<PAGE>
As filed with the Securities and Exchange Commission on November 29, 1999
Commission File No. _____________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------
TELECOM WIRELESS CORPORATION
(Name of Small Business Issuer In Its Charter)
UTAH 7370 94-3172556
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
5299 DTC BOULEVARD, SUITE 1200
ENGLEWOOD, CO 80111
(303) 357-0001
(Address and Telephone Number of Principal Executive Offices)
CALVIN D. SMILEY
PRESIDENT
TELECOM WIRELESS CORPORATION
5299 DTC BOULEVARD, SUITE 1200
ENGLEWOOD, CO 80111
(303) 357-0001
(Name , Address and Telephone Number of Agent for Service)
----------------------------
WITH A COPY TO:
GERALD J. LAPORTE, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
(202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement in light of market
conditions and other factors.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------------ ---------------------- ----------------------- -----------------
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered Offering price per aggregate offering registration
Share (1) price (1) fee (1)
- ---------------------------------------------- ------------------ ---------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share.... 1,826,473 $7.00 $12,785,311 $3,554.32
- ---------------------------------------------- ------------------ ---------------------- ----------------------- -----------------
</TABLE>
(1) The maximum offering price of $7.00 per share was calculated based upon
the average of the bid and asked prices of the Common Stock quoted on the
OTC Bulletin Board on November 19, 1999, in accordance with Rule 457(c).
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
As filed with the Securities and Exchange Commission on November 29, 1999
Commission File No. _____________
- -------------------------------------------------------------------------------
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH U.S.
FEDERAL SECURITIES LAW PERMITS THE SELLING STOCKHOLDERS TO OFFER THESE
SECURITIES AT THIS TIME USING THIS PROSPECTUS, THEY MAY NOT SELL THEM OR ACCEPT
YOUR OFFER TO BUY THEM UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING TO
THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SEC.
- --------------------------------------------------------------------------------
Subject to Completion, dated November 29, 1999
PROSPECTUS
DECEMBER ___, 1999
TELECOM WIRELESS CORPORATION
1,826,473 Shares of Common Stock
to be sold by current stockholders
The selling stockholders identified in this prospectus may
use the prospectus to offer and sell up to 1,826,473 shares of the common
stock of Telecom Wireless Corporation from time to time. The selling
stockholders will receive all the proceeds from the sale of these shares.
Telecom Wireless will not receive any of the proceeds, although Telecom
Wireless will previously have received proceeds from the original issuance of
the shares being sold.
The common stock of Telecom Wireless has been traded in the
over-the-counter (OTC) market and quoted through the OTC Bulletin Board under
the symbol "NOYR." We expect it to continue to trade in that market. On
November 19, 1999, the reported closing price of the company's common stock
was $7.125 per share. The market for the stock is characterized generally by
low volume and broad price and volume volatility. Telecom Wireless cannot
give any assurance that a stable trading market will develop for its stock.
Telecom Wireless has not previously filed annual or quarterly
reports with the Securities and Exchange Commission as a public company, but
will begin to do so as a result of this offering. This is the first
securities offering the company has registered with the SEC.
The selling stockholders may sell all or any portion of the shares
in this offering in one or more transactions by a variety of methods,
including through the OTC Bulletin Board, in an underwritten offering or in
negotiated transactions. The selling stockholders will determine the selling
price of the shares. The selling stockholders will also pay any broker or
dealer commission, fee or other compensation or underwriter discount.
These securities involve a high degree of risk. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE
DECIDING WHETHER TO INVEST IN TELECOM WIRELESS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
In deciding whether to buy the shares offered, you should rely only
on the information contained in this document. Telecom Wireless Corporation
has not authorized anyone to provide you with any information that is
different from this information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY/SUMMARY OF OFFERING............................................................................1
RISK FACTORS......................................................................................................7
A NOTE ABOUT FORWARD-LOOKING STATEMENTS..........................................................................21
USE OF PROCEEDS..................................................................................................22
DETERMINATION OF OFFERING PRICE..................................................................................22
DILUTION.........................................................................................................22
SELLING STOCKHOLDERS.............................................................................................22
PLAN OF DISTRIBUTION.............................................................................................26
SELECTED COMBINED PRO FORMA FINANCIAL DATA.......................................................................29
SELECTED HISTORICAL FINANCIAL DATA FOR COMBINED BUSINESSES.......................................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION................................32
BUSINESS.........................................................................................................45
MANAGEMENT.......................................................................................................69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................78
CERTAIN TRANSACTIONS AND RELATIONSHIPS...........................................................................79
THE COMPANY'S STOCK..............................................................................................81
SHARES AVAILABLE FOR FUTURE SALE.................................................................................82
SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...................................................83
EXPERTS..........................................................................................................83
LEGAL MATTERS....................................................................................................84
HOW TO OBTAIN ADDITIONAL INFORMATION.............................................................................84
INDEX TO FINANCIAL STATEMENTS....................................................................................85
</TABLE>
This document may be used only where it is legal to sell these
securities. The information in the document may be accurate on the date on
the cover only.
<PAGE>
PROSPECTUS SUMMARY/SUMMARY OF OFFERING
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THE SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SECURITIES OFFERED BY THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
DISCUSSION OF THE RISKS OF INVESTING IN THESE SECURITIES DISCUSSED UNDER
"RISK FACTORS." IN THIS PROSPECTUS, REFERENCE TO THE "COMPANY" OR TO "TELECOM
WIRELESS CORPORATION" INCLUDES TELECOM WIRELESS CORPORATION AND ITS
SUBSIDIARIES, UNLESS OTHERWISE SPECIFIED.
The Company Telecom Wireless Corporation is an Internet communications
company that intends to provide Internet access or
"connectivity," Internet content and electronic commerce
and other telecommunications services.
The Offering 1,826,473 shares of common stock may be offered by selling
stockholders.
Use of Proceeds Telecom Wireless Corporation will not receive any proceeds
from the sale of the common stock by the selling
stockholders.
Trading Symbol The common stock of Telecom Wireless is traded through the
over-the-counter (OTC) Bulletin Board under the symbol
"NOYR."
Public Company Telecom Wireless Corporation has not previously filed
Status annual or quarterly reports with the SEC as a public
company, but will begin to do so as a result of this
offering, which is the initial offering of its securities
registered with the SEC.
Risk Factors You should review the "Risk Factors" section of this
prospectus for a discussion of certain factors about
Telecom Wireless and the industry in which the company
operates. You should consider these factors before buying
shares of the company's common stock.
Address and The address of the principal executive offices of Telecom
Phone Number Wireless and the company's telephone number at that address
are:
Telecom Wireless Corporation
5299 DTC Boulevard, Suite 1200
Englewood, Colorado 80111
Telephone No.: (303) 357-0001
1
<PAGE>
COMPANY OVERVIEW
Telecom Wireless Corporation is an Internet communications
company. The company's business plan calls for it to grow rapidly, initially
primarily through acquisitions, and to capitalize on the convergence of
video, voice and data communications on the Internet. The company intends to
accomplish these objectives by providing access or "connectivity" for
Internet and other electronic communications, Internet content and electronic
commerce and other telecommunications services. The company's target markets
include both residential and business customers. The company plans to offer
its products and services through subsidiaries it has acquired recently and
subsidiaries it acquires in the future.
Key elements of the company's business strategy are:
- acquiring and consolidating geographically disparate and
usually smaller independent internet service providers,
referred to as ISPs; application service providers, referred
to as ASPs; and competitive local exchange carriers, referred
to as CLECs.
- standardizing and centralizing the back office operations of
acquired companies, integrating their networks into a
broadband network and providing them with national customer
and technical support services;
- developing and offering additional value-added products and
services to customers, especially residential ISP customers,
such as bundled video, voice and data products and services
through the company's ASPs and CLECs; and
- building customer loyalty and gaining market share through
unified branding.
Telecom Wireless now owns and operates an ASP, SYS-Group, Inc.,
which does business under the name Prentice Technologies, Inc.; an ISP,
America's Web Station, Inc.; and a wireless cable television system, Keys
Microcable Corporation. We are in discussions with the minority shareholder
of Prentice who seeks rescission of his sale of 90% of the common stock of
Prentice to Telecom Wireless. See "Business -- Legal Proceedings."
Current management acquired control of Telecom Wireless in April 1999.
From that time until July 30, 1999, when the company closed its first
acquisition, the company operated its wireless cable television system, which
had been acquired by prior management, assembled its due diligence and
management teams, negotiated and documented several acquisition agreements, and
commenced due diligence investigation and definitive agreement negotiation with
additional acquisition candidates.
The ability of Telecom Wireless to remain in business and implement
its business plan depends upon a variety of factors, primarily financing and
the ability to attract and retain employees having the necessary skills.
Funding operations and acquisitions has been and is expected to continue to
be the major impediment to implement its business plan. We need capital
2
<PAGE>
to sustain operations and to consummate acquisitions. Management can give no
assurance that the company's capital requirements can be satisfied at all or
on reasonable terms.
SUMMARY FINANCIAL DATA
The table below presents summary pro forma combined financial data
for the year ended June 30, 1999, and for the three months ended September
30, 1999, combining the historical results of Telecom Wireless Corporation
with the results of its subsidiaries, most of which have been acquired
recently. The pro forma combined financial statements are presented as if the
acquisitions had closed on July 1, 1998.
The summary pro forma financial data include, under the line item
labeled "adjusted EBITDA," our earnings or losses before non-cash
compensation expense, interest, taxes, depreciation and amortization on a pro
forma combined basis for the year ended June 30, 1999, and the three months
ended September 30, 1999. We have included adjusted EBITDA in these data
because it is a measure commonly used by investors to analyze and compare
companies on the basis of operating performance. Adjusted EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be construed as a substitute for operating income,
net income or cash flows from operating activities for purposes of analyzing
our operating performance, financial position or cash flows. Not all
companies define EBITDA in the same way, and our adjusted EBITDA is not
necessarily comparable to EBITDA reported by other companies.
The summary pro forma financial data do not necessarily indicate the
operating results or financial position which would have resulted from our
operation on a combined basis during the periods presented, nor does the pro
forma data necessarily represent any future operating results or financial
position. In addition to the summary financial data, you should also refer to
the more complete financial information included elsewhere in this
prospectus, including more complete historic results for the acquired
companies, and our unaudited pro forma combined financial statements and the
accompanying notes.
<TABLE>
<CAPTION>
PRO FORMA COMBINED PRO FORMA COMBINED
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Access Revenues $ 159,000 $ 29,000
Wireless Cable Revenues 523,000 138,000
Consulting Fees 1,983,000 711,000
Other -- 4,000
------------ ------------
Total Revenues 2,665,000 882,000
3
<PAGE>
<S> <C> <C>
Costs and Expenses
Cost of Access Revenues 57,000 28,000
Cost of Wireless Cable Revenues 276,000 106,000
Cost of Consulting Fees 1,277,000 367,000
Cost of M&A Operations -- 851,000
Stock-Based Compensation 1,548,000 428,000
Selling, General and Administrative 2,695,000 1,857,000
Amortization 726,000 91,000
Depreciation 313,000 204,000
------------ ------------
Total Costs and Expenses 6,892,000 3,932,000
------------ ------------
Income (Loss) From Operations $ (4,227,000) $ (3,050,000)
============ ============
Earnings (Loss) Per Common Share -
Basic and Diluted $ (1.02) $ (.20)
============ ============
Weighted Average Shares Outstanding -
Basic and Diluted 4,134,279 15,609,011
============ ============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED PRO FORMA COMBINED
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
<S> <C> <C>
OTHER OPERATING DATA
Cash Flow From Operating Activities $(1,596,000) $(1,442,000)
Cash Flow Used in Investing Activities (228,000) (635,000)
Cash Flow From Financing Activities 2,469,000 2,124,000
Adjusted EBITDA (1,574,000) (2,289,000)
</TABLE>
SUMMARY HISTORICAL INDIVIDUAL FINANCIAL DATA
The following table presents summary historical statement of
operations data for Telecom Wireless Corporation and the companies recently
acquired by Telecom Wireless. The historical statement of operations data
presented below have not been adjusted for the pro forma adjustments
reflected in the unaudited pro forma combined financial statements included
elsewhere in this prospectus.
4
<PAGE>
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, THREE MONTHS ENDED
-------------------------- SEPTEMBER 30,
-------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Revenues
Access Revenues $ -- $ -- $ -- $ 29,000
Wireless Cable Revenues 45,000 517,000 138,000 138,000
Other 2,000 5,000 6,000 4,000
----------- ----------- ----------- -----------
Total Revenues 47,000 523,000 144,000 171,000
----------- ----------- ----------- -----------
Costs and Expenses
Cost of Access Revenues -- -- -- 27,000
Cost of Wireless Cable Revenues 29,000 276,000 100,000 106,000
Cost of M&A Operations -- -- -- 851,000
Stock-Based Compensation -- 1,548,000 -- 428,000
General, Administrative and Other 88,000 1,887,000 172,000 1,527,000
Amortization 13,000 145,000 13,000 57,000
Depreciation 18,000 204,000 50,000 61,000
----------- ----------- ----------- -----------
Total Costs and Expenses 148,000 4,060,000 335,000 3,057,000
----------- ----------- ----------- -----------
Net (Loss) $ (101,000) $(3,537,000) $ (213,000) $(2,886,000)
=========== =========== =========== ===========
Net (Loss) Per Common Share - Basic and
Diluted $ (.87) $ (.94) $ (.05) $ (.19)
=========== =========== =========== ===========
Weighted Average Shares Outstanding -
Basic and Diluted 116,250 3,759,050 3,928,015 15,256,675
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- -------------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Revenues $ 385,000 $1,198,000 $ 457,000 $1,251,000
---------- ---------- ---------- ----------
Direct Expenses 213,000 697,000 187,000 768,000
General, Administrative and Other 71,000 352,000 139,000 432,000
---------- ---------- ---------- ----------
Total Expenses 284,000 1,049,000 326,000 1,200,000
---------- ---------- ---------- ----------
Net Income (Loss) $ 101,000 $ 149,000 $ 131,000 $ 51,000
========== ========== ========== ==========
</TABLE>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Revenues $ 47,000 $ 171,000 $ 88,000 $ 77,000
--------- --------- --------- ---------
Internet Operating Costs 24,000 61,000 29,000 25,000
General, Administrative and Other 102,000 283,000 82,000 134,000
--------- --------- --------- ---------
Total Expenses 126,000 344,000 111,000 159,000
--------- --------- --------- ---------
Net Income (Loss) $ (80,000) $(176,000) $ (74,000) $ (36,000)
========= ========= ========= =========
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before deciding
whether to invest in Telecom Wireless Corporation. You should be aware that
these risks are not the only risks Telecom Wireless faces. If any of the
contingencies discussed in the following paragraphs or other materially
adverse events actually materialize, the business, financial condition and
results of operations of Telecom Wireless could be materially and adversely
affected. In such a case, the trading price of the company's common stock
could decline, and you could lose all or part of your investment.
SUBSTANTIAL DOUBT EXISTS AS TO THE COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN
The company's independent auditor's report on the June 30, 1999,
financial statements contains an explanatory paragraph which indicates there
is substantial doubt as to the company's ability to continue as a going
concern. Telecom Wireless incurred net losses of approximately $3,537,000 and
$2,886,000 for the year ended June 30, 1999 and for the quarter ended
September 30, 1999, respectively, and had an accumulated deficit of
approximately $6,566,000 as of September 30, 1999. During the same periods,
the company had negative cash flows from operations of approximately
$1,421,000 and $1,340,000, respectively. Management expects that the
company's costs and expenses will continue to increase in future periods,
which could negatively affect operating results.
When current management assumed control of Telecom Wireless in mid-April
1999, the market for Internet and Internet-related stocks was strong.
Beginning in early July 1999, however, the market for certain of such
securities weakened considerably, and the market prices for many Internet
stocks fell by 50% or more. As a result, it has become increasingly difficult
for the company to obtain either debt or equity financing to fund operations
or acquisitions. This has forced management to obtain high cost short-term
financing to cover operating expenses and to postpone acquisition activities.
MANAGEMENT EXPECTS THE COMPANY TO CONTINUE TO SUSTAIN LOSSES
Even though its goal is to acquire profitable companies, management
projects that Telecom Wireless will continue to incur net losses and
experience negative cash flow for the foreseeable future. A variety of
factors lead management to this conclusion, including the substantial costs
of consolidating and integrating operations of acquired companies, ongoing
merger and acquisition activities and non-cash compensation expense due
primarily to issuing options to officers and others at exercise prices below
the fair market value of the company's common stock at the time of the dates
the options were granted. Management cannot be certain that revenues will
continue to grow, or that the company will obtain sufficient revenues to
achieve profitability. If Telecom Wireless does achieve profitability,
management cannot be certain that the company can sustain or increase
profitability in the future.
7
<PAGE>
TELECOM WIRELESS MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL IT NEEDS TO
GROW ITS BUSINESS
Telecom Wireless intends to grow primarily by acquiring additional
businesses using a combination of cash and common stock. Merger and
acquisition activities consume a substantial amount of cash, not only
internally for salaries, travel and other costs, but also for outside
attorneys, accountants and other experts whose services are required. Telecom
Wireless also will need substantial additional capital to deploy a national
network system and infrastructure and to fund capital expenditures for
equipment, product development, marketing, sales and customer support
capabilities. The company also may need to fund operating losses in amounts
we cannot determine at this time. Management anticipates that the company's
cash requirements for the next several months will include disbursements for
some or all of the following purposes:
- acquisition of additional businesses;
- expansion of sales and marketing operations;
- acquisition and expansion of a national network system and
infrastructure;
- development of business services offerings; and
- working capital and general corporate purposes.
See "Management's Discussion and Analysis of Financial Condition and Plan
of Operation -- Liquidity and Capital Resources."
Management expects the company to meet its additional capital needs
through sales of equity and debt securities, credit facilities and other
borrowings and lease financings. Management is not sure whether it will be
able to raise sufficient capital through these or any other methods. If it
cannot, management may be required to delay or abandon some acquisition and
development plans for the company, which would limit the company's growth and
may limit its ability to compete in the Internet sector. As of the date of
this prospectus, management does not have commitments for any additional
financing and cannot be sure that it will be able to obtain any such
commitments at all or upon reasonable terms and conditions.
FAILURE TO INTEGRATE ACQUISITIONS SUCCESSFULLY MAY ADVERSELY AFFECT TELECOM
WIRELESS' OPERATING RESULTS
The success of Telecom Wireless depends significantly on its ability to
integrate the operations and management of the businesses that it has
acquired and businesses that it may acquire in the future. The company will
have to expend substantial managerial, operating, financial and other
resources to integrate these businesses. In particular, the company must
install and standardize adequate operational and control systems, deploy
certain equipment and telecommunications facilities, implement new marketing
efforts in new as well as existing locations, employ
8
<PAGE>
qualified personnel to provide technical and marketing support for the
company's various operating sites and continue expansion of the company's
managerial, operational, technical and financial resources.
Consolidating acquired businesses and integrating regional operations may
take a significant period of time, will place a significant strain on the
company's resources and could prove to be more expensive than expected. The
company may increase expenditures to accelerate the integration and
consolidation of the company's acquired operations to generate long term cost
savings and improved profitability. These expenses may include the following,
among others:
- eliminating redundant staffing positions;
- personnel relocation;
- canceling overlapping Internet access contracts;
- system upgrades; and
- integrating acquired operations into a national network system.
Management cannot guarantee that the company's projected long term cost
savings and improvements in profitability can or will be realized. It also
cannot assure investors that customer support resources will be sufficient to
manage growth of the company's business or that management will be successful
in implementing its expansion program for the company in whole or in part.
TELECOM WIRELESS HAS A LIMITED OPERATING HISTORY
Current management assumed control of Telecom Wireless and adopted a new
business plan in April 1999. The business plan envisions Telecom Wireless
operating as an ISP, ASP and CLEC and growing through acquisitions. Although
the companies acquired or to be acquired by Telecom Wireless may have
individual operating histories, as a combined entity, Telecom Wireless has a
limited operating history. When making your investment decision, you should
consider the risks and difficulties Telecom Wireless may encounter in
building and operating a business in the rapidly evolving telecommunications
sector, especially given its limited operating history. These risks include
the company's ability to:
- expand its client and customer base and increase client and customer
revenues;
- compete favorably in highly competitive markets;
- access sufficient capital to support its growth;
9
<PAGE>
- recruit and retain qualified employees;
- introduce new products and services; and
- build a national network system and infrastructure.
Management cannot be certain that the company will successfully address
any of these risks.
THE COMPANY'S OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
As a result of the company's limited operating history, management cannot
forecast the company's operating expenses based on historical results.
Accordingly, management establishes the company's expense levels in advance
based in part on management's projections of the company's future revenues.
The company's future revenues will depend heavily on management's ability to
acquire businesses, to attract and retain subscribers and business customers
and to increase per subscriber revenues. Telecom Wireless may also experience
seasonal variations in the use of its services that could cause its revenues
to vary. If the company's actual revenues are less than the company's
projected revenues, the company may be unable to reduce expenses
proportionately, and the company's operating results, cash flows and
liquidity would likely be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Plan of Operation."
The company's revenues and operating results may fluctuate significantly
from quarter to quarter. A number of factors are likely to cause these
fluctuations, including:
- the effect of potential acquisitions;
- the rate of new ISP subscriber acquisitions and subscriber retentions;
- development of ASP clients and acquisition of ASP businesses;
- changes in the company's pricing policies or those of the company's
competitors;
- capital expenditures and other costs relating to expanding the
company's operations;
- the timing of new product and service announcements by the company or
its competitors;
- market acceptance of new and enhanced versions of the company's
products and services;
10
<PAGE>
- personnel changes;
- the introduction of alternative technologies; and
- increased competition in the company's markets.
TELECOM WIRELESS MAY ENCOUNTER PRICING PRESSURE DUE TO INTENSE COMPETITION
The telecommunications services business, including the Internet services
sector, is extremely competitive and is changing rapidly. Competition could
result in loss of the company's customers and reduction of the company's
revenues.
