market, under Rule 144 or otherwise, could have a significant adverse effect on
the market price of our common stock.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed on for
us by Kaye, Scholer, Fierman, Hays & Handler, LLP, Los Angeles, California. Reid
Breitman is an associate employed by Kaye, Scholer, and is also the owner of
American Equities, LLC, which is a selling security holder, and which owns
326,797 shares of our Series A-1 Preferred Stock and warrants to purchase
630,000 shares of our common stock. See "Selling Security Holders" and "Security
Ownership of Certain Beneficial Owners and Management."
EXPERTS
The balance sheets of Global Access Pagers, Inc. (our predecessor) as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1998 and
1997, and for the period from inception (January 16, 1997) to December 31, 1998,
appearing in this prospectus and registration statement have been audited by
Jaak Olesk, an independent auditor, as set forth in his report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of him as an expert in accounting and auditing.
41
<PAGE> 42
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1, including amendments thereto, relating to
the common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. This prospectus contains all material
information required to be disclosed by the Securities Act. For further
information regarding us and the common stock offered hereby, reference is made
to such registration statement, exhibits and schedules. A copy of the
registration statement may be inspected by anyone without charge at:
Room 1024 Northwestern Atrium Center New York Regional Office
Judiciary Plaza 500 West Madison Street Seven World Trade
450 Fifth Street, N.W. Center Suite 1400 13th Floor
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York 10048
Copies of such material also can be obtained from the Public Reference
Section of the SEC, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of such site is http://www.sec.gov.
We have applied for quotation of our common stock on the Nasdaq
SmallCap Market, and once approved, those reports, proxy and information
statements and other information also can be inspected at the office of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
42
<PAGE> 43
Global Access Pagers, Inc.
(A Development Stage Company)
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm.
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountant F-2
Balance Sheets as of December 31, 1998 F-3
Statement of Operations for the years ended December 31, 1997 and 1997
and for the period from inception (January 16, 1997) to December 31, 1998 F-4
Statements of cash flows for the years ended December 31, 1998 and 1997
and for the period from inception (January 16, 1997) to December 31, 1998 F-5
Statements of changes in stockholder's equity (deficit) for the years ended
December 31, 1998 and 1997 and for period from inception (January 16, 1997)
to December 31, 1998 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE> 44
JAAK (JACK) OLESK
Certified Public Accountant
270 North Canon Drive, Suite 203
Beverly Hills, California 90210
(310) 288-0693
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Global Access Pagers, Inc.
(A Development Stage Company)
I have audited the accompanying balance sheets of Global Access Pagers,
Inc., a Nevada Corporation (a development stage company) as of December 31, 1998
and December 31, 1997 and the related statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 1998 and
December 31, 1997 and for the period from inception (January 16, 1997) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Global Access
Pagers, Inc., a Nevada Corporation (a development stage company) as of December
31, 1998 and December 31, 1997 and the results of its operations and its cash
flows for the years ended December 31, 1998 and December 31, 1997 and for the
period from inception (January 16, 1997) to December 31, 1998, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company has suffered significant losses from
operations that raises substantial doubt about its ability to continue as a
going concern. The company also has uncertainties relating to the litigation
matters as described in Note 6. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Beverly Hills, California
February 3, 1999
F-2
<PAGE> 45
Global Access Pagers, Inc.
(A Development Stage Company)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Total Assets $ -- $ --
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Accounts Payable $ 1,999 $ --
Accrued Expenses 5,000 --
----------- -----------
Total Current Liabilities 6,999 --
----------- -----------
Commitments and Contingencies (Note 6)
Stockholders' Equity
Common Stock Subscribed -- 7,800,000
Common Stock $.01 par values;
250,000,000 shares authorized;
5,262,000 shares issued and outstanding 52,620 467
Preferred stock: (20,000,000 total
Preferred shares authorized)
Class A 8% Non-voting preferred Stock;
$3 stated value per share;
50,000 shares authorized;
0 shares issued -- --
Class A 12% Non-voting preferred Stock;
$10 stated value per share;
5,000,000 shares authorized;
0 shares issued -- --
Class B 8 1/2% Non-voting preferred Stock;
$100 stated value per share;
200,000 shares authorized;
0 shares issued -- --
Class C 10% Non-voting preferred Stock;
$200 sated value per share;
500,000 shares authorized;
0 shares issued -- --
Additional paid in capital 8,047,480 299,633
(Deficit) accumulated during
the development stage (8,107,099) (8,100,100)
Total Stockholders' Equity (Deficit) (6,999) --
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 46
Global Access Pagers, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Inception
January 19, 1997
Year Ended Year Ended To
December 31, December 31, December 31,
1998 1997 1998
------------- ------------ ----------------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ --
EXPENSES
General and administrative 6,999 300,100 307,099
Write-off of assets -- 7,800,000 7,800,000
--------- ----------- -----------
(Loss) from operations (6,999) (8,100,100) (8,107,099)
Income Taxes -- -- --
--------- ----------- -----------
NET (LOSS) $ (6,999) $(8,100,100) $(8,107,099)
========= =========== ===========
Net (loss) per common shares $ (0.00) $ (173.28) $ (3.05)
========= =========== ===========
Weighted average common
shares outstanding 5,262,000 46,747 2,654,374
========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 47
Global Access Pagers, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
January 16, 1997
Year Ended Year Ended To
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(6,999) $(8,100,100) $(8,107,099)
Write off of assets -- 7,800,00 7,800,000
Adjustments to reconcile
Net income (loss) to cash
Used in operating activities:
Changes in operating liabilities:
Accounts payable 1,999 -- 1,999
Accrued expenses 5,000 -- 5,000
Other -- 300,000 300,000
------- ----------- -----------
Net cash used in operating activities: -- (100) (100)
Cash flows from investing activities:
Acquisition of assets -- -- --
Cash flows from financing activities:
Notes payable -- -- --
Stock Issuance -- 100 100
------- ----------- -----------
Net cash provided by financing
activities: -- 100 100
Increase (decrease) in cash -- -- --
Cash at beginning of period -- -- --
------- ----------- -----------
Cash at end of period $ -- $ -- $ --
======= =========== ===========
Supplemental information:
Cash paid during the period for:
Income taxes: $ -- $ -- $ --
======= =========== ===========
Interest: $ -- $ -- $ --
======= =========== ===========
Non-cash financing transactions:
Shares issued for assets $ -- $ 8,100,000 $ 8,100,000
======= =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 48
Global Access Pagers, Inc.
(A Development Stage Company)
STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(Deficit)
Accumulated Total
Common Stock Additional During Shareholders'
------------------------------------- Paid-In Development Equity
Shares Amount Subscribed Capital Stage (Deficit)
--------- ------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 19, 1997 -- $ -- $ -- $ -- $ -- $ --
--------- ------- ----------- ----------- ----------- -----------
Common shares issued for
cash at inception
January 16, 1997 10,000 $ 100 $ -- $ -- $ -- $ 100
Shares issued and
subscribed for assets,
January, 1997 36,747 367 7,800,000 (367) -- 7,800,000
Assets contributed by
shareholders -
January, 1997 -- -- -- 300,000 -- 300,000
Net (loss) for year ended
December 31, 1997 -- -- -- -- (8,100,100) (8,100,100)
--------- ------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 46,747 $ 467 $ 7,800,000 $ 299,633 $(8,100,100) --
Common stock issued for
assets during 1997 5,215,253 52,153 (7,800,000) 7,747,847 -- --
Net (loss) for year ended
December 31, 1998 -- -- -- -- (6,999) (6,999)
--------- ------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 5,262,000 $52,620 $ -- $ 8,047,480 $(8,107,099) $ (6,999)
========= ======= =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 49
Global Access Pagers, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - Significant Accounting Policies
NATURE OF OPERATIONS
Global Access Pagers, Inc. (the "Company"), a Nevada corporation, was
incorporated on January 16, 1997. From January 16, 1997 through February 3, 1999
the Company attempted to enter into various business combinations, but only one
was consummated. On April 16, 1998, Theatre, Inc., a Nevada corporation, entered
in an agreement and plan of merger with Phonetime Resources, Inc., a Delaware
corporation. Pursuant to the agreement, Phonetime Resources, Inc. merged into
Theatre Inc. and Theatre , Inc. was the surviving corporation. Upon completion
of the merger, Phonetime Resources, Inc. ceased to exist and Theatre, Inc.
operated under the name Global Access Pagers, Inc. The purpose of the merger was
to effect a domicile change. In addition, the Company entered into a merger with
Global Access Pagers, Inc., a Nevada Corporation (the Company and this
corporation were and are separate entities but with the same name). That
transaction was rescinded. From January 16, 1997 through February 3, 1999 the
Company had no revenues and no operations.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of funds invested in money market accounts and
in investments with a maturity of three months or less when purchased.
(LOSS) PER SHARE
The computation of income (loss) per share of common stock is based on
the weighted average number of shares outstanding during the periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
The Company records its income tax provision in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". (See Note 3)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with 1998
classifications.
NOTE 2 - Basis of presentation and considerations related to continued existence
(going concern).
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred a net loss of $8,107,099 for the period from inception (January 16,
1997) to December 31, 1998. This factor, among others, raises substantial doubt
as to the Company's ability to obtain debt and/or equity financing and achieve
profitable operations.
F-7
<PAGE> 50
Global Access Pagers, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONCLUDED
December 31, 1998
NOTE 3 - Income Taxes
The Company records its income tax provision in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires the use of the liability method of accounting for deferred
income taxes.
Since the Company has not generated taxable income since inception no
provision from income taxes has been provided. At December 31, 1998, the Company
did not have any significant tax net operating loss carry forwards (tax benefits
resulting from losses for tax purposes have been fully reserved due to the
uncertainty of a going concern). At December 31, 1998, the Company did not have
any significant deferred tax liabilities or deferred tax assets.
NOTE 4 - Development Stage Company
A development stage company is one for which principal operations have
not commenced or principal operations have generated an insignificant amount of
revenue. Management of a development stage company devotes most of its
activities to establishing a new business. Operating losses have been incurred
through December 31, 1998, and the Company continues to use, rather that
provide, working capital in this operation. Although management believes that it
is pursuing a course of action that will provide successful future operations,
the outcome of these matters is uncertain.
NOTE 5 - Attempted Business Combinations
During 1997 and 1998, the Company attempted several business
combinations. However, only one business combination was ever consummated.
Due to uncertainty of recovery, assets acquired pertaining to these
potential businesses have been written off in full.
NOTE 6 - Commitments and Contingencies
LITIGATION
1. The Company, and two of its predecessor companies are named as
defendants in a breach of a lease action brought by a large insurance
company ("Landlord"). Plaintiff Landlord is seeking unpaid rent and
other fees of not less than $198,355. The outcome of this matter is
uncertain.
2. The Company is a defendant in a second unrelated breach of contract
action. The amount in controversy is approximately $12,000. The outcome
of this matter is uncertain.
OTHER
The Company is not occupying any office space or any other premises.
F-8
<PAGE> 51
INTEGRATED COMMUNICATION NETWORKS, INC.
AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
(A Nevada Corporation)
Unaudited Consolidated Financial Statements
As of September 30, 1999 and for the Nine Months
Ended September 30, 1999 and for the period from
January 16, 1997 (Inception) to September 30, 1999
F-9
<PAGE> 52
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheet as of September 30, 1999 F-11
Consolidated Statement of Operations for the Nine Months Ended
September 30, 1999 F-12
Consolidated Statements of Shareholders' Equity (Deficiency)
for the period from January 16, 1997 (Inception) through
September 30, 1999 F-13
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1999 F-14
Notes to unaudited consolidated financial statements F-15
</TABLE>
F-10
<PAGE> 53
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 98,530 $ -
Marketable securities 113,301 -
Accounts receivable 30,622 -
Advances 1,050 -
Preferable stock subscriptions receivable 457,621 -
Common stock subscriptions receivable 105,750 -
Deposits 301,006 -
Prepaids 198,080 -
----------- -----------
Total current assets 1,305,960 -
----------- -----------
Property and equipment, net 4,902,356 -
Goodwill, net 9,822,871 -
----------- -----------
Total noncurrent assets 14,725,226 -
----------- -----------
----------- -----------
Total assets $16,031,187 $ -
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 81,180 $ -
Current portion of capital lease obligation 54,805 -
Accounts payable trade 317,140 1,999
Accounts payable carriers 309,086 -
Accrued general expenses 10,000 5,000
Accrued payroll 102,769 -
Accrued interest lt debt 291 -
Taxes payable 60,446 -
Sales tax payable 24,479 -
Customer deposits 22,000 -
Unearned revenues 255,748 -
Preferred Stock Dividends Payable 33,333 -
----------- -----------
Total current liabilities 1,271,279 6,999
----------- -----------
Long-term liabilities:
Long term notes payable 55,446 -
Capital lease obligation 92,170 -
Minority interest 1,062,899 -
----------- -----------
Total long-term liabilities 1,210,515 -
----------- -----------
Commitments:
Shareholders' equity (deficit):
Preferred stock, $.01 par value, authorized 20,000,000 shares
Series A preferred stock, 50,000 shares authorized, issued and outstanding
-0- at September 30, 1999 and -0- at December 31, 1998 - -
Series A-1 12% convertible redeemable preferred stock, 7,500,000 shares authorized,
issued and outstanding 3,267,974 shares at September 30, 1999 and -0- at
December 31, 1998 32,680 -
Preferred stock subscribed 2,125,000 -
Common stock, $.01 par value:
Authorized - 250,000,000 shares: Issued and outstanding 3,327,030
at September 30, 1999 and 5,262,206 at December 31, 1998 33,270 52,620
Additional paid-in capital 23,265,317 8,047,480
Retained earnings (deficit) (11,906,874) (8,107,099)
----------- -----------
Total shareholders' equity (deficit) 13,549,393 (6,999)
----------- -----------
----------- -----------
Total liabilities and shareholders' equity (deficit) $16,031,187 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-11
<PAGE> 54
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE NINE MONTHS ENDED
MONTHS ENDED SEPTEMBER 30,
SEPTEMBER 30, 1999 1998
------------------ -------------
<S> <C> <C>
----------- -------
Revenue $ 624,832 $ --
----------- -------
----------- -------
Cost of services 1,254,739 --
----------- -------
Gross profit (629,907) --
----------- -------
Operating expenses:
Selling, general & administrative expenses 2,056,691 --
Write-off of assets 216,600 --
Depreciation and amortization 901,776 --
----------- -------
Total operating expenses 3,175,066 --
----------- -------
Loss from operations (3,804,974) --
----------- -------
Other income (expense) 38,532 --
----------- -------
----------- -------
Net loss $(3,766,442) $ --
=========== =======
Basic and diluted weighted average number of ----------- -------
common shares outstanding 2,856,868 46,747
=========== =======
----------- -------
Basic and diluted net loss per share $ (1.32) $ --
=========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 55
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
From January 16, 1997 (Inception) to September 30, 1999
<TABLE>
<CAPTION>
RETAINED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS SHAREHOLDERS'
SHARES AMOUNT SUBSCRIBED SHARES AMOUNT SUBSCRIBED PAID-IN CAPITAL (DEFICIT) EQUITY
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 16,
1997 - - $ - - $ $ - $ - $ - $ -
Common stock issued
for cash
at inception - - - 10,000 100 - - - 100
Common stock issued
and subscribed
for assets 1997 - - - 36,747 367 7,800,000 (367) - 7,800,000
Assets contributed
by shareholders
January 1997 - - - - - - 300,000 - 300,000
Net loss - - - - - - - (8,100,000) (8,100,100)
------------------------------ ---------------------------------- ------------------------------------------
Balance, December
31, 1997 - $ - $ - 46,747 $ 467 $7,800,000 $ 299,633 $(8,100,000) $ 0
------------------------------ ---------------------------------- ------------------------------------------
Common stock issued
for assets 1997 - - - 5,215,459 52,155 (7,800,000) 7,747,845 - -
Net loss - - - - - - - (6,999) (6,999)
------------------------------ ---------------------------------- ------------------------------------------
Balance, December
31, 1998 - $ - $ - 5,262,206 $ 52,622 $ - $ 8,047,478 $(8,107,099) $ (6,999)
------------------------------ ---------------------------------- ------------------------------------------
Stock to be issued
for assets acquired
January - - 2,125,000 441,600 4,416 - 2,170,307 - 4,299,723
Stock cancelled - - - (3,475,000) (34,750) - 34,750 - -
Stock issued for
acquisition of
PhoneXchange
February 1999 - - - 921,428 9,214 - 6,440,789 - 6,450,003
Common stock issued
for conversion of
debt May 1999 - - 25,296 253 - 132,551 - 132,804
Stock issued for
receivable 141,000 1,410 - 104,340 - 105,750
Common shares
issued for
services - - - 10,500 105 - 56,164 - 56,269
Stock issued for
cash and
receivable 3,267,974 32,680 - - - - 4,967,320 - 5,000,000
Effect of
subsidiaries
common stock
issuable - - - - - - 1,311,619 - 1,311,619
Preferred Stock
Dividends - - - - - - - (33,333) (33,333)
Net loss - - - - - - - (3,766,442) (3,766,442)
------------------------------ ---------------------------------- ------------------------------------------
Balance as of
September 30,
1999 3,267,974 $32,680 2,125,000 10,277,030 $ 33,270 $ - $23,265,317 $(11,906,874) $13,549,393
------------------------------ ---------------------------------- ------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-13
<PAGE> 56
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(3,766,442) $ --
Adjustment to reconcile net loss to cash used by operating
activities:
Depreciation and amortization 901,776 --
Write-off assets due to casualty loss 39,581 --
Common stock issued for services 56,269 --
Decrease (increase) in assets:
Accounts receivable (2,738) --
Advances (1,050) --
Deposits (236,041) --
Prepaids (180,968) --
Increase (decrease) in liabilities:
Accounts payable trade 133,529 --
Accounts payable carriers 172,857 --
Accrued general expenses (2,200) --
Accrued carrier costs (3,252) --
Accrued payroll 92,623 --
Accrued interest short term debt 33,847 --
Accrued interest long term debt 19,833 --
Taxes payable 14,592 --
Sales tax payable (6,061) --
Customer deposits 22,000 --
Unearned revenue 252,767 --
Other advance (317,802) --
Payable to C/Net: Soulutions, Inc. (208,296) --
------------- -------------
Net cash used in operating activities (2,985,175) --
------------- -------------
Cash Flows From Investing Activities:
Purchases of property and equipment (1,430,588) --
Acquisition, net of cash acquired 18,433 --
------------- -------------
Net cash used in investing activities (1,412,155) --
------------- -------------
Cash Flows From Financing Activities:
Proceeds from issuance of short-term debt 331,965 --
Principal payments of capital lease obligation (29,496) --
Proceeds from issuance of long-term debt 1,573,181 --
Principal payments on long-term debt (79,791) --
Proceeds from issuance of preferred stock 1,950,001 --
Proceeds from issuance of common stock 750,000 --
------------- -------------
Net cash provided by financing activities 4,495,860 --
------------- -------------
------------- -------------
Increase in cash and cash equivalents 98,530 --
------------- -------------
------------- -------------
Cash and cash equivalents at the beginning of the period $ -- $ --
============= =============
------------- -------------
Cash and cash equivalents at the end of the period $ 98,530 $ --
============= =============
------------- -------------
Income Tax Paid $ -- $ --
============= =============
Interest Paid $ -- $ --
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-14
<PAGE> 57
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) FORMATION AND DESCRIPTION OF BUSINESS
Integrated Communication Networks, Inc., and Subsidiaries (formerly, Global
Access Pagers, Inc.) (the "Company" or "ICN"), a Nevada corporation was
incorporated on January 16, 1997 under the name Theatre, Inc. The Company is
currently engaged in the integration of various telecommunication networks
through acquisition and internal growth for the purpose of offering a variety
of reliable, high-quality, value-added telecommunication services at
competitive prices.
From January 16, 1997 through December 31, 1998, the Company attempted to enter
into various business combinations, but only one was consummated. On April 16,
1998, Theatre, Inc., a Nevada corporation, entered into an Agreement and Plan
of Merger with Phonetime Resources, Inc., a Nevada corporation. Pursuant to the
agreement, Phonetime Resources, Inc. merged into Theatre, Inc. and Theatre,
Inc. was the surviving corporation. Upon completion of the merger, Phonetime
Resources, Inc ceased to exist and Theatre, Inc. operated under the name Global
Access Pagers, Inc. The purpose of the merger was to effect a domicile change.
On May 8, 1998, Theatre, Inc., doing business as Global Access Pagers, Inc.,
entered into an Agreement and Plan of Merger with Global Access Pagers, Inc., a
Nevada corporation. Pursuant to the agreement, Global Access Pagers, Inc.
merged into Theatre, Inc. and Theatre, Inc. was the surviving corporation. Upon
completion of the merger, Global Access Pagers, Inc. ceased to exist and
Theatre, Inc. changed its name to Global Access Pagers, Inc. The transaction
was accounted for using the purchase method of accounting. The transaction
relating to the merger was rescinded on January 27, 1999. Accordingly,
3,475,000 issued common shares of the surviving entity were returned to the
Company and cancelled.
From January 16, 1997 through December 31, 1998, the Company had no revenues
and no operations.
On January 1, 1999, Global Access Pagers, Inc. entered into a Stock Purchase
Agreement with phoneXchange, Inc., a Delaware corporation, whereby Global
Access Pagers, Inc. purchased 8,600,000 shares or 85.14% of the issued and
outstanding shares of common stock of phoneXchange in exchange for 921,429
common shares of Global Access Pagers, Inc. and stock purchase warrants to
purchase 921,429 shares of the Company's common stock at a purchase price per
share of $4.50. The transaction was valued at $6,450,003 and was effective
February 28, 1999. In addition, the Company entered into employment agreements
with the officers of phoneXchange effective January 1, 1999. On January 29,
1999, management of the Company changed the name of the corporation from Global
Access Pagers, Inc. to Integrated Communication Networks, Inc. On February 28,
1999, management of phoneXchange assumed responsibility for the management of
the Company. The transaction was accounted for using the purchase method of
accounting. On September 13, 1999, the Company issued the 921,429 shares of
common stock pursuant to the Stock Purchase Agreement.
The Company began operation in February 1999 through the Company's acquisition
of phoneXchange, Inc. phoneXchange is a facilities-based wholesale carrier that
provides switched voice and data services, primarily to U.S.-based carriers.
phoneXchange provides domestic and international long distance service through
foreign termination relationships, international gateway switches, leased and
owned transmission facilities and resale arrangements with other long distance
providers
F-15
<PAGE> 58
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) FORMATION AND DESCRIPTION OF BUSINESS - CONTINUED
Management has dedicated its efforts to date on the development and
implementation of its business plan and the formation and financing of the
Company. The Company has been formed to integrate state of the art flexible
telecommunication networks that provide reliable, high-quality, low-cost
telecommunication services Management has spent a significant amount of time
identifying, evaluating and pursuing strategic acquisitions to accomplish this
objective. To achieve the objectives outlined in its plan, the Company must
obtain sufficient financing to obtain and complete its long-distance network
facilities and, ultimately, achieve a sufficient level of sales and
profitability to support its contemplated operations. Management is currently
pursuing various financing alternatives. However, no assurance can be provided
that management will be able to obtain financing on terms acceptable to the
Company, or at all. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Integrated
Communication Networks, Inc. and its majority-owned subsidiaries. All
significant inter-company transactions and balances have been eliminated.
Minority interest represents the minority shareholders' proportionate share of
the equity or income of the Company's majority-owned subsidiary phoneXchange,
Inc.
(c) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. The Company reviews all significant estimates effecting the
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their issuance. Actual results could differ from
those estimates.
(d) REVENUE RECOGNITION
The Company records revenues for the sale of telecommunications services at the
time of customer usage. All services paid in advance by the customer are
recorded as unearned revenue.
(e) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits and money market funds,
which are highly liquid short-term instruments with original maturities of
three months or less from the date of purchase. Cash and cash equivalents are
stated at cost, which approximates market. There were no cash equivalents for
the nine months ended September 30, 1999.
F-16
<PAGE> 59
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONCLUDED
(f) FINANCIAL INSTRUMENTS
The Company follows the guidance of Statement of Accounting Standards ("SFAS")
No. 107, "Disclosure of Fair Value Financial Instruments", which requires
disclosure of the fair value of financial instruments; however, this
information does not represent the aggregate net fair value of the company.
Unless quoted market price indicates otherwise, the fair values of cash and
cash equivalents and deposits generally approximate market value because of the
short maturity of these instruments. The Company's notes payable and capital
lease obligations also approximate market value as the underlying borrowing
rates are similar to the other financial instruments with similar maturities
and terms.
(g) PROPERTY AND EQUIPMENT
Property and Equipment are stated at cost or fair values at the date of
acquisition and, in the case of equipment under capital leases, the present
value of minimum lease payments. Depreciation and amortization of property and
equipment are computed using the straight-line method over the following
estimated useful lives:
Operating Equipment 5 years
Leasehold Improvements 1-5 years
Furniture, Fixtures and equipment 3 years
Amortization of assets financed under capital leases was $42,533, depreciation
of purchased assets was $475,849 and depreciation on leasehold improvements was
$4,176 for the nine months ended September 30, 1999.
Replacements and betterments, renewals and extraordinary repairs that extend
the life of the asset are capitalized; other repairs and maintenance are
expensed.
(h) INCOME TAXES
The Company uses the liability method of accounting for income taxes specified
by SFAS No. 109, "Accounting for Income Taxes", whereby deferred tax
liabilities and assets are determined based on the difference between financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
tax assets are recognized and measured based on the likelihood of realization
of the related tax benefit in the future. The Company had no material net
deferred tax assets or liabilities at September 30, 1999.
(i) LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share". The statement replaces primary EPS with basic
EPS, which is computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding. The provision requires the
calculation of diluted EPS. The Company uses the method specified by the
statement.
F-17
<PAGE> 60
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
2. ASSET PURCHASES
(a) NACT Sales and Service Agreement
On December 31, 1997, the Company entered into a sale and services agreement
(the Agreement) for the purchase of certain communications equipment and
licensed software (the System). The equipment consists primarily of an STX
telephone switching system, which is a long-distance, tandem telephone switch.
The purchase price for the System is $333,038. The Agreement calls for 20%
deposit or $66,608 due upon signing, a payment of $116,561 due upon shipment of
the System, a payment of $116,561 due 30 days after shipment and a payment of
$33,009 due 60 days after shipment. On January 31, 1998, the Company paid a
deposit of $35,000 on the System. On February 24, 1998, the Company and NACT
revised the payment terms under the Agreement as follows: outstanding amounts
due will accrue interest at 10% per annum, payment of $70,000 due by May 1,
1998, final payment of $237,598.55 due by June 1, 1998 and the NACT will allow
the shipment of the System upon receipt of the $70,000 payment. On April 21,
1998, C/Net transferred the $35,000 deposit to the Company. On April 30, the
Company paid an additional deposit of $70,000. On July 13, 1998, the Company and
NACT revised the payment terms under the Agreement as follows: payment of
$50,000 due by July 20, 1998, final payment of $187,598.55 due by August 3,
1998. On July 21, 1998, the Company paid an additional deposit of $50,000. On
September 29, 1998, the company entered into a lease agreement with Rockford
Industries to finance the remaining balance due to NACT on the System. The lease
agreement calls for 36 equal minimum monthly payments of $7,119.98. Aggregate
minimum lease payments total $256,319.28. The capital lease is secured by the
System.
(b) FM Technologies, LLC Agreement of Purchase and Sale of Assets
On April 27, 1998, the Company entered into an Agreement of Purchase and Sale
of Assets with FM Technologies, LLC. to acquire certain communications
equipment, billing system and licensed software for $300,000, of which $90,000
was paid in cash and $210,000 is to be paid in the form of two promissory
notes. The first promissory note in the amount of $39,142 is non-interest
bearing and is payable monthly commencing June 1, 1998 at a rate of $13,047 per
month for 3 months. The second promissory note in the amount of $170,858 bears
interest at 10% and is payable monthly commencing August 23, 1998 at a rate of
$5,513 per month for 36 months. These notes are secured by the assets acquired.
On April 27, 1999, the Company, phoneXchange and FM Technologies entered into
an agreement whereby the Company agreed to pay past due payments on the second
promissory note in the amount of $49,617.99 and convert the remaining balance
on the second promissory note in the amount of $132,803.91 into 25,296
restricted shares of common stock of the Company.
(c) GST Net, Inc. Asset Purchase Agreement
On December 15, 1998, the Company executed an Asset Purchase Agreement with GST
Net, Inc. to acquire certain communications equipment, billing system and
licensed software for $150,000, of which $5,000 was paid in cash and $145,000
is to be paid in the form of a promissory note. The promissory note bears
interest at 7.5% and is payable monthly commencing January 15, 1999 at a rate
of $6,525 per month for 24 months. The note is secured by the assets acquired.
F-18
<PAGE> 61
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
2. ASSET PURCHASES -- CONCLUDED
(d) J&W Ventures, Inc. Asset Purchase Agreement
On December 10, 1998, the Company executed an Asset Purchase Agreement with J&W
Ventures, Inc. to acquire certain telecommunications switching equipment and
software for $4,685,000, of which $300,000 was paid in cash and the remainder
to be paid by the issuance of 441,600 shares of restricted common stock of the
Company and the issuance of 850,000 shares of the Company's Series A
Convertible Redeemable Preferred Stock., stated value of $2.50 per share. The
number of shares of common stock of the Company that the Series A Convertible
Redeemable Preferred Stock is convertible into is determined by dividing the
greater of (x) the fair market value per share of common stock or (y)$3.50. As
of June 30, 1999, the 850,000 shares of Series A Convertible Redeemable
Preferred Stock have not been issued. As such, the value of the shares is
recorded as Preferred Stock Subscribed in the accompanying Consolidated Balance
Sheet. The transaction resulted in an excess cost over fair value of the assets
purchased in the amount of $2,185,000 recorded as goodwill and amortized over
15 years. Amortization for the Nine months ending September 30, 1999 was
$72,833.
(e) Global Network Providers, Inc. Asset Purchase Agreement
On November 1, 1998, the Company executed an Asset Purchase Agreement with
Global Network Providers, Inc. to acquire certain customer sales contracts for
domestic and international long distance services, FCC International 214
license and certain office equipment for $2,250,000, of which $250,000 was to
be paid in cash upon the effective date of the agreement, $150,000 was to be
paid 90 days after the effective date of the agreement, $100,000 was to be paid
180 days after the effective date of the agreement and the remainder to be paid
by the issuance of 500,000 shares of restricted common stock of the Company of
which 200,000 shares was issuable upon the effective date of the agreement and
300,000 shares issuable at a rate of 50,000 shares at the end of each calendar
quarter subject to certain performance objectives. The Company paid $216,600 as
deposit on the asset purchase and subsequently determined that the transaction
was not in the best interest of the Company. The Company cancelled the Asset
Purchase Agreement. As such, the Company wrote-off the $216,600 deposit on
purchase.
(f) One Stop Wireless of America, Inc./Pre-Paid Cellular, Inc. Chapter 11 Plan
of Reorganization
The Company's subsidiary, phoneXchange, participated in a Chapter 11 Plan of
Reorganization of One Stop Wireless of America, Inc. and Pre-Paid Cellular, Inc.
Among other things, the Plan called for phoneXchange to receive $750,000 in cash
and certain telephone switching equipment, computer equipment, cellular
telephones and office furniture and equipment valued at approximately $750,000
in exchange for the issuance of 200,000 shares of phoneXchange common stock. The
Company recorded goodwill at $650,000 and office equipment and furniture at
$100,000 in July 1999. The United States Bankruptcy Court, Central District of
California, and Santa Ana Division confirmed the Plan on June 29, 1999.
(g) Goodwill from the transaction of the Stock Purchase Agreement between the
Company and phoneXchange, Inc. resulted from the purchase of 85.14% of
phoneXchange, Inc.'s stock and stockholder's equity as of February 28, 1999,
which totaled $7,395,559 will be amortized over 15 years. Amortization of
goodwill was $287,605 for the seven months ending September 30, 1999.
F-19
<PAGE> 62
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
(h) Pursuant to an Asset Purchase Agreement the Company paid $300,000 in cash
and issued 185,250 share of phoneXchange common stock to SEL Group for the
purchase of certain telecommunications switching equipment valued at $1,226,250.
3. DEPOSITS
Deposits of $139,800 consist of payments made to long distance providers to
secure service, deposits of $115,523 for leased office space for operations and
deposits of $45,683 for equipment. The deposits are refunded or applied to
future service or equipment purchased.
4. PROPERTY AND EQUIPMENT
Property and equipment consists primarily of telecommunications switching
equipment. The recorded amount of property and equipment capitalized and the
related accumulated depreciation is as follows:
Operating equipment 4,878,443
Leasehold Improvements 111,540
Furniture, fixtures and equipment 130,581
---------
Total property and equipment 5,120,564
Less: accumulated depreciation (509,498)
---------
Property and equipment, net 4,611,066
---------
Assets under capital lease 364,571
Less: accumulated amortization (73,281)
---------
Assets under capital lease, net 291,290
---------
TOTAL PROPERTY & EQUIPMENT, NET 4,902,356
=========
5. PAYABLE TO RELATED PARTIES
Note payable to Corporate Financial Enterprises and issued by phoneXchange, Inc.
Interest bearing at 8% per annum. Monthly payments of principal and interest in
an amount not less than 20% of the outstanding balance of the loan at the end of
the prior month are due commencing on May 1, 1999, and continuing thereafter on
the first day of each month until the total balance is paid. In the event there
is an outstanding principal balance of the loan at September 30, 1999, the
entire remaining balance of principal, accrued interest, late charges and
advances, if any, shall be due and payable on September 30, 1999 or convertible
to common stock. Note secured by phoneXchange assets. The Company paid off its
debt in the amount of $936,965 and accrued interest in the amount of $45,873 by
converting it to Preferred Series A-1 12% convertible and redeemable stock.
6. PAYABLE TO C/NET
Non-interest bearing note payable to C/Net in the amount of $336,000 was paid on
July 2, 1999.
F-20
<PAGE> 63
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
7. LONG-TERM DEBT
Long-term debt consists of the following:
(a) phoneXchange, Inc. issued Note payable in
connection with the telecommunications switch
asset purchase with GST Telecom, Inc. Interest
bearing at 7.5% per annum. Principal of $145,000
and interest are payable in monthly installments
of $6,525, beginning January 15, 1999, for 24
months. The assets acquired by phoneXchange secure
the Note. 93,149
(b) phoneXchange, Inc. issued Note payable in
connection with tenant improvements at the Aliso
Viejo corporate offices with CARR America Reality
Corporation. Interest bearing at 10% per annum.
Principal of $44,635 and interest are payable in
monthly installments of $948, beginning August 31,
1999, for 60 months. The assets acquired by
phoneXchange secure the Note. 43,477
-------
Total Notes Payable 136,626
Less Current portions (81,180)
-------
Notes Payable - Long Term 55,446
======
Aggregate maturities of long-term debt, net of discount, over the next five
years is as follows:
Period Ending
September 30 Amount
- ------------- ------
2000 81,180
2001 27,468
2002 8,987
2003 9,928
2004 9,063
-------
136,626
=======
(b) Convertible Debenture payable to Corporate Financial Enterprises and issued
by the Company. Interest bearing at 8% per annum for a period of 36 months. Six
equal monthly payments of principal and interest of the outstanding balance of
the Debenture at the end of the 36th month are due commencing on the first day
of May 2002, and continuing thereafter on the first day of each month for six
months until the total balance is paid. Lender may opt at any time during the
term of this Debenture, to convert payment from U.S. currency to shares of the
Company's preferred stock. Debenture secured by the Company's assets. The
Company paid off its debt in the amount of $1,573,180 and accrued interest in
the amount of $36,360.71 by converting it to Preferred Series A-1 12%
convertible and redeemable stock.
F-21
<PAGE> 64
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
8. LEASE COMMITMENTS
(a) Operating Leases
The Company leases office space, co-location space, dedicated private telephone
lines, equipment and other items under various agreements expiring through 2004.
(b) Capital Leases
The Company is obligated under a capital lease agreement for certain
telecommunications switching equipment. The lease agreement calls for 36 equal
minimum monthly payments of $6,577.13. Aggregate minimum lease payments total
$236,767. The switching equipment secures the capital lease.
Future minimum lease payments associated with the leases described herein,
including renewal options are as follows:
<TABLE>
<CAPTION>
Year Ending Dedicated Other
Capital Private Operating
Sept 30, 1999 Leases Lines Leases
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 85,505 $ 744,235 $ 124,580
2001 102,036 169,285 244,659
2002 -0- 126,707 243,180
2003 -0- 41,552 231,985
2004 -0- 38,089 199,722
Thereafter -0- -0- -0-
-------- ---------- ----------
$187,542 $1,119,869 $1,044,126
-------- ---------- ----------
Total minimum lease payments 187,542
--------
Less: imputed interest (40,566)
--------
Net present value of minimum lease payments 146,975
--------
Less: current portion (54,805)
--------
Long-term capitalized lease obligation 92,170
========
</TABLE>
On July 30, 1999, phoneXchange and Lucent Technologies, Inc. InterNetworking
Systems signed a Master Lease Agreement pursuant to which Lucent would provide
to us up to $10 million in credit for leasing Lucent equipment. Descriptions of
the Master Lease Agreement are qualified in their entirety by reference to the
definitive agreement filed as an exhibit to the registration statement to which
this prospectus forms a part. The agreement provides phoneXchange with credit of
$3 million on execution to finance the lease of telecommunications equipment
from Lucent. An additional $7 million will be made available for equipment
leases once phoneXchange provides either (a) verification that a minimum of $5
million of new equity is raised by September 30, 1999; or (b) verification that
phoneXchange has demonstrated cash flow coverage of at least 1.25 times lease
payments on a rolling three months average. We have not met either requirement.
We are currently attempting to negotiate an extension of these requirements and
an increase in the total financing to $25 million. While the amended financing
agreement is expected to be approved and executed prior to January 31, 2000,
there is no assurance that any increase or extension will be approved. If such
increase or extension is not approved, we may not be able to maintain our
current and projected growth
F-22
<PAGE> 65
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
9. EQUITY TRANSACTIONS
(a) Common Stock
In September 1999, the Company issued 500 shares of its restricted common stock
to Charles McGuirk and 5,000 shares of restricted common stock to each of Albert
Kashani and Joseph Vaughn-Perling, all as compensation for their services as
directors of the Company. As a result, the Company recognized director fees
expense in the amount of $56,269.
In September 1999, the Company sold 100,000 shares of its common stock for a
purchase price of $.75 per share in exchange for a receivable of $75,000.
In September 1999, the Company issued 921,429 shares of its common stock to
stockholders of phoneXchange. The value of the 921,429 shares was previously
recorded as common stock subscribed. The Company acquired ownership of
approximately 85% of phoneXchange in exchange for its stock.
In July 1999, the Company sold 41,000 shares of its common stock for a purchase
price of $.75 per share in exchange for a receivable of $30,750. In May 1999,
the Company issued 25,296 shares of restricted common stock to FM Computer
Technologies, LLC pursuant to the terms of the Agreement of Purchase and Sale of
Assets between the parties. The Company received certain telecommunications
switching equipment in exchange for the stock.
(b) Equity Securities of phoneXchange, Inc.
Pursuant to an Asset Purchase Agreement dated June 2, 1999, between the
Company's subsidiary, phoneXchange, and SEL Group, a subsidiary of General
Telephony Ltd., phoneXchange the purchased of certain telecommunications
switching equipment for a total aggregate purchase price of $1,226,250. The
agreement calls for a cash payment of $300,000 and the issuance of 161,175
shares of phoneXchange common stock and warrants to purchase an additional
161,175 shares of phoneXchange common stock at $10.00 per share, exercisable for
three years. The warrants were subsequently canceled in exchange for 24,075
shares of phoneXchange common stock, bringing SEL Groups ownership to 185,250
shares of phoneXchange common stock. On September 22, 1999, phoneXchange issued
the 185,250 common shares to SEL Group.
In August and September 1999, phoneXchange issued 17,364 shares of its
restricted common stock in exchange for 17,923 shares of restricted common stock
of the Company. The Company recorded Marketable Equity Securities in the amount
of $113,301.
The Company's subsidiary, phoneXchange, participated in a Chapter 11 Plan of
Reorganization of One Stop Wireless of America, Inc. and Pre-Paid Cellular, Inc.
Among other things, the Plan called for phoneXchange to purchase $750,000 in
cash and certain telephone switching equipment, computer equipment, cellular
telephones and office furniture and equipment valued at approximately $750,000
in exchange for 200,000 shares of phoneXchange common stock. The United States
Bankruptcy Court, Central District of California, and Santa Ana Division
confirmed the Plan on June 29, 1999 and the shares were released from escrow on
that date.
(c) Warrants To Purchase Common Stock
In September 1999, the Company issued warrants to purchase 350,000 shares of
common stock at an exercise price of $4.50 per share to Corporate Financial
Enterprises, Inc. The warrants were granted
F-23
<PAGE> 66
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
in exchange for consulting services and are exercisable for a term commencing
December 31, 2000 and expiring September 1, 2004.
In July 1999 the Company issued warrants to purchase 100,000 shares of its
common stock to Elie Sakaran in exchange for consulting services previously
rendered. The warrants are exercisable at a purchase price of $7.50 per share
for a term of 18 months.
As of February 23, 1999, the Company issued warrants to purchase 921,429 shares
of its common stock pursuant to the terms of a Stock Purchase Agreement dated
January 1, 1999, as amended on May 24, 1999, with phoneXchange, Inc. and its
stockholders. The warrants are exercisable at a purchase price of $4.50 per
share with a term of five years.
In February 1999, the Company issued warrants to purchase 5,943,633 shares of
its common stock exercisable at a purchase price of $1.72 per share to 6
accredited investors. The warrants are exercisable for 5 years.
(d) Options To Purchase Common Stock
On July 22, 1999, the Board of Directors of the Company authorized the grant of
options to purchase up to 1,000,000 shares of the Company's common stock at an
exercise price of $3.375 to various employees. These options all vest on grant
and have a five year term. On October 13, 1999, the Board of Directors
authorized the grant of options to purchase 100,000 shares of common stock to
Thomas Scott in connection with his employment agreement.
(e) Preferred Stock
In September 1999, the Company issued 3,267,974 shares of its Series A-1 12%
Convertible Redeemable Preferred Stock to Corporate Financial Enterprises, Inc.,
American Equities, LLC and certain other accredited investors in exchange for
$5,000,000. As of September 30, 1999, the Company received proceeds of
$4,542,479 and a receivable of $457,621 was recorded for the remaining proceeds.
10. YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations. Management
believes the Company's information technology system is Year 2000 compliant and
other operations of the Company will not be significantly impacted by the year
2000 Issue
11. MINORITY INTEREST
Minority interest is represented by the minority shareholder's proportionate
share of the equity or income of the Company's majority-owned subsidiary
phoneXchange, Inc. The interest is the minority shareholders' portion of the net
deficit of phoneXchange, Inc. at February 28, 1999 (date of consolidation) in
the amount of ($165,034). In addition, minority interest includes the minority
shareholders' portion of subsequent equity issuances of phoneXchange, Inc. in
the amount of $1,237,933. Minority shareholders' portion of income has not been
recognized due to the fact that
F-24
<PAGE> 67
INTEGRATED COMMUNICATION NETWORKS, INC. AND SUBSIDIARIES
(Formerly, Global Access Pagers, Inc.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
the Company has incurred losses to date. The resulting minority interest is
$1,062,899 as of September 30, 1999.
12. SUBSEQUENT EVENTS
In November 1999, the Company sold $5.0 million principal amount of its 4%
Convertible Debentures, and received net proceeds of $4,480,000. See
"Description of Securities -- 4% Convertible Debentures." The Company also
issued warrants to purchase 80,000 shares of the Company's common stock at an
exercise price of $12.50 per share and warrants to purchase 80,000 shares of the
Company's common stock at an exercise price of $15.00 per share. The warrants
are exercisable until November 22, 2001. The Company also issued warrants to
purchase 200,000 shares of the Company's common stock at exercise price of
$13.75 per share and paid $500,000 in placement fees to the May Davis Group as
placement agent. The Company also paid $20,000 in related legal fees.
In November 1999, the Company issued 185,250 shares of restricted common stock
of the Company to the SEL Group in exchange for 185,250 shares of phoneXchange,
Inc. restricted common stock for the purpose of increasing its ownership in
phoneXchange, Inc.
F-25
<PAGE> 68
PHONEXCHANGE, INC.
(A Delaware Corporation)
TABLE OF CONTENTS
From April 7, 1998 (Inception) To December 31, 1998
<TABLE>
Page
----
<S> <C>
Independent Auditor's Report F-27
Balance Sheet F-28
Statement of Income and Accumulated Deficit F-30
Statement of Shareholders' (Deficit) F-31
Statement of Cash Flows F-32
Notes to Financial Statements F-33 - F-40
</TABLE>
F-26
<PAGE> 69
[BRAD B. HAYNES LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors
PhoneXchange, Inc.
We have audited the balance sheet of PhoneXchange, Inc. (a Delaware
Corporation) as of December 31, 1998 and the related statements of income and
accumulated deficit, changes in shareholders' equity (deficit) and cash flows
for the period April 7, 1998 (inception) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PhoneXchange, Inc. (a Delaware
Corporation) as of December 31, 1998 and the results of its operations, its
changes in shareholders' equity (deficit) and its cash flows for the period of
April 7, 1998 (inception) to December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Note 1 to the financial statements,
discusses management's concerns. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management is currently
pursuing various financing alternatives. However, no assurance can be provided
that management will be able to obtain financing on terms acceptable to the
Company, or at all. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Brad B. Haynes
/s/ BRAD B. HAYNES
April 2, 1999
F-27
<PAGE> 70
PHONEXCHANGE, INC.
(A Delaware Corporation)
BALANCE SHEET
December 31, 1998
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash 59,170
Accounts receivable 11,598
Deposits 64,965
------
Total Current Assets 135,733
PROPERTY AND EQUIPMENT (NET) 416,438
ASSETS UNDER CAPITAL LEASE (NET) 346,343
-------
TOTAL ASSETS 898,514
=======
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable 242,658
Accrued expenses 45,905
Taxes payable 39,951
Current portion - long-term liabilities 144,142
Current portion - capital lease obligation 49,344
Payable to C/Net Solutions, Inc. 336,846
Notes payable - short-term 93,047
Payable to related parties 439,186
Deferred revenue 20,332
-------
Total Current Liabilities 1,411,411
LONG-TERM LIABILITIES
Notes payable 171,716
Capital lease obligation 135,576
-------
Total Long-Term Liabilities 307,292
---------
Total Liabilities 1,718,703
</TABLE>
The accompanying notes are an integral part of these financial statements
F-28
<PAGE> 71
PHONEXCHANGE, INC.
(A Delaware Corporation)
BALANCE SHEET CONTINUED
December 31, 1998
<TABLE>
<S> <C> <C>
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT)
Preferred Stock, .001 par value,
authorized, 5,000,000 shares issued
and outstanding - none
Common Stock, .001 par value, authorized,
50,000,000 shares issued and
outstanding 10,100,882 shares 10,101
Additional paid-in capital 298,931
Accumulated deficit (1,127,221)
----------
Total Shareholders' (Deficit) (820,189)
--------
TOTAL LIABILITIES AND
SHAREHOLDERS' (DEFICIT) 898,514
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 72
PHONEXCHANGE, INC.
(A Delaware Corporation)
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
From April 7, 1998 (Inception) To December 31, 1998
<TABLE>
<S> <C> <C>
REVENUE 183,000
COST OF SERVICES 262,093
-------
GROSS PROFIT (79,093)
OPERATING EXPENSES
Selling, general and administrative expenses 940,019
Depreciation and amortization 59,996
-------
Total Operating Expenses 1,000,015
---------
LOSS FROM OPERATIONS (1,079,108)
OTHER INCOME (EXPENSES) (48,113)
---------
NET LOSS (1,127,221)
ACCUMULATED DEFICIT - April 7, 1998 0
ACCUMULATED DEFICIT - December 31, 1998 (1,127,221)
=========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER 10,002,662
OF COMMON SHARES OUTSTANDING ==========
BASIC AND DILUTED NET LOSS PER SHARE (0.11)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 73
PHONEXCHANGE, INC.
(A Delaware Corporation)
STATEMENT OF SHAREHOLDERS' (DEFICIT)
From April 7, 1998 (Inception) To December 31, 1998
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL TOTAL
STOCK STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- ------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 7, 1998 -- -- -- -- -- -- --
Issuance of Common Stock
to Founders in exchange
for cash 9,000,000 9,000 291,000 300,000
Effect of Merger with
Mars Method, Inc. 1,100,882 1,101 5,931 7,032
Net Loss (1,127,721) (1,127,221)
--------- ------ ---------- ------ ----------- ------------ ----------
0 0 10,100,882 10,101 296,931 (1,127,221) (820,189)
========= ====== ========== ====== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 74
PHONEXCHANGE, INC.
(A Delaware Corporation)
STATEMENT OF CASH FLOWS
From April 7, 1998 (Inception) To December 31, 1998
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,127,221)
Adjustments to reconcile to net loss to
cash used by operating activities:
Amortization and depreciation 59,996
Write-off organization cost 7,032
Decrease (increase) in assets:
Accounts receivable (11,598)
Deposits (219,965)
Increase (decrease) in liabilities:
Accounts payable 242,658
Accrued expenses 55,465
Taxes payable 8,417
Deferred income 20,332
Payable to C/Net Solutions, Inc. 336,846
--------
Total Adjustments 499,183
---------
NET CASH USED IN OPERATING ACTIVITIES (628,038)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (103,205)
----------
NET CASH USED IN INVESTING ACTIVITIES (103,205)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of short-term debt 605,500
Principal payments of short-term debt (112,408)
Principal payments of capital lease
obligation (2,679)
Proceeds from issuance of common stock 300,000
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 790,413
--------
NET CASH PROVIDED BY ALL ACTIVITIES 59,170
CASH - April 7, 1998 --
CASH - December 31, 1998 59,170
========
INTEREST PAID 13,083
========
INCOME TAXES PAID --
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 75
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS
From April 7, 1998 (Inception) To December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FORMATION AND BASIS OF PRESENTATION:
PhoneXchange, Inc., was incorporated in the State of Delaware on April 7,
1998 (Date of Inception). On April 21, 1998, the Company's founding
shareholders (the Founders) contributed 300,000 to the Company in exchange
for 9.0 million shares of the Company's common stock; and C/Net: Solutions,
Inc. (C/Net), an affiliated entity owned by the Founders, transferred its
long-distance service business to the Company in exchange for a payable of
140,892.
In January 1998, C/Net formed a group to develop and implement the
Company's long-distance service business plan. During the period from
January 1, through April 21, 1998, C/Net incurred direct and indirect
expenditures in connection with the activities of this group and in
connection with the formation of the Company aggregating 110,412. Indirect
expenditures included in this amount were allocated to the long-distance
service business based on the ratio of aggregate salaries expense of the
long-distance business to C/Net's total salaries expense during the period
from January 1, through April 21, 1998. These direct and indirect expenses
have been reflected in the accompanying Statement of Operations.
On May 1, 1998, the Company entered into an Agreement and Plan of Merger
(the Merger) with Mars Method Inc. (Mars Method), a publicly held entity
and a Delaware corporation. Pursuant to the Agreement, the Company issued
1,100,882 shares of its common stock in exchange for 14,064,216 shares of
.001 par value common stock of Mars Method, which represents 100% of the
issued and outstanding shares of Mars Method. Upon completion of the
Merger, PhoneXchange, was the surviving corporation and Mars Method ceased
to exist. The Directors and Officers of the Company are the Directors and
Officers of the surviving corporation. The exchange is exempt from
registration pursuant to Regulation D, Section 504 of the Securities and
Exchange Commission Act of 1933, as amended. The Company expended 7,082 of
organizational costs of Mars Method upon completion of the Merger which
have been reflected in the accompanying Statement of Operations. The Merger
has been accounted for under the purchase method of accounting.
The Company is being formed to build a state of the art flexible switching
network which provides reliable, high-quality, low-cost domestic and
international long-distance service on a wholesale basis to second and
third-tier U.S. based long distance providers and resellers and brokers of
domestic and international long-distance service. The Company expects to
provide long distance services through a flexible network of foreign
termination relationships, international gateway and multi-service, frame
relay, Internet Protocol switches, leased and owned transmission
facilities and resale arrangements with other long distance providers. The
Company began offering its services to customers in September of 1998.
F-33
<PAGE> 76
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONT.'D
From April 7, 1998 (inception To December 31, 1998
Management has dedicated its efforts to date on the development and
implementation of its long-distance service business plan and the formation and
financing of the Company. To achieve the objectives outlined in its plan, the
Company must obtain sufficient financing to obtain and complete its
long-distance network facilities and, ultimately, achieve a sufficient level of
sales and profitability to support its contemplated operations. Management is
currently pursuing various financing alternatives. However, no assurance can be
provided that management will be able to obtain financing on terms acceptable
to the Company, or at all. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. The Company reviews all significant estimates effecting the
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their issuance. Actual results could differ from
those estimates.
REVENUE RECOGNITION:
The Company records revenues for the sale of telecommunications services at the
time of customer usage. All services paid in advance by the customer are
recorded as unearned revenue.
CASH AND CASH EQUIVALENT:
Cash and cash equivalents consist of demand deposits and money market funds,
which are highly liquid short-term instruments with original maturities of
three months or less from the date of purchase. There were no cash equivalents
for the period April 7, to December 31, 1997.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost or fair values at the date of
acquisition and, in the case of equipment under capital leases, the present
value of minimum lease payments. Depreciation and amortization of property and
equipment are computed using the straight-line method over the following
estimated useful lives:
F-34
<PAGE> 77
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS cont.'d
From April 7, 1998 (Inception) To December 31, 1998
Operating Equipment 5 years
Furniture, Fixtures and Equipment 3 years
Amortization of assets financed under capital leases was 38,403 at December
31, 1998. Depreciation of purchased assets was 21,593. Total Amortization
and depreciation was 59,996.
Replacements and betterments, renewals and extraordinary repairs that
extend the life of the assets are capitalized; other repairs and
maintenance are expended.
INCOME TAXES:
The Company uses the liability method of accounting for income taxes
specified by SFAS No. 109, "Accounting for Income Taxes", whereby deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Deferred tax assets are recognized and measured based on the
likelihood of realization of the related tax benefit in the future. The
Company had no material net deferred tax assets or liabilities at
December 31, 1998.
LOSS PER COMMON SHARE:
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share". The statement replaces primary EPS
with basic EPS, which is computed by dividing reported earnings available
to common shareholders by weighted average shares outstanding. The
provisions requires the calculation of diluted EPS. The Company uses the
method specified by the statement.
2. AGREEMENT AND PLAN OF MERGER
On May 1, 1998, the Company entered into an Agreement and Plan of Merger
(the Merger) with Mars Method Inc. (Mars Method) a Delaware corporation.
Pursuant to the Agreement, the Company issued 1,100,882 shares of its
common stock in exchange for 14,064,216 shares of .001 par value common
stock of Mars Method, which represents 100% of the issued and outstanding
shares of Mars Method. Upon completion of the Merger, PhoneXchange, will
be the surviving corporation and Mars Method will cease to exist. The
exchange will be exempt from registration pursuant to Regulation D,
Section 504 of the Securities and Exchange Commission Act of 1933, as
amended. The Company expended 7,082 of organizational costs of Mars Method
upon completion of the Merger. The Directors and Officers of the Company
are the Directors and officers of the surviving corporation. The Merger is
accounted for under the purchase method of accounting.
F-35
<PAGE> 78
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONT.'D
From April 7, 1988 (Inception) To December 31, 1998
3. DEPOSITS:
Deposits primarily consist of payments made to long distance providers to
secure service. The deposits are refunded or applied to future service.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists primarily of telecommunications switching
equipment. The recorded amount of property and equipment capitalized and
the related accumulated depreciation is as follows:
<TABLE>
<S> <C> <C>
Operating equipment 417,848
Furniture, fixtures and equipment 20,183
-------
Total property and equipment 822,777
Less: accumulated depreciation (21,593)
--------
Property and equipment net 416,438
========
Assets under capital lease 384,746
Less: accumulated amortization (38,403)
Assets under capital lease (net) (346,343)
========
</TABLE>
5. SHORT-TERM NOTES PAYABLE:
<TABLE>
<CAPTION>
SHORT-TERM RELATED PARTY
---------- -------------
<S> <C> <C>
Note payable in connection with asset purchase with
FM Technologies, LLC. Non-interest bearing. Payable
in three equal monthly installments of 13,047,
beginning June 1, 1998, until paid in full. 13,047
Note payable to individual. Interest bearing at 10%
per annum. Principal; of 47,000 and interest due on
March 8, 1999. 47,000
Note payable to individual. Interest bearing at 10%
per annum. Principal of 33,000 and interest due on
March 26, 1999. 33,000
</TABLE>
F-36
<PAGE> 79
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONT.'D
From April 7, 1988 (Inception) To December 31, 1998
<TABLE>
<S> <C> <C>
Note payable to shareholder. Interest bearing at 10%
per annum. Principal 55,000 and interest due on
September 17, 1999. 29,186
Note payable to shareholder. Interest bearing at 10%
per annum. Principal of 50,000 and interest due on
September 17, 1999. 50,000
Note payable to shareholder. Interest bearing at 10%
per annum. Principal of 35,000 and interest due on
April 12, 1999. 35,000
Note payable to Corporate Financial Enterprises.
Interest bearing at 8% per annum. Monthly payments
of principal and interest in an amount not less than
20% of the outstanding balance of the loan at the end
of the prior month are due commencing on May 1,
1999, and continuing thereafter on the first day of
each month until the total balance is paid, but in the
event there is any outstanding principal balance of the
Loan at September 30, 1999, the entire remaining
balance of principal, accrued interest, late charges
and advances, if any, shall be due and payable on
September 30, 1999. Note secured by Company
assets and stock pledge. 325,000
------ -------
TOTAL SHORT-TERM NOTES PAYABLE 93,047 439,186
====== =======
</TABLE>
6. PAYABLE TO C/NET
The payable to C/Net is non-interest bearing and is due on demand.
7. LONG-TERM LIABILITIES
<TABLE>
<S> <C>
Note payable in connection with the asset purchase
with FM Technologies, LLC. Interest bearing at 10%
per annum. Principal of 170,858 and interest are
payable in monthly installments of 5,513, beginning
August 23, 1998, for 36 months. The Note is secured
by the assets acquired. 170,858
</TABLE>
F-37
<PAGE> 80
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONT.'D
From April 7, 1998 (Inception) To December 31, 1998
<TABLE>
<S> <C>
Note payable in connection with the asset purchase
with GST Net, Inc. Interest bearing at 7.5% per
annum. Principal of 145,000 and interest are payable
in monthly installments of 6,525, beginning January
15, 1999, for 24 months. The Note is secured by the
assets acquired. 145,000
-------
Total notes payable 315,858
Less: Current portions 144,143
-------
Notes Payable - Long-Term 171,715
=======
</TABLE>
Aggregate maturities of long-term liabilities, net of discount, over the
next five years is as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- --------
<S> <C>
1999 144,143
2000 134,379
2001 37,336
2002 --
2003 --
-------
315,858
=======
</TABLE>
The company is obligated under a lease agreement with Rockford Industries to
finance certain telecommunications switching equipment. The lease agreement
calls for 36 equal minimum monthly payment of 6,577.13. Aggregate minimum
lease payments total 236,767. The capital lease is secured by the System.
8. LEASE COMMITMENTS:
The company utilizes office space for its corporate offices in Newport
Beach, California currently under lease by C/Net:Solutions, Inc. The lease
calls for minimum monthly payments of 10,558 and expires on May 15, 1999.
Rent expense has been allocated to the Company based on the amount of space
utilized by the Company as compared to the total space under lease. For the
period of January 1, 1998 to October 31, 1998, the Company was allocated 20%
of the total monthly lease payment. Effective September 1, 1998, management
determined that substantially all of the space at this facility was being
used to the benefit of the Company as the Company began offering its
services to its customers in September 1998. Therefore, the Company was
allocated 100% of the minimum monthly lease payment under the lease for the
period from September 1, 1998 to December 31, 1998. The Company intends to
secure office space for its corporate offices in a new location prior to the
expiration of the existing lease under C/Net:Solutions, Inc.
F-38
<PAGE> 81
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONT.'D
From April 7, 1998 (Inception) To December 31, 1998
Future minimum lease payments associated with the leases described herein,
including renewal options are as follows:
<TABLE>
<CAPTION>
Year Ending Capital
December 31 Leases
- ----------- -------
<S> <C>
1999 98,657
2000 78,926
2001 89,719
2002 --
2003 --
------
</TABLE>
<TABLE>
<S> <C> <C>
Total minimum lease payments 267,402
Less: Imputed interest 82,482
-------
Net present value of minimum lease payment 184,920
Less: Current portion 49,344
-------
Long-term capital lease obligation 135,576
=======
</TABLE>
9. Total rent expense for the period from April 7, 1998 (inception) to
December 31, 1998, amounted to 72,711.
10. Advertising is expenses as incurred.
11. SUBSEQUENT EVENTS
On December 10, 1998, the company and certain shareholders of the company, the
"Sellers", entered into a letter of intent, which among other things,
contemplated the principal terms under which the Sellers would sell
approximately 85% of the issued and outstanding common stock of the Company to
Global Access Pagers, Inc., "Global", in exchange for approximately 10% of the
issued and outstanding shares of Global. Under the Letter of Intent, Global
agreed to loan the company $525,000 in the form of a Secured Promissory Note.
The Secured Promissory Note was entered into by the company, David Chadwick, an
individual, the "Borrowers" and Corporate Financial Enterprises, Inc. the
"Lender", in the amount of $525,000 in addition to all additional future
advances made by the Lender to the Borrower or creditors of the Borrower. The
Secured Promissory Note bears interest at 8% per annum. Monthly payments of
principal and interest in an amount not less than 20% of the outstanding balance
of the loan at the end of the prior month shall be made.
F-39
<PAGE> 82
PHONEXCHANGE, INC.
(A Delaware Corporation)
NOTES TO FINANCIAL STATEMENTS CONT'D
From April 7, 1998 (Inception) To December 31, 1998
by Borrower to Lender and received by Lender commencing on the 1st day of May,
1999, and continuing thereafter on the first day of each month until the total
balance is paid, but in the event there is any outstanding principal balance of
the Loan at September 30, 1999, the entire remaining balance of principal,
accrued interest, late charges and advances, if any, shall be due and payable
on September 30, 1999. The Secured Promissory Note is secured by a Security
Agreement under which the Lender is granted rights to all collateral of the
company which is comprised of all accounts receivable, documents, equipment,
general intangibles, inventory, all rights, title and interest in any and all
assets and proceeds of the company. In addition, the Lender entered into Pledge
Agreements with certain shareholders of the Company as a condition to entering
into the secured Promissory Note. The Pledge Agreements call for the pledge of
shares of common stock of the company owned by the shareholders. In the event of
default under the Secured Promissory Note, the Lender may exercise its right
to ownership of the shares of common stock of the company which have been
pledged. Upon payment in full of both principal and interest on the Note, the
Pledge Agreements shall terminate. As of December 31, 1998, the company
received 325,000 under the Secured Promissory Note.
On February 22, 1999, the Board of Directors of the company approved a 1:25
reverse stock split of the company's common stock. Prior to the reverse split
there were 10,100,882 shares of the company's .001 par value common stock
issued and outstanding. After the reverse split, there are 404,035 of the
company's .001 par value common stock issued and outstanding.
F-40
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses shall be borne by the Selling Stockholders.
All of the amounts shown are estimates, except for the SEC Registration
Fees.
SEC registration fee $ 37,165
Accounting fees and expenses 15,000
Legal fees and expenses 50,000
Blue Sky fees and expenses 10,000
NASDAQ SmallCap Listing fees 15,000
Transfer Agent fees 2,500
Miscellaneous expenses 2,335
--------
TOTAL $132,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the Nevada Revised Statutes provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any litigation by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action if he
acted in good faith and in a manner which 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. Any indemnification made under section 78.7502 must be determined
to be proper, on a case-by-case basis, by either our stockholders, a quorum of
our Board of Directors (excluding any directors named in the action) or by the
written opinion of our legal counsel.
Our Articles of Incorporation include a provision eliminating the
personal liability of our directors to the fullest extent permitted by the
General Corporation Law of the State of Nevada (the "GCLN"). In addition, our
Articles of Incorporation includes a provision indemnifying any and all persons
whom we have the power to indemnify under the GCLN from and against all
expenses, liabilities or other matters covered by the GCLN, including under
circumstances in which indemnification is otherwise discretionary. This
indemnification is not exclusive of any other rights and shall continue after
such person has ceased to be a director, officer, employee or agent. These
provisions do not affect the availability of equitable remedies for a breach of
duty of care, such as an action to enjoin or rescind a transaction involving a
breach of fiduciary duty. However, in certain circumstances equitable remedies
may not be available as a practical matter.
II-1
<PAGE> 84
While these provisions may be amended or repealed in the future, only change
would only have an effect on liabilities arising after such change.
We have entered in to Indemnity Agreements with each of Paul Hyde,
Albert Kashani, Joseph Vaughn-Perling, David Chadwick and Gary Killoran, as
agents. Under the terms of the Indemnity Agreements, we agree to hold harmless
and indemnify each agent to the fullest extent authorized or permitted by our
Articles of Incorporation and by the GCLN, as the same may be amended from time
tom time (but only to the extent that any amendment permits us to provide
broader indemnification rights than the Articles of Incorporation and the GCLN
permitted prior to such amendment).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
COMMON STOCK
In November 1999, the Company sold $5.0 million principal amount of its
4% Convertible Debentures, and received net proceeds of $4,480,000. See
"Description of Securities -- 4% Convertible Debentures." The Company also
issued warrants to purchase 80,000 shares of the Company's common stock at an
exercise price of $12.50 per share and warrants to purchase 80,000 shares of the
Company's common stock at an exercise price of $15.00 per share. The warrants
are exercisable until November 22, 2001. The Company also issued warrants to
purchase 200,000 shares of the Company's common stock at exercise price of
$13.75 per share and paid $500,000 in placement fees to the May Davis Group as
placement agent. The Company also paid $20,000 in related legal fees. The
warrants are exercisable until November 22, 2004. The 4% Convertible Debentures
and the warrants were sold to one accredited investor and the placement agent
involved. The securities were issued to sophisticated investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933. No
commissions or other remuneration was paid to anyone. No general solicitation
was utilized.
In September 1999, the Company issued 185,250 shares of restricted
common stock of the Company to the SEL Group in exchange for 185,250 shares of
phoneXchange, Inc. restricted common stock. The shares were issued to
sophisticated investors pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933. No commissions or other remuneration was
paid to anyone. No general solicitation was utilized.
In September 1999, the Company issued 500 shares of its restricted
common stock to Charles McGuirk and 5,000 shares of restricted common stock to
each of Albert Kashani and Joseph Vaughn-Perling, all as compensation for their
services as directors of the Company. The common stock was issued to
sophisticated investors who had access to information on the Company necessary
to make an informed investment decision for cash consideration or services
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933. No commissions or other remuneration was paid to anyone. No general
solicitation was utilized.
In July 1999, the Company sold 1,332,000 shares of its common stock for
a purchase price of $.75 per share to several overseas accredited investors. The
offering was made by the Company's management in compliance with Rule 504 of
Regulation D of the Securities Act of
II-2
<PAGE> 85
1933, as amended. No commissions or other remuneration was paid to anyone. No
general solicitation was utilized.
In May 1999, the Company issued 25,296 shares of restricted common
stock to FM Computer Technologies, LLC pursuant to the terms of the Agreement of
Purchase and Sale of Assets between the parties. The Company received certain
telecommunications switching equipment in exchange for the stock. The shares
were issued to sophisticated investors pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. No commissions or
other remuneration was paid to anyone. No general solicitation was utilized.
As of February 1999, the Company issued 921,429 shares of its common
stock to stockholders of phoneXchange. The Company acquired ownership of
approximately 85% of phoneXchange in exchange for its stock. The common shares
were issued to sophisticated investors pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. No commissions or
other remuneration was paid to anyone. No general solicitation was utilized.
Prior to 1999, 2,228,806 shares of the Company's common stock were
issued and outstanding, all of which were issued pursuant to exemptions from
registration under Rule 504 and Section 4(2) of the Securities Act of 1933. No
commissions or other remuneration was paid to anyone. No general solicitation
was utilized.
WARRANTS TO PURCHASE COMMON STOCK
In September 1999, the Company issued warrants to purchase 350,000
shares of common stock at an exercise price of $4.50 per share to Corporate
Financial Enterprises, Inc. The warrants were granted in exchange for consulting
services and are exercisable for a term commencing December 31, 2000 and
expiring September 1, 2004. The warrants were issued pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933. No
commissions or other remuneration was paid to anyone. No general solicitation
was utilized.
In July 1999 the Company issued warrants to purchase 100,000 shares of
its common stock to Elie Sakaran in exchange for consulting services previously
rendered. The warrants are exercisable at a purchase price of $7.50 per share
for a term of 18 months. The warrants were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. No commissions or
other remuneration was paid to anyone. No general solicitation was utilized.
As of February 23, 1999, the Company issued warrants to purchase
921,429 shares of its common stock pursuant to the terms of a Stock Purchase
Agreement dated January 1, 1999, as amended on May 24, 1999, with phoneXchange,
Inc. and its stockholders. The warrants are exercisable at a purchase price of
$4.50 per share with a term of five years. The warrants were issued pursuant to
an exemption from registration under Section 4(2) of the Securities Act of 1933.
No commission or other remuneration was paid to anyone. No general solicitation
was utilized.
II-3
<PAGE> 86
In February 1999, the Company issued warrants to purchase 5,943,633
shares of its common stock exercisable at a purchase price of $1.72 per share to
6 accredited investors. The warrants are exercisable for 5 years. The issuance
was made in compliance with the Securities Act of 1933 by Company's management.
The warrants were issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933. No commissions or other remuneration
was paid to anyone. No general solicitation was utilized.
PREFERRED STOCK
In February 1999, the Company sold 3,267,974 shares of its Series A-1
Preferred Stock to Corporate Financial Enterprises, Inc., American Equities, LLC
and certain other accredited investors in exchange for $5,000,000. The preferred
stock was issued pursuant to an exemption from registration under Section 4(2)
of the Securities Act of 1933. No commissions or other remuneration was paid to
anyone. No general solicitation was utilized.
CERTAIN SALES OF EQUITY SECURITIES OF PHONEXCHANGE, INC.
In August and September 1999, phoneXchange issued 17,364 shares of its
restricted common stock in exchange for 17,923 shares of restricted common stock
of the Company. The common stock was issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. No commissions or
other remuneration was paid to anyone. No general solicitation was utilized.
The Company's subsidiary, phoneXchange, participated in a Chapter 11
Plan of Reorganization of One Stop Wireless of America, Inc. and Pre-Paid
Cellular, Inc. Among other things, the Plan called for phoneXchange to purchase
$750,000 in cash and certain telephone switching equipment, computer equipment,
cellular telephones and office furniture and equipment valued at approximately
$750,000 in exchange for 200,000 shares of phoneXchange common stock. The United
States Bankruptcy Court, Central District of California, and Santa Ana Division
confirmed the Plan on June 29, 1999 and the shares were released from escrow on
that date. The common stock was issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. No commissions or
other remuneration was paid to anyone.
Pursuant to an Asset Purchase Agreement dated June 2, 1999, between the
Company and SEL Group, a subsidiary of General Telephony Ltd., the Company
purchased of certain telecommunications switching equipment for a total
aggregate purchase price of $1,226,250. The agreement calls for a cash payment
of $300,000 and the issuance of 161,175 shares of phoneXchange common stock and
warrants to purchase an additional 161,175 shares of phoneXchange common stock
at $10.00 per share, exercisable for three years. The warrants were subsequently
canceled in exchange for 24,075 shares of phoneXchange common stock, bringing
SEL Groups ownership to 185,250 shares of phoneXchange common stock. On
[September 22, 1999], the Company purchased SEL Group's 185,250 shares of
phoneXchange common stock in exchange for 185,250 shares of the Company's common
stock The common stock issuances were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. No commissions or
other remuneration was paid to anyone. No general solicitation was utilized.
II-4
<PAGE> 87
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Articles of Incorporation of Theatre, Inc. filed January 16, 1997
3.2 Certificate of Amendment of the Articles of Incorporation of Global
Access Pagers, Inc. filed February 10, 1999
3.3 Bylaws of Theatre, Inc.
4.1 Certificate of Designation of Series A Preferred Stock
4.2 Certificate of Designation of 12% Convertible Redeemable Preferred
Stock, Series A-1
4.3 Amendment to Certificate of Designation of 12% Convertible Redeemable
Preferred Stock, Series A-1
4.4 Form of Warrant Agreement
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP (to be filed by
amendment)
10.1 Stock Purchase Agreement dated as of January 1, 1999 by and among
Global Access Pagers, Inc. and phoneXchange, Inc., David Chadwick,
James Rott, Paul Hyde and Gary Killoran
10.2 First Amendment to Stock Purchase Agreement by and among Global Access
Pagers, Inc. and phoneXchange, Inc., David Chadwick, James Rott, Paul
Hyde and Gary Killoran
10.3 Employment Agreement between the Company and David J. Chadwick
effective as of January 4, 1999
10.4 Employment Agreement between the Company and Gary L. Killoran effective
as of January 4, 1999
10.5 Employment Agreement between the Company and James E. Rott effective as
of January 4, 1999
10.6 Employment Agreement between the Company and Paul E. Hyde effective as
of January 4, 1999
10.7 Employment Agreement between the Company and Thomas C. Scott effective
as of October 11, 1999
10.8 Master Lease Agreement with Lucent Technologies, Inc. InterNetworking
Systems dated July 30, 1999
10.9 Lease made as of April 23, 1999 between phoneXchange and CarrAmerica
Realty Corporation
II-5
<PAGE> 88
10.10 Lease dated June 1, 1997 between Quinby Building, LLC and Global
Network Providers
10.11 Letter of Intent for Joint Venture Between Integrated Communication
Networks, Inc. and Global Industry Development & Trade Ltd. ("GIDT")
effective June 1, 1999
10.12 Form of 4% Convertible Debenture
11.1 Statement re Computation of Per Share Earnings (see Consolidated
Statement of Operations and Notes to Consolidated Financial Statements,
I-i)
21.1 Subsidiaries
23.1 Consent of Jack Olesk
23.2 Consent of Brad Haynes
23.3 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (contained in
Exhibit 5.1)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table on the effective registration statement;
(iii) Include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That for the purpose of determining any liability under the
Securities Act 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.
II-6
<PAGE> 89
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business owner has been advised 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business owner in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Aliso
Viejo, state of California, on January 4, 2000.
INTEGRATED COMMUNICATION NETWORKS, INC.