The tremendous growth and potential market size of the Internet market in
which the company competes has attracted many new start-ups as well as
established businesses from different industries. Current and prospective
competitors include other national, regional and local ISPs, ASPs, CLECs,
long distance telecommunications carriers, cable television companies, direct
broadcast satellite and wireless communications providers and on-line service
providers. Telecom Wireless' competitors are expected to include AT&T, MCI,
Sprint, UUNet, GTE, PSINet, Concentric Network and DIGEX. Most of the
company's competitors have significantly greater market presence, brand
recognition, and financial, technical and personnel resources than the
company has, and also have extensive coast-to-coast Internet backbones and
large customer bases.
Management also expects to face increasing competition from Internet
providers using alternative technologies including:
- telecommunications providers that bundle Internet access with basic
local and long distance telecommunications services, which could force
the company to price its services at a level that would have an
adverse effect on the company's business, financial condition and
results of operations;
- major cable companies such as AT&T as they begin to offer Internet
connectivity through their cable infrastructure, which is designed to
increase the connection speed to the Internet; and
- other alternative service companies that are approaching the Internet
connectivity market with various wireless terrestrial and
satellite-based service technologies, which currently offer high-speed
Internet access to business customers.
As a result of the increased number of competitors and the continued
vertical and horizontal integration in the industry, management expects the
company to encounter significant pricing pressure. Management cannot be
certain that the company will be able to offset the effects of any required
price reductions through an increase in the number of its subscribers,
11
<PAGE>
higher revenues from business services, cost reductions or otherwise, or that
Telecom Wireless will have the resources to continue to compete successfully.
You should read "Business--Competition" for a more complete discussion of the
factors and competitors in the company's industry.
MANAGEMENT'S PLANNED AGGRESSIVE GROWTH WILL STRAIN THE COMPANY'S RESOURCES
Management intends to expand the company's operations rapidly through
acquisitions by aggressively pursuing existing and potential market
opportunities. This rapid growth will place a significant strain on the
company's managerial, operational and financial resources. In particular,
management plans to acquire companies that provide or can provide a national
network system and infrastructure and then expand the network through the
acquisition and installation of necessary equipment, extensive marketing
efforts in new locations and the employment of qualified technical, marketing
and customer support personnel.
To manage our growth, management must improve the company's operational
systems, procedures and controls on a timely basis by centralizing and
standardizing the company's operations and upgrading and replacing outdated
infrastructure. If the demands placed on the company's network resources by
the company's growing subscriber base outpace its growth and operating plans,
the quality and reliability of the company's service may decline and
relationships with customers may be harmed as a result.
IF MANAGEMENT IS UNABLE TO ESTABLISH SATISFACTORY PEERING RELATIONSHIPS, THE
COMPANY'S COSTS MAY INCREASE
Management intends to establish and maintain "peering" relationships with
other ISPs, ASPs and CLECs so that the company can exchange traffic without
paying transit costs. If management is unable to establish adequate peering
relationships, the company's costs will increase and our revenues could
decrease. This would harm the company's business, financial condition and
results of operations.
MANAGEMENT'S INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD WEAKEN
THE COMPANY
Management may not be able to attract and retain key employees. This
could hinder or delay the company's acquisition, consolidation and
integration plans, product development and marketing efforts. Competition for
qualified employees and personnel in the telecommunications services industry
is intense and there are a limited number of persons with knowledge of and
experience in the industry. Locating personnel with the combination of skills
and attributes required to carry out the company's strategies is often
lengthy. Telecom Wireless' success depends to a significant degree upon its
ability to attract and retain qualified management, technical, marketing and
sales personnel. In particular, the company's success is dependent upon the
personal abilities of James C. Roberts, the company's Chairman and Chief
Executive Officer and controlling shareholder. See "Management."
12
<PAGE>
TELECOM WIRELESS COULD FACE LOSSES AND POTENTIAL LIABILITY IF INTRUSIONS,
VIRUSES OR SIMILAR DISRUPTIONS TO THE COMPANY'S NETWORK OR COMPUTER SYSTEMS
IMPEDE ITS SERVICE OR JEOPARDIZE THE COMPANY'S CONFIDENTIAL INFORMATION OR
THAT OF ITS SUBSCRIBERS
Although management has implemented, and will continue to implement,
security measures, the company's computer systems are vulnerable to computer
viruses, break-ins and similar disruptive problems caused by customers or
other users. Computer viruses, break-ins or other problems caused by third
parties could lead to interruptions, delays or cessation in service to the
company's customers. Furthermore, such inappropriate use of the Internet by
third parties could also potentially jeopardize the security of confidential
information stored in the computer systems of the company's customers. This
could, in turn, deter potential customers and adversely affect existing
customer relationships.
The security services that the company offers in connection with its
customers' networks cannot assure complete protection from computer viruses,
break-ins and other disruptive problems. Although management will attempt to
limit contractually the company's liability in these instances, the
occurrence of security-related problems may result in claims against the
company or liability on its part. Such claims, regardless of their ultimate
outcome, could result in costly litigation and could have a material adverse
effect on the company's business or reputation or on its ability to attract
and retain customers. Moreover, until consumers trust and rely on existing
security technologies, the security and privacy concerns of existing and
potential customers may inhibit the growth of the telecommunications services
industry and the company's customer base and revenues.
MANAGEMENT MAY NOT BE AWARE OF ALL POTENTIAL LIABILITIES THAT TELECOM
WIRELESS MAY HAVE
Telecom Wireless Corporation was incorporated in 1984. The company's
management understands that Telecom Wireless was a shell corporation and that
it conducted virtually no operations for some period of time before its
acquisition of Keys Microcable Corporation in June 1998. The company's books
and records with respect to its operations before that time are incomplete.
Accordingly, the company may have liabilities relating to the period before
June 1998 of which current management has no knowledge. Currently, there are
no material liabilities of which management is aware that are not reflected
in our financial statements. If the company is faced with material
liabilities of which management was not aware and did not plan for
sufficiently, the company's financial results may suffer.
IF THE COMPANY'S SUPPLIERS FAIL TO PROVIDE THE COMPANY WITH THE EQUIPMENT IT
NEEDS, THE COMPANY MAY LOSE CUSTOMERS
There are only a limited number of businesses that can supply the company
with the key components it will need for its planned network infrastructure,
including telecommunications services and networking equipment. The suppliers
of these services and equipment also sell or lease products and services to
persons, who may be, or in the future may become, competitors.
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<PAGE>
Management cannot be certain that the company's suppliers and
telecommunications carriers will continue to sell or lease their products and
services to the company at commercially reasonable prices or at all. If there
are delays in receiving this equipment, the company may not be able to
service its customers. Difficulties in developing alternative sources of
supply, if required, could adversely affect the company's business, future
financial condition or operating results. Moreover, failure of the company's
telecommunications providers to provide the data communications capacity
required by the company for any reason could cause interruptions in the
company's ability to provide access services to its customers, which may
materially and adversely affect the company's business, financial condition
and operating results.
TELECOM WIRELESS MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY
STANDARDS TO REMAIN COMPETITIVE
The company's market is susceptible to rapid changes due to technology
innovation, evolving industry standards, changes in customer needs and
frequent new service and product introductions. New services and products
based on new technologies or new industry standards expose Telecom Wireless
to risks of obsolete equipment. Management will need to use leading
technologies effectively, continue to develop technical expertise and enhance
existing services on a timely basis to compete successfully in this industry.
Management cannot be certain that the company will use new technologies
effectively, develop new services or enhance existing services on a timely
basis or that any new technologies or enhancements used by the company or
offered to the company's customers will achieve market acceptance.
The company's ability to compete successfully also depends on the
continued compatibility and interoperability of its services with products
and systems sold by various third parties. Although management intends to
support emerging standards in the market for Internet access and enhanced
business services, we cannot be certain that industry standards will be
established or, if they become established, that the company will be able to
conform to these new standards in a timely fashion and maintain a competitive
position in the market.
The company is also at risk due to fundamental changes in the way that
Internet access may be delivered in the future. Currently, customers access
Internet services primarily by computers connected by telephone lines.
Recently, several companies have developed cable modems, some of which are
currently offered for sale. These cable modems have the ability to transmit
data at substantially faster speeds than the modems currently used by most
Internet users. Other alternative service companies are offering various
wireless terrestrial and satellite-based service technologies, which
currently offer high-speed Internet access to business customers. As the
Internet becomes accessible by broad segments of the U.S. population through
cable modems, wireless platforms and other consumer electronic devices, or as
subscriber requirements change the means by which Internet access is
provided, the company will have to develop new technologies or modify
existing technology to accommodate these developments and remain competitive.
Management's pursuit of these technological advances may require substantial
time and expense, and we cannot be certain that we will succeed in adapting
the company's Internet access services business to alternative Internet
access devices and conduits.
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IF THE INTERNET IS NOT ACCEPTED AS A VIABLE MEDIUM FOR COMMERCE, THE
COMPANY'S BUSINESS COULD SUFFER.
The company's products and services are targeted toward users of the
Internet, which has experienced rapid growth. Management is not sure that the
business market will ultimately accept the Internet as a long-term means of
commerce, especially among businesses that have large investments in other
means of commerce. In addition, new technologies could be developed that may
replace the Internet as a viable means of commerce. If the market for
business-related Internet solutions fails to develop, the company's growth
would be slowed and our financial condition would suffer.
THE COMPANY FACES THE UNCERTAINTY OF SUBSCRIBER RETENTION IN THE ISP BUSINESS
The company's sales, marketing and other costs of acquiring new
subscribers in the ISP business will be substantial relative to the monthly
fees and other revenues expected from subscribers. Accordingly, management
believes that our long-term success depends largely on our ability to retain
subscribers, while continuing to obtain new subscribers through acquisitions
and organic growth. Management expects to invest significant resources in a
national network infrastructure and customer and technical support
capabilities to provide high levels of customer service. Management cannot be
certain that these investments will maintain or improve subscriber retention.
Management believes that intense competition from competing ISPs, some of
which offer many free hours of service or other enticements for new
subscribers will cause some of the company's future ISP subscribers to switch
to its competitors' services. In addition, some new subscribers use the
Internet only as a novelty and do not become consistent users of Internet
services and, therefore, may be more likely to discontinue their service.
These factors may adversely affect the company's subscriber retention rates.
Any decline in subscriber retention rates could have a material adverse
effect on the company's business, financial condition and operating results.
THE COMPANY'S GROWTH PLANS DEPEND ON CORPORATE CUSTOMERS BUYING ITS BUSINESS
SERVICES
The company's operating and growth plans are based in part on
management's strategy to increase sales of the company's business services to
corporate customers. This strategy will depend significantly on the
successful development, introduction, expansion and market acceptance of the
company's business services offerings. Management cannot be certain that
additional corporate customers will purchase the company's business services
offerings or that management will successfully meet customer needs or
expectations.
REGULATION MAY INCREASE THE COST OF THE COMPANY'S SERVICES, SUBJECT THEM TO
COMPETITIVE PRESSURES OR SLOW DOWN THEIR GROWTH
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<PAGE>
Regulation could slow down the introduction of the company's
telecommunications services and increase their costs. To date, Internet
regulation and the law relating to liability of on-line service providers and
ISPs for information carried on or disseminated through their networks is
unsettled. New regulation of the Internet could increase the company's costs.
It could also slow the growth of electronic commerce on the Internet
significantly. This could delay growth in demand for the company's services
and limit its revenues.
THE COMPANY'S CLEC BUSINESS IS SUBJECT TO GOVERNMENT REGULATION
To the extent the company conducts business as a CLEC, the
telecommunications services that the company provides through its CLEC
subsidiaries will be subject to federal, state and local regulation, which
may include tariff and price listing requirements and state certification
proceedings. The company could incur substantial legal and administrative
expenses if a third party were to challenge its filed tariffs or its
subsidiaries' CLEC status. In addition, under some state statutes, changes in
the ownership of the company's outstanding voting securities also may trigger
additional state public utility commission approval. You should read
"Business--Government Regulation" for a more detailed discussion of the
regulations to which the company's CLEC business will be subject.
TELECOM WIRELESS FACES A POTENTIAL CASH SHORTFALL IF IT DOES NOT ATTRACT NEW
ISP SUBSCRIBERS
Management anticipates that a portion of the company's ISP sales will be
to customers who prepay for one year of service. Management expects to apply
a substantial portion of the proceeds from these prepayments to acquire more
equipment, purchase advertising, meet current obligations and fund any
operating deficits. Management does not expect to set aside proceeds as
capital reserves to reimburse subscribers who may decide to discontinue their
service before their prepaid term expires. As a result, the company's
financial condition, including its operating results, cash flow and
liquidity, may be dependent upon increasing the number of new customers in
the current year and beyond. Any future decline in the rate of growth of new
subscribers, or any unanticipated increase in the rate of subscriber
reimbursements, could force management to raise additional capital to support
the company's operations by selling equity securities or incurring additional
debt.
TELECOM WIRELESS DEPENDS ON THE PROTECTION OF ITS PROPRIETARY RIGHTS
Telecom Wireless will rely on a combination of copyright, trademark and
trade secret laws to protect its proprietary rights. Management cannot be
certain that the steps we, or the companies we have acquired, have taken will
be adequate to prevent the misappropriation of the company's technology or
that third parties, including competitors, will not independently develop
technologies that are substantially equivalent or superior to the company's
proprietary technology.
16
<PAGE>
Management expects to obtain from various software manufacturers either
licenses or permission to use the software that we will bundle with the
company's business applications software and for the software used internally
in the company's Internet services. Although management believes that these
products will not infringe the proprietary rights of any third parties, third
parties could assert infringement claims against the company in the future.
The defense of any such claims would require the company to incur substantial
costs and would divert management's attention and resources, which could
materially and adversely affect the company's financial condition and
operations. Parties making such claims could secure a judgment for
substantial damages, as well as injunctive or equitable relief that could
effectively block the company's ability to sell its services. Any such
outcome could have a material adverse effect on the company's business,
financial condition and operating results. If a claim relating to proprietary
technology or information is asserted against the company, management may
seek licenses to use such intellectual property. Management cannot be
certain, however, that licenses could be obtained by the company on
acceptable terms, if at all.
ACQUISITIONS OF ISP SUBSCRIBERS MAY RESULT IN SUBSCRIBER CANCELLATIONS DUE TO
BILLING PROBLEMS AND UNFAMILIARITY WITH THE COMPANY'S SERVICE; ACQUISITIONS
OF COMPANIES MAY DISRUPT THE COMPANY'S BUSINESS AND DISTRACT MANAGEMENT DUE
TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND OPERATIONS
As part of management's growth strategy, the company may acquire
businesses, products, technologies and other assets, including ISP subscriber
accounts, or enter into joint venture arrangements, that complement the
company's businesses. In an acquisition of ISP subscribers, the company may
experience subscription cancellations in the short-term period following the
acquisition due to the lack of the acquired subscribers' familiarity with the
company as their ISP and billing issues that may arise due to poor record
keeping and billing administration by the selling company. If Telecom
Wireless acquires another company, Telecom Wireless could encounter
difficulties in assimilating the acquiree's personnel and operations. This
may disrupt the company's ongoing business and distract management, as well
as result in unanticipated costs and difficulty in maintaining the company's
standards, controls and procedures. Management cannot be certain that the
company would succeed in overcoming these risks or any other problems
encountered in connection with any acquisitions the company may make. In
addition, the company may be required to incur debt or issue equity
securities to pay for any future acquisitions or to fund any losses or
unanticipated costs of the combined companies.
THE COMPANY MAY FACE POTENTIAL LIABILITY FOR MATERIAL TRANSMITTED THROUGH ITS
NETWORK OR RETRIEVED THROUGH ITS SERVICES
The law relating to the liability of ISPs and ASPs for information
carried on or disseminated through their networks is unsettled. In addition,
the Federal Telecommunications Act of 1996 imposes fines on any entity that
knowingly permits any telecommunications facility under such entity's control
to be used to make obscene or indecent material available to minors via an
interactive computer service. Management cannot predict whether any claim
under this federal statute, similar state statutes or common law will be
asserted against the company, or, if
17
<PAGE>
asserted, whether they will be successful. As the law in this area develops,
the company may be required to expend substantial resources or discontinue
certain services to reduce its exposure to potential liability for
information carried on and disseminated through the company's network. Any
costs that the company incurs as a result of contesting any such asserted
claims or the consequent imposition of liability could materially and
adversely affect the company's business, financial condition and operating
results.
In addition, because materials may be downloaded by users of the
company's services or their customers and subsequently distributed to others,
people may make claims against the company for defamation, negligence,
copyright or trademark infringement, personal injury or other causes of
action based on the nature, content, publication and distribution of such
materials. The company also could be exposed to liability with respect to
offering third-party content that may be accessible through the company's
services, including links to web sites maintained by the company's
subscribers or other third parties, or posted directly to a web site of the
company, and subsequently retrieved by a third party through the company's
services. If any third-party content provided through the company's services
contains errors, third parties who access such material could make claims
against the company for losses incurred in reliance on such information. The
company may also offer e-mail services, which would expose the company to
other potential risks, such as liabilities or claims resulting from
unsolicited e-mail, lost or misdirected messages, illegal or fraudulent use
of e-mail or interruptions or delays in e-mail service. Such claims, with or
without merit, likely would divert management's time and attention and result
in significant costs to investigate and defend.
YOU MAY NOT BE ABLE TO RESELL SHARES OF TELECOM WIRELESS CORPORATION STOCK AT
OR FOR MORE THAN THE PRICE YOU PAID
The stock market in general, and the stock prices of Internet companies
in particular, have recently experienced extreme volatility that often has
been unrelated to the operating performance of any specific public companies.
If continued, these broad market and industry fluctuations may adversely
affect the trading price of Telecom Wireless' common stock, regardless of
actual operating performance.
FUTURE SALES OF TELECOM WIRELESS' COMMON STOCK INTO THE PUBLIC MARKET, OR THE
PERCEPTION THAT SUCH SALES COULD OCCUR, COULD ADVERSELY AFFECT ITS STOCK PRICE
The market price of the company's common stock could drop if substantial
amounts of shares are sold in the public market or if the market perceives
that such sales could occur. This could also harm the company's ability to
raise additional capital by selling equity securities. As of November 19,
1999, the company had outstanding options, warrants and convertible
securities for the purchase of up to 8,425,769 shares of common stock at an
average exercise price of $9.52 per share. The perception that these
instruments may be exercised for or converted into common stock that could be
sold into the public market could adversely affect the market price of the
company's common stock. In addition, the company has entered into
registration rights agreements with certain of our stockholders entitling
them to include their shares of common stock in
18
<PAGE>
registration statements for securities filed by the company under the
Securities Act of 1933, as amended. Additionally, certain of these
stockholders are entitled to require the company to file a registration
statement under the Securities Act at the company's expense with respect to
their shares of common stock. Awareness of the existence of these
registration rights could lead to a perception that sales of the shares
subject to the registration rights could occur, which could materially and
adversely affect Telecom Wireless' stock price or could impair the company's
ability to obtain capital through sales of equity securities.
THE COMPANY'S STOCK PRICE IS HIGHLY VOLATILE
Telecom Wireless Corporation's common stock is traded on the OTC Bulletin
Board. An active trading market for the company's common stock may not be
sustained. Historically, the market prices for securities of emerging
companies in the Internet telecommunications industry have been highly
volatile. The trading price of the company's common stock could be subject to
wide fluctuations due to such factors as quarterly variations in operating
results, competition, announcements of technological innovations or new
products by the company or its competitors, product enhancements by the
company or its competitors, regulatory changes, differences in actual results
from those expected by investors and analysts, changes in financial estimates
by securities analysts, and other events or factors.
THE COMPANY'S PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS HAVE
SUBSTANTIAL INFLUENCE
James C. Roberts, Chairman and Chief Executive Officer of Telecom
Wireless, beneficially owns or controls 10,916,333 shares of the company's
common stock, representing approximately 67% of the voting power of the
company. The company's other executive officers, directors and 5% and greater
stockholders beneficially own or control, collectively, another 2,450,000
shares of the company's common stock, representing approximately 15% of the
voting power. The combined holdings of Dr. Roberts and these stockholders
account for approximately 82% of the beneficial ownership or control of the
voting power of the company's common stock. Dr. Roberts, himself, or Dr.
Roberts and these individuals acting together, are in a position to elect and
remove directors and control the outcome of most matters submitted to
stockholders for a vote. Additionally, such persons would be able to
influence significantly a proposed amendment to the company's charter, a
merger proposal, a proposed sale of assets or other major corporate
transaction or a non-negotiated takeover attempt. Such concentration of
ownership may discourage a potential acquiror from making an offer to buy the
company, which, in turn, could adversely affect the market price of Telecom
Wireless' common stock.
TELECOM WIRELESS IS SUBJECT TO RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. Confusion of dates may bring about system
failures or miscalculations causing disruptions of operations, including,
among
19
<PAGE>
other things, a temporary inability to process transactions, send invoices or
engage in similar business activities. As a result, many companies' software
and computer systems need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. Management has established procedures for
evaluating and managing the risks and costs associated with this problem and
currently expects that the company's computer systems will be Year 2000
compliant by December 15, 1999. However, some of the company's customers may
maintain their operations on commercially available operating systems, which
may be impacted by Year 2000 complications. In addition, Telecom Wireless
relies on third-party vendors for certain telecommunications and information
systems equipment and software included within its services that may not be
Year 2000 compliant. The failure of the company's internal computer systems
or of third-party equipment or software to operate without Year 2000
complications could require Telecom Wireless to incur significant
unanticipated expenses to remedy any problems and could expose the company to
claims for losses incurred by the company's users due to Year 2000
complications. The defense of any such claims, with or without merit, could
require Telecom Wireless to incur substantial costs and would divert
management's time and attention, which could have a material adverse effect
on its business, financial condition and operating results. In addition,
Telecom Wireless is subject to external forces that might generally affect
industry and commerce, such as utility company Year 2000 compliance failures
and related service interruptions.
20
<PAGE>
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking statements.
All statements other than statements of historical fact are, or may be deemed
to be, forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The forward-looking statements in this prospectus are not based on
historical facts, but rather reflect the current expectations of the
management of Telecom Wireless Corporation concerning future results and
events.
The forward-looking statements generally can be identified by the use of
terms such as "believe," "expect," "anticipate," "intend," "plan," "foresee,"
"likely," "will" or other similar words or phrases. Similarly, statements
that describe the objectives, plans or goals of Telecom Wireless are or may
be forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of Telecom Wireless to be different from any future results,
performance and achievements expressed or implied by these statements. You
should review carefully all information, including the financial statements
and the notes to the financial statements included in this prospectus. In
addition to the factors discussed above under "Risk Factors," the following
important factors could affect future results, causing the results to differ
materially from those expressed in the forward-looking statements in this
prospectus:
- the timing, impact and other uncertainties related to pending and
future acquisitions by Telecom Wireless;
- the impact of new technologies;
- changes in laws or rules or regulations of a governmental agency,
including the Federal Communications Commission;
- changes in tax requirements, including tax rate changes, new tax laws
and revised tax law interpretations; and
- interest rate fluctuations and other capital market conditions.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in the
forward-looking statements in this prospectus. Other unknown or unpredictable
factors also could have material adverse effects on the future results of
Telecom Wireless. The forward-looking statements in this prospectus are made
only as of the date of this prospectus and, under Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, Telecom Wireless Corporation does not have any obligation to publicly
update any forward-looking statements to reflect subsequent events or
circumstances. Telecom Wireless cannot assure you that projected results will
be achieved.
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<PAGE>
USE OF PROCEEDS
Because this prospectus is solely for the purpose of permitting the
selling stockholders to offer and sell shares, Telecom Wireless will not
receive any proceeds from the sale of the shares being offered. The selling
stockholders will receive all the proceeds. Telecom Wireless has however,
previously received proceeds from the original issuance of the shares covered
by this prospectus.
DETERMINATION OF OFFERING PRICE
This offering is solely for the purpose of allowing selling
stockholders to sell shares. The selling stockholders may elect to sell some
or all of their shares when they choose, in the near future or at a later
date, at the price at which they choose to sell. As the market develops, the
selling stockholders will determine the price for their shares.
DILUTION
This offering is for sales of shares by selling stockholders. Such
sales will not result in any dilution to the net tangible book value per
share of the common stock of Telecom Wireless before and after the sales.
Prospective investors should be aware, however, that the market price of
shares being sold may not bear any rational relationship to net tangible book
value per share.
SELLING STOCKHOLDERS
The following table gives the names of the stockholders for whose
accounts shares may be offered using this prospectus, the number of shares of
common stock of Telecom Wireless Corporation owned by each named stockholder
before this offering, the percentage of the total shares of the company's
common stock as of November 19, 1999 represented by the shares owned, the
number of shares that may be offered for the stockholder's account in this
offering, and the number of shares to be owned by the stockholder following
completion of the offering:
<TABLE>
<CAPTION>
NO. OF PERCENT OF NO. OF SHARES NO. OF SHARES OWNED
NAME SHARES OWNED OUTSTANDING SHARES OFFERED AFTER SALE(1)
---- ------------ ------------------ ------- -------------
<S> <C> <C> <C> <C>
Anglo Irish Nominees (Trusts) 20,000(2) (3) 20,000(2) 0
Ltd. A/C GRC241
Arab Commerce Bank Ltd. 28,570(2) (3) 28,570(2) 0
22
<PAGE>
<CAPTION>
NO. OF PERCENT OF NO. OF SHARES NO. OF SHARES OWNED
NAME SHARES OWNED OUTSTANDING SHARES OFFERED AFTER SALE(1)
---- ------------ ------------------ ------- -------------
<S> <C> <C> <C> <C>
Jack Augsback(4) 103,335(4) (3) 15,100 88,235
Marshall M. Becker 50,000 (3) 50,000 0
Steve Bell 2,000(2) (3) 2,000(2) 0
Caribbean Investors Group, Ltd 28,570(2) (3) 28,570(2) 0
Chelverton Fund Ltd. 48,000(5) (3) 48,000(5) 0
Commtel Services Ltd. 137,500(6) (3) 100,000 37,500
Francis J. Fernandez 14,000(2) (3) 14,000(2) 0
Robert L. Franks 2,000(2) (3) 2,000(2) 0
GBS Capital Management, Inc. 42,000 (3) 42,000 0
Dale Geringer 10,000(2) (3) 10,000(2) 0
Richard Geringer 10,000(2) (3) 10,000(2) 0
Robert Geringer 4,000(2) (3) 4,000(2) 0
William R. Gillespie 4,000(2) (3) 4,000(2) 0
Daniel A. Gooze 12,000(2) (3) 12,000(2) 0
David Hettinger 2,335(7) (3) 2,000(7) 335
JHS Associates, Ltd.
Retirement Account(8) 681,000(8) 4.0% 106,000(8) 575,000
John Kozik 13,500(2) (3) 13,500(2) 0
Victor P. LaRosa 12,000(2) (3) 12,000(2) 0
Kenneth R. Levine 157,500(9) (3) 150,000 7,500
Deanna Wallin Lipman 14,281 (3) 14,281 0
Marie Walch Loughlin 26,000(2) (3) 26,000(2) 0
Mach Products, Inc. 28,000 (3) 28,000 0
Gray M. Magee, Jr. 4,000(2) (3) 4,000(2) 0
Magid Family Trust 7,000(2) (3) 7,000(2) 0
Robert L. Primm 4,000(2) (3) 4,000(2) 0
Princeton Insurance 8,000(10) (3) 8,000(10) 0
Shawn P. Richmond(11) 346,667 2.1% 346,667 0
Rheta Sue Scammell 14,281 (3) 14,281 0
Silenus Limited 20,000 (3) 20,000 0
SovCap Equity Partners Ltd. 196,954(12) 1.2% 196,954(12) 0
Mark Stys 22,650(13) (3) 7,550 15,100
Thomson Kernaghan & Co. Ltd. 432,000(14) 2.6% 360,000(14) 72,000
Warren Zee 114,000(2) (3) 114,000(2) 0
James and Donita Zeller 2,000(2) (3) 2,000(2) 0
---------------
TOTAL 1,826,473
===============
</TABLE>
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<PAGE>
(1) Assumes that the stockholder will sell all of the shares that may be
offered for the stockholder's account in this offering, and that the
stockholder will not purchase or sell any other shares. Stockholders are
not required to sell the shares that may be offered in this offering.
See "Plan of Distribution."
(2) Of these shares, 50% are issuable for negligible consideration under a
repricing warrant as an adjustment to the purchase price of the other
50% of the shares.
(3) Less than 1%.
(4) Telecom Wireless Corporation and Jack Augsback & Associates, Inc., of
which Jack Augsback is the controlling shareholder, are parties to a
Corporate Finance/Placement Agent Agreement dated March 26, 1999 under
which Telecom Wireless is required to pay the Augsback firm
performance-based compensation for introduction to resources capable of
providing financing to Telecom Wireless. The number of shares shown as
owned by Mr. Augsback includes (i) 58,035 shares that may be acquired by
the Augsback firm within the next 60 days upon the exercise of warrants
held by the firm that have an exercise price of $7.00 per share; (ii)
10,200 shares that may be acquired by Mr. Augsback within the next 60
days upon the exercise of warrants held by him that have an exercise
price of $7.00 per share; and (iii) 20,000 shares that may be acquired
by Mr. Augsback within the next 60 days upon the exercise of warrants
held by him that have an exercise price of $5.00 per share.
(5) The number of shares shown as owned and offered by Chelverton includes
15,000 shares issuable for negligible consideration under a repricing
warrant as an adjustment to the purchase price of 15,000 other shares
owned by Chelverton.
(6) The number of shares shown as owned by Commtel Services Ltd. includes
37,500 shares that may be acquired within the next 60 days upon the
exercise of warrants held by Commtel that have an exercise price of
$7.00 per share.
(7) The number of shares shown as owned by David Hettinger includes 335
shares that may be acquired within the next 60 days upon the exercise of
warrants held by him that have an exercise price of $7.00 per share. In
addition, the number of shares shown as owned and offered by Mr.
Hettinger includes 1,000 shares issuable for negligible consideration
under a repricing warrant as an adjustment to the purchase price of
1,000 other shares owned by him.
(8) John H. Sununu, who controls and is a beneficial owner of JHS
Associates, Ltd. Retirement Account, is a member of the Advisory Board
of Telecom Wireless and a party to a contract with Telecom Wireless that
requires him to provide financial consulting and other services to
Telecom Wireless. See "Management -- Advisory Board" and "Certain
Transactions and Relationships -- John H. Sununu." The number of shares
shown as owned by JHS Associates, Ltd. Retirement Account includes
500,000 shares that may be acquired by Mr. Sununu personally within the
next 60 days upon the exercise of a fully vested warrant held by him with
an exercise price of $5.50 per share and 75,000 shares that may be acquired
by him personally within the next 60 days upon the exercise of a partially
vested warrant held by him out of 720,000 shares that potentially may vest
under the warrant. Under the 720,000-share
24
<PAGE>
warrant, installments of 15,000 shares each vest on the first day of
each month, beginning October 1, 1999, as long as the Services Agreement
dated August 30, 1999 between Telecom Wireless and Mr. Sununu has not
been terminated by the company or by Mr. Sununu, and certain other
conditions are met. See "Certain Transactions and Relationships -
John H. Sununu." The exercise price per share for each installment under
the 720,000-share warrant is equal to 50% of the average of the last
reported sales price per share of the common stock for the 20 trading
days prior to the date that installment vests.
(9) The number of shares shown as owned by Kenneth R. Levine includes 7,500
shares that may be acquired within the next 60 days upon the exercise of
warrants held by him that have an exercise price of $7.00 per share.
(10) The number of shares shown as owned and offered by Princeton Insurance
Company includes 2,000 shares issuable for negligible consideration
under a repricing warrant as an adjustment to the purchase price of
2,000 other shares owned by Princeton.
(11) Mr. Richmond is considered an executive officer of Telecom Wireless
because he serves as Vice President - ASP Development and as President of
Prentice Technologies, Inc., a 90% owned subsidiary of Telecom Wireless of
which Mr. Richmond owns the remaining 10%. For a description of the
relationship between Mr. Richmond and Telecom Wireless, see
"Business -- Acquisitions -- Prentice Technologies, Inc." and
"Management."
(12) The number of shares shown as owned and offered by SovCap Equity
Partners Ltd. includes 90,477 shares issuable for negligible
consideration under a repricing warrant as an adjustment to the purchase
price of 90,477 other shares owned by SovCap.
(13) The number of shares shown as owned by Mark Stys includes 15,100 shares
that may be acquired within the next 60 days upon the exercise of
warrants held by him that have an exercise price of $7.00 per share.
(14) The number of shares shown as owned by Thomson Kernaghan & Co. Ltd.
includes 72,000 shares that may be acquired within the next 60 days upon
the exercise of warrants held by Thomson Kernaghan that have an exercise
price of $7.00 per share. In addition, the number of shares shown as
owned and offered by Thomson Kernaghan includes 180,000 shares issuable
for negligible consideration under a repricing warrant as an adjustment
to the purchase price of 180,000 other shares owned by Thomson Kernaghan.
The shares listed in the table above that are issuable under
repricing warrants will be issued only if the average of the closing bid
prices of the company's common stock for the 20 trading days immediately
after the effective date of the registration statement of which this
prospectus is a part is less than $8.75. If the average is less than $8.75,
the repricing shares are required to be issued at a negligible exercise
price, $.001 per share, on or after the 21st trading day after the effective
date. The number of repricing shares to be issued will be calculated by
taking the number of shares of common stock originally purchased by the
selling stockholder and multiplying by a fraction, the numerator of which is
$8.75 minus the average and the denominator of which is the average itself.
To assure that sufficient repricing shares would be included in the
registration statement, the company calculated the number of repricing shares
to be included by assuming the average would be 50% of the $8.75 trigger
price, or $4.375. This assumption resulted in a 100% increase in the number
of shares listed in the "No. of Shares Owned" and "No. of Shares Offered"
columns in the table above over the number of shares originally purchased for
the selling stockholders who hold repricing warrants. The calculation
resulted in the inclusion of 500,297 repricing shares in the registration
statement, which is also the total number of repricing shares included in the
"No. of Shares Owned" and "No. of Shares Offered" columns in the table above.
25
<PAGE>
PLAN OF DISTRIBUTION
Telecom Wireless is registering this offering of shares on behalf of the
selling stockholders. Telecom Wireless will pay all costs, expenses and fees
related to the registration, including all registration and filing fees,
printing expenses, fees and disbursements of its counsel, blue sky fees and
expenses and, if Telecom Wireless requests that the selling stockholders
effect an underwritten public offering of any of the shares covered by this
prospectus, all "road show" and other marketing expenses incurred by the
selling stockholders, Telecom Wireless or any underwriters that are not
otherwise paid by the underwriters. The selling stockholders will pay any
underwriting discounts and selling commissions in connection with the sale of
the shares and, if the selling stockholders elect to effect an underwritten
public offering of the shares covered by this prospectus, all "road show" and
other marketing expenses incurred by the selling stockholders, Telecom
Wireless or any underwriters that are not otherwise paid by the underwriters.
The selling stockholders may sell the shares covered by this prospectus
from time to time in one or more transactions through the OTC Bulletin Board
or an interdealer quotation system, on one or more securities exchanges, in
alternative trading markets or otherwise, at prices and at terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. The selling stockholders will determine the prices
at which they sell their shares in these transactions. The selling
stockholders may effect the transactions by selling the shares to or through
broker-dealers. In effecting sales, broker-dealers engaged by the selling
stockholders may arrange for other broker-dealers to participate in the
resales. The shares may be sold by one or more, or a combination, of the
following:
- a firm commitment underwritten public offering,
- a block trade in which the broker-dealer attempts to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction,
- purchases by a broker-dealer as principal and resale by the
broker- dealer for its account,
- an exchange distribution in accordance with the rules of the
applicable exchange,
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
- privately negotiated transactions.
The selling stockholders may enter into hedging transactions with
broker-dealers. In these transactions, broker-dealers may engage in short
sales of the common stock in the course of hedging the positions they assume
with the selling stockholders. The selling stockholders also
26
<PAGE>
may sell the common stock short pursuant to this prospectus and redeliver the
shares to close out these short positions. The selling stockholders may enter
into option or other transactions with broker-dealers that require the
delivery to the broker-dealer of the shares covered by this prospectus. The
broker-dealer may then resell or otherwise transfer the shares pursuant to
this prospectus. The selling stockholders also may loan or pledge the shares
to a broker-dealer. The broker-dealer may then sell the loaned shares or,
upon a default by the selling stockholder, the broker-dealer may sell the
pledged shares pursuant to this prospectus.
The selling stockholders may engage in other financing transactions that
may include forward contract transactions or borrowings from financial
institutions in which the shares are pledged as security. In connection with
any of these forward contract transactions, the selling stockholders would
pledge shares to secure their obligations and the counterparty to these
transactions would sell the common stock short to hedge its transaction with
the selling stockholder. Upon a default by the selling stockholder under any
of these financings, including a forward contract transaction, the pledgee or
its transferee may sell the pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholder.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principals, or
both. Compensation to a particular broker-dealer may be in excess of
customary commissions and will be in amounts to be negotiated with a selling
stockholder in connection with the sale. Broker-dealers or agents, any other
participating broker-dealers and the selling stockholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933 in connection with sales of the shares. Accordingly, any commission,
discount or concession received by them and any profit on the resale of the
shares purchased by them may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933. Because the selling
stockholders may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933, the selling stockholders will be subject
to the prospectus delivery requirements of the Securities Act of 1933. Each
selling stockholder has advised Telecom Wireless Corporation that the
stockholder has not yet entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of
the shares.
The selling stockholders have agreed to sell the shares only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable
state or an exemption from registration or qualification is available and is
complied with.
The selling stockholders will be subject to applicable provisions of the
Securities Exchange Act of 1934 and their associated rules and regulations,
including Regulation M. These provisions may limit the timing of purchases
and sales of shares of the common stock of Telecom Wireless by the selling
stockholders. Telecom Wireless will make copies of this prospectus
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<PAGE>
available to the selling stockholders and has informed them of the need for
delivery of copies of this prospectus to purchasers at or before the time of
any sale of the shares.
Telecom Wireless Corporation will file a supplement to this prospectus,
if required, pursuant to Rule 424(b) under the Securities Act of 1933 upon
being notified by a selling stockholder that any material arrangement has
been entered into with an underwriter or a broker-dealer for the sale of the
shares through an underwritten offering or a block trade, special offering,
exchange distribution or secondary distribution, purchase by a broker or
dealer or hedging or financing transaction with the selling stockholders. The
supplement will disclose:
- the name of each underwriter or participating broker-dealer,
- the number of shares involved,
- the price at which the shares will be sold,
- any commissions paid or discounts or concessions allowed to
underwriters or broker-dealers,
- if applicable, that the broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated
by reference in this prospectus, and
- other facts material to the transaction.
The selling stockholders may agree to indemnify any underwriter,
broker-dealer or agent that participates in transactions involving sales of
shares using this prospectus against certain liabilities, including
liabilities arising under the Securities Act of 1933. Telecom Wireless
Corporation has agreed to indemnify certain of the selling stockholders and
their underwriters against certain liabilities in connection with the
offering of shares using this prospectus, including liabilities arising under
the Securities Act of 1933.
28
<PAGE>
SELECTED COMBINED PRO FORMA FINANCIAL DATA
The table below presents summary pro forma combined financial data for
the year ended June 30, 1999, and for the three months ended September 30, 1999,
combining the historical results of Telecom Wireless Corporation with the
results of its subsidiaries, most of which have been acquired recently. The pro
forma combined financial statements are presented as if the acquisitions had
closed on July 1, 1998.
The summary pro forma financial data do not necessarily indicate the
operating results or financial position which would have resulted from our
operation on a combined basis during the periods presented, nor does the pro
forma data necessarily represent any future operating results or financial
position. In addition to the summary financial data, you should also refer to
the more complete financial information included elsewhere in this prospectus,
including more complete historic results for the acquired companies, and our
unaudited pro forma combined financial statements and the accompanying notes.
<TABLE>
<CAPTION>
PRO FORMA COMBINED PRO FORMA COMBINED
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Access Revenues $ 159,000 $ 29,000
Wireless Cable Revenues 523,000 138,000
Consulting Fees 1,983,000 711,000
Other -- 4,000
------------ ------------
Total Revenues 2,665,000 882,000
Costs and Expenses
Cost of Access Revenues 57,000 28,000
Cost of Wireless Cable Revenues 276,000 106,000
Cost of Consulting Fees 1,277,000 367,000
Cost of M&A Operations -- 851,000
Stock-Based Compensation 1,548,000 428,000
Selling, General and Administrative 2,695,000 1,857,000
Amortization 726,000 91,000
Depreciation 313,000 204,000
------------ ------------
Total Costs and Expenses 6,892,000 3,932,000
------------ ------------
Income (Loss) From Operations $ (4,227,000) $ (3,050,000)
============ ============
29
<PAGE>
Earnings (Loss) Per Common Share -
Basic and Diluted $ (1.02) $ (.20)
============ ============
Weighted Average Shares Outstanding -
Basic and Diluted 4,134,279 15,609,011
============ ============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED PRO FORMA COMBINED
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OTHER OPERATING DATA
Cash Flow From Operating Activities $(1,596,000) $(1,442,000)
Cash Flow Used in Investing Activities (228,000) (635,000)
Cash Flow From Financing Activities 2,469,000 2,124,000
Adjusted EBITDA (1,574,000) (2,289,000)
</TABLE>
SELECTED HISTORICAL FINANCIAL DATA FOR COMBINED BUSINESSES
The following table presents summary historical statement of operations
data for Telecom Wireless Corporation and the companies recently acquired by
Telecom Wireless. The historical statement of operations data presented below
have not been adjusted for the pro forma adjustments reflected in the unaudited
pro forma combined financial statements included elsewhere in this prospectus.
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Revenues
Access Revenues $ -- $ -- $ -- $ 29,000
Wireless Cable Revenues 45,000 517,000 138,000 138,000
Other 2,000 5,000 6,000 4,000
----------- ----------- ----------- -----------
Total Revenues 47,000 523,000 144,000 171,000
----------- ----------- ----------- -----------
Costs and Expenses
Cost of Access Revenues -- -- -- 27,000
Cost of Wireless Cable Revenues 29,000 276,000 100,000 106,000
Cost of M&A Operations -- -- -- 851,000
Stock-Based Compensation -- 1,548,000 -- 428,000
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<PAGE>
General, Administrative and Other 88,000 1,887,000 172,000 1,527,000
Amortization 13,000 145,000 13,000 57,000
Depreciation 18,000 204,000 50,000 61,000
----------- ----------- ----------- -----------
Total Costs and Expenses 148,000 4,060,000 335,000 3,057,000
----------- ----------- ----------- -----------
Net (Loss) $ (101,000) $(3,537,000) $ (213,000) $(2,886,000)
=========== =========== =========== ===========
Net (Loss) Per Common Share - Basic and
Diluted $ (.87) $ (.94) $ (.05) $ (.19)
=========== =========== =========== ===========
Weighted Average Shares Outstanding -
Basic and Diluted 116,250 3,759,050 3,928,015 15,256,675
=========== =========== =========== ===========
</TABLE>
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Revenues $ 385,000 $1,198,000 $ 457,000 $1,251,000
---------- ---------- ---------- ----------
Direct Expenses 213,000 697,000 187,000 768,000
General, Administrative and Other 71,000 352,000 139,000 432,000
---------- ---------- ---------- ----------
Total Expenses 284,000 1,049,000 326,000 1,200,000
---------- ---------- ---------- ----------
Net Income (Loss) $ 101,000 $ 149,000 $ 131,000 $ 51,000
========== ========== ========== ==========
</TABLE>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Revenues $ 47,000 $ 171,000 $ 88,000 $ 77,000
--------- --------- --------- ---------
Internet Operating Costs 24,000 61,000 29,000 25,000
General, Administrative and Other 102,000 283,000 82,000 134,000
--------- --------- --------- ---------
Total Expenses 126,000 344,000 111,000 159,000
--------- --------- --------- ---------
Net Income (Loss) $ (80,000) $(176,000) $ (74,000) $ (36,000)
========= ========= ========= =========
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis are based on the combined pro
forma results of Telecom Wireless Corporation and the historical results for
each of the company's subsidiaries for which separate data have been included in
this prospectus. See "Unaudited Pro Forma Combined Financial Statements" for the
basis of the pro forma presentation.