Date: January 4, 2000 /s/ DAVID J. CHADWICK
----------------------------------------
David J. Chadwick
President, Chief Executive Officer
and Chairman of the Board of Directors
Date: January 4, 2000 /s/ GARY L. KILLORAN
----------------------------------------
Gary L. Killoran
Secretary, Treasurer, Chief Financial
Officer and Director
Date: January 4, 2000 /s/ PAUL HYDE
----------------------------------------
Paul Hyde
Vice President and Director
II-7
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
3.1 Articles of Incorporation of Theatre, Inc. filed January 16,
1997
3.2 Certificate of Amendment of the Articles of Incorporation of
Global Access Pagers, Inc. filed February 10, 1999
3.3 Bylaws of Theatre, Inc.
4.1 Certificate of Designation of Series A Preferred Stock
4.2 Certificate of Designation of 12% Convertible Redeemable
Preferred Stock, Series A-1
4.3 Amendment to Certificate of Designation of 12% Convertible
Redeemable Preferred Stock, Series A-1
4.4 Form of Warrant Agreement
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP (to be
filed by amendment)
10.1 Stock Purchase Agreement dated as of January 1, 1999 by and
among Global Access Pagers, Inc. and phoneXchange, Inc., David
Chadwick, James Rott, Paul Hyde and Gary Killoran
10.2 First Amendment to Stock Purchase Agreement by and among
Global Access Pagers, Inc. and phoneXchange, Inc., David
Chadwick, James Rott, Paul Hyde and Gary Killoran
10.3 Employment Agreement between the Company and David J. Chadwick
effective as of January 4, 1999
10.4 Employment Agreement between the Company and Gary L. Killoran
effective as of January 4, 1999
10.5 Employment Agreement between the Company and James E. Rott
effective as of January 4, 1999
10.6 Employment Agreement between the Company and Paul E. Hyde
effective as of January 4, 1999
10.7 Employment Agreement between the Company and Thomas C. Scott
effective as of October 11, 1999
10.8 Master Lease Agreement with Lucent Technologies, Inc.
InterNetworking Systems dated July 30, 1999
10.9 Lease made as of April 23, 1999 between PhoneXchange and
CarrAmerica Realty Corporation
10.10 Lease dated June 1, 1997 between Quinby Building, LLC and
Global Network Providers
10.11 Letter of Intent for Joint Venture Between Integrated
Communication Networks, Inc. and Global Industry Development &
Trade Ltd. ("GIDT") effective June 1, 1999
10.12 Form of 4% Convertible Debenture
11.1 Statement re Computation of Per Share Earnings (see
Consolidated Statement of Operations and Notes to Consolidated
Financial Statements, I-i)
21.1 Subsidiaries
23.1 Consent of Jack Olesk
23.2 Consent of Brad Haynes
23.3 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP
(contained in Exhibit 5.1)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JAN 16 1997
No. C600-1997
/s/ Dean Heller
- -------------------------------
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
Theatre, Inc.
______
I, the person hereinafter named as incorporator, for the purpose of
associating to establish a corporation, under the provisions and subject to the
requirements of Title 7, Chapter 78 of Nevada Revised Statutes, and the acts
amendatory thereof, and hereinafter sometimes referred to as the General
Corporation Law of the State of Nevada, do hereby adopt and make the following
Articles of Incorporation:
FIRST: The name of the corporation (hereinafter called the
corporation) is Theatre, Inc.
SECOND: The name of the corporation's resident agent in the State of
Nevada is CSC Services of Nevada, Inc. and the street address of the said
resident agent where process may be served on the corporation is 502 East John
Street, Carson City NV 89706. The mailing address and the street address of the
said resident agent are identical.
THIRD: The number of shares the corporation is authorized to issue
is 25,000 (twenty five thousand), all of which are without nominal or par
value. All such shares are of one class and are designated as Common Stock.
No holder of any of the shares of any class of the corporation shall
be entitled as of right to subscribe for, purchase, or otherwise acquire any
shares of any class of the corporation which the corporation proposes to issue
or any rights or options which the corporation proposes to grant for the
purchase of shares of any class of the corporation or for the purchase of any
shares, bonds, securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any rights, to subscribe
for, purchase, or otherwise acquire shares of any class of the corporation; and
any and all of such shares, bonds, securities, or obligations of the
corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued or transferred if the same have been reacquired and have
treasury status, and any and all of such rights and options may be granted by
the Board of Directors to such persons, firms, corporations, and associations,
and for such lawful consideration, and on such terms, as the Board of Directors
in its discretion may determine, without first offering the same, or any
thereof, to any said holder.
- 1 -
<PAGE> 2
FOURTH: The governing board of the corporation shall be styled as a
"Board of Directors", and any member of said Board shall be styled as a
"Director."
The number of members constituting the first Board of Directors of
the corporation is one; and the name and the post office box or street address,
either residence or business, of each of said members are as follows:
NAME ADDRESS
---- -------
Kevin J. Quinn 122 Ocean Park Boulevard
Santa Monica, California 90405
The number of directors of the corporation may be increased or
decreased in the manner provided by the Bylaws of the corporation; provided,
that the number of directors shall never be less than one. In the interim
between elections of directors by stockholders entitled to vote, all vacancies,
including vacancies caused by an increase in the number of directors and
including vacancies resulting from the removal of directors by the stockholders
entitled to vote which are not filled by said stockholders, may be filled by
the remaining directors, though less than a quorum.
FIFTH: The name and the post office box or street address, either
residence or business, of the incorporator signing these Articles of
Incorporation are as follows:
NAME ADDRESS
---- -------
R. A. Arthur 5670 Wilshire Blvd. Suite 750
Los Angeles, California 90036
SIXTH: The corporation shall have perpetual existence.
SEVENTH: The personal liability of the directors of the corporation
is hereby eliminated to the fullest extent permitted by the General Corporation
Law of the State of Nevada, as the same may be amended and supplemented.
EIGHTH: The corporation shall, to the fullest extent permitted by
the General Corporation Law of the State of Nevada, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said Law from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person
- 2 -
<PAGE> 3
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.
NINTH: The nature of the business of the corporation and the objects
or the purposes to be transacted, promoted, or carried on by it are as follows,
provided that the corporation may engage in any other lawful activity:
The corporation may engage in any lawful activity.
TENTH: The corporation reserves the right to amend, alter, change,
or repeal any provision contained in these Articles of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, I do hereby execute these Articles of
Incorporation on January 15, 1997.
/s/ R. A. ARTHUR
---------------------
R. A. Arthur
- 3 -
<PAGE> 4
STATE OF CALIFORNIA )
) SS:
COUNTY OF LOS ANGELES )
On this 15TH day of January, 1997, personally appeared before me, a Notary
Public in and for the State and County aforesaid, R. A. Arthur, known to me to
be the person described in and who executed the foregoing Articles of
Incorporation, and who acknowledged to me that he executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
WITNESS my hand and official seal, the day and year first above written.
/s/ FRANCES OLVERA
[SEAL] ----------------------------
Notary Public
-4-
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION
GLOBAL ACCESS PAGERS, INC.
We the undersigned Charles McGuirk, President, and Matthew Cicero, Secretary,
of Global Access Pagers, Inc. do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 29th day of January, 1999 at 2224 Main Street, Santa Monica, CA
90405, adopted a resolution to amend the original articles as follows:
Article I is hereby amended to read as follows:
The name of the corporation is "Integrated Communication Networks, Inc."
The number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation is 2,143,000 that the said change(s)
and amendment have been consented to and approved by a majority vote of the
stockholders at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ CHARLES MCGUIRK
--------------------------------
President
/s/ MATTHEW CICERO
--------------------------------
Secretary
State of California
County of Los Angeles
On January 29, 1999 personally appear before me, a Notary Public.
Charles McGuirk and Matt Cicero who acknowledged that they
- --------------------------------------------------
Name(s) of Person Authorizing and Signing Document
executed the above instrument.
/s/ REGIS POSSINO
[SEAL] --------------------------------
Signature of Notary
Certififcate of Amendment of the Articles of Inc.-2
<PAGE> 2
CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION
GLOBAL ACCESS PAGERS, INC.
We the undersigned Charles McGuirk, President, and Matthew Cicero, Secretary,
of Global Access Pagers, Inc. do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 29th day of January, 1999 at 2224 Main Street, Santa Monica, CA
90405, adopted a resolution to amend the original articles as follows:
Article I is hereby amended to read as follows:
The name of the corporation is "Integrated Communication Networks, Inc."
The number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation is 2,143,000 that the said change(s)
and amendment have been consented to and approved by a majority vote of the
stockholders at least a majority of each class of stock outstanding and
entitled to vote thereon.
FILED
IN THE OFFICE OF THE /s/ CHARLES MCGUIRK
SECRETARY OF STATE OF THE --------------------------------
STATE OF NEVADA President
FEB. 10 1999
No. [No. illegible] /s/ MATTHEW CICERO
----------------- --------------------------------
Secretary
/s/ DEAN HELLER
- ------------------------------
DEAN HELLER, SECRETARY OF STATE
State of California
County of Los Angeles
On January 29, 1999 personally appear before me, a Notary Public.
Charles McGuirk and Matt Cicero who acknowledged that they
- --------------------------------------------------
Name(s) of Person Authorizing and Signing Document
executed the above instrument.
/s/ REGIS POSSINO
[SEAL] --------------------------------
Signature of Notary
Certificate of Amendment of the Articles of Inc.-2
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
Theatre, Inc.
A Nevada Corporation
ARTICLE I - OFFICES
The registered office of the Corporation in the State of Nevada shall be located
in the City and State designated in the Articles of Incorporation. The
Corporation may also maintain offices at such other places within or without the
State of Nevada as the Board of Directors may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings: (Chapter 78.310)
The annual meeting of the shareholders of the Corporation shall be held at the
time fixed, from time to time, by the Directors.
Section 2 - Special Meetings: (Chapter 78.310)
Special meetings of the shareholders may be called by the Board of Directors or
such person or persons authorized by the Board of Directors and shall be held
within or without the State of Nevada.
Section 3 - Place of Meetings: (Chapter 78.310)
Meetings of shareholders shall be held at the registered office of the
Corporation, or at such other places, within or without the State of Nevada as
the Directors may from time to time fix. If no designation is made, the meeting
shall be held at the Corporation's registered office in the state of Nevada.
Section 4 - Notice of Meetings: (Section 78.370)
(a) Written or printed notice of each meeting of shareholders, whether annual or
special, signed by the president, vice president or secretary, stating the time
when and place where it is to be held, as well as the purpose or purposes for
which the meeting is called, shall be served either personally or by mail, by
or at the direction of the president, the secretary, or the officer or
- --------------------------------------------------------------------------------
* Unless otherwise stated herein all references to "Sections" in these Bylaws
refer to those sections contained in Title 78 of the Nevada Private Corporations
Law.
NV Bylaws-1
<PAGE> 2
the person calling the meeting, not less than ten or more than sixty days before
the date of the meeting, unless the lapse of the prescribed time shall have been
waived before or after the taking of such action, upon each shareholder of
record entitled to vote at such meeting, and to any other shareholder to whom
the giving of notice may be required by law. If mailed, such notice shall be
deemed to be given when deposited in the United States mail, addressed to the
shareholder as it appears on the share transfer records of the Corporation or to
the current address, which a shareholder has delivered to the Corporation in a
written notice.
(b) Further notice to a shareholder is not required when notice of two
consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to him or her during the period
between those two consecutive annual meetings; or all, and at least two payments
sent by first-class mail of dividends or interest on securities during a
12-month period have been mailed addressed to him or her at his or her address
as shown on the records of the Corporation and have been returned undeliverable.
Section 5 - Quorum: (Section 78.320)
(a) Except as otherwise provided herein, or by law, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), a quorum shall be
present at all meetings of shareholders of the Corporation, if the holders of a
majority of the shares entitled to vote on that matter are represented at the
meeting in person or by proxy.
(b) The subsequent withdrawal of any shareholder from the meeting, after the
commencement of a meeting, or the refusal of any shareholder represented in
person or by proxy to vote, shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(c) Despite the absence of a quorum at any meeting of shareholders, the
shareholders present may adjourn the meeting.
Section 6 - Voting and Acting: (Sections 78.320 & 78.350)
(a) Except as otherwise provided by law, the Articles of Incorporation, or these
Bylaws, any corporate action, the affirmative vote of the majority of shares
entitled to vote on that matter and represented either in person or by proxy at
a meeting of shareholders at which a quorum is present, shall be the act of the
shareholders of the Corporation.
(b) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, at each meeting of shareholders, each shareholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Where appropriate communication facilities are reasonably available, any or
all shareholders shall have the right to participate in any shareholders'
meeting, by means of conference telephone
NV Bylaws-2
<PAGE> 3
or any means of communications by which all persons participating in the
meeting are able to hear each other.
Section 7 - Proxies: (Section 78.355)
Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so either in person or by proxy, so long as such proxy is
executed in writing by the shareholder himself, his authorized officer,
director, employee or agent or by causing the signature of the stockholder to be
affixed to the writing by any reasonable means, including, but not limited to, a
facsimile signature, or by his attorney-in-fact there unto duly authorized in
writing. Every proxy shall be revocable at will unless the proxy conspicuously
states that it is irrevocable and the proxy is coupled with an interest. A
telegram, telex, cablegram, or similar transmission by the shareholder, or a
photographic, photostatic, facsimile, shall be treated as a valid proxy, and
treated as a substitution of the original proxy, so long as such transmission is
a complete reproduction executed by the shareholder. If it is determined that
the telegram, cablegram or other electronic transmission is valid, the persons
appointed by the Corporation to count the votes of shareholders and determine
the validity of proxies and ballots or other persons making those determinations
must specify the information upon which they relied. No proxy shall be valid
after the expiration of six months from the date of its execution, unless
otherwise provided in the proxy. Such instrument shall be exhibited to the
Secretary at the meeting and shall be filed with the records of the Corporation.
If any shareholder designates two or more persons to act as proxies, a majority
of those persons present at the meeting, or, if one is present, then that one
has and may exercise all of the powers conferred by the shareholder upon all of
the persons so designated unless the shareholder provides otherwise.
Section 8 - Action Without a Meeting: (Section 78.320)
Unless otherwise provided for in the Articles of Incorporation of the
Corporation, any action to be taken at any annual or special shareholders'
meeting, may be taken without a meeting, without prior notice and without a vote
if written consents are signed by a majority of the shareholders of the
Corporation, except however if a different proportion of voting power is
required by law, the Articles of Incorporation or these Bylaws, than that
proportion of written consents is required. Such written consents must be filed
with the minutes of the proceedings of the shareholders of the Corporation.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Term, Election and Qualifications: (Section 78.115, 78.330)
(a) The first Board of Directors and all subsequent Boards of the Corporation
shall consist of ( ), unless and until otherwise determined by vote of a
majority of the entire Board of Directors. The Board of Directors or
shareholders all have the power, in the interim between annual and special
meetings of the shareholders, to increase or decrease the number of Directors of
the Corporation. A Director need not be a shareholder of the Corporation unless
the Certificate of Incorporation of the Corporation or these Bylaws so require.
NV Bylaws-3
<PAGE> 4
(b) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation shall be
elected at the first annual shareholders' meeting and at each annual meeting
thereafter, unless their terms are staggered in the Articles of Incorporation of
the Corporation or these Bylaws, by a plurality of the votes cast at a meeting
of shareholders, by the holders of shares entitled to vote in the election.
(c) The first Board of Directors shall hold office until the first annual
meeting of shareholders and until their successors have been duly elected and
qualified or until there is a decrease in the number of Directors. Thereinafter,
Directors will be elected at the annual meeting of shareholders and shall hold
office until the annual meeting of the shareholders next succeeding his
election, unless their terms are staggered in the Articles of Incorporation of
the Corporation (so long as at least one - fourth in number of the Directors of
the Corporation are elected at each annual shareholders' meeting) or these
Bylaws, or until his prior death, resignation or removal. Any Director may
resign at any time upon written notice of such resignation to the Corporation.
(d) All Directors of the Corporation shall have equal voting power unless the
Articles of Incorporation of the Corporation provide that the voting power of
individual Directors or classes of Directors are greater than or less than that
of any other individual Directors or classes of Directors, and the different
voting powers may be stated in the Articles of Incorporation or may be dependent
upon any fact or event that may be ascertained outside the Articles of
Incorporation if the manner in which the fact or event may operate on those
voting powers is stated in the Articles of Incorporation. If the Articles of
Incorporation provide that any Directors have voting power greater than or less
than other Directors of the Corporation, every reference in these Bylaws to a
majority or other proportion of Directors shall be deemed to refer to majority
or other proportion of the voting power of all the Directors or classes of
Directors, as may be required by the Articles of Incorporation.
Section 2 - Duties and Powers: (Section 78.120)
The Board of Directors shall be responsible for the control and management of
the business and affairs, property and interests of the Corporation, and may
exercise all powers of the Corporation, except such as those stated under Nevada
state law, are in the Articles of Incorporation or by these Bylaws, expressly
conferred upon or reserved to the shareholders or any other person or persons
named therein.
Section 3 - Regular Meetings, Notice: (Section 78.3310)
(a) A regular meeting of the Board of Directors shall be held either within or
without the State of Nevada at such time and at such place as the Board shall
fix.
(b) No notice shall be required of any regular meeting of the Board of Directors
and, if given, need not specify the purpose of the meeting; provided, however,
that in case the Board of Directors shall fix or change the time or place of any
regular meeting when such time and place was fixed before such change, notice of
such action shall be given to each director who shall not have been present at
the meeting at which such action was taken within the time limited, and in the
NV Bylaws - 4
<PAGE> 5
manner set forth in these Bylaws with respect to special meetings, unless such
notice shall be waived in the manner set forth in these Bylaws.
Section 4 - Special Meetings, Notice: (Section 78.310)
(a) Special meetings of the Board of Directors shall be held at such time and
place as may be specified in the respective notices or waivers of notice
thereof.
(b) Except as otherwise required statute, written notice of special meetings
shall be mailed directly to each Director, addressed to him at his residence or
usual place of business, or delivered orally, with sufficient time for the
convenient assembly of Directors thereat, or shall be sent to him at such place
by telegram, radio or cable, or shall be delivered to him personally or given to
him orally, not later than the day before the day on which the meeting is to be
held. If mailed, the notice of any special meeting shall be deemed to be
delivered on the second day after it is deposited in the United States mails, so
addressed, with postage prepaid. If notice is given by telegram, it shall be
deemed to be delivered when the telegram is delivered to the telegraph company.
A notice, or waiver of notice, except as required by these Bylaws, need not
specify the business to be transacted at or the purpose or purposes of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
Director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairperson:
The Chairperson of the Board. if any and if present, shall preside at all
meetings of the Board of Directors. If there shall be no Chairperson, or he or
she shall be absent, then the President shall preside, and in his absence, any
other director chosen by the Board of Directors shall preside.
Section 6 - Quorum and Adjournments- (Section 78.315)
(a) At all meetings of the Board of Directors, or any committee thereof, the
presence of a majority of the entire Board, or such committee thereof, shall
constitute a quorum for the transaction of business, except as otherwise
provided by law, by the Certificate of Incorporation, or these Bylaws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, whether or not a quorum exists. Notice of such adjourned
meeting shall be given to Directors not present at 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 who were present at the adjourned
meeting.
Section 7 - Manner of Acting: (Section 78.315)
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
NV Bylaws - 5
<PAGE> 6
(b) Except as otherwise provided by law, by the Articles of Incorporation, or
these bylaws, action approved by a majority of the votes of the Directors
present at any meeting of the Board or any committee thereof, at which a quorum
is present shall be the act of the Board of Directors or any committee thereof.
(c) Any action authorized in writing made prior or subsequent to such action, by
all of the Directors entitled to vote thereon and filed with the minutes of the
Corporation shall be the act of the Board of Directors, or any committee
thereof, and have the same force and effect as if the same had been passed by
unanimous vote at a duly called meeting of the Board or committee for all
purposes.
(c) Where appropriate communications facilities are reasonably available, any or
all directors shall have the right to participate in any Board of Directors
meeting, or a committee of the Board of Directors meeting, by means of
conference telephone or any means of communications by which all persons
participating in the meeting are able to hear each other.
Section 8 - Vacancies: (Section 78.335)
(a) Unless otherwise provided for by the Articles of Incorporation of the
Corporation, any vacancy in the Board of Directors occurring by reason of an
increase in the number of directors, or by reason of the death, resignation,
disqualification, removal or inability to act of any director, or other cause,
shall be filled by an affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board or by a sole remaining Director, at any
regular meeting or special meeting of the Board of Directors called for that
purpose except whenever the shareholders of any class or classes or series
thereof are entitled to elect one or more Directors by the Certificate of
Incorporation of the Corporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the Directors
elected by such class or classes or series thereof then in office, or by a sole
remaining Director so elected.
(b) Unless otherwise provided for by law, the Articles of Incorporation or these
Bylaws, when one or more Directors shall resign from the board and such
resignation is effective at a future date, a majority of the directors, then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote otherwise to take effect when such resignation or
resignations shall become effective.
Section 9 - Resignation: (Section 78.335)
A Director may resign at any time by giving written notice of such resignation
to the Corporation.
Section 10 - Removal: (Section 78.335)
Unless otherwise provided for by the Articles of Incorporation, one or more or
all the Directors of the Corporation may be removed with or without cause at any
time by a vote of two-thirds of the shareholders entitled to vote thereon, at a
special meeting of the shareholders called for that purpose, unless the Articles
of Incorporation provide that Directors may only be removed for cause, provided
however, such Director shall not be removed if the Corporation states in its
Articles of Incorporation that its Directors shall be elected by cumulative
voting and there are a
NV Bylaws - 6
<PAGE> 7
sufficient number of shares cast against his or her removal, which if
cumulatively voted at an election of Directors would be sufficient to elect him
or her. If a Director was elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove that
Director.
Section II - Compensation: (Section 78.140)
The Board of Directors may authorize and establish reasonable compensation of
the Directors for services to the Corporation as Directors, including, but not
limited to attendance at any annual or special meeting of the Board.
Section 12 - Committees: (Section 78.125)
Unless otherwise provided for by the Articles of Incorporation of the
Corporation, the Board of Directors, may from time to time designate from among
its members one or more committees, and alternate members thereof, as they deem
desirable, each consisting of one or more members, with such powers and
authority (to the extent permitted by law and these Bylaws) as may be provided
in such resolution. Unless the Articles of Incorporation or Bylaws state
otherwise, the Board of Directors may appoint natural persons who are not
Directors to serve on such committees authorized herein. Each such committee
shall serve at the pleasure of the Board and, unless otherwise stated by law,
the Certificate of Incorporation of the Corporation or these Bylaws, shall be
governed by the rules and regulations stated herein regarding the Board of
Directors.
ARTICLE IV - OFFICERS
Section I - Number, Qualifications, Election and Term of Office: (Section
78.130)
(a) The Corporation's officers shall have such titles and duties as shall be
stated in these Bylaws or in a resolution of the Board of Directors which is not
inconsistent with these Bylaws. The officers of the Corporation shall consist of
a president, secretary and treasurer, and also may have one or more vice
presidents, assistant secretaries and assistant treasurers and such other
officers as the Board of Directors may from time to time deem advisable. Any
officer may hold two or more offices in the Corporation.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
duly elected and qualified, subject to earlier termination by his or her death,
resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Corporation.
NV Bylaws - 7
<PAGE> 8
Section 3 - Removal:
Any officer elected by the Board of Directors may be removed, either with or
without cause, and a successor elected by the Board at any time, and any officer
or assistant officer, if appointed by another officer, may likewise be removed
by such officer.
Section 4 - Vacancies:
(a) A vacancy, however caused, occurring in the Board and any newly created
Directorships resulting from an increase in the authorized number of Directors
may be filled by the Board of Directors.
Section 5 - Bonds:
The Corporation may require any or all of its officers or Agents to post a bond,
or otherwise, to the Corporation for the faithful performance of their positions
or duties.
Section 6 - Compensation:
The compensation of the officers of the Corporation shall be fixed from time to
time by the Board of Directors.
ARTICLE V - SHARES OF STOCK
Section 1 -Certificate of Stock: (Section 78.235)
(a) The shares of the Corporation shall be represented by certificates or shall
be uncertificated shares.
(b) Certificated shares of the Corporation shall be signed, (either manually or
by facsimile), by officers or agents designated by the Corporation for such
purposes, and shall certify the number of shares owned by him in the
Corporation. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then a
facsimile of the signatures of the officers or agents, the transfer agent or
transfer clerk or the registrar of the Corporation may be printed or
lithographed upon the certificate in lieu of the actual signatures. If the
Corporation uses facsimile signatures of its officers and agents on its stock
certificates, it cannot act as registrar of its own stock, but its transfer
agent and registrar may be identical if the institution acting in those dual
capacities countersigns or otherwise authenticates any stock certificates in
both capacities. If any officer who has signed or whose facsimile signature has
been placed upon such certificate, shall have ceased to be such officer before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the date of its issue.
(c) If the Corporation issues uncertificated shares as provided for in these
Bylaws, within a reasonable time after the issuance or transfer of such
uncertificated shares, and at least annually thereafter, the Corporation shall
send the shareholder a written statement certifying the number of shares owned
by such shareholder in the Corporation.
NV Bylaws - 8
<PAGE> 9
(d) Except as otherwise provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations of the holders
of certificates representing shares of the same class and series shall be
identical.
Section 2 - Lost or Destroyed Certificates: (Section 104.8405)
The Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed if the owner:
(a) so requests before the Corporation has notice that the shares have
been acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies such other requirements, including evidence of such loss,
theft or destruction, as may be imposed by the Corporation.
Section 3 - Transfers of Shares: (Section 104.8401, 104.8406 & 104.8416)
(a) Transfers or registration of transfers of shares of the Corporation shall be
made on the stock transfer books of the Corporation by the registered holder
thereof, or by his attorney duly authorized by a written power of attorney; and
in the case of shares represented by certificates, only after the surrender to
the Corporation of the certificates representing such shares with such shares
properly endorsed, with such evidence of the authenticity of such endorsement,
transfer, authorization and other matters as the Corporation may reasonably
require, and the payment of all stock transfer taxes due thereon.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date: (Section 78.215 & 78.350)
(a) The Board of Directors may fix, in advance, which shall not be more than
sixty days before the meeting or action requiring a determination of
shareholders, as the record date for the determination of shareholders entitled
to receive notice of, or to vote at, any meeting of shareholders, or to consent
to any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividends, or allotment of any
rights, or for the purpose of any other action. If no record date is fixed, the
record date for shareholders entitled to notice of meeting shall be at the close
of business on the day preceding the day on which notice is given, or, if no
notice is given, the day on which the meeting is held, or if notice is waived,
at the close of business on the day before the day on which the meeting is held.
(b) The Board of Directors may fix a record date, which shall not precede the
date upon which the resolution fixing the record date is adopted for
shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of shareholders entitled to exercise any
NV Bylaws - 9
<PAGE> 10
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action.
(c) 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 for the adjourned meeting.
Section 5 - Fractions of Shares/Scrip: (Section 78.205)
The Board of Directors may authorize the issuance of certificates or payment of
money for fractions of a share, either represented by a certificate or
uncertificated, which shall entitle the holder to exercise voting rights,
receive dividends and participate in any assets of the Corporation in the event
of liquidation, in proportion to the fractional holdings; or it may authorize
the payment in case of the fair value of fractions of a share as of the time
when those entitled to receive such fractions are determined; or it may
authorize the issuance, subject to such conditions as may be permitted by law,
of scrip in registered or bearer form over the manual or facsimile signature of
an officer or agent of the Corporation or its agent for that purpose,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of shareholder, except as therein provided. The
scrip may contain any provisions or conditions that the Corporation deems
advisable. If a scrip ceases to be exchangeable for full share certificates, the
shares that would otherwise have been issuable as provided on the scrip are
deemed to be treasury shares unless the scrip contains other provisions for
their disposition.
ARTICLE VI - DIVIDENDS (Section 78.215 & 78.288)
(a) Dividends may be declared and paid out of any funds available therefor, as
often, in such amounts, and at such time or times as the Board of Directors may
determine and 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.
(b) Shares of one class or series may not be issued as a share dividend to
shareholders of another class or series unless:
(i) so authorized by the Articles of Incorporation;
(ii) a majority of the shareholders of the class or series to be issued
approve the issue; or
(iii) there are no outstanding shares of the class or series of shares
that are authorized to be issued.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change by the Board of Directors from time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL (Section 78.065)
The corporate seal, if any, shall be in such form as shall be prescribed and
altered, from time to time, by the Board of Directors. The use of a seal or
stamp by the Corporation on corporate
NV Bylaws - 10
<PAGE> 11
documents is not necessary and the lack thereof shall not in any way affect the
legality of a corporate document.
ARTICLE IX - AMENDMENTS
Section 1 By Shareholders:
All Bylaws of the Corporation shall be subject to alteration or repeal, and new
Bylaws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of Directors even though these Bylaws may also be
altered, amended or repealed by the Board of Directors.
Section 2 - By Directors: (Section 78.120)
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, Bylaws of the Corporation.
ARTICLE X - WAIVER OF NOTICE: (Section 78.375)
Whenever any notice is required to be given by law, the Articles of
Incorporation or these Bylaws, a written waiver signed by the person or persons
entitled to such notice, whether before or after the meeting by any person,
shall constitute a waiver of notice of such meeting.
ARTICLE XI - INTERESTED DIRECTORS: (Section 78.140)
No contract or transaction shall be void or voidable if such contract or
transaction is between the corporation and one or more of its Directors or
Officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
Officers, are directors or officers, or have a financial interest, when such
Director or Officer is present at or participates in the meeting of the Board,
or the committee of the shareholders which authorizes the contract or
transaction or his. her or their votes are counted for such purpose, if.
(a) the material facts as to his, her or their relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee and are noted in the minutes of such meeting, and the
Board or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(b) the material facts as to his, her or their relationship or
relationships or interest or interests and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or
(c) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the shareholders; or
(d) the fact of the common directorship, office or financial interest is
not disclosed or known to the Director or Officer at the time the transaction is
brought before the Board of Directors of the Corporation for such action.
NV Bylaws - 11
<PAGE> 12
Such interested Directors may be counted when determining the presence of a
quorum at the Board of Directors' or committee meeting authorizing the contract
or transaction.
ARTICLE XII - ANNUAL LIST OF OFFICERS, DIRECTORS AND REGISTERED AGENT: (Section
78.150 & 78.165)
The Corporation shall, within sixty days after the filing of its Articles of
Incorporation with the Secretary of State, and annually thereafter on or before
the last day of the month in which the anniversary date of incorporation occurs
each year, file with the Secretary of State a list of its president, secretary
and treasurer and all of its Directors, along with the post office box or street
address, either residence or business, and a designation of its resident agent
in the state of Nevada. Such list shall be certified by an officer of the
Corporation.
NV Bylaws - 12
<PAGE> 13
CERTIFICATE OF PRESIDENT
This is to certify that I am the duly elected, qualified and acting president of
Theatre, Inc., a Nevada Corporation, and that the above the foregoing bylaws,
constituting and true original copy were duly adopted as the bylaws of said
corporation on January 16, 1997, by the directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this date January 16, 1997.
/s/ CHARLES MCGUIRK
- --------------------------------
Charles McGuirk, President
NV Bylaws-13
<PAGE> 1
FY 9800061842
EXHIBIT 4.1
FILED RECEIPT. NO.
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE 145.00
STATE OF NEVADA
MAY 08 1998 ($75)
No. C600-97
/s/ DEAN HELLER
- -------------------------------
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF DESIGNATION, NUMBER, POWERS OF ATTORNEY
AND RELATIVE, PARTICIPATING OPTIONAL AND OTHER
SPECIAL RIGHTS AND THE QUALIFICATIONS, LIMITATIONS,
RESTRICTIONS, AND OTHER DISTINGUISHING CHARACTERISTICS
OF SERIES A PREFERRED STOCK OF
GLOBAL ACCESS PAGERS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation"), is
Global Access Pagers, Inc.
2. The certificate of incorporation of the corporation authorizes the
issuance of 20,000,000 shares of Preferred Stock with a par value to be
determined by the Board of Directors of the corporation the authority
provided therein to issue any or all of said shares in one or more
series and by resolution or resolutions, the designation, number, full
or limited voting powers, or the denial of voting powers, preferences
and relative participating, optional, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
3. The Board of Directors of the corporation, pursuant to the authority
expressly vested in its as aforesaid, has adopted the following
resolutions creating a Series A issue of Preferred Stock:
RESOLVED, that up to fifty thousand (50,000) shares of the preferred
stock (par value $0.01 per share) are authorized to be issued by this
corporation pursuant to its certificate of incorporation, and that
there be and hereby is authorized and created a series of preferred
stock, hereby designed as the Series A Preferred Stock, which shall
have the voting powers, designations, preferences and relative
participating, optional or other rights, if any, or the qualifications,
limitations, or restrictions, set forth in such certificate in
incorporation, and in addition thereto, those following:
(a) DESIGNATION: The preferred stock subject hereof shall be
designated Series A Preferred Stock ("Series A Preferred").
(b) DIVIDENDS: Subject to the approval of the Board of Directors of
the corporation, the holders of the shares of Series A Preferred
shall be entitled to receive dividends at the rate of eight
percent (8%) per annum, payable in shares of common stock of the
corporation.
(c) CONVERSION: At the direction of the corporation, the Series A
Preferred shall be convertible into shares of the common stock
of the corporation, at the rate of one share of common stock for
each share of Series A Preferred.
(d) REDEMPTION: At the direction of the corporation, the Series A
Preferred shall be redeemable by the corporation, at a rate of
$3.00 for each share of Series A Preferred.
<PAGE> 2
EXHIBIT 4.1A
MINUTES OF THE MEETING
OF
THE BOARD OF DIRECTORS
OF
INTEGRATED COMMUNICATION NETWORKS, INC.
At a duly convened meeting of the Board of Directors, all Directors being
present and notice having been waived, held at the corporate offices on June
15, 1999 it was resolved as follows:
A Special Meeting of the Board of Directors was called for the specific purpose
of considering the cancellation of various classes of preferred stock
previously authorized by the board. Specifically:
1. Class 'A' 8% Non-Voting Preferred Stock - 50,000 authorized, 0 issued
2. Class 'A' 12% Non-Voting Preferred Stock - 5,000,000 authorized, 0 issued
3. Class 'B' 8 1/2% Non-Voting Preferred Stock - 200,000 authorized, 0 issued
4. Class 'C' 10% Non-Voting Preferred Stock - 500,000 authorized, 0 issued
It is therefore resolved as follows:
RESOLVED: The board hereby unanimously cancels the Class 'A' 8% Non-Voting
Preferred stock previously authorized.
RESOLVED: The board hereby unanimously cancels the Class 'A' 12% non-voting
preferred stock previously authorized.
RESOLVED: The board hereby unanimously cancels the Class 'B' 8 1/2% Non-Voting
Preferred stock previously authorized.
RESOLVED: The board hereby unanimously cancels the Class 'C' 10% Non-Voting
Preferred stock previously authorized.
There being no further business, the meeting was adjourned.
/s/ GARY KILLORAN
- ------------------------------
Gary Killoran, Secretary
<PAGE> 3
(e) SINKING FUND: No provision shall be made for any sinking fund.
(f) LIQUIDATION RIGHTS: In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation, the
holders of the Series A Preferred shall not be entitled to
receive any amount as a result of a liquidation, dissolution or
winding up of the corporation. The purchase or redemption by the
corporation of stock of any class, in any number permitted by
law, shall not for the purpose of this paragraph be regarded as
liquidation, dissolution or winding up of the corporation.
(g) INVOLUNTARY LIQUIDATION: In the event of involuntary
liquidation, the shares of this series shall be entitled to the
same amounts as in the event of voluntary liquidation.
(h) PREFERENCE AS TO DIVIDEND: No dividends shall be declared or
paid on the common stock of the corporation before all
accumulated dividends on the Series A Preferred have been paid.
(i) OTHER RESTRICTIONS: There shall be no conditions or restrictions
upon the creation of indebtedness of the corporation, or any
subsidiary or upon the creation of any other series of preferred
stock with any other preferences.
(j) VOTING: The Series A Preferred shall be non-voting.
(k) STATED VALUE: The shares of the Series A Preferred shall have
a stated value of $3.00 per share.
(l) OTHER PREFERENCES: The shares of the Series A Preferred shall
have no other preferences, rights, restrictions, or
qualifications, except as otherwise provided by law or the
certificate of incorporation of the corporation.
FURTHER RESOLVED, that the statements contained in the foregoing
resolution creating and designating the said Series A Preferred Stock
and fixing number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics
thereof shall, upon the effective date of said series be deemed to be
included in and be a part of the certificate of incorporation of the
corporation pursuant to the provisions of Sections 104 and 151 of the
General Corporation Law of the State of Delaware.
Signed on April 30, 1998
/s/ TIM KATARAS
- -------------------------------
Tim Kataras, President
<PAGE> 4
Certificate Of Acknowledgment
State of California )
County of San Diego )
On 5-1-98 before me, Jenelle T. Eager, a Notary Public for the State of
California, personally appeared Tim Kataras, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature(s) on
the instrument the person, or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal
Signature /s/ JENELLE T. EAGER
------------------------- [ JENELLE T. EAGER ]
| COMM # 1051807 |
| NOTARY PUBLIC CALIFORNIA |
| SAN DIEGO COUNTY |
| MY COMMISSION EXPIRES |
[ FEBRUARY 20, 1999 ]
<PAGE> 5
/s/ KEVIN J. QUINN
- ------------------------------------
Kevin J. Quinn, Secretary
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS
OF
12% CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES A-1
OF
INTEGRATED COMMUNICATION NETWORKS, INC.
Pursuant to Section 78-195 of the General Corporation Law of Nevada, the
undersigned duly authorized officers of INTEGRATED COMMUNICATION NETWORKS,
INC., a Nevada corporation (the Company), hereby certify that the following
resolution was duly adopted on March 15, 1999, by the Board of Directors of the
Company pursuant to authority conferred on the Board of Directors by the
provisions of the Certificate of Incorporation of the Company (as amended) and
in accordance with the provisions of the General Corporation Law of Nevada, and
that said resolution has not been amended or rescinded and is in full force and
effect at the date hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the Corporation's Articles of
Incorporation, as amended to date, the Board of Directors hereby creates a new
series of the Corporation's authorized but unissued preferred stock, $.01 par
value per share, to be designated "12% Convertible Redeemable Preferred Stock,
Series A-1" and to consist of 650,000 shares, and hereby fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions thereof:
1. Number of Shares and Designation. The shares of this series of
preferred stock shall be designated as "12% Convertible Redeemable Preferred
Stock, Series A-1," $.01 par value per share (the "Series A Preferred Stock"),
and the number of shares constituting this series shall be 650,000.
2. Definitions. For purposes of the Series A Preferred Stock, the
following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors of the Company or
any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series A Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in the City of Los Angeles are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock of the Company, $.01 par value
per share, and any capital stock of the Company which has the right to
participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage, into which the Common Stock may
hereafter be classified by appropriate amendment to the Corporation's
Certificate of Incorporation, as amended.
1
<PAGE> 2
"Conversion Price" shall mean the shares of Common Stock into which the Series
A Preferred Stock is convertible, as such Conversion Price may be adjusted
pursuant to Section 8 hereof. The Conversion Price will be as defined in
Section 8 hereof.
"Dividend Payment Date" shall have the meaning set forth in Subsection 3.2
hereof.
"Dividend Payment Record Date" shall have the meaning set forth in Subsection
3.2 hereof.
"Dividend Periods" shall mean quarterly dividend periods commencing on the
first day of March, June, September and December of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period which shall commence on the
Original Issue Date.
"Holders" shall mean the purchasers of the Series A Preferred Stock of the
Company and their successors and assigns of record on the stock record books of
the Company.
"Liquidation Value" shall mean, as to each share of Series A Preferred Stock,
the sum of $1.53.
"Original Issue Date" shall mean the first date on which shares of Series A
Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"Purchase Price" shall mean $1.53, the amount paid to the Company for each share
of Series A Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Transaction" shall have the meaning set forth in Subsection 8.6(a) hereof.
3. Dividends.
3.1 General. The holders of shares of the Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of assets legally available therefor, cumulative dividends at an annual rate of
12% per share (an amount equivalent to 12% of the Purchase Price per share)
payable to holders only in shares of the Common Stock of the Company.
3.2 Dividend Preference and Payment Dates. Such dividends shall be
cumulative from the Original Issue Date, whether or not in any Dividend Period
or Periods there shall be assets of the Company legally available for the
payment of such dividends and whether or not such dividends are declared, and
shall be payable quarterly, when, as and if declared by the Board of Directors,
on March
2
<PAGE> 3
1, June 1, September 1, and December 1 in each year (each a "Dividend Payment
Date"), commencing on June 1, 1999. If June 1, 1999 or any other Dividend
Payment Date shall be on a day other than a Business Day, then the Dividend
Payment Date shall be on the next succeeding Business Day. Each such dividend
shall be payable in arrears to the holders of record of shares of the Series A
Preferred Stock, as they appear on the stock records of the Company at the close
of business on those dates (each such date, a "Dividend Payment Record Date"),
not less than 10 days nor more than 60 days preceding the dividend payment dates
thereof, as shall be fixed by the Board of Directors. Dividends on the Series A
Preferred Stock shall accrue (whether or not declared) on a daily basis from the
Original Issue Date and accrued dividends for each Dividend Period shall
accumulate to the extent not paid on the Dividend Payment Date first following
the Dividend Period for which they accrue. As used herein, the term "accrued"
with respect to dividends includes both accrued and accumulated dividends.
Accrued and unpaid dividends for any past Dividend Periods may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
holders of record on such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
3.3 Computation of Dividends for Partial Dividend Periods; Payment of
Dividends on Shares Called for Redemption. The amount of dividends payable for
each full Dividend Period for the Series A Preferred Stock shall be computed by
dividing the annual dividend rate by four (rounded down to the nearest cent).
The amount of dividends payable for the initial Dividend Period on the Series A
Preferred Stock, or any other period shorter or longer than a full Dividend
Period on the Series A Preferred Stock, shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Holders of shares of Series A
Preferred Stock called for redemption on a redemption date falling between the
close of business on a Dividend Payment Record Date and the opening of business
on the corresponding Dividend Payment Date shall, in lieu of receiving such
dividend on the Dividend Payment Date fixed therefor, receive such dividend
payment together with all other accrued and unpaid dividends on the date fixed
for redemption (unless such holder converts such shares in accordance with
Section 8 hereof). No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Stock which are in arrears.
3.4 Priority and Dividend Participation/Parity Stock. (a) So long as any
shares of the Series A Preferred Stock are outstanding, no dividends, except as
described in the next succeeding sentence, shall be declared or paid or set
apart for payment on any class or series of stock of the Company ranking, as to
dividends, on a parity with the Series A Preferred Stock, for any period unless
full cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment on the Series A Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment, or setting apart for payment, of such full
cumulative dividends on such parity stock. When dividends are not paid in full
or a sum sufficient for such payment is not set apart, as aforesaid, upon the
shares of the Series A Preferred Stock and any other class or series of stock
ranking on a parity as to dividends with the Series Preferred Stock, all
dividends declared upon shares of the Series Preferred Stock and all dividends
declared upon such other stock shall be declared pro rata so that the amounts
of dividends per share declared on the Series A Preferred Stock and such other
stock shall in all cases bear to each other the same ratio that accrued
dividends per share of the shares of the Series A Preferred Stock and on such
other stock bear to each other.
3
<PAGE> 4
(b) So long as any shares of the Series A Preferred Stock are
outstanding, no other stock of the Company ranking on a parity with the Series
A Preferred Stock as to dividends or upon liquidation, dissolution or winding
up shall be redeemed, purchased or otherwise acquired for any consideration (or
any moneys be paid to or made available for a sinking fund or otherwise for the
purchase or redemption of any shares of any such stock) by the Company (except
by conversion into or exchange for stock of the Company ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) unless (a) the full cumulative dividends, if any, accrued on all
outstanding shares of the Series A Preferred Stock shall have been paid or set
apart for payment for all past Dividend Periods and (b) sufficient funds shall
have been set apart for the payment of the dividend for the current Dividend
Period with respect to the Series A Preferred Stock.
3.5 Priority and Dividend Participation/Junior Stock. So long as any
shares of the Series A Preferred Stock are outstanding, no dividends (other
than dividends or distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase shares of, Common Stock or other stock
ranking junior to the Series A Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) shall be declared or paid or set apart
for payment and no other distribution shall be declared or made or set apart
for payment, in each case upon the Common Stock or any other stock of the
Company ranking junior to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common Stock nor any
other such stock of the Company ranking junior to the Series A Preferred Stock
as to dividends or upon liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for stock of the Company ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) unless, in each case (a) the full cumulative dividends, if any,
accrued on all outstanding shares of the Series A Preferred Stock and any other
stock of the Company ranking on a parity with the Series A Preferred Stock as
to dividends shall have been paid or set apart for payment for all past
Dividend Periods and all past dividend periods with respect to such other stock
and (b) sufficient funds shall have been set apart for the payment of the
dividend for the current Dividend Period with respect to the Series A Preferred
Stock and for the current dividend period with respect to any other stock of
the Company ranking on a parity with the Series A Preferred Stock as to
dividends.
3.6 Dividend Participation with Common Stock after Payment of Cumulative
Dividends. If the Company has paid the holders of the Series A Preferred Stock
the full amount of the cumulative dividends thereon as required by this Section
3, and shall elect to declare additional dividends in any fiscal year out of
funds legally available therefor, subject to the rights of the holders of
shares of any series or classes of stock ranking on a parity with or prior to
the Series A Preferred Stock as to dividends, such additional dividends shall
be declared and shall be paid on both the Series A Preferred Stock and the
Common Stock equally, with the Series A Preferred Stock for this purpose being
deemed converted into such number of shares of Common Stock (including
fractions of a share) as each such share of Series A Preferred Stock is
convertible on the date the dividend is declared.
4
<PAGE> 5
4. Liquidation Value.
4.1 General. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Common Stock or any other series or
class or classes of stock of the Company ranking junior to the Series A
Preferred Stock upon liquidation, dissolution or winding up, the holders of the
shares of Series A Preferred Stock shall be entitled to receive $1.53 per share
(the "Liquidation Value") plus an amount per share equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such holders. No payment on account of any liquidation,
dissolution or winding up of the Company shall be made to the holders of any
class or series of stock ranking on a parity with the Series A Preferred Stock
in respect of the distribution of assets upon dissolution, liquidation or
winding up unless there shall likewise be paid at the same time to the holders
of the Series A Preferred Stock like proportionate amounts determined ratably
in proportion to the full amounts to which the holders of all outstanding
shares of Series A Preferred Stock and the holders of all outstanding shares of
such parity stock are respectively entitled with respect to such distribution.
If, upon any liquidation, dissolution or winding up of the Company, the assets
of the Company, or proceeds thereof, distributable among the holders of the
shares of Series A Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the Series A Preferred Stock, then such assets, or the proceeds thereof, shall
be distributed among the holders of shares of Series A Preferred Stock and any
such other stock ratably in accordance with the respective amounts which would
be payable on such shares of Series A Preferred Stock and any such other stock
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (a) a consolidation or merger of the Company with one or more
corporations or other entities, (b) a sale, lease, exchange or transfer of all
or any part of the Corporation's assets or (c) a statutory share exchange shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
4.2 Liquidation Participation with Common Stock after Payment of
Liquidation Preference. Upon any liquidation, dissolution or winding up of the
Company, subject to the rights of the holders of shares of any series or class
or classes of stock ranking on a parity with or prior to the Series A Preferred
Stock upon liquidation, dissolution or winding up, after payment shall have been
made in full to the holders of Series A Preferred Stock as provided in
Subsection 4.1, the remaining assets of the Company available for distribution
to stockholders shall be distributed among the holders of Series A Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming conversion of all such Series A Preferred Stock).
4.3 Notice of Liquidation, Dissolution or Winding Up. Written notice of
any liquidation, dissolution or winding up of the Company, stating the payment
date or dates when and the place or places where the amounts distributable in
such circumstances shall be payable, shall be given by first class mail,
postage prepaid, not less than 30 days prior to any payment date stated
therein, to the holders of record of the Series A Preferred Stock at their
respective addresses as the same shall appear on the books of the Company.
5
<PAGE> 6
5. Transfers.
5.1 Delivery of Certificate, Transfer Instructions and Transfer
Certificate. Each certificate of Series A Preferred Stock presented for
transfer, exchange or conversion:
(a) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Company or to its registrar therefor
duly executed by such Holder or its attorney, duly authorized in writing; and
(b) shall be accompanied by a Transferor Certificate, a form of
which will be provided by the Company.
6. Redemption.
6.1 Redemption at the Option of Holder. (a) Within three business days of
receipt of written notice of a Holder's election to cause the Company to redeem
the shares of Series A Preferred Stock, the Company will redeem the shares of
Series A Preferred Stock, in whole or in part, out of funds legally available
therefor, subject to the notice provisions and provisions for partial
redemption described below, at an amount equal to one hundred and fifteen
percent (15%) of the Purchase Price of the Holder's Series A Preferred Stock
plus an amount equal to accrued and unpaid dividends, if any, to (and
including) the date fixed for redemption, whether or not earned or declared
(the "Redemption Price"); provided, however, that if a redemption date is a
Dividend Payment Date, the quarterly payment becoming due on such date shall be
payable to the holder of record as of the relevant record date and provided
further that the Holder may not redeem any shares of Series A Preferred Stock
prior to January 1, 2000.
(b) Upon surrender in accordance of the certificates for any such shares
so redeemed (properly endorsed or assigned for transfer), such shares shall be
redeemed by the Company at the applicable Redemption Price aforesaid, and shall
be promptly paid to the holder.
(c) For the purpose of determining whether funds are legally available
for redemption of shares of Series A Preferred Stock as provided in this
Subsection 6.1, the Company shall value its assets at the highest amount
permissible under applicable law. If the funds of the Company legally available
for redemption on any Redemption Date are insufficient to redeem the total
number of shares requested to be redeemed on such date, those funds which are
legally available shall, subject to the rights of any class or series of stock
of the Company ranking, as to dividends or upon dissolution, liquidation or
winding up, on a parity with the Series A Preferred Stock, be used to redeem the
maximum possible number of shares requested to be redeemed ratably among the
holders of shares of Series A Preferred Stock requested to be redeemed based
upon the aggregate Series A Redemption Price of such shares held by each such
holder. The shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. The
redemption requirements provided hereby shall be continuous, so that at any time
thereafter when additional funds of the Company are legally available for
redemption of Series A Preferred Stock, such funds shall immediately be used to
redeem the balance of any Series A Preferred Stock which the
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<PAGE> 7
Company has become obligated to redeem on any Redemption Date but which it has
not redeemed, without further action by any holder of Series A Preferred Stock.
7. Shares to be Retired. All shares of Series A Preferred Stock
purchased, redeemed, exchanged or converted by the Company shall be retired and
canceled and shall be restored to the status of authorized but unissued shares
of the Corporation's preferred stock, without designation as to series and may
thereafter be reissued.
8. Conversion. Holders of shares of Series A Preferred Stock shall
have the right to convert all or a portion of such shares (including fractions
of such shares) into shares of Common Stock, as follows:
8.1 Right to Convert. Subject to and upon compliance with the
provisions of this Section 8, a holder of shares of Series A Preferred Stock
shall have the right, at such holder's option, at any time to convert any of
such shares (or fractions thereof) into shares of Common Stock at the rate of
ten (10) shares of Common Stock for each share of Series A Preferred Stock, and
by surrender of such shares of Series A Preferred Stock, such surrender to be
made in the manner provided in Subsection 8.3 hereof.
No fractional shares or securities representing fractional shares of Common
Stock will be issued upon conversion, and instead such amounts as would have
been paid in fractional shares will be paid in cash as provided in Subsection
8.4 hereof.
8.2 Mechanics of Conversion. (a) In order to exercise the conversion
right pursuant to Subsection 8.1 above, the holder of each share of Series A
Preferred Stock (or fraction thereof) to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the Company
or in blank, at the office of the Company, accompanied by written notice to the
Company that the holder thereof elects to convert Series A Preferred Stock or a
specified portion thereof. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such share of Series A Preferred
Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Company,
duly executed by the holder or such holder's duly authorized attorney and an
amount sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Company demonstrating that such taxes have been paid or
are not required to be paid).
(b) Holders of shares of Series A Preferred Stock at the close of
business on a Dividend Payment Record Date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
(except that holders of shares called for redemption on a redemption date
falling between the close of business on such Dividend Payment Record Date and
the opening of business on the corresponding Dividend Payment Date shall, in
lieu of receiving such dividend on the Dividend Payment Date fixed therefor,
receive such dividend payment together with all other accrued and unpaid
dividends on the date fixed for redemption, unless such holder converts such
shares called for redemption pursuant to the provisions of this Section 8)
notwithstanding the conversion thereof following such Dividend Payment Record
Date and prior to such Dividend Payment Date. However, shares of Series A
Preferred Stock surrendered for conversion during the period between the close
of business on any Dividend Payment Record Date and the opening of
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<PAGE> 8
business on the corresponding Dividend Payment Date (except shares called for
redemption or exchange on a redemption date or exchange date during such
period) must be accompanied by payment of an amount equal to the dividend
payment with respect to such shares of Series A Preferred Stock presented for
conversion on such Dividend Payment Date. A holder of shares of Series A
Preferred Stock on a Dividend Payment Record Date who (or whose transferee)
tenders any such shares for conversion into shares of Common Stock on the
corresponding Dividend Payment Date will receive the dividend payable by the
Company on such shares of Series A Preferred Stock on such date and the
converting holder need not include payment in the amount of such dividend upon
surrender of shares of Series A Preferred Stock for conversion on the Dividend
Payment Date. Except as provided above, the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted shares
or for dividends on the shares of Common Stock issued upon such conversion.
(c) Within five (5) days after the surrender of certificates for shares
of Series A Preferred Stock as aforesaid, the Company shall issue and shall
deliver at such office to such holder, or on such holder's written order, a
certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares in accordance with the provisions of this
Section 8, and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in Subsection 8.4
hereof.
(d) Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for shares
of Series A Preferred Stock shall have been surrendered and such notice received
by the Company as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date, and such
conversion shall be at the Conversion Price in effect at such time on such date,
unless the stock transfer books of the Company shall be closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such shares shall have been
surrendered and such notice received by the Company. All shares of Common Stock
delivered upon conversion of the Series A Preferred Stock will upon delivery be
duly and validly issued and fully paid and nonassessable.
8.3 Payment of Fractional Interests. Instead of any fractional interest
in a share of Common Stock which would otherwise be deliverable upon the
conversion of a share of Series A Preferred Stock (or fraction thereof), the
Company shall pay to the holder of such share an amount in cash equal to $1.53
multiplied by the fraction of a share of Common Stock represented by such
fractional interest. If more than one share shall be surrendered for conversion
at one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
8.4 Adjustments to Conversion Price for Diluting Issues.
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(a) Special Definitions. For purposes of this Subsection 8.4, the
following definitions shall apply:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued (or, pursuant to Subsection 8.4(c), deemed to be issued)
by the Company after the Original Issue Date other than shares of
Common Stock issued or issuable at any time:
(i) upon conversion of shares of Series A Preferred Stock; or
(ii) in an aggregate amount of up to 2,000,000 shares (which
number shall be proportionately adjusted in the case of
recapitalizations, stock splits, stock dividends or
combinations of shares) of Common Stock upon exercise of
options therefor to officers, directors or employees of, or
consultants to, the Company pursuant to a stock option plan
or other employee stock incentive program approved by the
Board of Directors; or
(iii) as a dividend or distribution on the Series A Preferred
Stock; or
(iv) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional
Shares of Common Stock by the foregoing clauses (i), (ii)
or (iii) or this clause (iv).
"Convertible Securities" shall mean any evidences of indebtedness,
shares (other than Common Stock, or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
"Option" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities.
(b) No Adjustment of Conversion Price. No adjustment in the number of
shares of Common Stock into which the Series A Preferred Stock is convertible
shall be made, by adjustment in the Conversion Price of Series A Preferred
Stock in respect of the issuance of Additional Shares of Common Stock or
otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the corporation is less than the
greater of (a) the book value of the Common Stock in effect on the date of, and
immediately prior to, the issue of such Additional Shares of Common stock, (b)
the fair market value as determined by the Board of Directors in good faith, or
(c) the last reported sale price of the Common Stock as reported on any
securities exchange or on Nasdaq National Market System, Nasdaq Small Cap
Market, or in the National over-the-counter market (the "minimum value").
(c) Issue of Securities Deemed Issue of Additional Shares of Common Stock.
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(i) Options and Convertible Securities. In the event the Company at
any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the
time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date,
provided that Additional Shares of Common stock shall not be
deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 8.5(e) hereof), of such
Additional Shares of Common stock would be less than the minimum
value per share:
(A) no further adjustment in the Conversion Price shall be made
upon the subsequent issue of Convertible Securities or
shares of Common stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase or decrease in the consideration payable to the
corporation, or increase or decrease in the number of
shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price
computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects
such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) no readjustment pursuant to clause (A) or (B) above shall
have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (1) the Conversion Price
on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(ii) Stock Dividends, Stock Distributions and Subdivisions. In the
event the Company at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make
any other distribution on the Common Stock payable in Common
Stock, or effect a subdivision of the outstanding
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shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such
event, Additional Shares of Common Stock shall be deemed to have
been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date
for the determination of holders of any class of securities
entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment
previously made in the Conversion Price which became effective on such
record date shall be canceled as of the close of business on such
record date, and thereafter the Conversion Price shall be adjusted
pursuant to this Subsection 8.5(c)(ii) as of the time of actual
payment of such dividend.
(d) Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock. In the event the Company shall issue or shall be deemed to issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Subsection 8.4(c), but excluding Additional
Shares of Common Stock issued pursuant to Subsection 8.4(c)(ii), which event is
dealt with in Subsection 8.4(f) hereof) without consideration or for a
consideration per share less than the minimum value per share on the date of and
immediately prior to such issue, then and in such issue, such Conversion Price
shall be reduced, concurrently with such issue in order to increase the number
of shares of Common Stock into which the Convertible Preferred Stock is
convertible, to a price determined by multiplying such Conversion Price by a
fraction (x) the numerator of which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issue (including shares of Common
Stock issuable upon conversion of any outstanding Series A Preferred Stock or
Convertible Securities or upon exercise of any outstanding Options), plus (2)
the number of shares of Common Stock which the aggregate consideration received
by the Company for the total number of Additional Shares of Common Stock so
issued would purchase at the lesser of (a) the minimum value, or (b) such
Conversion Price, and (y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue (including
shares of Common Stock issuable upon conversion of any outstanding Preferred
Stock or Convertible Securities or upon exercise of any outstanding Options),
plus (2) the number of such Additional Shares of Common Stock so issued.
(e) Determination of Consideration. For purposes of this Subsection 8.4,
the consideration received by the corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) Cash and Property: Such consideration shall:
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(A) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Company excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of
Directors; and
(C) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of
the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (A) and (B) above, as determined in good
faith by the Board of Directors.
(ii) Options and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 8.4(c)(i),
relating to Options and Convertible Securities, shall be
determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities,
the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, by (y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities.
(f) Adjustment for Dividends, Distributions, Subdivisions, Combinations
or Consolidation of Common Stock.
(i) Stock Dividends, Distributions or Subdivisions. In the event the
Company shall issue Additional Shares of Common Stock pursuant to
Subsection 8.4(c)(ii) in a stock dividend, stock distribution or
subdivision, the Conversion Price in effect immediately prior to
such stock dividend, stock distribution or subdivision shall,
concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
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(ii) Combinations or Consolidations. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of
Common Stock, the Conversion Price in effect immediately prior to
such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be
proportionately increased.
(g) Adjustment for Merger or Reorganization, etc. (i) In case of any
recapitalization, reorganization, reclassification, consolidation, merger or the
conveyance of all or substantially all of the assets of the Company pursuant to
which the holders of Common Stock are entitled to receive (either directly or on
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock (an "Organic Change"), each of the holders of Series A
Preferred Stock shall thereafter have the right to acquire and receive, in lieu
of or in addition to (as the case may be) the shares of Common Stock acquirable
and receivable upon conversion of such holder's Series A Preferred Stock, such
shares of stock, securities or assets as such holder would have received if such
holder had converted its Series A Preferred Stock immediately prior to such
Organic Change. In each such case, the Company shall also make appropriate
provisions to insure that each share of Series A Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Company deliverable upon conversion of such Series A Preferred Stock would have
been entitled upon such consolidation, merger or conveyance and that appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interest thereafter of the holders of the Series A Preferred Stock, to the end
that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock. The Company shall not effect any such Organic Change unless
prior to the consummation thereof, the successor entity (if other than the
Company) assumes by written instrument the obligations set forth herein.
(ii) For purposes of this Subsection 8.4(g), any amounts of cash or other
consideration payable to any stockholder of the Company in connection
with any such Organic Change, such as, by way of example only, any
employment contracts, consulting contracts or noncompete payments
which result in payments to such stockholder in excess of 150% of his
or her current compensation, shall be deemed a part of the total
consideration payable in connection with such Organic Change.
8.5 No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company but will at
all times in good faith assist in the carrying out of all the provisions of
this Section B and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
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8.6 Certificate as to Adjustments. Whenever the Conversion Price is
adjusted as herein provided, the Company shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price,
the facts requiring such adjustment and upon which such adjustments are based
and the date on which such adjustment becomes effective and shall mail such
notice of such adjustment of the Conversion Price to the holder of each share
of Series A Preferred Stock at such holder's last address as shown on the stock
records of the Company.
8.7 Deferral of Issuance of Additional Shares. In any case in which
Subsection 8.4 provides that an adjustment shall become effective immediately
after a record date for an event and the date fixed for conversion pursuant to
Section 8 occurs after such record date but before the occurrence of such event,
the Company may defer until the actual occurrence of such event (a) issuing to
the holder of any share of Series A Preferred Stock surrendered for conversion
the additional shares of Common Stock issuable upon such conversion by reason
of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (b)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Subsection 8.4 hereof.
8.8 Computation of Outstanding Common Stock. For purposes of this
Section 8, the number of shares of Common Stock at any time outstanding shall
not include any shares of Common Stock then owned or held by or for the account
of the Company or any corporation controlled by the Company.
8.9 Multiple Adjustments in a Single Transaction. Notwithstanding any
other provision herein to the contrary, the issuance of any shares of Common
Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under any such plan shall not be
deemed to constitute an issuance of Common Stock. There shall be no adjustment
of the Conversion Price in case of the issuance of any stock of the Company in
a reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 8. If any action or transaction would
require adjustment of the Conversion Price pursuant to more than one Section of
this Section 8, only one adjustment shall be made and such adjustment shall be
the amount of adjustment which has the highest absolute value.
8.10 Further Adjustment by the Board of Directors. In case the Company
shall take any action affecting the Common Stock, other than action described
in this Section 8, which in the opinion of the Board of Directors would
materially and adversely affect the conversion rights of the holders of the
shares of Series A Preferred Stock, the Conversion Price for the Series A
Preferred Stock may be adjusted lower, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances.
8.11 Payment of Documentary Stamp and Transfer Taxes. The Company will
pay any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the shares of Series A Preferred Stock (or
any other securities issued on account of the Series A Preferred Stock pursuant
hereto) or shares of Common Stock on conversion of the Series A Preferred Stock
pursuant hereto; provided, however, that the Company shall not be required to
pay any tax
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which may be payable in respect of any transfer involved in the issue or
delivery of shares of Series A Preferred Stock (or any other securities issued
on account of the Series A Preferred Stock pursuant hereto) or shares of Common
Stock in a name other than the name in which the shares of Series A Preferred
Stock with respect to which such Common Stock shares are issued were registered
and the Company shall not be required to make any issue or delivery unless and
until the person requesting such issue or delivery has paid to the Company the
amount of any such tax or has established, to the reasonable satisfaction of
the Company, that such tax has been paid or is not required to be paid.
8.12 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion
of the Convertible Preferred Stock.
9. RANKING. Any class or classes of stock of the Company shall be deemed
to rank:
(a) prior to the Series A Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, if
the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of Series A Preferred Stock;
(b) on a parity with the Series A Preferred Stock, as to dividends or as
to the distribution of assets upon liquidation, dissolution or winding
up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from
those of the Series A Preferred Stock, if the holders of such class of
stock and the Series A Preferred Stock shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective amounts of accrued and unpaid dividends per share or
liquidation prices, without preference or priority of one over the
other; and
(c) junior to the Series A Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, if
such stock shall be Common Stock or if the holders of Series A
Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
such stock.
10. VOTING.
10.1 Voting Rights with Common Stock. The holders of Series A Preferred
Stock shall be entitled to notice of any stockholders' meeting in accordance
with the By-Laws of the Company, and shall be entitled to ten (10) votes for
each share of Series A Preferred Stock on all matters submitted to the
stockholders for approval. With respect to matters affecting only the Series A
Preferred Stock, each outstanding share of Preferred Stock will be entitled to
one vote. In either case described in this Section 10, shares held by the
Company or any entity controlled by the Company shall be excluded and shall
have no voting rights.
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11. Events of Default.
11.1 Events of Default Defined. Each of the events specified in the
following Subsections 11.1(a) through (f) shall, upon written notice of default
from holders of a majority of the outstanding shares of Series A Preferred
Stock, be an Event of Default, provided that an Event of Default may be waived
in writing by such holders.
(a) the Company shall breach or default in the performance of or
compliance with, any representation or warranty, covenant,
agreement, condition or term contained in this Certificate of
Designations, including the payment of any dividend or redemption
amount hereunder, and such default shall not have been remedied
within thirty (30) days after written notice thereof shall have
been given to the Company; or
(b) the Company shall default in the payment when due of any
principal or interest on any material debt instrument or shall
default under or fail to perform or observe any material terms,
covenant or agreement contained in, any agreement, document or
instrument to which it is a party or to which it or its assets
are bound, including any obligation for borrowed money or for the
purchase price of property, and such default or failure to
perform shall continue and remain unwaived by the obligee for
more than 30 days or any shorter or longer applicable period of
grace therein specified, except where the Company is in good
faith and through appropriate proceedings contesting such default
or failure to perform; or
(c) the Company or any operating subsidiary shall make an assignment
for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or an order for
relief is entered against the Company or such operating
subsidiary under any bankruptcy laws or the Company or any such
operating subsidiary shall file any petition or answer seeking
for itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file an answer
admitting the material allegations of a petition filed against
the Company or such operating subsidiary in any such proceeding,
or shall seek of consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of the Company or such
operating subsidiary, or the Company or its board of directors or
its stockholders shall take any action looking to the dissolution
or liquidation of the Company or such operating subsidiary and
such has not been remedied within 30 days after written notice
thereof shall have been given to the Company; or
(d) within 60 days after the commencement of any proceeding against
the Company or such operating subsidiary seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding
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shall not have been dismissed or, within 60 days after the
appointment without the consent or acquiescence of the Company
of any trustee, receiver or liquidator of the Company or such
operating subsidiary of all or any substantial part of the
properties of the Company or such operating subsidiary, such
appointment shall not have been vacated; or
(e) a final judgment which, together with other outstanding final
judgments against the Company, exceeds an aggregate of $250,000,
shall be rendered against the Company and within 90 days after
entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal or, within 60 days after
the expiration of any such stay, such judgment shall not have
been discharged; or
(f) the Company fails to make any redemption payment with respect to
the Series A Preferred Stock which it is obligated to make
hereunder, whether or not such payment is then legally
permissible or is prohibited by any agreement to which the
Company is subject.
11.2 Other Remedies. The holders of a majority of the Series A Preferred
Stock outstanding at the time of any Event of Default may proceed to protect
and enforce the rights of said holders by a suit in equity, action at law or
other appropriate proceeding, including but not limited to the enforcement of
any rights under any of the other documents executed and delivered in
connection herewith, for the specific performance of any agreement contained
herein or in any other documents executed and delivered in connection herewith,
or for any injunction against a violation of any of the terms or provisions
hereof or thereof or in aid of the exercise of any power granted hereby or
thereby or by law. The Company will pay to the holders thereof such further
amount as shall be sufficient to cover the cost and expense of any action
instituted by the holders upon such Event of Default, including (without
limitation) reasonable attorneys fees. If the holders shall give any notice or
take any action in respect of a claimed default, the Company will forthwith
give written notice thereof to all other such holders at the time outstanding,
describing the notices or action and the nature of the claimed default. No
course of dealing and no delay on the part of any holders in exercising any
right shall operate as a waiver thereof or otherwise prejudice such holders'
rights. No remedy conferred hereby or by any of the other documents executed
and delivered in connection herewith shall be exclusive of any other remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise.
12. Covenants. In addition to any other rights provided by law or
agreement so long as any shares of the Series A Preferred Stock remain shall be
outstanding, without first obtaining the affirmative vote or written consent of
the holders of not less than 50% of the shares of Series A Preferred Stock then
outstanding (as adjusted for all subdivisions and combinations), the Company
shall not:
(a) pay or declare any dividend or distribution on any shares of
Common stock or apply any of its assets to the redemption,
retirement, purchase or other
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acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock;
(b) issue or sell any shares of its capital stock, or any rights or
options to acquire any shares of its capital stock, other than
(i) issuances of Common Stock upon conversion of the Series A
Preferred Stock, (ii) issuances of Common Stock or Series A Preferred
Stock in the form of dividends payable on shares of outstanding Common
Stock or Series A Preferred Stock, respectively, and (iii) issuances
of up to 2,000,000 shares (which number shall be proportionately
adjusted in the case of recapitalizations, stock splits, stock
dividends or combinations of shares) of Common Stock upon exercise of
options therefor to officers, directors or employees of, or
consultants to, the Company pursuant to a stock option plan or other
employee stock incentive program approved by the Board of Directors;
(c) cause or permit, or agree or consent to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a
lien or liens except:
(i) liens securing taxes, assessments or governmental charges or the
claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons, none of which
are in default or delinquent;
(ii) liens incurred or deposits made in the ordinary course of
business (A) in connection with workmen's compensation,
unemployment insurance, social security and other like laws, or
(B) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations,
surety, appeal and performance bonds and other similar
obligations not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the deferred
purchase price of property;
(iii) attachment, judgment and other similar liens arising in
connection with any court proceedings, provided the execution
or other enforcement of such liens is effectively stayed and
the claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(iv) reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other
similar title exception or encumbrances affecting real property
provided they do not in the aggregate materially detract from
the value of said properties or materially interfere with their
use in the ordinary conduct of the Corporation's business; and
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(v) liens arising out of debt authorized by the requisite vote of the
Board of Directors.
(d) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation or Bylaws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock;
(e) change the general character of its business as constituted as of the
Original Issue Date;
(f) except as otherwise provided herein, apply any of its assets to redeem,
retire, purchase or otherwise acquire any capital stock of the Company;
(g) enter into any material transaction, including, without limitation, the
purchase, sale, lease, rental or exchange of property or the rendering of
any service, with an affiliate, employee, officer, director or shareholder
or engage in any transaction not in the normal course of business with any
supplier, customer of any other person unless approved by the Board of
Directors of the Company;
(h) grant to any future purchaser of its securities any rights to register such
securities under the Securities Act that are more favorable than those
provided to the holders of the Series A Preferred Stock and will not grant
any registration rights to any future purchaser of its securities unless
such registration rights shall provide that (i) they are subject to the
rights of the holders of the Series A Preferred Stock to the extent that if
the managing underwriter of any offering which includes shares of Common
Stock into which the Series A Preferred Stock is convertible determines
that marketing factors require the limitation of the number of shares of
such Common stock or other securities to be included in the offering, the
securities of the Company held by such future purchasers of its securities
shall be excluded from such registration to the extent required by such
limitation before the exclusion of any shares of Common Stock into which
the Series A Preferred Stock is convertible, and (ii) such securities as
are excluded from registration shall not be offered to the public until at
least 180 days following the completion of the offering of the securities
included in the registration.
(i) issue any of its equity securities for consideration other than cash, other
than (i) issuances of Common Stock upon conversion of the Series A
Preferred Stock, (ii) issuances of Common stock or Series A Preferred Stock
in the form of dividends payable on shares of outstanding Common Stock or
Series A Preferred Stock, respectively, (iii) issuances of up to 2,000,000
shares (which number shall be proportionately adjusted in the case of
recapitalizations, stock splits, stock dividends or combinations of shares)
of
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<PAGE> 20
Common Stock upon exercise of options therefor to officers,
directors or employees of, or consultants to, the Company
pursuant to a stock option plan or other employee stock incentive
program approved by the Board of Directors, and (iv) acquisitions
of other companies or assets related to the business of the
Company;
(j) make or permit to remain outstanding any loan or advance to, or
extend credit other than credit extended in the normal course of
business to pay Person who is not an affiliate of the Company, or
guarantee, endorse or otherwise be or become contingently liable,
directly or indirectly, in connection with the obligations, stock
or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make
any capital contribution to, any Person, except that the Company
or any subsidiary may:
(i) own, purchase or acquire (A) certificates of deposit of
commercial banks organized under the laws of the United
States (having a capital and surplus in excess of
$50,000,000) and (B) obligations of the United States
Government or any agency thereof, and obligations
guaranteed by the United States Government, in each case
due within one year from the date of purchase and payable
in the United States in United States dollars;
(ii) endorse negotiable instruments for collection or deposit in
the ordinary course of business; and
(iii) permit to make and remain outstanding indebtedness
permitted by clause (d) of this Section 12.
13. Record Holder. The Company may deem and treat the record holder of
any shares of Series A Preferred Stock as the true and lawful owner thereof for
all purposes, and the Company shall not be affected by any notice to the
contrary.
14. Notice. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt. In the case of a notice of conversion
given to the Company as contemplated in Subsection 8.2 hereof, or, in all other
cases, upon the earlier of receipt of such notice or three Business Days after
the mailing of such notice if sent by registered mail (unless first class mail
shall be specifically permitted for such notice under the terms of this
Certificate) with postage prepaid, addressed: if to the Company, to its offices
at 4685 MacArthur Court, Suite 300, Newport Beach, CA 92660, or such other
place as designated in a written notice to the holders of the Series A
Preferred Stock, or other agent of the Company designated as permitted by this
Certificate, or, if to any holder of the Series A Preferred Stock, to such
holder at the address of such holder of the Series A Preferred Stock as listed
in the stock record books of the Company; or to such other address as the
Company or holder, as the case may be, shall have designated by notice
similarly given.
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IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Company by the undersigned on the 5th day of April 1999.
INTEGRATED COMMUNICATION
NETWORK, INC.
By: /s/ DAVID CHADWICK
--------------------------------
David Chadwick, President
/s/ [Signature Illegible]
- --------------------------------
Secretary
<PAGE> 1
EXHIBIT 4.3
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
SEP. 13, 1990
No. C600-97
----------
/s/ [DEAN HELLER]
DEAN HELLER, SECRETARY OF STATE
AMENDMENT TO
CERTIFICATE OF DESIGNATIONS
OF
12% CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES A-1
OF
INTEGRATED COMMUNICATION NETWORKS, INC.
Pursuant to Section 78-195 of the General Corporation Law of Nevada, the
undersigned duly authorized officer of INTEGRATED COMMUNICATION NETWORKS, INC.,
a Nevada corporation (the "Company"), hereby certify that the following
resolution was duly adopted on September 11, 1999, by the Board of Directors of
the Company pursuant to authority conferred on the Board of Directors by the
provisions of the Certificate of Incorporation of the Company (as amended) and
in accordance with the provisions of the General Corporation Law of Nevada, and
that said resolution has not been amended or rescinded and is in full force and
effect at the date hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the Corporation's Articles of
Incorporation, as amended to date, the Board of Directors hereby amends its 12%
Convertible Redeemable Preferred Stock, Series A-1 to increase the authorized
number of shares from 650,000 to 7,500,000 shares.
The Certificate of Designations of 12% Convertible Redeemable Preferred Stock,
Series A-1 of the Company is hereby amended as follows:
ARTICLE 1 is hereby deleted and replaced in its entirety as follows:
1. Number of Shares and Designation. The shares of this series of
preferred stock shall be designated as "12% Convertible Redeemable Preferred
Stock, Series A-1," $.01 par value per share (the "Series A Preferred Stock"),
and the number of shares constituting this series shall be 7,500,000.
ARTICLE 8.1 is hereby amended to insert the words "after December 31, 2000"
after the phrase "at any time" in the first sentence of Article 8.1.
All other provisions shall remain the same.
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Company by the undersigned as of the 11th day of September, 1999.
INTEGRATED COMMUNICATIONS NETWORKS, INC.
By: /s/ David Chadwick
----------------------------------
David Chadwick, President
/s/ Gary Killoran
- ------------------------------
Gary Killoran, Secretary
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
Between
INTEGRATED COMMUNICATION NETWORKS, INC.
And
-----------------------
Dated as of February 23, 1999
THE WARRANTS AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANTS
AND WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANTS AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE> 2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of the 23rd day of
February, 1999, and executed by between Integrated Communication Networks, Inc.,
a Nevada corporation (the "Company") and _______________ (the "Consultant").
WHEREAS, the Company has agreed to grant to Consultant or its assigns
common stock purchase warrants in substantially the form attached hereto as
Exhibit A hereto (the "Warrants") to acquire up to an aggregate of __________
shares of the Company's Common Stock (the "Exercise Quantity"). This Agreement
sets forth certain rights and obligations of the Company and Consultant with
respect to the Warrants.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties hereto agree as follows:
I. DEFINITIONS
Section I.1 Defined Terms. As used in this agreement, the following
capitalized terms shall have the meanings respectively assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined.
"Common Stock" shall mean the common stock, par value $0.01, of the
Company.
"Common Stock Equivalents" shall mean all options, warrants (including,
without limitation, the Warrants), securities of any kind (including, without
limitation, securities convertible into or exchangeable or exercisable for
Common Stock) and other rights (in each case whether now existing or hereafter
issued or arising) to acquire from the Company shares of Common Stock (without
regard to whether such options, warrants, securities and other rights are then
exchangeable, exercisable or convertible in full, in part or at all).
"Company" shall have the meaning set forth in the preamble.
"Dividend" means, as to any Person, any declaration or payment of any
dividend or distribution (other than a dividend of Common Stock) on, or the
making of any pro rata distribution, loan, advance, or investment to, any shares
of capital stock of such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, and any successor
provisions thereto.
"Exercise Price" shall have the meaning given in each Warrant. The
Exercise Price and the number of shares of Common Stock purchasable pursuant to
the Warrants shall be subject to adjustment from time to time as hereinafter set
forth in Article V hereof.
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<PAGE> 3
"Expiration Period" means February 22, 2004.
"Exercise Quantity" shall mean the number of shares of Common Stock,
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrants, required to be issued by the
Company to the holders of the Warrants. Exercise Quantity shall initially have
the meaning given in each Warrant, and may be adjusted from time to time,
pursuant to the provisions of the Warrants and this Agreement.
"Fair Value" as of a particular date shall mean the closing asked price
of the Common Stock as reported on a national securities exchange or on the
NASDAQ SmallCap, National Market System or OTC Bulletin Board Service
(collectively, and as applicable, "NASDAQ") or, if a last asked quotation is not
available for the Common Stock, the last sale price of the Common Stock as
reported by NASDAQ, or if not so reported, as listed in the National Quotation
Bureau, Inc.'s "Pink Sheets." If such quotations are unavailable, or with
respect to other appropriate security, property, assets, business or entity,
"Fair Value" shall mean the fair value of such item as determined by mutual
agreement reached by the Holder and the Company or, in the event the parties are
unable to agree, an opinion of an independent investment banking firm or firms
in accordance with the following procedure. In the case of any event which gives
rise to a requirement to determine "Fair Value" pursuant to this Agreement, the
Company shall notify the Holders of such event as promptly as practicable, but
in any event within ten (10) calendar days following such event and if the
procedures contemplated herein in connection with determining Fair Value have
not been complied with fully, then any such determination of Fair Value for any
purpose of this Agreement shall be deemed to be preliminary and subject to
adjustment pending full compliance with such procedures.
Upon the occurrence of an event requiring the determination of Fair
Value, the Company shall give the Holder(s) of the Warrants notice of such
event, and the Company and the Holders shall engage in direct good faith
discussions to arrive at a mutually agreeable determination of Fair Value. In
the event the Company and the Holder(s) are unable to arrive at a mutually
agreeable determination within ten (10) days of the notice, the Company and the
Holder(s) of the Warrants (who, if more than one, shall agree among themselves
by a majority) shall retain Imperial Capital LLC or, if Imperial Capital LLC is
unavailable or unable to accept such engagement, Greif & Co. Such firm shall
determine the Fair Value of the security, property, assets, business or entity,
as the case may be, in question and deliver its opinion in writing to the
Company and to such Holder within thirty (30) days of its retention. Each of the
Company and the Holders (as a group) shall submit to such investment banking
firm their proposed determination of Fair Value, and any other supporting
documentation reasonably requested by the investment banking firm. In no event
shall the marketability, or lack thereof, or lack of registration of a security
be a factor in determining the "Fair Value" of such security. The determination
so made shall be conclusive and binding on the Company and such Holder(s),
absent clear and manifest error. The fees and expenses of such investment
banking firm retained pursuant to this provision shall be borne by the Company
in advance. In the event the Company fails to pay such fees, or the retainer or
deposit requested by such investment banking firm,
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<PAGE> 4
within 10 days of the acceptance by such investment banking firm (conditional or
unconditional) of such engagement, then the Holders' proposed determination of
Fair Value shall be conclusive and binding upon the Company.
"Holder" or "Holders" shall mean the Person(s) then registered as the
owners of the Warrants or Warrant Securities, as the case may be, on the books
and records of the Company.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or political
subdivision or agency thereof.
"Registrable Securities" shall have the meaning assigned to it in
Section 6.01 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, and any successor provisions
thereto.
"Subsidiary" of any Person means (i) a corporation, association or other
business entity of which more than 50% of the total voting power of all classes
of the outstanding voting stock or other indicia of ownership is owned, directly
or indirectly, by such Person or by one or more other Subsidiaries of such
Person or by such Person and one or more Subsidiaries thereof, (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person (or
any combination thereof) and (iii) any other Person not described in clauses (i)
and (ii) above in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, owns 50% ownership and the power, whether by such ownership
interest, pursuant to a written contract or agreement or otherwise, to direct
the policies and management or the financial and other affairs thereof.
"Warrant Securities" shall mean the shares of Common Stock purchasable
or purchased from time to time under the Warrants or acquirable or acquired upon
any transfer of any such securities, together with all additional securities
receivable or received in payment of Dividends or distributions on or splits of
those securities or receivable or received as a result of adjustments provided
for in Article V hereof.
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<PAGE> 5
II. WARRANTS
Section II.1 Grant of Warrants. The Company hereby grants to Consultant,
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Warrants to purchase a number of shares of Common Stock
equal to the Exercise Quantity, as may be adjusted from time to time as set
forth herein, which Warrants shall be evidenced in substantially the form
attached as Exhibit A. Consultant and any subsequent Holder of the Warrants and
of Warrant Securities shall have the rights and obligations provided for in the
Warrants and in this Agreement.
Section II.2 Exercise of Warrants. Subject to the terms of this
Agreement, the Warrant holder shall have the right, at any time and from time to
time after December 31, 2000 until 5:00 p.m., Pacific Time, on February 22,
2004, to purchase from the Company up to the number of fully paid and
nonassessable shares of Warrant Securities to which the Warrant holder may at
the time be entitled to purchase pursuant to this Agreement and the Warrant,
upon presentation and surrender of the Warrant (or a copy thereof) to the
Company, together with the Exercise Form duly completed and executed and payment
in the aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of the
Exercise Price may be made either by (i) personal or business check payable to
the order of the Company, (ii) surrender of certificates then held representing,
or deduction from the number of shares issuable upon exercise of the Warrant, of
that number of shares which has an aggregate Fair Value determined in accordance
with this Agreement on the date of exercise equal to the aggregate Exercise
Price for all shares to be purchased pursuant to the Warrant, (iii) by a
promissory note bearing interest at six percent (6%) per annum and payable in
five equal annual installments commencing on the first anniversary of the
exercise of the Warrant, or (iv) by any combination of the foregoing methods.
Within five business days of the Company's receipt of the Warrant (or a copy
thereof), the completed and signed Exercise Form and the requisite payment (if
any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased. In the event the Company fails to deliver or cause to be
delivered to the Holder such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
Warrant Agreement) within such five business day period, the Company shall pay
to the Holder an amount equal to the greater of (i) $500 per calendar day, (ii)
the product of (x) the last sale price on the date the certificates are properly
issued and delivered to the Holder, less the last sale price on the date of the
Exercise Form, multiplied by (y) the number of shares of Warrant Securities
purchased as set forth in the Exercise Form, or (iii) the quotient of (x) the
last reported sale price on the day prior to the date of the Exercise Form,
multiplied by the number of shares of Warrant Securities issuable to such Holder
upon such exercise, divided by (y) 200 (the "Delay Damages"), for each day after
the fifth business day following the delivery of the Warrant and such Exercise
Form to the Company through and including the day such certificates (without
legend or restriction if such Warrant Securities are then, or are required bo
be, registered pursuant to the terms of the Warrant Agreement) are delivered to
the Holder at the address set forth in such Exercise Form. In the event the
Company restricts or delays the transfer or clearance of such certificates by
the Holder (whether by stop
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<PAGE> 6
transfer order, unreasonable delay or otherwise), the Company shall pay to the
Holder the Delay Damages for each calendar day of such restriction or delay.
Section II.3 Partial Exercise. In the event of a partial exercise of the
Warrant, the Company shall issue and deliver to the Holder a new Warrant at the
same time such stock certificates are delivered, which new Warrant shall entitle
the Holder to purchase the balance of the Exercise Quantity not purchased in
that partial exercise and shall otherwise be upon the same terms and provisions
as the Warrant.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, hereby represents and warrants as follows:
(1) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of Nevada, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under the contracts to which it is a party. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, including, without limitation,
California.
(2) The execution and delivery of this Agreement and the Warrants have
been duly and properly authorized by all requisite corporate action of the
Company and its board of directors, and no consent of any other Person is
required as a prerequisite to the validity, enforceability and performance of
this Agreement and the Warrants that has not been obtained. The Company has the
full legal right, power and authority to execute and deliver this Agreement and
the Warrants and to perform its obligations hereunder and thereunder. When
issued and delivered pursuant to this Agreement, the Warrants will have been
duly and validly executed, issued and delivered and will constitute valid and
legally binding obligations of the Company and the Holder thereof will be
entitled to the benefits provided herein and therein.
(3) The Warrant Securities, when issued, sold and delivered in
accordance with the terms hereof, for the consideration expressed herein, shall
be duly and validly issued and outstanding, fully paid and nonassessable, and
will be issued in compliance with all applicable federal and state securities or
blue sky laws.
(4) The Company is not a party to or otherwise subject to any contract
or agreement which restricts or otherwise affects its right or ability to
execute and deliver this Agreement or the Warrants or to perform any obligation
hereunder or thereunder (including, without limitation, issuance of the Warrant
Securities). Neither the execution or delivery of this Agreement or the
Warrants, nor compliance therewith (including, without limitation, issuance of
the Warrant Securities), will conflict with or result in a breach of the terms,
conditions or provisions of, or
6
<PAGE> 7
constitute a default under, or result in any violation of, or result in the
creation of any material lien upon any assets or properties of the Company
under, or require any consent, approval, or other action by, notice to or filing
with any court or governmental agency or division pursuant to the Certificate of
Incorporation or Bylaws of the Company, as currently in effect, any award of any
arbitrator, or any agreement, instrument or law to which the Company is subject
or by which it or its assets or properties is bound.
(5) The Warrants are, and the Warrant Securities will be, issued by the
Company to Consultant in a transaction exempt from registration and
qualification under the applicable federal and state securities and blue sky
laws.
IV. COVENANTS
Section IV.1 Covenants of the Company. The Company hereby covenants and
agrees that, during the term of this Agreement, unless Holders of outstanding
Warrants evidencing a majority of the Warrants agree otherwise in writing,
(1) Each of the Warrant Securities issued and delivered upon the
exercise of the Warrants and payment of the Exercise Price will be duly and
validly authorized and issued, will be fully paid and nonassessable, and will
not be subject to any unpaid tax of the Company or any lien imposed on or
created by the Company, whether respecting their issuance to and purchase by the
Holder of the Warrants or otherwise. The Company will take all such actions as
may be necessary to assure that all such Warrant Securities may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange or quotation system upon which
such Warrant Securities may be listed.
(2) The Company shall reserve and at all times keep available for
issuance an authorized number of shares of Common Stock or Warrant Securities
sufficient to permit the full and immediate exercise of the Warrants and the
full and immediate exercise, exchange and conversion of all other securities,
options, warrants and other rights issued or granted by the Company.
(3) The Company shall not permit the par value of its Common Stock to
exceed, at any time, the Exercise Price and shall take all such actions as may
be necessary or appropriate to ensure that it does not do so.
(4) As soon as available, and in no event later than the dates filed
with the Securities and Exchange Commission (the "Commission") or any other
governmental agency or division or other regulatory authority, if such documents
are so filed, the Company shall, upon request, deliver to any Holder(s) of the
Warrants and the Warrant Securities copies of (i) all annual, quarterly and
monthly financial statements made available by the Company to its shareholders,
(ii) all reports, notices and proxy or information statements sent or made
available generally by the Company to its shareholders, and (iii) all regular
and periodic reports and all registration statements, prospectuses and other
information filed by the Company with the Commission,
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<PAGE> 8
relevant state authorities or any securities exchange, securities quotation
system or other self-regulatory organization.
(5) The Company agrees that to the extent reasonably necessary to permit
the Holders to sell shares of the Common Stock in accordance with and in
reliance on Rule 144, and for so long as such shares are owned by the Holders
and such shares are not registered for resale under the Securities Act, the
Company will make and keep public information available within the meaning of
Rule 144 at all times from and after the Closing Date, and file with the SEC in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act.
(6) The Company shall cooperate with the Holder(s) of the Warrants and
the Warrant Securities in supplying such information as may be reasonably
necessary for the Holder(s) to complete and file any information or other
reporting forms from time to time required by the Commission, relevant state
authorities or any securities exchange, securities quotation system or other
self-regulatory organization, including, without limitation, information
pertaining to or required for the availability of any exemption from the
securities laws for the sale, transfer or other disposition of the Warrants or
any of the Warrant Securities.
Section IV.2 Indemnification.
(1) The Company agrees to defend, indemnify and hold harmless, to the
full extent permitted by law, Consultant and each other Holder of the Warrants,
this Agreement, or any Warrant Security purchased hereunder, any underwriter(s),
and their respective directors, officers, employees, attorneys and agents, as
well as each other Person (if any) controlling any of the foregoing Persons
within the meaning of Section 15 of the Securities Act, or Section 20 of the
Exchange Act, from and against any and all claims, liabilities, losses and
expenses (including, without limitation, the reasonable disbursements, expenses
and fees of their respective attorneys, accountants and experts) that may be
imposed upon, incurred by, or asserted against any of them, any of their
respective directors, officers, employees, attorneys and agents, or any such
control Person, under the Securities Act, the Exchange Act or any other statute
or at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of or are related directly or indirectly
to (i) the breach of any of the representations, warranties and/or covenants of
the Company contained herein, or (ii) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such securities are or were registered under the
Securities Act or the Exchange Act, or in any preliminary prospectus or final
prospectus related thereto, or any amendment or supplement thereto, or any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
such Persons for any legal or any other expenses reasonably incurred by such
Persons in connection with investigating or defending any such loss, claim,
damage, liability or action. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any such
indemnified Person, and shall survive the transfer of such securities by such
Person. Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against the Company, the Company shall
assume the defense of
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<PAGE> 9
such action (including the employment of counsel, who shall be counsel of
national reputation and presence, and who shall be reasonably satisfactory to
the party seeking indemnity hereunder) and the payment of expenses insofar as
such action shall relate to any alleged liability in respect of which indemnity
may be sought against the Company. If the Company assumes the defense of such
action, (i) it will be conclusively established for purposes of this Agreement
that the claims made in that action are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the Company without the indemnified party's consent unless (1) there is no
finding or admission of any violation of law, regulation, rule or order or any
violation of the rights of any other person or entity and no effect on any other
claims that may be made against the indemnified party, and (2) the sole relief
provided is monetary damages that are paid in full by Company; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to
the Company of the commencement of any action and the Company does not, within
ten days after the indemnified party's notice is given to the Company, give
notice to the indemnified party of its election to assume the defense of such
action, the Company will be bound by any determination made in such action or
any compromise or settlement effected by the indemnified party.
(2) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a claim or action may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, or if an
indemnified party determines that there are defenses available to it that are
either not available to the Company or not being raised by the Company, or if
the indemnified party determines that there is a conflict of interest between
the Company and the indemnified party in the claim or action, the indemnified
party may, by notice to the Company, assume the exclusive right to defend,
compromise, or settle such claim or action, and the Company will be bound by any
determination of a claim or action so defended or any compromise or settlement
effected.
Section IV.3 Repurchases and Redemptions. The Company shall not
repurchase or redeem any of its equity securities or any Common Stock
Equivalents unless it concurrently makes a cash payment to the Holder(s) of the
Warrants equal to the product of: (1) the quotient obtained by dividing (x) the
aggregate amount of cash and the aggregate Fair Value of any property paid out
or to be paid out by the Company in connection with any such repurchase or
redemption by (y) the number of shares of Common Stock outstanding immediately
after such repurchase or redemption and (2) the number of shares of Common Stock
issuable upon the exercise of the Warrants.
Section IV.4 Listing on the Securities Exchange. The Company shall, at
its expense, list on NASDAQ or any securities exchange where it lists its Common
Stock, and maintain and increase when necessary such listing of all outstanding
Warrant Securities so long as any shares of Common Stock shall be so listed. The
Company shall also so list on each such securities exchange or NASDAQ, and will
maintain such listing of, any other securities which the
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Holder(s) shall be entitled to receive upon the exercise thereof if at the time
any securities of the same class shall be listed on such securities exchange or
NASDAQ by the Company.
V. ANTIDILUTION
Section V.1 No Dilution or Impairment: Adjustments.
(1) Prohibited Actions. So long as any Warrants are outstanding, the
Company will not avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants or impair the ability of the
Holder(s) to realize the full intended economic value thereof, but will at all
times in good faith assist in the carrying out of all such terms, and of the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder(s) of the Warrants against dilution or other
impairment.
(2) Adjustment of Exercise Price in the Event of Certain Issuances of
Common Stock or Common Stock Equivalents. In case the Company shall at any time
issue or sell Common Stock or Common Stock Equivalents (by merger otherwise) for
less than Fair Value as of the date of such issuance or at a price per share
less than the then current Exercise Price of the Warrants (other than (i)
delivery of shares of Common Stock upon exercise of the Warrants, and (ii) any
Common Stock Equivalents issued and outstanding on the date hereof), or issue
Common Stock or Common Stock Equivalents by way of a Dividend or other
distribution on any stock of the Company or effect a forward stock split of the
outstanding shares of Common Stock, the Exercise Price then in effect shall be
proportionately decreased (on the date of such issuance, sale or split), so that
the new Exercise Price shall be equal to the product of (x) the former Exercise
Price and (y) the lesser of (i) one or (ii) the following fraction:
The number of shares of Common Stock and Common Stock
Equivalents outstanding immediately prior to such issuance
-------------------------------------------------------------
The number of shares of Common Stock and Common Stock
Equivalents outstanding immediately after such issuance
and the Exercise Quantity purchasable upon exercise of the Warrants immediately
prior thereto shall be adjusted so that the new Exercise Quantity shall be equal
to the product of (x) the former Exercise Quantity and (y) the following
fraction:
The Exercise Price in effect immediately prior to such adjustment
-----------------------------------------------------------------
The Exercise Price in effect immediately after such adjustment
(3) Company to Prevent Dilution. In any case at any time or from time to
time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Article V, and which might
adversely affect the rights of the Holders under any provision of this
Agreement, unless the adjustment necessary shall be agreed upon by the Company
and the Holders, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized national standing,
acceptable to the
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<PAGE> 11
Holders, who at the Company's expense shall give their opinion upon the
adjustment, if any, on a basis consistent with the standards established in the
other provisions of this Article V, necessary with respect to the Exercise Price
and the Exercise Quantity, so as to preserve, without dilution, the rights of
the Holders. Upon the receipt of such opinion, the Company's Board of Directors
shall forthwith make the adjustments described therein; provide, however, that
no such adjustment shall be made to increase the Exercise Price or decrease the
Exercise Quantity.
(4) Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company or any Subsidiary with or into
another Person, (iii) the disposition or transfer of assets of the Company other
than in the ordinary course of the Company's business, (iv) any Dividend or
other distribution to the holders of capital stock of the Company in the form of
any asset, including without limitation securities of the Company, or (v) the
dissolution, liquidation or winding up of the Company, the Holders shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such transaction or event that appropriate provision shall
be made so that such Holders shall thereafter be entitled to purchase) the kind
and amount of shares of stock and other securities and property receivable in
such transaction by a holder of the number of shares of Common Stock of the
Company into which this Agreement entitled the Holders to purchase immediately
prior to such capital reorganization, reclassification of capital stock,
non-surviving combination or disposition; and in any such case appropriate
adjustments shall be made in the application of the provisions of this Article V
with respect to rights and interests thereafter purchasable upon the exercise of
a Warrant.
(5) Adjustment Statement. Whenever the Exercise Price or Exercise
Quantity is adjusted as herein provided, the Company shall, within ten days
following the consummation of the event triggering such adjustment, deliver to
the Holders a statement signed by the President of the Company and by its
Treasurer or Secretary stating the adjusted Exercise Price and Exercise Quantity
for which the Warrants are exercisable, determined as specified herein. The
statement shall show in detail the facts requiring such adjustment, including a
statement of the consideration received by the Company for any additional stock
issued. In the event the Company shall fail to timely deliver such adjustment
statement, the Company shall be in default hereof, and the Holder's reasonable
determination of any adjustment shall be deemed conclusive and binding, absent
manifest error. Irrespective of any adjustments in the Exercise Price or the
Exercise Quantity or the kind of shares purchasable upon the exercise of the
Warrants, the Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
(6) Prior Notice to the Holders. If at any time:
(1) The Company shall pay any Dividend payable in Common
Stock or Common Stock Equivalents upon its capital stock or make any
distribution to the holders of its capital stock; or
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<PAGE> 12
(2) The Company shall offer for subscription pro rata to
the holders of its capital stock any additional shares of stock of any class or
any other rights; or
(3) The Company shall effect any capital reorganization or
any reclassification of or change in the outstanding capital stock of the
Company (other than a change in par value, or a change from par value to no par
value, or a change from no par value to par value, or a change resulting solely
from a subdivision of outstanding shares), or any consolidation or merger, or
any sale, transfer or other disposition of all or substantially all of its
property, assets, business and goodwill as an entirety, or the liquidation,
dissolution or winding up of the Company; or
(4) The Company shall declare a Dividend upon its capital
stock;
then, in any such event, the Company shall cause at least thirty (30) days'
prior written notice to be mailed to the Holders at the address of each such
Holder shown on the books of the Company. The notice shall also specify the date
on which the books of the Company shall close or a record be taken for such
stock dividend, distribution or subscription rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, winding up, or Dividend, as the case may
be, shall take place, and the date of participation therein by the holders of
shares of capital stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the rights of the Holder.
(7) Disputes. If there is any dispute as to the computation of the
Exercise Price or the Exercise Quantity, the Company will retain, at its
expense, BDO Seidman, LLP (or its successor), or, if unavailable or if then
providing services to the Company, PricewaterhouseCoopers, LLP (or its
successor), to conduct an audit of the computations pursuant to the terms hereof
involved in such dispute, including the financial statements or other
information upon which such computations were based. The determination of such
accounting firm shall, in the absence of manifest error, be conclusive and
binding.
VI. REGISTRATION RIGHTS
Section VI.1 "Piggyback" Registration Rights. If at any time the Company
shall determine to register under the Securities Act (including pursuant to a
demand of any security holder of the Company exercising registration rights) any
of its Common Stock, it shall send to Consultant and to each of the Holder(s)
written notice of such determination at least thirty (30) days prior to each
such filing and, if within twenty (20) days after receipt of such notice, any
Holder shall so request in writing, the Company shall include in such
registration statement (to the extent permitted by applicable regulation) all or
any part of the Warrant Securities (collectively referred to in this Agreement
as "Registrable Securities") that such Holder requests to be registered. Any
Registrable Securities which are included in any underwritten offering under
this Section 6.01 shall be sold upon such terms as the managing underwriters
shall
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reasonably request but in any event shall be upon terms not less favorable
than those upon which any other selling security holder or the Company shall
sell any of its securities. If any Holder disapproves of the terms of such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter. Notwithstanding the provisions of this Section
6.01, the Company shall have the right, at any time after it shall have given
written notice pursuant to this Section 6.01 (irrespective of whether a written
request for inclusion of Registrable Securities shall have been made), to elect
not to file any such proposed registration statement or to withdraw the same
after the filing and prior to the effective date thereof.
Section VI.2 Demand Registration Rights. If Consultant or the Holders of
a 25% or more of the Warrants shall so request in writing (a "Demand Request"),
at any time and from time to time after the date hereof but prior to the later
of (a) expiration of the term hereof, or (b) one year after the exercise of the
Warrants, the Company shall file with the Commission within 30 days of the date
of such Demand Request and cause to become effective no later than 90 days
following the date of such Demand Request, a registration statement under the
Securities Act for the offering and sale of the Registrable Securities.
Section VI.3 Effectiveness. If necessary to permit unrestricted and
unlimited distribution of the Registrable Securities, the Company shall maintain
the effectiveness of the registration statement pursuant to which any of the
Registrable Securities are being offered, and from time to time will amend or
supplement such registration statement and the prospectus related thereto as and
to the extent necessary to comply with the Securities Act and any applicable
state securities statute or regulation. If the registration by the Company of
the resale of Registrable Securities is eligible for Form S-3 or any successor
to such form, the Company shall maintain the effectiveness of the registration
statement until all registered Registrable Securities are sold, or until two
years after the date all of the Warrants have been exercised.
Section VI.4 Further Obligations of the Company. Whenever, under the
preceding Sections of this Article VI, the Company is required hereunder to
register Registrable Securities, it agrees that it shall also do the following:
(1) Furnish to each selling Holder such copies of each preliminary and
final prospectus and any other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(2) Register or qualify the Registrable Securities to be registered
pursuant to this Article VI under the applicable securities or blue sky laws of
such jurisdictions as any selling Holder may reasonably request;
(3) Furnish to each selling Holder: (i) a signed counterpart of an
opinion of counsel for the Company, dated the effective date of the registration
statement; and (ii) a copy of any "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, covering the same
matters as are customarily covered in opinions of issuer's counsel and in
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<PAGE> 14
accountants' "comfort" letters delivered to the underwriters in underwritten
public offerings of securities;
(4) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them in connection with such registration; and
(5) Furnish to each selling Holder, upon request, a copy of all
documents filed and all correspondence from or to the Commission in connection
with any such offering.
Section VI.5 Expenses. Except for underwriters' discounts and brokerage
commissions allocable to the Registrable Securities, the Company shall bear all
costs and expenses of each registration contemplated in Sections 6.01, 6.02 and
6.03 including, but not limited to, printing, legal and accounting fees and
expenses, Commission and NASD filing fees and blue sky fees and expenses in any
jurisdiction in which the securities to be offered are to be registered or
qualified.
Section VI.6 Transfer of Registration Rights. The registration rights of
the Holders of Registrable Securities under this Article VI shall inure to the
benefit of and shall be exercisable by any transferee of Registrable Securities.
Section VI.7 Participation Rights.
The Company will not grant to any Person (other than Consultant, the
Holders, any Affiliate thereof or any transferee of Registrable Securities under
this Article VI) at any time on or after the date of this Agreement the right (a
"Participation Right") to request the Company to register any securities of the
Company under the Securities Act by reason of the exercise by any Holder of its
rights under this Article VI unless such Participation Right provides that such
securities shall not be registered and sold at the same time if the managing
underwriter for the offering, including the Registrable Securities, believes
that sale of such securities would adversely affect the amount of, or price at
which, the respective Registrable Securities being registered under this Article
VI can be sold.
Notwithstanding anything in this Article VI to the contrary, in no event
shall this Article VI be construed as prohibiting, restricting or impairing the
Company's ability to comply with the registration rights agreements or the
registration rights in any Common Stock Equivalents it has entered into prior to
the date hereof.
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<PAGE> 15
VII. TRANSFER OF WARRANTS AND WARRANT SECURITIES
Section VII.1 Transfer. Except as set forth in Section 7.02 below, the
Warrants and all rights thereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of such
Warrant at the office of the Company maintained for such purpose, together with
a written assignment of such Warrant duly executed by the Holder hereof or its
agent or attorney. Upon such surrender and payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denominations specified in such instrument of assignment, and the
surrendered Warrant shall promptly be canceled. The transferred Warrant, if
properly assigned in compliance herewith, may be exercised by an assignee for
the purchase of shares of Common Stock without having a new Warrant issued. The
Company will not close its stock transfer books against a transfer of the
Warrants or the Warrant Securities or any exercise of the Warrants. Any such
transfer or exercise tendered while such stock transfer books shall be closed
shall be deemed effective immediately prior to such closure.
Subject to Section 7.02 below, the Warrants may be divided or combined
with other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder thereof or its agent or
attorney. Subject to compliance with this, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section. The Company agrees to maintain at its
aforesaid office books for the registration and transfer of the Warrants.
Notwithstanding any provision to the contrary contained herein, the Warrants and
the Warrant Securities shall be transferable only in compliance with the
provisions of the Securities Act and applicable state securities laws in respect
of the transfer of any Warrant or any Warrant Securities.
Section VII.2 Transfer Restrictions. Neither this Warrant Agreement, the
Warrants nor the Warrant Securities, when issued, have been registered under the
Securities Act or under the securities laws of any state. Neither this
Agreement, the Warrants nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any federal or
state securities laws or a breach of the conditions to any exemption from
registration thereunder and (b) unless and until one of the following has
occurred: (i) registration of the Warrants or the Warrant Securities, as the
case may be, under the Securities Act, and such registration or qualification as
may be necessary under the securities laws of any state, have become effective,
(ii) the Holder has delivered an opinion of counsel, or other evidence
reasonably satisfactory to the Company, that such registration or qualification
is not required, or (iii) such transfer would be permitted under Rule 144 under
the Securities Act.
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<PAGE> 16
Each certificate for Warrant Securities issued upon exercise of a
Warrant and each certificate issued to a subsequent transferee, unless at the
time of exercise such Warrant Securities are registered under the Securities
Act, shall bear a legend substantially in the following form (and any additional
legends required by applicable law) on the face thereof:
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED,
WHETHER OR NOT FOR CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT TO THE
WARRANT SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION AND
QUALIFICATION.
Section VII.3 Replacement of Instruments. Within five business days
following receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any
certificate or instrument evidencing any Warrants or Warrant Securities, and (a)
in the case of loss, theft or destruction, upon receipt by the Company of
indemnity reasonably satisfactory to it (provided that, the Holder's own
agreement of indemnification shall be deemed to be satisfactory), or (b) in the
case of mutilation, upon surrender and cancellation thereof, the Company, at its
expense, will execute, register and deliver, in lieu thereof, a new certificate
or instrument for (or covering the purchase of) an equal number of Warrants or
Warrant Securities.
VIII. MISCELLANEOUS
Section VIII.1 Term. Except as otherwise expressly provided in this
Agreement or the Warrants, this Agreement shall expire on February 22, 2004,
provided that the Company's obligations to honor an exercise of the Warrants
given prior to such expiration or to perform any obligation continue and survive
notwithstanding the expiration of this Agreement.
Section VIII.2 No Waiver Under Other Agreements. The terms and
provisions contained in this Agreement are not intended and shall not be
construed to waive, modify, repeal, stay, diminish or otherwise impair or affect
in any manner whatsoever any right or remedy of Consultant or the Holder(s)
under the Company's Certificate of Incorporation, Bylaws or similar agreements,
or any other agreements between the Company and/or its affiliates and
Consultant.
Section VIII.3 Reliance. Each party to this Agreement shall be entitled
to rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or other
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communication reasonably believed by that party to be genuine and to have been
signed, sent or made by the proper Person or Persons.
Section VIII.4 Notice. All notices and other communications provided for
or permitted hereunder shall be made in writing and be by hand-delivery or
certified mail, return receipt requested, or by telecopy, (a) if to Consultant,
to the address set forth on the signature page hereof or such other address
given by Consultant to the Company in writing, (b), if to a subsequent Holder of
Warrants or Warrant Securities issued pursuant to the exercise of the Warrants,
at the most current address given by such Holder to the Company in writing; or
(c)if to the Company, as follows:
Integrated Communication Networks, Inc.
27061 Aliso Creek Road
Aliso Viejo, California 92656
Telecopier: (949) 349-1730
ATTN: President
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; four business days after
being deposited in the mail, postage prepaid, if mailed, when receipt is
acknowledged, if telecopied, or the next business day, if timely delivered to an
air courier guaranteeing overnight delivery.
Section VIII.5 Enforcement. The Company acknowledges that the Holders
may proceed to exercise or enforce any right, power, privilege, remedy or
interest that they may have under this Agreement or applicable law without
notice, except as otherwise expressly provided herein, without pursuing,
exhausting or otherwise exercising or enforcing any other right, power,
privilege, remedy or interest that they may have against or in respect of any
other party, or any other Person or thing, and without regard to any act or
omission of such party or any other Person. The Company's obligations hereunder,
including, without limitation the obligation to issue the Warrant Securities
upon exercise of the Warrant, are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
the Company may have against the Consultant, any Holder, or any assignee,
thereof, for any reason whatsoever. All rights and remedies of the party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
Section VIII.6 Equitable Relief. Each party acknowledges and agrees that
it would be impossible to measure in money the damage in the event of a breach
of any of the terms and provisions of this Agreement by any party hereto, and
that, in the event of any such breach, there may not be an adequate remedy at
law, although the foregoing shall not constitute a waiver of any of the party's
rights, powers, privileges and remedies against or in respect of a breaching
party, any other person or thing under this Agreement or applicable law. It is
therefore agreed that, in addition to all other such rights, powers, privileges
and remedies that it may have, each
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<PAGE> 18
party shall be entitled, without the obligation to post bond, to injunctive
relief, specific performance or such other equitable relief as such party may
request to exercise or otherwise enforce any of the terms and provisions of this
Agreement and to enjoin or otherwise restrain any act prohibited thereby, and no
party will urge, and each party hereby waives, any defense that there is an
adequate remedy available at law.
Section VIII.7 Merger or Consolidation of the Company. So long as the
Warrant remains outstanding, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
Section VIII.8 Interpretation; Headings, Severability.
(1) The parties acknowledge and agree that since each party and its
counsel have had the opportunity to review and negotiate the terms and
provisions of this Agreement and have contributed to its revision, the normal
rule of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement,
and its terms and provisions shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
(2) The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(3) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, such determination shall not impair or otherwise affect the validity,
legality or enforceability: (i) by or before that authority of the remaining
terms and provisions of this Agreement, which shall be enforced as if the
superseded, invalid, illegal or otherwise unenforceable term or provision were
modified to the extent required to permit such provision to be not superseded,
invalid, illegal or unenforceable, or (ii) by or before any other authority of
any of the terms and provisions of this Agreement.
(4) If any period of time specified in this Agreement expires on a day
that is not a Business Day, that period shall be extended to and expire on the
next succeeding Business Day.
Section VIII.9 Survival of Covenants. Each of the covenants and other
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with respect
to events occurring prior thereto.
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<PAGE> 19
Section VIII.10 No Required Exercise. No term or provision of the
Warrants or this Agreement is intended to require, nor shall any such term or
provision be construed as requiring, any Holder of the Warrants to exercise or
sell the Warrants.
Section VIII.11 Binding Effect. This Agreement shall be binding upon and
enforceable against the parties hereto and their respective successors and
assigns.
Section VIII.12 No Waiver by Action or Course of Dealing. No course of
dealing or any delay or failure to exercise any right hereunder on the part of
any party hereto shall operate as a waiver of such right or otherwise prejudice
the rights, powers or remedies of such party.
Section VIII.13 Waiver; Modification; Amendment. Each and every
modification to and amendment of this Agreement shall be in writing and signed
by the Company, Consultant (if at that time Consultant is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant Securities.
Each and every waiver of and consent to any departure from any term or provision
hereof (except as otherwise provided herein) shall be in writing and signed by
Consultant (if at that time it is a Holder) and by the Holders of a majority in
interest of all issued and unissued Warrant Securities and by each party against
whom enforcement of the waiver or consent may be sought. Notwithstanding the
foregoing, no modification, amendment or waiver of any term or provision hereof
with respect to the Exercise Price, the Exercise Quantity, any terms of Article
V hereof, any of the terms of this Section 8.13 or which purports, or has the
effect of, shortening the term of any Warrant or limiting the right or ability
of a Holder thereof to exercise a Warrant shall be enforceable against a Holder
unless such Holder specifically approves, in writing, such modifications,
amendment or modification.
Section VIII.14 Entire Agreement. This Agreement and the Warrants
contain the entire agreement of the parties with respect to the Warrants and
supersede all other representations, warranties, agreements and understandings,
oral or otherwise, among the parties hereto with respect to the Warrants, except
as otherwise provided herein.
Section VIII.15 No Inconsistent Agreements or Rights. The Company shall
not enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
Section VIII.16 Time of the Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the essence.
Section VIII.17 Attorneys' Fees and Costs. Should any party institute
any action, suit or other proceeding arising out of or relating to this
Agreement or the Warrants, the prevailing party shall be entitled to receive
from the losing party reasonable attorneys' fees and costs incurred in
connection therewith, along with all costs of defense, investigation,
preparation, experts and collection.
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<PAGE> 20
Section VIII.18 Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. THIS AGREEMENT, THE WARRANTS AND THE WARRANT SECURITIES AND ALL
AMENDMENTS, SUPPLEMENTS, WAIVERS, AND CONSENTS RELATING HERETO OR THERETO SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES,
AND AGREES AND CONSENTS THAT SERVICES OF PROCESS MAY BE MADE UPON IT IN ANY
LEGAL PROCEEDINGS RELATING HERETO BY ANY MEANS ALLOWED UNDER CALIFORNIA OR
FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE COMPANY AND CONSULTANT EACH HEREBY AGREE TO WAIVE ITS RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE SECURITIES OR ANY OTHER AGREEMENTS RELATING TO THE SECURITIES OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE WARRANTS, THE WARRANT SECURITIES OR ANY OTHER DOCUMENTS
OR AGREEMENTS RELATING THERETO.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed as of the day and year first above written.
THE COMPANY:
Integrated Communication Networks, Inc.
By:
-------------------------------------------
David J. Chadwick
Chief Executive Officer
By:
-------------------------------------------
Gary Killoran
Secretary
CONSULTANT
By:
-------------------------------------------
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Exhibit A
to
Warrant Agreement
Initial Warrant
<PAGE> 23
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
COMMON STOCK PURCHASE WARRANT
February 23, 1999
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
Integrated Communication Networks, Inc., a Nevada corporation (the "Company")
does hereby certify and agree that, for good and valuable consideration (the
existence, sufficiency and receipt of which are hereby acknowledged by the
Company), ________, its successor, and assigns ("Holder"), hereby is entitled to
purchase from the Company, during the term set forth in Section 1 hereof, up to
an aggregate amount of _______ shares (the "Exercise Quantity") of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
of the Company (the "Common Stock"), all upon the terms and provisions and
subject to adjustment of such Exercise Quantity provided in the Warrant
Agreement and this Common Stock Purchase Warrant (the "Warrant"). The exercise
price per share of Common Stock for which this Warrant is exercisable shall be
$____, as adjusted from time to time pursuant to the terms of this Warrant and
the Warrant Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Pacific time, on February 22, 2004.
2. Exercise of Warrant.
<PAGE> 24
(a) This Warrant may be exercised by the Holder of this Warrant
at any time during the term hereof, but after December 31, 2000, in whole or in
part, from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of shares which has an
aggregate Fair Value determined in accordance with this Agreement on the date of
exercise equal to the aggregate Exercise Price for all shares to be purchased
pursuant to this Warrant, (iii) by a promissory note bearing interest at six
percent (6%) per annum and payable in five equal annual installments commencing
on the first anniversary of the exercise of this Warrant, or (iv) by any
combination of the foregoing methods. Within five business days of the Company's
receipt of this Warrant (or a copy thereof), the completed and signed Exercise
Form and the requisite payment (if any), the Company shall issue and deliver (or
cause to be delivered) to the exercising Holder stock certificates aggregating
the number of shares of Warrant Securities purchased. In the event the Company
fails to deliver or cause to be delivered to the Holder such certificates
(without legend or restriction if such Warrant Securities are then, or are
required to be, registered pursuant to the Warrant Agreement) within such five
business day period, the Company shall pay to the Holder the Delay Damages, for
each day after the fifth business day following the delivery of this Warrant and
such Exercise Form to the Company through and including the day such
certificates (without legend or restriction if such Warrant Securities are then,
or are required bo be, registered pursuant to the terms of the Warrant
Agreement) are delivered to the Holder at the address set forth in such Exercise
Form. In the event the Company restricts or delays the transfer or clearance of
such certificates by the Holder (whether by stop transfer order, unreasonable
delay or otherwise), the Company shall pay to the Holder the Delay Damages for
each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether
in whole or in part, the Holder (or any other person to whom a stock certificate
is to be so issued) shall be deemed for all purposes to have become the Holder
of record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
2
<PAGE> 25
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant (or a copy hereof) shall be made to the Company during normal business
hours on a business day (unless the Company otherwise permits) at the executive
offices of the Company or to such other office or duly authorized representative
of the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within five business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form. In the event the Company fails to deliver or
cause to be delivered to the Holder such certificates (without legend or
restriction if such Warrant Securities are then, or are required to be,
registered pursuant to the Warrant Agreement) within such five business day
period, the Company shall pay to the Holder the Delay Damages. In the event the
Company restricts or delays the transfer or clearance of such certificates by
the Holder (whether by stop transfer order, unreasonable delay or otherwise),
the Company shall pay to the Holder the Delay Damages for each calendar day of
such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices an open register for all Warrants, in which the Company shall
record the name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable hereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to
3
<PAGE> 26
it of this Warrant, together with the annexed Assignment Form duly completed and
executed, and if the transfer is not a registered transfer, evidence reasonably
satisfactory to the Company that such transfer is in compliance with federal and
state securities laws. Within five business days after the Company's receipt of
this Warrant and the Assignment Form so completed and executed, the Company will
issue and deliver to the transferee a new Warrant representing the portion of
the Exercise Quantity transferred at the same Exercise Price per share and
otherwise having the same terms and provisions as this Warrant, which the
Company will register in the new Holder's name.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it (provided
that, the Holder's own agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof, the Company, at its expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
this Warrant.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
Integrated Communication Networks, Inc.
By:
---------------------------------------------
David J. Chadwick
Chief Executive Officer
By:
---------------------------------------------
Gary Killoran
Secretary
4
<PAGE> 27
Integrated Communication Networks, Inc.
EXERCISE FORM
Integrated Communication Networks, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, shares of common stock of the Company (the "Warrant Securities"),
and requests that certificates for the Warrant Securities be issued in the
name of:
--------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
--------------------------------------------------------------
--------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
------------------
Name of Holder
or Assignee:
---------------------------
(Please Print)
Address:
---------------------------
---------------------------
Signature: ---------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
5
<PAGE> 28
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase ________________shares of common stock represented by
the within Warrant Certificate unto, and requests that a certificate for such
Warrant be issued in the name of:
-------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------------------------------
-------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
--------------- ------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
6
<PAGE> 1
EXHIBIT 10.1
================================================================================
STOCK PURCHASE AGREEMENT
DATED AS OF JANUARY 1, 1999
by and among
GLOBAL ACCESS PAGERS, INC.,
and
PhoneXchange, Inc.,
David Chadwick, James Rott, Paul Hyde and Gary Killoran
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS .................................................. 1
SECTION 2. SALES AND TRANSFER OF SHARES; CLOSING ........................ 9
2.1 SHARES ....................................................... 9
2.2 PURCHASE PRICE ............................................... 9
2.3 CLOSING ...................................................... 10
2.4 CLOSING OBLIGATIONS .......................................... 10
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS .................... 11
3.1 ORGANIZATION AND GOOD STANDING ............................... 11
3.2 AUTHORITY; NO CONFLICT ....................................... 11
3.1 CAPITALIZATION ............................................... 13
3.2 FINANCIAL STATEMENTS ......................................... 13
3.3 BOOKS AND RECORDS ............................................ 13
3.4 TITLE TO PROPERTIES; ENCUMBRANCES ............................ 13
3.5 CONDITION AND SUFFICIENCY OF ASSETS .......................... 14
3.6 ACCOUNTS RECEIVABLE .......................................... 14
3.7 NO UNDISCLOSED LIABILITIES ................................... 15
3.8 TAXES ........................................................ 15
3.9 NO MATERIAL ADVERSE CHANGE ................................... 15
3.10 EMPLOYEE BENEFITS ............................................ 15
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS ............................................... 16
3.12 LEGAL PROCEEDINGS; ORDERS .................................... 17
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS ........................ 17
3.14 CONTRACTS; NO DEFAULTS ....................................... 18
3.15 INSURANCE .................................................... 21
3.16 ENVIRONMENTAL MATTERS ........................................ 21
3.17 INTELLECTUAL PROPERTY ........................................ 22
3.18 CERTAIN PAYMENTS ............................................. 23
3.19 DISCLOSURE ................................................... 24
3.20 RELATIONSHIPS WITH RELATED PERSONS ........................... 24
3.21 BROKERS OR FINDERS ........................................... 24
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER ...................... 25
4.1 ORGANIZATION AND GOOD STANDING ............................... 25
4.2 AUTHORITY; NO CONFLICT ....................................... 25
4.3 INVESTMENT INTENT ............................................ 25
4.4 CERTAIN PROCEEDINGS .......................................... 25
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE ................... 26
5.1 ACCESS AND INVESTIGATION ..................................... 26
5.2 OPERATION OF THE BUSINESSES OF THE COMPANY ................... 26
5.3 NEGATIVE COVENANT ............................................ 26
5.4 NOTIFICATION ................................................. 26
5.5 PAYMENT OF INDEBTEDNESS BY OR TO RELATED PERSONS ............. 27
5.6 NO NEGOTIATION ............................................... 27
5.7 BEST EFFORTS ................................................. 27
SECTION 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE ..................... 27
6.1 BEST EFFORTS ................................................. 27
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE .......... 28
7.1 ACCURACY OF REPRESENTATIONS .................................. 28
7.2 SELLERS' PERFORMANCE ......................................... 28
7.3 ADDITIONAL DOCUMENTS ......................................... 28
7.4 NO PROCEEDINGS ............................................... 29
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS .......... 29
7.6 NO PROHIBITION ............................................... 29
SECTION 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE ......... 29
8.1 ACCURACY OF REPRESENTATIONS .................................. 29
8.2 BUYER'S PERFORMANCE .......................................... 30
8.3 NO INJUNCTION ................................................ 30
SECTION 9. TERMINATION .................................................. 30
9.1 TERMINATION EVENTS ........................................... 30
9.2 EFFECT OF TERMINATION ........................................ 31
SECTION 10. INDEMNIFICATION; REMEDIES .................................... 31
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE .................................................... 31
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS ............ 31
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER .............. 32
10.4 RIGHT OF SET-OFF ............................................. 32
10.5 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS .......... 33
10.6 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS ................ 34
SECTION 11. GENERAL PROVISIONS ........................................... 34
11.1 EXPENSES ..................................................... 34
11.2 PUBLIC ANNOUNCEMENTS ......................................... 34
11.3 CONFIDENTIALITY .............................................. 35
11.4 NOTICES ...................................................... 35
11.5 JURISDICTION; SERVICE OF PROCESS ............................. 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
11.6 FURTHER ASSURANCES ........................................... 36
11.7 WAIVER ....................................................... 36
11.8 ENTIRE AGREEMENT AND MODIFICATION ............................ 37
11.9 DISCLOSURE LETTER ............................................ 37
11.10 ASSIGNMENTS, SUCCESSOR, AND NO THIRD-PARTY RIGHTS ............ 37
11.11 SEVERABILITY ................................................. 38
11.12 SECTION HEADINGS, CONSTRUCTION ............................... 38
11.13 TIME OF ESSENCE .............................................. 38
11.14 GOVERNING LAWS ............................................... 38
11.15 COUNTERPARTS ................................................. 38
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of January 1, 1999,
by and among Global Access Pagers, Inc., a Nevada corporation ("GAPI" or
"Buyer") and PhoneXchange, Inc., a Delaware corporation (the "Company"), David
Chadwick, James Rott, Paul Hyde and Gary Killoran (collectively, the "Sellers").
WITNESSETH:
WHEREAS, Sellers are the owner of an aggregate of 8,600,000 shares (the
"Shares") of common stock, par value $0.001 per share (the "Common Stock"), of
the Company, being approximately 85.14% of the 10,100,882 outstanding shares of
Common Stock;
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, the
Shares pursuant to this Agreement;
WHEREAS, it is the intention of the parties hereto that, immediately
following consummation of the purchase and sale of the Stock pursuant to this
Agreement Buyer shall own approximately 85.14% of the outstanding shares of
capital stock of the Company.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"APPLICABLE CONTRACT" -- any Contract (i) under which the Company has or may
acquire any rights, (ii) under which the Company has or may become subject to
any obligation or liability, or (iii) by which the Company or any of the assets
owned or used by it is or may become bound.
"BALANCE SHEET" -- as defined in Section 3.4.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible.
1
<PAGE> 6
"BREACH" -- a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (i) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (ii) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUYER" -- as defined in the first paragraph of this Agreement.
"CLOSING" -- as defined in Section 2.3.
"CLOSING DATE" -- the date and time as of which the Closing actually takes
place.
"COMPANY" -- as defined in the Recitals of this Agreement, and including any
Subsidiary of the Company.
"CONSENT" -- any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by this
Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Employment
Agreements and the Noncompetition Agreements;
(c) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of
control over the Company.
"CONTRACT" -- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES" -- as defined in Section 10.2
"DISCLOSURE LETTER" -- the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement.
"EBITDA" -- the net operating earnings before interest, income taxes,
depreciation and amortization of PhoneXchange, determined according to
generally accepted accounting principles consistently applied on the same basis
as EBITDA of the Buyer is (or would be) determined and reported in Buyer's
financial statements, if the Buyer (or as if the Buyer is)
2
<PAGE> 7
required to file such financial statements with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Regulation S-X.
"EMPLOYMENT AGREEMENTS" -- as defined in Section 2.4(a)(iii).
"ENCUMBRANCE" -- any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), ground waters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" -- any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety
and health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health
Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or other
remediation or response actions ("Cleanup") required by applicable
Environmental Law or Occupational Safety and Health Law (whether or
not such Cleanup has been required or requested by any Governmental
Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and
Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW" -- any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and
of the commencements of activities, such as
3
<PAGE> 8
resource extraction or construction, that could have significant
impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES"--any real property, leaseholds, or other interests currently or
formerly owned or operated by the Company and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by the Company.
"FAIR MARKET VALUE"--shall mean, with respect to any common stock, the average
closing bid price of such common stock quoted on the National Association of
Securities Dealers Automated Quotation System - Bulletin Board ("Nasdaq
Bulletin Board"), or, if such common stock is not listed on the Nasdaq Bulletin
Board, such other exchange as such common stock is then traded or listed, for
the five trading days prior to the date for which such value is determined.
"GAAP"--Generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(b) were prepared.
"GAPI COMMON STOCK"--restricted common stock of Global Access Pagers, Inc., a
Nevada corporation, which shall bear appropriate legends as required by law,
and which shall be issued pursuant to exemptions to the registration
requirements of the Securities Act under Section 4(2) and Regulation D of the
rules promulgated thereunder.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver,
or other authorization issued, granted, given, or otherwise made available by
or under the authority of any Governmental Body or pursuant to any Legal
Requirement.
4
<PAGE> 9
"GOVERNMENTAL BODY" - any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"HAZARDOUS ACTIVITY" - the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any withdrawal
or other use of groundwater) of Hazardous Materials in, on, under, about, or
from the Facilities or any part thereof into the Environment, and any other
act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS" - any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and
specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" - as defined in Section 3.22.
"INTERIM BALANCE SHEET" - as defined in Section 3.4.
"IRC" - the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS" - the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE" - an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of
such fact or other matter.
5
<PAGE> 10
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, employee, partner, executor, or
trustee of such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution,
law, ordinance, principle of common law, regulation, statute, or treaty.
"NONCOMPETITION AGREEMENTS"--as defined in Section 2.4(a)(iv).
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena,
confirmation or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and
is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required by applicable law or common practice to be
authorized by the board of directors of such Person (or by any Person
or group of Persons exercising similar authority) and is not required
to be authorized by the shareholders of such Person; and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any
Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons
that are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(i) the articles or certificate of incorporation
and the bylaws of a corporation; (ii) the partnership agreement and any
statement of partnership of a general partnership; (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (iv) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; and (v)
any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
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<PAGE> 11
"PLAN" -- as defined in Section 3.13.
"PROCEEDING" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"RELATED PERSON" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more member's of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (i) the "Family" of an individual includes (1)
the individual, (2) the individual's spouse and former spouses, (3) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (4) any other natural person who resides with
such individual, and (ii) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of voting securities or other voting interests representing at
least 10% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 10% of the outstanding equity
securities or equity interests in a Person.
"RELEASE" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE" -- with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
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<PAGE> 12
"SECURITIES ACT" -- the Securities Act of 1933, as amended, or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"SELLERS" -- as defined in the first paragraph of this Agreement.
"SELLERS' RELEASES" -- as defined in Section 2.4.
"SHARES" -- as defined in the Recitals of this Agreement.
"SUBSIDIARY" -- with respect to any Person (the "Owner"), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE" -- a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may
result from such Release.
"THREATENED" -- a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES. Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the Shares
will be $6,450,003, subject to adjustment as set forth below, plus the Earnout
Amount.
(a) Purchase Price. The Purchase Price will be paid in shares of GAPI
Common Stock equal to the result of the greater of (i) dividing the Purchase
Price by the Fair Market Value per share of the GAPI Common Stock, or (ii)
921,429 shares of GAPI Common Stock. These shares will be issued as follows:
8
<PAGE> 13
(i) 307,161 shares shall be issued within five days of Closing;
(ii) 614,268 will be issued if and to the extent that the Company
achieves at least $1,000,000 in EBITDA during the period
commencing on the Closing and ending August 31, 1999, at the
rate of .614268 additional shares for each dollar of EBITDA
achieved by the Company during such period; provided, however,
that in no event shall more than 614,268 shares be issued
pursuant to this Section 2.2(a)(ii).
(b) Earnout. The Purchase Price shall be increased by the following
payments (the "Earnout Payments"), payable through December 31, 2001
(the "Earnout Period"), provided, however, that the maximum
aggregate number of shares of GAPI Common Stock to be issued
pursuant to all Earnout Payments shall not exceed (i) the sum of
2,600,000 shares, less (ii) the number of shares of GAPI Common
Stock issuable pursuant to Section 2.2(a) above, as adjusted
pursuant to Section 2.2(b) above. In the event that the Company
achieves EBITDA in any single calendar month (or an average monthly
EBITDA over any three month period of any fiscal quarter) during the
Earnout Period (excluding the net profit allocable to any minority
interest in the Company) set forth below, Sellers shall be issued
additional shares of GAPI Common Stock as set forth below:
<TABLE>
<CAPTION>
Additional Shares
Monthly EBITDA Per Month
----------------------- -----------------
<S> <C>
$1,300,000 - $2,599,999 50,000
$2,600,000 - $3,899,999 100,000
$3,900,000 - $5,199,999 150,000
$5,200,000 - $6,499,999 200,000
Each additional $1,300,000 50,000
million
</TABLE>
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Buyer's consultant at 2224 Main Street, Santa Monica,
California 90405, at 10:00 a.m. (local time) on January 29, 1999, or at such
other time and place as the parties may agree. Subject to the provisions of
Section 9, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.3 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
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<PAGE> 14
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with signatures
guaranteed by a commercial bank or by a member firm of the New
York Stock Exchange, for transfer to Buyer;
(ii) releases in the form of Exhibit 2.4(a)(ii) executed by Sellers
(collectively, "Sellers' Releases");
(iii) employment agreements in the form of Exhibit 2.4(a)(iii),
executed by Sellers (collectively, "Employment Agreements");
(iv) noncompetition agreements in the form of Exhibit 2.4(a)(iv),
executed by Sellers (collectively, the "Noncompetition
Agreements");
(v) a certificate executed by Sellers representing and warranting
to Buyer that each of Sellers' representations and warranties
in this Agreement was accurate in all respects as of the date
of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect
to any supplements to the Disclosure Letter that were delivered
by Sellers to Buyer prior to the Closing Date in accordance
with Section 5.4); and
(vi) the resignation of any or all members of the board of directors
of the Company, as directed by Buyer.
(b) Buyer will deliver to Sellers:
(i) Such number of shares of GAPI Common Stock as required pursuant
to Section 2.2(a), registered on the books of Buyer in the
names and denominations as requested by Sellers in writing
prior to the Closing; and
(ii) the Employment Agreements, executed by Buyer.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, and the Company, represent and warrant to Buyer
as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of Delaware, with full corporate power
and authority to conduct its business as it is now being conducted,
to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts.
The Company is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it,
requires such qualification.
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<PAGE> 15
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligations
of Sellers, enforceable against Sellers in accordance with its terms.
Upon the execution and delivery by Sellers of the Employment
Agreements, the Sellers' Releases, and the Noncompetition Agreements
(collectively, the "Sellers' Closing Documents"), the Sellers'
Closing Documents will constitute the legal, valid, and binding
obligations of Sellers, enforceable against Sellers in accordance
with their respective terms. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and the Sellers' Closing Documents and to
perform their obligations under this Agreement and the Sellers'
Closing Documents.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (1) any
provision of the Organizational Documents of the Company, or
(2) any resolution adopted by the board of directors or the
stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise
any remedy or obtain any relief under, any Legal Requirement or
any Order to which the Company or any Seller, or any of the
assets owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate, or
modify, any Governmental Authorization that is held by the
Company or that otherwise relates to the business of, or any of
the assets owned or used by, the Company;
(iv) cause Buyer or the Company to become subject to, or to become
liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to be reassessed
or revalued by any taxing authority or other Governmental Body;
11
<PAGE> 16
(vi) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company;
Neither the Seller nor the Company is or will be required to give any notice to
or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
Sellers are acquiring the GAPI Common Stock for their own account and not with
a view to their distribution within the meaning of Section 2(11) of the
Securities Act. Each Seller is either (i) an "accredited investor" as such term
is defined in Rule 501(a) under the Securities Act, or (ii) represented by an
accredited investor who is sophisticated in financial transactions and is
competent to represent, and has represented, and such Seller in this
transaction such that such Seller is considered an accredited investor for
purposes of Regulation D promulgated under the Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 50,000,000 shares of
common stock, par value $0.001 per share, of which 10,100,882 shares are issued
and outstanding, and 5,000,000 shares of preferred stock, par value $0.001, of
which none are outstanding. Sellers are and will be on the Closing Date the
record and beneficial owners and holders of the Shares, free and clear of all
Encumbrances. Each of the Sellers owns the shares of Common Stock as set forth
opposite such Seller's name on Schedule 3.1 attached hereto. All of the Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company. None of
the outstanding equity securities or other securities of the Company was issued
in violation of the Securities Act or any other Legal Requirement. The Company
does not own, or have any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer the unaudited financial statements attached
hereto as Schedule 3.2 of the Disclosure Letter (the "Financial Statements").
Such Financial Statements and notes fairly present the financial condition and
the results of operations, changes in stockholders' equity, and cash flow of
the Company as at the respective dates of and for the periods referred to in
such financial statements, all in accordance with GAAP; the Financial
Statements referred to in this Section 3.2 reflect the consistent application
of such accounting principles throughout the periods involved.
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<PAGE> 17
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of
the Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards
of Directors, and committees of the Boards of Directors of the Company, and no
meeting of any such stockholders, Board of Directors, or committee has been
held for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all of those books and records will be in the
possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 of the Disclosure Letter contains a complete and accurate list of
all real property, leaseholds, or other interest therein owned by the Company.
The Company owns all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that they purport to own or located
in the facilities owned or operated by the Company or reflected as owned in the
books and records of the Company, including all of the properties and assets
reflected in the Financial Statements (except for assets held under
capitalized leases disclosed Schedule 3.6 of the Disclosure Letter, and all of
the properties and assets purchased or otherwise acquired by the Company since
the date of the Financial Statements. All material properties and assets
reflected in the Financial Statements are free and clear of all Encumbrances
except, with respect to all such properties and assets, (i) mortgage or
security interests shown on the financial Statements as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (ii)
mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the Financial Statements (such mortgages
and security interests being limited to the property or assets so acquired),
with respect to which no default (or event that, with notice or lapse of time
or both, would constitute a default) exists, and (iii) liens for current taxes
not yet due.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are
structurally sound, are in good condition and repair, and are adequate for the
uses to which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company's businesses after the
Closing in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the balance sheet
contained in the Financial Statements (the "Balance Sheet") or on the
accounting records of the Company as of
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<PAGE> 18
the Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the Balance
Sheet or on the accounting records of the Company as of the Closing Date (which
reserves are adequate and calculated consistent with past practice. Subject to
such reserves, each of the Accounts Receivable either has been or will be
collected in full, without any set-off, within ninety days after the day on
which it first becomes due and payable. There is no contest, claim, or right of
set-off, other than returns in the Ordinary Course of Business, under any
Contract with any obligor of an Accounts Receivable relating to the amount or
validity of such Accounts Receivable.
3.9 NO UNDISCLOSED LIABILITIES
The Company has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the most recent
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the date thereof.
3.10 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since
its inception) all Tax Returns that are or were required to be filed
by or with respect to it pursuant to applicable Legal Requirements.
The Company has paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Sellers or the
Company.
(b) There is no pending audit of any Tax Return of the Company.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Company are adequate (determined in
accordance with GAAP) and are at least equal to the Company's
liability for Taxes. There exists no proposed tax assessment against
the Company. No consent to the application of Section 341(f)(2) of
the IRC has been filed with respect to any property or assets held,
acquired, or to be acquired by the Company. All Taxes that the
Company is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other
Person.
(d) All Tax Returns filed by the Company are true, correct, and complete.
3.11 NO MATERIAL ADVERSE CHANGE
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<PAGE> 19
Since the date of the most recent Balance Sheet, there has not been any
material adverse change in the business, operations, properties, prospectus,
assets, or condition of the Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
3.12 EMPLOYEE BENEFITS.
(a) There is no Plan or Welfare Plan of which the Company or an ERISA
Affiliate of the Company is or was a Plan Sponsor, or to which the
Company or an ERISA Affiliate of the Company otherwise contributes or
has contributed, or in which the Company or an ERISA Affiliate of the
Company otherwise participates or has participated.
(b) Definitions:
(i) "ERISA Affiliate" means, with respect to the Company, any other
person that, together with the Company, would be treated as a
single employer under IRC Section 414.
(ii) "Plan" has the meaning given in ERISA Section 3(3).
(iii) "Plan Sponsor" has the meaning given in ERISA Section 3(16)(B).
(iv) "Welfare Plan" has the meaning given in ERISA Section 3(1).
3.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) the Company is, and at all times since its inception has been, in full
compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use
of any of its assets;
(b) no event has occurred or circumstance exists that (with or without
notice or lapse of time) (i) may constitute or result in a violation
by the Company of, or a failure on the part of the Company to comply
with, any Legal Requirement, or (ii) may give rise to any obligation
on the part of the Company to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature; and
(c) the Company has not received, at any time, any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding (i) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature.
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<PAGE> 20
(d) Schedule 3.11 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held,
or required to be held, by the Company or that otherwise
relates to the business of, or to any of the assets owned or
used by, the Company. Each Governmental Authorization listed or
required to be listed in Schedule 3.11 of the Disclosure Letter
is valid and in full force and effect. No event has occurred or
circumstance exists that may (with or without notice or lapse
of time) (1) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement
of any Governmental Authorization listed or required to be
listed in Schedule 3.11 of the Disclosure Letter, or (2) result
directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination or, or any
modification to, any Governmental Authorization listed or
required to be listed in Schedule 3.11 of the Disclosure
Letter. The Governmental Authorizations listed in Schedule 3.11
of the Disclosure Letter collectively constitute all of the
Governmental Authorizations necessary to permit the Company to
lawfully conduct and operate its businesses in the manner it
currently conducts and operates such businesses and to permit
the Company to own and use its assets in the manner in which it
currently owns and uses such assets.
3.14 LEGAL PROCEEDINGS; ORDERS
(a) There is no pending Proceeding that has been commenced by or
against the Company or that otherwise relates to or may affect
the business of, or any of the asses owned or used by, the
Company, or that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions. No event has
occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such Proceeding. To the
Knowledge of Sellers and the Company, no such Proceeding has
been Threatened.
(b) There is no Order to which the Company, or any of the assets
owned or used by the Company, is subject, and no Seller is
subject to any Order that relates to the business of, or any of
the assets owned by or used by, the Company. No officer,
director, agent, or employee of the Company is subject to any
Order that prohibits such officer, director, agent, or employee
from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
3.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Since the date of the most recent Balance Sheet, the Company has conducted its
businesses only in the Ordinary Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of
capital stock of the Company; issuance of any
16
<PAGE> 21
security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital
stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry
into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption or existence of any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any employees of the Company;
(e) damage to or destruction or loss of any asset or property of
the Company, whether or not covered by insurance, materially or
adversely affecting the properties, assets, business, financial
condition, or prospects of the Company, taken as a whole;
(f) termination of, or receipt of notice of termination of (i) any
license, distribution, joint venture, credit, or similar
agreement, or (ii) any Contract or material transaction;
(g) sale, lease, or other disposition of any asset or property of
the Company or mortgage, pledge, or imposition of any lien or
other encumbrance on any material asset or property of the
Company, including the sale, lease, or other disposition of any
of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to
the Company in excess of $5,000;
(i) material change in the accounting methods used by the Company;
or
(j) agreement, whether oral or written, by the Company to do any of
the foregoing.
3.16 CONTRACTS; NO DEFAULTS
(a) Schedule 3.14(a) of the Disclosure Letter contains a complete
and accurate list, and Sellers have delivered to Buyer true and
complete copies, of:
(i) each Applicable Contract that involves performance of
services by the Company of an amount or value in excess
of $10,000;
17
<PAGE> 22
(ii) each Applicable Contract that involves performance of
services or delivery of goods or materials to the
Company of an amount or value in excess of $10,000;
(iii) each Applicable Contract that was not entered into in
the Ordinary Course of Business;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing
of, title to, use of, or any leasehold or other
interest in, any real or personal property;
(v) each licensing agreement or other Applicable Contract
with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with
current or former employees, consultants, or
contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property
Assets;
(vi) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by the Company
with any other Person;
(vii) each Applicable Contract containing covenants that in
any way purport to restrict the business activity of
the Company or any Affiliate of the Company or limit
the freedom of the Company or any Affiliate of the
Company to engage in any line of business or to compete
with any Person;
(viii) each Applicable Contract providing for payments to or
by any Person based on sales, purchases, or profits,
other than direct payments for goods or services
provided by the Company;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides
for an express undertaking by the Company to be
responsible for consequential damages;
(xi) each Applicable Contract for capital expenditures in
excess of $10,000;
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance
extended by the Company; and
(xiii) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
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<PAGE> 23
(b) Except as set forth in Schedule 3.14(b) of the Disclosure Letter, no
Seller (and no Related Person or any Seller) has or may acquire any
rights under, and no Seller has or may become subject to any
obligation or liability under, any Contract that relates to the
business of, or any of the assets owned or used by, the Company.
(c) Each Contract identified or required to be identified in Schedule
3.14(a) of the Disclosure Letter is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.14(a) of the Disclosure Letter:
(i) the Company is, and at all times has been, in full compliance
with all applicable terms and requirements of each Contract
under which the Company has or had any obligation or liability
or by which the Company or any of the assets owned or used by
the Company is or was bound;
(ii) each other Person that has or had any obligations or liability
under any Contract under which the Company has or had any rights
is, and at all times has been, in full compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with,
or result in a violation or breach of, or give the Company or
other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; and
(iv) the Company has not given to or received from any other Person
any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation
or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or
payable to the Company under current or completed Contract with any
Person and no such Person has made written demand for such
renegotiation.
(f) The Contract relating to the sale or provision of services by the
Company have been entered into in the Ordinary Course of Business and
have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been
paid or promised, that is or would be in violation of any Legal
Requirements.
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3.17 INSURANCE
(a) Sellers have delivered to Buyer true and complete copies of all
policies of insurance to which the Company is a party or under which
the Company, or any director of the Company, is or has been covered
at any time.
(i) All policies to which the Company is a party or that provide
coverage to the Sellers, the Company, or any director or officer
of the Company:
(ii) Neither any Seller nor the Company has received (1) any refusal
of coverage or any notice that a defense will be afforded with
reservation of rights, or (2) any notice of cancellation or any
other indication that any insurance policy is no longer in full
force and effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations
thereunder.
(iii) The Company has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to which
the Company is a party or that provides coverage to the Company.
(iv) The Company has given notice to the insurer of all claims that
may be insured thereby.
3.18 ENVIRONMENTAL MATTERS
(a) The Company is, and at all times has been, in full compliance with,
and has not been and is not in violation of or liable under, any
Environmental Law. Neither the Sellers nor the Company have any basis
to expect, nor have any of them or any other Person for whose conduct
they are or may be held to be responsible received, any actual or
Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest,
or (ii) the current or prior owner or operator of any Facilities, of
any actual or potential violation of failure to comply with any
Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the
Company has had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by
Sellers, the Company, or any other Person for whose conduct they are
or may be held responsible, or from which Hazardous Materials have
been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) Neither the Sellers nor the Company have any basis to expect, nor
have any or them or any other Person for whose conduct they are or
may be held responsible, received, any citation, directive, inquiry,
notice, Order, summons, warning, or other communication that relates
to Hazardous Activity, Hazardous Materials, or
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any alleged, actual, or potential violation or failure to comply with
any Environmental Law.
(c) There are no Hazardous Materials present on or in the Environment at
the Facilities or at any geologically or hydrologically adjoining
property. Neither the Sellers nor the Company, nor any other Person
for whose conduct they are or may be held responsible, have permitted
or conducted, or is aware of, any Hazardous Activity conducted with
respect to the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Sellers or the Company has or had
an interest.
(d) There has been no Release or, to the Knowledge of Sellers and the
Company, Threat of Release, of any Hazardous Materials at or from the
Facilities, or from or by any other properties and assets (whether
real, personal, or mixed) in which Sellers or the Company has or had
an interest, whether by Sellers, the Company, or any other Person.
3.19 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
includes:
(i) the name PhoneXchange, all fictional business names, trading
names, registered and unregistered trademarks, service marks,
and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable (collectively, "patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights in Mask Works");
and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively,
"Trade Secrets"); owned, used, or licensed by the Company as
licensee or licensor.
(b) Agreements--There are no Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the
Company is bound, except for any license implied by the sale of a
product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $5,000 under which the
Company is the licensee. There are no outstanding and, to Sellers
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Knowledge, no Threatened disputes or disagreements with respect to any
such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for the
operation of the Company' businesses as they are currently
conducted. The Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets, free
and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and has the
right to use without payment to a third party all of the
Intellectual Property Assets.
3.20 CERTAIN PAYMENTS
Neither the Company nor any director, officer, agent, or employee of the
Company, or any other Person associated with or acting for or on behalf of the
Company, has directly or indirectly (i) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(1) to obtain favorable treatment in securing business, (2) to pay for
favorable treatment for business secured, (3) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company or
any Affiliate of the Company, or (4) in violation of any Legal Requirement,
(ii) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.21 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.4 will contain any untrue
statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
(c) There is no fact known to any Seller that has specific application to
any Seller or the Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as either
Seller can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of
the Company that has not been set forth in this Agreement or the
Disclosure Letter.
3.22 RELATIONSHIPS WITH RELATED PERSONS
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No Seller or any Related Person of Sellers or of the Company has, or has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the Company's businesses. No
Seller or any Related Person of Sellers or of the Company is, or owns (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Company at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with the Company with
respect to any line of the products or services of the Company (a "Competing
Business") in any market presently served by the Company. No Seller or any
Related Person of Sellers or of the Company is a party to any Contract with, or
has any claim or right against, the Company.
3.23 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability, contingent
or otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement, other than fees due to
Gracie Homsey, which fees shall be paid by Sellers, and Sellers shall hold the
Company and Buyer harmless from and against any claim, action or Proceeding
arising in connection with any fees or amounts due Gracie Homsey.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Nevada.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and to perform its obligations
under this Agreement.
(b) Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents; or
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(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
Buyer is not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 CAPITALIZATION
The authorized equity securities of the Buyer consist of 250,000,000 shares of
common stock, par value $0.001 per share, of which 8,172,439 shares are issued
and outstanding, and upon filing of amended articles of the Company with the
Secretary of State of the State of Nevada, it is anticipated that there will be
1,000,000 shares of preferred stock, par value $2.50 authorized, of which
850,000 will be issued immediately thereafter. There are no options, warrants or
other rights to acquire common stock outstanding as of the date hereof. The GAPI
Common Stock to be issued to the Sellers on the Closing Date will be free and
clear of all Encumbrances (other than as provided in this Agreement). All of
such shares of Common Stock shall be duly authorized and validly issued, will be
fully paid and nonassessable, as of the Closing Date.
4.6 FINANCIAL STATEMENTS
Buyer has delivered or will deliver to Seller the unaudited financial statements
of the Buyer as of December 31, 1998 (the "Buyer Financial Statements"). Such
Buyer Financial Statements and notes fairly present the financial condition and
the results of operations, changes in stockholders' equity, and cash flow of the
Buyer as at the respective dates of and for the periods referred to in such
Buyer Financial Statements, all in accordance with GAAP; the Buyer Financial
Statements referred to in this Section 3.2 reflect the consistent application of
such accounting principles throughout the periods involved.
4.7 NO UNDISCLOSED LIABILITIES
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The Company has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the most recent
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the date thereof.
4.8 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
SECTION 5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company and its Representatives to, (i) afford Buyer and its
Representatives (collectively, "Buyer's Advisors") full and free access to the
Company's personnel, properties, contracts, books and records, and other
documents and data, (ii) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (iii) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request.
5.2 OPERATION OF THE BUSINESSES OF THE COMPANY
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) use their Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the
current officers, employees, and agents of the Company, and maintain
the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships
with the Company;
(c) confer with Buyer concerning operational matters of a material nature;
and
(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
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5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause the
Company not to, without the prior consent of Buyer, take any affirmative
action, or fail to take any reasonable action within their or its control, as a
result of which any of the changes or events listed in Section 3.13 is likely to
occur.
5.4 NOTIFICATION
Between the date of this Agreement and the Closing Date, each Seller will
promptly notify Buyer in writing if such Seller or the Company become aware of
any fact or condition that causes or constitutes a Breach of any of Sellers'
representations and warranties as of the date of this Agreement, or if such
Seller or the Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly contemplated
by this Agreement) cause or constitute a Breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. Should any such fact or
condition require any change in the Disclosure Letter if the Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, Sellers will promptly deliver to Buyer a supplement to the
Disclosure Letter specifying such change. During the same period, each Seller
will promptly notify Buyer of the occurrence of any Breach of any covenant of
Sellers in this Section 5 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 7 impossible or unlikely.