OVERVIEW
The goal of Telecom Wireless Corporation is to become a leading
consolidator of the highly fragmented ISP, ASP, and CLEC industries through an
aggressive acquisition strategy. Reductions in operating costs are expected to
be achieved through integration of the operations and systems of acquired
businesses, including centralization of billing, customer support services,
marketing and advertising. Revenues per subscriber are expected to be increased
by making available to customers enhanced Internet products and services. The
company will attempt to reduce customer turnover, or "churn," by maintaining a
local presence for acquired businesses.
The company currently operates an ISP, an ASP and a wireless cable
television company. Management believes this mix of technologies and markets
will provide the platform on which to validate planned new product offerings and
market assumptions.
BUSINESS PLAN
ACQUIRING AND CONSOLIDATING INDEPENDENT TELECOMMUNICATIONS BUSINESSES.
We expect to acquire businesses that will enable us to provide a
comprehensive range of telecommunications products and services. Although we
expect most businesses will be profitable, the implementation of new services
will require substantial expenditures for equipment in the field. This generally
will result in negative cash flow for at least the first year of operations for
each acquisition.
STANDARDIZING AND CENTRALIZING OPERATIONS TO CAPTURE EFFICIENCIES OF SCALE.
LOCAL PRESENCE. Telecom Wireless will attempt to retain key employees
of acquired companies to ensure a smooth transition and maintain local
institutional knowledge. This will be important, as the local operating units
will be required to maintain local presence as the Company develops a national
brand. We believe that consolidation efforts by national ISPs have been
seriously flawed by a lack of sensitivity to the essentially local nature of the
ISP business. This has resulted in sharply increased subscriber churn rates
(post acquisition) and subsequent loss of revenue. Our integration and
consolidation efforts will be structured to retain the perception by subscribers
that their ISP is a local business providing superior service to that of
national services.
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<PAGE>
INTEGRATION TEAMS. To help integrate operations the company will
establish integration teams. Each integration team will consist of skilled
technical and marketing personnel. The integration team will have the
responsibility to help with the overall centralization, standardization, and
eventual branding of the local company as a part of the TWC network.
Additionally the company's accounting staff will work with the integration team
to centralize the accounting and billing systems promptly upon closing of the
acquisition. Upon completion of the initial integration process, the operating
units will begin executing the marketing and branding programs established by
the company to expand its customer base and improve its customer retention.
CONSOLIDATION OF FUNCTIONS. The two major expenses associated with all
ISP and CLEC operations are administrative (primarily personnel) and technical
(including upstream telecommunications and LAN). These factors interact with
administrative elements common to all ISPs including accounting, system
administration, web hosting and design, telephone and technical support. To the
extent these common elements are consolidated and standardized, significant
savings will be recognized.
- - ACCOUNTING: A high priority for the company is the installation of a common
accounting platform across all ISPs. Management currently is evaluating
accounting and billing platforms. The selected platform will be flexible
enough to include on one bill all products and services we may choose to
offer in the future and be scalable to include any number of subscribers.
- - TECHNICAL SUPPORT: The Company plans to maintain regional telephone
technical support centers to handle all consumer problems, service
inquiries and new subscriptions. Such centers will reduce the need for
support staff at each location and improve service.
- - WEB DESIGN AND STORAGE: It is our goal to transfer all ISP web design,
maintenance and hosting to our ASP division. Such a strategy should
eliminate the need for programmers at each local ISP.
- - SYSTEMS ADMINISTRATION: Consolidation of telecommunications is a
challenging goal because of the number of factors that must be considered
for each acquisition. Prior to acquisition, each ISP maintains its own
modem banks, LAN, and routing to the Internet. Platforms range from UNIX to
NT to others. In addition, each ISP may have its own upstream Internet
Service Provider as well as an LEC. The company will use care and caution
so that the quality of service is not jeopardized while consolidation is
implemented.
IMMEDIATELY BUNDLING VIDEO, VOICE, AND DATA PRODUCTS AND SERVICES.
Increasingly, businesses and consumers are drawn to ISPs that can meet all of
their telecommunications needs. Bundling services provides the ability to become
a "one stop shop" for all customers' needs. We expect bundling to assist us in
retaining existing customers and attracting additional customers.
DEVELOPING AND OFFERING VALUE-ADDED PRODUCTS AND SERVICES. In some
segments of the telecommunications business, the ability to offer value-added
products and services provides a tremendous competitive advantage. By delivering
value-added services, Telecom Wireless will
33
<PAGE>
attract and retain customers. A typical example of a value-added service is
Voice over Internet Protocol (VoIP). By installing new hardware that supports
not only this service but the traditional ISP services, TWC will be able to
begin offering this service to the existing subscribers of the acquired ISP's
and CLEC's.
UNIFIED BRANDING. We intend to use the same brand name in marketing our
products and services. Unified branding should solidify our customer base,
ensure customer loyalty, help us to gain market share and enable us to benefit
from the efficiencies of centralization. In addition, it should enhance our
market visibility and perception. Branding also should enhance our ability to
sell additional products and services. In addition, past industry experience
indicates that unified branding should significantly reduce customer churn.
The ability of Telecom Wireless to remain in business and implement its
business plan depends upon a variety of factors, primarily financing and the
ability to attract and retain employees having the necessary skills. Funding
operations and acquisitions has been and is expected to continue to be the major
impediment to implement its business plan. We need capital to sustain operations
and to consummate acquisitions. Management can give no assurance that the
company's capital requirements can be satisfied at all or on reasonable terms.
COMBINED RESULTS OF OPERATIONS
REVENUES. Telecom Wireless Corporation and its subsidiaries
historically have derived their revenues primarily from subscription fees paid
by ISP subscribers for dial-up access to the Internet, consulting fees, fees
paid for ASP services, and subscription fees paid for wireless cable television
access. ISP subscription fees vary by the billing plan within the subscriber
base. The vast majority of the plans in effect are monthly. However, there is a
growing acceptance of annual contracts that offer a discount over the monthly
fee.
ASP customers will be expected to enter into relatively long-term
contracts. Additional revenues are generated by the customization of
applications to meet the customers' specific requirements.
Wireless cable television subscribers pay monthly cable access fees.
Like ISP subscribers, wireless cable television subscribers pay fees based on
the billing plan they have selected.
COSTS. Our direct costs of sales with respect to ISP and wireless cable
television revenues consist primarily of maintaining sufficient capacity to
provide services to our subscribers. Capacity is a measurement of the provider's
ability to connect subscribers. ISP capacity costs include:
- the cost of leased routers and access servers and recurring
telecommunications costs, including the cost of local telephone
lines to carry subscriber calls to our points of presence, or
"POPs";
34
<PAGE>
- the costs associated with leased lines connecting our POPs
directly to the Internet or to operations centers and connecting
operations centers to the Internet; and
- Internet backbone costs, which are the amounts paid to Internet
backbone providers for bandwidth, which allows transmission of
data from the Internet to subscribers.
Cost of ISP sales revenues will increase as required to support a
growing subscriber base. We will seek to leverage the combined scale of our ISPs
to lower telecommunications costs as a percentage of revenues by:
- negotiating one or more relationships with national backbone
providers to connect our ISPs to the Internet;
- negotiating favorable local loop contracts and establishing
co-location arrangements with local exchange carriers;
- establishing private peering relationships to reduce our costs
and improve access and reliability for our subscribers;
- negotiating discounts with equipment vendors; and
- implementing wireless technology to provide high speed Internet
access to the small office/home office market. The wireless
technology will allow high-speed access at costs less than
reselling the lines from the existing local exchange carriers.
Costs of ASP revenues consist primarily of:
- salaries and benefits of the personnel providing services;
- technical services; and
- purchase or lease of equipment required to provide the services.
Costs of sales of wireless cable television revenues consist
primarily of
- content costs;
- frequency license leases;
- technician labor costs; and
35
<PAGE>
- purchase or lease of equipment necessary for the receiving and
retransmission of programming.
General, administrative and other expenses consist primarily of:
- the salaries of our non-technician employees and associated
benefits; and
- the cost of selling, marketing, accounting and legal services
related to merger and acquisition activities.
General, administrative and other expenses include expenses associated
with customer service and technical support, primarily salaries and employment
costs. We expect operations and customer support expenses to increase in the
short term to support new and existing subscribers. New subscribers tend to have
particularly heavy customer service and technical support requirements. Because
we anticipate growth in our subscriber base, we expect these costs to comprise
an increasing percentage of expenses in the near term. In addition, providing
customer service and technical support 24 hours a day, seven days a week in our
markets will increase these expenses on an absolute basis. In the longer term,
as a percentage of revenues, we believe operations and customer support expenses
should decline as the existing subscriber base becomes less dependent on
customer service, and due to increased operating efficiencies. The consolidation
of the help desk and customer support functions will also offset increased costs
caused by increased demand.
General, administrative and other expenses also include the expenses
associated with acquiring subscribers, including salaries, bonuses, sales
commissions, advertising and referral bonuses. We expect ISP sales and marketing
expense to increase over time with the growth in our ISP subscriber base. On a
percentage of revenue basis, sales and marketing expense is a relatively
variable cost and may increase with our development of unified branding.
In addition, general, administrative and other expense includes
internal and external merger and acquisition costs such as salaries, bonuses,
commissions and accounting, legal and other professional fees. We expect to
reduce merger and acquisition expenses as a percentage of revenues of acquired
businesses through standardization of procedures and documents.
We expect general, administrative and other costs to increase to
support our growth, particularly as we establish a network operations center and
implement common billing and financial reporting systems in the near term. Over
time, we expect these relatively fixed expenses to decrease as a percentage of
revenues. Additionally as a result of consolidation of the traditional back
office activities such as help desk, technical support, and centralized billing
we anticipate the reduction of labor costs for our acquisitions. However, we
will incur substantial costs and expenses in connection with our integration and
consolidation efforts, including salaries, travel, software and equipment.
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Amortization expense primarily relates, on a pro forma basis, to the
amortization of goodwill and subscriber lists acquired in business acquisitions.
We expect amortization expense to increase as additional acquisitions are closed
and to vary according to the purchase price and tangible assets involved in the
acquisition. Our policy is to amortize the portion of the acquisition purchase
price attributable to subscriber lists, goodwill and other intangible assets
over three to five years. This amortization will reduce income. Therefore, as we
expand our subscriber base through acquisitions, we will experience increasing
amortization expense.
Depreciation primarily relates to our technology and office equipment
and is provided over the estimated useful lives of the assets ranging from three
to nine years using the straight-line method. We expect depreciation expense to
increase as we grow our networks to support new and acquired subscribers and as
we build a network operations center and implement common billing and reporting
systems.
Operating results in the future may fluctuate significantly depending
upon a variety of factors, including capital costs and costs associated with the
introduction of new products and services. Additional factors that may cause
operating results to vary include:
- the pricing and mix of services provided;
- subscriber retention rates;
- changes in pricing policies and product offerings by competitors;
- demand for Internet access services;
- one-time costs associated with acquisitions; and
- general telecommunications services, performance and
availability.
On a pro forma basis, we have experienced seasonal variation in
Internet and wireless cable television use in Florida, and revenue streams have
fluctuated. As a result, variations in the timing and amounts of revenues could
have a material adverse effect on our operating results. Based on the foregoing
factors, we believe that period-to-period comparisons of our operating results
are not necessarily meaningful and that these comparisons cannot be relied upon
as indicators of future performance.
DISCUSSION OF THE OPERATIONS OF TELECOM WIRELESS CORPORATION
During the fiscal quarter ended June 30, 1999, present management
assumed control of the company and started to plan, document and implement its
merger and acquisition (M&A) activities. During that and the following fiscal
quarter, substantial time, effort and money were expended to develop and
document M&A due diligence and acquisition forms, documents and
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procedures. At the same time, field personnel were actively seeking letters
of intent from acquisition targets. The initial M&A sales and marketing team
has been expanded from two senior managers and one support person to include
two more in sales and two in operations.
The company has engaged independent legal counsel experienced in
Internet and telecommunications transactions to prepare standard form documents
and due diligence procedures. Such legal counsel also conducts the legal (as
opposed to financial and operational) due diligence, assists in the negotiation
of, and prepares, definitive agreements, and prepares closing documents. To
facilitate the acquisition process, the company generally agrees to pay the cost
of obtaining audit reports and opinions for target companies. Such audits are
performed either by the company's independent accountants or by other auditors
engaged by the company.
Between April and September 1999 the company entered into non-binding
letters of intent to acquire approximately 19 companies, and definitive
agreements for the acquisition of an additional five companies. Due to the lack
of acquisition funds, none of these transactions closed except America's Web
Station, Inc., and Prentice Technologies, Inc., which were acquisitions largely
for the company's common stock.
If justified by the volume of acquisitions and subject to the
availability of capital, the company plans to expand its legal and accounting
departments to reduce the substantial expense for outside attorneys and
auditors. As the company grows, its need for audited financial statements of
acquired businesses may, in many cases, be deferred to a point in time
subsequent to closing of the acquisition. In addition, the company will proceed
with two types of acquisitions. One will be smaller companies which may not
require audited financial statements. These companies will be offered standard
acquisition terms with little or no negotiation. Management believes such
acquisitions will be possible at substantially reduced costs. The other type of
acquisition will be the larger and/or more complex companies where specialized
documents and procedures may be required. This type of transaction will continue
to be largely handled by the outside attorneys and accountants.
For the years ended June 30, 1998 and 1999, Telecom Wireless had
revenues of $45,000 and $517,000, respectively. For the three months ended
September 30, 1998, and 1999, revenues were $144,000 and $171,000, respectively.
The primary source of its operating revenues for these periods was the wireless
cable TV operations of Keys Microcable Corporation, a wholly-owned subsidiary of
the company. Costs incurred resulted in losses from operations by Keys
Microcable of $1,031,000 for the year ended June 30, 1999, and $348,000 for the
three months ended September 30, 1999.
Financial information for Keys Microcable for the period ended June 30,
1998, reflect one month of operations, beginning at the time Telecom Wireless
acquired that entity. Currently, wireless cable television services are not part
of our strategic plan as the small market in the Key West area limits the value
of this subsidiary. However, Keys Microcable does provide a platform from which
we will be able to test technical, administrative and marketing plans. By
utilizing its MMDS radio frequencies, we are planning to offer wireless
high-speed Internet access to resi-
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dential and business customers, market web site development and hosting
services, and an improved billing system. To improve the marketability of
Keys Microcable, the company is making investments in equipment and
subscriber services.
For the year ended June 30, 1999, and the quarter ended September 30,
1999, the company incurred approximately $177,000 and $730,000, respectively, in
M&A-related expenses for outside legal and accounting fees and costs.
Approximately $392,000 of direct external costs as of September 30, 1999, for
accounting, legal and engineering work was classified as deferred acquisition
costs as management believes the acquisition of the companies with respect to
which the costs were incurred are likely to occur if the company obtains
adequate funding for that purpose. Management expects that the level of M&A
costs will decrease with the addition of internal resources to replace more
costly outside professional services.
To fully implement its business plan, the company will be required to
acquire or build a national infrastructure and establish and train integration
and consolidation teams. Since the company has made few acquisitions, the staff
presently required to manage integration and consolidation is minimal. However,
management anticipates that, during the third and fourth quarters of the current
fiscal year, significant additional investment in technical and integration
personnel will be required.
DISCUSSION OF THE OPERATIONS OF KEYS MICROCABLE CORPORATION
Keys Microcable Corporation, a Florida Corporation, provides wireless
cable television services in Key West, Florida. Television programming received
from satellites is retransmitted to residential, business, and maritime
subscribers in the Key West geographic area. The signals are transmitted from a
single transmitter location (head end) and are received by small antennas that
are installed by Keys Microcable at each subscriber location. Typically, each
subscriber location services a single residence or business. There are locations
however, such as hotels, condominium associations and marinas that service
multiple subscribers from a single antenna. At some of these locations
additional equipment such as signal amplifiers and splitters are required.
When current management assumed control of Telecom Wireless in April
1999, KMC was in a state of decline and disarray caused by lack of capital which
hindered operations as well as growth. Non-payment of fees had resulted in
cancellation of several popular channels of programming. Many other programmers
were threatening to terminate service. In addition, there were several claims
pending against KMC.
During fiscal 1999 and the three month period ending September 30, 1999
the following actions were taken to reverse the financial and operational
conditions of KMC:
- All claims were settled for $159,000 except a lawsuit arising
from a traffic accident which is currently being settled by our
insurance carrier.
- More favorable payment terms have been renegotiated with key
suppliers of services and programming content.
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- Overall overdue payables (greater than 90 days) have been reduced
by $130,000.
- Settlement negotiations are underway with an equipment supplier
to return equipment that was received but is not in use.
Management anticipates a credit of $170,000 that will further
reduce overdue payables.
Investments in capital equipment and maintenance programs to improve
signal quality and programming content were also made. These investments have
resulted in a significant increase in customer satisfaction based on surveys of
the subscribers. Investments included enhanced power back up equipment as well
as increased levels of maintenance spares.
Investments were made to increase sales staff and local advertising
programs. Since April 1999 the number of equivalent billing unit subscribers has
increased by over 13% and the number of premium channel subscriptions has
increased over 100%. Increased marketing to developers of new commercial
properties and government agencies could substantially increase the total
subscriber count by the end of the current fiscal year.
KMC provides the Company with a wireless platform on which to add
additional "bundled" services such as Internet access and Voice over Internet
Protocol (VoIP) services. To offer wireless two way high speed Internet access
will require a significant capital investment. This investment may be as high as
$300,000 in capital equipment costs in the second and third fiscal quarters with
$5,000 per month in recurring monthly costs. This new service along with web
site design and hosting (to be done by our ASP division) is anticipated to
generate incremental annual revenues in excess of $240,000.
DISCUSSION OF AMERICA'S WEB STATION, INC. OPERATIONS
America's Web Station, Inc., was founded in January 1997 to provide
Internet solutions to the rapidly expanding small to medium size business market
in southwest Florida. The initial focus was on high-end database-driven web
sites and e-commerce solutions. Internet access (dial-up) and web site hosting
for businesses subsequently was added. In the first quarter of 1998, AWS began
offering residential Internet service. Revenues increased from $47,000 for the
year ended December 31, 1997, to $171,000 for the following fiscal year.
However, for the same periods, general and administrative expenses increased
from $102,000 to $283,000 due to hardware/software purchases and payroll for
additional staff.
For the six months ended June 30, 1999, revenue decreased to $77,000
from $88,000 for the same period in the preceding year primarily due to the time
and effort required of AWS management to negotiate, document and close its
acquisition by the company in July 1999. However, during the same periods,
general and administrative expenses decreased from $134,000 to $82,000 due to
final payment of equipment leases and staff reorganization.
Since the acquisition, hardware and software have been expanded and
upgraded and new sales and marketing staff have been hired. The staff has been
undergoing training with respect to new products and services. Also, AWS has
implemented a marketing campaign that management
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believes has been favorably received by the local business community. At
September 30, 1999, AWS had 276 Internet access subscribers and 53 web site
hosting customers.
Management also believes AWS will achieve profitability during the
fiscal year ending June 30, 2000. By utilizing the resources in the company's
ASP Division for the web site design and hosting, the operating costs and
capital requirements of AWS are expected to decrease.
DISCUSSION OF PRENTICE OPERATIONS
Sys-Group, Inc., dba Prentice Technologies, Inc., is an Enterprise
Application Service Provider. Founded in January 1994, it provides high-tech
consultation, specializing in rapid prototyping, performance-enhancing tools,
and administration of enterprise software provided by its primary business
partner, J.D. Edwards & Company. Prentice is positioning itself to enter the
rapidly expending market place of Application Service Providers.
Rapid technological change, coupled with new practices in the
information technology field, have created an opportunity. Instead of creating
an expensive in-house IT infrastructure that requires maintenance and upgrading
on a regular basis, a growing number of corporations are outsourcing its IT
functions. These functions are provided from a central network location which is
operated and maintained by experienced IT professionals. The application
services are delivered on-line, via high-speed communication networks and are
paid for on a subscription basis. The subscriber can lease the service under a
long-term contract or rent them on a month-to-month basis.
In September 1999, Telecom Wireless acquired 90% of the outstanding
capital stock of Prentice in a stock-for-stock reorganization. The value placed
upon the acquisition was $3,503,753 ($2,680,419 for accounting purposes), of
which $3,250,003 ($2,426,669 for accounting purposes) was in the form of 346,667
shares of the restricted common stock of Telecom Wireless valued at $9.375
($7.00 for accounting purposes) per share and $253,750 was in the form of a
180-day promissory note.
Prentice has used a combination of cash flow from operations and
various credit facilities to satisfy its cash requirements. Prentice has a
$75,000 line-of-credit with interest at 2.9% over prime (totaling 10.7% at June
30, 1999). The line has no stated maturity and is personally guaranteed by the
minority shareholder. At December 31, 1998 and June 30, 1999, $70,000 and
$63,000, respectively, was borrowed against the line. In 1999, the Company
entered into a factoring agreement secured by inventory, equipment, accounts
receivables and intangible assets. The finance company advances 80% of eligible
accounts receivable and remits the remaining 20%, less interest and fees, when
the account is paid by the customer. Proceeds from the finance company during
the six months ended June 30, 1999 were approximately $608,000. Fees and
interest paid for the six months ended June 30, 1999 were approximately $14,000.
The Company is at risk for the credit losses associated with sold receivables.
In addition, the minority shareholder of Prentice has provided interest free
loans. Prentice also leases computer equipment and office furniture under
capital leases with monthly payments ranging from $253 to $1,880 and
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interest rates ranging from 9.4% to 21.5% per year. The leases have been
personally guaranteed by the minority shareholder.