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5.5 PAYMENT OF INDEBTEDNESS BY OR TO RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to the Company by either Seller or any Related Person of
either Seller to be paid in full on or before March 1, 1999. As of the Closing,
each Seller hereby waives any and all indebtedness or other obligations owed to
such Seller, except as set forth on Schedule 5.5 of the Disclosure Letter. The
parties agree that the obligation owed by the Company to David Chadwick, in an
amount not exceeding $190,000, and the obligation owed by the Company to C\Net:
Solutions, Inc., in an amount not exceeding $347,500, in each case as set forth
on Schedule 5.5 of the Disclosure Letter, shall be paid as follows: (i) 50% of
the principal balance shall be paid within 30 days following the closing of the
transaction in which the Company or an affiliate of Buyer purchases the assets
of Onestop Wireless, Inc. in the OSW/PPC bankruptcy proceeding, wherein the
purchaser in such transaction shall receive cash in the amount of $1,000,000 or
more (the "Onestop Transaction"), and (ii) any principal and accrued interest
not paid prior to June 1, 1999 shall be payable in twelve equal quarterly
payments, commencing on June 1, 1999. In the event the Onestop Transaction
closes after June 1, 1999, within 30 days following such closing, an amount
equal to 50% of the balance of the above obligations shall be paid. In each
case, the above principal balances shall accrue interest at the rate of ten
percent (10%) per annum. The parties also agree that, upon submission of
properly completed expense reports, and in accordance with the usual policies of
the Company, the Sellers shall be reimbursed for outstanding expenses advanced
upon behalf of the Company in an amount not exceeding an aggregate of $15,000.
Such payment shall be made within 30 days following the Closing.
5.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause the Company and each of their Representatives
not to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Buyer) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of the
Company, or any of the capital stock of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company.
5.7 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use their
Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
SECTION 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 BEST EFFORTS
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Between the date of this Agreement and the Closing Date, Buyer will use its Best
Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
in writing by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
There shall be no breach, violation or inaccuracy of Sellers' representations
and warranties in this Agreement (considered collectively), and there shall be
no breach, violation or inaccuracy of such representations and warranties
(considered individually), as of the date of this Agreement, and as of the
Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Disclosure Letter, which breach, violation or inaccuracy could
reasonably be expected to have a material adverse effect on the business,
results of operations or financial condition of the Company taken as a whole.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of such covenants and
obligations (considered individually), must have been duly performed
and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.4 must
have been delivered, and each of the other covenants and obligations
in this Agreement must have been performed and complied with in all
respects.
7.3 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) such documents as Buyer may reasonably request for the purpose of (i)
evidencing the accuracy of any of Sellers' representations and
warranties, (ii) evidencing the performance by either Seller of, or
the compliance by any Seller with, any covenant or obligation required
to be performed or complied with by such Seller, (iii) evidencing the
satisfaction of any condition referred to in this Section 7, or (iv)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
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7.4 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (i) involving any challenge to, or seeking damages or other relief
in connection with, any of the Contemplated Transactions, or (ii) that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with any of the Contemplated Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (i) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any of the Shares, or any
stock of, or any other voting, equity, or ownership interest in, the Company
that was not issued and outstanding as of December 15, 1998, or that if issued
and outstanding, would cause the number of issued and outstanding shares of the
Common Stock of the Company to exceed 10,100,882, or (ii) is entitled to all or
any portion of the Purchase Price payable for the Shares.
7.6 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (i) any applicable Legal Requirement or
Order, or (ii) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
SECTION 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required
to be taken by Sellers at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived in writing by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
There shall be no breach, violation or inaccuracy of Buyers' representations
and warranties in this Agreement (considered collectively), and there shall be
no breach, violation or inaccuracy of such representations and warranties
(considered individually), as of the date of this Agreement, and as of the
Closing Date as if made on the Closing Date, which breach, violation or
inaccuracy could reasonably be expected to have a material adverse effect on
the business, results of operations or financial condition of the Buyer (after
giving effect to the transactions contemplated herein) taken as a whole.
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8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the
payments required to be made by Buyer pursuant to Sections 2.2(a) and
2.2(b).
8.3 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (i) prohibits the sale of the Shares by Sellers to Buyer, and (ii)
has been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
SECTION 9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach
has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer
has not waived such condition on or before the Closing Date; or (ii)
by Sellers, if any of the conditions in Section 8 has not been
satisfied of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or
before February 1, 1999, or such later date as the parties may agree
upon.
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9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
SECTION 10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL: RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure letter, and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing; provided, however, that, notwithstanding anything in this Agreement to
the contrary, the representations, warranties and covenants of the Company shall
terminate upon the Closing (but not upon termination). The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Sellers, jointly and severally, will indemnify and hold harmless Buyer, the
Company, and their respective Representatives, stockholders, controlling
persons, and affiliates (collectively, the "Indemnified Persons") for, and will
pay to the Indemnified Persons the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third-party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with:
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(a) any material Breach of any representation or warranty made by
Sellers in this Agreement (without giving effect to any supplement
to the Disclosure Letter), the Disclosure Letter, the supplements to
the Disclosure Letter, or any other certificate or document
delivered by Sellers pursuant to this Agreement;
(b) any Breach by any Seller of any covenant or obligation of such
Seller in this Agreement;
(c) any services provided by the Company prior to the Closing Date;
(d) any litigation, claim or liability existing, made, Threatened, or
arising from, any conduct, action or transaction by the Sellers or
the Company prior to Closing and not reflected on the Balance Sheet;
or
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any
Seller or the Company (or any Person acting on their behalf) in
connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or limit
any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (i) any material Breach of any representation or warranty made by Buyer in
this Agreement or in any certificate delivered by Buyer pursuant to this
Agreement, or (ii) any Breach by Buyer of any covenant or obligation of Buyer
in this Agreement.
10.4 LIMITATION ON INDEMNIFICATION
(a) Indemnity Basket. The Buyer shall not have the right to be
indemnified pursuant to Section 10.2 unless and until the Buyer
shall have incurred on a cumulative basis since the Closing Date
aggregate Damages for any of the items set forth in Section 10.2 in
an amount exceeding $100,000, in which event the right to be
indemnified shall apply to all such Damages in excess of $15,000;
provided, however, that this limitation shall not apply to any
Breach of the representations and warranties set forth in Sections
3.1, 3.8, 3.16, 3.18 and 3.21.
(b) The Seller shall not have the right to be indemnified pursuant to
Section 10.3 unless and until the Seller shall have incurred on a
cumulative basis since the Closing Date aggregate Damages for any of
the items set forth in Section 10.3 in
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<PAGE> 37
an amount exceeding $100,000, in which event the right to be
indemnified shall apply to all such Damages in excess of $15,000.
(c) At Buyer's option, any indemnification obligation under this Article
10 may be paid in whole or in part in the form of GAPI Common Stock
at its then Fair Market Value.
10.5 RIGHT OF SET-OFF
Upon notice to Sellers specifying in reasonable detail the basis for such
set-off, Buyer may set off any amount to which it may be entitled under this
Section 10 against amounts otherwise payable to Sellers. The exercise of such
right of set-off by Buyer in good faith, whether or not ultimately determined
to be justified, will not constitute an event of default under this Agreement
or any other agreement between Buyer and any Seller. Neither the exercise of
nor the failure to exercise such right of set-off will constitute an election
of remedies or limit Buyer in any manner in the enforcement of any other
remedies that may be available to it.
10.6 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2 or
Section 10.3 of notice of the commencement of any Proceeding against
it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the
indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the
indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.5(a) is brought against
an indemnified party and it gives notice to the indemnifying party
of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such
Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation
would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding (with counsel of
national standing and reasonably satisfactory to the indemnified
party) and provide indemnification with respect to such Proceeding),
to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense
of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party
under this Section 10 for any fees of other counsel or any other
expenses with respect to the defense of such Proceeding, in each
case subsequently incurred by the
33
<PAGE> 38
indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If
the indemnifying party assumes the defense of a Proceeding
(which shall be conclusively established by such indemnifying
party answering any complaint or otherwise appearing in any
court with jurisdiction over such matter), (i) it will be
conclusively established for purposes of this Agreement that
the claims made in that Proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of
such claims may be effected by the indemnifying party without
the indemnified party's consent unless (1) there is no finding
or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party,
and (2) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does
not, within ten days after the indemnified party's notice is
given, give notice to the indemnified party of its election to
assume the defense of such Proceeding with counsel of national
standing and reasonably satisfactory to the indemnified party,
the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by
the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability
that a Proceeding may adversely affect it or its affiliates
other than as a result of monetary damages for which it would
be entitled to indemnification under this Agreement, the
Indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle
such Proceeding.
(d) Sellers hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or
the matters alleged therein, and agree that process may be
served on Sellers with respect to such a claim anywhere in the
world.
10.7 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
34
<PAGE> 39
SECTION 11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Unless consented to by Buyer in advance or
required by Legal Requirements, prior to the Closing Sellers shall, and shall
cause the Company to, keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person. Sellers and Buyer will consult
with each other concerning the means by which the Company's employees,
customers, and suppliers and others having dealings with the Company will be
informed of the Contemplated Transactions, and Buyer will have the right to be
present for any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the Company to maintain in confidence, and not
use to the detriment of another party or the Company any written, oral, or other
information obtained in confidence from another party or the Company in
connection with the Agreement or the Contemplated Transactions, unless (i) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (iii) the furnishing or use of such information is
required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Buyer's request cause the Company to waive, any cause of action, right, or claim
arising out of the access of Buyer or its representatives to any trade secrets
or other confidential information of the Company except for the intentional
competitive misuse by buyer of such trade secrets or confidential information.
11.4 NOTICES
35
<PAGE> 40
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (i)
delivered by hand (with written confirmation of receipt), (ii) sent by
telecopier (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (iii) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Sellers or the Company:
c/o David J. Chadwick
PhoneXchange, Inc.
4685 MacArthur Court, Suite 300
Newport Beach, California 92660
Telephone: (949) 737-1500
Facsimile: (949) 794-8887
Buyer:
Global Access Pagers, Inc.
c/o Corporate Financial Enterprises, Inc.
2224 Main Street
Santa Monica, California 90405
Telephone: (310) 452-1005
Facsimile: (310) 581-6806
11.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of California, County of Los Angeles, or, if it has
or can acquire jurisdiction, in the United States District Court for the
Central District of California, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
11.6 FURTHER ASSURANCES
The parties agree (i) to furnish upon request to each other such further
information, (ii) to execute and deliver to each other such other documents,
and (iii) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
11.7 WAIVER
36
<PAGE> 41
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or
the exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (i) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (ii) no waiver that may be
given by a party will be applicable except in the specific instance for which
it is given; and (iii) no notice to or demand on one party will be deemed to be
a waiver of any obligation of such party or of the right of the party giving
such notice of demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter or Intent between Buyer and Sellers
dated December 10, 1998) and constitutes (along with the documents referred to
in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the
party to be charged with the amendment.
11.9 DISCLOSURE LETTER.
(a) The disclosures in the Disclosure Letter, and those in any Supplement
thereto, must relate only to the representations and warranties in the
Section of the Agreement to which they expressly relate and not to any
other representations or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body
of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with
respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Seller may not assign any of its rights under this Agreement without the prior
consent of the Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the
parties to this Agreement any legal or equitable right, remedy, or claim under
or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and
37
<PAGE> 42
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their permitted successors and assigns.
11.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
11.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
11.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
38
<PAGE> 43
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER
GLOBAL ACCESS PAGERS, INC.,
a Nevada corporation
/s/ [signature illegible]
- ---------------------------
SELLERS:
/s/ DAVID J. CHADWICK
- ---------------------------
David J. Chadwick
/s/ JAMES ROTT
- ---------------------------
James Rott
/s/ PAUL E. HYDE
- ---------------------------
Paul Hyde
/s/ GARY KILLORAN
- ---------------------------
Gary Killoran
<PAGE> 44
Exhibit 2.4(a)(ii)
RELEASE
This Release is being executed and delivered in accordance with Section
2.4(a)(ii) of the Stock Purchase Agreement dated as of January 1, 1999 (the
"Agreement") between Global Access Pagers, Inc., a Nevada corporation ("Buyer")
and PhoneXchange, Inc., David Chadwick, James Rott, Paul Hyde and Gary Killoran
("Sellers"). Capitalized terms used in this Release without definition have the
respective meanings given to them in the Agreement.
Each Seller acknowledges that execution and delivery of this Release is a
condition to Buyer's obligation to purchase the Shares pursuant to the
Agreement and that Buyer is relying on this Release in consummating such
purchase.
1. Each Seller, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged and intending to be legally
bound, in order to induce Buyer to purchase the Shares pursuant to the
Agreement, hereby agrees as follows:
2. Except as set forth below, each Seller, on behalf of himself and each
of his Related Persons, hereby releases and forever discharges the
Buyer and the Company, and each of their respective individual, joint
or mutual, past, present and future Representatives, affiliates,
stockholders, controlling persons, Subsidiaries, successors and assigns
(individually, a "Releasee" and collectively, "Releasees") from any and
all claims, demands, Proceedings, causes of action, Orders,
obligations, contracts, agreements, debts and liabilities whatsoever,
whether known or unknown, suspected or unsuspected, both at law and in
equity, which each of the Sellers or any of their respective Related
Persons now has, have ever had or may hereafter have against the
respective Releasees arising contemporaneously with or prior to the
Closing Date, including, but not limited to, any rights to
indemnification or reimbursement from the Company, whether or not
relating to claims pending on, or asserted after, the Closing Date;
provided, however, that nothing contained herein shall operate to
release any obligations of Buyer arising under or reflected in the
Agreement (including, without limitation, those obligations of the
Company set forth in Schedule 5.5 of the Disclosure Letter) and the
Employment Agreements with each of the Sellers.
3. Each Seller hereby waives the provisions of Section 1542 of the
California Civil Code, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS
1
<PAGE> 45
released hereby.
1. Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, each Seller, jointly and severally, shall
indemnify and hold harmless each Releasee from and against all loss,
liability, claim, damage (including incidental and consequential
damages) or expense (including costs of investigation and defense and
reasonable attorney's fees) whether or not involving third party
claims, arising directly or indirectly from or in connection with (i)
the assertion by or on behalf of the Sellers or any of their Related
Persons of any claim or other matter purported to be released pursuant
to this Release and (ii) the assertion by any third party of any claim
or demand against any Releasee which claim or demand arises directly or
indirectly from, or in connection with, any assertion by or on behalf
of the Sellers or any of their Related Persons against such third party
of any claims or other matters purported to be released pursuant to
this Release.
1. If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this
Release will remain in full force and effect. Any provision of this
Release held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
1. This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This
Release shall be governed by and construed under the laws of the State
of California without regard to principles of conflicts of law.
1. All words used in this Release will be construed to be of such gender or
number as the circumstances require.
IN WITNESS WHEREOF, each of the undersigned have executed and delivered this
Release as of this 1st day of January, 1999
/s/ DAVID CHADWICK /s/ JAMES ROTT
- ----------------------------------- ----------------------------------------
David Chadwick James Rott
/s/ PAUL HYDE /s/ GARY KILLORAN
- ----------------------------------- ----------------------------------------
Paul Hyde Gary Killoran
2
<PAGE> 46
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of January 1, 1999,
by and between Global Access Pagers, Inc., a Nevada corporation ("Buyer"), and
David J. Chadwick, James Rott, Paul Hyde and Gary Killoran (each, a "Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller and certain other individuals approximately 8,600,000
shares (the "Shares") of common stock, of PhoneXchange, Inc. (the "Company"),
including all of the shares of such Common Stock owned by Seller, pursuant to
the terms and conditions of a stock purchase agreement made as of January 1,
1999 (the "Stock Purchase Agreement"). Section 2.4(a)(iv) of the Stock Purchase
Agreement requires that noncompetition agreements be executed and delivered by
each of Seller as a condition to the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with the Company prior to the date hereof and has become familiar
with the following, any and all of which constitute confidential information of
the Company, (collectively the "Confidential Information"): (i) any and all
trade secrets concerning the business and affairs of the Company, product
specifications, data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas, past,
current and planned research and development, current and planned manufacturing
and distribution methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, computer
software and programs (including object code and source code), computer software
and database technologies, systems, structures and architectures (and related
processes, formulae, compositions, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information) of the Company
and any other information, however documented, of the Company that is a trade
secret within the meaning of California law; (ii) any and all information
concerning the business and affairs of the Company (which includes historical
financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel, personnel training and techniques and materials, and various
corporate projects and opportunities), however documented; and (iii) any and all
notes, analysis, compilations, studies, summaries, and other
<PAGE> 47
material prepared by or for the Company containing or based, in whole or in
part, on any information included in the foregoing, (b) the business of the
Company is international in scope, (c) its products and services are marketed
throughout the World; (d) the Company competes with other businesses that are or
could be located in any part of the World; (e) Buyer has required that Seller
make the covenants set forth in Sections 3 and 4 of this Agreement as a
condition to the Buyer's purchase of the Shares owned by Seller; (f) the
provisions of Sections 3 and 4 of this Agreement are reasonable and necessary to
protect and preserve the Company's business, and (g) the Company would be
irreparably damaged if Seller were to breach the covenants set forth in Sections
3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, Seller agrees that Seller will not, at any time,
disclose to any unauthorized Persons or use for his own account or for the
benefit of any third party any Confidential Information, whether Seller has such
information in Seller's memory or embodied in writing or other physical form,
without Buyer's written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the public
other than as a result of Seller's fault or the fault of any other Person bound
by a duty of confidentiality to Buyer or the Company. Seller agrees to deliver
to Buyer at any time Buyer may request, all documents, memoranda, notes, plans,
records, reports, and other documentation, models, components, devices, or
computer software, whether embodied in a disk or in other form (and all copies
of all of the foregoing), relating to the businesses, operations, or affairs of
the Company and any other Confidential Information that Seller may then possess
or have under Seller's control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement, Seller agrees that:
a. For a period of five years after the Closing:
i. Seller will not, directly or indirectly, engage or invest in,
own, manage, operate, finance, control, or participate in the
ownership, management, operation, financing, or control of, be
employed by, associated with, or in any manner connected with, or
render services or advice to, any business whose products or
activities compete in whole or in part with the products or
activities of the Company or any affiliate of the Company
(including Buyer), anywhere within the United States; provided,
however, that Seller may purchase or otherwise acquire up to (but
not more than) 4.99 percent of any class of securities of any
enterprise (but without otherwise participating in the activities
of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered
<PAGE> 48
under Section 12(g) of the Securities Exchange Act of 1934; provided,
further, that this provision shall not apply to any interest or
investment in any business owned by Seller as of January 1, 1999 as
long as (i) any activity associated with, or business time of
Executive devoted to, such investment does not materially interfere
with Seller's duties under any employment agreement or relationship
with the Company or any affiliate of the Company (including Buyer),
(ii) no Confidential Information is used by Seller or such business,
or disclosed to any employee, officer or director of such business,
to the benefit of such business or the material detriment of the
Company or any affiliate of the Company (including Buyer), and (iii)
the business or activities conducted by such business does not
materially change from the business or activities conducted by such
business as of January 1, 1999, which change would cause such
business to compete more directly and materially with the Company or
any affiliate of the Company (including Buyer). Seller agrees that
this covenant is reasonable with respect to its duration,
geographical area, and scope.
ii. Seller will not, directly or indirectly, either for himself or any
other Person, (A) induce or attempt to induce any employee of the
Company or any affiliate of the Company (including Buyer) to leave
the employ of the Company or any affiliate of the Company (including
Buyer), (B) in any way interfere with the relationship between the
Company or any affiliate of the Company (including Buyer) and any
employee of the Company or any affiliate of the Company (including
Buyer), (C) employ, or otherwise engage as an employee, independent
contractor, or otherwise, any employee of the Company or any
affiliate of the Company (including Buyer), or (D) induce or attempt
to induce any customer, supplier, licensee, or business relation of
the Company or any affiliate of the Company (including Buyer) to
cease doing business with the Company or any affiliate of the Company
(including Buyer), or in any way interfere with the relationship
between any customer, supplier, licensee, or business relation of the
Company or any affiliate of the Company (including Buyer).
iii. Seller will not, directly or indirectly, either for himself or any
other Person, solicit the business of any Person known to Seller to
be a customer of the Company or any affiliate of the Company
(including Buyer), whether or not Seller had personal contact with
such Person, with respect to products or activities which compete in
whole or in part with the products or activities of the Company;
b. In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the
period of the duration of such breach;
<PAGE> 49
c. Seller will not, at any time during or after the five year period,
disparage Buyer or the Company, or any of their affiliates,
shareholders, directors, officers, employees, or agents; and
d. Seller will, for a period of five years after the Closing, within ten
days after accepting any employment, advise Buyer of the identity of
any employer of Seller. Buyer or the Company may serve notice upon
each such employer that Seller is bound by this Agreement and furnish
each such employer with a copy of this Agreement or relevant portions
thereof.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
a. Damages from Seller:
b. To offset against any and all amounts owing to Seller under the Stock
Purchase Agreement any and all amounts which Buyer or the Company
claim under Subsection 6(a) of this Agreement; and
c. In addition to its right to damages and any other rights it may have,
to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the
provisions of Sections 3 and 4 of this Agreement, it being agreed
that money damages alone would be inadequate to compensate the Buyer
and the Company and would be an inadequate remedy for such breach.
d. The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will
inure to the benefit of Buyer and the Company and their affiliates, successors
and assigns and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement can be
<PAGE> 50
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of California, County of Los Angeles, or, if it has
or can acquire jurisdiction, in the United States District Court for the
Central District of California, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may
be served on any party anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of
such provision or term or the remaining provisions or terms of this Agreement.
If any of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same Agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only
and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used
<PAGE> 51
in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt, (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth in the
Stock Purchase Agreement (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement between the parties, and the Stock
Purchase Agreement constitute the entire agreement between the parties with
respect to the subject matter of this Agreement and supersede all prior written
and oral agreements and understandings between Buyer and Seller with respect to
the subject matter of this Agreement. This Agreement may not be amended except
by a written agreement executed by the party to be charged with the amendment.
15. SPECIAL TERMINATION
In the event that the value of the Shares received by Sellers at the Closing and
any shares issuable pursuant to the ??? Payments, in each case pursuant to
Section 2.2 of the Stock Purchase Agreement, is less than ??60,000 upon
termination of the Employment Agreement of any Seller, for any reason, then at
such Seller's option, the Buyer will release the Seller from all obligations
under this Agreement upon the tender by such Seller of all shares received by
such Seller pursuant to Section 2.2 in the Stock Purchase Agreement.
<PAGE> 52
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date first written above.
BUYER:
GLOBAL ACCESS PAGERS,INC.
a Nevada corporation
By: /s/ CHARLES MCGUIRK
------------------------------------------
SELLERS:
/s/ DAVID J. CHADWICK
------------------------------------------
David J. Chadwick
/s/ JAMES ROTT
------------------------------------------
James Rott
/s/ PAUL HYDE
------------------------------------------
Paul Hyde
/s/ GARY KILLORAN
------------------------------------------
Gary Killoran
<PAGE> 53
SEE RESTRICTIVE LEGEND ON REVERSE SIDE SHARES
NUMBER -5,050,000-
1749
CUSIP 71921R 10 7
SEE REVERSE
FOR CERTAIN DEFINITIONS
phoneXchange
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
50,000,000 AUTHORIZED SHARES $.001 PAR VALUE
THIS CERTIFIES THAT DAVID CHADWICK *5,050,000*****
**5,050,000****
Is The Owner of ***FIVE MILLION FIFTY THOUSAND*** ***5,050,000***
****5,050,000**
*****5,050,000*
FULLY PAID AND NON-ASSESSABLE SHARES OF $.001 PAR VALUE COMMON STOCK OF
phoneXchange, Inc.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the Company.
Dated: 06/16/1998
/s/ JAMES E. ROTT /s/ DAVID J. CHADWICK
SECRETARY PRESIDENT
phoneXchange, Inc.
CORPORATE
SEAL
DELAWARE
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By /s/ [Signature Illegible]
-----------------------------------------------
Transfer Agent & Registrar Authorized Signature
<PAGE> 54
phoneXchange, Inc.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act .............................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________ attorney-in-fact to
transfer the said stock on the books of the within-named Corporation, with full
power of substitution in the premises.
Dated _____________________________
----------------------------------------------------------------------
----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signature(s) Guaranteed:
________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership
in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 ("the Act") and
are "restricted securities" as that term is defined in Rule
144 under the Act. The shares may not be offered for sale,
sold or otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an
exemption from registration under the Act, the availability
of which is to be established to the satisfaction of the
Company.
<PAGE> 55
SEE RESTRICTIVE LEGEND ON REVERSE SIDE SHARES
NUMBER -150,000-
1752
CUSIP 71921R 10 7
SEE REVERSE
FOR CERTAIN DEFINITIONS
phoneXchange
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
50,000,000 AUTHORIZED SHARES $.001 PAR VALUE
THIS CERTIFIES THAT GARY KILLORAN *150,000*******
**150,000******
Is The Owner of ***ONE HUNDRED FIFTY THOUSAND*** ***150,000*****
****150,000****
*****150,000***
FULLY PAID AND NON-ASSESSABLE SHARES OF $.001 PAR VALUE COMMON STOCK OF
phoneXchange, Inc.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the Company.
Dated: 06/16/1998
/s/ JAMES E. ROTT /s/ DAVID J. CHADWICK
SECRETARY PRESIDENT
phoneXchange, Inc.
CORPORATE
SEAL
DELAWARE
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By /s/ [Signature Illegible]
-----------------------------------------------
Transfer Agent & Registrar Authorized Signature
<PAGE> 56
phoneXchange, Inc.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act .............................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 ("the Act") and
are "restricted securities" as that term is defined in Rule 144
under the Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act, the availability of which is to be established to the
satisfaction of the Company.
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________ attorney-in-fact to
transfer the said stock on the books of the within-named Corporation, with full
power of substitution in the premises.
Dated _____________________________
/s/ [Signature Illegible]
----------------------------------------------------------------------
----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signature(s) Guaranteed:
________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership
in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
<PAGE> 57
SEE RESTRICTIVE LEGEND ON REVERSE SIDE SHARES
NUMBER -2,000,000-
1077
CUSIP 71921R 10 7
SEE REVERSE
FOR CERTAIN DEFINITIONS
phoneXchange
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
50,000,000 AUTHORIZED SHARES $.001 PAR VALUE
THIS CERTIFIES THAT JAMES ROTT *2,000,000*****
**2,000,000****
Is The Owner of ***TWO MILLION*** ***2,000,000***
****2,000,000**
*****2,000,000*
FULLY PAID AND NON-ASSESSABLE SHARES OF $.001 PAR VALUE COMMON STOCK OF
phoneXchange, Inc.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the Company.
Dated: 06/15/1998
/s/ JAMES E. ROTT /s/ DAVID J. CHADWICK
SECRETARY PRESIDENT
phoneXchange, Inc.
CORPORATE
SEAL
DELAWARE
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By /s/ [Signature Illegible]
-----------------------------------------------
Transfer Agent & Registrar Authorized Signature
<PAGE> 58
phoneXchange, Inc.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act .............................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
###-##-####
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________ attorney-in-fact to
transfer the said stock on the books of the within-named Corporation, with full
power of substitution in the premises.
Dated _____________________________
/s/ James Rott
----------------------------------------------------------------------
----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signature(s) Guaranteed:
________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership
in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 ("the Act") and
are "restricted securities" as that term is defined in Rule 144
under the Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act, the availability of which is to be established to the
satisfaction of the Company.
<PAGE> 59
SEE RESTRICTIVE LEGEND ON REVERSE SIDE SHARES
NUMBER -1,000,000-
1054
CUSIP 71921R 10 7
SEE REVERSE
FOR CERTAIN DEFINITIONS
phoneXchange
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
50,000,000 AUTHORIZED SHARES $.001 PAR VALUE
THIS CERTIFIES THAT PAUL HYDE *1,000,000*****
**1,000,000****
Is The Owner of ***ONE MILLION*** ***1,000,000***
****1,000,000**
*****1,000,000*
FULLY PAID AND NON-ASSESSABLE SHARES OF $.001 PAR VALUE COMMON STOCK OF
phoneXchange, Inc.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the Company.
Dated: 06/15/1998
/S/ JAMES E. ROTT /s/ DAVID J. CHADWICK
SECRETARY PRESIDENT
phoneXchange, Inc.
CORPORATE
SEAL
DELAWARE
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By /s/ [Signature Illegible]
-----------------------------------------------
Transfer Agent & Registrar Authorized Signature
<PAGE> 60
phoneXchange, Inc.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act .............................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
###-##-####
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________ attorney-in-fact to
transfer the said stock on the books of the within-named Corporation, with full
power of substitution in the premises.
Dated _____________________________
/s/ PAUL E. HYDE
----------------------------------------------------------------------
----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signature(s) Guaranteed:
________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership
in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 ("the Act") and
are "restricted securities" as that term is defined in Rule 144
under the Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act, the availability of which is to be established to the
satisfaction of the Company.
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment") to the Stock Purchase Agreement (the
"Agreement") executed on February 29, 1999, by and between Integrated
Communication Networks, Inc., a Nevada Corporation, at the time of the Agreement
known as Global Access Pagers, Inc., a Nevada Corporation ("GAPI" or "Buyer")
and phoneXchange, Inc., a Delaware Corporation (the "Company"), is set forth
pursuant to Section 11.8 of the Agreement. GAPI and the Company are collectively
referred to as (the "Parties").
SUMMARY SUBJECT TO THIS AMENDMENT
WHEREAS, in accordance with the Agreement, Buyer agreed to purchase 85.14%
of the 10,100,882 outstanding shares of Company's Common Stock (see paragraphs 2
through 4 on page 1 of the Agreement;
WHEREAS, the "Purchase Price" at ("Closing", January 29, 1999), for said
shares of Company's common stock is $6,450,003, subject to adjustments as set
forth within Section 2.2 of the Agreement; and that the Purchase Price shall be
paid in shares of GAPI Common Stock, subject to the stipulations within Section
2.2(a) on page 8 of the Agreement;
WHEREAS, the Parties agreed that GAPI would pay said Purchase Price in two
unequal installments subject to the payment plan as set forth within Sections
2.2(a)(i) and (ii) and 2.2(b) of the Agreement.
WHEREAS, the Parties agreed that the par value of said stock as of February
9, 1999 was $0.001, and that 8,172,439 shares were issued and outstanding:
AMENDMENT
NOW THEREFORE, the Parties agree to amend Section 2, entitled "Sale and
Transfer of Shares; Closing and Section 4.5, entitled "Capitalization," as
follows:
Paragraphs 2.1 and 2.2(a) of the Basic Agreement are deleted and replaced
as follows:
2.1 SHARES. Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer
will purchase the Shares from Sellers.
2.2(a) PURCHASE PRICE. In one lump sum payment, purchase price for said Shares
will be $6,450,003, payable in 921,429 GAPI shares of Common Stock equal
to said purchase price.
Page 1 of 3 First Amendment to Stock
Purchase Agreement
<PAGE> 2
2.2(b) WARRANTS. The Directors and Officers shall cause the issuance of Common
Stock Warrant Purchase Agreements to purchase 921,429 shares of the
Company's Common Stock at a purchase price of $4.50 per share. The
Warrants have a term of five (5) years.
2.2(c) At closing, the 921,429 shares of Common Stock and the Warrants to
purchase Common Stock shall be issued to the following individuals up to
the aggregate amount of shares indicated next to their names:
<TABLE>
<CAPTION>
Name Stock Warrants
- ---- ----- --------
<S> <C> <C>
David J. Chadwick 487,500 487,500
James E. Rott 126,786 126,786
Paul E. Hyde 126,786 126,786
Gary L. Killoran 126,786 126,786
Mike W. DuBrock 10,714 10,714
Anna Marie Yates 10,714 10,714
John C. Gurthrie 10,714 10,714
Adrian A. Merril 10,714 10,714
Thomas Nelson 10,714 10,714
------- -------
921,429 921,429
</TABLE>
2.2 Closing is effective as of February 9, 1999.
4.5 Capitalization
The words and figures "par value $0.001 per share, of which 8,172,439
shares are issued and outstanding," are stricken and amended to read,
"par value $0.01 per share, of which 8,172,439 shares are issued and
outstanding on a fully diluted basis."
AGREEMENT
Binding and Effect. The Parties agree that this Amendment to the basic
Agreement is binding and enforceable pursuant to the laws of the State of
California, and that any all terms and conditions of the Agreement affected by
this Amendment shall remain in full force and effect, specifically Section
11.15 of the Agreement entitled "Counterparts."
Page 2 of 3 First Amendment to Stock
Purchase Agreement
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed and delivered this First
Amendment on May 24, 1999.
Buyer:
Integrated Communication Networks, Inc.
A Nevada Corporation
By: /s/ CHARLES MCGUIRK
------------------------------------
Charles McGuirk, Director
Seller:
phoneXchange, Inc.
A Delaware Corporation
By: /s/ DAVID J. CHADWICK
------------------------------------
David J. Chadwick
President & CEO
Page 3 of 3 First Amendment to Stock
Purchase Agreement
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 4, 1999 by
Global Access Pagers, Inc., a Nevada corporation (the "Employer"), and David
Chadwick, an individual (the "Executive").
RECITALS
Concurrently with the execution and delivery of this Agreement, Employer (or its
affiliate) (the "Buyer"), is purchasing from the Executive and certain other
Sellers, all of the issued shares of stock of PhoneXchange, Inc. owned by each
such Seller and the Executive, pursuant to a Stock Purchase Agreement dated as
of January 1, 1999 between David Chadwick, James Rott, Paul Hyde and Gary
Killoran (as Sellers) and the Buyer (the "Stock Purchase Agreement"). The Buyer
and the Employer desire the Executive's continued employment with the Employer,
and the Executive wishes to accept such continued employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits
"BENEFITS"--as defined in Section 3.1(b).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the Employer, data,
know-how, graphs, drawings, samples, inventions and ideas, customer
lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures (and related
concepts, ideas, designs, methods and information), and any other
information, however documented, that is a trade secret within the
meaning of California law; and
1
<PAGE> 2
(b) information concerning the business and affairs of the Employer (which
includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel and personnel training
and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective Date
or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
"NONCOMPETITION AGREEMENT"--as defined in Section 6.3.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1. EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
2
<PAGE> 3
2.2. TERM
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
2.3. DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as President and CEO of the Employer. The Executive will devote
substantially all of his business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperage fully with
the Board of Directors in the advancement of the best interests of the
Employer. If the Executive is elected as a director of the Employer or as a
director or officer of any of its affiliates, the Executive will fulfill his
duties as such director of officer without additional compensation.
3. COMPENSATION
3.1. BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of $180,00.00,
subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The
Salary will be reviewed by the Board of Directors not less frequently
than annually, and may be adjusted upward in the sole discretion of the
Board of Directors, but in no event will the Salary be increased less
than 5% per year as long as Employer has positive net income from
operations.
(b) Benefits. The Executive will, during the Employment Period, be permitted
to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the
Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
4. FACILITIES AND EXPENSES
4.1. GENERAL
The Employer will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant
to this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
3
<PAGE> 4
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in accordance
with the vacation policies of the Employer in effect for its executive officers
from time to time. Vacation must be taken by the Executive at such time or times
as reasonably approved by the Chairman of the Board or Chief Executive Officer.
The Executive will also be entitled to the paid holidays set forth in the
Employer's policies. Vacation days (but not holidays or sick days) accrued
during any fiscal year that are not used by the Executive during such Fiscal
Year may be used in only the Fiscal Year immediately following the year in which
such vacation days were accrued, and any vacation days not so used in either the
year in which they were accrued or the subsequent year shall expire and be
forfeited.
6. TERMINATION
6.1. EVENTS OF TERMINATION
The Employment Period and the executive's Basic Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) for good reason (as defined in Section 6.4) upon not less than thirty
days' prior notice from the Executive to the Employer.
6.2. DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the Executive's duties under this Agreement for 45 consecutive days, or
60 days during any twelve month period, as determined in accordance with this
Section 6.2, or if, in the event the Company maintains a disability insurance
policy covering the Executive, the Executive is determined to be disabled
pursuant to the definition of "disability" as set forth in such disability
insurance policy, such determination to be made by a medical doctor selected or
appointed by such insurance company. The Executive must submit to a reasonable
number of examinations by the medical doctor making the determination
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of disability under this Section 6.2, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Section 6.2, for the purposes of submitting the Executive to
the examinations, and providing the authorization of disclosure, required under
this Section 6.2.
6.3. DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement or the Noncompetition Agreement entered into between
the Buyer and the Executive (the "Noncompetition Agreement"); (b) the
Executive's failure to adhere to any written Employer policy if the Executive
has been given a reasonable opportunity to comply with such policy or cure his
failure to comply (which reasonable opportunity must be granted during the
ten-day period preceding termination of this Agreement); (c) the appropriation
(or attempted appropriation) of a material business opportunity of the
Employer, including attempting to secure or securing any personal profit in
connection with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with
respect to, a felony, the equivalent thereof, or any other crime with respect
to which disclosure would be required in a registration statement, proxy
statement or annual report pursuant to federal or state securities laws,
including, without limitation, pursuant to Item 401 or 402 of Regulation S-K.
6.4. DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1, the phrase "for good reason" means any of the
following: (a) The Employer's material breach of this Agreement; or (b) the
assignment of the Executive without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his
position, responsibilities, or duties at the Effective Date.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, his designated beneficiary
as defined below) only such compensation as is provided in this Section 6.5, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer for any amounts due and owing
to Executive under this agreement. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine whether any
beneficiary designated by the Executive is alive or to ascertain the address of
any such beneficiary, to
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determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay the
Executive (i) the Executive's Salary for the remainder, if any, of the
calendar month in which such termination is effective and for twelve
consecutive calendar months thereafter.
(b) Termination by the Employer for Cause. If the Employer terminates this
Agreement for cause, the Executive will be entitled to receive his
Salary only through the date such termination is effective, and will not
be entitled to any other compensation for the Fiscal Year during which
such termination occurs or any subsequent Fiscal Year.
(c) Termination upon Disability. If this Agreement is terminated by either
party as a result of the Executive's disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective and for the three consecutive months thereafter.
(d) Termination upon Death. If this Agreement is terminated because of the
Executive's death, the Executive will be entitled to receive his Salary
through the end of the calendar month in which his death occurs.
(e) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans.
To the extent permitted by law, the Executive will not receive, as part
of his termination pay pursuant to this Section 6, any payment or other
compensation for any vacation, holiday, sick leave, or other leave, if
any, which is accrued but unused on the date the notice of termination
is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1. ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and as a part
of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; (c) the Buyer has required
that the Executive make the covenants in this Section 7 as a condition to its
purchase of the Employer's stock; and (d) the provisions of this Section 7 are
reasonable and necessary to prevent the improper use or disclosure of
Confidential Information.
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7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
(a) Confidentiality.
(1) During and following the Employment Period, the Executive will hold in
confidence the Confidential Information and will not disclose it to
any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of
this Agreement.
(2) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under California law and any other applicable
law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless,
be considered Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the Employer submit
proof of the economic value of any trade secret or post a bond or
other security.
(3) None of the foregoing obligation and restrictions applies to any part
of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of a
disclosure by the Executive.
(4) The Executive will not remove from the Employer's premises (except to
the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or
code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). The Executive recognized that, as between
the Employer and the Executive, all of the Proprietary Items, whether
or not developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party, or upon
the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in
the Executive's possession or subject to the Executive's control, and
the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
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7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is international in scope
and its products are marketed throughout the United States and internationally;
(c) the Employer competes with other businesses that are or could be located in
any part of the United States or internationally; (d) the Buyer has required
that the Executive make the covenants set forth in this Section 8 as a condition
to the Buyer's purchase of the Executive's stock in the Employer; and (e) the
provisions of this Section 8 are reasonable and necessary to protect the
Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his employment
hereunder, and during the Post-Employment Period, engage or invest in, own,
manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any
similar name to, lend Executive's credit to or render services or advice
to, any business whose products or activities compete in whole or in part
with the products or activities of the Employer anywhere within the United
States or any other jurisdiction in which the Employer then conducts
business; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) 4.99 percent of any class of securities
of any enterprise (but without otherwise participating in the activities of
such enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934; provided, further, that this provision
shall not apply to any interest or investment in any business owned by
Executive as of January 1, 1999 (as "Owned Company") as long as (i) any
activity associated with, or business time of Executive devoted to, such
investment
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does not materially interfere with Executive's duties hereunder, (ii) no
confidential information belonging to, or regarding, Employer is used by
Executive or such business, or disclosed to any employee, officer or
director of such business, to the benefit of such business or the material
detriment of Employer, and (iii) the nature of the business conducted by
such business does not materially change from that conducted by such
business as of January 1, 1999, which change would cause such business to
compete more directly and materially with Employer;
(b) whether for the Executive's own account or for the account of any other
person, at any time during the Employment Period and the Post-Employment
Period, solicit business of the same or similar type being carried on by
the Employer, from any person known by the Executive to be a customer of
the Employer, whether or not the Executive had personal contact with such
person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or the account of any other person
(i) at any time during the Employment Period and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the
Employer at any time during the employment Period or in any manner induce
or attempt to induce any employee of the Employer to terminate his
employment with the Employer; or (ii) at any time during the Employment
Period and for three years thereafter, interfere with the Employer's
relationship with any person, including any person who at any time during
the Employment Period was an employee, contractor, supplier, or customer of
the Employer; or
(d) at any time during or after the Employment Period, disparage the Employer
or any if it shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in effect, give
notice to the Employer, within ten days after accepting any other employment, of
the identity of the Executive's employer. The Buyer of the Employer may notify
such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
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Notwithstanding anything herein to the contrary, the provisions of this Section
8 shall not apply in the event Executive terminates this Agreement for good
reason or if this agreement is terminated by Employer for any reason other than
good cause.
9. INDEMNIFICATION AND INSURANCE
9.1. The Employer shall indemnify and hold harmless, and in any action, suit or
proceeding, and defend the Executive against all expenses, costs,
liabilities and losses (including attorneys fees, judgments and fines, and
amounts paid or to be paid in any settlement) (collectively, "Indemnified
Amounts") reasonably incurred or suffered by the Executive in connection
with the Executive's service as a director or officer of the Employer or
any affiliate (including without limitation phoneXchange, Inc., and in the
case of phoneXchange, Inc., as a controlling shareholder) to the full
extent permitted by the By-Laws of the Employer as in effect on the date
of this Agreement and the Delaware General Corporation Law (or, in the
event the Employer is reincorporated in a jurisdiction other than
Delaware, the general corporation law of such jurisdiction (the "GCL").
The defense of Executive pursuant to this provision shall be by counsel
reasonably satisfactory to Executive, and the fees and expenses of such
counsel shall be paid by Employer as incurred.
9.2. A determination that indemnification with respect to any claims by the
Executive pursuant to this Section 9 is proper shall be made by
independent legal counsel selected by the Board of Directors of the
Employer and set forth in a written opinion furnished by such counsel to
the Board of Directors, the Employer and the Executive. In the event it
is determined by such counsel that Executive is not entitled to
indemnification pursuant to this Section 9 (and if contested by
Executive, such determination is confirmed by the final non-appealable
order of a court of competent jurisdiction), or if a court of competent
jurisdiction determines in a final non-appealable order that Executive is
not entitled to indemnification pursuant to this Section 9, Executive
hereby undertakes that he shall promptly reimburse the Employer for all
advances of Indemnified Amounts made by the Employer on Executive's
behalf.
9.3 The rights conferred by this Section 9 shall not be exclusive of any
other right which the Executive may have or hereafter acquire under
applicable law, any provision of the Employers organizational documents or
a vote of stockholders or the board of directors. This Section 9 shall
not be deemed to affect any rights to subrogation which may exist in any
policy of director and officers liability insurance.
9.4 The Executive shall provide notice to the Employer in writing promptly
(and in any event within 15 business days) of the institution of any
action, suit or proceeding which is or may be subject to this Section 9,
provided that Executive's failure to so advise the Employer shall not
affect the indemnification provided for herein, except to the extent such
failure has a material and adverse effect on the Employer's ability to
defend such action, suit or proceeding.
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9.5. The Executive shall be covered by insurance, to the same extent as to
other senior executives and directors of the Employer are covered by
insurance, with respect to (a) directors and officer's liability, (b)
errors and omissions, and (c) general liability insurance.
10. GENERAL PROVISIONS
10.1. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any
other rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. Without limiting the Employer's rights under
this Section 10 or any other remedies of the Employer, if the Executive
breaches any of the provisions of Section 7 or 8, the Employer will have the
right to cease making any payments otherwise due to the Executive under this
Agreement.
10.2. COVENANTS OF SECTIONS 7 and 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS.
The covenants by the Executive in Sections 7 and 8 are essential elements of
this Agreement, and without the Executive's agreement to comply with such
covenants, the Buyer would not have purchased the Executive's stock under the
Stock Purchase Agreement and the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The Employer
and the Executive have independently consulted their respective counsel and have
been advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants and the
existence of any claim by the Executive against the Employer under this
Agreement or otherwise, or against the Buyer, will not excuse the Executive's
breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to enforce
the covenants and agreements of the Executive in Sections 7 and 8.
10.3. OFFSET
The Employer will be entitled to offset against any and all amounts owing to the
Executive under this Agreement the amount of any and all undisputed claims or
claims reduced to the final judgment
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that the Employer may have against the Executive under the Stock Purchase
Agreement or the Noncompetition Agreement.
10.4. REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Execute is or may be
bound.
10.5. OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
10.6. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
10.7. BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
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10.8. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Global Access Pagers, Inc.
c/o Corporate Financial Enterprises, Inc.
2224 Main Street
Santa Monica, California 90405
Telephone: (310) 452-1005
Facsimile: (310) 581-6806
If to the Executive:
[David Chadwick]
PhoneXchange, Inc.
4685 MacArthur Court, Suite 300
Newport Beach, California 92660
Telephone: (949) 737-1500
Facsimile: (949) 794-8887
10.9 ENTIRE AGREEMENT, AMENDMENTS
This Agreement, the Stock Purchase Agreement, and the documents executed in
connection with the Stock Purchase Agreement, contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, oral or written, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended orally, but only by an agreement in writing signed by the parties
hereto.
10.10 GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date above first written above.
GLOBAL ACCESS PAGERS, INC. EXECUTIVE
By: /s/ CHARLES McGUIRK /s/ DAVID J. CHADWICK
------------------------------ --------------------------------
Name:
Title:
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date above first written above.
GLOBAL ACCESS PAGERS, INC. EXECUTIVE
/s/ Charles McGuirk /s/ David J. Chadwick
- ---------------------------- ---------------------------
By: By:
------------------------- ------------------------
Name: Name:
------------------- ------------------
Title: Title:
------------------- ------------------
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 4, 1999 by
Global Access Pagers, Inc., a Nevada corporation (the "Employer"), and Gary
Killoran, an individual (the "Executive").
RECITALS
Concurrently with the execution and delivery of this Agreement, Employer (or its
affiliate) (the "Buyer"), is purchasing from the Executive and certain other
Sellers, all of the issued shares of stock of PhoneXchange, Inc. owned by each
such Seller and the Executive, pursuant to a Stock Purchase Agreement dated as
of January 1, 1999 between David Chadwick, James Rott, Paul Hyde and Gary
Killoran (as Sellers) and the Buyer (the "Stock Purchase Agreement"). The Buyer
and the Employer desire the Executive's continued employment with the Employer,
and the Executive wishes to accept such continued employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.1(b).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the Employer, data,
know-how, graphs, drawings, samples, inventions and ideas, customer
lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures (and related
concepts, ideas, designs, methods and information), and any other
information, however documented, that is a trade secret within the
meaning of California law; and
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(b) information concerning the business and affairs of the Employer (which
includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel and personnel training
and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective Date
or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.4.
"NONCOMPETITION AGREEMENT"--as defined in Section 6.3.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1. EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
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2.2. TERM
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
2.3. DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as Chief Financial Officer of the Employer. The Executive will
devote substantially all of his business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interests of the Employer.
If the Executive is elected as a director of the Employer or as a director or
officer of any of its affiliates, the Executive will fulfill his duties as such
director or officer without additional compensation.
3. COMPENSATION
3.1. BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of $120,000.00,
subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The
Salary will be reviewed by the Board of Directors not less frequently
than annually, and may be adjusted upward in the sole discretion of the
Board of Directors, but in no event will the Salary be increased less
than 5% per year as long as Employer has positive net income from
operations.
(b) Benefits. The Executive will, during the Employment Period, be permitted
to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the
Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
4. FACILITIES AND EXPENSES
4.1. GENERAL
The Employer will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant
to this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
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entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in accordance
with the vacation policies of the Employer in effect for its executive officers
from time to time. Vacation must be taken by the Executive at such time or times
as reasonably approved by the Chairman of the Board or Chief Executive Officer.
The Executive will also be entitled to the paid holidays set forth in the
Employer's policies. Vacation days (but not holidays or sick days) accrued
during any Fiscal Year that are not used by the Executive during such Fiscal
Year may be used in only the Fiscal Year immediately following the year in which
such vacation days were accrued, and any vacation days not so used in either the
year in which they were accrued or the subsequent year shall expire and be
forfeited.
6. TERMINATION
6.1. EVENTS OF TERMINATION
The Employment Period and the Executive's Basic Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) for good reason (as defined in Section 6.4) upon not less than thirty
days' prior notice from the Executive to the Employer.
6.2. DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a "disability"
if, for physical or mental reasons, the Executive is unable to perform the
Executive's duties under this Agreement for 45 consecutive days, or 60 days
during any twelve month period, as determined in accordance with this Section
6.2, or if, in the event the Company maintains a disability insurance policy
covering the Executive, the Executive is determined to be disabled pursuant to
the definition of "disability" as set forth in such disability insurance policy,
such determination to be made by a medical doctor selected or appointed by such
insurance company. The Executive must submit to a reasonable number of
examinations by the medical doctor making the determination
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of disability under this Section 6.2, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Section 6.2, for the purposes of submitting the Executive to
the examinations, and providing the authorization of disclosure, required under
this Section 6.2.
6.3. DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement or the Noncompetition Agreement entered into between
the Buyer and the Executive (the "Noncompetition Agreement"); (b) the
Executive's failure to adhere to any written Employer policy if the Executive
has been given a reasonable opportunity to comply with such policy or cure his
failure to comply (which reasonable opportunity must be granted during the
ten-day period preceding termination of this Agreement); (c) the appropriation
(or attempted appropriation) of a material business opportunity of the Employer,
including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
disclosure would be required in a registration statement, proxy statement or
annual report pursuant to federal or state securities laws, including, without
limitation, pursuant to Item 401 or 402 of Regulation S-K.
6.4. DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1, the phrase "for good reason" means any of the
following: (a) The Employer's material breach of this Agreement; or (b) the
assignment of the Executive without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his
position, responsibilities, or duties at the Effective Date.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, his designated beneficiary
as defined below) only such compensation as is provided in this Section 6.5, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer for any amounts due and owing
to Executive under this agreement. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine whether any
beneficiary designated by the Executive is alive or to ascertain the address of
any such beneficiary, to
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determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay the
Executive (i) the Executive's Salary for the remainder, if any, of the
calendar month in which such termination is effective and for twelve
consecutive calendar months thereafter.
(b) Termination by the Employer for Cause. If the Employer terminates this
Agreement for cause, the Executive will be entitled to receive his
Salary only through the date such termination is effective, and will not
be entitled to any other compensation for the Fiscal Year during which
such termination occurs or any subsequent Fiscal Year.
(c) Termination upon Disability. If this Agreement is terminated by either
party as a result of the Executive's disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective and for the three consecutive months thereafter.
(d) Termination upon Death. If this Agreement is terminated because of the
Executive's death, the Executive will be entitled to receive his Salary
through the end of the calendar month in which his death occurs.
(e) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans.
To the extent permitted by law, the Executive will not receive, as part
of his termination pay pursuant to this Section 6, any payment or other
compensation for any vacation, holiday, sick leave, or other leave, if
any, which is accrued but unused on the date the notice of termination
is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1. ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and as a part
of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information; (b) public
disclosure of such Confidential Information could have an adverse effect on the
Employer and its business; (c) the Buyer has required that the Executive make
the covenants in this Section 7 as a condition to its purchase of the
Employer's stock; and (d) the provisions of this Section 7 are reasonable and
necessary to prevent the improper use or disclosure of Confidential Information.
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7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
(a) Confidentiality.
(1) During and following the Employment Period, the Executive will hold in
confidence the Confidential Information and will not disclose it to
any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of
this Agreement.
(2) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under California law and any other applicable
law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless,
be considered Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the Employer submit
proof of the economic value of any trade secret or post a bond or
other security.
(3) None of the foregoing obligations and restrictions applies to any part
of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of a
disclosure by the Executive.
(4) The Executive will not remove from the Employer's premises (except to
the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or
code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). The Executive recognizes that, as between
the Employer and the Executive, all of the Proprietary Items, whether
or not developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party, or upon
the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in
the Executive's possession or subject to the Executive's control, and
the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
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7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is international in scope
and its products are marketed throughout the United States and internationally;
(c) the Employer competes with other businesses that are or could be located in
any part of the United States or internationally; (d) the Buyer has required
that the Executive make the covenants set forth in this Section 8 as a condition
to the Buyer's purchase of the Executive's stock in the Employer; and (e) the
provisions of this Section 8 are reasonable and necessary to protect the
Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his employment
hereunder, and during the Post-Employment Period, engage or invest in, own,
manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any
similar name to, lend Executive's credit to or render services or advice
to, any business whose products or activities compete in whole or in part
with the products or activities of the Employer anywhere within the United
States or any other jurisdiction in which the Employer then conducts
business; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) 4.99 percent of any class of securities
of any enterprise (but without otherwise participating in the activities of
such enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934; provided, further, that this provision
shall not apply to any interest or investment in any business owned by
Executive as of January 1, 1999 (an "Owned Company") as long as (i) any
activity associated with, or business time of Executive devoted to, such
investment
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does not materially interfere with Executive's duties hereunder, (ii) no
confidential information belonging to, or regarding, Employer is used by
Executive or such business, or disclosed to any employee, officer or
director of such business, to the benefit of such business or the material
detriment of Employer, and (iii) the nature of the business conducted by
such business does not materially change from that conducted by such
business as of January 1, 1999, which change would cause such business to
compete more directly and materially with Employer.
(b) whether for the Executive's own account or for the account of any other
person, at any time during the Employment Period and the Post-Employment
Period, solicit business of the same or similar type being carried on by
the Employer, from any person known by the Executive to be a customer of
the Employer, whether or not the Executive had personal contact with such
person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or the account of any other person
(i) at any time during the Employment Period and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the
Employer at any time during the Employment Period or in any manner induce
or attempt to induce any employee of the Employer to terminate his
employment with the Employer; or (ii) at any time during the Employment
Period and for three years thereafter, interfere with the Employer's
relationship with any person, including any person who at any time during
the Employment Period was an employee, contractor, supplier, or customer of
the Employer; or
(d) at any time during or after the Employment Period, disparage the Employer
or any if its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in effect, give
notice to the Employer, within ten days after accepting any other employment, of
the identity of the Executive's employer. The Buyer or the Employer may notify
such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
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Notwithstanding anything herein to the contrary, the provisions of this Section
8 shall not apply in the event Executive terminates this Agreement for good
reason or if this agreement is terminated by Employer for any reason other than
good cause.
9. INDEMNIFICATION AND INSURANCE
9.1. The Employer shall indemnify and hold harmless, and in any action, suit or
proceeding, and defend the Executive against all expenses, costs,
liabilities and losses (including attorneys fees, judgments and fines, and
amounts paid or to be paid in any settlement) (collectively, "Indemnified
Amounts") reasonably incurred or suffered by the Executive in connection
with the Executive's service as a director or officer of the Employer or
any affiliate (including without limitation phoneXchange, Inc., and in the
case of phoneXchange, Inc., as a controlling shareholder) to the full
extent permitted by the By-Laws of the Employer as in effect on the date
of this Agreement and the Delaware General Corporation Law (or, in the
event the Employer is reincorporated in a jurisdiction other than
Delaware, the general corporation law of such jurisdiction (the "GCL").
The defense of Executive pursuant to this provision shall be by counsel
reasonably satisfactory to Executive, and the fees and expenses of such
counsel shall be paid by Employer as incurred.
9.2. A determination that indemnification with respect to any claims by the
Executive pursuant to this Section 9 is proper shall be made by
independent legal counsel selected by the Board of Directors of the
Employer and set forth in a written opinion furnished by such counsel to
the Board of Directors, the Employer and the Executive. In the event it
is determined by such counsel that Executive is not entitled to
indemnification pursuant to this Section 9 (and if contested by
Executive, such determination is confirmed by the final non-appealable
order of a court of competent jurisdiction), or if a court of competent
jurisdiction determines in a final non-appealable order that Executive is
not entitled to indemnification pursuant to this Section 9, Executive
hereby undertakes that he shall promptly reimburse the Employer for all
advances of Indemnified Amounts made by the Employer on Executive's
behalf.
9.3 The rights conferred by this Section 9 shall not be exclusive of any
other right which the Executive may have or hereafter acquire under
applicable law, any provision of the Employers organizational documents or
a vote of stockholders or the board of directors. This Section 9 shall
not be deemed to affect any rights to subrogation which may exist in any
policy of director and officers liability insurance.
9.4 The Executive shall provide notice to the Employer in writing promptly
(and in any event within 15 business days) of the institution of any
action, suit or proceeding which is or may be subject to this Section 9,
provided that Executive's failure to so advise the Employer shall not
affect the indemnification provided for herein, except to the extent such
failure has a material and adverse effect on the Employer's ability to
defend such action, suit or proceeding.
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9.5. The Executive shall be covered by insurance, to the same extent as to
other senior executives and directors of the Employer are covered by
insurance, with respect to (a) directors and officer's liability, (b)
errors and omissions, and (c) general liability insurance.
10. GENERAL PROVISIONS
10.1. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any
other rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. Without limiting the Employer's rights under
this Section 10 or any other remedies of the Employer, if the Executive
breaches any of the provisions of Section 7 or 8, the Employer will have the
right to cease making any payments otherwise due to the Executive under this
Agreement.
10.2. COVENANTS OF SECTIONS 7 and 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential elements of
this Agreement, and without the Executive's agreement to comply with such
covenants, the Buyer would not have purchased the Executive's stock under the
Stock Purchase Agreement and the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The
Employer and the Executive have independently consulted their respective
counsel and have been advised in all respects concerning the reasonableness and
propriety of such covenants, with specific regard to the nature of the business
conduced by the Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants and the
existence of any claim by the Executive against the Employer under this
Agreement or otherwise, or against the Buyer, will not excuse the Executive's
breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to
enforce the covenants and agreements of the Executive in Sections 7 and 8.
10.3. OFFSET
The Employer will be entitled to offset against any and all amounts owing to
the Executive under this Agreement the amount of any and all undisputed claims
or claims reduced to final judgment
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that the Employer may have against the Executive under the Stock Purchase
Agreement or the Noncompetition Agreement.
10.4. REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Execute is or may be
bound.
10.5. OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
10.6. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
10.7. BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
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10.8. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Global Access Pagers, Inc.
c/o Corporate Financial Enterprises, Inc.
2224 Main Street
Santa Monica, California 90405
Telephone: (310) 452-1005
Facsimile: (310) 581-6806
If to the Executive:
Gary Killoran
PhoneXchange, Inc.
4685 MacArthur Court, Suite 300
Newport Beach, California 92660
Telephone: (949) 737-1500
Facsimile: (949) 794-8887
10.9 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Stock Purchase Agreement, and the documents executed in
connection with the Stock Purchase Agreement, contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, oral or written, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended orally, but only by an agreement in writing signed by the parties
hereto.
10.10 GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date above first written above.
GLOBAL ACCESS PAGERS, INC. EXECUTIVE
By: /s/ CHARLES MCGUIRK /s/ GARY KILLORAN
------------------------------ --------------------------------
Name:
Title:
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 4, 1999 by
Global Access Pagers, Inc., a Nevada corporation (the "Employer"), and James E.
Rott, an individual (the "Executive").
RECITALS
Concurrently with the execution and delivery of this Agreement, Employer (or its
affiliate) (the "Buyer"), is purchasing from the Executive and certain other
Sellers, all of the issued shares of stock of PhoneXchange, Inc. owned by each
such Seller and the Executive, pursuant to a Stock Purchase Agreement dated as
of January 1, 1999 between David Chadwick, James Rott, Paul Hyde and Gary
Killoran (as Sellers) and the Buyer (the "Stock Purchase Agreement"). The Buyer
and the Employer desire the Executive's continued employment with the Employer,
and the Executive wishes to accept such continued employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits
"BENEFITS"--as defined in Section 3.1(b).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--and all:
(a) trade secrets concerning the business and affairs of the Employer, data,
know-how, graphs, drawings, samples, inventions and ideas, customer
lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures (and related
concepts, ideas, designs, methods and information), and any other
information, however documented, that is a trade secret within the
meaning of California law; and
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(b) information concerning the business and affairs of the Employer (which
includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel and personnel training
and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective Date
or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
"NONCOMPETITION AGREEMENT"--as defined in Section 6.3.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1. EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
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2.2. TERM
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
2.3. DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as Chief Operating Officer of the Employer. The Executive will
devote substantially all of his business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperage fully with
the Board of Directors in the advancement of the best interests of the Employer.
If the Executive is elected as a director of the Employer or as a director or
officer of any of its affiliates, the Executive will fulfill his duties as such
director of officer without additional compensation.
3. COMPENSATION
3.1. BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of $120,00.00,
subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The
Salary will be reviewed by the Board of Directors not less frequently
than annually, and may adjusted upward in the sole discretion of the
Board of Directors, but in no event will the Salary be increased less
than 5% per year as long as Employer has positive net income from
operations.
(b) Benefits. The Executive will, during the Employment Period, be permitted
to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the
Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
4. FACILITIES AND EXPENSES
4.1. GENERAL
The Employer will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
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entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in accordance
with the vacation policies of the Employer in effect for its executive officers
from time to time. Vacation must be taken by the Executive at such time or times
as reasonably approved by the Chairman of the Board or Chief Executive Officer.
The Executive will also be entitled to the paid holidays set forth in the
Employer's policies. Vacation days (but not holidays or sick days) accrued
during any fiscal year that are not used by the Executive during such Fiscal
Year may be used in only the Fiscal Year immediately following the year in which
such vacation days were accrued, and any vacation days not so used in either the
year in which they were accrued or the subsequent year shall expire and be
forfeited.
6. TERMINATION
6.1. EVENTS OF TERMINATION
The Employment Period and the Executive's Basic Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) for good reason (as defined in Section 6.4) upon not less than thirty
days' prior notice from the Executive to the Employer.
6.2. DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the Executive's duties under this Agreement for 45 consecutive days, or
60 days during any twelve month period, as determined in accordance with this
Section 6.2, or if, in the event the Company maintains a disability insurance
policy covering the Executive, the Executive is determined to be disabled
pursuant to the definition of "disability" as set forth in such disability
insurance policy, such determination to be made by a medical doctor selected or
appointed by such insurance company. The Executive must submit to a reasonable
number of examinations by the medical doctor making the determination
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of disability under this Section 6.2, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Section 6.2, for the purposes of submitting the Executive to
the examinations, and providing the authorization of disclosure, required under
this Section 6.2.
6.3. DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement or the Noncompetition Agreement entered into between
the Buyer and the Executive (the "Noncompetition Agreement"); (b) the
Executive's failure to adhere to any written Employer policy if the Executive
has been given a reasonable opportunity to comply with such policy or cure his
failure to comply (which reasonable opportunity must be granted during the
ten-day period preceding termination of this Agreement); (c) the appropriation
(or attempted appropriation) of a material business opportunity of the
Employer,including attempting to secure or securing any personal profit in
connection with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
disclosure would be required in a registration statement, proxy statement or
annual report pursuant to federal or state securities laws, including, without
limitation, pursuant to Item 401 or 402 of Regulation S-K.
6.4. DEFINITION OF "FOR GOOD REASON"
For purposes of section 6.1, the phrase "for good reason" means any of the
following: (a) The Employer's material breach of this Agreement; or (b) the
assignment of the Executive without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his
position, responsibilities, or duties at the Effective Date.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, his designated beneficiary
as defined below) only such compensation as is provided in this Section 6.5, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer for any amounts due and owing
to Executive under this agreement. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine whether any
beneficiary designated by the Executive is alive or to ascertain the address of
any such beneficiary, to
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determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay the
Executive (i) the Executive's Salary for the remainder, if any, of the
calendar month in which such termination is effective and for twelve
consecutive calendar months thereafter.
(b) Termination by the Employer for Cause. If the Employer terminates this
Agreement for cause, the Executive will be entitled to receive his
Salary only through the date such termination is effective, and will not
be entitled to any other compensation for the Fiscal Year during which
such termination occurs or any subsequent Fiscal Year.
(c) Termination upon Disability. If this Agreement is terminated by either
party as a result of the Executive's disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective and for the three consecutive months thereafter.
(d) Termination upon Death. If this Agreement is terminated because of the
Executive's death, the Executive will be entitled to receive his Salary
through the end of the calendar month in which his death occurs.
(e) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans.
To the extent permitted by law, the Executive will not receive, as part
of his termination pay pursuant to this Section 6, any payment or other
compensation for any vacation, holiday, sick leave, or other leave, if
any, which is accrued but unused on the date the notice of termination
is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1. ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and as a part
of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information; could have
an adverse effect on the Employer and its business; (c) the Buyer has required
that the Executive make the covenants in this Section 7 as a condition to its
purchase of the Employer's stock; and (d) the provisions of this Section 7 are
reasonable and necessary to prevent the improper use or disclosure of
Confidential Information.
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7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
(a) Confidentiality.
(1) During and following the Employment Period, the Executive will hold in
confidence the Confidential Information and will not disclose it to
any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of
this Agreement.
(2) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under California law and any other applicable
law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless,
be considered Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the Employer submit
proof of the economic value of any trade secret or post a bond or
other security.
(3) None of the foregoing obligations and restrictions applies to any part
of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of a
disclosure by the Executive.
(4) The Executive will not remove from the Employer's premises (except to
the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or
code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). The Executive recognizes that, as between
the Employer and the Executive, all of the Proprietary Items, whether
or not developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party, or upon
the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in
the Executive's possession or subject to the Executive's control, and
the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
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7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is international in scope
and its products are marketed throughout the United States and internationally;
(c) the Employer competes with other businesses that are or could be located in
any part of the United States or internationally; (d) the Buyer has required
that the Executive make the covenants set forth in this Section 8 as a condition
to the Buyer's purchase of the Executive's stock in the Employer; and (e) the
provisions of this Section 8 are reasonable and necessary to protect the
Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his employment
hereunder, and during the Post-Employment Period, engage or invest in, own,
manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any
similar name to, lend Executive's credit to or render services or advice
to, any business whose products or activities compete in whole or in part
with the products or activities of the Employer anywhere with in the United
States or any other jurisdiction in which the Employer then conducts
business; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) 4.99 percent of any class of securities
of any enterprise (but without otherwise participating in the activities of
such enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934; provided, further, that this provision
shall not apply to any interest or investment in any business owned by
Executive as of January 1, 1999 (an "Owned Company") as long as (i) any
activity associated with, or business time of Executive devoted to, such
investment
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does not materially interfere with Executive's duties hereunder, (ii) no
confidential information belonging to, or regarding, Employer is used by
Executive or such business, or disclosed to any employee, officer or
director of such business, to the benefit of such business or the material
detriment of Employer, and (iii) the nature of the business conducted by
such business does not materially change from that conducted by such
business as of January 1, 1999, which change would cause such business to
compete more directly and materially with Employer.
(b) whether for the Executive's own account or for the account of any other
person, at any time during the Employment Period and the Post-Employment
Period, solicit business of the same or similar type being carried on by
the Employer, from any person known by the Executive to be a customer of
the Employer, whether or not the Executive had personal contact with such
person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or the account of any other person
(i) at any time during the Employment Period and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the
Employer at any time during the Employment Period or in any manner induce
or attempt to induce any employee of the Employer to terminate his
employment with the Employer; or (ii) at any time during the Employment
Period and for three years thereafter, interfere with the Employer's
relationship with any person, including any person who at any time during
the Employment Period was an employee, contractor, supplier, or customer of
the Employer; or
(d) at any time during or after the Employment Period, disparage the Employer
or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in effect, give
notice to the Employer, within ten days after accepting any other employment, of
the identity of the Executive's employer. The Buyer of the Employer may notify
such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
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Notwithstanding anything herein to the contrary, the provisions of this Section
8 shall not apply in the event Executive terminates this Agreement for good
reason or if this agreement is terminated by Employer for any reason other than
good cause.
9. INDEMNIFICATION AND INSURANCE
9.1. The Employer shall indemnify and hold harmless, and in any action, suit or
proceeding, and defend the Executive against all expenses, costs,
liabilities and losses (including attorneys fees, judgments and fines, and
amounts paid or to be paid in any settlement) (collectively, "Indemnified
Amounts") reasonably incurred or suffered by the Executive in connection
with the Executive's service as a director or officer of the Employer or
any affiliate (including without limitation phoneXchange, Inc., and in the
case of phoneXchange, Inc., as a controlling shareholder) to the full
extent permitted by the By-Laws of the Employer as in effect on the date
of this Agreement and the Delaware General Corporation Law (or, in the
event the Employer is reincorporated in a jurisdiction other than
Delaware, the general corporation law of such jurisdiction (the "GCL").
The defense of Executive pursuant to this provision shall be by counsel
reasonably satisfactory to Executive, and the fees and expenses of such
counsel shall be paid by Employer as incurred.
9.2. A determination that indemnification with respect to any claims by the
Executive pursuant to this Section 9 is proper shall be made by
independent legal counsel selected by the Board of Directors of the
Employer and set forth in a written opinion furnished by such counsel to
the Board of Directors, the Employer and the Executive. In the event it
is determined by such counsel that Executive is not entitled to
indemnification pursuant to this Section 9 (and if contested by
Executive, such determination is confirmed by the final non-appealable
order of a court of competent jurisdiction), or if a court of competent
jurisdiction determines in a final non-appealable order that Executive is
not entitled to indemnification pursuant to this Section 9, Executive
hereby undertakes that he shall promptly reimburse the Employer for all
advances of Indemnified Amounts made by the Employer on Executive's
behalf.
9.3 The rights conferred by this Section 9 shall not be exclusive of any
other right which the Executive may have or hereafter acquire under
applicable law, any provision of the Employers organizational documents or
a vote of stockholders or the board of directors. This Section 9 shall
not be deemed to affect any rights to subrogation which may exist in any
policy of director and officers liability insurance.
9.4 The Executive shall provide notice to the Employer in writing promptly
(and in any event within 15 business days) of the institution of any
action, suit or proceeding which is or may be subject to this Section 9,
provided that Executive's failure to so advise the Employer shall not
affect the indemnification provided for herein, except to the extent such
failure has a material and adverse effect on the Employer's ability to
defend such action, suit or proceeding.
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9.5. The Executive shall be covered by insurance, to the same extent as to
other senior executives and directors of the Employer are covered by
insurance, with respect to (a) directors and officer's liability, (b)
errors and omissions, and (c) general liability insurance.
10. GENERAL PROVISIONS
10.1. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 10 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 7 or 8, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
10.2. COVENANTS OF SECTIONS 7 and 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS.
The covenants by the Executive in Sections 7 and 8 are essential elements of
this Agreement, and without the Executive's agreement to comply with such
covenants, the Buyer would not have purchased the Executive's stock under the
Stock Purchase Agreement and the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The Employer
and the Executive have independently consulted their respective counsel and have
been advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conduced by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants and the
existence of any claim by the Executive against the Employer under this
Agreement or otherwise, or against the Buyer, will not excuse the Executive's
breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to enforce
the covenants and agreements of the Executive in Sections 7 and 8.
10.3. OFFSET
The Employer will be entitled to offset against any and all amounts owing to the
Executive under this Agreement the amount of any and all undisputed claims or
claims reduced to final judgment
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that the Employer may have against the Executive under the Stock Purchase
Agreement or the Noncompetition Agreement.
10.4. REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
10.5. OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
10.6. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharge by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
10.7. BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
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10.8. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Global Access Pagers, Inc.
c/o Corporate Financial Enterprises, Inc.
2224 Main Street
Santa Monica, California 90405
Telephone: (310) 452-1005
Facsimile: (310) 581-6806
If to the Executive:
James E. Rott
PhoneXchange, Inc.
4685 MacArthur Court, Suite 300
Newport Beach, California 92660
Telephone: (949) 737-1500
Facsimile: (949) 794-8887
10.9 ENTIRE AGREEMENT, AMENDMENTS
This Agreement, the Stock Purchase Agreement, and the documents executed in
connection with the Stock Purchase Agreement, contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, oral or written, between the parties hereto
with respect to the subject matter hereof. This Agreement may not be amended
orally, but only by an agreement in writing signed by the parties hereto.
10.10 GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date above first written above.
GLOBAL ACCESS PAGERS, INC. EXECUTIVE
By: /s/ CHARLES MCGUIRK /s/ JAMES E. ROTT
------------------------------ --------------------------------
Name:
Title:
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 4, 1999 by
Global Access Pagers, Inc., a Nevada corporation (the "Employer"), and Paul
Hyde, an individual (the "Executive").
RECITALS
Concurrently with the execution and delivery of this Agreement, Employer (or its
affiliate) (the "Buyer"), is purchasing from the Executive and certain other
Sellers, all of the issued shares of stock of PhoneXchange, Inc. owned by each
such Seller and the Executive, pursuant to a Stock Purchase Agreement dated as
of January 1, 1999 between David Chadwick, James Rott, Paul Hyde and Gary
Killoran (as Sellers) and the Buyer (the "Stock Purchase Agreement"). The Buyer
and the Employer desire the Executive's continued employment with the Employer,
and the Executive wishes to accept such continued employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits
"BENEFITS"--as defined in Section 3.1(b).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--and all:
(a) trade secrets concerning the business and affairs of the Employer, data,
know-how, graphs, drawings, samples, inventions and ideas, customer
lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures (and related
concepts, ideas, designs, methods and information), and any other
information, however documented, that is a trade secret within the
meaning of California law; and
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(b) information concerning the business and affairs of the Employer (which
includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel and personnel training
and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the Agreement.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective Date
or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.4.
"FOR GOOD REASON"--as defined in Section 6.4.
"NONCOMPETITION AGREEMENT"--as defined in Section 6.3.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.3.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1. EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
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2.2. TERM
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
2.3. DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as Vice President of the Employer. The Executive will devote
substantially all of his business time, attention, skill, and energy exclusively
to the business of the Employer, will use his best efforts to promote the
success of the Employer's business, and will cooperage fully with the Board of
Directors in the advancement of the best interests of the Employer. If the
Executive is elected as a director of the Employer or as a director or officer
of any of its affiliates, the Executive will fulfill his duties as such director
of officer without additional compensation.
3. COMPENSATION
3.1. BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of $120,00.00,
subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly. The
Salary will be reviewed by the Board of Directors not less frequently
than annually, and may adjusted upward in the sole discretion of the
Board of Directors, but in no event will the Salary be increased less
than 5% per year as long as Employer has positive net income from
operations.
(b) Benefits. The Executive will, during the Employment Period, be permitted
to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the
Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
4. FACILITIES AND EXPENSES
4.1. GENERAL
The Employer will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant
to this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
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entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in accordance
with the vacation policies of the Employer in effect for its executive officers
from time to time. Vacation must be taken by the Executive at such time or times
as reasonably approved by the Chairman of the Board or Chief Executive Officer.
The Executive will also be entitled to the paid holidays set forth in the
Employer's policies. Vacation days (but not holidays or sick days) accrued
during any Fiscal Year that are not used by the Executive during such Fiscal
Year may be used in only the Fiscal Year immediately following the year in which
such vacation days were accrued, and any vacation days not so used in either the
year in which they were accrued or the subsequent year shall expire and be
forfeited.
6. TERMINATION
6.1. EVENTS OF TERMINATION
The Employment Period and the Executive's Basic Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice from the
Employer to the Executive, or at such later time as such notice may
specify; or
(d) for good reason (as defined in Section 6.4) upon not less than thirty
days' prior notice from the Executive to the Employer.
6.2. DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the Executive's duties under this Agreement for 45 consecutive days, or
60 days during any twelve month period, as determined in accordance with this
Section 6.2, or if, in the event the Company maintains a disability insurance
policy covering the Executive, the Executive is determined to be disabled
pursuant to the definition of "disability" as set forth in such disability
insurance policy, such determination to be made by a medical doctor selected or
appointed by such insurance company. The Executive must submit to a reasonable
number of examinations by the medical doctor making the determination
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of disability under this Section 6.2, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Section 6.2, for the purposes of submitting the Executive to
the examinations, and providing the authorization of disclosure, required under
this Section 6.2.
6.3. DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement or the Noncompetition Agreement entered into between
the Buyer and the Executive (the "Noncompetition Agreement"); (b) the
Executive's failure to adhere to any written Employer policy if the Executive
has been given a reasonable opportunity to comply with such policy or cure his
failure to comply (which reasonable opportunity must be granted during the
ten-day period preceding termination of this Agreement); (c) the appropriation
(or attempted appropriation) of a material business opportunity of the Employer,
including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
disclosure would be required in a registration statement, proxy statement or
annual report pursuant to federal or state securities laws, including, without
limitation, pursuant to Item 401 or 402 of Regulation S-K.
6.4. DEFINITION OF "FOR GOOD REASON"
For purposes of section 6.1, the phrase "for good reason" means any of the
following: (a) The Employer's material breach of this Agreement; or (b) the
assignment of the Executive without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his
position, responsibilities, or duties at the Effective Date.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, his designated beneficiary
as defined below) only such compensation as is provided in this Section 6.5, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer for any amounts due and owing
to Executive under this agreement. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine whether any
beneficiary designated by the Executive is alive or to ascertain the address of
any such beneficiary, to
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determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay the
Executive (i) the Executive's Salary for the remainder, if any, of the
calendar month in which such termination is effective and for twelve
consecutive calendar months thereafter.
(b) Termination by the Employer for Cause. If the Employer terminates this
Agreement for cause, the Executive will be entitled to receive his
Salary only through the date such termination is effective, and will not
be entitled to any other compensation for the Fiscal Year during which
such termination occurs or any subsequent Fiscal Year.
(c) Termination upon Disability. If this Agreement is terminated by either
party as a result of the Executive's disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is
effective and for the three consecutive months thereafter.
(d) Termination upon Death. If this Agreement is terminated because of the
Executive's death, the Executive will be entitled to receive his Salary
through the end of the calendar month in which his death occurs.
(e) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans.
To the extent permitted by law, the Executive will not receive, as part
of his termination pay pursuant to this Section 6, any payment or other
compensation for any vacation, holiday, sick leave, or other leave, if
any, which is accrued but unused on the date the notice of termination
is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1. ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and as a part
of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information; (b) public
disclosure of such Confidential Information could have an adverse effect on the
Employer and its business; (c) the Buyer has required that the Executive make
the covenants in this Section 7 as a condition to its purchase of the
Employer's stock; and (d) the provisions of this Section 7 are reasonable and
necessary to prevent the improper use or disclosure of Confidential Information.
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7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
(a) Confidentiality.
(1) During and following the Employment Period, the Executive will hold in
confidence the Confidential Information and will not disclose it to
any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of
this Agreement.
(2) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under California law and any other applicable
law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless,
be considered Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the Employer submit
proof of the economic value of any trade secret or post a bond or
other security.
(3) None of the foregoing obligation and restrictions applies to any part
of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of a
disclosure by the Executive.
(4) The Executive will not remove from the Employer's premises (except to
the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or computer software or
code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). The Executive recognized that, as between
the Employer and the Executive, all of the Proprietary Items, whether
or not developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party, or upon
the request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary Items in
the Executive's possession or subject to the Executive's control, and
the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
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7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is international in scope
and its products are marketed throughout the United States and internationally;
(c) the Employer competitors with other businesses that are or could be located
in any part of the United States or internationally; (d) the Buyer has required
that the Executive make the covenants set forth in this Section 8 as a condition
to the Buyer's purchase of the Executive's stock in the Employer; and (e) the
provisions of this Section 8 are reasonable and necessary to protect the
Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his employment
hereunder, and during the Post-Employment Period, engage or invest in, own,
manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any
similar name to, lend Executive's credit to or render services or advice
to, any business whose products or activities compete in whole or in part
with the products or activities of the Employer anywhere with in the United
States or any other jurisdiction in which the Employer then conducts
business; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) 4.99 percent of any class of securities
of any enterprise (but without otherwise participating in the activities of
such enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934; provided, further, that this provision
shall not apply to any interest or investment in any business owned by
Executive as of January 1, 1999 (as "Owned Company") as long as (i) any
activity associated with, or business time of Executive devoted to, such
investment
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does not materially interfere with Executive's duties hereunder, (ii) no
confidential information belonging to, or regarding, Employer is used by
Executive or such business, or disclosed to any employee, officer or
director of such business, to the benefit of such business or the material
detriment of Employer, and (iii) the nature of the business conducted by
such business does not materially change from that conducted by such
business as of January 1, 1999, which change would cause such business to
compete more directly and materially with Employer.
(b) whether for the Executive's own account or for the account of any other
person, at any time during the Employment Period and the Post-Employment
Period, solicit business of the same or similar type being carried on by
the Employer, from any person known by the Executive to be a customer of
the Employer, whether or not the Executive had personal contact with such
person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or the account of any other person
(i) at any time during the Employment Period and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the
Employer at any time during the Employment Period or in any manner induce
or attempt to induce any employee of the Employer to terminate his
employment with the Employer; or (ii) at any time during the Employment
Period and for three years thereafter, interfere with the Employer's
relationship with any person, including any person who at any time during
the Employment Period was an employee, contractor, supplier, or customer of
the Employer; or
(d) at any time during or after the Employment Period, disparage the Employer
or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in effect, give
notice to the Employer, within ten days after accepting any other employment, of
the identity of the Executive's employer. The Buyer of the Employer may notify
such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
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Notwithstanding anything herein to the contrary, the provisions of this Section
8 shall not apply in the event Executive terminates this Agreement for good
reason or if this agreement is terminated by Employer for any reason other than
good cause.
9. INDEMNIFICATION AND INSURANCE
9.1. The Employer shall indemnify and hold harmless, and in any action, suit or
proceeding, and defend the Executive against all expenses, costs,
liabilities and losses (including attorneys fees, judgments and fines, and
amounts paid or to be paid in any settlement) (collectively, "Indemnified
Amounts") reasonably incurred or suffered by the Executive in connection
with the Executive's service as a director or officer of the Employer or
any affiliate (including without limitation PhoneXchange, Inc., and in the
case of PhoneXchange, Inc., as a controlling shareholder) to the full
extent permitted by the By-Laws of the Employer as in effect on the date
of this Agreement and the Delaware General Corporation Law (or, in the
event the Employer is reincorporated in a jurisdiction other than
Delaware, the general corporation law of such jurisdiction (the "GCL").
The defense of Executive pursuant to this provision shall be by counsel
reasonably satisfactory to Executive, and the fees and expenses of such
counsel shall be paid by Employer as incurred.
9.2. A determination that indemnification with respect to any claims by the
Executive pursuant to this Section 9 is proper shall be made by
independent legal counsel selected by the Board of Directors of the
Employer and set forth in a written opinion furnished by such counsel to
the Board of Directors, the Employer and the Executive. In the event it
is determined by such counsel that Executive is not entitled to
indemnification pursuant to this Section 9 (and if contested by
Executive, such determination is confirmed by the final non-appealable
order of a court of competent jurisdiction), or if a court of competent
jurisdiction determines in a final non-appealable order that Executive is
not entitled to indemnification pursuant to this Section 9, Executive
hereby undertakes that he shall promptly reimburse the Employer for all
advances of Indemnified Amounts made by the Employer on Executive's
behalf.
9.3 The rights conferred by this Section 9 shall not be exclusive of any
other right which the Executive may have or hereafter acquire under
applicable law, any provision of the Employers organization documents or
a vote of stockholders or the board of directors. This Section 9 shall
not be deemed to affect any rights to subrogation which may exist in any
policy of director and officers liability insurance.
9.4 The Executive shall provided notice to the Employer in writing promptly
(and in any event within 15 business days) of the institution of any
action, suit or proceeding which is or may be subject to this Section 9,
provided that Executive's failure to so advise the Employer shall not
affect the indemnification provided for herein, except to the extent such
failure has a material and adverse effect on the Employer's ability to
defend such action, suit or proceeding.
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9.5. The Executive shall be covered by insurance, to the same extent as to
other senior executives and directors of the Employer are covered by
insurance, with respect to (a) directors and officer's liability, (b)
errors and omissions, and (c) general liability insurance.
10. GENERAL PROVISIONS
10.1. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any
other rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. Without limiting the Employer's rights under
this Section 10 or any other remedies of the Employer, if the Executive
breaches any of the provisions of Section 7 or 8, the Employer will have the
right to cease making any payments otherwise due to the Executive under this
Agreement.
10.2. COVENANTS OF SECTIONS 7 and 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential elements of
this Agreement, and without the Executive's agreement to comply with such
covenants, the Buyer would not have purchased the Executive's stock under the
Stock Purchase Agreement and the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The
Employer and the Executive have independently consulted their respective
counsel and have been advised in all respects concerning the reasonableness and
propriety of such covenants, with specific regard to the nature of the business
conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants and the
existence of any claim by the Executive against the Employer under this
Agreement or otherwise, or against the Buyer, will not excuse the Executive's
breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to
enforce the covenants and agreements of the Executive in Sections 7 and 8.
10.3. OFFSET
The Employer will be entitled to offset against any and all amounts owing to
the Executive under this Agreement the amount of any and all undisputed claims
or claims reduced to the final judgment
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that the Employer may have against the Executive under the Stock Purchase
Agreement or the Noncompetition Agreement.
10.4. REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
10.5. OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
10.6. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
10.7. BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
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10.8. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Global Access Pagers, Inc.
c/o Corporate Financial Enterprises, Inc.
2224 Main Street
Santa Monica, California 90405
Telephone: (310) 452-1005
Facsimile: (310) 581-6806
If to the Executive:
[Paul Hyde]
PhoneXchange, Inc.
4685 MacArthur Court, Suite 300
Newport Beach, California 92660
Telephone: (949) 737-1500
Facsimile: (949) 794-8887
10.9 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Stock Purchase Agreement, and the documents executed in
connection with the Stock Purchase Agreement, contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, oral or written, between the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended orally, but only by an agreement in writing signed by the parties
hereto.
10.10 GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
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10.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
9.15 WAIVER OF JURY TRIAL
THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO
THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date above first written above.
GLOBAL ACCESS PAGERS, INC. EXECUTIVE
By: /s/ CHARLES McGUIRK /s/ PAUL E. HYDE
------------------------------ --------------------------------
Name:
Title:
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of October 11, 1999 by
Integrated Communication Networks, Inc., a Nevada Corporation (the "Employer")
and Thomas C. Scott, an individual (the "Executive").
WITNESSETH
WHEREAS, the Executive will be serving the Corporation in the capacities of Vice
President of Sales and Marketing and both the Corporation and the Executive
desire to continue their relationship, subject to the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, agree in the following terms and conditions, which shall be effective
from and after the date hereof:
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" - the Employment Agreement, as amended from time to time.
"Basic Compensation" - Salary and Benefits.
"Benefits" - as defined in Section 3.1(b).
"Board of Directors" - the board of directors of the Employer.
"Confidential Information" - any and all:
(a) trade secrets concerning the business and affairs of the
Employers, data, know-how, graphs, drawings, samples, inventions
and ideas, customer lists, currents and anticipated customer
requirements, price lists, market studies, business plans,
computer software and programs (including object code and source
code), database technologies, systems, structures, and
architectures) and related concepts, ideas, designs, methods and
information), and any other information, however documented,
that is a trade secret within the meaning of California law; and
(b) information concerning the business and affairs of the Employer
(which includes historical financial statements, financial
projections and budgets, historical and
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projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel and personnel training and
techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in
whole or in part, on any information included in the foregoing.
"disability" - as defined in Section 6.2.
"Effective Date" - the date stated in the first paragraph of the Agreement.
"Employment Period" - the term of the Executive's employment under this
Agreement.
"Fiscal Year" - the Employer's fiscal year, as it exists on the Effective Date
or as changed from time to time.
"for cause" - as defined in Section 6.3.
"for good reason" - as defined in Section 6.4.
"Non-Competition Agreement" as defined in Section 8.2.
"person" - any individual, corporation (including and non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"Post-Employment Period" - as defined in Section 8.2.
"Proprietary Items" - as defined in Section 7.2(a)(iv).
"Salary" - as defined in Sections 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1. EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
2.2. TERM
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
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2.3. DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as Vice President of Sales and Marketing of the Employer. The
Executive will devote all of his business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interest of the Employer.
3. COMPENSATION
3.1. BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of $150,000,
subject to adjustment as provided below (the "Salary"), which
will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently
than monthly. The Salary will be reviewed by the Board of
Directors not less frequently than annually, and may be adjusted
upward in the sole discretion of the Board of Directors, but in
no event will the Salary be increased less than five (5%)
percent per year as long as Employer has positive net income
from operations.
(b) Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus,
life insurance, hospitalization, major medical, and other
employee benefit plans of the Employer that may be in effect
from time to time, to the extent the Executive is eligible under
the terms of those plans (collectively, the "Benefits").
4. FACILITIES AND EXPENSES
4.1. GENERAL
The Employer will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business,
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATION AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in accordance
with the vacation policies of the Employer in effect for its executive officers
from time to time. Vacation must be taken by the Executive at such time or times
as reasonably approved by the Chairman of the Board or Chief Executive Officer.
The Executive will also be entitled to the paid holidays set forth in the
Employer's policies. Vacation days (but not
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holidays or sick days) accrued during any Fiscal Year that are not used by the
Executive during such Fiscal Year may be used in only the Fiscal Year
immediately following the year in which such vacations days were accrued, and
any vacation days not so used in either the year in which they were accrued or
the subsequent year shall expire and be forfeited.
6. TERMINATION
6.1. EVENTS OF TERMINATION
The Employment Period and the Executive's Basic Compensation, and any and all
other rights of the Executive under this Agreement of otherwise as an employee
of the Employer will terminate (excepts as otherwise provided in this Section
6).
(a) upon death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from wither party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice
from the Employer to the Executive, or at such later time as
such notice may specify; or
(d) for good reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer.
6.2. DEFINITION OF DISABILITY
For purpose of Section 6.1, the Executive will be deemed to have a "disability"
if, for physical or mental reasons, the Executive is unable to perform the
Executive's duties under this Agreement for forty-five (45) consecutive days, or
sixty (60) days during any twelve (12) month period, as determined in accordance
with this Section 6.2, or if, in the event the Company maintains a disability
insurance policy covering the Executive the Executive is determined to be
disabled pursuant to the definition of "disability" as set forth in such
disability insurance, such determination to be made by a medical doctor selected
or appointed by such insurance company. The Executive must submit to a
reasonable number of examinations by the medical doctor making the determination
of disability under this Section 6.2, and the Executive hereby authorizes the
disclosure and release to the Employers of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Section 6.2, for the purposes of submitting the Executive to
the examinations, and providing the authorization of disclosure, required under
this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement; (b) the Executive's failure to adhere to any written
Employer policy if the Executive has been given reasonable opportunity to comply
with such policy or cure
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his failure to comply (which reasonable opportunity must be granted during the
ten (10) day period proceeding termination of this Agreement); (c) the
appropriation (or attempted appropriation) of a material business opportunity of
the Employer, including attempting to secure or securing any personal profit in
connection with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
disclosure would be required in a registration statement, proxy statement or
annual report pursuant to federal or state securities laws, including, without
limitation, pursuant to Item 401 or 402 of Regulation S-K.
6.4. DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1, the phrase "for good reason" means any of the
following: (a) the Employer's material breach of this Agreement; or (b) the
assignment of the Executive without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his
position, responsibilities, or duties at the Effective Date.
6.5. TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, designated beneficiary as
defined below) only such compensation as it is provided in this Section 6.5, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer for any amounts due and owing
to Executive under this Agreement. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary of trust,
located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such beneficiary, the Executive's estate. Notwithstanding the
proceeding sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine whether any
beneficiary designated by the Executive is alive or to ascertain of any such
beneficiary, to determine the existence of any trust, to determine whether any
person or entity purporting to act as the Executive's personal representative
(or the trustee of a trust established by the Executive) is duly authorized to
act in that capacity, or to locate any beneficiary, personal representative, or
trustee.
(a) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay
the Executive (i) the Executive's Salary for the remainder, if
any, of the calendar month in which such termination is
effective and for six (6) consecutive calendar months
thereafter.
(b) Termination by the Employer for Cause. If the Employer
terminates the Agreement for cause, the Executive will be
entitled to receive his Salary only through the date such
termination is effective, and will not be entitled to any
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other compensation for the Fiscal Year during which such
termination occurs or any subsequent Fiscal Year.
(c) Termination upon Disability. If this Agreement is terminated by
with party as a result of the Executive's disability, as
determined under Section 6.2, the Employer will pay the
Executive his Salary through the remainder of the calendar month
during which such termination is effective and for the three (3)
consecutive months thereafter.
(d) Termination upon Death. If this Agreement is terminated because
of the Executive's death, the Executive will be entitled to
receive his Salary through the end of the calendar month in
which his death occurs.
(e) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of
the termination of this Agreement, and the Executive will be
entitled to accrued Benefits pursuant to such plans only as
provided in such plans. To the extent permitted by law, the
Executive will not receive, as part of his termination pay
pursuant to this Section 6, any payments or other compensation
for any vacation, holiday, sick leave, or other leave, if any,
which is accrued but unused on the date the notice of
termination is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1. ACKNOWLEDGEMENTS BY THE EXECUTIVE
The Executive acknowledges the (a) during the Employment Period and as a part of
his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; and (c) the provisions of
this Section 7 are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information.
7.2. AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
(a) Confidentiality.
(1) During the following the Employment Period, the
Executive will hold in confidence the Confidential
Information and will not disclose it to any person
except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by
the terms of this Agreement.
(2) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under California law
and any other applicable law. If any information that
the Employer deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret
for purposes of
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this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this
Agreement. The Executive hereby waives any requirement
that the Employer submits proof of the economic value of
any trade secret or posts a bond or other security.
(3) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that
the Executive demonstrates was or became generally
available to the public other than as a result of a
disclosure by the Executive.
(4) The Executive will not remove from the Employer's
premises (except to the extent such removal is for
purposes of the performance of the Executive's duties at
home or while traveling, or except as otherwise
specifically authorized by the Employer) any document,
record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or
in any other form (collectively the "Propriety Items").
The Executive recognizes that, as between the Employer
and the Executive, all of the Proprietary Items, whether
or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this
Agreement by wither party, or upon the request of the
Employer during the Employment Period, the Executive
will return to the Employer all of the Proprietary Items
in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain
any copies, abstracts, sketches, or other physical
embodiment of any of the Proprietary Items.
7.3. DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information my be jeopardized. All pleadings, documents,
testimonies, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection for the Employer, the Executive,
and their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1. ACKNOWLEDGMENT BY THIS EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is international in scope
and its products are marketed throughout the United States and internationally;
(c) the Employer competes with other businesses that are or could be located in
any part of the united States or internationally; and (d) the provisions of this
Section 8 are reasonable and necessary to protect the Employer's business.
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8.2. COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
(a) During the Employment Period, except in the course of his
employment hereunder, and during the Post-Employments Period,
engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing,
or control of, be employed by, associated with, or in any manner
connected with, lend the Executive's name or any similar name
to, lend Executive's credit to or ender services or advice to,
any business whose products or activities of the Employer
anywhere within the United States or any other jurisdiction in
which the Employer then conducts business; provided, however,
that the Executive may purchase or otherwise acquire up to (but
not more than) four point nine-nine (4.99%) percent of any class
of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934; provided, further, that this
provision shall not apply to any interest or investment in any
business owned by Executive as the Effective Date (an "Owned
Company") as long as (i) any activity associated with, or
business time of Executive devoted to, such investment does not
materially interfere with Executive's duties hereunder, (ii) no
Confidential Information belonging to, or regarding, Employer is
used by Executive or such business, or disclosed to any
employee, officer or director of such business, to the benefit
of such business or the material detriment of Employer, and
(iii) the nature of the business conducted by such business does
not materially change from that conducted by such business as of
the Effective Date which change would cause such business to
compete more directly and materially with Employee.
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and
the Post-Employment Period, solicit business of the same or
similar type bring carried on the Employer, from any person
known by the Executive to be a customer of the Employer, whether
or not the Executive had personal contact with such person
during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or the account of any
other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise engage
as an employee, independent contractor or otherwise, any person
who is or was an employee of the Employer at any time during the
Employment Period or in any manner induce or attempt to induce
any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment
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Period and for two (2) years thereafter, interfere with the
Employer's relationship with any person, including any person
who at any time during the Employment Period was an employee,
contractor, supplier, current or prospective customer of the
Employer;
(d) at any time during or after the Employment Period, disparage the
Employer or any of its shareholders, directors, officers,
employees or agents; and
(e) six (6) months for other subjects not mentioned under Section
8.2(c) and 8.2(d).
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two-year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
The period of time applicable to any covenant in this Section 8.2 will be
extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in effect, give
the notice to the Employer, within ten (10) days after accepting any other
employment, of the identity of the Executive's employer. The Employer may notify
the Executive that he is bound by the Agreement and, at the Employer's election,
furnish a copy of this Agreement or relevant portions thereof. Notwithstanding
anything herein to the contrary, the provisions of this Section 8 shall not
apply in the event Executive terminates this Agreement for good reason or if
this Agreement is terminated by Employer for any reason other than good cause.
9. INDEMNIFICATION AND INSURANCE
9.1. The Employer shall indemnify and hold harmless, and in any action, suit
or proceeding, and defend the Executive against all expenses, costs,
liabilities and losses (including attorneys fees, judgments and fines,
and amounts paid or to be paid in any settlement) (collectively
"Indemnified Amounts") reasonably incurred or suffered by the Executive
in connection with the Executive's service as an Executive of the
Employer or any affiliate to the full extent permitted by the By-laws of
the Employer as in effect on the date of this Agreement and the Nevada
General Corporation Law (or, in the event the Employer is reincorporated
in a jurisdiction other than Nevada, the general law corporation of such
jurisdiction (the "GCL"). The defense of Executive pursuant to this
provision shall be by
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counsel reasonably satisfactory to Executive, and the fees and expenses
of such counsel shall be paid by Employer as incurred.
9.2. A determination that indemnification with respect to any claims by the
Executive pursuant to this Section 9 is proper shall be made by
independent legal counsel selected by the Board of Directors of the
Employer and set forth in a written opinion furnished by such counsel to
the Board of Directors, the Employer and the Executive. In the event it
is determined by such counsel that Executive is not entitled to
indemnification pursuant to this Section 9 (and if contested by
Executive, such determination is confirmed by the final non-appealable
order of a court competent jurisdiction), or if a court of competent
jurisdiction determines in a final non-appealable order that Executive
is not entitled to indemnification pursuant to this Section 9, Executive
hereby undertakes that he shall promptly reimburse the Employer for all
advances of Indemnified Amounts made by the Employer on Executive's
behalf.
9.3. The rights conferred by this Section 9 shall not be exclusive of any
other right, which the Executive may have or hereafter acquire under
applicable law, any provision of the Employers organizational documents
or a vote of stockholders or the Board of Directors. This Section 9
shall not be deemed to affect any rights to subrogation, which may exist
in any policy of director or officers liability insurance.
9.4. The Executive shall provide notice to the Employer in writing promptly
(and in any event within fifteen (15) business days) of the institution
of any action, suit of proceeding which is or may be subject to this
Section 9, provided that Executive's failure to so advise the Employer
shall not affect the indemnification provided for herein, except to the
extent such failure has a material and adverse effect on the Employer's
ability to defend such action, suit of proceeding.
9.5. The Executive shall be covered by insurance, to the same extent as to
other senior executives and directors of the Employer are covered by
insurance, with respect to (a) directors and officer's liability, (b)
errors and omissions, and (c) general liability insurance.
10. GENERAL PROVISIONS
10.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Section 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be inadequate remedy.
Consequently, the Employer will have the right, in addition to any other rights
it may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this Agreement, and
the Employer will not be obligated to post bond or other security in seeking
such relief. Without limiting the Employer's rights under this Section 10 or any
other remedies of the Employer, if the Executive breaches any of the
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provisions of Section 7 and 8, the Employer will have the right to cease making
any payments otherwise due to the Executive under this Agreement.
10.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential of this
Agreement, and without the Executive's agreement to comply with such covenants.
The Employer and Executive have independently consulted their respective counsel
and have been advised in all respects concerning the reasonableness and
propriety of such covenants, with specific regard to the nature of the business
conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants and the
existence of any claim by the Executive against the Employer under this
Agreement or otherwise, will not excuse the Executive's breach of any covenant
in Section 7 or 8. If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary to appropriate to enforce the covenants and agreements of this
Executive in Sections 7 and 8.
10.3. OFFSET
The Employer will be entitled to offset against any and all amounts owing to the
Executive under this Agreement the amount of any and all undisputed claims or
claims reduced to final judgment that the Employer may have against the
Executive under the Non-Competition Agreement.
10.4. REPRESENTATION AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
10.5. OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
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10.6. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure not any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, and no single or partial exercise of any such right, power, or
privilege or the exercise of any other right, power of privilege. To the maximum
extent permitted by applicable law, (a) no claim or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
10.7. BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
10.8. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation or receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
If to the Employer:
Integrated Communication Networks, Inc.
27061 Aliso Creek Road
Suite 100
Aliso Viejo, California 92656
Telephone: (949) 349-1770
Facsimile: (949) 349-1730
If the Executive:
Mr. Thomas C. Scott
2619 Briar Patch Lane
Flower Mound, Texas 75022
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Telephone: ______________________
Facsimile: _______________________
10.9. ENTIRE AGREEMENT; AMENDMENTS
This Agreement, and the documents executed in connection Agreement, contain the
entire agreement between the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Agreement may
not be amended orally, but only by an agreement in writing signed by the parties
hereto.
10.10. GOVERNING LAW
This Agreement will be governed by the laws of the State of California without
regard to conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date above first written above.
INTEGRATED COMMUNICATION NETWORKS, INC.
____________________________
By
David J. Chadwick
President/CEO
EXECUTIVE:
____________________________
Thomas C. Scott
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EXHIBIT 10.8
MASTER LEASE AGREEMENT
No. A
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This Master Lease Agreement (the "MLA") is entered into by and between
Lucent Technologies, Inc. InterNetworking Systems ("Lessor"), having its
principal place of business at 1701 Harbor Bay Parkway, Alameda, CA 94502 and
PhoneXchange, Inc. ("Lessee"), having its principal place of business at 4685
MacArthur Court, #300, Newport Beach, CA 92660.
1. LEASE AGREEMENT. Lessor agrees to lease to Lessee, and Lessee agrees to
lease from Lessor, the equipment (the "Equipment") referenced in each of the
Schedules (the "Schedule" or "Schedules") which incorporate this MLA therein
(the "Lease"). So long as no Event of Default has occurred or is continuing,
Lessor agrees to lease to Lessee the groups of Equipment described on each
Schedule, subject to the following conditions, which Lessor in its sole
discretion may elect to waive with respect to a Schedule: (i) that in no event
shall Lessor be obligated to lease Equipment to Lessee hereunder where the
aggregate purchase of all Equipment leased to Lessee hereunder would exceed TEN
MILLION DOLLARS ($10,000,000); (ii) the Equipment leased hereunder shall only be
Equipment manufactured by either Ascend Communications, Inc or Lucent
Technologies noting that the equipment from the latter are only eligible after
the completed merger between Ascend Communication and Lucent Technologies; (iii)
that THREE MILLION DOLLARS ($3,000,000) hereunder will be available to the
Lessee for Equipment leases upon execution; (iv) that the remaining SEVEN
MILLION DOLLARS ($7,000,000) hereunder will be available to the Lessee for
Equipment leases upon Lessee providing Lessor with ONE of the following: (a)
verification that a minimum of Five Million Dollars ($5,000,000) in new equity
has been raised prior to September 30, 1999; or (b) verification that Lessee has
demonstrated cash flow (EBITDA) coverage of potential lease payments hereunder
of at lease 1.25X as measured on a rolling three month average; (v) that the
lease amount shall exclude freight, installation, maintenance, professional
services and taxes; and (vi) no new leases shall be issued after June 30, 2000.
2. TERM. Each Lease shall be effective upon the execution of the MLA and the
related Schedule by the Lessor and the Lessee. The lease term (the "Lease Term")
of the Equipment referenced in each of the Schedules shall commence on the rent
commencement date specified in each Schedule (the "Rent Commencement Date"). The
Rent Commencement Date shall be the date 30 days from the date that the
Equipment is shipped by the supplier (the "Ship Date") as evidenced by a
shipping document provided by the supplier related to the Equipment (the
"Shipping Document"). Lessor will provide Lessee with a copy of the Shipping
Document evidencing the Ship Date.
3. RENT. The rent (the "Rent") for the Equipment referenced in any Schedule
shall be as stated in such Schedule and shall be payable according to the
provisions of such Schedule. If any amount payable under a Schedule is not
received by Lessor within 10 days of the due date, Lessee agrees to pay an
Overdue Charge, as defined herein, with respect to such amount.
4. SELECTION AND ASSIGNMENT. Lessee will select the type, quantity and
Supplier (subject to above) of each item of Equipment designated in a Schedule,
and Lessee hereby assigns to Lessor all of its right, title and interest in and
to the related equipment purchase agreement, a copy of which has been provided
to Lessor by Lessee (the "Agreement"). The Agreement may be amended with the
consent of Lessor. Any such assignment with respect to Equipment shall become
binding upon Lessor when Lessor and Lessee have entered into a Lease with
respect to such Equipment and as of the Rent Commencement Date referenced in
such Lease. Upon such an assignment becoming effective, Lessor shall be
obligated to purchase the Equipment from the Supplier in accordance with the
provisions of the Agreement. It is expressly agreed that Lessee shall at all
times remain liable to Supplier under the Agreement to perform all duties and
obligations of Lessee thereunder, except for the obligation to purchase the
Equipment to the extent expressly assumed by the Lessor hereunder, and that the
Lessee shall be entitled to the same rights of the purchaser of the Equipment
under the Agreement, except such right, title and interest in the Equipment
retained exclusively by the Lessor as owner of the Equipment. Lessor shall have
no liability for a Supplier's failure to meet the terms and conditions of the
Agreement.
5. DELIVERY AND INSTALLATION. Lessee shall be responsible for payment of all
transportation, packing, installation, testing and other charges associated with
the delivery, installation or use of any Equipment which are not included in the
Agreement with respect to such Equipment.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATIONS OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS MERCHANTABILITY,
OR ITS FITNESS FOR A PARTICULAR PURPOSE. LESSOR SHALL NOT BE LIABLE TO LESSEE OR
ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES ARISING FROM LESSEE'S USE OF THE EQUIPMENT, OR FOR DAMAGES BASED ON
STRICT OR ABSOLUTE TORT LIABILITY OR LESSOR'S PASSIVE NEGLIGENCE. LESSEE HEREBY
ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO
THE EQUIPMENT ARE FOR THE BENEFIT OF BOTH LESSOR AND LESSEE. NOTWITHSTANDING THE
FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH RENT PAYMENT DUE, OR OTHERWISE
PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL.
7. TITLE TO AND LOCATION OF EQUIPMENT. Lessor shall retain title to each item
of Equipment. Lessee, at its expense, shall protect Lessor's title and keep the
Equipment free from all claims, liens, encumbrances and legal processes. The
Equipment is personal property and is not to be regarded as part of the real
estate on which it may be situated. If requested by Lessor, Lessee will, at
Lessee's expense, furnish a landlord or mortgagee waiver with respect to the
Equipment. The Equipment shall not be removed from the location specified in the
Schedule without the written consent of Lessor. Lessee shall, upon Lessor's
request, affix and maintain plates, tags or other identifying labels, showing
Lessor's ownership of the Equipment in a prominent position on the Equipment.
8. USE OF EQUIPMENT, INSPECTION AND REPORTS. The use of the Equipment by
Lessee shall conform with all applicable laws, insurance policies, and
warranties of the manufacturer or Supplier of the Equipment. Lessor shall have
the right to inspect the Equipment at the premises where the Equipment is
located. Lessee shall notify Lessor promptly of any claims, liens, encumbrances
or legal processes with respect to the Equipment.
9. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor such
instruments as Lessor deems necessary for the confirmation of this Lease and
Lessor's rights hereunder. Lessor is authorized to file financing statements
signed only by the Lessor in accordance with the Uniform Commercial Code, or
financing statements signed by Lessor as Lessee's attorney-in-fact. Any such
filing with respect to the Equipment leased pursuant to a true lease shall not
be deemed evidence of any intent to create a security interest under the Uniform
Commercial Code.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain each item
of Equipment in good condition, normal wear and tear excepted. Lessee shall not
make any addition, alteration, or attachment to the Equipment without Lessor's
prior written consent. Lessee shall make no repair, addition, alteration or
attachment to the Equipment which interferes with the normal operation or
maintenance thereof, creates a safety hazard, or might result in the creation of
a mechanic's or materialman's lien.
11. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to perform
any of its obligations under a Lease, Lessor may perform any act or make any
payment which Lessor deems necessary for the maintenance and preservation of the
Equipment subject thereto and Lessor's title thereto. All sums so paid by Lessor
(together with all related Overdue Charges), and reasonable attorneys' fees
incurred by Lessor in connection therewith, shall be additional rent payable to
Lessor on demand. The performance of any such act or the making of any such
payment by Lessor shall not be deemed a waiver or release of any obligation or
default on the part of Lessee.
12. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold harmless, Lessor, and its agents, employees,
officers, directors, partners and successors and assigns, from and against, all
liabilities, obligations, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including, without limitation, reasonable
attorneys' fees, of whatever kind and nature, in contract or in tort, arising
out of the use, condition, operation, ownership, selection, delivery, leasing or
return of any item of Equipment, regardless of when, how and by whom operated,
or any failure on the part of Lessee to perform or comply with any of its
obligations under a Lease, excluding, however, any of the foregoing which result
from the gross negligence or willful misconduct of Lessor. Such indemnities and
assumptions of liabilities and obligations shall continue in full force and
effect, notwithstanding the expiration or other termination of such Lease.
Nothing contained in any Lease shall authorize Lessee to operate the Equipment
subject thereto so as to incur or impose any liability on, or obligation for or
on behalf of, Lessor.
13. NO OFF-SET. All Rents shall be paid by Lessee irrespective of any off-set,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, the manufacturer or Supplier of the Equipment or any other party.
14. ASSIGNMENT BY LESSEE. Lessee shall not, without Lessor's prior written
consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise dispose
of, encumber or suffer to exist a lien upon or against, any of the Equipment or
any Lease or any interest therein, by operation of law or otherwise, or (b)
sublease or lend any of the Equipment or permit any of the Equipment to be used
by anyone other than Lessee.
15. ASSIGNMENT BY LESSOR. Lessor may assign, sell or encumber its interest in
any of the Equipment and any Lease. Upon Lessor's written consent, Lessee shall
pay directly to the assignee of any such interest all Rent and other sums due
under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO
ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM, RECOUPMENT, DEFENSE OR OTHER
RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR OR ANY OTHER PERSON OR ENTITY.
Notwithstanding the foregoing, any such assignment (a) shall be subject to
Lessee's right to possess and use the Equipment subject to a Lease so long as
Lessee is not in default thereunder, and (b) shall not release any of Lessor's
obligations hereunder.
16. RETURN OF EQUIPMENT. Unless Lessee has exercised its option, if any, to
renew a lease or purchase the Equipment subject thereto, upon expiration of the
then current Lease Term of such Lease, Lessee shall, at its expense, cause such
Equipment to be removed, disassembled, and placed in the same condition as when
delivered to Lessee (reasonable wear and tear excepted) and properly crate such
Equipment for shipment and deliver it to a common carrier designated by Lessor.
Lessee will ship such Equipment, F.O.B. destination, to any address specified in
writing by Lessor within the continental United States. All additions,
attachments, alterations and repairs made or placed upon any of the Equipment
shall become part of such Equipment and shall be the property of Lessor.
<PAGE> 2
17. EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed
to constitute an Event of Default hereunder: (a) Lessee fails to pay Rent, any
other amount it is obligated to pay under a Lease or any other amount it is
obligated to pay to Lessor and does not cure such failure within 10 days of such
amount becoming due; (b) Lessee fails to perform or observe any obligation or
covenant to be performed or observed by Lessee hereunder or under any Schedule,
including, without limitation, supplying all requested documentation, and does
not cure such failure within 10 days of receiving written notice from Lessor;
(c) the occurrence and continuance of any default under any other lease or
agreement for borrowed money made between Ascend Communications, Inc. or its
affiliates or successors, and the Lessee; (d) any warranty, representation or
statement made or furnished to Lessor by or on behalf of Lessee is proven to
have been false in any material respect when made or furnished; (e) the
attempted sale or encumbrance by Lessee of the Equipment, or the making of any
levy, seizure or attachment thereof or thereon; or (f) the dissolution,
termination of existence, discontinuance of business, insolvency, or appointment
of a receiver of any part of the property of Lessee, assignment by Lessee for
the benefit of creditors, the commencement of proceedings under any bankruptcy,
reorganization or arrangement laws by or against Lessee, or any other act of
bankruptcy on the part of Lessee.
18. REMEDIES OF LESSOR. At any time after the occurrence of any Event of
Default, Lessor may exercise one or more of the following remedies: (a) Lessor
may terminate any or all of the Leases with respect to any or all items of
Equipment subject, thereto; (b) Lessor may recover from Lessee all Rent and
other amounts then due and to become due under any or all of the Leases; (c)
Lessor may take possession of any or all items of Equipment, wherever the same
may be located, without demand or notice, without any court order or other
process of law and without liability to Lessee for any damages occassioned by
such taking of possession, and any such taking of possession shall not
constitute a termination of any Lease; (d) Lessor may demand that Lessee return
any or all items of Equipment to Lessor in accordance with Paragraph 16; and (e)
Lessor may pursue any other remedy available at law or in equity, including,
without limitation, seeking damages, specific performance or an injunction.
Upon repossession or return of any item of the Equipment, Lessor shall sell,
lease or otherwise dispose of such item in a commercially reasonable manner,
with or without notice and on public or private bid, and apply the net proceeds
thereof (after deducting the estimated fair market value of such item at the
expiration of the term of the applicable Lease, in the case of a sale, or the
rents due for any period beyond the scheduled expiration of such Lease, in the
case of any subsequent lease of such item, and all expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection therewith)
towards the Rent and other amounts due under such Lease, with any excess net
proceeds to be retained by Lessor.
Each of the remedies under this Lease shall be cumulative, and not exclusive,
and in addition to any other remedy referred to herein or otherwise available to
Lessor in law or in equity. Any repossession or subsequent sale or lease by
Lessor of any item of Equipment shall not bar an action for a deficiency as
herein provided, and the bringing of an action or the entry of judgment against
Lessee shall not bar Lessor's right to repossess any or all items of Equipment.
19. CREDIT AND FINANCIAL INFORMATION. Within 90 days of the close of each of
Lessee's fiscal years, Lessee shall deliver to Lessor a copy of Lessee's annual
report, if any, and an audited balance sheet and profit and loss statement with
respect to such year. Within 30 days after the end of each of Lessee's fiscal
months, Lessee shall deliver to Lessor a balance sheet and profit and loss
statement for such month and, if requested, any other additional information
regarding historical or projected operating performance reasonably requested by
Lessor, all of which shall be certified by an officer of Lessee.
20. INSURANCE. As of the date that risk of loss for the Equipment passes from
the Supplier to the Lessee under the terms of the Agreement, Lessee shall obtain
and maintain through the end of the Lease Term of each Lease (and any renewal or
extension thereof), at its own expense, property damage and personal liability
insurance and insurance against loss or damage to the Equipment, including,
without limitation, loss by fire (with extended coverage), theft and such other
risks of loss as are customarily insured against with respect to the types of
Equipment leased hereunder and by the types of businesses in which such
Equipment will be used by Lessee. Such insurance shall be in such amounts, with
such deductibles, in such form and with such insurers as shall be satisfactory
to Lessor; provided, however, that the amount of the insurance against loss or
damage to the Equipment shall not be less than the greater of the replacement
value of the Equipment, from time to time, or the original purchase price of the
Equipment. Each insurance policy shall name Lessee as an insured and Lessor as
an additional insured or loss payee, and shall contain a clause requiring the
insurer to give Lessor at least 30 days prior written notice of any alteration
in the terms of such policy or of the cancellation thereof. Lessee shall furnish
to Lessor a certificate of insurance or other evidence satisfactory to Lessor
that such insurance coverage is in effect; provided, however, that Lessor shall
be under no duty either to ascertain the existence of or to examine such
insurance policy or to advise Lessee in the event such insurance coverage shall
not comply with the requirements hereof. Lessee shall give Lessor prompt notice
of any damage to, or loss of, any of the Equipment, or any part thereof, or any
personal injury or property damage occasioned by the use of any of the
Equipment.
21. TAXES. Lessee hereby assumes liability for, and shall pay when due, and, on
a net after-tax basis, shall indemnify, protect and hold harmless Lessor
against all fees, taxes and governmental charges (including, without limitation,
interest and penalties) of any nature imposed on or in any way relating to
Lessor, Lessee, any item of Equipment or any Lease, except state and local taxes
on or measured by Lessor's net income (other than any such tax which is in
substitution for or relieves Lessee from the payment of taxes it would otherwise
be obligated to pay or reimburse to Lessor as herein provided) and federal taxes
on Lessor's net income. Lessee shall, at its expense, file when due with the
appropriate authorities any and all tax and similar returns, and reports
required to be filed with respect thereto, for which it has indemnified Lessor
hereunder or, if requested by Lessor, notify Lessor of all such requirements and
furnish Lessor with all information required for Lessor to effect such filings.
Any fees, taxes or other charges paid by Lessor upon failure of Lessee to make
such payments shall, at Lessor's option, become immediately due from Lessee to
Lessor and shall be subject to the Overdue Charge from the date paid by Lessor
until the date reimbursed by Lessee.
22. SEVERABILITY. If any provision of any Lease is held to be invalid by a
court of competent jurisdiction, such invalidity shall not affect the other
provisions of such Lease or any provision of any other Lease.
23. NOTICES. All notices hereunder shall be in writing and shall be deemed
given when sent by certified mail, postage prepaid, return receipt requested,
addressed to the party to which it is being sent at its address set forth herein
or to such other address as such party may designate in writing to the other
party.
24. AMENDMENTS, WAIVERS AND EXTENSIONS. This MLA and each Schedule constitute
the entire agreement between Lessor and Lessee with respect to the lease of the
Equipment subject to such Schedule, and supersede all previous communications,
understandings, and agreements, whether oral or written, between the parties
with respect to such subject matter. No provision of any Lease may be changed,
waived, amended or terminated except by a written agreement, specifying such
change, waiver, amendment or termination, signed by both Lessee and Lessor,
except that Lessor may insert, on the appropriate schedule, the serial number of
Equipment, after delivery of such Equipment, and the Rent Commencement Date for
the Equipment. No waiver by Lessor of any Event of Default shall be construed as
a waiver of any future Event of Default or any other Event of Default. At the
expiration of the Lease Term with respect to a Lease, upon notice given by
Lessee at least ninety (90) days prior thereto, (a) such Lease shall be renewed
or the Equipment subject thereto shall be purchased under the terms and
conditions set forth herein for a term and rent amount or purchase price, as the
case may be, to be agreed upon, or (b) if no such agreement is reached prior to
the expiration of such Lease Term or such notice specifies that Lessee intends
to return the Equipment, then Lessee shall return the Equipment to Lessor in the
manner prescribed in Paragraph 16 of this MLA. In the absence of Lessor's timely
receipt of the notice contemplated by the preceding sentence, the Lease shall be
automatically extended, on a month-to-month basis, until terminated (upon the by
either party given at least ninety (90) days prior to the end of the month on
which the termination is be effective) or until renewed or the Equipment subject
thereto is purchased by agreement of the parties. Unless otherwise agreed,
Lessee shall continue to pay Rent for each month following such Lease Term until
the Equipment subject to such Lease is returned pursuant to Paragraph 16 of this
MLA.
25. CONSTRUCTION. This MLA shall be governed by and construed in accordance
with the internal laws, but not with the choice of laws provisions, of the State
of California. The titles of the sections of this MLA are for convenience only
and shall not define or limit any of the terms or provisions hereof. Time is of
the essence in each of the provisions hereof.
26. PARTIES. This MLA shall be binding upon, and inure to the benefit of, the
permitted assigns, representatives and successors of the Lessor and Lessee. If
there is more than one Lessee named in this MLA, the liability of each shall be
joint and several.
27. COUNTERPARTS. Each Lease may be executed in two or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
but one and the same instrument.
28. OVERDUE CHARGE. Overdue Charge shall mean an amount equal to 2% per month
of any payment under a Lease which is past due, including, without limitation,
any amounts not included in any payment of Rent hereunder, or the highest charge
permitted by law, whichever is lower.
The person executing this MLA on behalf of Lessee hereby certifies that he or
she has read, and is duly authorized to execute, this MLA.
Accepted by: LESSEE: PhoneXchange, Inc.
By: /s/ ANNETTE SEVERIEUS BY: /s/ DAVID J. CHADWICK
--------------------------------- ---------------------------------
NAME: Annette Severieus NAME: David J. Chadwick
------------------------------- -------------------------------
Print
TITLE: Assistant Treasurer TITLE: President
------------------------------ ------------------------------
DATE: July 30, 1999 DATE: July 30, 1999
------------------------------- -------------------------------
<PAGE> 3
LEASE SCHEDULE NO. 1
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number ______, between Ascend Credit
Corporation (Lessor) and PhoneXchange, Inc. (Lessee).
1. SUPPLIER: ASCEND COMMUNICATIONS, INC.
2. LOCATION OF EQUIPMENT: SEE ATTACHED
3. EQUIPMENT VALUE: $__________________ (exclusive of sales and/or use taxes).
4A. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph 6
and its expiration date shall be 33 months after such Rent Commencement
Date.
5. RENT: SEE ATTACHED SCHEDULE (NOTE: Rent shall be reflected in a payment
schedule to be attached to each specific Lease Schedule. The first XXXXX
payments shall be equal to $XXXX, and the final thirty three (33) payments
shall be based upon a lease factor of XXXX based on the initial purchase
price of the Equipment described in the applicable Lease Schedule with the
first such payment due on the Rent Commencement Date).
6. RENT COMMENCEMENT DATE: ___________________________________.
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for its fair market value for continued use ("FMV"), on the expiration of
this Lease or any renewal term, provided Lessee is not in default of any
of its obligations under this Lease on such expiration date. This purchase
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. The purchase price for such Equipment
shall be payable upon the expiration date of such term. FMV shall be equal
to the value of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for Equipment.
In the event that Lessor and Lessee are unable to agree upon the purchase
price for the Equipment, such purchase price will be determined by an
independent appraiser to be selected by Lessor. Lessee shall be
responsible for all applicable sales and/or use taxes on the Equipment.
Upon exercise of this purchase option and payment of the purchase price,
Lessor shall execute and deliver to Lessee such documents as Lessee may
reasonably request in order to vest in Lessee all right, title and
interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such expiration
date, provided Lessee is not in default of any of its obligations under
this lease on such expiration date. This renewal option may only be
exercised by Lessee's written notice to Lessor not earlier than 180 days,
nor later than 90 days, prior to the end of the Lease Term or any renewal
term. FMR shall be equal to the value of the monthly rental of the
Equipment installed and in use, with consideration given to the age,
condition, utility and replacement costs for the Equipment, for the renewal
term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal Revenue
Code of 1986, and analogous benefits under state law, with respect to the
Equipment. Lessee represents and warrants that: (i) Lessee has not been,
is not now, and during the term of this Lease will not become, and will
not allow the Equipment to be used by or leased to, a tax-exempt entity or
government agency; and (ii) Lessee is not now, and during the term of this
Lease will not become, a public utility. Without limitation by the
proceeding sentence, Lessee agrees not to take any action, fail to take any
action, or misstate any fact which may result in any loss to Lessor of the
Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax Benefits,
plus interest, penalties and additions to tax, any loss in time value of
the Tax Benefits, and any taxes imposed on any such compensation payment,
resulting from Lessee's acts, omissions or misstatements, including,
without limitation, with respect to the representations and warranties in
the preceding paragraph. A loss of Tax Benefits occurs at the earliest of:
(i) the happening of any event causing the loss; (ii) payment by Lessor of
any additional tax resulting from the loss; or (iii) any adjustment to the
tax return of Lessor. Lessor's right to recovery of a loss of Tax Benefits
shall survive the expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and made
a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that he
or she has read, and is duly authorized to execute, this Schedule.
Accepted by:
Ascend Credit Corporation LESSEE: PhoneXchange, Inc.
Draft
BY: _______________________________ BY: ____________________________________
NAME: _____________________________ NAME: __________________________________
Print Print
TITLE: ____________________________ TITLE: _________________________________
DATE: _____________________________ DATE: __________________________________
<PAGE> 1
EXHIBIT 10.9
***************************************
Lease
PACIFIC CORPORATE PLAZA
27061 ALISO CREEK ROAD
***************************************
Between
PHONEXCHANGE
(Tenant)
and
CARRAMERICA REALTY CORPORATION
(Landlord)
<PAGE> 2
Lease
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1. LEASE AGREEMENT......................................................3
2. RENT.................................................................3
A. Types of Rent.....................................................3
(1) Base Rent...................................................3
(2) Operating Cost Share Rent...................................3
(3) Tax Share Rent..............................................4
(4) [Intentionally Omitted.]....................................4
(5) Additional Rent.............................................4
(6) Rent........................................................4
B. Payment of Operating Cost Share Rent and Tax Share Rent ..........4
(1) Payment of Estimated Operating Cost Share Rent and
Tax Share Rent..............................................4
(2) Correction of Operating Cost Share Rent.....................5
(3) Correction of Tax Share Rent................................5
C. Definitions.......................................................5
(1) Included Operating Costs....................................5
(2) Excluded Operating Costs....................................6
Property Management Fee...........................................7
(4) Taxes.......................................................7
(5) Lease Year..................................................8
(6) Fiscal Year.................................................8
D. Computation of Base Rent and Rent Adjustments.....................8
(1) Prorations..................................................8
(2) Default Interest............................................8
(3) Rent Adjustments............................................8
(4) Books and Records...........................................8
(5) Miscellaneous...............................................9
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND
SURRENDER OF PREMISES ..................................................9
A. Condition of Premises.............................................9
B. Tenant's Possession...............................................9
C. Maintenance.......................................................9
</TABLE>
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4. PROJECT SERVICES ......................................................10
A. Heating and Air Conditioning.....................................10
B. Elevators........................................................10
C. Electricity......................................................10
D. Water............................................................11
E. Janitorial Service ..............................................11
F. Interruption of Services.........................................11
G. Parking..........................................................11
5. ALTERATIONS AND REPAIRS ...............................................11
A. Landlord's Consent and Conditions ...............................11
B. Damage to Systems ...............................................12
C. No Liens ........................................................13
D. Ownership of Improvements .......................................13
E. Removal at Termination ..........................................13
F. Landlord's Work .................................................14
6. USE OF PREMISES .......................................................14
7. GOVERNMENTAL REQUIREMENTS AND PROJECT RULES ...........................15
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE ..........................15
A. Waiver of Claims ................................................15
B. Indemnification..................................................15
C. Tenant's Insurance...............................................15
D. Insurance Certificates...........................................17
E. Landlord's Insurance.............................................17
9. FIRE AND OTHER CASUALTY................................................17
A. Termination......................................................17
B. Restoration......................................................17
10. EMINENT DOMAIN.........................................................18
11. RIGHTS RESERVED TO LANDLORD............................................18
A. Name.............................................................18
B. Signs............................................................18
C. Window Treatments................................................18
D. Keys.............................................................18
E. Access...........................................................19
F. Preparation for Reoccupancy......................................19
G. Heavy Articles...................................................19
H. Show Premises....................................................19
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I. Relocation of Tenant.............................................19
J. Use of Lockbox...................................................19
K. Repairs and Alterations..........................................20
L. Landlord's Agents................................................20
M. Building Services................................................20
N. Other Actions....................................................20
12. TENANT'S DEFAULT ......................................................20
A. Rent Default ....................................................20
B. Assignment/Sublease or Hazardous Substances Default..............20
C. Other Performance Default........................................20
D. Credit Default...................................................20
E. Vacation or Abandonment Default..................................21
13. LANDLORD REMEDIES .....................................................21
A. Termination of Lease or Possession ..............................21
B. Lease Termination Damages .......................................21
C. Continuation of Lease ...........................................22
D. Possession Termination Damages...................................22
E. Landlord's Remedies Cumulative...................................22
F. WAIVER OF TRIAL BY JURY..........................................22
G. Litigation Costs.................................................23
14. SURRENDER..............................................................23
15. HOLDOVER...............................................................23
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES...........................23
A. Subordination....................................................23
B. Termination of Ground Lease or Foreclosure of Mortgage...........23
C. Security Deposit.................................................24
D. Notice and Right to Cure.........................................24
E. Definitions......................................................24
17. ASSIGNMENT AND SUBLEASE ...............................................24
A. In General ......................................................24
B. Landlord's Consent ..............................................24
C. Procedure .......................................................25
D. Change of Management or Ownership ...............................25
E. Excess Payments .................................................25
F. Recapture .......................................................26
18. CONVEYANCE BY LANDLORD ................................................26
</TABLE>
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19. ESTOPPEL CERTIFICATE...................................................26
20. SECURITY DEPOSIT.......................................................26
21. FORCE MAJEURE..........................................................28
22. TENANT'S PERSONAL PROPERTY AND FIXTURES................................28
23. NOTICES................................................................29
A. Landlord.........................................................29
B. Tenant...........................................................29
24. QUIET POSSESSION.......................................................30
25. REAL ESTATE BROKER.....................................................30
26. MISCELLANEOUS..........................................................30
A. Successors and Assigns...........................................30
B. Date Payments Are Due............................................30
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate" ...30
D. Time of the Essence..............................................30
E. No Option........................................................30
F. Severability.....................................................30
G. Governing Law....................................................31
H. Lease Modification...............................................31
I. No Oral Modification.............................................31
J. Landlord's Right to Cure.........................................31
K. Captions.........................................................31
L. Authority........................................................31
M. Landlord's Enforcement of Remedies...............................31
N. Entire Agreement.................................................31
O. Landlord's Title.................................................31
P. Light and Air Rights.............................................31
Q. Singular and Plural..............................................31
R. No Recording by Tenant...........................................32
S. Exclusivity......................................................32
T. No Construction Against Drafting Party...........................32
U. Survival.........................................................32
V. Rent Not Based on Income.........................................32
W. Building Manager and Service Providers...........................32
X. Late Charge and Interest on Late Payments........................32
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27. UNRELATED BUSINESS INCOME.............................................32
28. HAZARDOUS SUBSTANCES..................................................32
29. EXCULPATION...........................................................35
30. SIGNAGE...............................................................35
31. EXTENSION OPTION......................................................36
32. RIGHT OF FIRST OFFER..................................................37
</TABLE>
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APPENDIX A - PLAN OF THE PREMISES
APPENDIX B - RULES AND REGULATIONS
APPENDIX C - TENANT IMPROVEMENT AGREEMENT
APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT
APPENDIX E - COMMENCEMENT DATE CONFIRMATION
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LEASE
THIS LEASE (the "Lease") is made as of April 23, 1999 between CARRAMERICA
REALTY CORPORATION, a Maryland corporation (the "Landlord") and the Tenant as
named in the Schedule below. The term "Project" means the building(s)
(collectively, the "Building") known as "Pacific Corporate Plaza" and the land
(the "Land") located at Aliso Creek Road, Aliso Viejo, California, and any
parking structure Landlord may elect to construct (in its sole discretion and
without obligation) thereon. "Premises" means that part of the Project leased to
Tenant described in the Schedule and outlined on Appendix A.
The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the Lease.
SCHEDULE
1. TENANT: PhoneXchange, a Delaware corporation
2. PREMISES: A portion of the ground floor of Building One of the Project.
3. RENTABLE SQUARE FEET OF THE PREMISES: 8,642 rentable square feet
("Rentable Area").
4. TENANT'S PROPORTIONATE SHARE: 6.82% (based upon a total of 126,800
rentable square feet in the Project)
5. SECURITY DEPOSIT: $50,037 upon the execution and delivery of this Lease,
with such amount adjusted as provided in Section 20.
6. TENANT'S REAL ESTATE BROKER FOR THIS LEASE. Lee & Associates
7. LANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: Lee & Associates
8. TENANT IMPROVEMENTS, IF ANY: See the Tenant Improvement Agreement attached
hereto as Appendix C.
9. COMMENCEMENT DATE. July 1, 1999, but if the Premises are subject to new
construction pursuant to Appendix C, then the Completion Date, as defined
therein, if it is later; Landlord and Tenant shall execute a Commencement
Date Confirmation substantially in the form of Appendix E promptly
following the Commencement Date.
10. TERMINATION DATE/TERM: Five (5) years after the Commencement Date, or if
the Commencement Date is not the first day of a month, then after the
first day of the following month, subject to Tenant's extension option
under Section 31.
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11. BASE RENT: Base Rent for the first Lease Year shall be the sum of the Base
Component and the TI Rent Component (as defined in Appendix C). The Base
Component per month for each month of the first Lease Year shall be $1.38
per rentable square foot multiplied by the number of rentable square feet
in the Rentable Area. The TI Rent Component for the first Lease Year shall
be calculated as provided in Appendix C. Upon the commencement of the
second Lease Year, and upon the commencement of each Lease Year thereafter
during the initial Term of this Lease, the Base Rent for such Lease Year
shall be 104% of the Base Rent for the immediately preceding Lease Year.
The Commencement Date Confirmation executed by Landlord and Tenant as
provided in this Schedule shall set forth the monthly and annual Base Rent
for the initial Term of this Lease.
12. PARKING RENT: None.
13. SOLE PERMITTED USE: General office purposes, including, without
limitation, Tenant's telecommunications Network Operations Center (the
"NOC"); however, in no event in violation of any provision of the Rules
and Regulations attached as Appendix B hereto or any Governmental
Requirements (as hereinafter defined) (the "Permitted Use").
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1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases the
Premises to Tenant, and Tenant leases the Premises from Landlord, for the Term
beginning on the Commencement Date and ending on the Termination Date unless
extended or sooner terminated pursuant to this Lease.
2. RENT.
A. Types of Rent. Tenant shall pay the following Rent in the form of a
check to Landlord at the following address:
CarrAmerica Realty Corporation
t/a Pacific Corporate Plaza
P.O. Box [To be provided by written notice from Landlord]
Atlanta, GA 30384-0566
or by wire transfer as follows:
NationsBank, N.A. (South)
ABA Number 061-000-052
Account Number [To be provided by written notice from Landlord]
or in such other manner as Landlord may notify Tenant:
(1) Base Rent in monthly installments, without deduction or offset,
in advance. Concurrently with the execution of this Lease, Tenant shall
pay to Landlord the Base Rent for the first ten (10) months of the Term.
For the purposes of determining this amount only as of the execution of
this Lease, and without limiting any of Tenant's obligations under this
Lease, the initial Base Rent is estimated to be $119,260. Upon the
completion of the Initial Improvements (as defined in Appendix C) and a
determination of the actual monthly TI Rent Component, Tenant shall pay to
Landlord the amount necessary, if any, so that the amount of prepaid Base
Rent held by Landlord as of the Commencement Date is equal to the Base
Rent, calculated using the actual TI Rent Component. Thereafter the Base
Rent shall be paid on or before the first day of each month of the Term in
the amount provided in the Schedule.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
Proportionate Share of the Operating Costs for the applicable fiscal year
of the Lease. Concurrently with the execution of this Lease Tenant shall
pay to Landlord the estimated Operating Cost Share Rent for the first ten
(10) months of the Term (and in the event the estimated Operating Cost
Share Rent for such period is revised by Landlord, Tenant shall pay to
Landlord any increased Operating Cost Share Rent for such period within
ten (10) days after notice from Landlord). For the purposes of determining
the Operating Cost Share Rent and Tax Share Rent only as of the execution
of this Lease, and without limiting any of Tenant's obligations under this
Lease, the payment of Operating Cost
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Share Rent and Tax Share Rent for such ten (10) month period is initially
estimated to be $47,531. Thereafter Operating Cost Share Rent shall be
paid monthly in advance in an estimated amount. Definitions of Operating
Costs and Tenant's Proportionate Share, and the method for billing and
payment of Operating Cost Share Rent are set forth in Sections 2B, 2C and
2D.
(3) Tax Share Rent in an amount equal to the Tenant's Proportionate
Share of the excess of Taxes for the applicable fiscal year of this Lease.
Concurrently with the execution of this Lease Tenant shall pay to Landlord
the estimated Tax Share Rent for the first ten (10) months of the Term in
the amount set forth in Subsection (2) above (and in the event the
estimated Tax Share Rent for such period is revised by Landlord, Tenant
shall pay to Landlord any increased Tax Share Rent for such period within
ten (10) days after notice from Landlord). Thereafter Tax Share Rent shall
be paid monthly in advance in an estimated amount. A definition of Taxes
and the method for billing and payment of Tax Share Rent are set forth in
Sections 2B, 2C and 2D.
(4) [Intentionally Omitted.]
(5) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent, Operating Cost Share Rent and Tax Share Rent, but
including any interest for late payment of any item of Rent.
(6) Rent as used in this Lease means Base Rent, Operating Cost Share
Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent
is an independent covenant, with no right of setoff, deduction or
counterclaim of any kind. All Rent shall be paid absolutely net to
Landlord.
B. Payment of Operating Cost Share Rent and Tax Share Rent.
(1) Payment of Estimated Operating Cost Share Rent and Tax Share
Rent. Landlord shall estimate the Operating Costs and Taxes of the Project
by April 1 of each fiscal year, or as soon as reasonably possible
thereafter. Landlord may revise these estimates whenever it obtains more
accurate information, such as the final real estate tax assessment or tax
rate for the Project.
Within ten (10) days after receiving the original or revised
estimate from Landlord setting forth an estimate of Operating Costs for a
particular fiscal year, Tenant shall pay Landlord one-twelfth (1/12th) of
Tenant's Proportionate Share of the estimated Operating Costs, multiplied
by the number of months that have elapsed in the applicable fiscal year to
the date of such payment including the current month, minus payments
previously made by Tenant for the months elapsed. On the first day of each
month thereafter, Tenant shall pay Landlord one-twelfth (1/12th) of
Tenant's Proportionate Share of this estimate, until a new estimate
becomes applicable.
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Within ten (10) days after receiving the original or revised
estimate from Landlord setting forth an estimate of Taxes for a particular
fiscal year, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's
Proportionate Share of the estimated Taxes, multiplied by the number of
months that have elapsed in the applicable fiscal year to the date of such
payment including the current month, minus payments previously made by
Tenant for the months elapsed. On the first day of each month thereafter,
Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate
Share of this estimate, until a new estimate becomes applicable.
(2) Correction of Operating Cost Share Rent. Landlord shall deliver
to Tenant a report for the previous fiscal year (the "Operating Cost
Report") by May 15 of each year, or as soon as reasonably possible
thereafter, setting forth (a) the actual Operating Costs incurred, (b) the
amount of Operating Cost Share Rent due from Tenant, and (c) the amount of
Operating Cost Share Rent paid by Tenant. Within twenty (20) days after
such delivery, Tenant shall, pay to Landlord the amount due minus the
amount paid. If the amount paid exceeds the amount due, Landlord shall
apply the excess to Tenant's payments of Rent next coming due.
(3) Correction of Tax Share Rent. Landlord shall deliver to Tenant a
report for the previous fiscal year (the "Tax Report") by May 15 of each
year, or as soon as reasonably possible thereafter, setting forth (a) the
actual Taxes, (b) the amount of Tax Share Rent due from Tenant, and (c)
the amount of Tax Share Rent paid by Tenant. Within twenty (20) days after
such delivery, Tenant shall pay to Landlord the amount due from Tenant
minus the amount paid by Tenant. If the amount paid exceeds the amount
due, Landlord shall apply any excess as a credit against Tenant's payments
of Rent next coming due.
C. Definitions.
(1) Included Operating Costs. "Common Areas" means all areas and
facilities outside the Premises and within the exterior boundary line of
the Project that are provided and designated by Landlord from time to time
for the general non-exclusive use of Landlord, Tenant and other tenants of
the Project and their respective employees, suppliers, shippers, customers
and invitees, including, without limitation, parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
ramps, driveways, landscaped areas and decorative walls. "Operating Costs"
means any expenses, costs and disbursements of any kind other than Taxes,
paid or incurred by Landlord in connection with the management,
maintenance, operation, insurance, repair and other related activities in
connection with any part of the Project and of the personal property,
fixtures, machinery, equipment, systems and apparatus used in connection
therewith, including the cost of providing those services required to be
furnished by Landlord under this Lease. Operating Costs shall also include
the costs of any capital improvements which are intended to reduce
Operating Costs or improve safety, and those made to keep the Project in
compliance with governmental requirements applicable from
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time to time (collectively, "Included Capital Items"); provided, that the
costs of any Included Capital Item shall be amortized by Landlord,
together with an amount equal to interest at ten percent (10%) per annum,
over the estimated useful life of such item and such amortized costs are
only included in Operating Costs for that portion of the useful life of
the Included Capital Item which falls within the Term.
If the Project is not fully occupied during any portion of any
fiscal year, Landlord may adjust (an "Equitable Adjustment") Operating
Costs to equal what would have been incurred by Landlord had the Project
been fully occupied; provided that Landlord shall not be entitled to
collect as a result of any such Equitable Adjustment more than one hundred
percent (100%) of the Operating Costs which would have been incurred by
Landlord for the period for which such Equitable Adjustment was made. This
Equitable Adjustment shall apply only to Operating Costs which are
variable and therefore increase as occupancy of the Project increases.
Landlord may incorporate the Equitable Adjustment in its estimates of
Operating Costs.
If Landlord does not furnish any particular service whose cost would
have constituted an Operating Cost to a tenant other than Tenant who has
undertaken to perform such service itself, Operating Costs shall be
increased by the amount which Landlord would have incurred if it had
furnished the service to such tenant.
(2) Excluded Operating Costs. Operating Costs shall not include:
(a) costs of alterations of tenant premises;
(b) costs of capital improvements other than Included Capital
Items;
(c) interest and principal payments on mortgages or any other debt
costs, or rental payments on any ground lease of the Project;
(d) real estate brokers' leasing commissions;
(e) legal fees, space planner fees and advertising expenses
incurred with regard to leasing the Building or portions
thereof;
(f) any cost or expenditure for which Landlord is reimbursed, by
insurance proceeds or otherwise, except by Operating Cost
Share Rent;
(g) the cost of any service furnished to any office tenant of the
Project which Landlord does not make available to Tenant;
(h) depreciation (except on any Included Capital Items);
(i) franchise or income taxes imposed upon Landlord;
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(j) costs of correcting defects in construction of the Building
(as opposed to the cost of normal repair, maintenance and
replacement expected with the construction materials and
equipment installed in the Building in light of their
specifications);
(k) legal and auditing fees which are for the benefit of Landlord
such as collecting delinquent rents, preparing tax returns and
other financial statements, and audits other than those
incurred in connection with the preparation of reports
required pursuant to Section 2B above;
(l) the wages of any employee for services not related directly to
the management, maintenance, operation and repair of the
Building;
(m) fines, penalties and interest;
(n) any costs related to the removal or remediation of Hazardous
Substances at the Project (except as costs required to be paid
by Tenant under the terms of this Lease); and
(o) without limiting the Property Manager's Fee or any other
amount required to paid by Tenant under this Lease, Landlord's
general corporate overhead and general and administrative
expenses not related to the Project or the management,
maintenance, operation, insurance, repair and other related
activities in connection with the Project and/or the personal
property, fixtures, machinery, equipment, systems and
apparatus used in connection therewith.
(3) Property Management Fee. Landlord also shall serve as the
Property Manager for an annual fee payable by Tenant equal to three
percent (3%) of the Base Rent, Operating Cost Share Rent and Tax Share
Rent, and Landlord may recover from Tenant the actual out-of-pocket costs
of providing property management services (collectively, the "Property
Manager's Fee").
(4) Taxes. "Taxes" means any and all taxes, assessments and charges
of any kind, general or special, ordinary or extraordinary, levied against
the Project, which Landlord shall pay or become obligated to pay in
connection with the ownership, leasing, renting, management, use,
occupancy, control or operation of the Project or of the personal
property, fixtures, machinery, equipment, systems and apparatus used in
connection therewith. Taxes shall include real estate taxes, personal
property taxes, sewer rents, water rents, special or general assessments,
transit taxes, ad valorem taxes, and any tax levied on the rents hereunder
or the interest of Landlord under this Lease (the "Rent Tax"). Taxes shall
also include all fees and other costs and expenses paid by Landlord in
reviewing any tax and in seeking a refund or reduction of any Taxes,
whether or not the Landlord is ultimately successful.
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For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the
installments (with any interest) due and payable during such year, and (b)
from all other Taxes, shall at Landlord's election be the amount accrued,
assessed, or otherwise imposed for such year or the amount due and payable
in such year. Any refund or other adjustment to any Taxes by the taxing
authority, shall apply during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), capital,
stock, succession, transfer, franchise, gift, estate or inheritance tax,
except to the extent that such tax shall be imposed in lieu of any portion
of Taxes.
(5) Lease Year. "Lease Year" means each consecutive twelve-month
period beginning with the Commencement Date, except that if the
Commencement Date is not the first day of a calendar month, then the first
Lease Year shall be the period from the Commencement Date through the
final day of the twelve months after the first day of the following month,
and each subsequent Lease Year shall be the twelve months following the
prior Lease Year.
(6) Fiscal Year. "Fiscal Year" means the calendar year, except that
the first fiscal year and the last fiscal year of the Term may be a
partial calendar year.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the first
day of a month, the Base Rent, Operating Cost Share Rent and Tax Share
Rent shall be prorated for such partial month based on the actual number
of days in such month. If this Lease begins on a day other than the first
day, or ends on a day other than the last day, of the fiscal year,
Operating Cost Share Rent and Tax Share Rent shall be prorated for the
applicable fiscal year.
(2) Default Interest. Any sum due from Tenant to Landlord not paid
when due shall bear interest from the date due until paid at the lesser of
twelve percent (12%) per annum. or the maximum rate permitted by law.
(3) Rent Adjustments. The square footage of the Premises and the
Building set forth in the Schedule, are conclusively deemed to be the
actual square footage thereof, without regard to any subsequent
remeasurement of the Premises or the Building. If any Operating Cost paid
in one fiscal year relates to more than one fiscal year, Landlord may
proportionately allocate such Operating Cost among the related fiscal
years.
(4) Books and Records. Landlord shall maintain books and records
reflecting the Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant and its certified public
accountant shall have the right to inspect Landlord's records at
Landlord's office upon at least seventy-two (72) hours' prior notice
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during normal business hours during the one hundred eighty (180) days
following the respective delivery of the Operating Cost Report or the Tax
Report. The results of any such inspection shall be kept strictly
confidential by Tenant and its agents, and Tenant and its certified public
accountant must agree, in their contract for such services, to such
confidentiality restrictions and shall specifically agree that the results
shall not be made available to any other tenant of the Building. Unless
Tenant sends to Landlord any written exception to either such report
within said one hundred eighty (180) day period, such report shall be
deemed final and accepted by Tenant. Tenant shall pay the amount shown on
both reports in the manner prescribed in this Lease, whether or not Tenant
takes any such written exception, without any prejudice to such exception.
If Tenant makes a timely exception, Landlord shall cause its independent
certified public accountant to issue a final and conclusive resolution of
Tenant's exception. Tenant shall pay the cost of such certification unless
Landlord's original determination of annual Operating Costs or Taxes
overstated the amounts thereof by more than five percent (5%).
(5) Miscellaneous. So long as Tenant is in default of any obligation
under this Lease, Tenant shall not be entitled to any refund of any amount
from Landlord. If this Lease is terminated for any reason prior to the
annual determination of Operating Cost Share Rent or Tax Share Rent,
either party shall pay the full amount due to the other within fifteen
(15) days after Landlord's notice to Tenant of the amount when it is
determined. Landlord may commingle any payments made with respect to
Operating Cost Share Rent or Tax Share Rent, without payment of interest.
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF
PREMISES.
A. Condition of Premises. Except to the extent of the Tenant Improvements
item on the Schedule, Landlord is leasing the Premises to Tenant absolutely "as
is" (subject to the punch list items to be corrected as provided in Appendix C),
without any obligation to alter, remodel, improve, repair or decorate any part
of the Premises. Landlord shall cause the Premises to be completed in accordance
with the Tenant Improvement Agreement attached as Appendix C. Landlord expressly
disclaims any warranty or representation, express or implied, with respect to
the Project or any portion thereof, including, without limitation, any warranty
or representation as to fitness, condition, the existence of any defect, patent
or latent, merchantability, quality or durability. Landlord shall assign to
Tenant (or otherwise enforce at Landlord's election upon Tenant's written
request) any and all warranties (including statutory) received from or rights
against all contractors and subcontractors regarding the Tenant Improvements (as
defined in Appendix C).
B. Tenant's Possession. Tenant's taking possession of any portion of the
Premises shall be conclusive evidence that the Premises was in good order,
repair and condition. If Landlord authorizes Tenant to take possession of any
part of the Premises prior to the Commencement Date for purposes of doing
business, all terms of this Lease shall apply to such
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pre-Term possession, including Base Rent at the rate set forth for the First
Lease Year in the Schedule prorated for any partial month.
C. Maintenance. Throughout the Term, Tenant shall maintain the Premises in
good order, repair and condition, loss or damage caused by the elements,
ordinary wear, and fire and other casualty excepted, and at the termination of
this Lease, or Tenant's right to possession, Tenant shall return the Premises to
Landlord in broom-clean, safe, neat and sanitary condition. To the extent Tenant
fails to perform either obligation, Landlord may, but need not, restore the
Premises to such condition and Tenant shall pay the cost thereof.
4. PROJECT SERVICES.
Landlord shall furnish services as follows:
A. Heating and Air Conditioning. During the normal business hours of 8:00
a.m to 6:00 p.m., Monday through Friday on generally recognized business days in
the area in which the Project is located, and 8:00 a.m. to 12:00 noon on
Saturday, Landlord shall furnish heating and air conditioning to provide a
comfortable temperature, in Landlord's judgment, for normal business operations
(excluding the operation of the NOC), except to the extent Tenant installs
equipment which adversely affects the temperature maintained by the air
conditioning system. If Tenant installs such equipment including, without
limitation, in connection with the operation of the NOC, Landlord may install,
or may require that Tenant install, supplementary air conditioning units in the
Premises, and Tenant shall pay to Landlord upon demand as Additional Rent the
cost of installation (if not paid by Tenant directly), operation and maintenance
thereof.
Landlord shall furnish heating and air conditioning after business hours
if Tenant provides Landlord reasonable prior dial-in notice, and pays Landlord
$35 for such additional heating or air conditioning.
B. Elevators. Landlord shall provide passenger elevator service during
normal business hours to Tenant in common with Landlord and all other tenants.
Landlord shall provide limited passenger service at other times, except in case
of an emergency.
C. Electricity. Landlord shall provide sufficient electricity to operate
normal office lighting and equipment (excluding the operation of the NOC).