Revenues increased from $385,000 for the year ended December 31,
1997, to $1,200,000 for the year ended December 31, 1998. Revenues increased
from $457,000 for the six months ended June 30, 1998, to $1,251,000 for the
six months ended June 30, 1999. Prentice continues to have certain customers
which account for the majority of its revenue - see note 8 to financial
statements for Sys-Group, Inc., dba Prentice Technologies, Inc. Gross profit
and direct expenses for the periods indicated above increased in proportion
to the consulting income.
General, administrative and selling expenses increased from $71,000
for the year ended December 31, 1997, to $304,000 for the year ended December
31, 1998. General, administrative and selling expenses increased from
$130,000 for the six months ended June 30, 1998, to $392,000 for the six
months ended June 30, 1999. These increases were due to increased staffing
and operational expenses to support the increase in consulting income.
In July 1999, Prentice invested in its core management team by hiring a
Vice President and General Manager, a Vice President of Sales, a Director of
Consulting and a Director of Marketing. Prentice anticipates that it will have
an operating deficit due to the enlargement of its management team and the cost
of implementing its growth plans. These plans include:
- - The rollout of ASP services, which will include sales and marketing
campaigns.
- - Continued growth of our consulting services group, expanding into
application services.
- - Expansion of our collocation Data Center facility, located at Level(3)
Communications, to house equipment for ASP clients.
- - Build out of the planned Network Operations Center, which will monitor the
Data Center and house employees.
- - Build out of the corporate offices in Denver and satellite offices in
Minneapolis and Chicago.
To offer its ASP services, Prentice will have to continue to obtain
lease financing for the computer equipment and software required to provide
these services. Management estimates that ASP sales will require lease financing
representing approximately 25% of its ASP sales. To meet future financing needs,
Prentice plans to secure a bank line-of-credit to pay off the factoring
agreement and support operational cash flow needs and will seek mezzanine
financing.
Prior to its acquisition by Telecom Wireless, Prentice obtained lease
financing based upon its operational history and capabilities, and the personal
guarantee of Shawn Richmond, its then sole shareholder. Subsequent to the
acquisition, the financial position and other factors relating to Telecom
Wireless have made it difficult for Prentice to raise additional to support
expanding operations.
By letter dated November 16, 1999, Shawn P. Richmond, through his
attorney, seeks rescission of his sale of 90% of the common stock of Prentice to
the company. See "Acquisitions."
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a pro forma combined basis, Telecom Wireless had a negative cash
flow from operations of $1,596,000 and $1,442,000 for the 12 months ended June
30, 1999, and the three months ended September 30, 1999, respectively. Cash flow
used in investing activities was primarily for the purchase of equipment and
acquisition costs. Cash flow generated by financing activities was primarily
from the issuance of stock and short-term debt. Substantial additional cash will
be required to implement our business plan.
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Since April 1999, we have funded our operations and working capital
needs primarily through private placement of the company's equity securities and
short-term debt instruments and through lease financing. See note 12 to the
consolidated financial statements of Telecom Wireless Corporation.
The company also entered into a Master Lease Agreement dated as of July
30, 1999, with the Internet Working Division of Lucent Technologies Inc., as
lessor. Subject to certain conditions, the Lessor has agreed to provide
telecommunications and other equipment to the company and its subsidiaries
having a maximum aggregate purchase price of $20,000,000. The company may lease
equipment with a value of up to $5,000,000 without having to satisfy certain
covenants and financial ratios. To date, the company has leased equipment having
a value of approximately $1.2 million. Most of the equipment presently is in
storage in Albuquerque, New Mexico. Lease payments for the rental of this
equipment aggregating approximately $46,000 per month will commence in November
1999. The Master Lease Agreement meets the requirements of an operating lease
for accounting purposes.
When present management assumed control of the company in mid-April,
1999, the market for Internet and Internet-related stocks was strong. However,
beginning in July 1999, the market for such securities weakened, and the market
prices for many Internet stocks fell by 50% or more. As a result, it has become
increasingly difficult for the company to obtain financing, either debt or
equity, to fund operations or acquisitions. This has forced the company to
obtain high cost short-term financing to cover operating expenses and to delay
closings of acquisitions.
The company has adopted a three-pronged financing plan:
- Seek mergers, joint ventures or financing arrangements with
larger private or public ISPs and other entities. These entities
may have ISP operational infrastructures already in place and/or
may require a source of acquisitions.
- Seek short- and long-term financing through private placements of
debt and equity securities in the capital markets. If possible,
the company will seek to finance its longer term requirements
with debt rather than equity so as to reduce dilution to
stockholders of Telecom Wireless.
- Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for registered Telecom Wireless common
stock. This will require substantial working capital to fund
operating and merger and acquisition expenses and to pay the
significant cost of compliance with applicable securities laws.
There can be no assurance that financing will be available in amounts
or on terms acceptable to Telecom Wireless, if at all. Should the company be
unsuccessful in its efforts to raise capital, it may be required to curtail
operations.
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YEAR 2000 READINESS
Year 2000 readiness is the result of computer programs using two digits
rather than four to define the applicable year. As a result, date sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculation causing disruptions
of operations. We have received representations from each company we have
acquired and expect to acquire that it does not face material unresolved year
2000 issues. To the extent these representations are breached and we suffer
damages, our operating results and financial condition may be adversely
affected.
We have also contacted each of these companies to determine its Year
2000 readiness. None of them expect significant Year 2000 problems. We have
conducted limited tests regarding Year 2000 readiness and have not located any
material deficiencies. To a limited extent, these companies also have contacted
their major vendors to assess their Year 2000 readiness. Any failure by these
vendors or service providers to resolve any Year 2000 issues on a timely basis
or in a manner that is compatible with the systems of our subsidiaries could
adversely affect our ability to provide services to ISP subscribers and ASP
customers. We do not have any contingency plans for handling Year 2000 problems
that are not detected and corrected prior to their occurrence.
Based upon current information, we do not anticipate costs associated
with the Year 2000 issue to have a material financial impact on us. However, our
expectations are limited by uncertainties that could cause actual results to
have a greater financial impact than currently anticipated. Moreover, as stated
above our Year 2000 examination of companies acquired and to be acquired has
been limited and their investigations of Year 2000 readiness by their suppliers
and vendors likewise has been limited.
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BUSINESS
OVERVIEW
Telecom Wireless Corporation is an Internet communications company. The
company's business plan calls for initial rapid growth through acquisitions and
subsequent organic growth. The company intends to capitalize on the convergence
of video, voice and data communications on the Internet. The company intends to
accomplish these objectives by providing access or "connectivity" for Internet
and other electronic communications, Internet content and electronic commerce
and other communications services. The company's target markets include both
residential and business customers. The company plans to offer its products and
services through subsidiaries it has acquired recently and subsidiaries it will
acquire in the future.
Key elements of the company's business strategy are:
- acquiring and consolidating geographically disparate ISPs, ASPs,
and CLECs;
- standardizing and centralizing the back office operations of
acquired companies, integrating their networks into a broadband
network and providing them with national customer and technical
support services;
- developing and offering additional value-added products and
services to customers, especially residential ISP customers, such
as bundled video, voice and data products and services through
the company's ASPs and CLECs; and
- building customer loyalty and gaining market share through
unified branding.
Telecom Wireless now owns and operates an ASP, Sys-Group, Inc. doing
business as Prentice Technologies, Inc. ("Prentice"); an ISP, America's Web
Station, Inc.; and a wireless cable television system, Keys Microcable
Corporation. Over the past few months the company's employees have conducted
accounting and legal due diligence and, in many cases, extensive contract
negotiations, with several ISP and ASP acquisition candidates, although none are
currently under letters of intent or parties to acquisition agreements with
Telecom Wireless.
The ability of Telecom Wireless to remain in business and implement its
business plan depends upon a variety of factors, primarily financing and the
ability to attract and retain employees having the necessary skills. Funding
operations and acquisitions has been and is expected to continue to be the major
impediment to implement its business plan. We need capital to sustain operations
and to consummate acquisitions. Management can give no assurance that the
company's capital requirements can be satisfied at all or on reasonable terms.
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INDUSTRY BACKGROUND
GROWTH OF THE INTERNET.
The Internet has become a global medium that enables millions of people
to obtain and share information, communicate and conduct business
electronically. The Internet has grown rapidly since its introduction to the
general public in the early 1990's. Factors driving the growth in the number of
Internet users and the number of web sites include:
- the large and growing installed base of personal computers;
- advances in the performance and speed and reduction in cost of
personal computers and modems;
- improvements in network infrastructure;
- easier and cheaper access to the Internet;
- the increasing importance of the Internet as a communications medium,
and information resource and a sales and distribution channel; and
- reliability of service by Internet access providers.
ACCESSING THE INTERNET.
Internet access services represent the means by which ISPs interconnect
business and consumer users to the Internet's resources. Access services vary
from dial-up modem access for individuals and small businesses to high speed
dedicated transmission lines for broadband access by large organizations. An ISP
provides Internet access either by developing a proprietary network
infrastructure or by purchasing access service from a wholesale access vendor,
or through a combination of both. The rapid development and growth of the
Internet have resulted in a highly competitive and fragmented industry
consisting of a few large national and regional ISPs and a substantial number of
local ISPs with small subscriber bases. Most ISPs operate within a single state
or city, with only a handful of ISPs, such as EarthLink and MindSpring (which
recently announced merger plans), having expanded the scope of their operations
from a single region to nationwide coverage. Due to the disparity between the
large number of smaller ISPs with limited resources and the emergence of a
limited number of national ISPs with their associated economies of scale, the
ISP industry is expected to undergo substantial consolidation.
GROWTH IN ELECTRONIC COMMERCE.
For many businesses, the Internet has created a new communication and
sales channel that enables companies to interact with large numbers of
geographically dispersed consumers and businesses. In the last several years,
many companies have emerged that focus solely on the
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Internet as the preferred medium for selling products or delivering services
directly to purchasers, bypassing traditional wholesale and retail channels.
Furthermore, traditional businesses are implementing sophisticated web sites
to effect electronic commerce initiatives that offer competitive advantages.
These businesses are deploying an expanding variety of Internet-enabled
applications, ranging from web site marketing and recruiting programs to
on-line customer interaction systems and integrated purchase order and
"just-in-time" inventory solutions for key customers and suppliers. These
capabilities require increasingly complex web sites and support operations.
In addition, advances in on-line security and payment mechanisms are
alleviating concerns associated with conducting transactions in an
open-platform environment, thus prompting more consumers and businesses to
use the Internet in conjunction with purchases and more businesses to offer a
greater breadth of electronic commerce services.
OUTSOURCING OF INTERNET OPERATIONS.
As the Web increasingly becomes synonymous with electronic commerce,
businesses are placing greater emphasis on their Internet transaction and
communication operations. Internet-based companies, and to a growing extent,
traditional businesses, require non-congested and scalable Internet operations
to allow them to perform digital communication and commerce transactions
globally over the Internet. Due to constraints posed by the lack of technical
personnel with Internet skills or experience, the high cost of advanced
networking equipment and the complexity of innovative web solutions, many
businesses are unable internally to develop, maintain and continually enhance
their facilities and systems to conduct desired levels of Internet-based
activities. As a result of these constraints and other factors, many businesses
are seeking to outsource their facilities and systems requirements as the
preferred means for providing electronic commerce solutions. To this end, an
increasing demand is developing for:
- dedicated and broadband Internet access services to support
reliable, high speed and/or constantly connected Internet access
and communication;
- web hosting and co-location services which enable businesses to
obtain equipment, technical expertise and infrastructure for
their Internet needs on an outsourced basis; and
- end-to-end electronic commerce solutions to sell goods and
services on the web in a secure transaction environment.
By outsourcing their facilities and systems needs, businesses are able
to focus on their core competencies rather than expending vital resources to
support their Internet operations.
THE OPPORTUNITY FOR INTERNET SERVICE PROVIDERS.
The number of businesses and consumers accessing the Internet is
expected to increase significantly in the foreseeable future. Additionally, as
businesses and consumers are developing greater levels of comfort in the use of
the Internet for electronic commerce, businesses are increasingly implementing
sophisticated electronic commerce solutions which, in turn, require
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significantly greater bandwidth and other business services. In response, an
increasing number of ISPs are augmenting their basic Internet access services
with a wide range of business services, including web hosting and Internet
security. These ISPs will be positioned to attain greater economies of scale
through lower network expansion and marketing costs on a per-subscriber basis.
Management believes that only a few ISPs, and in particular, national ISPs, will
be in a position to benefit fully from this continued growth. These ISPs likely
will be characterized by:
- quick response to market demands;
- reliable coverage on a nationwide basis;
- superior technical skills and customer support capabilities;
- electronic commerce expertise and business services capabilities;
- brand name recognition and the ability to exploit multiple
marketing channels; and
- relatively lower network costs.
THE OPPORTUNITY FOR APPLICATION SERVICE PROVIDERS.
Rapid technological change in the information technology field, coupled
with the considerable investment of resources required by companies to install
and implement first tier enterprise applications software and other business
applications software, to maintain and update software and equipment and to
employ high quality information technology personnel, has resulted in a growing
number of corporate clients opting to access additional outside computing
resources that have already been set up at a network location and are operated
and maintained by skilled experienced specialists.
These outside resources are known as application services, and the
third-party vendors who operate and supply them have become known as application
service providers or ASPs. The application services are delivered online, via
high-speed communications networks and are paid for on a subscription basis. The
subscriber either leases the services over a period of several years or on a
month-to-month basis. Application services consist of three primary segments;
application outsourcing, application hosting and websourcing.
Application outsourcing allows an organization to outsource individual
elements of its information technology or IT needs or outsource its entire IT
platform to an outside provider. Application outsourcing may involve as little
as desktop computer maintenance or the entire administration and maintenance of
important servers. It can also involve outsourcing entire core business
applications, such as enterprise resource planning, customer relationship
management, e-mail and groupware.
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Applications hosting involves the provision of Internet servers and
support for interactive functions such as electronic commerce and customer
self-service that are hosted on web sites. ASPs can manage the customer web
sites as a complete service to the customer or on a partial basis where the
customer retains some responsibility for the site.
Websourcing involves the instant online rental of an individual
application or a bundled set of utilities to customers. This type of websourcing
allows customers to pick and choose from a variety of online applications
through a point and click Internet menu.
Application services may be provided by telecom carriers, ISPs, or even
hardware vendors, and therefore many of these telecommunications industry
participants are adding ASP services to their bundled packages.
THE OPPORTUNITY FOR COMPETITIVE LOCAL EXCHANGE CARRIERS.
The passage of the 1996 Telecommunications Act created a legal
framework for competitive telecommunications companies to provide local analog
and digital communications services in competition with the traditional
telephone companies. The 1996 Telecommunications Act eliminated a substantial
barrier to entry for competitive telecommunications companies by enabling them
to leverage the existing infrastructure built by the traditional telephone
companies, which required a $200 billion investment by these telephone companies
and their ratepayers, rather than constructing a competing infrastructure at
significant cost. The 1996 Telecommunications Act requires traditional telephone
companies, among other things, to:
- allow competitive telecommunications companies to lease copper
lines on a line by line basis;
- provide central office space for the competitive
telecommunications companies' DSL and other equipment used to
connect to the leased copper lines;
- lease access on their inter-central office fiber backbone to link
the competitive telecommunications companies' equipment; and
- allow competitive telecommunications companies to use their
operational support systems to place orders and access their
databases.
The 1996 Telecommunications Act was designed to create an incentive for
incumbent carriers that were formerly part of the Bell system to cooperate with
competitive carriers. These incumbent carriers cannot provide long distance
service until regulators determine that there is competition in the incumbent
carrier's local market.
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OUR STRATEGY
The goal of Telecom Wireless is to become a full-service national
provider of Internet connectivity and enhanced Internet services to both the
consumer and business markets by combining national scale with local presence.
We intend to provide broadband connectivity through wireless and other
technologies, if available, to customers at an economical rate and to rapidly
integrate our acquisitions into a national network. Broadband connectivity, if
available, will allow us to offer bundled services at high speeds and to develop
and offer additional value-added products and services.
We intend to create shareholder value by building scale through the
acquisition, consolidating and integrating fragmented, independent ISPs, ASPs
and CLECs, and then leveraging our large scale to increase revenues and reduce
costs. The key elements of our strategy to accomplishing this goal include:
- acquiring and consolidating independent ISPs, ASPs and CLECs for
cash and/or our common stock;
- standardizing our acquisition documents and procedures to
minimize costs;
- standardizing and centralizing the back office operations of our
acquisitions to capture operational efficiencies of scale by
leveraging our national network infrastructure and customer
support services;
- developing and offering additional value-added products and
services to increase revenues from existing and future customers;
and
- building customer loyalty and gaining market share through
branding.
GROWTH THROUGH ACQUISITIONS.
We intend to establish a national presence and critical customer mass
by acquiring the stock or assets of, or making significant investments in,
established, independent ISP, and CLEC providers in selected geographic areas
throughout the U.S. and ASPs regardless of locale. We expect that these
acquisitions will broaden our market presence and expand our ability to offer
new products and services. Given the competitive market pressures, we believe
that these providers will continue to be attracted to and benefit from the
consolidation opportunity we provide.
STANDARDIZE AND CENTRALIZE OPERATIONS AND CAPTURE ECONOMIES OF SCALE.
ISPS. More and more businesses are looking to ISPs as a source of
multi-tiered or bundled products and services. As businesses look to expand
their use of electronic commerce solutions, Internet Service Providers must
respond by offering the bandwidth, products and services
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required to meet this demand. The Internet provides an additional medium for
businesses to market their products and services, and it provides consumers
with a method to research, compare, and purchase these products and services.
In addition to providing Internet access, ISPs traditionally offer
services to accommodate these needs. During the acquisition process the company
will evaluate each candidate's ability to offer these various services and a
"best in class" will be identified whenever possible. The company will
consolidate the service offerings of each acquisition into this "best in class"
organization. This will reduce costs and build the expertise required to gain
market leadership.
CLECS. CLECs compete with incumbent local exchange carriers (ILECs,
also referred to as Baby Bells or RBOCs) through low-cost resale agreements and
value-added bundled service packages. Initially, CLECs operated as basic ILEC
service resellers. CLECs have evolved by positioning themselves as integrated
communications providers (ICPs), offering a full suite of telecommunications
services that includes providing customers with voice, data, Internet and video
services. ICPs are often a result of strategic partnerships or merged
communication companies. The deregulation of the telecommunications industry,
changes in policy, and technological advances have expanded service options for
CLECs.
The company intends to integrate the broadband wireless and copper pair
technology into the acquired CLECs. The ability to provide a high bandwidth
connection at a significantly lower cost than the ILECs will create
opportunities for immediate market penetration and higher margins.
The organizational plan Telecom Wireless implements will be a critical
component of its ability to manage the rapid internal growth and disparate
operational units obtained through acquisitions. Telecom Wireless plans to
consolidate acquired ISPs and CLECs into as many as eight geographically
positioned operating units. At the same time, core administrative functions must
be centralized to obtain scale efficiencies and improve margins. We currently
plan to centralize network and back office administrative operations in Denver,
Colorado.
REGIONAL ROLL-UPS.
Telecom Wireless will hire key individuals from acquired businesses to
ensure a smooth transition and maintain local institutional knowledge. We expect
this will allow local operating units to maintain local presence as Telecom
Wireless develops its national brand. To help integrate acquisitions, the
company will establish integration teams. Each integration team will consist of
skilled technical and marketing personnel. The integration team will have the
responsibility to help with the overall centralization, standardization, and
eventual branding of the local company as a part of the Telecom Wireless
network. Additionally, the company's accounting staff will work with the
integration team to centralize the accounting and billing systems which we
expect to be able to accomplish immediately after the acquisition. The company
expects that integration of other systems initially will require about 60 days
for any acquisition, although total integration of operations may take several
months. Upon completion of the initial integration
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process, the operating units will begin executing the marketing and branding
programs established by the company to expand its customer base and improve
its customer retention.
CONSOLIDATION OF FUNCTIONS.
In order to maximize operating efficiencies and back office functions,
marketing, research, and network maintenance will be headquartered in one
location. Additionally, the company must take steps to maintain our existing
customers, attract new customers, offer new services, and increase margins, such
as establishing a common billing system, centralizing technical support
functions, and creating a national operations center to monitor the entire
network. The company recognizes that rapid and orderly consolidation and
integration of ISP operations is essential to increase profitability and for
orderly growth. We estimate reductions of ISP operating costs by approximately
10% with a carefully executed plan of consolidation and integration. However,
the cost of integration and consolidation will be substantial.
Our aggressive approach to consolidation must be tempered as local,
independent ISPs often are viewed by their subscribers as providing superior
service to that of national ISPs. Management believes that consolidation efforts
by national ISPs have been seriously flawed by a lack of sensitivity to the
essentially local nature of the ISP business, resulting in sharply increased
subscriber churn rates (post acquisition) and subsequent loss of revenue.
Telecom Wireless' efforts will be tempered with the understanding that much of
the appeal of acquired ISPs is based on the perception by subscribers that their
ISP is a local business.
- ACCOUNTING: A high priority for the company is installing a common
intranet accounting platform across all ISPs. Telecom Wireless is
currently evaluating accounting and billing platforms for
implementation. The selected platform will be flexible enough to
include on one bill all products and services we may choose to offer
in the future and be scalable to include any number of subscribers.
- CONSOLIDATED TECHNICAL SUPPORT: The company plans to maintain a
national telephone technical support center to handle all consumer
problems, service inquiries and new subscriptions. Such a center would
reduce the need for support staff at each location, improve service
and facilitate our national marketing effort.
- WEB DESIGN AND STORAGE: It is our goal to move all ISP web design and
maintenance to our ASP division. Such a strategy should eliminate the
need for programmers at each local ISP.
- SYSTEMS ADMINISTRATION: Because so much of the cost of operating an
ISP is bound up in telecommunications, a natural inclination is to
quickly consolidate the technical operations that support and monitor
telecommunications. Each ISP maintains its own modem banks, LAN, and
routing to the Internet. Platforms range from UNIX to NT to others. In
addition, each ISP may have its own upstream backbone as well as a
CLEC. With all
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these interacting factors, we plan to favor the quality
of service over speed of consolidation.
It is not the intent of the company to "re-invent" the wheel when it
comes to establishing these operational elements. While it is possible for
Telecom Wireless to build them internally, the company may seek to acquire or
merge with a national ISP which has many of the elements already in place.