Tenant shall not install or operate in the Premises any electrically operated
equipment or other machinery, other than business machines and equipment
normally employed for general office use which do not require high electricity
consumption for operation, without obtaining the prior written consent of
Landlord; provided that Landlord hereby consents to the equipment necessary to
operate the NOC. If any or all of Tenant's equipment requires electricity
consumption, including, without limitation, in connection with the operation of
the NOC, in excess of that which is necessary to operate normal office
equipment, such consumption (including consumption for the NOC, computer or
telephone rooms and special HVAC equipment) shall be submetered by Landlord at
Tenant's expense, and Tenant shall reimburse Landlord as Additional Rent for the
cost of its submetered
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consumption based upon Landlord's average cost of electricity. Such additional
rent shall be in addition to Tenant's obligations pursuant to Section 2A(2) to
pay its Proportionate Share of Operating Costs.
D. Water. Landlord shall furnish hot and cold tap water for drinking and
toilet purposes. Tenant shall pay Landlord for water furnished for any other
purpose, including, without limitation, for Tenant's cooling system, as
Additional Rent at rates fixed by Landlord. Tenant shall not permit water to be
wasted.
E. Janitorial Service. Landlord shall furnish janitorial service as
generally provided to other tenants in the Building.
F. Interruption of Services. If any of the Building equipment or machinery
ceases to function properly for any cause Landlord shall use reasonable
diligence to repair the same promptly. Landlord's inability to furnish, to any
extent, the Project services set forth in this Section 4, or any cessation
thereof resulting from any causes, including, without limitation, any entry for
repairs pursuant to this Lease, and any renovation, redecoration or
rehabilitation of any area of the Building shall not render Landlord liable for
damages to either person or property or for interruption or loss to Tenant's
business, nor be construed as an eviction of Tenant, nor work an abatement of
any portion of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. However, in the event that an interruption of the Project
services set forth in this Section 4 is within Landlord's reasonable control
and such interruption causes the Premises to be untenantable for a period of at
least five (5) consecutive business days, monthly Rent shall be abated
proportionately.
G. Parking. During the Term, Tenant and its employees shall be entitled to
use within the Project's parking area (excluding, however, those areas thereof
designated by Landlord from time to time for the exclusive use of certain
occupants of the Project or for no parking) an aggregate of no more than 36
parking stalls. Landlord reserves the right to designate reserved parking stalls
for other occupants of the Project over any part of the Project's parking area.
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions.
Tenant shall not make any improvements or alterations to the Premises (the
"Work") without in each instance submitting plans and specifications for the
Work to Landlord and obtaining Landlord's prior written consent unless (a) the
cost thereof is less than $10,000, (b) such Work does not impact the base
structural components or systems of the Building, (c) such Work will not impact
any other tenant's premises, and (d) such Work is not visible from outside the
Premises. Tenant shall pay Landlord's standard charge for review of the plans
and all other items submitted by Tenant, which shall not exceed five percent (5
%) of the cost of such Work. Landlord will be deemed to be acting reasonably in
withholding its consent for any Work
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which (a) impacts the base structural components or systems of the Building, (b)
impacts any other tenant's premises, or (c) is visible from outside the
Premises.
Tenant shall pay for the cost of all Work. All Work shall become the
property of Landlord upon its installation, except for Tenant's trade fixtures,
the NOC and for items which Landlord requires Tenant to remove at Tenant's cost
at the termination of the Lease pursuant to Section 3E.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord building
permits, certificates of insurance satisfactory to Landlord (including,
without limitation, certificates evidencing the insurance Tenant, its
contractors and subcontractors are required to maintain under Section
8(C)), and, at Landlord's request, security for payment of all costs.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid
interference with other work to be performed or services to be rendered in
the Project.
(3) The Work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in the
Building, and shall comply with all insurance requirements and all
applicable governmental laws, ordinances and regulations ("Governmental
Requirements").
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all reasonable
requests of Landlord in response to complaints from other tenants.
(5) Tenant shall perform all Work in compliance with Landlord's
"Policies, Rules and Procedures for Construction Projects" in effect at
the time the Work is performed (which Policies, Rules and Procedures,
shall be applied uniformly to the tenants in the Project, taking into
consideration the use of their space and the nature of the alterations).
(6) Tenant shall permit Landlord to supervise all Work. Landlord may
charge a supervisory fee not to exceed five percent (5%) of labor,
material, and all other costs of the Work, if Landlord's employees or
contractors perform the Work.
(7) Upon completion, Tenant shall furnish Landlord with contractor's
affidavits and full and final statutory waivers of liens, as-built plans
and specifications, and receipted bills covering all labor and materials,
and all other close-out documentation required in Landlord's "Policies,
Rules and Procedures for Construction Projects".
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B. Damage to Systems. If any part of the mechanical, electrical or other
systems in the Premises or Common Areas shall be damaged, Tenant shall promptly
notify Landlord, and Landlord shall repair such damage. Landlord may also at any
reasonable time make any repairs or alterations which Landlord deems necessary
for the safety or protection of the Project, or which Landlord is required to
make by any court or pursuant to any Governmental Requirement. Tenant shall at
its expense make all other repairs necessary to keep the Premises, and Tenant's
fixtures and personal property, in good order, condition and repair; to the
extent Tenant fails to do so, Landlord may make such repairs itself. The cost of
any repairs made by Landlord on account of Tenant's default, or on account of
the mis-use or neglect by Tenant or its invitees, contractors or agents anywhere
in the Project, shall become Additional Rent payable by Tenant on demand.
C. No Liens. Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings, that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as attorney's fees and other expenses,
incurred by Landlord, shall become Additional Rent payable by Tenant on demand.
Nothing contained in this Lease shall constitute any consent by Landlord to
subject Landlord's estate to liability under any mechanics' or other lien law.
Tenant shall give Landlord adequate opportunity, and Landlord shall have the
right at all times, to post such notices of nonresponsibility as may be allowed
under California law.
D. Ownership of Improvements. All Work as defined in this Section 5,
partitions, hardware, equipment, machinery and all other improvements and all
fixtures except trade fixtures and the NOC, constructed in the Premises by
either Landlord or Tenant, (i) shall become Landlord's property upon
installation without compensation to Tenant, unless Landlord consents otherwise
in writing, and (ii) shall at Landlord's option either (a) be surrendered to
Landlord with the Premises at the termination of the Lease or of Tenant's right
to possession, or (b) be removed in accordance with Subsection 5E below (unless
Landlord at the time it gives its consent to the performance of such
construction expressly waives in writing the right to require such removal).
E. Removal at Termination. Upon the termination of this Lease or Tenant's
right of possession Tenant shall remove from the Project its trade fixtures,
furniture, moveable equipment and other personal property, the NOC, any
improvements which Landlord elects shall be removed by Tenant pursuant to
Section 5D, and any improvements to any portion of the Project other than the
Premises. If Tenant does not timely remove such property, then Tenant shall be
conclusively presumed to have, at Landlord's election (i) conveyed such property
to
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Landlord without compensation or (ii) abandoned such property, and Landlord may
dispose of or store any part thereof in any manner at Tenant's sole cost,
without waiving Landlord's right to claim from Tenant all expenses arising out
of Tenant's failure to remove the property, and without liability to Tenant or
any other person. Landlord shall have no duty to be a bailee of any such
personal property. If Landlord elects abandonment, Tenant shall pay to Landlord,
upon demand, any expenses incurred for disposition. Tenant expressly releases
Landlord of and from any and all claims and liability for damage to or
destruction or loss of property left by Tenant upon the Premises at the
expiration or other termination of this Lease and, to the extent permitted by
then applicable law, Tenant shall protect, indemnify, defend and hold Landlord
harmless from and against any and all claims and liability with respect thereto.
F. Landlord's Work. Landlord shall have the right at any time to change
the arrangement and location of all entrances, passageways, doors, doorways,
corridors, stairs, toilets and other public parts of the Project and, upon
giving Tenant reasonable notice thereof, to change any name, number or
designation by which the Premises or the Project is commonly known.
6. USE OF PREMISES. Tenant shall use the Premises only for the Permitted
Use. Tenant shall not allow any use of the Premises which will negatively affect
the cost of coverage of Landlord's insurance on the Project. Tenant shall not
allow any inflammable or explosive liquids or materials to be kept on the
Premises. Tenant shall not allow any use of the Premises which would cause the
value or utility of any part of the Premises to diminish or would interfere with
any other Tenant or with the operation of the Project by Landlord. Tenant shall
not cause or permit any nuisance or waste upon the Premises, or allow any
offensive noise or odor in or around the Premises or in any way obstruct or
interfere with the rights of other tenants or occupants of the Project.
Tenant acknowledges that the Americans With Disabilities Act of 1990 (as
amended and as supplemented by further laws from time to time, the "ADA")
imposes certain requirements upon the owners, lessees and operators of
commercial facilities and places of public accommodation, including, without
limitation, prohibitions on discrimination against any individual on the basis
of disability. Landlord shall be responsible for the compliance of the Premises
and Common Area with the ADA, assuming the use of the Premises for general
office purposes and not as a place of public accommodation. Except for
Landlord's obligations pursuant to this paragraph, and notwithstanding any other
provision of this Lease, Tenant agrees, at Tenant's expense, to take all proper
and necessary action to cause the Premises, any repairs, replacements,
alterations and improvements thereto to be maintained, used and occupied in
compliance with the ADA requirements, to the extent that those requirements are
based upon the Tenant's use of the Premises and, further, to otherwise assume
all responsibility to ensure the Premises' continued compliance with all
provisions of the ADA throughout the Term based upon Tenant's use of the
Premises. Except for Landlord's obligations pursuant to this paragraph, Tenant
shall, at its expense, make any alterations or modifications, with or without
the Premises, to bring Tenant's use and occupancy of the Premises into
compliance with the ADA. The Premises shall not be used as a "place of public
accommodation" under the ADA
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or similar laws, regulations, statutes and/or ordinances; provided, that if any
governmental authority shall deem the Premises to be a "place of public
accommodation" as a result of Tenant's use, Tenant shall either modify its use
to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Project or the
Premises under such laws.
7. Tenant shall Tenant shall comply with all Governmental Requirements
applying to its use of the Premises. Tenant shall also comply with all
reasonable rules established for the Project, including, without limitation, the
parking area, from time to time by Landlord. The present rules and regulations
are contained in Appendix B. Failure by another tenant to comply with the rules
or failure by Landlord to enforce them shall not relieve Tenant of its
obligation to comply with the rules or make Landlord responsible to Tenant in
any way. Landlord shall use reasonable efforts to apply the rules and
regulations reasonably and uniformly with respect to Tenant and tenants in the
Building under leases containing rules and regulations similar to this Lease. In
the event of alterations and repairs performed by Tenant, Tenant shall comply
with the provisions of Section 5 of this Lease and also Landlord's "Policies,
Rules and Regulations for Construction Projects".
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. Waiver of Claims. To the extent permitted by law, Tenant waives any
claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord.
To the extent permitted by law, Landlord waives any claims it may have
against Tenant or its officers, directors, employees or agents for loss of rents
or damage to property sustained by Landlord as the result of any act or omission
of Tenant.
B. Indemnification. Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from any act or omission or negligence of
Tenant or any of Tenant's employees or agents. Tenant's obligations under this
section shall survive the termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, employees and agents against any claim by any third party
for injury to any person or damage to or loss of any property occurring in the
Project and arising from any act or omission or negligence of Landlord or any of
Landlord's employees or agents. Landlord's obligations under this section shall
survive the termination of this Lease.
C. Tenant's Insurance. Tenant shall maintain insurance as follows, with
such other terms, coverages and insurers, as Landlord shall reasonably require
from time to time:
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(1) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this
Lease, (b) a severability of interest endorsement, (c) limits of not less
than One Million Dollars ($1,000,000) combined single limit per occurrence
and not less than Two Million Dollars ($2,000,000) in the aggregate for
bodily injury, sickness or death, and property damage, and umbrella
coverage of not less than Two Million Dollars ($2,000,000).
(2) Property Insurance against "All Risks" of physical loss covering
the replacement cost of all improvements, fixtures and personal property.
Tenant waives all rights of subrogation, and Tenant's property insurance
shall include a waiver of subrogation in favor of Landlord.
(3) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the following
limits:
<TABLE>
<S> <C>
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
</TABLE>
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its agents.
Tenant's insurance shall be primary and not contributory to that carried
by Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's building
manager or agent and ground lessor shall be named as additional insureds as
respects to insurance required of the Tenant in Section 8C(l). The company or
companies writing any insurance which Tenant is required to maintain under this
Lease, as well as the form of such insurance, shall at all times be subject to
Landlord's approval, and any such company shall be licensed to do business in
the state in which the Project is located. Such insurance companies shall have a
A.M. Best rating of A VI or better.
Tenant shall cause any contractor of Tenant performing work on the
Premises to maintain insurance as follows, with such other terms, coverages and
insurers, as Landlord shall reasonably require from time to time:
(1) Commercial General Liability Insurance, including contractor's
liability coverage, contractual liability coverage, completed operations
coverage, broad form property damage endorsement, and contractor's
protective liability coverage, to afford protection with limits, for each
occurrence, of not less than One Million Dollars ($1,000,000) with respect
to personal injury, death or property damage.
(2) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the following
limits:
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<PAGE> 24
<TABLE>
<S> <C>
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
</TABLE>
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its agents.
Tenant's contractor's insurance shall be primary and not contributory to
that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.
D. Insurance Certificates. Tenant shall deliver to Landlord certificates
evidencing all required insurance no later than five (5) days prior to the
Commencement Date and each renewal date. Each certificate will provide for
thirty (30) days prior written notice of cancellation to Landlord and Tenant.
E. Landlord's Insurance. Landlord shall maintain "All-Risk" property
insurance at replacement cost, including loss of rents, on the Building, and
Commercial General Liability insurance policies covering the common areas of the
Project, each with such terms, coverages and conditions as are normally carried
by reasonably prudent owners of properties similar to the Project. With respect
to property insurance, Landlord and Tenant mutually waive all rights of
subrogation, and the respective "All-Risk" coverage property insurance policies
carried by Landlord and Tenant shall contain enforceable waiver of subrogation
endorsements.
9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial damage to
the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant the
amount of time needed to restore the Building and the Premises to tenantability,
using standard working methods. If the time needed exceeds twelve (12) months
from the beginning of the restoration, or two (2) months therefrom if the
restoration would begin during the last twelve (12) months of the Lease, then in
the case of the Premises either Landlord or Tenant may terminate this lease,
and in the case of the Building, Landlord may terminate this Lease, by notice to
the other party within ten (10) days after the notifying party's receipt of the
architect's certificate. The termination shall be effective thirty (30) days
from the date of the notice and Rent shall be paid by Tenant to that date with
an abatement for any portion of the space which has been untenantable after the
casualty.
B. Restoration. If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current Governmental Requirements. Tenant shall replace its damaged
improvements, personal property and fixtures. Rent shall be abated on a per diem
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basis during the restoration for any portion of the Premises which is
untenantable, except to the extent that Tenant's negligence caused the casualty.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain or
deed in lieu thereof which is so substantial that the Premises cannot reasonably
be used by Tenant for the operation of its business, then either party may
terminate this Lease effective as of the date of the taking. If any substantial
portion of the Project is taken without affecting the Premises, then Landlord
may terminate this Lease as of the date of such taking. Rent shall abate from
the date of the taking in proportion to any part of the Premises taken. The
entire award for a taking of any kind shall be paid to Landlord. Tenant may
pursue a separate award for its trade fixtures and moving expenses in connection
with the taking, but only if such recovery does not reduce the award payable to
Landlord. All obligations accrued to the date of the taking shall be performed
by each party.
11. RIGHTS RESERVED TO LANDLORD.
Landlord may exercise at any time any of the following rights respecting
the operation of the Project without liability to the Tenant of any kind:
A. Name. To change the name or street address of the Building or the suite
number(s) of the Premises.
B. Signs. To install, remove and maintain any signs on the exterior and in
the interior of the Building, and to approve at its sole discretion, prior to
installation, any of Tenant's signs in the Premises visible from the Common
Areas or the exterior of the Building.
C. Window Treatments. To approve, at its discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior Common Area.
D. Keys. Subject to the terms of this Lease, to retain and use at any time
passkeys to enter the Premises or any door within the Premises. Subject to the
terms of this Lease, Tenant shall not alter or add any lock or bolt. If Tenant
complies with all of the requirements set forth in this Section, Tenant may
provide its own locks to the NOC. At least ten (10) days prior to the
Commencement Date, Tenant shall notify Landlord of the name of the
representative of Tenant to be contacted and the manner of contact to avoid a
forcible entry to the NOC. Tenant need not furnish Landlord with keys to the
NOC. Upon the termination of this Lease, Tenant shall surrender all keys to
Landlord. Landlord shall have no obligation to provide janitorial or any other
service to the NOC.
If Landlord determines in its sole discretion that a suspected fire or
flood or other emergency in the Building requires Landlord to gain access to the
NOC, Landlord may forcibly enter. Landlord shall make a reasonable effort to
contact Tenant to secure access, but Landlord shall not be obligated to contact
Tenant. Landlord shall have no liability whatsoever to Tenant,
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<PAGE> 26
and Tenant shall pay all expenses in repairing any damage to the NOC or any
other portion of the Premises or Building resulting therefrom. In no event shall
Landlord have any liability to Tenant for any failure to enter the NOC,
including, without limitation, in the event of any fire, flood or other
emergency.
E. Access. To have access to inspect the Premises, and to perform its
obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease.
F. Preparation for Reoccupancy. To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant abandons
the Premises, without relieving Tenant of any obligation to pay Rent.
G. Heavy Articles. To approve the weight, size, placement and time and
manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant's property. Tenant shall move its property
entirely at its own risk.
H. Show Premises. To show the Premises to prospective purchasers, brokers,
lenders, investors, rating agencies or others at any reasonable time, and to
show the Premises to prospective tenants at any time during the last six (6)
months of the Term or at any time that Tenant is, or has been within the
previous three (3) months, in default of its obligations under this Lease,
provided that Landlord gives prior notice to Tenant and does not materially
interfere with Tenant's use of the Premises.
I. Relocation of Tenant. To relocate the Tenant, upon thirty days' prior
written notice, from all or part of the Premises (the "Old Premises") to another
area in the Project (the "new premises"), provided that:
(1) the size of the new premises is at least equal to the size of
the Old Premises;
(2) Landlord pays all reasonable, direct out-of-pocket costs
incurred by Tenant in connection with such move and the improvement of the
new premises to the standard of the Old Premises. Tenant shall cooperate
with Landlord in all reasonable ways to facilitate the move, including
supervising the movement of files or fragile equipment, designating new
locations for furniture, equipment and new telephone and electrical
outlets, and determining the color of paint in the new premises.
J. Use of Lockbox. To designate a lockbox collection agent for collections
of amounts due Landlord. In that case, the date of payment of Rent or other sums
shall be the date of the agent's receipt of such payment or the date of actual
collection if payment is made in the form of a negotiable instrument thereafter
dishonored upon presentment. However, Landlord may reject any payment for all
purposes as of the date of receipt or actual collection by mailing to Tenant
within 21 days after such receipt or collection a check equal to the amount sent
by Tenant.
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<PAGE> 27
K. Repairs and Alterations. To make repairs or alterations to the Project
and in doing so transport any required material through the Premises, to close
entrances, doors, corridors, elevators and other facilities in the Project, to
open any ceiling in the Premises, or to temporarily suspend services or use of
common areas in the Project. Landlord may perform any such repairs or
alterations during ordinary business hours, except that Tenant may require any
Work in the Premises to be done after business hours if Tenant pays Landlord for
overtime and any other expenses incurred. Landlord shall use reasonable efforts
to cause such repairs and alterations to be performed without unreasonably
affecting Tenant's use of the Premises. Landlord may do or permit any work on
any nearby building, land, street, alley or way.
L. Landlord's Agents. If Tenant is in default under this Lease, possession
of Tenant's funds or negotiation of Tenant's negotiable instrument by any of
Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
M. Building Services. To install, use and maintain through the Premises,
pipes, conduits, wires and ducts serving the Building, provided that such
installation, use and maintenance does not unreasonably interfere with Tenant's
use of the Premises.
N. Other Actions. To take any other action which Landlord deems
reasonable in connection with the operation, maintenance or preservation of
the Project.
12. TENANT'S DEFAULT.
Any of the following shall constitute a default by Tenant:
A. Rent Default. Tenant fails to pay any Rent when due;
B. Assignment/Sublease or Hazardous Substances Default. Tenant defaults in
its obligations under Section 17 Assignment and Sublease or Section 28 Hazardous
Substances;
C. Other Performance Default. Tenant fails to perform any other obligation
to Landlord under this Lease, and, in the case of only the first two (2) such
failures during any calendar year, this failure continues for ten (10) days
after written notice from Landlord (provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under Section
1161 et seq. of the California Code of Civil Procedure), except that if Tenant
begins to cure its failure within the ten (10) day period but cannot reasonably
complete its cure within such period, then, so long as Tenant continues to
diligently attempt to cure its failure, the ten (10) day period shall be
extended to sixty (60) days, or such lesser period as is reasonably necessary to
complete the cure;
D. Credit Default. One of the following credit defaults occurs:
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee,
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custodian or other similar official for the Tenant or for any substantial
part of its property, or any such proceeding is commenced against Tenant
and either remains undismissed for a period of sixty (60) days or results
in the entry of an order for relief against Tenant which is not fully
stayed within seven days after entry;
(2) Tenant becomes insolvent or bankrupt, does not generally pay its
debts as they become due, or admits in writing its inability to pay its
debts, or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process of
law against Tenant's leasehold interest.
E. Vacation or Abandonment Default. Tenant vacates or abandons the Premises
and fails to pay any amount payable under this Lease when due.
13. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults, Landlord may
elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant.
Without limiting the generality of the foregoing, upon the termination of this
Lease or the termination of Tenant's right of possession, it shall be lawful for
the Landlord, without formal demand or notice of any kind, to re-enter the
Premises by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom,
B. Lease Termination Damages. Except as otherwise provided in Section 13C,
if Tenant abandons the Premises prior to the end of the term hereof, or if
Tenant's right to possession is terminated by Landlord because of a default by
Tenant under this Lease, this Lease shall terminate. Upon such termination,
Landlord may recover from Tenant the following, as provided in Section 1951.2 of
the California Civil Code: (i) the worth at the time of award of the unpaid Rent
and other charges under this Lease that had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid Rent and other charges under this Lease which would have been earned
after termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid Rent and other charges under
this Lease for the balance of the term of this Lease after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or that in the ordinary course of things would be
likely to result therefrom. As used herein, the following terms are defined: (a)
The "worth at the time of award" of the amounts referred to in Sections (i) and
(ii)
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is computed by allowing interest at the lesser of 12% per annum or the maximum
lawful rate. The "worth at the time of award" of the amount referred to in
Section (iii) is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus 1%.
C. Continuation of Lease. Even if Tenant has abandoned the Premises, this
Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all its rights and
remedies under this Lease, including the right to recover rent as it becomes
due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4, and the following provision from such Civil Code Section is
hereby repeated: "The Lessor has the remedy described in California Civil Code
Section 1951.4 (lessor may continue lease in effect after lessee's breach and
abandonment and recover rent as it becomes due, if lessee has right to sublet or
assign, subject only to reasonable limitations)." Any such payments due
Landlord shall be made upon demand therefor from time to time and Tenant agrees
that Landlord may file suit to recover any sums falling due from time to time.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect in writing to terminate this Lease for such previous breach.
D . Possession Termination Damages. If Landlord terminates Tenant's right
to possession without terminating the Lease and Landlord takes possession of the
Premises itself, Landlord may relet any part of the Premises for such Rent, for
such time, and upon such terms as Landlord in its sole discretion shall
determine, without any obligation to do so prior to renting other vacant areas
in the Building. Any proceeds from reletting the Premises shall first be applied
to the expenses of reletting, including redecoration, repair, alteration,
advertising, brokerage, legal, and other reasonably necessary expenses. If the
reletting proceeds after payment of expenses are insufficient to pay the full
amount of Rent under this Lease, Tenant shall pay such deficiency to Landlord
monthly upon demand as it becomes due. Any excess proceeds shall be retained by
Landlord.
E. Landlord's Remedies Cumulative. All of Landlord's remedies under this
Lease shall be in addition to all other remedies Landlord may have at law or in
equity. Waiver by Landlord of any breach of any obligation by Tenant shall be
effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment. Landlord may advance such monies and take such other
actions for Tenant's account as reasonably may be required to cure or mitigate
any default by Tenant. Tenant shall immediately reimburse Landlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.
F. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE EVENT
OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN
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CONNECTION WITH THIS LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER
IN CONNECTION WITH THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN CALIFORNIA,
CONSENTS TO THE JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY
PROCEEDING TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR
INCONVENIENT FORUM.
G. Litigation Costs. Tenant shall pay Landlord's reasonable attorneys'
fees and other costs in enforcing this Lease, whether or not suit is filed.
14. SURRENDER. Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.
15. HOLDOVER. If Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant for the entire
Premises upon all of the terms of this Lease as might be applicable to such
month-to-month tenancy, except that Tenant shall pay all of Base Rent, Operating
Cost Share Rent and Tax Share Rent at 150% of the rate in effect immediately
prior to such holdover, computed on a monthly basis for each full or partial
month Tenant remains in possession. Tenant shall also pay Landlord all of
Landlord's direct damages and, if Tenant retains possession of any part of the
Premises for more than thirty (30) days, Tenant shall also pay Landlord all of
Landlord's consequential damages. No acceptance of Rent or other payments by
Landlord under these holdover provisions shall operate as a waiver of Landlord's
right to regain possession or any other of Landlord's remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or future
ground lease or mortgage respecting the Project, and any amendments to such
ground lease or mortgage, at the election of the ground lessor or mortgagee as
the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the request
of Landlord or ground lessor or mortgagee, Tenant shall within ten (10) days of
the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the subordination.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground
lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given
and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the
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owner of the Project. At the request of Landlord, ground lessor or mortgagee,
Tenant shall execute and deliver within ten (10) days of the request any
document furnished by the requesting party to evidence Tenant's agreement to
attorn,
C. Security Deposit. Any ground lessor or mortgagee shall be responsible
for the return of any security deposit by Tenant only to the extent the security
deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. The Project is subject to any ground lease
and mortgage identified with name and address of ground lessor or mortgagee in
Appendix D to this Lease (as the same may be amended from time to time by
written notice to Tenant). Tenant agrees to send by registered or certified mail
to any ground lessor or mortgagee identified either in such Appendix or in any
later notice from Landlord to Tenant a copy of any notice of default sent by
Tenant to Landlord. If Landlord fails to cure such default within the required
time period under this Lease, but ground lessor or mortgagee begins to cure
within ten (10) days after such period and proceeds diligently to complete such
cure, then ground lessor or mortgagee shall have such additional time as is
necessary to complete such cure, including any time necessary to obtain
possession if possession is necessary to cure, and Tenant shall not begin to
enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall include
"trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include
the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and
"purchaser at a foreclosure sale" shall include, in each case, all of its
successors and assigns, however remote.
17. ASSIGNMENT AND SUBLEASE.
A. In General. Tenant shall not, without the prior consent of Landlord in
each case, make or allow any assignment or transfer, by operation of law or
otherwise, of any part of Tenant's interest in this Lease, (ii) grant or allow
any lien or encumbrance, by operation of law or otherwise, upon any part of
Tenant's interest in this Lease, (iii) sublet any part of the Premises, or (iv)
permit anyone other than Tenant and its employees to occupy any part of the
Premises. Tenant shall remain primarily liable for all of its obligations under
this Lease, notwithstanding any assignment or transfer. No consent granted by
Landlord shall be deemed to be a consent to any subsequent assignment or
transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay all of
Landlord's attorneys' fees and other expenses incurred in connection with any
consent requested by Tenant or in reviewing any proposed assignment or
subletting. Any assignment or transfer, grant of lien or encumbrance, or
sublease or occupancy without Landlord's prior written consent shall be void. If
Tenant shall assign this Lease or sublet the Premises in its entirety any rights
of Tenant to renew this Lease, extend the Term or to lease additional space in
the Project shall be extinguished thereby and will not be transferred to the
assignee or subtenant, all such rights being personal to the Tenant named
herein. If no default on the part of Tenant has occurred and is continuing,
Tenant may assign this Lease to an entity into which Tenant is merged or
consolidated or to an entity to which substantially all
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of Tenant's assets are transferred, without first obtaining Landlord's written
consent, if Tenant notifies Landlord at least ten (10) business days prior to
the proposed transaction, providing information satisfactory to Landlord in
order to determine the net worth both of the successor entity and of Tenant
immediately prior to such assignment, and showing the net worth of the successor
to be at least equal to the net worth of Tenant (a "Permitted Affiliate
Transfer" and the transferee, a "Permitted Affiliate Transferee").
B. Landlord's Consent. Landlord will not unreasonably withhold its consent
to any proposed assignment or subletting. It shall be reasonable for Landlord to
withhold its consent to any assigmment or sublease if (i) Tenant is in default
under this Lease, (ii) the proposed assignee or sublessee is a tenant in the
Project or an affiliate of such a tenant or a party that Landlord has identified
as a prospective tenant in the Project, (iii) the financial responsibility,
nature of business, and character of the proposed assignee or subtenant are not
all reasonably satisfactory to Landlord, (iv) in the reasonable judgment of
Landlord the purpose for which the assignee or subtenant intends to use the
Premises (or a portion thereof) is not in keeping with Landlord's standards for
the Building or are in violation of the terms of this Lease or any other leases
in the Project, (v) the proposed assignee or subtenant is a government entity,
or (vi) the proposed assignment is for less than the entire Premises or for less
than the remaining Term of the Lease. The foregoing shall not exclude any other
reasonable basis for Landlord to withhold its consent.
C. Procedure. Tenant shall notify Landlord of any proposed assignment or
sublease at least thirty (30) days prior to its proposed effective date. The
notice shall include the name and address of the proposed assignee or subtenant,
its corporate affiliates in the case of a corporation and its partners in a case
of a partnership, an execution copy of the proposed assignment or sublease, and
sufficient information to permit Landlord to determine the financial
responsibility and character of the proposed assignee or subtenant. As a
condition to any effective assignment of this Lease, the assignee shall execute
and deliver in form satisfactory to Landlord at least fifteen (15) days prior to
the effective date of the assignment, an assumption of all of the obligations of
Tenant under this Lease. As a condition to any effective sublease, subtenant
shall execute and deliver in form satisfactory to Landlord at least fifteen (15)
days prior to the effective date of the sublease, an agreement to comply with
all of Tenant's obligations under this Lease, and at Landlord's option, an
agreement (except for the economic obligations which subtenant will undertake
directly to Tenant) to attorn to Landlord under the terms of the sublease in the
event this Lease terminates before the sublease expires.
D. Change of Management or Ownership. Any transfer of the direct or
indirect power to affect the management or policies of Tenant or direct or
indirect change in thirty-five percent (35%) or more in the aggregate of the
ownership interest in Tenant shall constitute an assignment of this Lease.
E. Excess Payments. If Tenant shall assign this Lease or sublet any part
of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, after deducting the
out-of-pocket leasing commissions, tenant
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improvements and marketing costs incurred by Tenant in connection with such
assignment or subletting, then Tenant shall pay to Landlord as Additional Rent
50% of any such excess immediately upon receipt.
F. Recapture. Landlord may, by giving written notice to Tenant within
thirty (30) days after receipt of Tenant's notice of assignment or subletting,
other than a Permitted Affiliate Transfer, terminate this Lease with respect to
the space described in Tenant's notice, as of the effective date of the proposed
assignment or sublease and all obligations under this Lease as to such space
shall expire except as to any obligations that expressly survive any termination
of this Lease; provided that Landlord shall not be entitled to the rights under
this Section 17(F) (i) in the event subleases of less than thirty-three percent
(33%) of the Rentable Area in the aggregate during the first Lease Year, or
(ii) with respect to any sublease if within ten (10) days after Landlord's
notice to Tenant under this Section 17(F) Tenant delivers written notice to
Landlord rescinding and terminating the proposed sublease.
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations.
Subject to the provisions of Section 16, this Lease shall not be affected by any
such transfer.
19. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis (except as provided in this Lease with respect
to the prepaid Rent), and that to the best of the knowledge of the certifying
party, the other party has committed no uncured defaults and has no offsets or
claims. The certifying party may also be required to state the date of
commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
the amount of any security deposit, and such other matters as may be reasonably
requested. Failure to deliver such statement within the time required shall be
conclusive evidence against the non-certifying party that this Lease, with any
amendments identified by the requesting party, is in full force and effect, that
there are no uncured defaults by the requesting party, that not more than one
month's Rent has been paid in advance, except for the remaining portion of the
prepaid rent expressly provided in this Lease, that the non-certifying party has
not paid any security deposit, other than the security deposit provided in
Section 20 below, and that the non-certifying party has no claims or offsets
against the requesting party.
20. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date of
this Lease, security for the performance of all of its obligations in the amount
set forth on the Schedule (the "Initial Security Deposit"). The Initial Security
Deposit has been calculated as
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three (3) times the sum of the monthly Base Rent, monthly Operating Cost Share
Rent and monthly Tax Share Rent due under this Lease. For the purposes of
determining the Initial Security Deposit, the monthly Base Rent, Operating Cost
Share Rent and Tax Share Rent have been estimated. Tenant acknowledges and
agrees that the estimates of Base Rent, Operating Cost Share Rent and Tax Share
Rent for the Initial Security Deposit have been made solely for the parties'
ease in calculating the Initial Security Deposit and such estimate shall not
limit or affect any of the provisions of this Lease, including, without
limitation, the provisions of this Lease regarding the payment of Base Rent,
Operating Cost Share Rent and Tax Share Rent and the provisions of this Section
20.
The Security Deposit shall be increased upon the Commencement Date and the
determination of the TI Rent Component and any increase from time to time in the
monthly Base Rent, monthly Operating Cost Share Rent and monthly Tax Share Rent
due under this Lease, and concurrently therewith Tenant shall deliver to
Landlord, in immediately available funds, the amount necessary to increase the
Security Deposit then held by Landlord to an amount equal to three (3) times the
sum of the monthly Base Rent, monthly Operating Cost Share Rent and monthly Tax
Share Rent, as the same may be reduced as provided in the next paragraph.
If as of the commencement of the thirty-first (31st) month of the Term,
(a) no default by Tenant and no event which with the giving of notice or the
passage of time would constitute a default by Tenant, exists under this Lease,
and (b) Tenant's annual audited, and quarterly, financial statements for the
fiscal year and fiscal quarter immediately preceding the thirty-first (31st)
month of the Term show Tenant's net worth to be not less than $3,000,000, then
the amount of the Security Deposit then held by Landlord shall be reduced to the
sum from time to time of the monthly Base Rent, monthly Operating Cost Share
Rent and monthly Tax Share Rent. Prior to any reduction of the Security Deposit
Tenant shall deliver to Landlord Tenant's financial statements for the
applicable fiscal year and fiscal quarter, prepared in accordance with generally
accepted accounting principles consistently applied, with annual statements
audited by an independent certified public accountant. Any reduction in the
Security Deposit shall be held by Landlord and applied to the next payment(s) of
Rent due under this Lease. The provisions of this paragraph allowing for the
reduction of the Security Deposit are applicable only if and when PhoneXchange
or a Permitted Affiliate Transferee is the Tenant hereunder (and if at any time
PhoneXchange or a Permitted Affiliate Transferee is not the Tenant hereunder
there shall be no such reduction of the Security Deposit).
If Tenant defaults under this Lease, Landlord may use any part of the
Security Deposit to make any defaulted payment, to pay for Landlord's cure of
any defaulted obligation, or to compensate Landlord for any loss or damage
resulting from any default. To the extent any portion of the deposit is used,
Tenant shall within five (5) days after demand from Landlord restore the deposit
to its full amount. Landlord may keep the Security Deposit in its general funds
and shall not be required to pay interest to Tenant on the deposit amount. If
Tenant shall perform all of its obligations under this Lease and return the
Premises to Landlord at the end of the Term, Landlord shall return all of the
remaining Security Deposit to Tenant not later than thirty (30) days after the
delivery of possession of the Premises to Landlord. The Security
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Deposit shall not serve as an advance payment of Rent or a measure of Landlord's
damages for any default under this Lease. If the Base Rent, Operating Cost Share
Rent or Tax Share Rent shall, from time to time, increase during the term of
this Lease (as extended from time to time), Tenant shall, upon Landlord's
election, deposit with Landlord additional money as a Security Deposit so that
the total amount of Security Deposit held by Landlord shall at all times bear
the same proportion to the then current Base Rent, Operating Cost Share Rent and
Tax Share Rent as the initial Security Deposit bears to the initial Base Rent,
Operating Cost Share Rent and Tax Share Rent.
If Landlord transfers its interest in the Project or this Lease, Landlord
shall either (a) transfer the portion of the Security Deposit then held by
Landlord to its transferee or (b) return to Tenant the portion of the Security
Deposit then held by Landlord and remaining after the deductions permitted
herein. Upon such transfer to such transferee or the return of the Security
Deposit to Tenant, Landlord shall have no further obligation with respect to the
Security Deposit, and Tenant's right to the return of the Security Deposit shall
apply solely against Landlord's transferee.
Tenant waives the provisions of California Civil Code Section 1950.7, and
all other provisions of law now in force or that become in force after the date
of execution of this Lease, that provide that Landlord may claim from a security
deposit only those sums reasonably necessary to remedy any defaults in the
payment of Rent, to repair damage caused by Tenant, or to clean the Premises.
Landlord and Tenant agree that Landlord may, in addition, claim those sums
reasonably necessary to compensate Landlord for any other foreseeable or
unforeseeable loss or damage caused by the act or omission of Tenant or Tenant's
officers, agents, employees, independent contractors, or invitees.
21. FORCE MAJEURE. Neither Landlord nor Tenant shall be in default under
this Lease to the extent such party is unable to perform any of its obligations
on account of any strike or labor problem, energy shortage, governmental
pre-emption or prescription, flood, earthquake, national emergency, or any other
cause of any kind beyond the reasonable control of such party (with financial
inability of a party not being a cause beyond the reasonable control of such
party) ("Force Majeure").
22. TENANT'S PERSONAL PROPERTY AND FIXTURES. Tenant hereby grants to
Landlord all of its personal property and fixtures now or hereafter located
within the Premises as security for performance of all of Tenant's obligations
under this Lease. Tenant may replace such personal property and fixtures with
items of equal or better quality, but shall not otherwise remove them from the
Premises without the consent of Landlord until all of the obligations of Tenant
under this Lease have been performed. This Lease constitutes a security
agreement creating a security interest in such property in favor of Landlord,
subject only to the liens of existing creditors, and Landlord may at any time
file this Lease as a financing statement under the Uniform Commercial Code of
the state in which the Project is located. Upon Tenant's reasonable request,
Landlord will subordinate such security interest (pursuant to an agreement
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in form and substance acceptable to Landlord in its reasonable discretion) to
personal property financing obtained by Tenant in the ordinary course of its
business.
23. NOTICES. All notices, consents, approvals and similar communications
to be given by one party to the other under this Lease (including, without
limitation, any notice required by law to be given by Landlord to Tenant as a
condition to the filing of an action alleging an unlawful detainer of the
Premises and any three (3) day notice under Section 1161(2) or (3) of the
California Code of Civil Procedure), shall be given in writing, mailed or
personally delivered as follows:
A. Landlord. To Landlord as follows:
CarrAmerica Realty Corporation
3611 South Harbor Boulevard, Suite 230
Santa Ana, California 92704
Attn: Market Officer
with a copy to:
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
Prior to the Commencement Date:
PhoneXchange
4685 MacArthur Court, Suite 300
Newport Beach, California 92660
Attention: Chief Financial Officer
After the Commencement Date:
PhoneXchange
27061 Aliso Creek Road
Aliso Viejo, California
Attention: Chief Financial Officer
or to such other person at such other address as Tenant may designate by notice
to Landlord.
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Mailed notices shall be sent by United States certified or registered mail,
or by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
24. QUIET POSSESSION. Subject to the provisions of Section 16, so long as
Tenant shall perform all of its obligations under this Lease, Tenant shall enjoy
peaceful and quiet possession of the Premises against any party claiming through
the Landlord.
25. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has not
dealt with any real estate broker with respect to this Lease except for any
broker(s) listed in the Schedule, and no other broker is in any way entitled to
any broker's fee or other payment in connection with this Lease. Tenant shall
indemnify and defend Landlord against any claims by any other broker or third
party for any payment of any kind in connection with this Lease.
26. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's assignment
contained in Section 17, the provisions of this Lease shall be binding upon and
inure to the benefit of all successors and assigns of Landlord and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant under
this Lease which are due upon demand, Tenant shall pay to Landlord any amount
for which Landlord renders a statement of account within fifteen (15) days of
Tenant's receipt of Landlord's statement.
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The term
"Landlord" means only the owner of the Project and the lessor's interest in this
Lease from time to time. The words "re-entry" and "re-enter" are not restricted
to their technical legal meaning The words "including" and similar words shall
mean "without limitation." The word "affiliate" shall mean a person or entity
controlling, controlled by or under common control with the applicable entity.
"Control" shall mean the power directly or indirectly, by contract or otherwise,
to direct the management and policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each provision of this
Lease.
E. No Option. This document shall not be effective for any purpose until
it has been executed and delivered by both parties; execution and delivery by
one parry shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease shall
not affect any other provision.
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G. Governing Law. This Lease shall be governed in all respects by the laws
of the state in which the Project is located, without regard to the principles
of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be effective
unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its obligations
under this Lease, Tenant shall notify Landlord in writing and shall take no
action respecting such breach so long as Landlord immediately begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure any
default by Tenant; any expenses incurred shall become Additional Rent due from
Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on the
construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that it has
full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices, constitutes
the entire agreement between the parties. No representations or agreements of
any kind have been made by either party which are not contained in this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to the
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any rights
to light and air in connection with Project. Landlord reserves to itself, the
Land, the Building below the improved floor of each floor of the Premises, the
Building above the ceiling of each floor of the Premises, the exterior of the
Premises and the areas on the same floor outside the Premises, along with the
areas within the Premises required for the installation and repair of utility
lines and other items required to serve other tenants of the Building.
Q. Singular and Plural. Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute Landlord
or Tenant, then the relevant term shall refer to both parties together.
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R. No Recording by Tenant. Tenant shall not record in any public records
any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of construction that
ambiguities are resolved against the drafting party shall not apply to this
Lease.
U. Survival. All obligations of Landlord and Tenant under this Lease shall
survive the termination of this Lease.
V. Rent Not Based on Income. No rent or other payment in respect of the
Premises shall be based in any way upon net income or profits from the Premises.
Tenant may not enter into or permit any sublease or license or other agreement
in connection with the Premises which provides for a rental or other payment
based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any of its
obligations under this Lease through its employees or third parties hired by
the Landlord.
X. Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within five (5)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
27. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
28. HAZARDOUS SUBSTANCES.
A. Tenant shall not cause or permit any Hazardous Substances to be brought
upon, produced, stored, used, discharged or disposed of in or near the Project
unless Landlord has consented to such storage or use in its sole discretion. If
any lender or governmental agency shall require testing for Hazardous Substances
in the Premises, Tenant shall pay for such testing.
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B. "Hazardous Substances" means (a) any chemical, compound, material,
mixture or substance that is now or hereafter defined or listed in, or otherwise
classified pursuant to, any Environmental Laws as a "hazardous substance",
"hazardous material", "hazardous waste", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "infectious waste", "biohazardous waste",
"toxic substance", "pollutant", "toxic pollutant", "contaminant" as well as any
formulation not mentioned herein intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "EP
toxicity", or "TCLP toxicity"; (b) petroleum, natural gas, natural gas liquids,
liquefied natural gas, synthetic gas usable for fuel (or mixtures of natural gas
and such synthetic gas) and ash produced by a resource recovery facility
utilizing a municipal solid waste stream, and drilling fluids, produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas, or geothermal resources; (c) "hazardous substance" as
defined in Section 25281(f) of the California Health and Safety Code; (d)
"waste" as defined in Section 13050(d) of the California Water Code; (e)
asbestos in any form; (f) urea formaldehyde foam insulation; (g) polychlorinated
biphenyls (PCBs); (h) radon; and (i) any other chemical, material, or substance
exposure to which is limited or regulated by any Governmental Agency because of
its quantity, concentration, or physical or chemical characteristics, or which
poses a significant present or potential hazard to human health or safety or to
the environment if released into the workplace or the environment. "Hazardous
Substances" shall not include ordinary office supplies, repair, maintenance and
cleaning supplies, and backup batteries for computer equipment, all maintained
in reasonable and necessary quantities and used in accordance with all
Environmental Laws. "Environmental Laws" means any and all present and future
federal, state and local laws, ordinances, regulations, policies and any other
requirements of any Governmental Agency relating to health, safety, the
environment or to any Hazardous Substances, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), the Resource Conservation Recovery Act (RCRA), the Hazardous
Substances Transportation Act, the Toxic Substance Control Act, the Endangered
Species Act, the Clean Water Act, the Occupational Safety and Health Act, the
California Environmental Quality Act and the applicable provisions of the
California Health and Safety Code, California Labor Code and the California
Water Code, each as hereafter amended from time to time, and the present and
future rules, regulations and guidance documents promulgated under any of the
foregoing.
C. Without limiting Tenant's liability and obligations under Sections
28(D), (E), (F) and (G), the foregoing covenant set forth in Section 28(A) shall
not extend to insignificant amounts of substances typically found or used in
general office applications so long as (i) such substances are maintained only
in such quantities as are reasonably necessary for Tenant's operations in the
Premises, (ii) such substances are used strictly in accordance with the
manufacturers' instructions therefor and all applicable Environmental Laws,
(iii) such substances are not disposed of in or about the Project in a manner
which would constitute a release or discharge thereof, and (iv) all such
substances are removed from the Project by Tenant upon the expiration or earlier
termination of this Lease. Tenant shall, within thirty (30) days after demand
therefor, provide to Landlord a written list identifying any Hazardous
Substances then maintained by Tenant in the Building, the use of each such
Hazardous Substance so maintained
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by Tenant together with written certification by Tenant stating, in substance,
that neither Tenant nor any person for whom Tenant is responsible has released
or discharged any Hazardous Substances in or about the Project.
D. In order to obtain Landlord's consent under this Section 28 with
respect to any Hazardous Substance other than as specified in Section 28(C)
above, Tenant shall first submit a detailed hazardous material management plan
describing all relevant aspects of the same to Landlord for approval, which
approval may be withheld by Landlord in its sole and absolute discretion. No
approval by Landlord shall relieve Tenant of any obligation of Tenant pursuant
to this Section 28, including all removal, clean-up and indemnification
obligations. Tenant shall, within five (5) days after receipt thereof, furnish
to Landlord copies of all notices or other communications received by Tenant
with respect to any actual or alleged release or discharge of any Hazardous
Substance in or about the Premises or the Project and shall, whether or not
Tenant receives any such notice or communication, notify Landlord in writing of
any discharge or release of Hazardous Substance by Tenant or anyone for whom
Tenant is responsible in or about the Premises or the Project. In the event
Tenant is required to maintain any hazardous materials license or permit in
connection with any use conducted by Tenant or any equipment operated by Tenant
in the Premises, copies of each such license or permit, each renewal thereof,
and any communication relating to suspension, renewal or revocation thereof
shall be furnished to Landlord within five (5) days after receipt thereof by
Tenant. Compliance by Tenant with this Section 28(C) shall not relieve Tenant of
any other obligation of Tenant pursuant to this Section 28.
E. Upon any violation of the foregoing covenants and in all events upon
any expiration of the Term, Tenant shall be obligated, at Tenant's sole cost, to
clean up and remove from the Project all Hazardous Substances introduced into
the Project by Tenant or any third party for whom Tenant is responsible. Such
clean-up and removal shall include all testing and investigation required by any
governmental authorities having jurisdiction and preparation and implementation
of any remedial action plan required by any governmental authorities having
jurisdiction. All such clean-up and removal activities of Tenant shall, in each
instance, be conducted to the satisfaction of Landlord and all governmental
authorities having jurisdiction. Landlord's right of entry pursuant to Section
11 of this Lease shall include the right (but not the obligation) to enter and
inspect the Premises for violations of Tenant's covenant herein and to supervise
any of Tenant's clean-up and removal activities.
F. To the extent permitted by then applicable law, Tenant shall protect,
indemnify, defend and hold harmless Landlord, the partners of any entity
constituting Landlord and Landlord's partners, officers, employees, agents,
lenders and attorneys from and against any and all claims, liabilities, losses,
actions, costs and expenses (including attorneys' fees and costs of defense)
incurred by such indemnified persons, or any of them, as the result of (i) the
introduction into the Project by Tenant, its employees, agents, licensees,
invitees, contractors or any other person or entity for whom Tenant is
responsible of any Hazardous Substance, (ii) the usage by Tenant or anyone for
whom Tenant is responsible of Hazardous Substances in or about the Project,
(iii) the discharge or release in or about the Project by Tenant or anyone
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for whom Tenant is responsible of any Hazardous Substance, (iv) any injury to or
death of persons or damage to or destruction of property resulting from the use
by Tenant or anyone for whom Tenant is responsible of Hazardous Substances in or
about the Project, and (v) any failure of Tenant or anyone for whom Tenant is
responsible to observe the foregoing covenants. Payment shall not be a condition
precedent to enforcement of the foregoing indemnification provision.
G. Upon any violation of any of the foregoing covenants, Landlord shall be
entitled to exercise all remedies available to a landlord against the defaulting
tenant, including but not limited to those set forth in Section 13 of this
Lease. Without limiting the generality of the foregoing, Tenant expressly agrees
that upon any such violation Landlord may, at its option (i) immediately
terminate this Lease, or (ii) continue this Lease in effect until compliance by
Tenant with its clean-up and removal covenant (notwithstanding the expiration of
the term of this Lease). No action by Landlord hereunder shall impair the
obligations of Tenant pursuant to this Section 28.
29. EXCULPATION. Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Project, and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.
30. SIGNAGE. Subject to the terms and approvals provided herein, Tenant
shall be entitled to space on a monument sign (the "Monument Sign") (which may
include signage for any other tenant(s) as elected by Landlord) installed by
Landlord at the Project, to the extent permitted by, and subject to the
satisfaction of all Governmental Requirements and, without limiting the
foregoing, subject to the approval of Landlord and the County of Orange. The
Monument Sign design, size, color, material, composition shall be selected by
Landlord, and the Monument Sign shall be in the location elected by Landlord.
Tenant acknowledges that the Monument Sign may not be permitted by the
Governmental Requirements, that Landlord has made no representation or warranty
regarding the availability of the Monument Sign and any unavailability of the
Monument Sign under any Governmental Requirements shall not affect or limit
Landlord's or Tenant's rights or obligations under this Lease. If the Monument
Sign is permitted and approved as provided herein, (a) Tenant's share of the
cost of the installation of the Monument Sign and the maintenance thereof shall
be paid by Tenant, and (b) if Tenant fails to approve and acknowledge in writing
in a manner acceptable to Landlord the Monument Sign and all costs to be paid by
Tenant in connection with the installation of the Monument Sign within thirty
(30) days after written notice from Landlord, all of Tenant's rights with
respect to the Monument Sign and under this Section 30 shall terminate and be of
no further force or effect. Upon the expiration or earlier termination of the
Lease Tenant shall, at its sole cost and expense, remove Tenant's signage from
the Monument Sign and repair all damage caused thereby and restore the
applicable portion of the Monument to its condition prior to the installation
and removal of Tenant's signage. The rights granted under this Section 30 are
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personal to PhoneXchange and any Permitted Affiliate Transferee and may not
be transferred or assigned.
31. EXTENSION OPTION. Subject to Subsections B and C below, Tenant may at
its option extend the Term of this Lease for the entire Premises for one period
of five (5) years (the "Renewal Term") upon the same terms contained in this
Lease, excluding the provisions of Appendix C of the Lease and except for the
amount of Base Rent payable during the Renewal Term; and any reference to the
"Term" of the Lease shall be deemed to include the Renewal Term and apply
thereto, unless it is expressly provided otherwise. Tenant shall have no
additional extension option.
A. The Base Rent during the Renewal Term shall be the greater of (i) the
Base Rent applicable to the last day of the final Lease Year prior to the
applicable Renewal Term, or (ii) the then prevailing market rate for a
comparable term commencing on the first day of the Renewal Term for tenants of
comparable size and creditworthiness for comparable built-out space in the
Building and other first class office buildings in the vicinity of the Building
as reasonably determined by Landlord.
B. To exercise any option, Tenant must deliver a binding notice to Landlord
not less than ten (10) months prior to the expiration of the initial Term of
this Lease. Thereafter, the Market Rate for the Renewal Term shall be calculated
pursuant to Subsection C below and Landlord shall inform Tenant of the Market
Rate. Such calculations shall be final and shall not be recalculated at the
actual commencement of the Renewal Term. If Tenant fails to timely give its
notice of exercise, Tenant will be deemed to have waived its option to extend.
C. Market Rate shall be determined as follows:
(i) If Tenant provides Landlord with its binding notice of exercise
pursuant to Subsection B above, then at some point between eleven (11) and
nine (9) months prior to the commencement of the Renewal Term (or, at
Landlord's election, at an earlier point), Landlord shall calculate and
inform Tenant of the Market Rate. If Tenant rejects the Market Rate as
calculated by Landlord, Tenant shall inform Landlord of its rejection
within ten (10) days after Tenant's receipt of Landlord's calculation, and
Landlord and Tenant shall commence negotiations to agree upon the Market
Rate. If Tenant fails to timely reject Landlord's calculation of the
Market Rate it will be deemed to have accepted such calculation. If
Landlord and Tenant are unable to reach agreement within twenty-one (21)
days after Landlord's receipt of Tenant's notice of rejection, then the
Market Rate shall be determined in accordance with (ii) below.
(ii) If Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within seven (7)
days, Landlord and Tenant shall each simultaneously submit to the other in
a sealed envelope its good faith estimate of the Market Rate. If the
higher of such estimates is not more than one hundred five percent (105%)
of the lower, then the Market Rate shall be the average of the two.
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Otherwise, the dispute shall be resolved by arbitration in accordance with
(iii) and (iv) below.
(iii) Within seven (7) days after the exchange of estimates, the
parties shall select as an arbitrator an independent MAI appraiser with at
least five (5) years of experience in appraising office space in the
metropolitan area in which the Project is located (a "Qualified
Appraiser"). If the parties cannot agree on a Qualified Appraiser, then
within a second period of seven (7) days, each shall select a Qualified
Appraiser and within ten (10) days thereafter the two appointed Qualified
Appraisers shall select a third Qualified Appraiser and the third
Qualified Appraiser shall be the sole arbitrator. If one party shall fail
to select a Qualified Appraiser within the second seven (7) day period,
then the Qualified Appraiser chosen by the other party shall be the sole
arbitrator.
(iv) Within twenty-one (21) days after submission of the matter to
the arbitrator, the arbitrator shall determine the Market Rate by choosing
whichever of the estimates submitted by Landlord and Tenant the arbitrator
judges to be more accurate. The arbitrator shall notify Landlord and
Tenant of its decision, which shall be final and binding. If the
arbitrator believes that expert advice would materially assist him, the
arbitrator may retain one or more qualified persons to provide expert
advice. The fees of the arbitrator and the expenses of the arbitration
proceeding, including the fees of any expert witnesses retained by the
arbitrator, shall be paid by the party whose estimate is not selected.
Each party shall pay the fees of its respective counsel and the fees of
any witness called by that party.
D. Tenant's option to extend this Lease is subject to the conditions that:
(i) on the date that Tenant delivers its final binding notice exercising its
option to extend, Tenant is not in default under this Lease after the expiration
of any applicable notice and cure periods, and (ii) Tenant shall not have
assigned this Lease, except an assignment to a Permitted Affiliate Transferee in
accordance with the terms of this Lease, or sublet any portion of the Premises
under a sublease which is in effect at any time during the final 12 months prior
to the applicable Renewal Term.
32. RIGHT OF FIRST OFFER. Subject to Subsection B below, and subject to
any expansion or renewal options of any current tenant in the Building (a "Prior
Tenant"), or the right of Landlord to extend the Lease of any current tenant in
the Building, Landlord hereby grants to Tenant for the term of the Lease a right
of first offer for 4,000 net rentable square feet of space in the portion of the
ground floor of Building One not originally demised to Tenant under this Lease
(collectively, the "ROFO Space"), to be exercised in accordance with Subsection
A below.
A. If any ROFO Space becomes available for lease to anyone other than a
Prior Tenant, Landlord shall so notify Tenant ("Landlord's ROFO Notice")
identifying the available ROFO Space (the "Subject ROFO Space"). Landlord's ROFO
Notice may be given up to sixteen (16) months in advance of such availability
and shall contain the terms upon which
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Landlord intends to offer the Subject ROFO Space for lease to the market. Tenant
shall notify Landlord within five (5) business days of receipt of Landlord's
ROFO Notice whether it desires to lease the Subject ROFO Space on the terms set
forth in Landlord's ROFO Notice. If Tenant does not notify Landlord within said
five (5) business day period that it will lease the Subject ROFO Space, Tenant
shall be deemed to have refused the Subject ROFO Space. After any refusal,
Tenant shall have no further right of first offer for such Subject ROFO Space
and Landlord shall be free to lease such space to any party for any term and
upon any terms it desires. If Tenant exercises its right of first offer with
respect to the Subject ROFO Space, such space shall be added to the Premises for
all purposes of this lease for the remaining Term of the Lease (but in no event
less than three (3) years) on (a) the terms specified in Landlord's ROFO Notice,
and (b) the terms of this Lease to the extent that they do not conflict with the
terms specified in Landlord's ROFO Notice, except that the terms of Landlord's
ROFO Notice shall not apply during any Renewal Term, and instead, the terms of
the Lease applying to the remainder of the Premises during the Renewal Term
shall also apply to the Subject ROFO Space.
B. Tenant's right of first offer is subject to the conditions that: (i) on
the date that Tenant delivers its notice exercising its right of first offer,
Tenant is not in default under this Lease after the expiration of any applicable
notice and cure periods, and (ii) Tenant shall not have assigned the Lease,
except an assignment to a Permitted Affiliate Transferee in accordance with the
terms of this Lease, or sublet any portion of the Premises under a sublease
which is in effect at any time during the period commencing with Tenant's
delivery of its notice and ending on the date the ROFO Space is added to the
Premises.
C, Promptly after Tenant's exercise of its right of first offer, Landlord
shall execute and deliver to Tenant an amendment to the Lease to reflect changes
in the Premises, Base Rent, Tenant's Proportionate Share and any other
appropriate terms changed by the addition of the ROFO Space. Within 15 days
thereafter, Tenant shall execute and return the amendment.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By /s/ PHILIP L. HAWKINS
--------------------------------------
Print Name: Philip L. Hawkins
-----------------------------
Print Title: Chief Operating Officer
----------------------------
TENANT:
PHONEXCHANGE,
a Delaware corporation
By: /s/ DAVID J. CHADWICK
-------------------------------------
Print Name: David J. Chadwick
-----------------------------
Print Title: PRESIDENT
----------------------------
By:
--------------------------------------
Print Name:
-----------------------------
Print Title:
----------------------------
39
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APPENDIX A
PLAN OF THE PREMISES
Attached.
APPENDIX A
Page 1 of 1
<PAGE> 48
Diagram of floor plan
<PAGE> 49
APPENDIX B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory shall be available to Tenant solely to display
names and their location in the Project, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord or as provided in the Lease; use the Premises for
housing, lodging or sleeping purposes; or permit preparation or warming of food
in the Premises (warming of coffee and individual meals with employees and
guests excepted). Tenant shall not occupy or use the Premises or permit the
Premises to be occupied or used for any purpose, act or thing which is in
violation of any Governmental Requirement or which may be dangerous to persons
or property.
7. Tenant shall not bring upon, use or keep in the Premises or the Project
any kerosene, gasoline or inflammable or combustible fluid or material, or any
other articles deemed
APPENDIX B
Page 2 of 5
<PAGE> 50
hazardous to persons or property, or use any method of heating or air
conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians as to where and
how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed without the consent of Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Landlord.
9. No additional locks shall be placed upon any doors, windows or transoms
in or to the Premises. Tenant shall not change existing locks or the mechanism
thereof. Upon termination of the lease, Tenant shall deliver to Landlord all
keys and passes for offices, rooms, parking lot and toilet rooms which shall
have been furnished Tenant.
In the event of the loss of keys so furnished, Tenant shall pay
Landlord therefor. Tenant shall not make, or cause to be made, any such keys and
shall order all such keys solely from Landlord and shall pay Landlord for any
keys in addition to the two sets of keys originally furnished by Landlord for
each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through the trucking concourse or service doors or in
or on freight elevators.
12. Tenant shall cause all doors to the Premises to be closed and securely
locked and shall turn off all utilities, lights and machines before leaving the
Project at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Project's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed.
APPENDIX B
Page 2 of 5
<PAGE> 51
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed in
the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or permit any noise, vibration or odor to emanate from the Premises, or do
anything therein tending to create, or maintain, a nuisance, or do any act
tending to injure the reputation of the Building.
19. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for
regularly scheduled time periods, as deemed advisable by Landlord and/or its
agents, in their sole discretion, require that persons entering or leaving the
Project or the Property identify themselves to watchmen or other employees
designated by Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully
with Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith, it being understood that Landlord is not required to
provide any security procedures and shall have no liability for such security
procedures or the lack thereof.
20. Tenant shall not do or permit the manufacture, sale or purchase of any
fermented, intoxicating or alcoholic beverages, or the use thereof except at
reasonable corporate functions, without obtaining written consent of Landlord,
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
APPENDIX B
Page 3 of 5
<PAGE> 52
22. Tenant shall not provide any janitorial services or cleaning without
Landlord's written consent and then only subject to supervision of Landlord and
at Tenant's sole responsibility and by janitor or cleaning contractor or
employees at all times satisfactory to Landlord.
23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same and Landlord may place and
keep on the windows and doors of the Premises at any time signs advertising the
Premises for Rent.
24. No equipment. mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the windows
of the Premises without the prior written consent of Landlord, and then only at
the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
25. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.
26. Except as necessary in connection with the NOC in accordance with the
Lease, Tenant shall not install or operate any phonograph, musical or sound-
producing instrument or device, radio receiver or transmitter, TV receiver or
transmitter, or similar device in the Building, nor install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves which may
interfere with or impair radio or television broadcasting or reception from or
in the Building or elsewhere, without in each instance the prior written
approval of Landlord. The use thereof, if permitted, shall be subject to control
by Landlord to the end that others shall not be disturbed.
27. Tenant shall promptly remove all rubbish and waste from the Premises.
28. Tenant shall not exhibit, sell or offer for sale, Rent or exchange in
the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
29. Tenant shall list all furniture, equipment and similar articles Tenant
desires to remove from the Premises or the Building and deliver a copy of such
list to Landlord and procure a removal permit from the Office of the Building
authorizing Building employees to permit such articles to be removed.
30. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
APPENDIX B
Page 4 of 5
<PAGE> 53
31. Tenant shall not do any painting in the Premises, or mark, paint, cut
or drill into, drive nails or screws into, or in any way deface any part of the
Premises or the Building, outside or inside, without the prior written consent
of Landlord.
32. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
33. Tenant and its employees shall cooperate in all fire drills conducted
by Landlord in the Building.
APPENDIX B
Page 5 of 5
<PAGE> 54
APPENDIX C
TENANT IMPROVEMENT AGREEMENT
1. INITIAL IMPROVEMENTS. Landlord shall cause to be performed the
improvements (the "Initial Improvements") in the Premises in accordance with
plans and specifications approved by Tenant and Landlord (the "Plans"), which
approvals shall not be unreasonably withheld. The Initial Improvements shall be
performed at the Tenant's cost, subject to the Landlord's Contribution
(hereinafter defined). The Initial Improvements shall include any necessary HVAC
ducting.
Landlord shall cause the Plans to be prepared, at Tenant's cost, by a
registered professional architect and mechanical and electrical engineer(s).
Such engineer(s) shall be approved, in advance, by the Landlord. On or before
March 20, 1999 Tenant shall provide reasonable comments to such Plans or approve
the same. Tenant shall be deemed to have approved such Plans if it does not
timely provide reasonable comments on such Plans. If Tenant provides Landlord
with reasonable comments to the initial draft of the Plans, Landlord shall
provide revised Plans to Tenant incorporating Landlord's comments. Tenant shall
within one week after receipt then either provide reasonable comments to such
revised Plans or approve such Plans. Tenant shall be deemed to have approved
such revised Plans if Tenant does not timely provide reasonable comments on such
Plans. Tenant hereby agrees that the Plans for the Initial Improvements shall
comply with all applicable Governmental Requirements. The fact that Landlord has
caused to be prepared any of the Plans (or any modifications or changes thereto)
shall not impose upon Landlord or its agents or representatives any obligation
with respect to the design of the Initial Improvements or the compliance of such
Initial Improvements or the Plans with applicable Governmental Requirements.
Landlord, with consultation of Tenant, shall select a contractor to
perform the construction of the Initial Improvements. Landlord shall use
commercially reasonable efforts to cause the Initial Improvements to be
substantially completed, except for minor "Punch List" items, on or before the
Commencement Date specified in the Schedule to the Lease, subject to Tenant
Delay (as defined in Section 4 hereof) and Force Majeure.
Landlord, or an agent of Landlord, shall provide project management
services in connection with the construction of the Initial Improvements and the
Change Orders (hereinafter defined). Such project management services shall be
performed, at Tenant's cost, for a fee of five percent (5%) of all costs
related to the preparation of the Plans and the construction of the Initial
Improvements and the Change Orders.
2. CHANGE ORDERS. If, prior to the Commencement Date, Tenant shall require
improvements or changes (individually or collectively, "Change Orders") to the
Premises in addition to, revision of or substitution for the Initial
Improvements, Tenant shall deliver to Landlord for its approval plans and
specifications for such Change Orders. If Landlord does not
APPENDIX C
Page 1 of 3
<PAGE> 55
approve of the plans for Change Orders, Landlord shall advise Tenant of the
revisions required. Tenant shall revise and redeliver the plans and
specifications to Landlord within five (5) business days of Landlord's advice or
Tenant shall be deemed to have abandoned its request for such Change Orders.
Tenant shall pay for all preparations and revisions of plans and specifications,
and the construction of all Change Orders, subject to Landlord's Contribution.
3. LANDLORD'S CONTRIBUTION. Landlord shall contribute an amount up to
$172,840 ("Landlord's Contribution") toward the costs incurred for the Initial
Improvements and Change Orders; provided that up to a maximum of $1,296 of
Landlord's Contribution may be used for the payment of the costs of the space
planner used for the preparation of a space plan for the Premises. Except as
provided below with respect to the Improvement Allowance (as defined below),
Landlord has no obligation to pay for costs of the Initial Improvements or
Change Orders in excess of Landlord's Contribution. If the cost of the Initial
Improvements and/or Change Orders exceeds the Landlord's Contribution and the
Improvement Allowance funded by Landlord Tenant shall pay such overage to
Landlord prior to commencement of construction of the Initial Improvements
and/or Change Orders.
If the costs of the Initial Improvements and Change Orders are in excess
of the Landlord's Contribution, and so long as Tenant is not in default under
this Lease, Landlord will lend Tenant an amount not to exceed $43,210 (the
"Improvement Allowance") solely for the payment of the costs of the Initial
Improvements and Change Orders. The Improvement Allowance funded by Landlord,
together with interest thereon at the rate set forth herein, shall be paid by
Tenant to Landlord as part of the Base Rent. For the purposes of determining the
Base Rent for the first Lease Year, the "TI Rent Component" per month for the
first Lease Year shall mean an amount equal to the total Improvement Allowance
funded by Landlord, together with interest on such amount at a rate of ten
percent (10%) per annum from the date of disbursement by Landlord until repaid
by Tenant, amortized in equal monthly installments over the initial term of this
Lease. Landlord and Tenant agree that all unpaid amounts of the Improvement
Allowance constitute Base Rent under this Lease. Without limiting any of the
foregoing provisions, at Landlord's request, Tenant shall within five (5) days
after such request, duly execute and deliver to Landlord a promissory note, in
form and substance satisfactory to Landlord, evidencing Tenant's obligation to
repay the Improvement Allowance with interest thereon as provided herein (the
"Improvement Note"). Tenant acknowledges and agrees that (a) Tenant's failure to
deliver the Improvement Note to Landlord as provided herein, or (b) any breach
of any of the terms of the Improvement Note, shall constitute a material breach
and default under this Lease. Tenant's failure to execute and deliver the
Improvement Note to Landlord as provided herein shall not affect Tenant's
obligation to repay the Improvement Allowance together with interest thereon as
provided herein. The Improvement Note may be prepaid by Tenant at any time. Any
unpaid Improvement Allowance, together with interest thereon as provided herein,
shall be immediately due and payable upon any default by Tenant under this
Lease. Tenant agrees to pay any and all of Landlord's attorneys' fees and costs
relating to the enforcement of Landlord's rights under the Improvement Note or
with respect to the repayment of the Improvement Allowance.
APPENDIX C
Page 2 of 3
<PAGE> 56
4. COMMENCEMENT DATE DELAY. Commencement Date shall be delayed until the
Initial Improvements have been substantially completed (the "Completion Date"),
except to the extent that the delay shall be caused by any one or more of the
following (a "Tenant Delay"):
(a) Tenant's request for Change Orders whether or not any such
Change Orders are actually performed; or
(b) Contractor's performance of any Change Orders; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
(d) Tenant's delay in reviewing, revising or approving plans and
specifications beyond the periods set forth herein; or
(e) Tenant's delay in providing information critical to the normal
progression of the project. Tenant shall provide such information as soon as
reasonably possible, but in no event longer than one week after receipt of such
request for information from the Landlord; or
(f) Tenant's delay in making payments to Landlord for costs of the
Initial Improvements and/or Change Orders in excess of the Landlord's
Contribution; or
(g) Any other act or omission by Tenant, its agents, contractors
or persons employed by any of such persons.
If the Commencement Date is delayed for any reason, then Landlord shall cause
Landlord's Architect to certify the date on which the Initial Improvements would
have been completed but for such Tenant Delay, or were in fact completed without
any Tenant Delay.
Prior to Tenant's occupancy of the Premises, Landlord and Tenant shall
agree up a punch list of items to be corrected.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord at its
discretion may permit Tenant and its agents to enter the Premises prior to the
Commencement Date to prepare the Premises for Tenant's use and occupancy. Any
such permission shall constitute a license only, conditioned upon Tenant's:
(a) working in harmony with Landlord and Landlord's agents,
contractors, workmen, mechanics and suppliers and with other tenants and
occupants of the Building;
(b) obtaining in advance Landlord's approval of the contractors
proposed to be used by Tenant and depositing with Landlord in advance of any
work (i) security satisfactory to
APPENDIX C
Page 3 of 3
<PAGE> 57
Landlord for the completion thereof, and (ii) the contractor's affidavit for the
proposed work and the waivers of lien from the contractor and all subcontractors
and suppliers of material; and
(c) furnishing Landlord with such insurance as Landlord may require
against liabilities which may arise out of such entry.
Landlord shall have the right to withdraw such license for any reason upon
twenty-four (24) hours' written notice to Tenant. Landlord shall not be liable
in any way for any injury, loss or damage which may occur to any of Tenant's
property or installations in the Premises prior to the Commencement Date. Tenant
shall protect, defend, indemnify and save harmless Landlord from all
liabilities, costs, damages, fees and expenses arising out of the activities of
Tenant or its agents, contractors, suppliers or workmen in the Premises or the
Building. Any entry and occupation permitted under this Section shall be
governed by Section 5 and all other terms of the Lease.
6. MISCELLANEOUS.
Terms used in this Appendix C shall have the meanings assigned to them in
the Lease. The terms of this Appendix C are subject to the terms of the Lease.
APPENDIX C
Page 4 of 4
<PAGE> 58
APPENDIX D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
None.
APPENDIX D
Page 1 of 1
<PAGE> 59
APPENDIX E
COMMENCEMENT DATE CONFIRMATION
Landlord: CarrAmerica Realty Corporation, a Maryland corporation
Tenant: PhoneXchange, a Delaware corporation
This Commencement Date Confirmation is made by Landlord and Tenant
pursuant to that certain Lease dated as of April 23, 1999 (the "Lease") for
certain premises known as Suite ___ in the building commonly known as Building
One of Pacific Corporate Plaza (the "Premises"). This Confirmation is made
pursuant to Item 9 of the Schedule to the Lease.
1. Lease Commencement Date. Termination Date. Landlord and Tenant hereby
agree that the Commencement Date of the Lease is ______ 199_, and the
Termination Date of the Lease is ____________, _____.
2. The monthly Base Rent for the initial Term is as follows:
<TABLE>
<CAPTION>
Monthly Monthly TI Monthly
Base Component Rent Component Base Rent
<S> <C> <C> <C>
Lease Year 1 $_____________ $_____________ $____________
Lease Year 2 $_____________ $_____________ $____________
Lease Year 3 $_____________ $_____________ $____________
Lease Year 4 $_____________ $_____________ $____________
Lease Year 5 $_____________ $_____________ $____________
</TABLE>
3. Acceptance of Premises. Tenant has inspected the Premises and affirms
that the Premises is acceptable in all respects in its current "as is"
condition.
4. Incorporation. This Confirmation is incorporated into the Lease, and
forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
APPENDIX E
Page 1 of 1
<PAGE> 60
TENANT:
PhoneXchange, a Delaware corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
LANDLORD:
CarrAmerica Realty Corporation,
a Maryland corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
APPENDIX E
Page 1 of 1
<PAGE> 1
EXHIBIT 10.10
---------------------------------------
QUINBY BUILDING
---------------------------------------
LEASE
---------------------------------------
(CALIFORNIA -- TELECOMMUNICATIONS USE)
TENANT: GLOBAL NETWORK PROVIDERS
DATE; JUNE 1, 1997
<PAGE> 2
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents (subject to the Rent
Escalation Rider) shall apply during the term of the Lease:
<TABLE>
<CAPTION>
Monthly
Period Base Rent
------ ---------
<S> <C> <C>
From June 1, 1997 to May 31, 2002 $2,475.00
</TABLE>
The Base Rent for the period from June 1, 1997 to July 1, ???? shall be
prepaid by Tenant upon execution of this Lease. If the actual Commencement Date
is before or after the Estimated Commencement Date, then all dates set forth
above shall be correspondingly accelerated or delayed, as the case may be. In
the event of any default by Tenant under this Lease which is not cured within
the applicable cure period set forth in Section 13.2, Tenant shall be obligated
to pay to Landlord, without any further notice from Landlord, a sum equal to all
rent credits previously credited to Tenant pursuant to the above schedule, and
no further rent credits shall be applicable for the balance of the Lease term.
The Base Rent shall be increased annually in accordance with the Rent Escalation
Rider attached hereto.
F. Base Years for Expenses: Real Estate Taxes--1997-1998: Operating and
Utility Costs--1997.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 2%.
H. Security Deposit: $4,950.00 (2 months rent).
I. Permitted Use: Installation and operation of telecommunications switching
equipment and related office use.
J. Maximum Tenant Improvement Allowance: None. Tenant to take Premises "as is"
as described in Section 35.
K. Tenant's Parking Allotment: None.
L. Landlord's Brokers: None.
M. Riders:
The following exhibits, riders and addenda are attached to and are part of
this Lease:
Exhibit A -- Floor Plan of Premises
Exhibit B -- Rules and Regulations
Emergency Generator Rider
Rent Escalation Rider
Telecommunications Conduit and Conduit Interconnection Room Rider
__________________________________________________________________________
N. Guaranty: A personal guaranty of this Lease is being executed by
/s/ [signature illegible]
-------------------------
AGREEMENT
2
<PAGE> 3
---------------------------------------
QUINBY BUILDING
---------------------------------------
LEASE
---------------------------------------
(CALIFORNIA -- TELECOMMUNICATIONS USE)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF LEASE TERMS..................................................... 1
AGREEMENT.................................................................. 3
1. PREMISES........................................................... 3
2. TERM............................................................... 3
3. RENT............................................................... 3
4. RENT ESCALATION.................................................... 3
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.............................. 6
6. SECURITY DEPOSIT................................................... 7
7. LATE PAYMENTS...................................................... 7
8. USE OF PREMISES.................................................... 7
9. BUILDING SERVICES.................................................. 8
10. CONDITION OF PREMISES.............................................. 10
11. DAMAGE TO PREMISES OR BUILDING..................................... 10
12. EMINENT DOMAIN..................................................... 11
13. DEFAULT............................................................ 12
14. REMEDIES UPON DEFAULT.............................................. 12
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY......................... 14
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL............... 15
17. ASSIGNMENT AND SUBLETTING.......................................... 15
18. TRANSFER OF LANDLORD'S INTEREST.................................... 19
19. HOLDING OVER....................................................... 19
20. NOTICES............................................................ 19
21. QUIET ENJOYMENT.................................................... 19
22. TENANT'S FURTHER OBLIGATIONS....................................... 19
23. ESTOPPEL CERTIFICATE BY LESSEE..................................... 20
24. SUBORDINATION AND ATTORNMENT....................................... 20
25. RIGHTS RESERVED TO LANDLORD........................................ 20
26. FORCE MAJEURE...................................................... 21
27. WAIVER OF CLAIMS; INDEMNITY........................................ 21
28. INSURANCE.......................................................... 22
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS...................... 23
30. MECHANIC'S LIENS................................................... 24
31. ALTERNATE SPACE.................................................... 24
32. HAZARDOUS MATERIALS................................................ 24
33. MISCELLANEOUS...................................................... 25
34. RULES AND REGULATIONS AFFECTING TELECOMMUNICATIONS USE............. 28
35. "AS IS" CONDITION.................................................. 28
EXHIBITS AND RIDERS
</TABLE>
<PAGE> 4
QUINBY BUILDING
LEASE
THIS LEASE is made as of the 1 day of JUNE, 1997, between Quinby
Building, LLC, a California Limited Liability Company (hereinafter called
"Landlord"), and Global Network Providers, 5330L Derry Ave., Agoura Hills
CA 91301 hereinafter called "Tenant").
SUMMARY OF LEASE TERMS
A. Address: 650 So. Grand Ave., Suite 901, Los Angeles, Ca 90017
1. Tenant's Premises and Notice Address:
--------------------------------
2. Landlord's Notice Address: Quinby Building, LLC, 650 S. Grand
Avenue, Suite 502
Los Angeles, CA 90017
With copy to: Peter Schwartz, Attorney at Law,
2049 Century Park East, Suite 2790,
Los Angeles, CA 90067
3. Landlord's Address for Rent
Payments: Quinby Building, LLC, 650 S. Grand
Avenue, Suite 502
Los Angeles, CA 90017
Attn: Gene Elmore
B. Approximate Rentable Area of the Premises:
1350 rentable square feet. The parties agree that such figure is only a
reasonable estimate of the area of the Premises. The figures in Items E, G, H
and J below and the other provisions of this Lease shall not be adjusted due to
any difference between the actual area of the Premises and the estimated area
shown above.
C. Lease Term: 5 years and 0 months.
D. 1. Estimated Commencement Date: June 1, 1997.
2. Commencement Date: The earlier of the following 2 dates:
(a) The date upon which Tenant takes possession of or commences the
operation of its business in the Premises; or June 1, 1997.
(b) The date upon which both (1) Landlord tenders possession of the
Premises to Tenant, and (2) the improvements described in the Landlord's
Improvement Construction Rider, if any, have been substantially completed as
determined by Landlord's architect or space planner, or would have been
substantially completed but for delays caused by Tenant.
1
<PAGE> 5
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the term
of the Lease:
<TABLE>
<CAPTION>
Monthly
Period Base Rent
------ ---------
<S> <C>
From June 1, 1997 to May 31, 1998 $2,475.00
From June 1, 1998 to May 31, 1999 $2,475.00
From June 1, 1999 to May 31, 2000 $2,475.00
From June 1, 2000 to May 31, 2001 $2,475.00
</TABLE>
The Base Rent for the period from June 1, 1997 to July 1, 1997, shall be
prepaid by Tenant upon execution of this Lease. If the actual Commencement Date
is before or after the Estimated Commencement Date, then all dates set forth
above be correspondingly accelerated or delayed, as the case may be. In the
event of any default by Tenant under this Lease which is not within the
applicable cure period set forth in Section 13.2, Tenant shall be obligated to
pay to Landlord, without any further notice from Landlord, a sum equal to all
rent credits previously credited to Tenant pursuant to the above schedule, and
no further rent credits be applicable for the balance of the Lease term.
F. Base Years for Expenses: Real Estate Taxes -- 1997-1998; Operating and
Utility Costs -- 1997.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 2%.
H. Security Deposit: $4,950.00 (2 months rent).
I. Permitted Use: Installation and operation of telecommunications switching
equipment and related office use. (No retail sales.)
J. Maximum Tenant Improvement Allowance: None. Tenant to take Premises "as
is" as described in Section 35.
K. Tenant's Parking Allotment: None.
L. Landlord's Brokers: None.
M. Riders:
The following exhibits, riders and addenda are attached to and are part of
this Lease:
Exhibit A -- Floor Plan of Premises
Exhibit B -- Rules and Regulations
Emergency Generator Rider
Parking Space Rider
Telecommunications Conduit and Conduit Interconnection Room Rider
-----------------------------------------------------------------
2
<PAGE> 6
N. Guaranty: A personal guaranty of this Lease is being executed by ___________.
AGREEMENT
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
herby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(1) on page 1 and are more particularly shown
on Exhibit "A" attached hereto and incorporated herein by this reference. The
office building in which the premises are located is referred to herein as the
"Building."
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement Date"
indicated in Section D on page 1 and shall extend for the period set forth in
Section (1 on Page 1. In the event that Landlord, for any reason, cannot tender
possession of the Premises to Tenant on or before the "Estimated Commencement
Date" indicated in Section D on Page 1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant in any way as a result of such
failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to the Tenant for any reason other than the acts or
omissions of Tenant, Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant. If such inability to tender possession of the Premises for
reasons other than the acts or omissions of Tenant continues for a period in
excess of 90 days after the Estimated Commencement Date, Tenant shall have the
right, exercisable by notice to Landlord, to terminate this Lease, but the
suspension of rent obligations and the right of termination pursuant to this
Section 2.1 shall be Tenant's sole remedies in the circumstances herein
described.
2.2 In the event that Tenant is allowed to enter into possession of the
Premises prior to the Commencement Date, such possession shall be deemed to be
pursuant to, and shall be governed by, the terms, covenants and conditions of
this Lease, including without limitation the covenant to pay rent, as though the
Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the
first day of a month, rent for any initial partial month of the term hereof
shall be appropriately prorated; and if the date of commencement of tenant's
rent obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Section 2.1 above), the base rent ("Base Rent") for the Premises
shall be in accordance with the Schedule of Monthly Base Rents set forth in
Section E on Page 2. Each installment of Base Rent shall be payable in advance
on the first day of each and every month throughout the term of this Lease.
Tenant agrees to pay all rent, without offset, demand or deduction of any kind,
to Landlord by mail to the address set forth in Section A(3) on page 1 or in
such manner, to such other person or at such other place as Landlord may from
time to time designate. Tenant agrees that no payment made to Landlord by check
or other instrument shall contain a restrictive endorsement of any kind, and if
any such instrument should contain a restrictive endorsement in violation of the
foregoing, that endorsement shall have no legal effect whatever, notwithstanding
that such item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the Base
Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have 30 days after the receipt of any such notice to protest the
change indicated therein, and Tenant's failure to make such protest in a written
notice to Landlord within such 30-day period shall be conclusively deemed to be
tenant's agreement to such changes. Notwithstanding any such protest all rent
escalation payments falling due after service of such notice shall be made in
accordance with such notice until the protest has been resolved, whereupon any
necessary adjustment shall be made between Landlord and Tenant. Any audit
arising out of such a protest by Tenant shall be done, at Tenant's expense in
accordance with generally accepted auditing and management standards by a major
public accounting firm selected by Tenant and approved by Landlord in its
reasonable discretion. Such audit shall be performed at the Quinby Building in
Los Angeles or at such other location in the United States as Landlord may
select from time to time for the maintenance of its accounting records for the
Building.
3
<PAGE> 7
4.2 Following the first December 31 during the term of the Lease,
Tenant shall pay Landlord in a single lump sum upon billing therefor. Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of the
following amounts (collectively, "Excess Expenses"): (1) the amount (if any) by
which Real Estate Taxes for the then current tax fiscal year exceed the Real
Estate Taxes for the Base Year for Real Estate Taxes set forth in Section F on
Page 2; (2) the amount (if any) by which Operating Costs for the just completed
calendar year exceed the Operating Costs for the Base Year for Operating Costs
set forth in Section F on Page 2; and (3) the amount (if any) by which Utility
Costs for the just completed calendar year exceed the Utility Costs for the Base
Year for Utility Costs set forth in Section F on Page 2. At the same time Tenant
shall also pay to Landlord one-twelfth of Tenant's Percentage Share of such
amounts for each month that has commenced since December 31, as estimated
payments towards Tenant's share of the Excess Expenses for the following year.
(If Landlord estimates in good faith that the Excess Expenses for the following
year will exceed the Excess Expenses for the just completed calendar year,
Landlord shall notify Tenant in writing of such estimate, and Tenant's new
monthly payment shall be one-twelfth of Tenant's monthly payment not more than
twice during any calendar year.) Following each succeeding December 31, Landlord
again shall determine in the same fashion the increase or decrease (if any) in
annual Real Estate Taxes, Operating Costs, and Utility Costs over or under those
for the previous year. If there is an increase in one or more of the three
categories, Tenant shall pay to Landlord in a single lump sum upon billing
Tenant's Percentage Share of the increase. Tenant shall pay Landlord at the same
time one-twelfth of Tenant's Percentage Share of such increase (or if Landlord
gives a written estimate as described above that Excess expenses will increase
in the new year, then one-twelfth of Landlord's new estimate of annual Excess
Expenses) for each month that has then commenced in the new calendar year. If
there is a decrease in one or more of the three categories, Landlord shall
refund to Tenant or, at Landlord's option, credit against the next rent falling
due under the Lease the amount of the overpayment made by Tenant during the
preceding calendar year, provided that the amount of such refund or credit shall
in no event exceed the total payments previously made by Tenant for such
calendar year toward Tenant's Percentage Share of excess charges for the
category in question. Thereafter, with each month's Base Rent until the next
adjustments hereunder, Tenant shall pay one-twelfth of Tenant's Percentage Share
of each of the following amounts: (I) the excess (if any) of annual Real Estate
Taxes (based on the then-current fiscal year) over the Base Year Real Estate
Taxes; (II) the excess (if any) of annual Operating Costs (based on the
preceding calendar year) over the Base Year Operating Costs; and (III) the
excess (if any) of annual Utility Costs (based on the preceding calendar year)
over Base Year Utility Costs. The Real Estate Taxes for any partial fiscal year
at the end of the Lease term and the Operating Costs and Utility Costs for any
partial calendar year at the end of the Lease term shall be appropriately
prorated.
For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, charge, tax or similar imposition (other than net income,
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, lighting, drainage, flood control, public transit
or other special district thereof, as against any legal or equitable interest of
Landlord in the Premises or in the real property of which the Premises and the
Building are a part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to other income
from the Premises or as against Landlord's business of leasing the Premises;
(ii) Any assessment, tax, fee levy or charge in substitution, partially
or totally, if any assessment, tax, fee, levy or charge previously included
within the definition of Real Estate Taxes, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 Election and that assessments, taxes, fee, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fee, levies and changes be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee levy or charge allocable to or measured by
the area of the Premises or the rent payable hereunder, including, without
limitation, any gross income tax or excise tax levied by the State, City or
Federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this transaction or
any document to which Tenant is a party, creating or transferring an interest or
an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any governmental agency
related to any transportation
4
<PAGE> 8
plan, fund or system instituted within the geographic area of which the
Building is a part; or
(vi) Reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax the
nature of which was previously included within the definition of "Real Estate
Taxes," shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise.
As used in this Lease, the term "Operating Costs" shall mean 107% of all
costs and expenses of management, operation, maintenance, overhaul, improvement
or repair of the Building, the common areas and the site, as determined by
standard accounting practices, including the following costs by way of
illustration but not limitation:
(a) Any and all assessments imposed with respect to the
Building, common areas, and/or the site on which the Building is located,
pursuant to any covenants, conditions and restrictions affecting the site,
common areas or Building;
(b) Any costs, levies or assessments resulting from statutes or
regulations promulgated by any governmental authority in connection with the use
or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including but not
limited to social security taxes, unemployment taxes, other payroll taxes and
governmental charges and the costs, if any, of providing disability,
hospitalization, medical welfare, pension, retirement or other employee
benefits, whether or not imposed by law) of employees, independent contractors
and other persons engaged in the management, operation, maintenance, overhaul,
improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant
acknowledges are presently 6% of accrued gross revenues of the Building and
which may be adjusted from time to time);
(g) Supplies, materials, equipment and tools;
(h) CostS of, and appropriate reserves for, repair, painting,
resurfacing, and maintenance of the Building, the common areas, the site and
the parking facilities, and their respective fixtures and equipment systems,
including but not limited to the elevators, the structural portions of the
Building, and the plumbing, heating, ventilation, air-conditioning, telephone
cable riser, and electrical systems installed or furnished by Landlord;
(i) Depreciation on a straight-line basis and rental of
personal property used in maintenance;
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9 of this
Lease on the unamortized balance) of all costs of a capital nature (including,
without limitation, capital improvements, capital replacements, capital
repairs, capital equipment and capital tools):
(1) reasonably intended to produce a reduction in
Operating Costs, Utility Costs or energy consumption; or
(2) required under any governmental or quasi-governmental
law, rule, order, ordinance or regulation that was not applicable to the
Building at the time it was originally constructed; or
(3) for repair or replacement of any Building equipment
needed to operate the Building at the same quality levels as prior to the
replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of the
Building);
(m) Personal property taxes levied on or attributable to personal
property used in connection with the
5
<PAGE> 9
Building, the common areas, or the site;
(n) Costs of all service contracts pertaining to the Premises,
the Building or the site;
(o) Reasonable accounting, audit, verification, legal and other
consulting fees;
(p) Costs and expenses of lighting, janitorial service,
cleaning, refuse removal, security and similar items, including appropriate
reserves;
(q) Any costs incurred with respect to a transportation systems
manager, rider share coordinator or any private transportation system
established for the benefit of tenants in the Building, whether or not imposed
by any governmental authority; and
(r) Fees imposed by any federal, state or local government for
fire and police protection, trash removal or other similar services which do
not constitute Real Estate Taxes.
The following shall be excluded from Operating Costs: federal and state
income taxes imposed on Landlord's net income; any and all costs or expenses to
procure tenants for the Building, including but not limited to brokerage
commissions, legal fees, and costs of remodeling suites; costs of asbestos
removal work excluded from Operating Costs by Section 32.4 below; mortgage or
debt service; and depreciation, except that amortization of improvements of the
type specified in Subsection (j) above shall in no event be considered
"depreciation."
For purposes hereof, "Utility Costs" shall include 107% of all charges,
surcharges and other costs of all utilities paid for by Landlord in connection
with the Premises and/or Building, including without limitation costs of
heating, ventilation and air conditioning for the Premises and/or Building,
costs of furnishing gas, electricity and other fuels or power sources to the
Premises and/or Building, and costs of furnishing water and sewer services to
the Premises and/or Building.
The term "Building" as used in this Section 4.2 shall be deemed to include
not only the Building but also any parking facility owned, leased or operated
by Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building during the
Tenant's Base Year for Operating and Utility Costs as set forth in Section F on
page 2 or during any other calendar year of the Lease term is less than 90% of
the total rentable area of the Building, the Operating Costs and Utility Costs
shall be adjusted by Landlord for such Base Year or other calendar year, prior
to the pass-through of Operating Costs and Utility Costs to Tenant pursuant to
this Section 4.2, to reflect what they would have been had 90% of the rentable
area been occupied during that year. In making such calculation, the Landlord's
reasonable opinion of what portion, if any, of each cost was affected by
changes in occupancy shall be binding upon the parties.
5. TAX ON TENANT'S PROPERTY: OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days before
delinquency, and Tenant hereby indemnifies and holds Landlord harmless from and
against any liability in connection with, all taxes levied directly or
indirectly against any personal property, fixtures, machinery, equipment,
apparatus, systems and appurtenances placed by Tenant in or about, or utilized
by Tenant at, upon or in connection with, the Premises ("Equipment Taxes"). If
any Equipment Taxes are levied against Landlord or Landlord's property or if the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant, and if Landlord, after written
notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased
assessment (which Landlord shall have the right to do regardless of the validity
of such levy, but only under proper protest if requested by Tenant prior to such
payment and if payment under protest is permissible), Tenant shall pay to
Landlord upon demand, as additional rent hereunder, the taxes so levied against
Landlord or the proportion of such taxes resulting from such increase in the
assessment; provided, however, that in any such event Tenant shall have the
right, in the name of Landlord and with Landlord's full cooperation, but at no
cost to Landlord, to bring suit in any court of competent jurisdiction to
recover the amount of any such tax so paid under protest, and any amount so
recovered shall belong to Tenant.
5.2 If the tenant improvements in the Premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at
a valuation higher than the valuation at which tenant improvements conforming
to Landlord's building standards in other space in the Building are assessed,
then the real property taxes and assessments levied against Landlord or
Landlord's property by
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reason of such excess assessed valuation shall be deemed to be Equipment Taxes
and shall be governed by the provisions of Section 5.1. Any such amounts, and
any similar amounts attributable to excess improvements by other tenants of the
Building and recovered by Landlord from such other tenants under comparable
lease provisions, shall not be included in Real Estate Taxes for purposes of
rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and in
such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
hereunder, any other benefit received by Landlord hereunder, Landlord's
business as a lessor hereunder, or otherwise in respect of or as a result of
the agreement or relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT. A deposit (the "Security Deposit") in the amount
set forth in Section H on page 2 shall be paid by Tenant upon execution of this
Lease and shall be held by Landlord without liability for interest and as
security for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that the Security Deposit shall
not be considered an advance payment of rent or a measure of Landlord's damages
in case of default by Tenant. Upon the occurrence of any breach or default under
this Lease by Tenant, Landlord may, from time to time, without prejudice to any
other remedy, use the Security Deposit or any portion thereof to the extent
necessary to make good any arrearages of rent or any other damage, injury,
expense, or liability caused to Landlord by such breach or default. Following
any application of the Security Deposit, Tenant shall pay to Landlord on demand
an amount to restore the Security Deposit to its original amount. In the event
of bankruptcy or other debtor relief proceedings by or against Tenant, the
Security Deposit shall be deemed to be applied first to the payment of rent and
other charges due Landlord, in the order that such rent or charges became due
and owing, for all periods prior to filing of such proceedings. Landlord shall
not be required to keep the Security Deposit separate from its general funds.
Upon termination of this Lease any remaining balance of the Security Deposit
shall be returned by Landlord to Tenant within 14 days after termination of
Tenant's tenancy.
7. LATE PAYMENTS. All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any abatement of rent. Tenant acknowledges
that the late payment by Tenant to Landlord of any sums due under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such cost being extremely difficult and impractical to fix. Such
costs include, without limitation, processing and accounting charges, and late
charges that may be imposed on Landlord by the terms of any note or other
obligation secured by any encumbrance covering the Premises or the Building of
which the Premises are a part. Therefore, if any monthly installment of rent is
not received by Landlord by the date when due, or if Tenant fails to pay any
other sum of money due hereunder, Tenant shall pay to Landlord, as additional
rent, the sum of ten percent (10%) of the overdue amount as a late charge.
Landlord's acceptance of any late charge, or interest pursuant to Section 33.9,
shall not be deemed to be liquidated damages, nor constitute a waiver of
Tenant's default with respect to the overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord under
this Lease or any law now or hereafter in effect. Further, in the event such
late charge is imposed by Landlord for 2 consecutive months for whatever
reason, Landlord shall have the option to require that, beginning with the
first payment of rent due following the imposition of the second consecutive
late charge, rent shall no longer be paid in monthly installments but shall be
payable 3 months in advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or assignee,
shall use the Premises only for the use described in Section 1 on page 2. Any
other use of the Premises is absolutely prohibited. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the land on which the Building is located nor of any
law, ordinance, rule and regulation. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or any other insurance policy covering the Building or property
located therein and shall comply with all rules, orders, regulations and
requirements of any applicable fire rating bureau or other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord an additional rent for 107% of any additional premium charged for any
insurance policy by reason of Tenant's failure to comply with the provisions of
this Section 8. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building, or injure or annoy them, or use or
allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises and shall keep the Premises in first class
repair and appearance. Tenant shall not place a load upon the Premises
exceeding the average pounds of live load per square foot of floor area
specified for the Building by Landlord's architect, with any partitions to be
considered a part of the live load. Landlord reserves the right to prescribe
the weight and position of all safes, files and heavy equipment which Tenant
desires to place in the Premises so as to distribute properly the weight
thereof. Tenant's business machines and mechanical equipment which cause
vibration or noise that may be transmitted to the Building structure or to any
other space
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in the Building shall be so installed, maintained and used by Tenant as to
eliminate such vibration or noise. Tenant shall be responsible for the cost of
all structural engineering required to determine structural load. In any event,
unless specifically authorized herein, Tenant shall not prepare or serve, or
authorize the preparation or service of, food or beverages in the Premises,
except only the occasional preparation of coffee, tea, hot chocolate and other
such common refreshments for Tenant and its employees. Tenant shall not conduct
any auction in or about the Premises or the Building without Landlord's prior
written consent.
9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and
accidents beyond Landlord's reasonable control, and subject to reimbursement
pursuant to Section 4.2, Landlord shall repair and maintain all structural
elements of the Building and common areas (including, without limitation, the
structural walls, doors, floors, ceilings, roof, elevators, stairwells, lobby,
heating system, air conditioning system, telephone cable riser for
Building-standard service from the Building's main terminal to the terminal box
on the same floor as the Premises [but excluding Tenant's telephone equipment
and the cable and wiring from such equipment to the terminal box, and any of
Tenant's Telecommunication equipment used to provide Telecommunication services
to any customer of Tenant], plumbing and electrical wiring) and maintain the
exterior of the Premises, including grounds, walks, drives and loading area, if
any. Tenant shall reimburse Landlord upon demand, as additional rent hereunder,
107% of the cost of any repairs or extraordinary maintenance necessitated by
acts of Tenant or Tenant's employees, contractors, agents, licensees or
invitees.
9.2 Provided that Tenant is not in default hereunder, subject to
shortages and accidents beyond Landlord's reasonable control, Landlord shall
furnish building standard heating and air conditioning service Monday through
Friday from 8:00 A.M. to 6:00 P.M., and Saturday from 8:00 A.M. to 1:00 P.M.,
except for holidays. No heating or air conditioning will be furnished by
Landlord on Sundays, holidays or during hours other than as set forth above,
except upon prior arrangement with Tenant and at an extra charge as may be
agreed to between Landlord and Tenant. For purposes of this Section 9.2,
"holidays" shall mean and refer to the holidays of Christmas, New Year's Day,
Martin Luther King Day, President's Day, Memorial Day, the Fourth of July, Labor
Day, Thanksgiving and the day after Thanksgiving, as those holidays are defined,
recognized or established by governmental authorities or agencies from time to
time and such other days the New York Stock Exchange is closed. Tenant shall
install, at its expense, such additional air conditioning equipment as may be
reasonably determined by Landlord to be necessary in order to maintain building
air conditioning standards resulting from Tenant's installation and operation of
computer equipment or other special equipment or facilities placing a greater
burden on the air conditioning system than would general office use. Without
limiting the foregoing, Tenant shall have the right to install in the Premises
its own self-contained 24-hour heating, ventilating and air-conditioning unit,
subject to compliance with the other provisions of this Lease, including but not
limited to obtaining Landlord's prior written consent to the plans and
specifications for the work and electrical requirements of the unit. Tenant's
right to install such unit is also subject to Landlord's prior approval of the
location for exhaust to be vented from the Building. Tenant shall pay all costs
of electricity for such unit and, at Landlord's election, the electrical
requirements for such unit shall be separately metered to Tenant at Tenant's
expense.
Landlord shall furnish electric current to the Premises in amounts
reasonably sufficient for normal business use, including operation of building
standard lighting and operation of typewriters and standard fractional
horsepower office machinery, as well as electric current reasonably sufficient
as determined by Landlord in its reasonable discretion, for normal
telecommunications operations and machinery, all subject to the obligations of
Tenant for payment of the costs of such electricity as provided herein. Tenant
agrees that, at all times during the term of this Lease, Tenant's use of
electric current shall never exceed the capacity of the feeders to the Building
or the risers or wiring installation in the Building.
Landlord may, at its election, separately meter at Tenant's expense the
electrical usage of some or all of Tenant's equipment, facilities or Premises.
Tenant shall pay the charges for all such separately metered electrical usage
within 15 days after receipt of a billing therefor.
Except as provided above, Tenant shall not install or use or permit the
installation or use upon or about the Premises of any computer or electronic
data processing or other equipment requiring in excess of 120 volts or requiring
power in excess of 1800 watts, without the express prior written consent of
Landlord. Such consent shall not be unreasonably withheld, conditioned or
delayed. Landlord shall not use its approval rights to arbitrarily or
discriminatorily prevent Tenant's installation of and use of equipment
customarily used in a telecommunications business, but Landlord may impose
reasonable conditions on such installation and use, regarding such matters as
the placement, venting, power sources, and structural requirements for such
equipment.
Tenant shall pay monthly upon billing as additional rent under this
Lease such sums as Landlord's building engineer
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may reasonably determine to be necessary in order to reimburse Landlord for the
additional cost of any utilities which have not been separately metered to
Tenant (including, without limitation, electricity, gas and other fuels or
power sources, and water, and Landlord's reasonable costs of administration,
which costs of administration shall not exceed 10% of the other costs)
attributable to any requirements in excess of those for normal office use by
reason of the operation of computer or telecommunications equipment or other
special equipment or facilities, or attributable to Tenant's conducting
business beyond the business hours described in the first sentence of this
Section 9.2.
Any utility charges billed directly to Tenant shall not be included in the
Building's "Utility Costs" for purposes of Section 4 above. Any extra
maintenance charges or service calls attributable to the actions of Tenant
(e.g., continual adjustments of the thermostats or the failure to keep window
coverings closed as necessary) shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder.
9.3 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or
by Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building supply in such quantities as required
in Landlord's judgment for the comfortable and normal use of the Premises.
Tenant shall pay Landlord for additional water which is furnished for any other
purpose. The amount that Tenant shall pay Landlord for such additional water
shall be the average price per gallon charged to the Landlord for the Building
by the entity providing water, increased 10% to cover Landlord's administrative
expense.
9.4 Landlord shall furnish janitor service (including washing of windows
with reasonable frequency as determined by Landlord) in and about the Premises,
to the extent necessitated by normal office use of the Premises, Monday through
Friday, holidays excepted. Landlord shall have no obligation to furnish janitor
service for any portion of the Premises which is occupied after 7:00 p.m., is
locked or may be used (to the extent permitted under this Lease) for the
preparation, dispensing or consumption of food or beverages or for any purpose
other than general office use, and Tenant shall keep all such portions of the
Premises in a clean and orderly condition at Tenant's sole cost and expense. In
the event that Tenant shall fail to keep such portions of the Premises in a
clean and orderly condition, Landlord may do so and any costs incurred by
Landlord in connection therewith shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder. Tenant shall also pay to Landlord, as
additional rent hereunder, amounts equal to 107% of any increase in cost of
janitor service in and about the Premises if such increase in costs is due to
(a) use of the Premises by Tenant during hours other than normal business hours,
or (b) location in or about the Premises of any fixtures, improvements,
materials or finish items (including without limitation wall coverings and
floor coverings) other than those which are of the standard type adopted by
Landlord for the Building. Only those persons who have been approved by
Landlord may perform janitorial services.
9.5 Landlord shall furnish passenger and freight elevator service in
common with Landlord and other tenants Monday through Friday from 8:00 A.M. to
6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall provide
limited passenger elevator service daily at all times such normal passenger
service is not furnished.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause. Landlord agrees to give
Tenant notice of any extended interruptions of which Landlord has prior
knowledge. No interruption of service shall be deemed an eviction or disturbance
of Tenant's use and possession of the Premises or any part thereof, nor relieve
Tenant from payment of rent or performance of Tenant's other obligations under
this Lease except as provided below in this Section 9.6. Landlord shall not be
responsible for correcting any such interruption in service which is not curable
by Landlord on a commercially reasonable basis, as determined by Landlord in its
sole discretion. Subject to Section 11 below, and subject to Landlord's rights
to recover certain costs under other provisions of this Lease. If Landlord
determines that such interruption in service is curable on such a commercially
reasonable basis, Landlord shall make good faith efforts to so correct the
interruption within a reasonable time after Landlord receives written notice
from Tenant of the interruption in service. In doing such work Landlord shall
use commercially reasonable, good faith efforts to interfere as little as
reasonably practicable with the conduct of Tenant's business in the Premises,
without, however, being obligated to incur liability for overtime or other
premium payment to its agents, employees or contractors in connection therewith.
Landlord shall in no event be liable for any injury to or interference with
Tenant's business or any punitive, incidental or consequential damages, whether
foreseeable or not, arising from the making of or failure to make any repairs,
alterations or improvements, or provision of or failure to provide or restore
any service in or to any portion of the Building, including the Premises, or the
fixtures, appurtenances and equipment therein. However, if Tenant's beneficial
use of all or a substantial portion of the Premises is prevented for a period in
excess of 5 consecutive business days (excluding Saturdays, Sundays, and
holidays) due to interruptions in service, the Base Rent shall be equitably
abated commencing with the sixth business day and continuing until such use is
no longer prevented. Moreover, if Tenant's beneficial use of all or substantial
portion of the Premises is prevented by such an interruption in services, Tenant
shall have the right to terminate the Lease in the manner and subject to the
time
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limitations set forth in more detail in Section 11.1 below. Such abatement and
such right of termination, to the extent provided above, shall be Tenant's sole
remedies. Except as provided above, Tenant shall not be entitled to any
abatement or reduction of rent or other remedy by reason of Landlord's failure
to furnish any of the services or Building systems called for by this Lease
whether such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or any
other cause. As a material inducement to Landlord's entry into this Lease,
Tenant waives and releases any rights it may have to make repairs at Landlord's
expense under Sections 1941 and 1942 of the California Civil Code.
10. CONDITION OF PREMISES. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with
Landlord's covenants and obligations hereunder, subject to completion of any
items which it is Landlord's responsibility hereunder to furnish and which are
listed by Landlord and Tenant upon inspection of the Premises prior to the
Commencement Date. Tenant acknowledges that neither Landlord nor any agent,
employee or representative of Landlord has made any representation or warranty
with respect to any matter, including but not limited to any matter regarding
the Building or Premises, the applicable zoning or the effect of other
applicable laws, or the suitability or fitness of the Building or Premises for
the conduct of Tenant's business or any other purpose. Tenant is relying solely
on its own investigations with respect to all such matters. During the term of
this Lease, Tenant shall maintain the Premises in as good condition as when
Tenant took possession, ordinary wear and tear and repairs which are
specifically made the responsibility of Landlord hereunder excepted, and shall
repair all damage or injury to the Building or to fixtures, appurtenances and
equipment of the Building caused by Tenant's installation or removal of its
property or resulting from the negligence or tortious conduct of Tenant, its
employees, contractors, agents, licensees and invitees. In the event of failure
by Tenant to perform its covenants of maintenance and repair hereunder,
Landlord may perform such maintenance and repair, and 107% of any amounts
expended by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally destroyed by fire or
other casualty, this Lease shall terminate as of the date of such casualty. If
the Building is damaged but not totally destroyed by the casualty or if there
is an interruption in services or utilities provided by Landlord pursuant to
Section 9.6 of this Lease, and if such damage or interruption in services or
utilities prevents Tenant's beneficial use of all or a substantial portion of
the Premises, then Landlord shall notify Tenant in writing, within 45 days
after the date Tenant's beneficial use is so prevented, of whether Landlord
intends to restore the Building or the services or utilities in question and of
how long, in Landlord's opinion, the restoration will take to complete. In the
event that the repairs and restoration can, in Landlord's reasonable opinion,
be completed within 270 days after the date Tenant's beneficial use is so
prevented, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs and restoration, Landlord shall restore the Building or
the services or utilities in question. In the event the Premises or a
substantial portion of the Building or the delivery system for Building
services or utilities should be so damaged or destroyed that restoration or
repairs cannot, in Landlord's opinion, be completed within 270 days after the
date Tenant's beneficial use is so prevented, or Landlord will not receive
insurance proceeds sufficient to cover the costs of such repairs and
restoration, Landlord may at its option terminate this Lease upon notice to
Tenant, or Landlord may elect to proceed to restore the Building. Similarly, in
the event Landlord's notice notifies Tenant that the restoration in Landlord's
opinion will not be completed within 270 days after the date Tenant's
beneficial use is so prevented, Tenant shall have twenty (20) days from the
date of Tenant's receipt of Landlord's notice to elect to terminate this Lease
by delivering written notice of such termination to Landlord. If either
Landlord or Tenant terminates this Lease as provided above, such termination
shall be effective immediately upon the other party's receipt of the notice of
termination, and Tenant shall be entitled to an abatement of the Base Rent as
provided below as of the date 5 business days after Tenant's beneficial use of
the Premises was first prevented. In the event that Landlord is obligated or
elects to restore the Building or the services or utilities in question,
Landlord shall commence such work reasonably promptly and shall proceed with
reasonable diligence to restore the Building or the services or utilities to
substantially the condition in which they were immediately prior to the
casualty, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, alterations, decorations or other
improvements which may have been constructed by or specifically for Tenant, or
by or for other tenants within the Building.
If neither Landlord nor Tenant terminates this Lease due to the casualty,
the Lease shall remain in full force and effect. However, if Tenant is
dispossessed by reason of such casualty from all or a substantial portion of
the Premises for more than 5 consecutive business days, Tenant shall be
entitled to a ratable abatement of the Base Rent during the time and to the
extent the Premises are unfit for occupancy, commencing with the sixth business
day. After Landlord completes Landlord's restoration work on the Premises
(i.e., any necessary repair work on the Building shell and the Building systems
originally provided by Landlord in the core of the Building), Tenant shall
diligently complete Tenant's repairs to its tenant improvements. If Tenant is
unable to conduct its business in all or a substantial portion of the Premises
during Tenant's repairs, then Tenant's ratable rental abatement shall continue
during such repairs, but in no event for more than 90 days after Landlord
completes Landlord's
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restoration work. The parties shall cooperate in performing their respective
repairs simultaneously if, in Landlord's reasonable opinion, that is feasible
and appropriate. Tenant shall have the right to terminate this Lease upon notice
served upon Landlord prior to actual completion of Landlord's restoration work
on the Premises if such restoration work is not substantially completed within
365 days after the date Tenant's beneficial use is first prevented (provided,
however, that if Landlord's original notice to Tenant estimated that the
restoration work would take more than 270 days after the date Tenant's
beneficial use is so prevented, and Tenant did not elect to terminate the Lease
on that basis, then Tenant shall not be entitled to terminate the Lease pursuant
to this sentence unless Landlord fails to substantially complete such
restoration work at least within 95 days after the estimated restoration period
given in Landlord's original notice). For purposes of this Section, "substantial
completion" of Landlord's work shall mean completion to such a degree that
Tenant can commence in the Premises or the damaged portion thereof its own
reconstruction of tenant improvements as contemplated by this Lease.
"Substantial completion" shall not require full completion of all "punch list"
type items which do not materially affect Tenant's use of the Premises. Rental
abatement or lease termination, to the extent provided above, shall be Tenant's
sole remedies. Notwithstanding the foregoing to the contrary, if the damage is
due to the negligence or willful misconduct of Tenant or any of Tenant's agents,
employees or invitees, there shall be no abatement of rent. Except for abatement
of rent as provided above, Tenant shall not be entitled to any compensation or
damages for loss of, or interference with, Tenant's business or use or access of
all or any part of the Premises resulting from any such damage, repair,
reconstruction or restoration.
11.2 In the event of any damage or destruction of all or any part of the
Premises or any interruption in utilities or services, Tenant shall immediately
notify Landlord thereof.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by fire or other casualty be used to retire the debt
secured by such mortgage or deed of trust, or in the event any lessor under any
underlying or ground lease should require that such proceeds be paid to such
lessor, Landlord shall in no event have any obligation to rebuild, and at
Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, any insurance which may be carried by Landlord
or Tenant against loss or damage to the Building or to the Premises shall be for
the sole benefit of the party carrying such insurance and under its sole
control. Landlord shall not be required to carry insurance of any kind on
Tenant's property and, except by reason of the breach by Landlord of any of its
obligations hereunder, shall no be obligated to repair any damage thereto or to
replace the same.
11.5 In addition to its termination rights in Subsection 11.1 above,
Landlord shall have the right to terminate this Lease if any damage to the
Building or Premises occurs during the last 12 months of the Term of this Lease
and Landlord estimates that the repair, reconstruction or restoration of such
damage cannot be completed within the earlier of (a) the scheduled expiration
date of the Lease Term, or (b) 60 days after the date of such casualty.
11.6 Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waives and releases its rights under the provisions of
Sections 1932(2) an 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much thereof as to
render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-public use, or conveyed by Landlord in lieu
thereof (a "Taking"), this Lease and the term hereby granted shall forthwith
cease and terminate on the date of the taking of possession by the condemning
authority (the "Date of Taking").
12.2 In the event of a Taking of a portion of the Premises which does not
result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken and
thereby rendered unusable to Tenant for the purposes leased hereunder, as
reasonable determined by Landlord.
12.3 In the event that there is a Taking of a portion of the Building
other than the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
Taking, and this Lease shall end up on the date specified in the notice of
termination, which shall not be less than 60 days after the giving of such
notice.
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12.4 No temporary Taking of the Building or Premises and/or of Tenant's
rights therein or under this Lease shall terminate this Lease or give Tenant
any right to abatement of rent hereunder. Tenant shall be entitled to receive
such portion of any award as is specifically made for such a temporary use with
respect to the period of the Taking which is within the term of this Lease,
provided that the Taking renders the Premises unusable to Tenant for the
purposes leased hereunder, as reasonably determined by Landlord. If such Taking
shall remain in force at the expiration or earlier termination of this Lease,
then Tenant shall pay to Landlord a sum equal to the reasonable costs of
performing Tenant's obligations under Section 15 with respect to Tenant's
surrender of the Premises and, upon such payment, shall be excused from such
obligations. For purposes of this Section 12.4, a temporary Taking shall be
defined as a Taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for any personal property of Tenant included in any such Taking or for any
relocation expenses or business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any other
sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of creditors.
(d) If Tenant shall file a petition under any section or chapter of
the federal Bankruptcy Code, as amended from time to time, or under any similar
law or statute of the United States or any State thereof pertaining to
bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof
and such petition or proceeding shall not be vacated or set aside within 60
days after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days
after such appointment.
(f) If Tenant shall desert or vacate any substantial portion of the
Premises and the same shall remain unoccupied for more than 14 days thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises in
violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and in
lieu thereof, including without limitation California Code of Civil Procedure
Section 1161, Tenant may cure any monetary default under Subsection 13.1(a),
above, at any time within 5 days after written notice of default is received by
Tenant from Landlord; and (except as specifically provided otherwise in Section
24) Tenant may cure any non-monetary default within 15 days after written
notice of default is received by Tenant from Landlord, provided that if such
non-monetary default is curable but is of such a nature that the cure cannot be
completed within 15 days, Tenant shall be allowed to cure the default if Tenant
promptly commences the cure upon receipt of the notice and diligently
prosecutes the same to completion, which completion shall occur not later than
60 days from the date of such notice from Landlord.
14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord shall
have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each
and all of which shall be cumulative and non-exclusive) without any notice or
demand whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may
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be occupying the Premises or any part thereof, without being liable for
prosecution or any claim or damages therefor; and Landlord may recover from
Tenant the following:
(1) The worth at the time of award of any unpaid rent which has
been earned at the time of such termination; plus
(2) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(3) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(4) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, specifically including but not limited to attorneys' fees,
removal and storage (or disposal) of Tenant's personal property, unreimbursed
leasehold improvement costs (e.g., the amounts Landlord has expended for
leasehold improvements which have not been recovered as of the termination of
the Lease when amortized on a straight-line basis over the originally scheduled
lease term), brokerage commissions and advertising expenses incurred, expenses
of remodeling the Premises or any portion thereof for a new tenant, whether for
the same or a different use, and any special concessions made to obtain a new
tenant; and
(5) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period. As used in Subsections
14.1(a)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the date the sums became due at the lesser of (i) the
Bank of America prime rate on the due date plus 6%, or (ii) the maximum rate
permitted by law. As used in Subsection 14.1(a)(3), above, the "worth at the
time of award" shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed, stored and/or disposed of pursuant to any
procedures permitted by applicable law, including but not limited to those
described in Section 15.3. No re-entry or taking possession of the Premises by
Landlord pursuant to this Subsection 14.1(b), and no acceptance of surrender of
the Premises or other action on Landlord's part, shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction.
(c) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1(c), then Landlord shall be entitled to enforce
all of its rights and remedies under this Lease, including the right to recover
rent as it becomes due. Landlord's election not to terminate this Lease pursuant
to this Subsection 14.1(c) or pursuant to any other provision of this Lease, at
law or in equity, shall not preclude Landlord from subsequently electing to
terminate this Lease or pursuing any of its other remedies.
(d) Whether or not Landlord elects to terminate this Lease on account
of any default by Tenant, Landlord shall have the right to terminate any and all
subleases, licenses, concessions or other consensual arrangements for possession
entered into by Tenant and affecting the Premises or may, in Landlord's sole
discretion, succeed to Tenant's interest in such subleases, licenses,
concessions or arrangements. If Landlord so elects to succeed to Tenant's
interest, Tenant shall, as
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of the date of notice by Landlord of such election, have no further right to or
interest in the rent or other consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant, Landlord
shall have the right to require that any or all subsequent amounts paid by
Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
14.3 All rights, options and remedies of Landlord contained in this
Section 14 and elsewhere in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or more of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Section 14 shall be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any provision
of this Lease.
14.4 Landlord shall not be deemed in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
has failed to perform such obligation within 30 days after the receipt of
written notice from Tenant specifying in detail Landlord's failure to perform;
provided however, that if the nature of Landlord's obligation is such that more
than 30 days are required for its performance, then Landlord shall not be deemed
in default if it commences such performance within such 30-day period and
thereafter diligently pursues the same to completion. Upon any such uncured
default by Landlord, Tenant shall be entitled, as Tenant's sole and exclusive
remedy, to recover from Landlord Tenant's actual damages (but not lost profits
or any punitive, incidental or consequential damages) shown by Tenant to have
been directly caused thereby; provided, however: (a) Tenant shall have no right
to offset or abate rent in the event of any default by Landlord under this
Lease, except to the extent offset rights are specifically provided to Tenant in
this Lease; (b) Tenant shall in no event be entitled to terminate this Lease by
reason of Landlord's default; and (c) Tenant's rights and remedies hereunder
shall be subject to any specific limitations set forth in other provisions of
this Lease.
14.5 No waiver by Landlord or Tenant of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. The acceptance of any rent hereunder by
Landlord following the occurrence of any default, whether or not known to
Landlord, shall not be deemed a waiver of any such default, except only a
default in the payment of the rent so accepted, subject to the provisions
of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of Landlord
during the term hereof shall be deemed to constitute an acceptance by Landlord
of a surrender of the Premises unless such intent is specifically acknowledged
in a writing signed by Landlord. The delivery of keys to the Premises to
Landlord or any agent or employee of Landlord shall not constitute a surrender
of the Premises or effect a termination of this Lease, whether or not the keys
are thereafter retained by Landlord, and notwithstanding such delivery Tenant
shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not,
or a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall, subject to the provisions of this
Section 15, quit and surrender possession of the Premises to Landlord in as
good order and condition as when Tenant took possession and as thereafter
improved by Landlord and/or Tenant, reasonable wear and tear and repairs which
are specifically made the responsibility of Landlord hereunder excepted. Upon
such expiration or termination, Tenant shall, without expense to Landlord,
remove or cause to be removed from the Premises all debris and rubbish, and such
items of furniture, equipment, free-standing cabinet work, movable partitions
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
15.3 Whenever Landlord shall re-enter the Premises as provided in this
Lease, any personal property of Tenant not removed by Tenant upon the
expiration of the term of this Lease, or within 48 hours after a termination by
reason of Tenant's default as provided in this Lease, shall be deemed abandoned
by Tenant and may be disposed of by Landlord (without
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liability to Tenant) in accordance with Sections 1980 through 1991 of the
California Civil Code and Section 1174 of the California Code of Civil
Procedure, or in accordance with any laws or judicial decisions which may
supplement or supplant those provisions from time to time, or in accordance
with any other legally permissible procedure, whether by public or private sale
or otherwise. Landlord shall be entitled to apply any proceeds of the sale of
such items to any sums due to Landlord by Tenant and to Landlord's costs of
removal, storage and sale of such items. Alternatively, Landlord shall be
entitled to treat Tenant's failure to remove such items from the Premises as
either a permitted or unpermitted holdover pursuant to Section 19 of this Lease.
15.4 All fixtures, alterations, additions, repairs, improvements
and/or appurtenances attached to or built into or on or about the Premises
prior to or during the term hereof, whether by Landlord at its expense or at
the expense of Tenant, or by Tenant at its expense, or by previous occupants of
the Premises, shall be and remain part of the Premises and shall not be removed
by Tenant at the end of the term of this Lease. Such fixtures, alterations,
additions, repairs, improvements and/or appurtenances shall include, without
limitation, floor coverings, drapes, paneling, molding, doors, kitchen and
dishwashing fixtures and equipment, plumbing systems, electrical systems,
lighting systems, silencing equipment, all fixtures and outlets for the systems
mentioned above and for all telephone, radio, telegraph and television
purposes, and any special flooring or ceiling installations (but excluding
Tenant's telecommunications switch and other telecommunications trade fixtures
and equipment, which Tenant agrees to remove upon the expiration or termination
of this Lease). Notwithstanding the foregoing, Landlord may, in its sole
discretion, require Tenant, at Tenant's sole cost and expense, to remove any
fixtures, alterations, additions, repairs, improvements and/or appurtenances
attached or built into or on or about the Premises. Tenant shall repair any
damage to the Building and Premises occasioned by the installation,
construction, operation and/or removal of any fixtures, trade fixtures,
equipment, alterations, additions, repairs, improvements and/or appurtenances
pursuant to this section. If Tenant shall fail to complete such removal and
repair such damage, Landlord may do so and may charge the reasonable cost
thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability
in connection with Landlord's re-entering and taking possession of the Premises
or removing, retaining, storing or selling the property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from any
such damages or other liability, and no such re-entry shall be considered or
construed to be a forcible entry.
16. COST OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRAIL.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault on Landlord's
part, be made party to any litigation instituted by Tenant or by any third
party against Tenant, or by or against any person holding under or using the
Premises by license of Tenant, or for the foreclosure of any lien for labor or
material furnished to or for Tenant or of any such other person, Tenant hereby
indemnifies and holds Landlord harmless from and against all costs and
expenses, including reasonable attorneys' fees, incurred by Landlord in or in
connection with such litigation.
16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy of
the Premises, or Landlord's ownership, operation or management of the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or
other laws.
17. ASSIGNMENT AND SUBLETTING
17.1 Except as hereinafter provided, Tenant shall not sublet all or
any part of the Premises, nor assign this Lease nor enter any license,
"co-location agreement" or other agreement permitting a third party (other than
Tenant's employees and occasional guests) to use or occupy any portion of the
Premises, without Landlord's express prior written consent, which consent shall
not unreasonably be withheld. (For purposes of the balance of this Section 17.1
and Sections 17.2 through 17.5, the term "sublease" shall be deemed to include
licenses, co-location agreements, and other agreements for use or occupancy of
the Premises as described in the preceeding sentence. The terms "subtenant" and
"sublet" shall be construed accordingly.)
In order to assist Landlord in evaluating any proposed assignment
"co-location agreement", or sublease, Tenant agrees
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to provide Landlord with the proposed subtenant or assignee's current financial
statement and financial statements for the preceding 2 years and such other
information concerning the business background and financial condition of the
proposed subtenant or assignee and of Tenant as Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The proposed transfer would result in more than two
subleases of portions of the Premises being in effect at any time during the
term;
(b) The rent payable by the proposed transferee would be less
than the fair market rental value for the space as determined pursuant to the
last paragraph of this Section 17.1 (except as otherwise provided in Section
17.2);
(c) The proposed transferee is an existing tenant or occupant
of the Building or has negotiated with Landlord within the last twelve months
for space in the Building or is another transferee prohibited by the next to
last paragraph of this Section 17.1;
(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be built,
and the portion of the Premises proposed to be sublet or assigned is irregular
in shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee (1) is
not permitted by the use provisions of this Lease, or ??? Landlord's reasonable
opinion, violate any right for an exclusive use granted by Landlord to another
Tenant in the Building;
(g) The transfer would likely result, in Landlord's reasonable
opinion, in a significant increase in the use of the parking areas or common
areas of the Building due to the transferee's employees or visitors, and/or
significant increase in the demand for utilities and services to be provided by
Landlord to the Premises;
(h) The assignee or subtenant does not, in Landlord's
reasonable opinion, have the financial capability to fulfill the obligations
imposed by the transfer, or in the case of an assignment, the assignee does
not, in Landlord's reasonable opinion, have income and net worth at least equal
to that of Tenant;
(i) The transferee is not, in the Landlord's reasonable
opinion, of reputable or good character or consistent with Landlord's desired
tenant mix;
(j) The transferee is a real estate developer or landlord or is
acting directly or indirectly on behalf of a real estate developer or landlord;
(k) The proposed transferee may, in Landlord's reasonable
opinion, increase the chances of significant hazardous waste contamination
within the Premises or the Building; or
(l) In the reasonable judgment of the Landlord, the purpose for
which the transferee intends to use the Premises is not an ??? with the
standards of the Landlord for the Building or is in violation of the terms of
any other lease in the Building.
Notwithstanding the foregoing, Tenant may, subject to the rest of the
terms hereof, sublet all of the Premises or assign this Lease to any entity
controlling, controlled by or under common control with Tenant, (including
assignment or subletting to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern) provided that, with regard to
each such assignment or subletting: (A) Landlord receives the financial
statements prescribed above and such other financial and background information
as Landlord may request regarding the assignee or subtenant at least 20 days
prior to such proposed assignment or sublease; (B) the Landlord determines, in
its reasonable discretion, that the income and net worth of the assignee or
subtenant comply with the standards prescribed in item (h) above; (C) the use
of the Premises is not altered; (D) the Landlord determines, in its sole and
absolute discretion, that the transaction is not being entered into as a
subterfuge to avoid the restrictions on assignment and subletting in the Lease;
and (E) the sum ??? assignee expressly assumes the obligations of Tenant
hereunder as prescribed below in this Section 17.1.
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Neither this Lease nor the term hereby demised shall be mortgaged by
Tenant, nor shall Tenant mortgage, assign, pledge or otherwise transfer the
interest of Tenant in and to any sublease or the rentals payable thereunder or
in the Security Deposit.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer made
in violation of this Section 17.1 shall be void and at Landlord's election
shall terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements
herein contained on Tenant's part to be performed for the term of this Lease
(provided that in the case of a sublease, the subtenant's obligations shall be
limited to those obligations relating to the subleased space and the common
areas during the sublease term). No sublease or assignment shall be deemed
approved by Landlord unless such subtenant or assignee and Tenant shall deliver
to Landlord a counterpart of such sublease or assignment and an instrument in a
form acceptable to Landlord, which contains a covenant of assumption by the
subtenant or assignee satisfactory in substance and form to Landlord, consistent
with the requirements of this Section 17.1, but the failure or refusal of the
subtenant or assignee to execute such instrument of assumption shall not release
or discharge the subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing requirements
shall have any interest in the Security Deposit. Any assignee that does comply
with the foregoing requirements shall automatically succeed to Tenant's position
with respect to the Security Deposit, and Landlord shall have the right to
refund all or any portion of the Security Deposit to the assignee at any time
or under any circumstances with no liability to the assignor.
Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or sublettings
or amendments or modifications to the Lease with the assignee or other
successor of Tenant, and without obtaining Tenant's consent thereto, and any
such actions shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not deemed a
publicly-held corporation, or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
25% of the voting power of such corporation, association or partnership.
Notwithstanding the foregoing, the immediately preceding sentence shall not
apply to any transfer of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
Subject to Section 17.2, Tenant agrees that all advertising by Tenant to
market the space in the Premises to be sublet or assigned shall require
Landlord's prior written approval, which shall not be unreasonably withheld.
Subject to Section 17.2, Tenant further agrees that it shall not, without
Landlord's prior written consent, which may be granted or withheld in
Landlord's sole discretion, market any space in the Premises, assign the lease
or sublet any space in the Premises to existing tenants or occupants of the
Building, or to any entity controlling, controlled by, or under common control
with any existing tenant or occupant of the Building, except for any entity
controlling, controlled by or under common control with Tenant.
Subject to Section 17.2, Tenant agrees that it shall not sublet, nor
assign, nor advertise as available for subletting or assignment, nor list with
brokers for subletting or assignment, all or any portion of the Premises for a
consideration which is equal to less than the fair market rental value, as
determined by Landlord in its reasonable discretion, for comparable space in
the Building on a comparable term commencing concurrently with the assignment
or sublease term, with comparable rent credits and tenant improvement
allowances. Within 10 days after Landlord receives any written request from
Tenant for
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Landlord's estimate of the fair market rental value for specified space (which
request shall identify the space in question, the proposed term and the
proposed rent credits and improvement allowances), Landlord shall notify Tenant
in writing of the fair market rental value for such space for a comparable term
with comparable rent credits and tenant improvement allowances.
17.2 Landlord acknowledges that Tenant's business to be conducted on the
Premises requires the installation on the Premises of certain communications
equipment by telecommunications customers of Tenant ("Customers") in order for
such Customers to interconnect with Tenant's terminal facilities.
Notwithstanding anything contained elsewhere in this Section 17, Landlord
agrees not to withhold its consent to any license agreement, sublease or
"co-location agreement" between Tenant and such a Customer for the purposes of
permitting such a telecommunications connection, so long as (a) such Customer
agrees in writing (in a form approved by Landlord in advance in writing) to
comply with all obligations imposed on Tenant under this Lease to the extent
relating to the portion of the Premises in question (including but not limited
to insurance, waiver and indemnity requirements); (b) such licenses, subleases
or co-location agreements do not collectively cover more than 50% of the
Premises at any one time; and (c) each such license, sublease or co-location
agreement is on a form for this purpose approved by Landlord in writing in
advance. Provided that Tenant's transactions with Customers comply with items
(a), (b) and (c) above, they need not comply with those requirements of Section
17.1 above regarding financial statements, advertising, and minimum rental
rates. Tenant represents that Tenant's Customers will require only infrequent
access to their equipment placed in the Premises pursuant to such a
transaction, and Tenant agrees not to permit any Customers to have such access
unless they are accompanied by a representative of Tenant. Tenant shall be
liable to Landlord for any violation by its Customers of any provisions of this
Lease.
17.3 In the event that Tenant desires to assign this Lease, or to enter
into a sublease, as to all or any portion of the Premises, except (a) where the
subtenant or assignee is an entity controlling, controlled by or under common
control with Tenant, or (b) as permitted under Section 17.2 herein, Tenant
shall, prior to solicitation of offers therefor, give Landlord notice of
Tenant's desire to assign or sublet and of the portion of the Premises to be
affected by the proposed assignment or sublease. Landlord shall have the right,
exercisable by notice to Tenant within 60 days after Landlord's receipt of
Tenant's notice of desire to assign or sublet, to terminate this Lease as to
the portion of the Premises affected by the proposed assignment or sublease,
such termination to be effective as of the date 60 days after notice by
Landlord to Tenant of such termination.
In the event of a termination of this Lease as to a portion of the
Premises pursuant to this Section 17.3, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination, Tenant shall surrender possession of that portion
of the Premises in accordance with the provisions of this Lease, and the rent
payable hereunder and Tenant's Percentage Share shall be appropriately adjusted
based upon the rentable area remaining within the Premises.
If Landlord does not elect to terminate pursuant to this Section 17.3, and
if Tenant does not enter into an assignment or sublease as specified in
Tenant's notice of desire to assign or sublet within 6 months after the
expiration of Landlord's 60-day period for election to terminate, then Tenant
shall again comply with the provisions of this Section 17.3 before assigning
this Lease, or entering into a sublease, as to all or any portion of the
Premises.
17.4 In the event that Tenant has sought and received Landlord's consent
to assign this Lease, or to enter into a sublease as to all or any portion of
the Premises, the monthly rent payable by Tenant to Landlord, pursuant to
Section 3, shall be increased by the amount to be received by Tenant during
each month pursuant to the terms of the assignment or sublease, in excess of
Tenant's monthly rental payable to Landlord for the space subject to the
assignment or sublease. The amounts referred to in the previous sentence
include rent, additional rent, or any other payment in respect of use or
occupancy, or in reimbursement of costs of leasehold improvements installed by
Tenant, and whether paid in a lump sum or periodic payments; provided however,
such amounts shall not include any fees charged by Tenant to its Customers to
the extent such fees are based on Tenant's services (not square footage of
space used by the Customers) as provided under Section 17.2 herein. In no event
shall the total sums payable to the Landlord be less than the monthly rental
Landlord would have received but for such assignment or sublease.
The additional rent shall be due and payable to Landlord in accordance
with the schedule specified in the sublease or assignment instrument, and the
failure of any subtenant or assignee to make any payments in accordance with
that schedule shall not affect the obligation of Tenant to pay the additional
rent to Landlord.
The calculation of the amount of rentable space being sublet shall be made
by Landlord in accordance with its usual standards. Landlord may require
acknowledgment by Tenant of Tenant's concurrence on the Landlord's calculation
of the amount of rentable space being sublet as a condition to Landlord's
consent to any sublease.
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The provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.4 shall apply to any subleasing or assignment by any subtenant or
assignee.
17.5 Tenant shall pay to Landlord, promptly upon receipt of a billing
from Landlord, the amount of Landlord's reasonable attorney fees incurred in
connection with Landlord's review or approval of any sublease or assignment
transaction requiring landlord's consent hereunder.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer, including, without limitation, the obligation
of Landlord to return the Security Deposit as provided in this Lease; provided
that the transferor shall, within a reasonable time, transfer any Security
Deposit then held by Landlord, or any portion thereof remaining after proper
deductions therefrom, to the transferee and shall thereafter notify Tenant of
such transfer, of any claims made against the Security Deposit, and of the
transferee's name and address, by written notice delivered personally (in which
case Tenant shall acknowledge receipt of such notice by signing Landlord's copy
of such notice) or by registered or certified mail.
19. HOLDING OVER. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to the greater of: (a) two hundred percent (200%) of the Base Rent
applicable to the Premises immediately prior to the date of such expiration or
earlier termination; or (b) one hundred fifty percent (150%) of the prevailing
market rate excluding any rental or other concessions (as reasonably determined
by Landlord) for the Premises in effect on the date of such expiration or
earlier termination. Such month-to-month tenancy shall be subject to every other
term, covenant and agreement contained herein. Nothing contained in this Section
19 shall be construed as consent by Landlord to any holding over by Tenant, and
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon the expiration or
other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally or by deposit in the United States mail, postage and
fees fully prepaid, registered or certified mail, with return receipt requested,
addressed to the applicable address for notice set forth in Section A on page 1.
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different person
to whom all such notices or demands are thereafter to be addressed. Service of
any such notice or demand if given personally shall be deemed complete upon
delivery, and if made by mail shall be deemed complete on the day of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of 2 business days after the date of mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any notice of default
as described in Section 13.2 and any pleadings or notices given by either party
to the other with respect to any, judicial proceeding between the parties shall
be served in the manner prescribed by applicable California law without
reference to this paragraph, and shall be deemed served at such time as is
provided by such applicable law without reference to this paragraph.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
rent performing the covenants of this Lease on Tenant's part to be performed,
shall and may peaceably and quietly have, hold and enjoy the Premises for the
term of this Lease.
22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at Tenant's expense, keep in good order, condition and repair the
interior of the Premises and shall promptly and adequately repair all damage to
the interior of the Premises and replace or repair all glass, fixtures,
equipment and appurtenances therein damaged or broken, under the supervision and
with the approval of Landlord and, if Tenant does not do so, Landlord may, but
need not, make such repairs and replacements. If Landlord does so, Tenant shall
pay Landlord the cost thereof promptly upon demand, as additional rent
hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules, regulations,
orders and directives of governmental and quasi-governmental bodies and
authorities having jurisdiction over Tenant or the Premises from time to time
and shall obtain
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and keep in effect all licenses, permits (including but not limited to
conditional use permits) and other authorizations required with respect to the
business or businesses conducted by Tenant within or from the Premises or with
respect to any special equipment or facilities of Tenant permitted under the
other provisions of this Lease. Tenant and its employees, agents, licensees and
invitees shall also comply with all reasonable rules and regulations which
Landlord may adopt from time to time for the protection and welfare of the
Building and its tenants and occupants; provided that Tenant shall not be
responsible for compliance with any rule or regulation adopted by Landlord
unless or until Tenant is furnished with a copy thereof. The present rules and
regulations for the Building are attached hereto as Exhibit "B". Landlord shall
have no liability to Tenant for the failure of any other tenant in the Building
to observe the rules and regulations.
23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to time,
within 15 days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying that 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
stating the modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any other
charge payable to Landlord (or specifying any claimed), the amount of any
security posted by Tenant, the dates to which the rent and other charges have
been paid in advance, any increases or decreases of rent that are anticipated,
the commencement date of the Lease and such other matters as may be reasonably
requested by Landlord. It is intended that any statement delivered pursuant to
this Section 23 may be relied upon by any purchaser of the fee or mortgage or
beneficiary or assignee of any mortgage or trust deed upon the fee of the
Building or Premises. Tenant's failure to deliver the statement within the
period specified above shall be conclusive and binding upon Tenant that the
Lease is in full force and effect without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against rental, and that no more than one month's rental has been paid in
advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall be
subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such subordination of this
Lease to any future ground or underlying leases or the lien of any future
mortgages, deeds of trust, or like encumbrances, Landlord shall provide to
Tenant a commercially reasonable non-disturbance and attornment agreement in
favor of Tenant executed by such future ground lessor, master lessor, mortgagee
or deed of trust beneficiary, as the case may be, which shall provide that
Tenant's quiet possession of the Premises shall not be disturbed on account of
such subordination to such future lease or lien so long as Tenant is not in
default under any provisions of this Lease. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated any or
all ground or underlying leases or the lien of any or all mortgages, deeds of
trust or like encumbrances to the Lease. In the event that any ground or
underlying lease terminates for any reason or any mortgage, deed of trust or
like encumbrance is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, then at the election of Landlord's successor-in-interest,
Tenant shall attorn to and become the tenant of such successor. Tenant hereby
waives its rights under any current or future law which gives or purports to
give Tenant any right to terminate or otherwise adversely affect this Lease and
the obligations of Tenant hereunder in the event of any such foreclosure
proceeding or sale. Tenant covenants and agrees to execute and deliver to
Landlord in the form reasonably required by Landlord, within 10 days after
receipt of written demand by Landlord, any additional documents evidencing the
priority or subordination of this Lease with respect to any ground or
underlying lease or the lien of any mortgage, deed of trust, or like
encumbrance. Should Tenant fail to sign and return any such documents within
said 10-day period, Tenant shall be in default hereunder without the benefit of
any additional notice or cure periods, except as may be required by statute.
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and doors bounding the Premises. Landlord also reserves any space in or
adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right to access thereto through the Premises for
the purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without notice
and without liability to Tenant for damage or injury in property, person or
business (all claims for damage being hereby released), and without effecting
an eviction or disturbance of Tenant's use or possession or giving rise to any
claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times during the term of
this Lease for the purpose of inspecting the same, supplying janitorial
service, posting notices of non-responsibility, exhibiting the Premises to
prospective
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tenants, purchasers or others, or making such repairs or replacements therein
as may be required by this Lease or as Landlord may deem appropriate; provided
that Landlord shall use all reasonable efforts not to disturb Tenant's use and
occupancy and shall, when practical, give Tenant prior notice of such repairs.
For each of the foregoing purposes, Tenant shall provide to Landlord a key with
which to unlock at any time all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes. Landlord may use any other means which
Landlord may deem proper to open such doors in an emergency in order to obtain
entry to the Premises. Any entry to the Premises obtained by Landlord by any
means shall not under any circumstances be construed or deemed to be a forcible
or unlawful entry into, or a detainer of, the Premises, or an eviction of
Tenant from the Premises or any portion thereof, or grounds for any abatement or
reduction of rent. Any damages or losses on account of any such entry by
Landlord shall be Tenant's sole responsibility except as otherwise expressly
provided herein. Nothing in this Section 25 shall be construed as obligating
Landlord to perform any repairs, alterations or decorations, except as
otherwise expressly required in this Lease.
(b) To change the name or street address of the Premises or Building.
(c) To install and maintain signs on the exterior and interior of
the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy during the last 6 months of the term hereof if, during
or prior to such time, Tenant has vacated the Premises, or at any time after
Tenant abandons the Premises.
(f) To have access to all mail chutes according to the rules of the
United States Postal Service.
(g) To do or permit to be done any work in or about the exterior of
the Building or any adjacent or nearby building, land, street or alley.
(h) To grant to anyone the exclusive right to conduct any business
or render any service in the Building, provided such exclusive right shall not
operate to exclude Tenant from the use expressly permitted by this Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an
act of God, governmental control or other factors beyond the reasonable control
of Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of, and waives all claims it may have against Landlord, its
agents, employees, partners, officers, directors, affiliates and successors in
interest (collectively, the "Landlord Group") for damage to or loss of property
or personal injury or loss of life resulting from the Building or Premises or
any part thereof becoming out of repair, by reason of any repair or alteration
thereof, or resulting from any accident within the Building or Premises or on or
about any space adjoining the Building or Premises, or resulting directly or
indirectly from any act or omission of any person, or due to any condition,
design or defect of the Building or Premises, or any space adjoining the
Building or Premises, or the mechanical systems of the Building or Premises,
which may exist or occur, whether such damage, loss or injury results from
conditions arising upon the Premises or upon other portions of the Building, or
from other sources or places, and regardless of whether the cause of such
damage, loss or injury or the means of repairing the same is accessible to
Tenant; provided such assumption and waiver shall not apply to claims caused by
the gross negligence or willful misconduct of Landlord or its agents.
27.2 Tenant hereby agrees to indemnify, defend, and hold Landlord and the
Landlord Group harmless from and against (a) any and all claims, demands, suits,
fines, losses, expenses and liabilities (collectively, "Claims") for or
relating to injury or loss of life to persons or damage to or loss of property
arising from Tenant's use of the Building or the Premises, or from the conduct
of Tenant's business, or from any work done, permitted or suffered by Tenant in
or about the Premises or elsewhere, or from any negligence or intentional
conduct of Tenant or Tenant's agents, employees, contractors, licensees,
invitees, customers, representatives or successors in interest; (b) any and all
Claims arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease; and for all
costs, attorneys' and other professional fees, expenses and liabilities
incurred by Landlord or any
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member of the Landlord Group in or in connection with any such Claim. In the
event that any action or proceeding is brought against Landlord or any member
of the Landlord Group by reason of any such Claim, Tenant upon notice from
Landlord shall defend such action or proceeding at Tenant's cost and expense by
counsel approved by Landlord, such approval not to be unreasonably withheld.
Tenant's obligations under this Section 27.2 shall survive the expiration or
termination of this Lease as to any matters arising prior to such expiration or
termination or prior to Tenant's vacation of the Building.
Notwithstanding anything to the contrary contained herein, in no event
shall Landlord or its agents be liable to Tenant, Tenant's agents, employees,
customer, licensees, representatives or successors for lost profits or
consequential incidental or punitive damages of any kind.
28. INSURANCE.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's
sole cost and expense throughout the term of this Lease, including any
extensions and renewals thereof, public liability and property damage insurance
against claims for bodily injury, death or property damage occurring upon or
about the Premises or Building, in each case naming Landlord and its managing
agents as additional insureds and, upon request by Landlord, naming the holder
of any mortgage, deed of trust or like encumbrance or the lessor under any
underlying lease covering the Building as additional insured, with a limit of
liability of not less than $3,000,000.00 single limit. If from time to time, the
limits of liability set forth above are, in the reasonable opinion of Landlord,
inadequate, Tenant shall increase such insurance coverage to an amount as shall
be designated by Landlord's notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and expense
throughout the term of this Lease, casualty insurance on Tenant's personal
property in the Premises and any leasehold improvements which the Tenant
installed at its own cost in an amount at least equal to the full replacement
cost of such property, providing coverage against all perils insured against by
a "fire and extended coverage" policy, as well as sprinkler damage, vandalism
and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance in form
and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such amounts as
will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to or use of the Premises or the Building as a result of
such perils.
(c) Liquor liability insurance coverage in limits of not less than
Five Hundred Thousand Dollars ($500,000) if at any time during the term hereof
any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or Landlord's
lender or ground or primary lessors may reasonably require from time to time in
form, in amounts, and for insurance risks against which a prudent tenant of a
comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies acceptable to
Landlord, shall not have a deductible amount exceeding $5,000.00 in the
aggregate, and shall specifically provide that the insurance afforded by such
policies for the benefit of Landlord and its managing agents and Landlord's
mortgagees and ground lessors shall be primary, and that any insurance carried
by Landlord or Landlord's mortgagees and ground lessors shall be excess and
non-contributing. Such policies shall be evidenced by certificates of insurance
delivered to Landlord from time to time showing such insurance to be at all
times prepaid in full force and effect and providing that such insurance cannot
be cancelled or modified upon less than 30 days' prior written notice to
Landlord. If at any time Tenant has not provided Landlord with a then currently
effective certificate of insurance acceptable to Landlord as to any insurance
required to be maintained by Tenant, Landlord may, without further inquiry as to
whether such insurance is actually in force, obtain such a policy and Tenant
shall reimburse Landlord, upon demand as additional rent hereunder, for the cost
thereof, together with Landlord's administrative fee equal to 25% of the
premium.
28.2 Tenant hereby waives its rights against Landlord and its managing
agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees with respect to any claims or damages or losses
(including any claims for bodily injury to persons and/or damage to property)
which are caused by or result from (a) risks insured against under any insurance
policy carried by Tenant at the time of such claim, damage, loss or injury, or
(b) risks which would have been covered under any insurance required to be
obtained and maintained by Tenant under this Lease had such insurance been
obtained and maintained as required. The foregoing waivers shall be in addition
to, and not a limitation of, any other waivers or releases contained in this
Lease.
28.3 Tenant shall cause each insurance policy required to be obtained by
it pursuant to this Section 28 to provide that the insurer waives all rights of
recovery by way of subrogation against Landlord and its managing agent and
their respective partners.
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officers, directors, shareholders, employees, agents, representatives,
contractors, affiliates, successors, licensees, and invitees in connection with
any claims, losses and damages covered by such policy. If Tenant fails to
maintain insurance required hereunder, Tenant shall be deemed to be self-insured
with a deemed full waiver of subrogation as set forth in the immediately
preceding sentence.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERNATIONS.
29.1 Except as otherwise provided in any rider to this Lease, all
improvements, fixtures and/or equipment which Tenant may install or place in or
about the Premises, and all alterations, repairs or changes to the Premises, and
all signs installed in, on or about the Premises, from time to time, shall be at
the sole cost of Tenant. Landlord shall be without any obligation in connection
therewith. Tenant hereby agrees to indemnify, defend, and hold Landlord harmless
from any liability, cost, obligation, expense or claim of lien in any manner
relating to the installation, placement, removal or financing of any such
alterations, repairs, changes, improvements, fixtures, and/or equipment in, on
or about the Premises. Tenant's obligations under the preceding sentence shall
survive the expiration or termination of this Lease as to any matters arising
prior to such expiration or termination or prior to Tenant's vacating of the
Building.
29.2 Notwithstanding any provision in this Section 29 to the
contrary, and except as expressly permitted in the Addendum, Tenant is
absolutely prohibited from making any alterations, additions, improvements or
decorations which: (i) affect any area outside the Premises; (ii) affect the
Building's structure, equipment, services or systems, or the proper functioning
thereof, or Landlord's access thereto; (iii) affect the outside appearance,
character or use of the Building or the common areas; (iv) weaken or impair the
structural strength of the Building; (v) in the opinion of Landlord, lessen the
value of the Building; (vi) will violate or require a change in any occupancy
certificate applicable to the Premises; or (vii) in the opinion of Landlord,
will increase the Building's Operating Costs or Utility Costs.
29.3 Before proceeding with any alteration, repair or change which is
not otherwise prohibited in Subsection 29.2 above, Tenant must first obtain
Landlord's written approval of (i) the plans and specification for all such
work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations; (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's sole
discretion and will provide to Tenant within ten days following Landlord's
receipt of Tenant's written request; (iv) copies of all construction contracts
entered by Tenant with any contractor for the work; (v) copies of all liability,
casualty, worker's compensation and builder's risk insurance applicable to the
construction, maintenance and ongoing operation of the improvements and
installations; and (vi) copies of all governmental permits required for the
work. Landlord's consent to such matters shall not unreasonably be withheld;
provided, however, that with regard to any such matters which may affect the
structural members, the heating, ventilation, air conditioning or other building
systems, exterior walls, windows and doors of the Building, and with regard to
the installation of any signs outside the Premises. Landlord may grant or
withhold its consent in its unlimited discretion. Landlord may impose, as a
condition of its consent to any alterations, repairs or changes of the Premises,
such requirements as Landlord in tis sole discretion may deem desirable,
including, but not limited to, the requirement that Tenant utilize for such
purposes only contractors, materials, mechanics and materialmen previously used
and currently approved by Landlord for work in the Building.
29.4 After Landlord has approved the change, repair or alteration and
the other items listed in Section 19.3, Tenant shall enter into an agreement for
the performance of such change, repair or alternation with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration Tenant shall (i) provide
Landlord with 10 days' prior written notice thereof; and (ii) pay to Landlord,
within 10 days after written demand, the costs of any increased insurance
premiums incurred by Landlord as a result of such changes, repairs or
alterations. In addition, before proceeding with any change, repair or
alteration, Tenant's contractors shall obtain, on behalf of Tenant and at
Tenant's sold cost sand expense: (A) all necessary governmental permits and
approvals fort the commencement and completion of such change, repair or
alteration; and (B) a completion and lieu indemnity bond, or other surety,
satisfactory to Landlord for such change, repair or alteration. Landlord's
approval of permits pursuant to Section 29.3 shall not relieve Tenant of the
obligation to obtain any other or supplemental permits required by the preceding
sentence.