INTEGRATION OF ISPS AND CLECS
Telecom Wireless' business plan calls for providing high-speed
connectivity and common services such as VoIP across ISPs and to all our
subscribers. To accomplish this goal, we will take a multi-faceted approach to
integration of ISPs. Telecom Wireless presently intends to utilize a "hub and
spoke" configuration.
- CRITICAL MASS: For any ISP to be integrated, it must either: (a) have
sufficient capacity and staff to stand alone profitably and act as a
regional hub for smaller external acquisitions in the same or
contiguous regions or (b) be absorbed as an external acquisition in a
region where a Telecom Wireless hub already exists. These smaller
assets become spokes of the regional wheel.
Our plan calls for hub ISPs to "reside" on Network Access Points (NAPs)
providing redundant high speed access to the Internet. Each hub will be
equipped with high capacity switches capable of handling voice and data
traffic. Where appropriate, Telecom Wireless intends to obtain CLEC
status either by acquisition or application to take advantage of the
options such a designation offers. Collectively, these hubs will form a
larger critical mass justifying connection of an ATM backbone to form a
ubiquitous WAN to be administered by Telecom Wireless staff at a
central Network Operations Center (NOC), expected to be housed in
Denver.
In addition to providing a high speed-switching platform, we plan that
each hub ISP will provide the full compliment of connectivity options
including high-speed wireless access via local metropolitan area
wireless networks.
- BASELINE EVALUATION: Each potential acquisition will be evaluated for
baseline service capability, hardware suitability, and strategic
location and importance. Such an evaluation will help in determining
the cost and types of equipment that must be added and/or upgraded,
staffing, and marketing. This evaluation and screening process also
assists in determining a best course to reduce or eliminate the cost
of "last mile" services.
- VERTICAL INTEGRATION OF SERVICES: We expect our ISPs will offer
connectivity options including 56Kb dial up, dedicated ISDN, DSL, and
analog services, and point-to-point and multipoint wireless
connectivity. Our applications will include web design and hosting
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and provision of all necessary components for electronic commerce,
such as construction of relational databases and market baskets.
INTEGRATION OF APPLICATION SERVICE PROVIDERS
The company intends to provide content over its network, initially
through its acquired ASP services. Telecom Wireless expects to gain experience
in the ASP industry through Prentice Technologies, Inc., which Telecom Wireless
recently acquired. See "Acquisitions." Telecom Wireless expects to enhance
revenue per customer in its ISP and CLEC businesses while increasing shareholder
value through its ASP business.
The strategic plan for the company involves rapidly acquiring early
market share for enterprise application hosting. Nearly all planned growth will
come through acquisitions. Prentice is building the appropriate management team
to support this process. The operating business plan will include modest organic
growth for existing business units and the operations necessary to conduct
mergers and acquisitions.
Through this integration, we believe we will achieve a significant
degree of operational control and efficiency and will improve the quality,
consistency, and scale of our services. We will also leverage our national
presence by establishing peering relationships, obtaining favorable national
purchasing contracts, and developing strategic relationships with key hardware,
software and telecommunications providers. We will attempt to negotiate volume
purchase agreements with key vendors and establish peering relationships with
national ISP, ASP, and CLEC providers. Furthermore, we believe our scale will
allow us to support a high quality Internet platform and invest in leading edge
technology for network management, billing, customer service, and financial
information.
ACQUISITION STRATEGY
Growth through acquisitions represents the principal strategy of our
business plan. We expect to deepen and broaden our market presence, strengthen
our Internet connectivity, and enhance service capabilities through
acquisitions. Our early acquisitions will provide regional integration hubs to
validate our technology and marketing plans and provide network infrastructure.
We intend to grow by acquiring and consolidating ASPs that may be
geographically dispersed. When our hub operations are identified, we will target
for acquisition ISPs and CLECs to increase our density in these markets. We will
focus on acquisition criteria including the following:
- rapid revenue and customer growth;
- low customer turnover or churn rate;
- limited competition; and
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- enhanced products and services offered.
We believe ASPs and ISPs and CLECs in our target markets will be
attracted to and benefit from the opportunity to affiliate with us, based upon,
among other factors:
- empowering managers to use their local market knowledge to build
market share and density by providing services and products best
suited for these areas; and
- offering a combination of liquidity and upside potential through
equity ownership in a publicly traded entity to current owners
and employees.
We expect that consolidation will create added value through
centralizing operations and systems, sharing of technology, branding and
bundling products and services. We plan to integrate acquired operations at a
divisional group level to:
- eliminate redundant network costs;
- consolidate operations; and
- retain sales staff and key managers.
Our plan is to pursue a regional acquisition strategy by targeting
independent, local ISPs in selected geographic areas. In each area, we will seek
a larger ISP to serve as the vehicle for integrating and optimizing the networks
and operations. In general, the acquisitions in each region will be consolidated
into integrated operating subsidiaries that are wholly owned by us. In certain
instances, some of the acquired providers may continue to exist as separate,
wholly owned subsidiaries, but operated as part of the local operating region.
MANAGEMENT OF THE COMPANY'S GROWTH
To implement our plan to expand rapidly through acquisitions, we will
need to implement additional management information systems capabilities,
further develop our operating, administrative and financial and accounting
systems and controls, improve coordination between engineering, accounting,
finance, marketing and operations, and hire and train additional personnel.
Our ability to manage rapid growth and disparate operational
methodologies will be dependent upon the operational plan we will implement to
integrate and consolidate these new operations. We plan to employ managers in
each of our geographical divisions to ensure the implementation of our
operational plan and the smooth transition of each of these operations. Our plan
generally is to identify employees of acquisitions who we believe have the
necessary technical and management skills to fill these positions.
We will roll our ISPs and CLECs into geographic operating divisions. We
presently plan to have up to seven operating divisions, including Pacific,
Mountain, Southwest, Midwest,
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Northeast, Atlantic and ASP. Acquired operations will be required to maintain
local presence as we begin national branding. We plan to establish
integration teams to help integrate our acquisitions.
We must establish, complete and expand our national network
infrastructure and support services to supply sufficient geographic reach,
capacity, reliability and security at an acceptable cost. This will require that
we enter into agreements with providers of infrastructure capacity and equipment
and support services. We do not yet know whether any or all of the requisite
agreements can be obtained on satisfactory terms and conditions.
To exchange traffic with ISPs, ASPs and CLECs without incurring transit
costs, we must establish and maintain peering relationships. As Internet access
and related services have expanded, so have peering relationships and settlement
charges continued to evolve. A small group of dominant national ISPs have driven
corporate peering policies. If the major national ISPs increase requirements to
maintain peering relationships with them, we may have to comply with those
additional requirements to maintain our peering relationships. We also
anticipate expanding and adapting our network infrastructure to respond to a
growing customer base, increased demands to transmit larger amounts of data and
changes to our customers' product and service requirements. The expansion and
adaptation of our network infrastructure will require substantial financial,
operational and managerial resources.
While we believe there are various economies and efficiencies of scale
that can be realized as a result of acquiring and integrating businesses,
consolidating these businesses and implementing our strategic integration may
take significant time, will strain our resources, and could subject us to
additional expenses during the integration process. Our efforts to integrate
businesses we have acquired successfully and in a timely manner pose special
challenges. Whether we are able to do so effectively will have a material effect
on our business, financial condition and results of operations.
We do not have the capital, personnel, equipment, procedures or systems
in place required to implement our integration, consolidation and
standardization plan. In the short term, the businesses we acquire will operate
on a largely independent basis as subsidiaries of the company, generally
retaining their personnel, systems, procedures and employee benefits. Depending
upon the availability of capital, we will gradually implement the plan. This
means the company may not realize operational cost savings for a significant
period of time. However, to expedite the process, we may seek to acquire or
merge with one or more companies having established operational infrastructures
and the capacity to integrate, consolidate and standardize our operations
quickly and on a cost-effective basis.
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SALES AND MARKETING
LOCAL SALES CONSULTATIONS.
We intend to offer our products and services through a sales
approach based on consultation between customers and technicians. The goal is
to thoroughly understand customer needs and provide bundled Internet
applications solutions consisting of hardware, software, access and
value-added services. We believe that this localized approach will allow us
to provide thorough customer solutions and appropriate ongoing support. We
expect to have significant distribution capabilities both through a direct
sales force and indirect channels. A direct sales force would offer a core of
technically competent, locally based and experienced Internet sales
representatives. We intend to focus our efforts on establishing and expanding
our direct sales force, further developing indirect channels and optimizing
techniques for generating leads to reduce the cost of obtaining new customers.
DIRECT SALES.
Our plan is that sales representatives will be locally based,
allowing them to meet face-to-face with prospective customers to discuss
their Internet needs, technical requirements and develop tailored solutions.
Candidates for local sales representative positions must have a strong
Internet technical background and know the local business community. We will
have to develop programs at the national level to attract and train high
quality, motivated sales representatives who have good technical skills,
consultative sales experience and who know their local markets. These
programs must include technical sales training, consultative selling
techniques, sales compensation planning, and sales representative recruiting.
At the local level, direct marketing techniques will be employed to target
customer segments that would achieve substantial benefit from the business
applications afforded by the Internet. Some direct marketing tactics may
include direct mail, telemarketing, seminars and trade-show participation
which may be supported by some of our key vendors.
RESALE AND REFERRAL PROGRAM.
We plan to have an indirect sales program that will permit the
operating units in each division to make sales through other businesses,
called resellers, that make sales for us, or that refer customers to us. We
believe these indirect sales channels will be a significant contributor to
our growth. The authorized reseller program will offer reseller parties the
ability to share in the on-going revenue stream of sales they bring to us.
Reseller partners will include system integrators, value-added resellers and
other companies that have an established relationship with the prospective
customer, and have a sales force capable of selling Internet services.
Referrals may be made by organizations such as web designers, advertising
agencies or property managers. The referral program will also be available to
organizations that are less capable of or interested in selling Internet
services or those whose Internet services are not their core business. The
benefits of these programs to us will include greater market reach without
fixed overhead costs. The programs may also enable reselling and referring
parties to assist us in delivering complete solutions to customers.
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ACQUISITIONS
KEYS MICROCABLE CORPORATION. In June 1998, Telecom Wireless acquired
all the issued and outstanding stock of Keys Microcable Corporation ("KMC").
KMC has operated a 32-channel wireless cable television system in the lower
Florida Keys and Key West, Florida, since 1994. KMC is performing engineering
studies to expand its product line in its service area to provide wireless
Internet services to subscribers and new customers. The expanded capabilities
will include voice-over-Internet (VoIP). KMC served approximately 1,600 cable
TV subscribers as of September 30, 1999, and management believes that
approximately 50% of its current subscribers will become Internet service
subscribers and a smaller number will become telephone customers as well.
AMERICA'S WEB STATION, INC. In July 1999, Telecom Wireless acquired all
the stock of America's Web Station, Inc. ("AWS"). AWS was founded in 1997 to
provide Internet solutions to the rapidly expanding small to medium size
business market in southwest Florida. The initial focus was on high-end
database-driven web sites and e-commerce solutions. Internet access (dial-up)
and web site hosting for businesses subsequently was added. In the first quarter
of 1998, AWS began offering residential Internet service. Its customer base has
grown largely as a result of referrals. At September 30, 1999, AWS had 276
Internet access subscribers and 53 web site hosting customers.
PRENTICE TECHNOLOGIES, INC. Telecom Wireless acquired 90% of the
common stock of Sys-Group, Inc., which does business as Prentice
Technologies, Inc. in September 1999 from Shawn P. Richmond, an officer of
the company. Prentice specializes in rapid prototyping, performance-enhancing
tools, and application hosting services for the enterprise resource planning
software of J.D. Edwards & Company. Through Prentice, Telecom Wireless plans
to focus on enterprise application hosting and growth through an aggressive
acquisition campaign, targeting companies that are highly focused in areas
that are complementary to the company's strategy. Prentice has employees in
Denver, Minneapolis, Austin, Knoxville, and Toronto.
As part of its ASP aggregation strategy, Prentice expects to target
firms that can generate additional revenue through information technology
consulting, web hosting, web design, enterprise resource planning, global
messaging and customized software products available over the Internet. While
currently profitable, a primary emphasis of Prentice is on developing the
necessary management team and infrastructure to establish early market share
and sustained growth in the emerging application hosting market. It is
therefore likely that Prentice will experience negative cash flow for the
foreseeable future as it makes these strategic investments.
Significant post-closing covenants of the Merger Agreement between the
company and Prentice are as follows:
- Telecom Wireless will use "commercially reasonable efforts" to
spin-off Prentice by September 22, 2001.
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- Telecom Wireless and Mr. Richmond will take all commercially
reasonable best efforts necessary to release Mr. Richmond from
his personal guaranties of Prentice debt by September 22, 2001.
Telecom Wireless deposited 200,000 restricted shares of its
common stock into an escrow account to collateralize its
obligations to relieve Mr. Richmond of his personal guaranties of
Prentice debt, which shares will be returned to Telecom Wireless
once such obligations are released or satisfied or the underlying
agreements are terminated.
- Telecom Wireless will provide piggyback registration rights, at
the expense of Prentice, for all stock owned by Mr. Richmond in
Prentice and any stock of Telecom Wireless subsequently acquired
pursuant to options held by Mr. Richmond or any employees of
Prentice.
In addition, Mr. Richmond entered into a three-year contract whereby he
is employed as a Vice President of Telecom Wireless and President of Prentice
through March 31, 2002. See "Management -- Executive Compensation."
Mr. Richmond has the right to repurchase the Prentice stock from
Telecom Wireless for consideration consisting of the company's common stock
received by Mr. Richmond plus cash in the amount of the increase in the
shareholders' equity of Prentice, should any of the following occur:
- A bankruptcy petition is filed by or against Telecom Wireless and
not discharged in 60 days.
- Telecom Wireless admits in writing its inability to pay its debts
as they mature.
- Telecom Wireless ceases to be a going concern.
Mr. Richmond seeks recission of his sale of 90% of the common stock
of Prentice to Telecom Wireless. See "Legal Proceedings."
OTHER TRANSACTIONS
The company has entered into several transactions with Joshua Mailman.
The company has granted Mr. Mailman the right, exercisable at any time until
February 1, 2000, to cause the company to purchase from Mr. Mailman a total of
2,600,000 shares of the capital stock of International Datacasting Corporation,
a Canadian corporation based in Ottawa, Ontario, Canada ("IDC"). The purchase
price is $1.00 per share in cash or, at the option of Mr. Mailman, in the form
of a note or the equivalent value of the company's common stock. In addition,
the company agreed to purchase from Mr. Mailman an additional 2,000,000 shares
of IDC common stock upon the same terms within 30 days after the date of the
first purchase. To the extent Mr. Mailman elects to take shares of the company's
common stock in payment for the IDC stock, the stock will be valued at the lower
of US $5.00 per share or 70% of the market price on the date of the transaction.
IDC is a public Canadian company whose stock is traded on the Montreal Stock
Exchange (symbol: IDA). IDC is engaged in the business of selling advanced
satellite commu-
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nications products. It claims to own applications that include internet via
satellite, corporate intranets, radio networks, business radio networks,
weather networks, financial information, sports updates, paging networks and
email transmission. It also claims to have more than 25,000 installations in
35 countries.
The company has agreed to enter into a financial consulting agreement
with Mr. Mailman whereby he will provide financial review, analysis and
consulting services to the company for a period of one year. As consideration,
the company has agreed to issue to Mr. Mailman a three-year warrant for the
purchase of 100,000 shares of the company's common stock at an exercise price of
$6.25 per share. The company can terminate the financial consulting agreement at
any time upon the giving of ten days' written notice to Mr. Mailman.
In October 1999, James C. Roberts, Chief Executive Officer and Chairman
of the Board of Directors of the company, sold an option to Mr. Mailman to
purchase 250,000 shares of the company's common stock from Dr. Roberts for
$250,000. The term of the option is two years and the option exercise price is
$.10 per share. Dr. Roberts loaned the $250,000 to the company. See "Certain
Transactions and Relationships." Mr. Mailman has registration rights with
respect to such shares.
Mr. Mailman and Allen Leeds, an officer of the company (see "Management
- - Other Officers"), are the co-owners of First Broadcast Partners, LLC, a
wireless spectrum holding company based in New York, New York.
In addition, the company has entered into a non-binding memorandum of
understanding to acquire the technology assets of a company for consideration
consisting of a substantial number of shares of Telecom Wireless common stock.
The acquisition is subject to satisfactory completion of due diligence,
negotiation of a definitive acquisition agreement and shareholder approval. As
of the date of this prospectus, the due diligence investigation is in the early
stages. Accordingly, management presently considers the acquisition to be
improbable.
COMPETITION
The market for Internet connectivity and related services is extremely
competitive. We anticipate that competition will continue to intensify as use of
the Internet grows. The rapid growth and potential market size of the Internet
access market has attracted many new start-ups, as well as existing businesses
from different industries. In addition to other national, regional and local
ISPs, ASPs and CLECs, current and prospective competitors include long distance
and local exchange telecommunications companies, cable television companies,
direct broadcast satellite and wireless communications providers, and on-line
service providers. We believe the primary competitive factors determining
success for ISPs in the markets we expect to serve are:
- a reputation for reliability and high quality service;
- effective customer support;
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- access speed;
- pricing;
- effective marketing techniques for customer acquisition;
- ease of use; and
- scope of geographic coverage.
We believe that national providers lack a local presence that customers
demand and local providers lack the technical and human resources required to
offer enhanced services cost effectively. By creating a national network of
ISPs, ASPs and CLECs, our customers will obtain the benefits of a global
infrastructure with personal, around-the-clock customer support. We believe that
national scale and local presence will result in long term customer loyalty and
help expand our customer base. We intend to enhance this value as we continue to
develop by expanding our network through acquisitions and strategic vendor
relationships and providing a comprehensive array of enhanced, higher-margin
products and services such as electronic commerce.
ISPS.
According to BOARDWATCH magazine's directory of ISPs, there are
currently over 4,000 national, regional and local ISPs in the United States. Our
current primary competitors include other ISPs with a significant national
presence which focus on business customers. These competitors include UUNet, GTE
Internet working (formerly BBN), PSINet, Concentric Network and DIGEX. While we
believe that our planned level of local service and support and focus on the
target market will distinguish us from these competitors, most of them have
significantly greater market presence, brand recognition, and financial,
technical and personnel resources than we do, and have extensive coast-to-coast
Internet backbones. We also compete with unaffiliated regional and local ISPs
and ASPs in our targeted geographic regions
TELECOMMUNICATIONS CARRIERS.
All the major long distance companies (also known as interexchange
carriers or IXCs), including AT&T, MCI, and Sprint, offer Internet access
services and compete with us. The recent sweeping reforms in the federal
regulation of the telecommunications industry have created greater opportunities
for local exchange carriers ("LECs"), including the regional bell operating
companies ("RBOCs"), to enter the Internet connectivity market. To address the
Internet connectivity requirements of the current business customers of long
distance and local carriers, IXCs are partnering with, and/or acquiring, ISPs.
The WorldCom/MFS/UUNet consolidation, the NETCOM/ICG merger, the
Intermedia/DIGEX merger, and GTE's acquisition of BBN are examples. Accordingly,
we expect that Telecom Wireless will experience increased competition from the
traditional telecommunications carriers. Many telecommunications carriers, in
addition to their substantially greater network coverage, market presence, and
financial, technical and personnel resources, also have large existing
commercial customer bases.
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Furthermore, telecommunications providers may be able to bundle Internet
access with basic local and long distance telecommunications services.
Bundling services may make it more difficult to compete effectively with the
telecommunications providers and may result in pricing pressure that would
have an adverse effect our business, financial condition and results of
operations. We believe combining local presence with a strong technical and
data-oriented sales force could be an important feature distinguishing us
from the centralized voice-oriented sales approach typified by the current
Internet connectivity services offered by the IXCs and LECs.
CABLE COMPANIES, DIRECT BROADCAST SATELLITE AND WIRELESS COMMUNICATIONS
COMPANIES.
Many major cable companies have announced that they are exploring the
possibility of offering Internet connectivity, by using cable modems and
upgrading their networks. MediaOne Group and TCI have recently announced trials
to provide Internet cable service to residential customers in select areas.
However, the cable companies are faced with large-scale upgrades of their
existing plant, equipment and infrastructure to support connections to the
Internet backbone via high-speed cable access devices. Additionally, their
current subscriber base and market focus is residential, which requires that
they join with business-focused providers or undergo massive sales and marketing
and network development efforts to target the business sector. Several
announcements also have recently been made by other alternative service
companies that are approaching the Internet connectivity market with various
wireless terrestrial and satellite-based service technologies, which currently
offer high-speed Internet access to business customers.
ON-LINE SERVICE PROVIDERS AND CABLE AND TELEPHONE COMPANIES.
The predominant on-line service providers, including America Online,
CompuServe, Microsoft Network, and Prodigy, have all entered the Internet access
business by engineering their current proprietary networks to include Internet
access capabilities. We plan to compete to a lesser extent with these on-line
service providers. The offerings of the on-line service providers may
significantly affect the pricing of our service offerings.
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BROADBAND SERVICE PROVIDERS.
Advanced Internet applications and quicker access require additional
bandwidth. In the last year or two, several cable and telephone companies have
announced plans to deploy broadband services for high speed Internet access
through new technologies such as cable modems and xDSL. While these providers
have initially targeted the residential consumer, it is likely that their target
markets will expand to encompass our target markets, which may significantly
affect the pricing of our service offerings. As a result of an increase in the
number of competitors, and vertical and horizontal integration in the industry,
we expect to encounter significant pricing pressure and other competition in the
future. Advances in technology as well as changes in the marketplace and the
regulatory environment are constantly occurring. We cannot predict the effect
that ongoing or future developments may have on us or the pricing of our
products and services. We intend to continue to improve our products and
services to remain competitive.
With respect to our potential competitors, we believe that
manufacturers of computer hardware and software products, media and
telecommunications companies and others will continue to enter the Internet
services market, which will intensify competition. In addition, as consumers and
businesses increasingly move on-line in greater numbers, we expect existing
competitors to increase further their emphasis on Internet access and electronic
commerce initiatives, resulting in even greater competition for us in our
markets. The ability of competitors or others to enter into business
combinations, strategic alliances or joint ventures, or to bundle their services
and products with Internet access, could place us at a significant competitive
disadvantage.
GOVERNMENTAL REGULATION
REGULATION OF INTERNET ACCESS SERVICES.
We provide Internet access, in part, using telecommunications services
provided by carriers. Terms, conditions and prices for telecommunications
services are subject to economic regulation by state and federal agencies. We,
as an Internet access provider, are not currently subject to direct economic
regulation by the Federal Communications Commission or any state regulatory
body, other than the type and scope of regulation that is applicable to
businesses generally. In April 1998, the Federal Communications Commission
reaffirmed that Internet access providers should be classified as unregulated
"information service providers" rather than regulated "telecommunications
providers" under the terms of the Federal Telecommunications Act of 1996. As a
result, we are not subject to federal regulations applicable to telephone
companies and similar carriers merely because we provide our services using
telecommunications services provided by third-party carriers. To date, no state
has attempted to exercise economic regulation over Internet access providers.
Governmental regulatory approaches and policies to Internet access
providers and others that use the Internet to facilitate data and communication
transmissions are continuing to develop and in the future we could be exposed to
regulation by the Federal Communications Commission
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or other federal agencies or by state regulatory agencies or bodies. For
example, the Federal Communications Commission has expressed an intention to
consider whether to regulate providers of voice and fax services that employ
the Internet or IP switching as "telecommunications providers" even though
Internet access itself would not be regulated. The Federal Communications
Commission is also considering whether providers of Internet-based telephone
services should be required to contribute to the universal service fund,
which subsidizes telephone service for rural and low income consumers, or
should pay carrier access charges on the same basis as applicable to
regulated telecommunications providers. To the extent that we engage in the
provision of Internet or Internet protocol based telephony or fax services,
we may become subject to regulations promulgated by the Federal
Communications Commission or states with respect to such activities. We
cannot assure you that such regulations will not adversely affect our ability
to offer certain enhanced business services in the future.
Furthermore, in a rulemaking proposal issued in August 1998, the
Federal Communications Commission has proposed that if an incumbent local
exchange carrier establishes a separate affiliate to pursue the deployment of
advanced telecommunications services, such as those we offer, and if that
affiliate interconnects with the incumbent local exchange carrier's network on
the same terms and conditions as offered to the incumbent local exchange
carrier's competitors, then the affiliate would not be subject to the
unbundling, discounted resale or co-location obligations in the Federal
Telecommunications Act of 1996 that apply to incumbent local exchange carriers.
Rather, the affiliate would be treated like a competitive local exchange
carrier. If the Federal Communications Commission ultimately adopts this or any
similar proposal, we would likely face increased competition from incumbent
local exchange carrier affiliates and our access to providers of high speed data
technology could be curtailed, which could materially and adversely affect our
business, operating results and financial condition.
REGULATION OF THE INTERNET.
Due to the increasing popularity and use of the Internet by broad
segments of the population, it is possible that laws and regulations may be
adopted with respect to the Internet pertaining to content of web sites,
privacy, pricing, encryption standards, consumer protection, electronic
commerce, taxation, and copyright infringement and other intellectual property
issues. We cannot predict the effect, if any, that any future regulatory changes
or developments may have on the demand for our access or enhanced business
services. Changes in the regulatory environment relating to the Internet access
industry, including the enactment of laws or promulgation of regulations that
directly or indirectly affect the costs of telecommunications access or that
increase the likelihood or scope of competition from national or regional
telephone companies, could materially and adversely affect our business,
operating results and financial condition.
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REGULATIONS PERTINENT TO OUR COMPETITIVE LOCAL EXCHANGE CARRIER
OPERATIONS.
To the extent that we conduct business as a competitive local exchange
carrier, the telecommunications services that we provide will be subject to
regulation by federal, state and local governmental agencies. State regulatory
commissions exercise jurisdiction over intrastate services. Municipalities and
other local government agencies may regulate certain aspects of our competitive
local exchange carrier subsidiary's proposed operations, such as use of
rights-of-way. Although typically start-up telecommunications carriers are not
subject to all of the Federal Communications Commission regulations applicable
to incumbent local exchange carriers, such as price caps or rate-of-return
regulation, the Federal Telecommunications Act of 1996 requires the Federal
Communications Commission to establish a subsidy mechanism for universal
telephone service to which our competitive local exchange carrier subsidiary
will be required to contribute based on its telecommunications revenues. In
addition, the Federal Telecommunications Act of 1996 requires all carriers,
including competitive local exchange carriers and incumbent local exchange
carriers, to make their services available for resale by other carriers, to
interconnect their networks and ensure they interoperate and provide
non-discriminatory rights-of-way, offer reciprocal compensation for termination
of local telecommunication traffic, and provide dialing parity and local
telephone number portability. The Federal Telecommunications Act of 1996 further
reserves to the individual states the authority to impose state regulation of
local exchange services, including state universal service subsidy programs, so
long as the state's regulations are not inconsistent with the requirements of
the Federal Telecommunications Act of 1996. We are unable to predict the manner
in which any state where we may receive certification as a competitive local
exchange carrier, will seek to regulate our telecommunications operations.
In the provision of interstate, intrastate and international services,
our competitive local exchange carrier operation would generally be subject to
tariff or price list filing requirements pursuant to which the competitive local
exchange carrier operation will be required to publicly disclose, or in some
instances obtain approval of, its terms, conditions and prices for
telecommunications services prior to or soon after offering such services. In
addition, individual states where our operation conducts activities as a
competitive local exchange carrier may subject us to state certification
proceedings and intrastate and local tariff regulations. These certifications
generally require a showing that the carrier has adequate financial, managerial
and technical resources to offer the proposed services consistent with the
public interest. While uncommon, challenges to these tariffs and certification
proceedings by third parties could cause our competitive local exchange carrier
operation to incur substantial legal and administrative expenses. Many states
also impose additional regulatory requirements, such as minimum service quality
reporting and customer service requirements and uniform local exchange carrier
accounting requirements. Under some state laws, changes in the ownership of a
competitive local exchange carrier's outstanding voting securities may require
prior approval of the state public utility commission. In certain jurisdictions,
an investor who acquires as little as 10% of a competitive local exchange
carrier's voting securities may have to obtain prior approval for the
acquisition of such securities because such ownership interest might be deemed
to constitute an indirect controlling interest in the carrier.
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FINANCING ARRANGEMENTS
JACK AUGSBACK & ASSOCIATES, INC. In March 1999, the company entered
into an agreement whereby Jack Augsback & Associates, Inc., West Palm Beach,
Florida, agreed to research and find sources for the company's various needs of
financing and to make introductions to persons capable of providing such
financing to the company. If any person introduced to the company by Augsback
provides any investment capital or other types of financing, the company is
obligated to pay Augsback 10% of the first $10,000,000 of capital, 7.5% of the
following $5,000,000 of capital, and 5% of any balance. The fee is payable in
cash at closing. The company also agreed to pay Augsback a non-accountable
project expense fee in the amount of 1% of the financing.
In addition, the company agreed to issue five-year warrants to Augsback
for the purchase of up to five shares of the company's common stock for each
$100 of funds raised at an exercise price equal to 85% of the fair market value
of the company's common stock for the 20 trading days prior to closing of the
financing. The holders of the warrants were granted piggyback registration
rights with respect to the underlying shares and the company agreed to pay all
costs of registration. As of November 19, 1999, the company had issued warrants
for the purchase of up to 150,487 shares of its common stock to Augsback and its
affiliates and 22,650 shares of such common stock to affiliates of Augsback.
The Augsback agreement is effective through December 31, 1999. Pursuant
to that agreement, Augsback introduced the company to investors who purchased
securities for net proceeds to the company aggregating $3,868,745.
FIRST EQUITY CAPITAL SECURITIES, INC. First Equity Capital Securities,
Inc., New York, New York, raised $1,000,000 in bridge loan financing for the
company and introduced the company to a person which loaned it $700,000. A cash
fee is payable to First Equity equal to 10% of any of the gross proceeds of any
equity financing provided by persons introduced to the company by First Equity
plus a five-year warrant to purchase securities equal to 10% of the securities
purchased in any such offering. If First Equity introduces the company to a
person who locates financing for the company, then the fee to First Equity is
2.5% of the gross proceeds thereof payable in cash. If any of the bridge loan
lenders convert their bridge loans into Telecom Wireless common stock, the
company will be obligated to pay First Equity 10% of the gross amount of the
conversion proceeds.
The company agreed to pay First Equity a cash fee equal to 6% of the
gross proceeds from any debt financing provided by persons introduced to the
company by First Equity and 1.25% of the gross proceeds from any financing
provided through persons secured or arranged by any agent.
On October 15, 1999, the company entered into a supplemental agreement
with First Equity whereby the company agreed to issue five-year warrants to
First Equity to purchase 300,000
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shares of the company's common stock at a price of $.001 per share and to
provide piggyback registration rights for the underlying shares. In addition,
the company agreed to pay First Equity a monthly consulting fee of $7,500
commencing in November 1999 and continuing for at least one year. In
consideration, First Equity agreed to waive fees due and payable to it for
having obtained the $1,000,000 in bridge loans and the $700,000 loan obtained
from a third party, consisting of cash in the amount of $87,500 and warrants
for the purchase of 30,000 shares of the company's common stock, exercisable
for a period of five years at an exercise price of $7.00 per share. First
Equity has exercised the warrant.
INTELLECTUAL PROPERTY
We expect to receive authorization to use the products of each
manufacturer of software that is bundled in our software for users with personal
computers operating on the Windows or Macintosh platforms. While certain of the
applications included in our start-up kit for ISP subscribers will be shareware
that we have obtained permission to distribute or that are otherwise in the
public domain and freely distributable, certain other applications included in
the start-up kit will be licensed where necessary. We currently intend to
maintain or negotiate renewals of all existing software licenses and
authorizations as necessary, although we cannot be certain that such renewals
will be available to us on acceptable terms, if at all. We may also enter into
licensing arrangements in the future for other applications.
EMPLOYEES
As of November 19, 1999, Telecom Wireless had 22 full-time employees,
including its five executive officers. The company's employees are not covered
by any collective bargaining agreement, and it has never experienced a work
stoppage. Management believes that the company's employee relations are good.
At present, Telecom Wireless generally is divided into four divisions
plus general and administrative staff. Due to our small size, these divisions of
necessity overlap. The merger and acquisitions group consists of four full-time
employees. It is responsible for identifying and contacting acquisition
candidates, conducting preliminary due diligence, initiating and completing
contract negotiations, and closing transactions. This group is heavily dependent
upon the services of outside professionals, primarily in the areas of legal and
accounting.
The operations and technology group consists of three full-time
employees. It is responsible for internal operations, accounting, operational
and technical due diligence with respect to acquisition targets and refinement
and implementation of our consolidation and integration plan. As our operations
expand, this group will be subdivided into several separate divisions. We expect
the divisions will grow rapidly, primarily due to personnel requirements for
consolidation and integration of operations.
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The finance group consists of two full-time employees while the law group
consists of three full-time employees. The remaining employees assist these
divisions and perform other functions such as sales, marketing and accounting.
As of November 19, 1999, America's Web Station, Inc. had five full-time
employees, while Keys Microcable Corporation and Prentice Technologies, Inc. had
seven and 15 full-time employees, respectively.
PROPERTIES
Telecom Wireless's principal executive offices are located in
approximately 15,598 square feet of leased space at 5299 DTC Boulevard, Suite
1200, Englewood, Colorado 80111, which it shares with Prentice Technologies,
Inc., a subsidiary of the company. The current monthly lease payment is $15,598
for the entire space. The lease expires in 2002.
The company also has a lease for office space in West Palm Beach, Florida
covering approximately 7,439 square feet. The lease expires August 1, 2004. The
monthly lease payment is approximately $8,369. Due to a change in the company's
business plan, it has advised the landlord that it does not intend to occupy the
premises and the landlord has declared the company to be in default under the
lease. Telecom Wireless may be liable to the landlord for the amount of unpaid
rent under the lease.
America's Web Station, Inc., a subsidiary of the company, operates out of
1,584 square feet of leased space in Naples, Florida. The company's Keys
Microcable subsidiary is headquartered in leased space in Key West, Florida,
where it also leases land for an unmanned "head end" facility containing
electronic equipment.
LEGAL PROCEEDINGS
Except with respect to the West Palm Beach lease discussed above under
"Properties" and the claims discussed below, no litigation is pending or, to the
knowledge of management, threatened against Telecom Wireless Corporation or any
of its subsidiaries that, individually or collectively, could have a material
adverse effect upon the company's financial condition.
By letter dated November 16, 1999, Shawn P. Richmond, through his
attorney, seeks rescission of his sale of 90% of the common stock of Prentice
Technologies, Inc. to the company. See "Acquisitions." Mr. Richmond alleges that
the company made material misrepresentations and/or failed to disclose material
information in connection with the transaction. In addition, he seeks a
substantial amount of money. Management denies the allegations and intends to
vigorously defend any legal proceedings which may result from these claims. As
of the date of this prospectus, Mr. Richmond and the company are in
negotiations including the possible spin-off of Prentice on an accelerated
schedule.
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In September 1999, the company entered into agreements to acquire a
small equity interest in each of two entities for $1.6 million in cash and
500,000 shares of the company's common stock with registration rights. The
company paid $700,000 (financed with borrowed funds under a convertible
promissory note due in May 2000) and the balance is due in installments ending
in June 2000. Concurrently, the company entered into a five-year license that
purports to obligate the company to place a purchase order for equipment backed
by a non-cancelable letter of credit. The company has not delivered the 500,000
shares. The seller/licensor has given notice of default and termination of the
right to purchase the equity interest in one of the entities and the license
agreement. Title to the equity interest in the other entity has been delivered
to the company. In addition, the seller/licensor claims the company is obligated
to pay the additional $900,000.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following paragraphs identify the directors and executive officers
of Telecom Wireless and describe their business experience:
JAMES C. ROBERTS, 46, has served as Chief Executive Officer,
Chairman of the Board of Directors and a director of Telecom Wireless since
April 1999. Dr. Roberts co-founded and serviced as President, Chief Operating
Officer and a director of Voice and Data Communications, Inc., Greenwich,
Connecticut, an international long distance company servicing Asia, America,
Europe and Latin America from March 1998 to November 1998. Previous to that,
he served as President and Chief Executive Officer of CGI Worldwide, Inc.
from its inception in 1986 until 1997. CGI was a multifaceted
telecommunications company that designed, engineered, constructed and
developed over 80 cellular, paging and cable television systems around the
world. Before joining CGI, Dr. Roberts spent over ten years in the
telecommunications business, holding senior management positions with McCaw
Cellular Communications, Inc., MCI Communications Corp. and Motorola, Inc.
During this period, Dr. Roberts was responsible for building and operating
over 50 cellular, paging and cable TV systems. Dr. Roberts was a charter
member of the Cellular Telephone Industry Association. He holds several
university degrees including a doctoral degree in business administration
with emphasis in International Economics from NewPort University, Newport
Beach, California, which was conferred in 1992.
CALVIN D. SMILEY, 46, has served as an officer and director of Telecom
Wireless since April 1999. In October 1999, he was elected President of the
company. From March 1997 to March 1999, Mr. Smiley was President of
Communicast, Inc., a turn-key advertising sales company representing the
wireless and cable television industries based in Denver, Colorado. From
September 1995 to February 1997, he served as Chief Operating Officer and
Executive Vice President for Across Media Networks, LLC, Denver, Colorado, a
photo digital classified advertising company. Before joining Across Media,
Mr. Smiley was President of Act One Cable Television Advertising, Inc. and
Cable Advertising Networks, Inc., both advertising and
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marketing companies based in Columbus, Ohio, serving rural cable operators.
For fourteen years before September 1995, Mr. Smiley held several management
and executive positions with TeleCommunication, Inc. in advertising sales and
marketing. He held various positions in radio and television before joining
TCI.
KOSTA S. KOVACHEV, 48, has been Executive Vice President, Chief
Financial Officer and a director of Telecom Wireless since April 1999. From
January 1997 to February 1999, Mr. Kovachev served as a director of Alma Fund
Group, a global venture capital firm that he co-founded. From April 1996 to
January 1997, Mr. Kovachev was a Managing Director of Gem Advisors, Inc., a
venture capital firm that specialized in private placements of funds. From
September 1995 to March 1996, Mr. Kovachev was Managing Director of W.G.
Trading, a convertible sales and trading firm. From April 1994 to August
1995, Mr. Kovachev was Senior Portfolio Director for the Palladin Group, an
investment fund management firm, where he headed the firm's international
funds area. Mr. Kovachev was Managing Director and head of the international
convertible desk at McMahan Securities, a fund management and broker/dealer
firm, from 1992 to 1994. Mr. Kovachev was employed by Morgan Stanley from
1987 to 1992 where he was promoted to Vice President in International
Convertible Sales. Mr. Kovachev's experience with Wall Street firms includes
employment by Morgan Stanley, Drexel Burnham Lambert and Arnhold & S.
Bleichroeder.
ROBERT L. FREDRICK, 54, has served as an officer and director of
Telecom Wireless since April 1999 and, in October 1999, was elected to the
position of Senior Vice President. He also serves as President of Keys
Microcable Corporation, a wholly owned subsidiary of Telecom Wireless. Keys
Microcable provides wireless television programming in Monroe County,
Florida. Before joining Keys Microcable, Mr. Fredrick was President of
Strategic Solutions Group Inc. from 1994 to 1998. Strategic Solutions Group
provided business strategy, operational, and product development consulting
services to manufacturers of voice and data equipment for the
telecommunications industry. Mr. Fredrick also served as Senior Vice
President, Commercial Services for Digicon Corporation from 1995 to 1996.
Digicon is a supplier of data and telecommunications services to the federal
government. While at Digicon, Mr. Fredrick was involved in the development of
cellular telephone service in the Middle East and Russia. Mr. Fredrick served
as a General Manager for Optelecom Corporation, a manufacturer of fiber optic
telecommunications hardware, from 1996 to 1998. From 1991 to 1996, he served
as Vice President of Business Development, Vice President of Marketing, and
General Manager of the Storage Systems Business Group of Network Imaging
Corporation, a developer of client server software systems for the
telecommunications industry.
SHAWN P. RICHMOND, 32, has been a Vice President of Telecom Wireless
since April 1999 and serves as President of Sys-Group, Inc., doing business
as Prentice Technologies, Inc., a 90% owned subsidiary that Telecom Wireless
acquired from Mr. Richmond in September 1999. Mr. Richmond founded the
predecessor of Prentice in 1994 and has served as president and a director of
those entities since that time. See "Business-Acquisitions." Since 1998, Mr.
Richmond has been a Senior Partner of Richmond & Company Capital Group, LLC,
a venture capital firm he co-founded which invests in information technology.
He also was a founder of the American
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Association of Independent Consultants. Mr. Richmond received a B.S. degree
in computer science from Southwest Texas State University School of Science.
OTHER OFFICERS
The following paragraphs identify other officers of Telecom Wireless:
PAUL L. FRANCIS, 49, has been an officer of Telecom Wireless since
April 1999. He was appointed Chief Technology Officer in October 1999. A
British native, Mr. Francis has more than 30 years' experience in the
telecommunications industry. He has spent the past 19 years as an independent
engineer and consultant. From May 1998 to April 1999, he was associated with
Francis Walker & Co., London, England. He has consulted for such companies as
Plessey, British Petroleum, Reuters and Solomon Brothers. He is an associate
member of The Institute of Incorporated Engineers and is an affiliate of the
Engineering Council in the United Kingdom. In 1979, he earned a Full
Technological Certificate at the Chelmer Institute in the United Kingdom.
ESPER GULLATT JR., 41, has been an officer of Telecom Wireless since
April 1999. He was appointed Vice President-Business Development of the
company in October 1999. Previously, Mr. Gullatt was Chief Executive Officer
and a director of Capstone Group, Inc., Denver, Colorado, a
telecommunications business he founded in January 1994. From October, 1995 to
August, 1998, Mr. Gullatt was Chief Financial Officer and a director of DCC
Solutions, Inc., Denver, Colorado, a wireless telephone dealer and airtime
reseller that he co-founded. From November, 1988 to October, 1995, Mr.
Gullatt served as Chief Financial Analyst for the Colorado Department of
Public Safety. He received a Bachelor of Accountancy degree from the
University of Oklahoma-Norman in 1983, and was employed as an accountant by
Deloitte, Haskins & Sells from January 1981 to March 1982.
ALLEN LEEDS, 48, has been Vice President-International Business
Development of Telecom Wireless since April 1999. Mr. Leeds has been a General
Manager and Director of First Broadcast Partners, LLC, a wireless spectrum
holding company based in New York, since 1995. From 1995 to 1996 he was also an
officer and director of U.S. Wireless, Austin, Texas, a wireless cable
television company. Mr. Leeds was a founder of Peoples Telephone Company, a
Miami, Florida, publicly traded company that operated pay telephones and served
as a director of Peoples Telephone from 1986 to 1993. Mr. Leeds attended Babson
College and the New York Institute of Finance.
LEWIS G. POLLACK, 54, has served as an officer of Telecom Wireless
since April 1999. In October 1999, he was appointed Vice President-Product
Development. Mr. Pollack founded World Lynx, Inc., a regional high-speed
Internet provider based in Little Rock, Arkansas, in 1993 and served as its
Chief Executive Officer until 1998. From 1990 to 1993 he served as Vice
President, Marketing for the Information Management Services Division of
Lockheed Corporation. He also helped establish and from 1986 to 1991 served as
Vice President of Marketing for Program Monitor, Inc., a company in the
electronic home detention business. Mr. Pollack was educated at the University
of California at Los Angeles, where he was a Fellow in special educa-
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tion and received a Ph.D.ABD in that field. He also received an M.A. from
Trenton State College and a B.A. from Franklin & Marshall College.