29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's engineers and other consultants (but not Landlord's on-site
management personnel) for review of all plans, specifications and working
drawings for the change, repair or alteration within 10 business days after
Tenant's receipt of invoices either from Landlord or such consultants. In
addition to such costs, Tenant shall pay to Landlord, within 10 business days
after completion of any change, repair or alteration, the actual, reasonable
costs incurred by Landlord for services rendered by Landlord's management
personnel and engineers to coordinate and/or supervise any of the change, repair
or alteration to the extent such services are provided in excess of or after the
normal on-site hours of such engineers and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings; (ii)
lien-free and in a first-class and workmanlike manner; (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as to not to interfere with the occupancy of any other
tenant in
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the Building, nor impose any additional expense or delay upon Landlord in the
maintenance and operation of the Building; and (v) at such times in such manner
and subject to rules and regulations as Landlord may from time to time
reasonably designate. Following completion of the work. Tenant shall promptly
provide to Landlord a set of "as built" plans and specifications for the work
and copies of all warranties and guarantees provided by Tenant's contractors and
subcontractors.
29.7 Throughout the performance of any such change, repair or alteration
Tenant shall obtain, or cause its contractors to obtain, workers' compensation
insurance and general liability insurance covering the work in compliance with
provisions of Section 28 of this Lease, and builder's risk insurance for the
work reasonably acceptable to Landlord.
29.8 With respect to any construction, alteration, decorating or repair
work undertaken by Tenant's contractors under a direct contract with Tenant,
Tenant shall pay Landlord as additional rent a fee equal to 8% of the contract
price in order to compensate Landlord for monitoring the compliance of Tenant's
construction with the Building's rules and regulations and the provisions of
this Lease. Such fee shall be paid by Tenant to Landlord in monthly progress
payments as calculated and billed by Landlord in its reasonable discretion.
Tenant shall pay such amounts to Landlord within 15 days after Tenant's receipt
of a billing therefor. Tenant acknowledges that such monitoring of Tenant's
construction is for Landlord's benefit only and shall not release Tenant from
any obligations hereunder, nor impose on Landlord any obligations to Tenant or
any third party relating to Tenant's construction.
In the event Tenant orders any construction, alteration, decorating or
repair work directly from Landlord, or from the contractor selected by Landlord,
the charges for such work together with Landlord's administration fee equal to
15% of the contract price, shall be deemed additional rent under this Lease,
payable upon billing therefor, either in advance of the start of work, or
periodically during construction, or upon the substantial completion of such
work, at Landlord's option.
30.0 MECHANIC'S LIENS. Tenant agrees to give Landlord written notice of
the commencement date of any alterations, improvements or repairs to be made in,
to or upon the Premises not later than 10 days prior to the commencement of any
such work, in order to give Landlord time to post notices of nonresponsibility.
Tenant will not permit any mechanic's, materialman's or other lien to be placed
upon the Premises or Building or improvements therein during the term hereof;
and in the event that any mechanic's, materialman's or other lien is filed
against the Premises or Building or improvements therein in connection with any
alteration, repair, improvement or change of, or installation of fixtures or
equipment in, the Premises, Tenant shall cause such lien to be released within
10 days after such filing, either by satisfaction of such claim or by posting of
a bond. Notwithstanding the foregoing, Landlord shall have the right and
privilege at Landlord's option of paying the amount of any such lien or claim,
or any portion thereof, without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be deemed additional
rent hereunder due from Tenant to Landlord upon demand.
31. ALTERNATE SPACE. If the Premises comprise less than a full floor in
the Building, Landlord shall have the privilege of moving Tenant to other space
in the Building comparable to the Premises, and all terms hereof shall apply to
the new space with equal force. In such event Landlord shall give Tenant at
least 60 days' prior notice in writing and shall move Tenant's effects to the
new space at Landlord's sole cost and expense at such time and in such manner as
to inconvenience Tenant as little as practicable and without causing an
interruption of Tenant's Telecommunication business in excess of six hours.
32. HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Tenant shall have the
right to use general office supplies typically used in an office area in the
ordinary course of business (such as copier toner, liquid paper, glue, ink and
cleaning solvents) and items typically used in a comparable telecommunications
business, provided that Tenant uses them in the manner for which they were
designed and only in accordance with all Hazardous Materials laws and the
highest standards prevailing in the industry for such use and then only in such
amounts as may be normal for the office business operations or
telecommunications operations conducted by Tenant on the Premises. Except as
provided in the preceding sentence, neither Tenant nor any of Tenant's agents,
employees, contractors, subtenants, assignees, licensees, invitees, successors,
or representatives ("Tenant's Parties") shall use, handle, store or dispose of
any Hazardous Materials in, on, under or about the Premises, the Building or the
site on which the Building is located. Tenant shall promptly take all actions at
its sole cost and expense, as are necessary to return the Premises, Building and
site to the condition existing prior to the introduction of any such Hazardous
Materials by Tenant or any Tenant Parties, provided Landlord's approval of such
actions shall first be obtained. Furthermore, Tenant shall immediately notify
Landlord of any inquiry, test, investigation or enforcement proceeding for or
against Tenant or the Premises concerning the presence of any Hazardous
Material.
32.2 Tenant's obligations under Section 27.2 to indemnify, defend and hold
Landlord harmless from and against certain Claims shall be deemed to include,
without limitation, any and all Claims (as defined in Section 27.2) relating in
any way to investigation and clean-up cost, attorneys' fees, consultant fees and
court costs that arise during or after the term of this Lease as a result of the
breach of any of the obligations and covenants set forth in this Section 32, or
relating in any way to any contamination of the Premises, Building or site
directly or indirectly arising from the activities of Tenant or any Tenant
Parties. Tenant's obligations under the preceding sentence shall survive the
expiration or earlier termination of this Lease as to any matters arising prior
to such expiration or termination or prior to Tenant's vacating of the Building.
24
<PAGE> 28
32.3 For purposes of this Lease, the term "Hazardous Materials" shall mean,
collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601, et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. Sections 1251, et seq.; the California
Hazardous Substance Account Act, California Health and Safety Code Sections
25330, et seq.; the California Hazardous Waste Control Act, California Health
and Safety Code Sections 25100, et seq.; the California Safe Drinking Water and
Toxic Health Enforcement Act, California Health and Safety Code Sections
25249.5, et seq.; California Health and Safety Code Sections 25280, et seq.
(Underground Storage of Hazardous Substances); the California Hazardous Waste
Treatment Reform Act, California Health and Safety Code Sections 25179.1, et
seq.; California Health and Safety Code Sections 25501, et seq. (Hazardous
Materials Release Response Plans and Inventory); Petroleum Underground Storage
Tank Cleanup, Health and Safety Code Sections 25299.10, et seq.; and the
Porter-Cologne Water Quality Control Act, California Water Code Sections 13000,
et seq., as such laws may be amended from time to time.
32.1 Tenant acknowledges that Tenant has received and read the notice from
Landlord regarding Landlord's asbestos in the Building. Landlord agrees that
the costs of asbestos removal work in the Building shall not be charged to
Tenant or included in the Building's Operating Costs for purposes of
calculating Tenant's obligations for rent escalations under Section 4 above.
The preceding sentence shall not apply to costs for such work necessitated by
the acts or omissions of Tenant or Tenant's Parties (as defined in Section
32.1), including but not limited to alteration work undertaken by Tenant.
33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the termination of
this Lease, the service of any notice, the commencement of any suit or final
judgment for possession shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand, suit or judgment. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent payment herein
stipulated shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice in Landlord's right to recover
the balance of such rent or pursue any other remedy provided in this Lease. Any
amount billed by Landlord to Tenant under this Lease or in connection with
Tenant's occupancy of space in the Building, which Tenant does not dispute in a
written notice delivered to Landlord within thirty days after Tenant's receipt
of such billing, shall be conclusively deemed to be correct, and Tenant shall
be obligated for such amount. Such thirty-day period to give notice of a
dispute shall not be deemed to extend the due date for any payments, but Tenant
shall be entitled to make the payment in question under protest by timely
giving such notice. Tenant agrees that each of the foregoing covenants and
agreements shall be applicable to all obligations of Tenant to Landlord,
whether expressly contained in this Lease or imposed by any statute or at
common law.
33.2 If any provision of this Lease or its applicants to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties in this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease shall
be independent of performance by Landlord of the covenants and obligations of
Landlord pursuant to this Lease, and performance by Tenant of each covenant and
obligation of Tenant pursuant to this Lease shall be a condition precedent to
the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
33.4 The headings of Sections of this Lease are for convenience only and
do not define, limit or construe the contents thereof. References made in this
Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to
numbered Sections, Paragraphs or Subparagraphs of this Lease unless otherwise
indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and "Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
33.6 If more than one person or entity executes this Lease as Tenant: (a)
each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the same
force and effect as if each and all of them had so acted or signed, or given or
received such notice.
25
<PAGE> 29
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated. All references
in this Lease to "days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This lease shall be governed by and interpreted in accordance
with the laws of the State of California.
33.9 All monetary obligations of Tenant remaining past due 10 days or
more after the date specified herein for payment shall bear interest until paid
at the lesser of (i) the Bank of America prime rate as of the due date plus 6%,
or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and attachments
or other documents referred to in Section M on page 2 (all of which riders,
exhibits, attachments and other documents are hereby incorporated into this
instrument by this reference), constitutes the entire and exclusive agreement
between Landlord and Tenant relating to the Premises, and this agreement and
said riders, exhibits and attachments and other documents may be altered,
amended or revoked only by an instrument in writing signed by the party to be
charged thereby. All prior or contemporaneous oral agreements, understandings
and/or practices relative to the leasing of the Premises are merged herein or
revoked hereby. References in this instrument to this "Lease" shall mean, refer
to and include this instrument as well as any riders, exhibits, attachments or
other documents referred to in Section M, and references to any covenant,
condition, obligation and/or undertaking "herein", "hereunder", or "pursuant
hereto" (or language of like import) shall mean, refer to and include the
covenants, conditions, obligations and undertakings existing pursuant to this
instrument and such riders, exhibits, attachments or other documents. All terms
defined in this instrument shall be deemed to have the same meanings in all
riders, exhibits, attachments or other documents referred to in Section M
unless the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole
or in part by the Building, provided that no such change shall increase the
rent payable hereunder or impair Tenant's use of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building, Tenant shall be solely responsible for the payment of
any fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against any liability with respect thereto.
Notwithstanding the foregoing, Landlord agrees to pay, and to hold Tenant
harmless from, the commission owing to the brokers identified in Section L on
page 2, as provided in a separate agreement between Landlord and such brokers.
33.13 Tenant agrees to pay to Landlord as additional rent hereunder
any taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed
by Tenant, shall not bind Landlord in any manner, and no lease or other
obligation on the part of Landlord shall arise until this Lease is executed and
delivered by Landlord to Tenant. This Lease shall not be binding and in effect
until a counterpart hereof has been executed and delivered by the parties, each
to the other.
33.15 Tenant shall not cause the recordation of this Lease, a short
form memorandum of this Lease or any reference to this Lease.
33.16 Upon 10 days' prior written request from Landlord (which
Landlord may make at any time during the term but no more often than two times
in any calendar year), Tenant shall deliver to Landlord (a) a current financial
statement of Tenant and any guarantor of this Lease, and (b) financial
statements of Tenant and such guarantor for the two years prior to the current
financial statement year. Such statements shall be prepared in accordance with
generally acceptable accounting principles, and certified as true in all
material respects by Tenant (if Tenant is an individual) or by an authorized
officer or general partner of Tenant (if Tenant is a corporation or
partnership, respectively).
33.17 Notwithstanding anything contained in this Lease to the
contrary, the obligations of Landlord under this Lease (including any actual or
alleged breach or default of Landlord) do not constitute personal obligations
of the individual partners, directors, officers, shareholders, agents or
employees of Landlord or of Landlord's partners or agents, and Tenant shall not
seek recourse against any such persons or entities or any of their personal
assets for satisfaction of any liability with respect to this Lease. In
addition, in consideration of the benefits accruing hereunder to Tenant and
notwithstanding anything contained in this Lease to the contrary, Tenant hereby
covenants and agrees for itself and all of its successors and assigns that the
liability of Landlord for its obligations under this Lease (including any
liability as a result of any actual or alleged failure, breach or default
hereunder by Landlord) shall be limited solely to, and Tenant's and its
successors' and assigns' sole and exclusive remedy shall be against, Landlord's
interest in the Building and proceeds therefrom, and no other assets of
Landlord.
33.18 If Tenant is identified herein as a corporation, then the
persons executing this Lease on behalf of Tenant hereby represent that they are
duly authorized to execute and deliver this Lease on behalf of Tenant pursuant
to Tenant's by-laws or a resolution of its board of directors.
26
<PAGE> 30
If Tenant is identified herein as a partnership, the undersigned represent that
they are all of the general partners of Tenant, that Tenant has been formed
under the laws of the State of California and is duly qualified to do business
in the State of California and that this Lease is being executed on behalf of
Tenant. Each of the partners of Tenant executing this Lease agrees that he or
she and Tenant are irrevocably bound by execution of any amendment to or
modification of this Lease by one or more of the partners of Tenant. Tenant
agrees that each new partner in Tenant shall be obligated under this Lease, in
the same fashion as the existing partners, and that each new partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days after
that partner's admissions to the partnership. In the event that such newly
admitted partner is a corporation, the principal or principals for whose benefit
the corporation has been organized shall execute and deliver to Landlord a
lease guaranty in form acceptable to Landlord. Each newly admitted partner in
Tenant shall be jointly and severally liable with the remaining partners for
the performance and satisfactions of all obligations of the Tenant under this
Lease accruing from and after the effective date of the admission of the new
partner to the Partnership. If the provisions of this paragraph are satisfied,
the admission of a new partner shall not be considered an assignment of the
Lease for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, that no rights shall inure
to the benefit of any transferee of Tenant unless the transfer to such
transferee is made in compliance with the provisions of Section 17, and no
options or other rights which are expressly made personal to the original
Tenant hereunder or in any rider attached hereto shall be assignable to or
exercisable by anyone other than the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or a
mutual termination thereof shall not work as a merger and shall, at the option
of Landlord, either (a) terminate all and any existing subleases, or (b)
operate as an assignment to Landlord of Tenant's interest under any or all such
subleases.
33.21 Except for Tenant's identity sign on the entry doors of the
Premises and Tenant's elevator lobby identity sign on any full floor of the
Building leased by Tenant (which signs shall be consistent with the Building's
signage program and otherwise subject to Landlord's prior written approval),
Tenant shall have no right to place any sign upon the Premises, the Building
or the site on which the Building is located or which can be seen from outside
the Premises.
33.22 The effectiveness of this Lease and Landlord's obligations
hereunder are subject to and conditional upon Tenant's delivery to Landlord of a
lease guaranty in the form prescribed by Landlord in its sole discretion, fully
executed by the guarantor or guarantors specified in Section N on page 2 of this
Lease.
34 RULES AND REGULATIONS AFFECTING TELECOMMUNICATIONS USE. Nothing
in the Rules and Regulations attached hereto as Exhibit B (or any further rules
and regulations promulgated by Landlord as described in Section 22.2) shall be
deemed to prohibit Tenant from installing in the Premises telecommunications
switching equipment or any other equipment specifically permitted in the other
provisions of this Lease, which does not pose a safety hazard or create a
nuisance or illegal condition; provided, however, that Tenant shall comply with
the provisions of this Lease (including the Rules and Regulations) regarding
the moving, installation, operation, use, maintenance, removal, power
requirements, and structural support of all such equipment, and shall obtain
any approvals from Landlord required under this Lease as to such matters.
35. "AS IS" CONDITION. Tenant is taking the Premises in its "as is"
condition existing as of the execution date of this Lease. Landlord shall have
no obligation for the construction or modification of tenant improvements for
Tenant. In constructing its own tenant improvements to the Premises, Tenant
shall comply with the other applicable provisions of this Lease (including but
not limited to Section 29) and shall utilize only contractors, materials,
mechanics, materialmen, architects and engineers used and currently approved in
writing by Landlord for work in the Building.
IN WITNESS WHEREOF, this instrument has been duly executed by the parties
hereto, as of the date first above written.
TENANT:
GLOBAL NETWORK PROVIDERS
By: /s/ [Signature Illegible]
---------------------------------
Its: President
---------------------------------
By:
---------------------------------
Its:
---------------------------------
27
<PAGE> 31
LANDLORD;
QUINBY BUILDING, LLC
a California limited liability company
By: GTD LLC, its Managing Member
By: /s/ [Signature Illegible]
--------------------------------
Its: President
-------------------------------
By:
--------------------------------
Its:
-------------------------------
28
<PAGE> 32
FLOOR PLAN OF PREMISES
[TO BE ATTACHED]
<PAGE> 33
EXHIBIT A
<PAGE> 34
_______________________________
QUINBY BUILDING
_______________________________
LEASE
_______________________________
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other
tenants of the Building, or of persons having business in the Building, or in
any way injure or annoy such tenants or persons. Tenant shall not obstruct any
sidewalks, halls, passages, corridors, exits, entrances, courts, lobby areas,
vestibules, garages, parking areas, elevators, escalators, or stairways in and
about the Building (collectively, the "Common Areas"). Such Common Areas are
not for the general public, and Landlord shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the judgment
of Landlord would be prejudicial to the safety, character, reputation and
interests of the Building and its tenants; provided that nothing herein
contained shall be construed to prevent such access to persons with whom any
tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities.
2. Tenant shall not commit any act or permit any thing in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business
or operation being carried on in or about the Building or for any other reason.
3. Tenant shall not use the Building for lodging, sleeping, cooking, or
for any immoral or illegal purpose or for any purpose that will damage the
Building, or the reputation thereof, or for any purposes other than those
specified in the Lease.
4. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
5. Tenant shall not bring or keep within the Building any bicycle or
motorcycle.
6. Tenant shall not conduct mechanical or manufacturing operations, cook
or prepare food, or place or use any inflammable, combustible, explosive or
hazardous fluid, chemical, device, substance or material in or about the
Building without the prior written consent of Landlord. Tenant shall comply
with all statutes, ordinances, rules, orders, regulations and requirements
imposed by governmental or quasi-governmental authorities or by Landlord from
time to time in connection with security, fire and panic safety and fire
prevention and shall not commit any act, or permit any object to be brought or
kept in the Building, which shall result in a change of the rating of the
Building by the Insurance Services Office or any similar person or entity.
Tenant shall not commit any act or permit any object to be brought or kept in
the Building which shall increase the rate of fire insurance on the Building or
on property located therein. Tenant shall provide Landlord with a name of a
designated responsible employee to represent Tenant on all matters pertaining
to fire or security regulations. Tenant shall cooperate fully in all matters
concerning fire and other emergency procedures.
7. Tenant shall not use the Building for manufacturing or for the
storage of goods, wares or merchandise, except as such storage may be
incidental to the use of the Premises for general office purposes and except in
such portions of the Premises as may be specifically designated by Landlord for
such storage. Tenant shall not occupy the Building or permit any portion of the
Building to be occupied for the manufacture or direct sale of liquor,
narcotics, or tobacco in any form, or as a medical office, barber shop, manicure
shop, music or dance studio or employment agency. Tenant shall not conduct in
or about the Building any auction, public or private, without the prior written
approval of Landlord.
8. Tenant shall not install or use in the Building any air conditioning
unit, engine, boiler, generator, machinery heating unit, stove, water cooler,
ventilator, radiator or any other similar apparatus without the express prior
written consent of Landlord, and then only as Landlord may direct.
9. Tenant shall not use in the Building any machines, other than
standard office machines such as typewriters, calculators, copying machines and
similar machines, without the express prior written consent of Landlord. If
Tenant requires telegraphic, telephonic, burglar alarm or similar services, it
shall first obtain, and comply with, Landlord's
B-1
<PAGE> 35
instructions in their installation. Tenant shall not install, maintain or
operate upon the Premises any vending machine without the consent of Landlord.
10. Tenant shall move all freight, supplies, furniture, fixtures and other
personal property into, within and out of the Building only at such times and
through such entrances as may be designated by Landlord, and such movement of
such items shall be under the supervision of Landlord. Landlord reserves the
right to inspect all such freight, supplies, furniture, fixtures, and other
personal property to be brought into the Building and to exclude from the
Building all such objects which violate any of these rules and regulations or
the provisions of the Lease. Tenant shall not move or install such objects in or
about the Building in such a fashion as to unreasonably obstruct the activities
of other tenants, and all such moving shall be at the sole expense, risk and
responsibility of Tenant. Prior to permitting access into the Building of the
moving company or other persons performing such moving activities, Landlord may
require from such moving company or other persons evidence of insurance
reasonably acceptable to Landlord, from an insurer and with coverage and amounts
reasonably acceptable to Landlord, covering the moving activities and naming
Landlord and its managing agent as additional insureds. Tenant shall not use in
the delivery, receipt or other movement of freight, supplies, furniture,
fixtures and other personal property to, from or within the Building, any hand
trucks other than those equipped with rubber tires and side guards. Any freight
elevator shall be available for use by Tenant in common with other tenants in
the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such elevators as may
be designated by Landlord.
11. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, and are permitted by Landlord, shall stand on such
platforms, as determined by Landlord to be necessary to properly distribute the
weight. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining or
moving such equipment or other property shall be repaired at the expense of
Tenant.
12. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building, except in the refuse
containers provided therefor. Tenant shall not introduce into the Building any
substance which might add an undue burden to the cleaning or maintenance of the
Premises or the Building, and Tenant shall not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions reasonably issued from time to time
by Landlord. Tenant shall exercise its best efforts to keep the Common Areas
clean and free from rubbish.
13. Tenant shall use the Common Areas only as a means of ingress and
egress, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall in all cases retain the
right to control or prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
or interests of the Building and its tenants. Neither Tenant nor any employee or
invitee of Tenant shall enter the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon the roof of
the Building without the express prior written consent of Landlord.
14. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs or who shall in any manner act in violation of the rules and
regulations of the Building.
15. Landlord shall have the right to designate the area or areas, if any,
in which Tenant and Tenant's servants, employees, contractors, jobbers, agents,
licensees, invitees, guests and visitors may park vehicles, and Tenant an its
servants, employees, contractors, jobbers, agents, licensees, invitees, guests,
and visitors shall observe and comply with all driving and marking signs and
markers within and about the Building. All parking ramps and areas and any
pedestrian walkways, plazas or other public areas forming a part of the Building
or the land upon which the Building is situated shall be under the sole and
absolute control of Landlord, who shall have the exclusive right to regulate and
control those areas.
B-2
<PAGE> 36
16. Tenant shall not use the washrooms, restrooms and plumbing fixtures
of the Building, and appurtenances thereto, for any other purpose than the
purpose for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags or other improper substances therein. Tenant shall not
waste water by interfering or tampering with the faucets or otherwise. If
Tenant or Tenant's servants, employees, contractors, jobbers, agents,
licensees, invitees, guests or visitors cause any damage to such washrooms,
restrooms, plumbing fixtures or appurtenances, such damage shall be repaired at
Tenant's expense, and Landlord shall not be responsible therefor.
17. Tenant shall not mark, paint, drill into, cut, string wires within, or
in any way deface any part of the Building, without the express prior written
consent of Landlord, and as Landlord may direct. Upon removal of any wall
decorations or installations or floor coverings by Tenant, any damage to the
walls or floors shall be repaired by Tenant at Tenant's sole cost and expense.
All cleaning and janitorial services for the Building and the Premises shall be
provided exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises. Landlord
shall not in any way be responsible to Tenant for any loss of property on the
Premises, however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person. Without limitation upon any
of the provisions of the Lease, Tenant shall refer all contractors'
representatives, installation technicians, janitorial workers and other
mechanics, artisans and laborers rendering any service in connection with the
repair, maintenance or improvement of the Premises to Landlord for Landlord's
supervision, approval and control before performance of any such service. This
Paragraph 17 shall apply to all work performed in the Building, including
without limitation installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other portion of the
Building. Plans and specifications for such work prepared at Tenant's sole
expense, shall be submitted to Landlord and shall be subject to Landlord's
express prior written approval in each instance before the commencement of work.
All installations, alterations and additions shall be constructed by Tenant in a
good and workmanlike manner and only good grades of material shall be used in
connection therewith. The means by which telephone, telegraph and similar wires
are to be introduced to the Premises and the location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
express prior written approval of Landlord. Tenant shall not lay linoleum or
similar floor coverings so that the same shall come into direct contact with the
floor of the Premises and, if linoleum or other similar floor covering is to be
used, such use shall be subject to the prior written approval of Landlord, and
Landlord may require, among other things, that an interlining of builder's
deadening felt shall be first affixed to the floor, by a past or other material
soluble in water. The use of cement or other similar adhesive material is
expressly prohibited.
18. No signs, awnings, showcases, advertising devices or other projections
or obstructions shall be attached to the outside walls of the Building or
attached or placed upon any Common Areas. No window shades, blinds, drapes or
other window coverings shall be installed in the Building without the express
prior written consent of Landlord. No sign, picture, advertisement, window
display or other public display or notice shall be inscribed, exhibited, painted
or affixed by Tenant upon or within any part of the Premises in such a fashion
as to be seen from the outside of the Premises or the Building without the
express prior written consent of Landlord. In the event of the violation of any
of the foregoing by Tenant, Landlord may remove the articles constituting the
violation without any liability and Tenant shall reimburse Landlord for the
expense incurred in such removal upon demand as additional rent under the Lease.
Interior signs on doors and upon the Building directory shall be subject to the
express prior written approval of Landlord and shall be inscribed, painted, or
affixed by Landlord at the expense of Tenant. Tenant shall not install any radio
or television antenna, loudspeaker, or other device on the roof or exterior
walls of the Building, unless explicitly permitted elsewhere in this Lease, and
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
19. Tenant shall not use the name of the Building or of the Landlord in
its business name, trademarks, signs, advertisements, descriptive material,
letterhead, insignia or any other similar item without Landlord's express prior
written consent, except for the purpose of identifying Tenant's address.
20. Tenant shall be entitled to have its name entered upon the directory
of the Building. In the event that Tenant wishes to have additional entries made
upon the Building directory for the names of employees of Tenant who occupy
office space within the Premises, such entries may be allowed by Landlord in its
reasonable discretion, and Landlord may require that Tenant pay a reasonable fee
for each such additional entry. However, the directory of the Building is
provided primarily for the display of the name and location of tenants only, and
Landlord reserves the right to exclude any other names therefrom at any time.
All entries upon the Building directory shall be in uniform print of a size,
style and format selected by Landlord.
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21. The sashes, sash doors, skylights, windows and doors that reflect or
admit light or air into the Common Areas shall not be covered or obstructed by
Tenant, through placement of objects upon window sills or otherwise. Tenant
shall cooperate with Landlord in obtaining maximum effectiveness of the cooling
and heating systems of the Building by keeping corridor doors closed and by
closing drapes and other window coverings when the sun's rays fall upon windows
of the Premises and at the end of the business day. Tenant shall not obstruct,
alter or in any way impair the efficient operation of Landlord's heating,
ventilation, air conditioning, electrical, fire, safety or lighting systems, nor
shall Tenant tamper with or change the setting of any thermostat or temperature
control valves in the Building. Tenant shall not waste electricity, water or air
conditioning and agrees to cooperate fully with Landlord to assure the most
effective operation of the Building's heating and air conditioning and to comply
with any governmental energy-savings rules, laws or regulations of which Tenant
has actual notice.
22. Subject to applicable fire or other safety regulations, all doors
opening onto Common areas and all doors upon the perimeter of the Premises shall
be kept closed and, during non-business hours, locked, except when in use for
ingress or egress. If Tenant uses the Premises after regular business hours or
on non-business days Tenant shall lock any entrance doors to the Building or to
the Premises used by Tenant immediately after using such doors.
23. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Tenant shall not request employees of Landlord to perform any work
to do anything outside of their regular duties unless under special
instructions from Landlord or the project manager for the Building. Tenant
shall not request any employee of Landlord to admit any person (Tenant or
otherwise) to any office without specific instructions from Landlord or the
project manager for the Building. Employees of Landlord shall not receive or
carry messages for or to Tenant or any other person, nor contract with nor
render free or paid services to Tenant or Tenant's servants, employees,
contractors, jobbers, agents, invitees, licensees, guests or visitors. In the
event that any of Landlord's employees perform any such services, such
employees shall be deemed to be the agents of Tenant regardless of whether or
how payment is arranged for such services, and Tenant hereby indemnifies and
holds Landlord harmless from any and all liability in connection with any such
services and any associated injury or damage to property or injury or death to
persons resulting therefrom.
24. All keys to the exterior doors of the Premises shall be obtained by
Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Landlord will furnish
Tenant, free of charge except for the deposit, with two keys to each door lock
in the Premises. Landlord may make a reasonable charge for any additional keys.
Tenant shall not make or have made duplicate copies of such keys. Tenant shall
not install additional locks or bolts of any kind upon any of the doors or
windows of, or within, the Building, nor shall Tenant make any changes in
existing locks or the mechanisms thereof. Tenant shall, upon the termination of
its tenancy, provide Landlord with the combination locks on safes, safe cabinets
and vaults and deliver to Landlord all keys to the Building, the Premises and
all interior doors, cabinets, and other key-controlled mechanisms therein,
whether or not such keys were furnished to Tenant by Landlord. In the event of
the loss of any key furnished to Tenant by Landlord. Tenant shall pay to
Landlord the cost of replacing the same or of changing the lock or locks opened
by such lost key if Landlord shall deem it necessary to make such a change.
25. Access may be had by Tenant to the Common Areas and to the Premises
at any time between the hours of 8:00 A.M. and 6:00 P.M., Monday through Friday,
legal holidays excepted. At other times access to the Building may be refused
unless the person seeking admission is known to the watchman in charge, if any,
and/or has a pass or is properly identified. Tenant shall be responsible for all
persons for whom Tenant requests passes, and shall be liable to Landlord for all
acts of such persons. In the event Building has, or there is subsequently, a
card access system for using the elevators at other than normal operating hours
for the Building, Landlord may deny access to any area served by the elevators
by anyone not having the necessary elevator access card. Landlord shall in no
case be liable for damages for the admission or exclusion of any person from the
Building. In case of invasion, mob, riot, public excitement, or other commotion,
Landlord reserves the right to prevent access to the Building for the safety of
tenants and protection of property in the Building.
26. Landlord shall not be responsible for, and Tenant hereby
indemnifies and holds Landlord harmless from any liability in connection with,
the loss, theft, misappropriation or other disappearance of furniture,
furnishings, fixtures, machinery, equipment, money, jewelry or other items of
personal property from the Premises or other parts of the Building, regardless
of whether the Premises or Building are locked at the time of such loss.
27. Tenant shall not use or permit to be used in the Premises any foul
or noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the
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<PAGE> 38
Building by reason of noise, odors or vibrations, nor shall Tenant bring into
or keep in or about the Premises any birds or animals, except for seeing-eye
dogs when accompanied by their masters.
28. Tenant shall provide to Landlord upon the execution of the Lease such
identifying information as the Landlord shall request, including but not
limited to residence addresses, residence telephone numbers, social security
numbers and driver's license or comparable identification numbers, regarding
Tenant (if Tenant is an individual or individuals), all general partners of
Tenant (if Tenant is a partnership), and all officers of Tenant (if Tenant is a
corporation). Tenant shall promptly advise Landlord of any change or addition
to the information provided and shall confirm the accuracy of the information
previously provided as may be requested by Landlord from time to time. Tenant
shall designate in writing to Landlord one or more of such persons as Tenant's
representatives for Landlord to contact if Landlord wishes to reach Tenant
outside normal business hours due to an emergency at the Premises or any other
reason. However, the decisions as to whether and when to contact such persons
shall remain in Landlord's sole discretion, and Landlord shall have no liability
for any failure or delay in contacting such persons or Tenant in case of an
emergency.
29. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and, except with regard to
Tenant's computers and other equipment which require utilities on a twenty-four
hours basis, all electricity, gas or air outlets before Tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
30. Tenant shall not obtain for use on the Premises, ice, food, beverage,
towel or other similar services, or barbering or bootblacking services, except
at such hours and under such regulations as may be reasonably fixed by Landlord.
31. Tenant agrees that Landlord shall have the right to provide to TRW
and to any other credit-checking or credit-evaluation service, and to any other
landlord, any information regarding Tenant's history of payments on Tenant's
monetary obligations under this Lease and such other information as such
services or landlords shall collect or request from time to time. Landlord, its
agents and the employees of Landlord and its agents shall have no liability for
the completeness or accuracy of such information, nor for the uses to which
such information is put by any persons or entities receiving such information.
32. All telephone and other telecommunications service which Tenant
wishes to obtain for the Premises shall be at Tenant's sole cost and expense
and shall be obtained from telecommunications suppliers and contractors
approved by Landlord in writing in advance for work in the Building. Landlord
may grant or withhold such approval as to specific suppliers and contractors in
Landlord's sole and absolute discretion. Access to the telephone closet on each
floor of the Building shall, at Landlord's election, be restricted so that no
entry to the closet will be permitted unless Landlord's designated contractor
or other representative is present.
33. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of anyone other
than the tenant for whose benefit such waiver was expressly intended, nor
prevent Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the building, including Tenant.
34. These Rules and Regulations (including the Parking Rules and
Regulations in any Parking Space Rider to this Lease) are in addition to the
terms, covenants, agreements and conditions of any lease of premises in the
Building. In the event these Rules and Regulations conflict with any provision
of the Lease, the Lease shall control.
35. Landlord reserves the right to make such other and reasonable Rules
and Regulations (including Parking Rules and Regulations) as, in its judgment,
may from time to time be needed for safety and security, for care and
cleanliness of the building and for the preservation of good order therein.
Tenant agrees to abide by all such Rules and Regulations hereinabove stated and
any additional rules and regulations which are adopted.
36. For purposes hereof, the terms "Landlord," "Tenant," "Building" and
"Premises" are defined as those terms are defined in the Lease to which these
Rules and Regulations are attached. Whenever Tenant is obligated under these
Rules and Regulations to do or refrain from doing an act or thing, such
obligation shall include the exercise by Tenant of its best efforts to secure
compliance with such obligation by the servants, employees, contractors,
jobbers, agents, invitees, licensees, guests and visitors of Tenant. The term
"Building" shall include the Premises, and any obligations of Tenant hereunder
with regard to the Building shall apply with equal force to the Premises and to
other parts of the Building.
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---------------------
QUINBY BUILDING
---------------------
EMERGENCY GENERATOR RIDER
1. The parties acknowledge that Landlord has installed or intends to
install an Emergency Generator in the Building. Tenant is granted the right to
use up to 50 kilowatts of emergency power from such Emergency Generator in the
event of an interruption of normal electrical service to the Premises during the
Lease term. Such right of Tenant is conditioned upon Tenant's paying Landlord,
upon execution of this Lease, a one-time nonrefundable fee in an amount equal
to $300.00 per kilowatt of additional emergency power so reserved. In addition,
Tenant shall pay the costs to connect Tenant's Premises to the Emergency
Generator as described in Section 4 below.
2. Tenant shall pay Landlord as additional rent under the Lease a
monthly sum as prescribed below to cover Landlord's costs of operation, use,
maintenance, fuel, oil, governmental permits, licenses and fees, insurance,
Landlord's profit and administration and other expenses relating to the
Emergency Generator. The monthly amount of such additional rent initially shall
be $100.00 per month. Each additional monthly rent payment described in this
section shall be due on the first day of each month with Tenant's other rent
payments, with the first such payment due at the commencement of the Lease
term. Such monthly amount may be increased annually, in Landlord's discretion,
during the term of the Lease and any extension thereto, provided that following
any such increase, the required monthly payment shall not be more than 10%
greater than it was immediately prior to such increase.
3. Tenant's use of such emergency power shall be in accordance with such
rules and regulations as may be established by Landlord from time to time.
4. Landlord shall repair and maintain the Emergency Generator, provided
that Tenant shall reimburse Landlord upon demand, as additional rent hereunder,
for the cost of any repairs or extraordinary maintenance for the Emergency
Generator necessitated by acts of Tenant or Tenant's employees, contractors,
assignees, sublessees, agents, licenses or invitees. In addition, any
installation of equipment, wiring or cabling in the Premises or the Building
for the purpose of enabling Tenant to access the Emergency Generator shall be
performed by Landlord in accordance with plans and specifications approved by
the parties in writing in advance, and Tenant shall reimburse Landlord for the
costs of such installation, including, but not limited to, design fees, costs
of demolition and construction, and Landlord's administrative fee equal to 10%
of the other costs.
5. The provision for Emergency Generator service by Landlord to Tenant
shall be subject to the limitations on Landlord's liability set forth in
Section 9.6 of the Lease.
6. This Emergency Generator Rider supersedes all prior or
contemporaneous understandings, negotiations, or agreements between the
parties, whether written or oral, with respect to its subject matter. This
Emergency Generator Rider is part of and shall be attached to the Lease.
7. All terms of the Lease which have not been expressly altered by this
Emergency Generator Rider shall remain in full force and effect.
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<PAGE> 40
-------------------------------
QUINBY BUILDING
-------------------------------
TELECOMMUNICATIONS CONDUIT
AND CONDUIT INTERCONNECTION ROOM RIDER
1. License for Use of Conduit. The parties acknowledge that Landlord has
set aside a portion the basement level of the Building for use as a special
conduit interconnection room (the "Conduit Room"). The parties further
acknowledge Tenant's desire to use the Conduit Room as well as certain conduit
space contained within one 2-inch conduit containing fiber optic cable running
from the Premises to the Conduit Room (the "Connecting Conduit"). Landlord
hereby grants to Tenant a non-exclusive license, revocable by Landlord at will
under the circumstances described in Section 6 below, for use of the Conduit
Room, in common with others, and the Connecting Conduit. Such use shall be on
the terms and conditions set forth in this Rider. Tenant shall have the right to
commence such use on or after the date Landlord first makes the Conduit Room
available for use by Landlord's licensees following Landlord's construction of
the Conduit Room and installation of the Connecting Conduit (the "Effective
Date"). If for any reason the Conduit Room has not been constructed or the
Connecting Conduit has not been installed by the estimated Effective Date of
____________________, Landlord shall have no liability to Tenant for such delay.
However, in such event, Tenant, as Tenant's sole and exclusive remedy, shall
have no obligation for the monthly license fee described in Section 2 until the
Conduit Room has been constructed, the Connecting Conduit has been installed,
and the Effective Date has occurred.
In connection with Tenant's use of the Conduit Room, Tenant shall be
provided with use of the following items ("Landlord Installations") in the
Conduit Room in the quantities indicated:
1/2 22-inch relay racks _____ 110 volt outlets
____ 2' by 2' lockable cabinets _____ backup generator
connections for 110 volts AC
____ 4' by 6' lockable cages
The Connecting Conduit shall run from the Premises to one of Tenant's
racks, cages or cabinets in the Conduit Room, as designated by Tenant. Landlord,
in its reasonable discretion, shall designate the precise rout of the Connecting
Conduit.
Tenant acknowledges that other tenants and licensees in the Building will
also be using similar Landlord Installation in the Conduit Room, Tenant agrees
to use the Conduit Room only for the purpose of (a) facilitating
interconnections between Tenant's telecommunications systems of other tenants
and licensees who reserve Landlord installations in the Conduit Room and who
consent in writing to such an interconnection, or (b) making connections to
Landlord's telecommunications system which provides access to certain other
offsite telecomunications companies, provided that Landlord permits such
connections pursuant to a separate written agreement between Landlord and
Tenant, or (c) making connections to the systems of other telecommunications
carriers who are given access to the Building by Landlord and who agree in
writing to permit such connections by Tenant. Tenant agrees not to store,
install or use any equipment, conduit, cable, wiring, connecting line or other
property of Tenant in the Conduit Room for any other purpose. Tenant shall
cooperate in keeping the Conduit Room locked and in restricting access to the
Conduit Room to employees, contractors and other persons who need access in
order to facilitate such interconnections. In no event shall Tenant cause (or
permit its employees, representatives, contractors or invitees to cause) any
interference with or damage to the Landlord Installations, equipment, conduits,
cable, wiring or connecting lines owned or used by other tenants or licensees in
the Conduit Room. At Landlord's election, Landlord may equip the Conduit Room
with security cameras and a 24-hour security access system. Landlord shall also
provide all tenants and licensees of Landlord who use the Conduit Room with
standard specifications for all wiring, cabling and connecting lines to be
installed in the Conduit Room by such measures and installation guidelines as
Landlord deems appropriate. However, Landlord shall have no liability to Tenant
for any damage or interference caused by any person to the Landlord
Installations assigned to Tenant or to the cable, wiring, connecting lines,
equipment or other property of Tenant in the Conduit Room or the Connecting
Conduit.
Landlord's only obligation to Tenant regarding the installation of
facilities to this Rider shall be to install the Landlord Installations assigned
to Tenant in the Conduit Room, the Connecting Conduit, and telecommunications
fiber optic cable in the Connecting Conduit, all of which shall remain the
property of Landlord. The cost of such work, together
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<PAGE> 41
with Landlord's related administrative fee, is included in Tenant's installation
payment to Landlord described in item (b) in Section 2 below. Tenant's share of
Landlord's cost of constructing the Conduit Room is included in Tenant's
one-time participation payment described in item (a) in Section 2.
All installation of wiring, cabling and connections for Tenant's use
within the Conduit Room, including but not limited to any wiring, cabling or
connections in or about the Landlord Installations, shall be performed at
Tenant's sole expense by a qualified, duly licensed contractor selected by
Tenant. Landlord shall have no obligation or liability with respect to such
work by Tenant's contractors. Tenant shall cause all such work by Tenant's
contractors to be completed and paid for promptly to prevent any mechanic's
liens being filed. Tenant shall also cause all such work by Tenant's
contractors to comply with Landlord's rules and regulations in effect from time
to time for work in the Building, as well as the requirements in Landlord's
Conduit Room Rules in effect from time to time. (The Conduit Room Rules
initially shall be as set forth in Exhibit A.) Such requirements include, but
shall not be limited to, the requirements that, prior to starting the work, the
contractor or Tenant must provide to Landlord (i) evidence of insurance
coverage for the work in conformity with the standards in Landlord's rules,
(ii) copies of all legally required permits for the work, and (iii) a copy of
the written consent of any other licensee or other entity in the Conduit Room
with whose facilities a connection will be made as part of the work. Tenant
shall notify Landlord in writing before Tenant's contractor commences any such
work, so that Landlord may, if Landlord so elects, post notices of
nonresponsibility. Landlord shall be responsible for installation of fiber
optic cable within the Connecting Conduit, as described in the preceding
paragraph. Tenant shall have no right to install any wiring, cabling or
connections within the Connecting Conduit.
Tenant's ongoing used of the Conduit Room, the Connecting Conduit and
Tenant's cable, wiring and connecting lines shall comply with all applicable
laws, the other provisions of the Lease, and the Building's rules (including
but not limited to the Special Conduit Room Rules) adopted by Landlord from time
to time. Tenant's use shall not interfere in any way with the operation of the
Building or with the occupancy or activities of any other tenant.
2. License Fees. Tenant agrees to pay Landlord a license fee for use of
the Conduit Room and the Connecting Conduit, which initially shall be (a) a
one-time participation fee of $500.00 for use of the Conduit Room, plus (b)
installation costs of $1,000.00 for the Connecting Conduit (including
installation of fiber optic cable) and for the Landlord Installations assigned
to Tenant in the Conduit Room (not including Tenant's cable, wiring, or
connecting lines in the Conduit Room). Such amounts shall be due and payable
upon execution of this Lease. (No portion of such amounts shall be refundable
if the Lease or this license is terminated for any reason.)
After Tenant's initial payment, the license fee for the Conduit Room and
the Connecting Conduit shall be $100.00 per month, subject to adjustment as
provided below. Such license fee shall be due and payable to Landlord on the
first day of each month or portion of a calendar month throughout the balance of
the Lease term, unless and until this license is revoked by Landlord in
accordance with Section 6 below. (Any such revocation shall not affect the
balance of the Lease, except that Landlord may treat any default by Tenant
hereunder as a default under the Lease.) Such license fee shall be paid
together with Tenant's Base Rent and other monthly charges, with the first such
installment of the license fee due on the Effective Date. The monthly license
fee for any partial calendar month shall be equitably prorated, as calculated
by Landlord in its reasonable discretion.
The amount of the monthly license fee shall be adjusted as of each January
1 during the Lease term. For purposes of calculating such adjustment, the
Consumer Price Index for All Urban Consumers, U.S. City Average, All Items
(1967=100), unadjusted (herein the "Index") published by the Bureau of Labor
Statistics of the United States Department of Labor for the month during which
the Effective Date occurs shall be the base Index figure (the "Base Index").
The Base Index shall be compared to the Index figure for December of each year
during the term of the Lease, including the initial partial calendar year
during which the Effective Date occurs. In the event that the Index figure for
December of any year during the term of the Lease shall be greater than the
Base Index, then in addition to the monthly license fee, Tenant shall pay to
Landlord a monthly amount equal to the same percentage increase in the monthly
license fee as the percentage increase in the Index for such December over the
Base Index. Such amount shall be payable monthly commencing with the payment of
the license fee for the January immediately following such December.
In the event that the Index for any December during the term of the Lease
is not yet available upon the date that any installment of the monthly license
fee is due. Tenant shall continue paying the monthly license fee, as previously
adjusted, in the amount applicable for such December until the Index for that
month is published, whereupon Tenant shall immediately pay Landlord the
adjustments which would have been due in the months following such December had
the Index for such December been available. In the event that publication of
the Index is discontinued, Landlord and Tenant agree that the index of consumer
prices which is most closely analogous to the Index shall be used in place of
the Index for calculation of the adjustments payable hereunder. In the event
that the references or techniques employed in the calculation of the Index
shall be modified and such modification would have resulted in a different
figure for the Base Index,
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<PAGE> 42
Landlord and Tenant agree that the Base Index shall be appropriately adjusted
and that the Index, as modified, shall be used as provided hereunder.
3. Electrical Usage. If the Landlord Installations include electrical
outlets, Landlord may elect to separately meter at Tenant's expense the
electrical usage of some or all of such outlets. Tenant shall pay the charges
for all such separately metered electrical usage within 15 days after receipt of
a billing therefor. Tenant shall also pay monthly within 15 days after Tenant's
receipt of a billing such sums as Landlord's building engineer may reasonably
determine to be necessary in order to reimburse Landlord for the additional cost
of any electrical usage by Tenant within the Conduit Room which has not been
separately metered to Tenant.
4. Indemnity and Waiver. Tenant hereby agrees to indemnify and hold
harmless Landlord and its managers and members, and their respective managers,
members, officers, directors, shareholders, agents and employees (collectively,
the "Landlord Group") from and against any and all claims (including but not
limited to claims for bodily injury or property damage), actions, mechanic's
liens, losses, liabilities, and expenses (including reasonable attorney fees and
costs of defense by Landlord's legal counsel) (collectively, "Claims"), which
may arise from the installation, operation, use, maintenance or removal of
conduit, cable, wiring, connecting lines, equipment or other property pursuant
to this Rider or from Tenant's use of the Conduit Room, the Connecting Conduit,
or the Landlord Installations. Similarly, Tenant shall pay upon demand by
Landlord the costs to repair any physical damage to the Building caused by such
installation, operation, use, maintenance or removal. Tenant hereby waives and
releases the Landlord Group from any Claims Tenant may have at any time
(including but not limited to Claims relating to interruptions in services)
arising out of or relating in any way to the installation, operation, use,
maintenance, or removal of conduit, cable, wiring, connecting lines, equipment
or other property described in this Rider or Tenant's use of the Conduit Room,
the Connecting Conduit, or the Landlord Installations, whether or not caused by
the negligence of any member of the Landlord Group or Landlord's contractors.
Such waiver and release shall not apply to Claims to the extent caused by
Landlord's wilful misconduct. However, in no event shall Landlord or any member
of the Landlord Group be liable to Tenant for lost profits or consequential,
incidental or punitive damages of any kind.
5. Removal of Cable, Wiring and Connecting Lines. Tenants agrees that, upon
the termination of this license as described in Section 6 below, Tenant (or, at
Landlord's election, the contractor designated by Landlord) shall promptly
remove, at Tenant's sole cost and expense, all cable, wiring, connecting lines,
and other installations, equipment or property installed or placed by or for
Tenant in the Conduit Room (excepting the Landlord Installations, which shall
remain the property of Landlord), and restore those portions of the Building
damaged by such removal to their condition immediately prior to the installation
or placement of such items. If Tenant fails to promptly remove all such items
pursuant to this Section 5, or if Landlord elects to have such work performed by
Landlord's contractor, Landlord may remove such items and restore those portions
of the Building damaged by such removal to their condition immediately prior to
the installation or placement of such items, in which case Tenant agrees
promptly to pay Landlord's reasonable costs of removal and restoration,
including Landlord's administrative fee.
6. No Lease or Easement of Conduit Room or Connecting Conduit; Termination
of License. Tenant acknowledges that the rights granted to Tenant hereunder do
not constitute a lease of any portion of the Conduit Room, the Connecting
Conduit or the Landlord Installations nor an easement, but rather constitute a
non-exclusive license for use in common with others. Such license is revocable
by Landlord in Landlord's sole discretion upon any default by Tenant under the
Lease which is not cured within the applicable cure period. Landlord shall
retain such rights of revocation notwithstanding any expenditure of money on the
installations described herein or other actual or alleged reliance by Tenant.
Such revocation shall be made by written notice from Landlord to Tenant. The
license shall terminate in any event, without notice from Landlord, upon the
expiration or termination of the Lease. Such license is personal to Tenant, and
Tenant's rights hereunder may not be assigned (except in connection with a
permitted assignment of Tenant's entire interest in the Lease), sub-licensed, or
otherwise transferred in any fashion, regardless of whether such an arrangement
is called an assignment, a sub-license, a co-location agreement or any other
name. Tenant agrees not to permit any third party to place, use or operate their
own equipment, wiring, cabling or connecting lines in or about Tenant's Landlord
Installations or Connecting Conduit. Any default by Tenant under this Rider
shall be deemed to be a default under the Lease. The license fee described in
Section 2 above shall be deemed to be additional rent for the Premises described
in the Lease, and Tenant acknowledges that the availability of the license
enhances the value of those Premises. Tenant shall remain obligated for such
additional rent for the balance of the Lease term, and shall remain obligated
for Tenant's other obligations under this Rider, regardless of whether Tenant
actually makes use of the license, or whether Tenant surrenders the license, or
whether the license is terminated due to Tenant's default under the Lease.
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<PAGE> 43
7. Applicability of Other Provisions. Except as explicitly provided
otherwise herein, Tenant's obligations under the Lease for the protection of
the Building, Landlord, the Landlord Group, and third parties, including but
not limited to Tenant's obligations regarding maintenance, repairs, mechanic's
liens, insurance, attorneys' fees and costs of suit, shall apply in the same
fashion with respect to Tenant's use of the Conduit Room, the Connecting
Conduit and the Landlord Installations as they do with respect to Tenant's use
of the Premises.
8. Miscellaneous. This Rider supersedes all prior or contemporaneous
understandings, negotiations, or agreements between the parties, whether
written or oral, with respect to its subject matter. The Lease, as amended
herein, may be further amended only in a writing signed by both Landlord and
Tenant.
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<PAGE> 44
EXHIBIT A
QUINBY BUILDING
CONDUIT ROOM RULES
The Conduit Room is a room located on the basement level of the Quinby
Building located at 650 S. Grand Avenue, Los Angeles, California 90017 (the
"Building"), a purpose of which is to facilitate interconnections between
various telecommunications providers and users who currently hold licenses with
the Building for the use of such facilities ("Participants") and for the purpose
of facilitating connections with Landlord's telecommunications system which
provides access to certain other offsite telecommunications companies, and
facilitating connections with other telecommunications companies who have access
to the Building. As a condition to maintaining their license and to the ongoing
use of the Conduit Room, all Participants must comply with the Conduit Room
Rules set forth herein and as may be adopted or revised by the Building in its
reasonable discretion from time to time.
These Conduit Room Rules are in addition to the terms, covenants, and
conditions of any agreement (including but not limited to a lease) between
Participant and the Building for use of the Conduit Room. In the event these
Rules conflict with any provision of such agreement, such agreement shall
control.
The Building may waive any one or more of these Conduit Room Rules for the
benefit of a Participant, but no such waiver by the Building shall be construed
as a waiver of such Rules in favor of anyone other than such Participants for
whose benefit such waiver was expressly intended, nor prevent the Building from
thereafter enforcing such Rules against such Participant or any or all of the
other Participants.
The Building reserves the right to make such other and reasonable Conduit
Room Rules as, in its judgment, may from time to time be necessary or desirable.
Participant agrees to abide by all such Conduit Room Rules as stated herein and
any additional rules and regulations which are adopted.
1. Participants must furnish the Building with the names (and other necessary
identification as Building may require) of its personnel who are authorized
by Participant to enter the Conduit Room. Participants are responsible for
keeping such authorized user list current.
2. Participants wishing to enter into the Conduit Room must sign in at the
Conduit Room log book located at the Building Security Desk.
3. Each person wishing to enter the Conduit Room must be on the authorized
user list. Positive proof of identity is required before entrance to the
Conduit Room is permitted. A driver's license or other authenticated
photograph identification is the only acceptable form of positive proof.
Such form of identification will be held as security until Participant
completes Participant's activities in the Conduit Room.
4. Each person wishing to enter the Conduit Room must obtain a security access
card from Building Security each time he or she wishes to enter. On
entering or leaving the Conduit Room, Participant must make sure the door
is shut and not left ajar.
5. If Participant intends to perform cross-connect work in the Conduit room,
upon entry Participant must submit a fully executed (by Participant and the
Building's authorized representative) Cross-Connect Authority Form in the
form provided by the Building.
6. Upon leaving the Conduit Room, Participant must sign out in the Conduit
Room log book at which time Participant's photo identification will be
returned.
7. All activities in the Conduit Room must be in compliance with the law
including all applicable local, state, and federal laws, rules, codes and
regulations.
8. Participants desiring to interconnect to another Participant's or other
entity's cross-connect array must negotiate such interconnection directly
with such other Participant or entity, and the Building shall have no
obligation in that regard.
TCR-5
<PAGE> 45
9. All cross-connects must be accomplished utilizing Building-standard cable
and wire and following approved procedures.
10. All wiring shall be routed through the furnished channels, raceways, etc.
All cable shall be dressed-in and secured so as to ensure a professional
appearance, run straight and level, with 90 degree corners where possible.
Where tie wraps are used, the end shall be cut to preserve the
professional appearance.
11. Groups of cable routed to the Conduit Room shall remain bundled together
to the degree possible for easy identification.
12. All cables must be clearly labeled utilizing Building-provided tags.
13. The Conduit Room must be kept clean and free of debris at all times.
14. Tampering in any way with Landlord's or other Participant's circuits and
cross-connects is not permissible and is grounds for immediate revocation
of Participant's Conduit Room rights. All other infractions of Conduit
Room Rules must be corrected within 24 hours of notification.
15. If circuit tampering is detected at any time by any Participant, it must
be reported immediately to the Building Security Desk.
16. Notification of infraction is accomplished by Building Management's
delivery of a written warning to the Participant.
17. Receipt of three (3) warnings within a six-month period is cause for
immediate revocation of Conduit Room participation rights.
18. Conduit Room participation rights are subject to revocation for any
default under the agreement between the Building and Participant regarding
Participant's use of the Conduit Room.
19. Upon expiration or revocation of Conduit Room participation rights,
Participant must make arrangements to vacate the Conduit Room and remove
all cross-connects associated with Participant's assigned array(s) within
30 calendar days of notification.
TCR-6
<PAGE> 1
EXHIBIT 10.11
Letter of Intent for Joint Venture
Between
Integrated Communication Network, Inc.
And
Global Industry Development & Trade Ltd.
Effective June 1st 1999, Integrated Communications Network Inc. (ICN) and Global
Industry Development & Trade Ltd. (GIDT) (sometimes hereinafter referred to as
the "parties") enter into this letter of intent, for the purpose of formulating
a Joint Venture as set forth below.
The parties shall enter into a Joint Venture for the purpose of developing a
unique call center business in the United States, utilizing a global call
center infrastructure based on a unique business approach developed by Jonathan
Rosenberg. This approach utilizes the latest available switching and
compression technologies in conjunction with low-cost, offshore personnel, as
described in a confidential business plan summary forwarded to ICN by Jonathan
Rosenberg.
The parties have agreed to the following:
1. The parties will register a new corporation for the purpose of this Joint
Venture by the name of Internet Call Centers Inc. (ICCI), of which 60% of
the shares will be owned by PhoneXchange Inc., and 40% will be owned by
Global Industry Development & Trade LTD (GIDT).
2. The funding for all related hardware and software related equipment,
including, but not limited to, switching, compression, computer and CSR
stations will be infused through a Joint Venture with a European-based
group of investors.
3. The intent of the parties is to sell call center services around the
country either through newly acquired call center entities or directly to
the end users, i.e. thousands of companies in diverse industries having
customer service requirements which are paying anywhere between $0.70-$0.90
per minute for CSR in-bound services.
4. The responsibility of the JV partners has been identified as follows:
Global Industry Development & Trade LTD - will act as the developing
partner and will assist PhoneXchange Inc. will all aspects of developing
the required implementation strategy for this project in order to bring it
to a successful operational start.
ICN - will be responsible for all setup, installation and operating issues
during the development period and after.
<PAGE> 2
5. During the development period, starting with the confirmation of funding,
which is expected to last approximately 6 months, ICN will pay GIDT a
monthly retainer of $12,500, payable at the first of every month. This sum
will cover all out-of-pocket expenses that GIDT may incur. This retainer
obligation on behalf of ICN will be for a minimum period of 6 months,
commencing July 1st 1999.
6. The parties have agreed that, subject to the successful implementation of
this project and once the company is fully operational and generating
inbound traffic, ICCI will enter in to a 3-year employment contract with
Jonathan Rosenberg to act as the company's President to be involved
strictly in growth strategy and M&A activities, with a compensation package
which will include $350,000 annual salary plus 4% of the EBIT as defined by
GAAP.
7. The parties agree to keep this agreement - strictly confidential.
The parties intend to enter into a definitive agreement as soon as possible.
Until the execution of the definitive agreement, this agreement will constitute
as a binding agreement between the parties, governed by the laws of the state
of New York.
AGREED:
Integrated Communications Global Industry Development
Networks Inc. & Trade Ltd.
BY: /s/ [signature illegible] BY: /s/ [signature illegible]
------------------------- -------------------------
Authorized Signature Authorized Signature
President Chairman
- ----------------------------- -----------------------------
Title Title
June 21, 1999 July 19, 1999
- ----------------------------- -----------------------------
Date Date
<PAGE> 1
EXHIBIT 10.12
DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
ISSUANCE DATE DECEMBER , 1999
CONVERTIBLE DEBENTURE DUE DECEMBER , 2004
AMOUNT $ 5,000,000.00
NUMBER NOV-1999-101
FOR VALUE RECEIVED, INTEGRATED COMMUNICATION NETWORKS, INC., a Nevada
corporation (the "Company"), hereby promises to pay REBECCA LLC or registered
assigns (the "Holder") on December __, 2004, (the "Maturity Date"), the
principal amount of Five Million Dollars ($5,000,000) U.S., and to pay interest
on the principal amount hereof, in such amounts, at such times and on such terms
and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the time of each conversion at the rate of Four
Percent (4%) per annum, payable in arrears at the time of each conversion, in
cash or in common stock of the Company, $.01 par value per share (the "Common
Stock"), at the Company's option, until the principal amount hereof is paid in
full or has been converted. If paid in Common Stock, the number of shares of the
Company's Common Stock to be received shall be determined pursuant to Section
4(d) hereof. If the Interest is to be paid in cash, the Company shall make such
payment within 5 business days of the conversion payment date. If the interest
is to be paid in Common Stock, said Common Stock shall be delivered to the
Holder, or per Holder's instructions, within 10 business days of the conversion
date. The Debentures are subject to automatic conversion at the end of sixty
(60) months from the date of issuance at which time all Debentures outstanding
will be automatically converted based upon the formula set forth in Section 3.2.
The closing shall be deemed to have occurred on the date the "Purchase Price",
as defined in the Subscription Agreement entered into between the Company and
Holder (the "Subscription Agreement"), less fees and expenses payable by the
Company, is wired to the Company (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall have
the option of paying the interest on this Debenture in United States dollars or
in common stock upon conversion pursuant to Article 1 hereof. The Company may
draw a check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the Register (as
defined in Section 7.2 below). Interest and principal payments shall be subject
to withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option, to
convert it into shares of Common Stock at any time commencing April 1, 2000 and
which is before the close of business on the Maturity Date, except as set forth
in Section 3.1(c) below. The number of shares of Common Stock
<PAGE> 2
issuable upon the conversion of this Debenture is determined pursuant to Section
3.2 and rounding the result to the nearest whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains
outstanding on the fifth anniversary of the date hereof, the unconverted portion
of such Debenture will automatically be converted into shares of Common Stock on
such date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon the Company's receipt of a facsimile or original of
Holder's duly completed and signed Notice of Conversion (a copy of which is
attached hereto as Exhibit A), the Company shall instruct its transfer agent to
issue one or more Certificates representing that number of shares of Common
Stock into which the Debentures are convertible in accordance with the
provisions regarding conversion. The Company's transfer agent or attorney shall
act as Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
(b) Conversion Date. Such conversion shall be effectuated by
surrendering to the Company, or its attorney, the Debentures to be converted
together with a facsimile or original of the signed Notice of Conversion. The
date on which the Notice of Conversion is effective ("Conversion Date") shall be
deemed to be the date on which the Holder has delivered to the Company a
facsimile or original of the signed Notice of Conversion, as long as the
original Debentures to be converted are received by the Company or its
designated attorney within 3 business days thereafter. As long as the Debentures
to be converted are received by the Company within 3 business days after it
receives a facsimile or original of the signed Notice of Conversion, the Company
shall deliver to the Holder, or per the Holder's instructions, the shares of
Common Stock, with, unless as otherwise provided in the Subscription Agreement,
restrictive legends as set forth in the Subscription Agreement within 5 business
days of receipt of the Debentures to be converted.
(c) Common Stock to be Issued. Upon the conversion of any Debentures and
upon receipt by the Company or its attorney of a facsimile or original of
Holder's signed Notice of Conversion, Company shall instruct Company's transfer
agent to issue Stock Certificates with restrictive legends as set forth in the
Subscription Agreement, unless as otherwise provided in the Subscription
Agreement, in the name of Holder (or its nominee) and in such denominations to
be specified at conversion representing the number of shares of Common Stock
issuable upon such conversion, as applicable. Company warrants that no
instructions, other than these instructions, have been given or will be given to
the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Company.
(d) Conversion Rate. Anytime commencing with April 1, 2000, Holder is
entitled to convert this Debenture, plus accrued interest, into Common Stock of
the Company at the lesser of (i) 80% of the averaged three lowest closing bid
prices, as reported by Bloomberg, LP, for the Company's Common Stock for the
twenty (20) trading days immediately preceding the Conversion Date or (ii)
$10.00 (each being referred to as the "Conversion Price"). Anytime after the
Closing Date, the first trading date, if any, when the closing bid price of the
Company's Common Stock is equal to or less than $6.00 as reported by Bloomberg,
shall be referred to as the "Soft Floor Date," and the Holder agrees that it
shall not convert any Debentures for the nine (9) trading days following, but
not including, the "Soft Floor Date, even if the closing bid price is above
$6.00 during that time. The Holder may again convert Debentures on the tenth
(10th) trading day following, but not including, the Soft Floor Date, and no
further restrictions will be imposed on conversions in the event the closing bid
price is equal to or below $6.00 anytime after the tenth (10th) trading day
following the Soft Floor Date, except as required by subsection 3.2(k) hereof.
No fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up or down, as
the case may be, to the nearest whole share.
2
<PAGE> 3
Mandatory Conversion Date. The Debentures are subject to mandatory
conversion sixty (60) months after issuance, at which time all Debentures
outstanding will be automatically converted, upon the terms set forth in this
section.
(e) Nothing contained in this Subscription Agreement shall be deemed to
establish or require the payment of interest to the Holder at a rate in excess
of the maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and such excess
shall be returned with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue certificates for the Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder new Debentures representing the unconverted amount, if so requested by
Holder.
(g) In the event the Common Stock is not delivered (with legends if
before the effective date of the registration statement covering this Debenture
and without legends if after the effective date of the registration statement
covering this Debenture) per the written instructions of the Holder, within
eight (8) business days after, but not including, the Conversion Date and
delivery of the Debentures to be converted (unless such delay is caused by
operation of law) then in such event the Company shall pay to Holder one-half
percent (0.5%), in cash, of the dollar value of the Debentures being converted
per each business day following the eighth (8th) business day after the
Conversion Date and delivery of the Debentures to be converted that the Common
Stock is not delivered up to and including the eighteenth (18th) business day
following the Conversion Date and delivery of the Debentures to be converted
that the Common Stock is not delivered. In the event the Common Stock is not
delivered per the written instructions of the Holder, within eighteen (18)
business days after, but not including, the Conversion Date and delivery of the
Debentures to be converted (unless such delay is caused by operation of law)
then in such event the Company shall pay to Holder one percent (1%), in cash, of
the dollar value of the Debentures being converted per each business day
following the eighteenth (18th) business day after the Conversion Date and
delivery of the Debentures to be converted that the Common Stock is not
delivered. Notwithstanding the foregoing, the Company shall not be required to
pay liquidated damages in excess of $100,000 per month pursuant to the terms of
this section. In the event the Holder converts a portion of the Debentures after
the effective date of the registration statement covering this Offering and the
Company is unable to deliver unrestricted, freely tradable common stock to the
Holder within twenty (20) calendar days following the Conversion Date, such
inability on the Company's part shall be considered an event of default. Holder
shall then be entitled to send written notice to the Company of the default and
the Holder, at its sole option may demand full repayment of the prorata Purchase
Price of the Debentures not yet converted, including accrued interest and
liquidated damages through the date that written notice is given to the Company
(the "Acceleration Amount"). If the Company does not wire the Acceleration
Amount to the Holder within five (5) business days of receiving the default
notice from Holder the Acceleration Amount shall accrue interest at twenty-four
percent (24%) per annum. The Company acknowledges that the failure to honor a
Notice of Conversion shall cause financial hardship to the Holder.
If, by the eighth (8th) business day after the Conversion Date and
delivery of the Debentures to be converted (the "Delivery Date"), unless such
delay is caused by operation of law, due to the Company's direct or indirect
actions or its failure to act, the transfer agent fails for any reason to
deliver the Common Stock (with legends if before the effective date of the
registration statement covering this Debenture and without legends if after the
effective date of the registration statement covering this Debenture) upon
conversion by the Holder and after such Delivery Date, the Holder purchases, in
an open market transaction or otherwise, shares of Common Stock (the "Covering
Shares") solely in order to make delivery in satisfaction of a sale of Common
Stock by the Holder (the "Sold Shares"), which delivery such Holder anticipated
to make using the Common Stock issuable upon conversion (a "Buy-In"), the
Company shall pay to the Holder, in addition to any other amounts due to Holder
pursuant to this Debenture, and not in lieu thereof, the Buy-In Adjustment
Amount (as defined below). The "Buy In Adjustment Amount" is
3
<PAGE> 4
the amount equal to the excess, if any, of (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds (after brokerage commissions, if any) received by the Holder from
the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount
to the Holder in immediately available funds within five (5) business days of
written demand by the Holder. By way of illustration and not in limitation of
the foregoing, if the Holder purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
with respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which the Company will be required to pay to the Holder
will be $1,000.
In lieu of delivering physical certificates representing the securities
issuable upon conversion, provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, upon request of the Holder and its compliance with the provisions
contained in this paragraph, so long as the certificates therefor do not bear a
legend and the Holder thereof is not obligated to return such certificate for
the placement of a legend thereon, the Company shall use its best efforts to
cause its transfer agent to electronically transmit the shares of Common Stock
issuable upon conversion to the Holder by crediting the account of Holder's
broker with DTC through its Deposit Withdrawal Agent Commission system.
The Company acknowledges that its failure to deliver the Common Stock
within eight (8) business days after the Conversion Date will cause the Holder
to suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to quantify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2 is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply.
(h) The Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all Holders of the
entire amount of Debentures then outstanding. If, at any time Holder submits a
Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock available to effect, in full, a conversion of
the Debentures (a "Conversion Default", the date of such default being referred
to herein as the "Conversion Default Date"), the Company shall issue to the
Holder all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within five (5) business days of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments shall be paid in cash or shall be convertible into
Common Stock at the Conversion Rate, at the Holder's option, payable as follows:
(i) in the event Holder elects within ten (10) days of the Authorization Notice
in writing to take such payment in cash, cash payments shall be made to such
Holder by the fifth day of the following calendar month, or (ii) if the Holder
does not so elect to receive such Conversion
4
<PAGE> 5
Default Payment in cash, such payment shall be made in Common Stock at the then
current Conversion Price within 30 days following the date of the Authorization
Notice.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Agreement.
(i) Redemption. The Company reserves the right, at its sole option, to
call a mandatory redemption of any percentage of the balance on the Debentures
not then converted as follows: In the event the Company exercises such right of
redemption anytime following the Closing Date, it shall pay the Holder, in U.S.
currency One Hundred Twenty percent (120%) of the face amount of the Debentures
to be redeemed (the "Redemption Amount"), plus accrued interest. The date by
which the Debentures must be delivered to the escrow agent shall not be later
than ten (10) business days following the date the Company notifies the Holder
by facsimile of the redemption. The Company shall give the Holder at least ten
(10) business day's notice of its intent to redeem and wire the funds necessary
to redeem the Debentures to the escrow agent on or before the expiration of said
ten (10) business days during which time the Purchaser may continue to convert.
Furthermore, in the event such Redemption Amount is not timely paid, any rights
of the Company to such redemption shall terminate, and the Company shall not be
entitled to make any partial or full redemption of the unconverted Debentures
thereafter.
(j) The Company shall furnish to Holder such number of prospectuses and
other documents incidental to the registration of the shares of Common Stock
underlying the Debentures and the shares of Common Stock issuable in payment of
interest on the Debentures, including any amendment of or supplements thereto.
(k) Limits on Amount of Conversion and Ownership. In no event shall the
Holder be entitled to convert any of the Debentures to the extent that, after
such conversion, the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion). For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such proviso. The Holder
further agrees that if the Holder transfers or assigns any of the Debentures
such transfer or assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Section as
if such transferee or assignee were a signatory to the Subscription Agreement.
(l) Payment of Taxes. The Company shall pay all documentary stamp taxes,
if any, attributable to the initial issuance of the Common Stock; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable, (i) with respect to any secondary transfer of the Debentures or
the Common Stock issuable upon exercise hereof or (ii) as a result of the
issuance of the Common Stock to any person other than the Holder, and the
Company shall not be required to issue or deliver any certificate for any Common
Stock unless and until the person requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have produced evidence that
such tax has been paid to the appropriate taxing authority.
Section 3.3. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in the Subscription Agreement, to permit the conversion of this Debenture.
All shares of Common Stock which may be issued upon the
5
<PAGE> 6
conversion hereof shall upon issuance be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
Section 3.4. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption from the Act.
Section 3.5. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3. Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption. Article
5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or other report or proxy statement
that it gives to its shareholders generally at the time such report or statement
is sent to shareholders. Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of five (5) business days thereafter, (c) any of the Company's representations
or warranties contained in the Subscription Agreement or this Debenture were
false when made or the Company fails to comply with any of its other agreements
in the Subscription Agreement or this Debenture and such failure continues for
the period and after the notice specified below, (d) the Company shall have its
Common Stock suspended or delisted from any exchange or the over-the-counter
market from trading for in excess of five (5) consecutive trading days, or (e)
the Company pursuant to or within the meaning of any Bankruptcy Law (as
hereinafter defined): (i) commences a voluntary case; (ii) consents to the entry
of an order for relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as hereinafter defined) of it or for all or
substantially all of its property or (iv) makes a general assignment for the
benefit of its creditors or (v) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that: (A) is for relief against the
Company in an involuntary case; (B) appoints a Custodian of the Company or for
all or substantially all of its property or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 60 days, (e)
the Company's Common Stock is no longer listed on any recognized exchange
including electronic over-the-counter bulletin board. As used in this Section
6.1, the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event of Default
until the holders of at least 25% of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and the Company
6
<PAGE> 7
does not cure it within five (5) business days after the receipt of such notice,
which must specify the default, demand that it be remedied and state that it is
a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture, together with all accrued interest
and any liquidated damages, to be due and payable. Upon such declaration, the
remaining principal amount shall be due and payable immediately. Article 7.
Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order to
comply with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures".
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are genuine and effective,
and the Company has received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including tax laws and
state and federal securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new Debenture showing
the name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in such denominations as agreed to by the Company and
Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Dilution.
The number of shares of Common Stock issuable upon conversion of the
Debentures may increase substantially in certain circumstances. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Debenture and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue additional shares of Common Stock is binding upon
7
<PAGE> 8
the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.
Article 9. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices. The time when such notice is sent shall be the
time of the giving of the notice.
Article 10. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in California are not required or allowed to be
closed.
Article 11. Waivers
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion into
Common Stock. Article 12. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 13. Governing Law
The validity, terms, performance and enforcement of this Debenture shall
be governed and construed by the provisions hereof and in accordance with the
laws of the State of California applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of California.
Article 14. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the federal courts of the State of California. The Company hereby expressly and
irrevocably submits to the jurisdiction of the federal courts of the State of
California for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the
8
<PAGE> 9
extent that the Company has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution or
otherwise) with respect to itself or its property, the Company hereby
irrevocably waives such immunity in respect of its obligations under this
agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction. Any legal action or proceeding in
connection with this Debenture or the performance hereof must be brought in the
federal courts located in the State of California and the parties hereby
irrevocably submit to the exclusive jurisdiction of such courts for the purpose
of any such action or proceeding.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
INTEGRATED COMMUNICATION NETWORKS, INC.
By ________________________________________
David J. Chadwick
its Chairman and CEO duly authorized
10
<PAGE> 11
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_ to
convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of INTEGRATED COMMUNICATION NETWORKS, INC. (the "Company") according
to the conditions set forth in the Subscription Agreement dated
_________________,1999.
Date of Conversion __________________________________________
Applicable Conversion Price _________________________________
Number of Shares Issuable upon this conversion ______________
Signature ___________________________________________________
[Name]
Address _____________________________________________________
_____________________________________________________________
Phone ______________________ Fax __________________________
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
Dollars ($ )
________________________________________________________________________________
(principal amount of Debenture, $5,000 or integral multiples of $5,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date: ______________ Signed: __________________________________________________
(Signature must conform in all respects to name of
Holder shown of face of Debenture)
Signature Guaranteed:
11
<PAGE> 1
Integrated Communication Networks, Inc.
EXHIBIT 21.1
Subsidiaries
October 31,1999
phoneXchange, Inc.
Internet Call Centers, Inc.
<PAGE> 1
JAAK (JACK) OLESK
Certified Public Accountant
270 North Canon Drive, Suite 203
Beverly Hills, California 90210
(310) 288-0693
January 4, 2000
Directors and Officers
Integrated Communication Networks, Inc.
27061 Aliso Creek Road, Suite 100
Aliso Viejo, CA 92656
RE: Security Exchange Commission (SEC) Form S-1 Registration
Gentlemen:
I, hereby consent to the use of the Audited Consolidated Financial
Statements of Integrated Communication Networks, Inc., as of December 31, 1998,
for its SEC form S-1 Registration.
Sincerely,
Jaak (Jack) Olesk
<PAGE> 1
BRAD B. HAYNES 9005 Burton Way
CERTIFIED PUBLIC ACCOUNTANT Los Angeles, California 90048
Tel (310) 273-7417
Fax (310) 285-0865
January 4, 2000
Directors and Officers
Integrated Communication Networks, Inc.
27061 Aliso Creek Road, Suite 100
Aliso Viejo, CA 92656
RE: Security Exchange Commission (SEC) Form S-1 Registration
Gentlemen:
I, hereby consent to the use of the Audited Financial Statements of
phoneXchange, Inc., as of December 31, 1998, for the Parent Company's SEC form
S-1 Registration.
Sincerely,
Brad B. Haynes
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