LYNNE K. ROBERTS, 48, has served as Vice President-Human Resources
and Secretary of Telecom Wireless since May 1999. From March 1997 through
November 1998, she was Vice President of Voice and Data Communications, Inc.,
a Greenwich, Connecticut, telecommunications company. From 1986 through
February 1997, Ms. Roberts was associated with CGI Worldwide, Inc.,
Englewood, Colorado, where her duties included business development for the
company. CGI is a telecommunications company which has designed, engineered,
constructed and developed over 80 cellular, paging and cable television
systems around the world. Before joining CGI, Ms. Roberts was a senior credit
analyst with Motorola Communications, San Mateo, California.
ADVISORY BOARD
Telecom Wireless has established an Advisory Board to consist of
persons having experience and expertise in areas relevant to the business of the
company who are not employed by the company. The purpose of the Advisory Board
is to provide information and guidance to the Board of Directors with respect to
all aspects of the company's business, including operations, regulation and
finance. To date, only one member of the advisory board has been identified. The
Board of Directors will identify additional advisory board members based upon
their experience, education and other qualifications.
JOHN H. SUNUNU served as Chief of Staff and Counselor to President
George Bush from 1989 to 1992. He had served as Governor of New Hampshire from
1983 until 1989. Since leaving the White House, Governor Sununu has pursued
various business interests and was co-host of CNN's nightly "Crossfire" program
from 1992 to 1998. Before becoming Governor of New Hampshire, he was an
educator, engineer and small businessman. He earned his Ph.D. in mechanical
engineering from Massachusetts Institute of Technology in 1966. From 1968 until
1973, he was Associate Dean of the College of Engineering and Associate
Professor of Mechanical Engineering at Tufts University. He was on the Advisory
Board of the Technology and Policy Program at MIT from 1984 to 1989. From 1963
until his election as Governor, he was President of JHS Engineering Company and
Thermal Research, Inc. He helped establish and from 1960 until 1965 served as
Chief Engineer of Astro Dynamics, Inc.
EXECUTIVE COMPENSATION
SALARY AND BONUS; EMPLOYMENT AGREEMENTS. No executive officer was paid
more than $100,000 in salary and bonus for services provided to the company
during the fiscal year ended June 30, 1999.
Telecom Wireless has entered into written employment agreements with
all its executive officers except Dr. Roberts. Each agreement has a term of
three years from April 1, 1999, and provides for payment of a base salary, which
may be increased at the end of each year. The
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annual salaries payable by the company to Dr. Roberts and the other executive
officers of the company under these agreements or other arrangements were as
follows as of the date of this prospectus:
<TABLE>
<CAPTION>
ANNUAL SALARY
-------------
<S> <C>
James C. Roberts $250,000
Calvin D. Smiley $225,000
Kosta S. Kovachev $250,000
Robert L. Fredrick $225,000
Shawn P. Richmond $125,000
</TABLE>
All officers of the company are eligible to participate in the
executive bonus pool, which is fixed at an amount equal to five percent of the
adjusted net profits of Telecom Wireless less certain items, including
contributions to pension or profit sharing plans (of which there currently are
none), extraordinary gains or losses, and refunds or deficiencies of federal or
state income taxes paid in a prior year. The maximum bonus payable for any one
year may not exceed 100% of the officer's base salary for the year.
Under the written employment agreements, the company may terminate the
officer's employment at its discretion at any time during the initial three-year
term. However, the company must pay the officer an amount equal to the officer's
base salary for the remainder of the initial term. After the initial term, the
officer's employment may be terminated by the company without cause upon payment
on the termination date of an amount equal to six times the officer's then
monthly base salary. An officer may terminate a written employment agreement on
30 days' notice to the company.
The company may also terminate the written agreements for cause as
defined in the agreements. The company must give the officer notice of the
breach, however, and an opportunity to cure.
If the company is acquired, is the non-surviving party in a merger, or
sells all or substantially all its assets, the company is required to use its
best efforts to cause the written employment agreements to be assumed by the
acquirer or surviving company.
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OPTION GRANTS IN LAST FISCAL YEAR. The following table provides
information on options granted to the executive officers of the company during
the fiscal year ended June 30, 1999. All such options are non-qualified options
exercisable at the fair market value of a share of the company's common stock on
the date of grant. The options have no value unless the company's stock price
appreciates beyond the exercise price and the holder satisfies all applicable
vesting requirements. All the options granted to executive officers during 1999
vest 33-1/3% per year over three years. They also vest in full on a change in
control of the company. The options reflected in the table were granted before
adoption of the company's 1999 Stock Option and Restricted Stock Plan, which is
discussed below.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR ($ /SHARE) DATE
----- --------------- ----------- ---------- ----
<S> <C> <C> <C> <C>
James C. Roberts 2,000,000 36.1% $10.55 Apr. 13, 2004
Calvin D. Smiley 200,000 3.6% $10.55 Apr. 13, 2004
Kosta S. Kovachev 1,000,000 18.0% $10.55 Apr. 13, 2004
Robert L. Fredrick 500,000 9.0% $10.55 Apr. 13, 2004
Shawn P. Richmond 200,000 3.7% $10.55 Apr. 13, 2004
</TABLE>
OPTION EXERCISES AND VALUES. None of the options granted to the
executive officers of Telecom Wireless before the end of fiscal year 1999 were
exercisable before the end of that year. In accordance with SEC regulations, the
following table nevertheless provides information on exercises of stock options
during the fiscal year and the fiscal year-end value of unexercised options:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Value Unexercised In-the-Money
Acquired on Realized Options at Fiscal Options at Fiscal
Name Exercise (#) ($) Year End (#) Year End ($)
- ---------------------------- --------------- ------------ -------------------- --------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
-------------------- --------------------
<S> <C> <C> <C> <C>
James C. Roberts 0 0 0/2,000,000 0/$3,556,000
Calvin D. Smiley 0 0 0/200,000 0/$355,600
Kosta S. Kovachev 0 0 0/1,000,000 0/$1,778,000
Robert L. Fredrick 0 0 0/500,000 0/$889,000
Shawn P. Richmond 0 0 0/200,000 0/$355,600
</TABLE>
74
<PAGE>
RECENT GRANTS OF OPTIONS. In connection with Mr. Smiley's
appointment as chief operating officer of Telecom Wireless in August 1999,
the company granted him options to purchase 300,000 shares of common stock at
an exercise price of $14.42 per share, the fair market value of a share of
the company's common stock on the date of grant. The options vest in equal
installments over three years beginning one year from the date of grant, and
expire in August 2004. For administrative convenience, these options were not
granted under the company's 1999 Stock Option and Restricted Stock Plan. The
Company granted an identical option to Esper Gullatt, Jr., in connection with
his concurrent appointment as Vice President-Business Development.
In September 1999, Mr. Richmond was granted options to acquire 350,000
shares of the common stock of Telecom Wireless under his employment contract
with the company. The company entered into the contract in connection with its
acquisition of Prentice Technologies, Inc. The options vest over a three-year
period in installments of 100,000 each after the first two years and 150,000
after the third year, assuming certain financial performance criteria to be
approved by the company's Board of Directors are met. The criteria includes
minimum annual revenues from the company's ASP business of $10 million for the
fiscal year ending June 30, 2000, $20 million for the fiscal year ending June
30, 2001 and $30 million for the fiscal year ending June 30, 2002. Half of the
options vesting after any year are exercisable at $0.10 per share. The other
half are exercisable at $7.73 per share. The options vest in full upon a change
in control of the company or if Mr. Richmond's employment is terminated without
cause during the initial three-year term of his employment contract, whether or
not the performance criteria are satisfied. The options expire in September
2009.
1999 STOCK OPTION AND RESTRICTED STOCK PLAN
The Board of Directors of Telecom Wireless adopted the company's 1999
Stock Option and Restricted Stock Plan, which we sometimes refer to below as the
"1999 Plan," to attract and retain qualified personnel. A total of 800,000
shares of the company's common stock may be issued to grantees and recipients
under the plan. The plan allows issuance of both qualified (or incentive)
options and non-qualified options as well as shares of restricted stock (stock
awards) and by its terms continues in effect for ten years. Options and stock
awards will be granted to employees, independent contractors, officers,
directors and consultants at the discretion of the Board of Directors or
committee administering the plan.
The Board of Directors adopted the plan on May 4, 1999, but the plan
must be approved by a vote of the stockholders of Telecom Wireless within one
year of that date to become effective permanently. The plan provides for
appropriate adjustment in the number of shares subject to the plan and to grants
previously made if there is a stock split, stock dividend, reorganization or
other similar change affecting the company's corporate structure or its equity
securities. If shares under a grant are not issued to the extent permitted
before the expiration or forfeiture of the grant, those shares would again be
available for future grants under the plan. No grant may be made under the plan
after May 4, 2009, but awards granted before or on that date may extend beyond
it.
75
<PAGE>
The Board of Directors has delegated administration of the 1999 Plan
to a committee of the Board consisting of two members of the Board. At such time
as Telecom Wireless has any class of equity security which is registered under
Section 12 of the Act, the committee is required to consist of two or more
non-employee directors, the members of which will meet the SEC definition of
"disinterested directors" and the IRS definition of "outside directors." The
option exercise price, exercise period, time of vesting, and other terms of an
option, in addition to terms that are applicable to a stock award, will be
determined by the committee. Telecom Wireless currently does not have any
disinterested directors.
All employees, officers, directors, and consultants of the company or a
subsidiary of the company are eligible for options and stock awards under the
1999 Plan. At this time, it is not possible to predict the number of employees
who will be selected to receive options and/or stock awards under the 1999 Plan,
and the number of grantees could vary from time to time.
Unless otherwise fixed by the committee, the term of an option will be
five years from the date of grant, but no option may have a term of more than
ten years from the date of grant.
Stock awards granted under the 1999 Plan may be subject to a restricted
period or may be fully vested as of the date of issuance. The Board, in its sole
discretion, at the time an award is made may prescribe other restrictions in
addition to expiration of the restricted period, such as satisfaction of
corporate or individual performance objectives.
There are no federal income tax consequences to a participant or the
company upon the grant of a stock option granted under the plan.
All stock options, and stock awards for which restrictions prescribed
by the Board have not been satisfied, are non-transferable, other than by will
or by the laws of descent and distribution, and may be exercised during the
grantee's lifetime only by the grantee.
Unvested portions of stock options and stock awards immediately expire
upon termination of employment for any reason other than death or disability,
unless the Board, in its discretion, determines otherwise; vested options may be
exercised for up to three months following the termination, unless termination
is for cause. If the company terminates employment for cause, all unexercised
awards expire upon the termination.
Shares of stock may not be issued or delivered upon exercise of a stock
option or stock award until the optionee or recipient pays the exercise price in
full, or any payment required under a stock grant agreement, if any, and any
required tax withholding and, if applicable, the completion of registration and
listing of the shares or qualification as a private placement and the obtaining
of any other required approvals.
The Board of Directors may amend, alter or discontinue the 1999 Plan,
provided that any such amendment, alteration or discontinuance does not impair
the rights of any grantee, without his or her consent, under any stock option or
stock award previously granted. The Board of
76
<PAGE>
Directors may not, without stockholder approval, (i) increase the total
amount of stock which may be purchased or issued through options or awards
granted under the 1999 Plan, or (ii) change the class of employees or
consultants eligible to participate in the 1999 Plan.
77
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of November 19,
1999 with respect to each person who owned of record as of that date or is known
to the company to own beneficially more than 5% of the outstanding shares of
common stock and the beneficial ownership of such securities by each executive
officer and director of the company and by all the executive officers and
directors as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
POSITIONS AND OFFICES BENEFICIAL COMMON STOCK PERCENT OF
NAME AND ADDRESS HELD OWNERSHIP CLASS
- --------------------------------------- ------------------------------- ------------------------- --------------------
<S> <C> <C> <C>
James C. Roberts Chief Executive Officer 10,916,333(1) 66.5%
5299 DTC Blvd., #1200 Chairman of the Board of
Englewood, CO 80111 Directors and Director
Calvin D. Smiley President and Director 100,000 0.6%
5299 DTC Blvd., #1200
Englewood, CO 80111
Kosta S. Kovachev Executive Vice President, 750,000 4.6%
580 Village Blvd., #140 Chief Financial Officer and
West Palm Beach, FL 33409 Director
Robert L. Fredrick Senior Vice President 500,000 3.0%
580 Village Blvd., #140
West Palm Beach, FL 33409
Shawn P. Richmond Vice President-ASP 100,000 0.6%
5299 DTC Blvd., #1200 Development and President,
Englewood, CO 80111 Prentice Technologies, Inc.
Allen Leeds
108 17th Street Vice President-International 1,000,000 6.1%
Bellair Beach, FL 34635 Operations
All executive officers and directors
of the company as a group (five 12,366,333 75.3%
persons)
</TABLE>
(1) Of the shares beneficially owned by Dr. Roberts, 10,616,333 are owned
of record by The Roberts Family Trust, of which Dr. Roberts and Lynne
K. Roberts, his spouse, are sole trustees, and 300,000 are owned of
record by Mrs. Roberts.
78
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
PHOENIX COMMUNICATIONS SHARE EXCHANGE
In April 1999, Telecom Wireless acquired all the issued and outstanding
shares of Phoenix Communications, Inc. The stockholders of Phoenix received
13,825,000 shares of the common stock of Telecom Wireless in exchange all of
Phoenix's outstanding shares. Phoenix at the time was, and remains, inactive and
with no assets or liabilities. Accordingly, the value attributed to Phoenix for
accounting purposes was nil.
The stockholders of Phoenix included several members of management of
Telecom Wireless. Shares of Telecom Wireless' common stock were issued to the
following officers and directors, directly or indirectly, in the following
amounts and for the following deemed values in the exchange:
<TABLE>
<CAPTION>
NAME NO. SHARES
------------------- ----------
<S> <C>
James C. Roberts(1) 10,450,000
Calvin D. Smiley 100,000
Kosta S. Kovachev 750,000
Robert L. Fredrick 500,000
Lynne K. Roberts 300,000
Allen Leeds 1,000,000
Esper Gullatt, Jr. 100,000
Paul L. Francis 100,000
Lewis G. Pollack 100,000
Shawn P. Richmond 100,000
</TABLE>
(1) Held in the name of The Roberts Family Trust, of which Dr. Roberts and
his spouse, Lynne K. Roberts, are sole trustees.
JOHN H. SUNUNU
On August 31, 1999, Telecom Wireless entered into a Services Agreement
with John H. Sununu, a member of the company's Advisory Board. The Services
Agreement requires Governor Sununu to render financial consulting and other
services to the company for 48 months. As consideration, Telecom Wireless issued
to Governor Sununu two stock purchase warrants at the time the parties entered
into the Services Agreement. The first is for the purchase of 500,000 shares of
the company's common stock at an exercise price of $5.50 per share. The closing
price of the company's common stock on the trading day immediately before the
execution and delivery of the Services Agreement was $13.75 per share. The
second warrant is
79
<PAGE>
for the purchase of 720,000 shares of the company's common stock. This
warrant vests at the rate of 15,000 shares per month for 48 consecutive
months. The exercise price for each installment is 50% of the market value of
the company's common stock on the vesting date for that installment. For this
purpose, market value is deemed to be the average of the closing prices for
the 20 trading days preceding the vesting date. In the event of a change in
control, an additional number of installments are to vest and become
exercisable equal to the number of previously vested installments, and the
number of shares included in each monthly installment will double. The
parties can terminate the Services Agreement at any time upon giving ten
days' notice to each other. The company has recorded approximately $122,000
of stock-based compensation for the quarter ended September 30, 1999, as a
result of the issuance of these two warrants.
On August 5, 1999, Governor Sununu, through a retirement plan
controlled by him, purchased 53,000 shares of restricted common stock of Telecom
Wireless for $7.00 per share in a private placement. The shares had registration
rights and were accompanied by repricing warrants. The closing price of the
company's publicly traded common stock on the trading day immediately before
Governor Sununu's purchase was $14.38 per share. These 53,000 shares and 53,000
shares issuable under the repricing warrants are among the shares covered by
this prospectus. See "Selling Stockholders."
KEYS MICROCABLE TRANSACTION
In early 1999, Calvin D. Smiley, the President and a director of
Telecom Wireless, and Esper Gullatt, Jr., the Vice President - Business
Development of the company, entered into a management agreement through an
entity controlled by them whereby they were to receive a 50% equity interest
in Keys Microcable Corporation ("KMC"), a wholly-owned subsidiary of the
company, in consideration of the performance of management services. At that
time, Messrs. Smiley and Gullatt were not associated with the company, so
that the agreement was negotiated at arms' length. However, this agreement
was terminated, after partial performance, in connection with the April 1999
Phoenix Communications share exchange described above. The Board of Directors
(Mr. Smiley abstaining) has approved a settlement of any claims Messrs.
Smiley and Gullatt may have for an equity interest in KMC for $650,000,
payable by issuance of warrants for the purchase of 123,222 shares of
restricted common stock of Telecom Wireless at an exercise price of $5.275
per share, or 50% of the average closing price per share for the 20 trading
days preceding April 12, 1999, the date on which present management assumed
control of the company.
LOAN TO OFFICER
In August 1999, Telecom Wireless loaned $60,000 to Kosta S. Kovachev,
the company's Executive Vice President and Chief Financial Officer. The loan is
considered an advance of Mr. Kovachev's executive bonus, if any, for the current
fiscal year, which ends June 30, 2000. The company may withhold the amount due
on the loan from the bonus. As of the date of this prospectus, the remaining
terms of this loan have not been determined.
80
<PAGE>
LOAN FROM OFFICER
In October 1999, James C. Roberts, Chief Executive Officer and Chairman
of the Board of Directors of the company, loaned the company $250,000. As of the
date of this prospectus, the terms of this loan have not been established.
THE COMPANY'S STOCK
The authorized capital stock of Telecom Wireless consists of 100,000,000
shares of common stock and 25,000,000 shares of preferred stock. As of November
19, 1999, the company had 16,426,377 shares of common stock outstanding, held by
449 stockholders of record, and 20,000 shares of preferred stock held by one
stockholder of record.
All shares of common stock have equal voting rights and, when validly
issued and outstanding, have one vote per share in all matters to be voted upon
by the common stockholders. The shares of common stock have no preemptive,
conversion or redemption rights and may only be issued as fully paid and
nonassessable shares. Cumulative voting in the election of directors is not
allowed, which means that the holders of a majority of the issued and
outstanding shares of common stock will be able to elect all the company's
directors should they choose to do so. Each holder of common stock, upon
liquidation of the company, is entitled to receive a pro rata share of the
company's assets available for distribution to common stockholders.
The common stock of Telecom Wireless is traded in the over-the-counter
(OTC) market and quoted through the OTC Bulletin Board under the symbol "NOYR."
The market for the common stock is characterized generally by low volume and
broad price and volume volatility. Telecom Wireless cannot give any assurance
that a stable trading market will develop for its stock.
The following table sets forth the range of high and low bid quotations
for the company's common stock for each of the quarters within the last two
fiscal years:
HIGH AND LOW BID PRICES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998 LOW BID HIGH BID
------------------------------- ------- --------
<S> <C> <C>
First Quarter $ * $ *
Second Quarter $ * $ *
Third Quarter $ 8-3/4 $12-1/2
Fourth Quarter $ 5 $42-1/2
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1999 LOW BID HIGH BID
------------------------------- ------- --------
<S> <C> <C>
First Quarter $22-1/2 $61-1/4
Second Quarter $ 5 $33-1/8
Third Quarter $ 8-1/8 $18-3/4
Fourth Quarter $ 3-3/4 $18
</TABLE>
The quotations in the table above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not represent
actual transactions. They have been adjusted for a one-for-50 reverse stock
split effected on April 23, 1998, and a one-for-five reverse stock split
effected on May 4, 1999.
SHARES AVAILABLE FOR FUTURE SALE
As of November 19, 1999, 16,426,377 shares of the common stock of
Telecom Wireless Corporation were issued and outstanding. 13,825,000 shares
were issued in connection with the Phoenix Communications Share Exchange (see
"Certain Transactions and Relationships") to officers of the company and
others. These shares are restricted securities as defined in Rule 144 under
the Securities Act of 1933. Under that rule, a stockholder who owns
restricted shares that have been outstanding for at least one year is
entitled to sell, within any three-month period, a number of restricted
shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock, or
approximately 164,264 shares as of November 19, 1999; or
- the average weekly trading volume in the common stock during
the four calendar weeks preceding the sale.
The shares of the company's common stock were issued to the former
stockholders of Phoenix Communications on or about April 13, 1999, and
accordingly, will be eligible for sale under Rule 144 on or about April 13,
2000.
Under Rule 144(k), a stockholder who is not currently, and who has
not been for at least three months before the sale, an affiliate of the
issuing company and who owns restricted shares that have been outstanding for
at least two years may resell these restricted shares without compliance with
the above requirements. The one- and two-year holding periods described above
do not begin to run until the full purchase price is paid by the person
acquiring the restricted shares from the issuing company or an affiliate of
the issuing company.
Shortly after effectiveness of the registration statement of which
this prospectus is a part, the company intends to register for public sale
all shares, and all shares issuable upon exercise of stock options and stock
purchase warrants, issued to officers, employees, consultants and others
82
<PAGE>
in compensatory and other transactions. As of November 19, 1999, 8,425,769
shares had been issued to or were issuable upon exercise of outstanding
options and warrants held by such persons at an average exercise price of
$9.52 per share.
This prospectus covers 1,826,473 shares of the company's common
stock offered for sale by selling stockholders. See "Selling Stockholders."
There are no agreements with any selling stockholder restricting or limiting
sale of such shares.
SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Articles of Incorporation of Telecom Wireless Corporation
require it to indemnify its officers, directors, employees and agents against
certain liabilities incurred by them in those capacities if they acted in
good faith and reasonably believed their conduct was in the best interests of
the company or not opposed to it. The company is also required to indemnify a
person who is or was a director, officer, employee or agent of the company
and who was successful, on the merits or otherwise, in defense of any
proceeding to which he was a party, against reasonable expenses, which
include attorneys' fees, incurred by him or her in connection with the
proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Telecom Wireless under the provisions discussed in the
previous paragraph, or otherwise, the company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
EXPERTS
The consolidated balance sheet of Telecom Wireless Corporation and
subsidiary as of June 30, 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for the year then ended included in this
prospectus have been included herein in reliance on the report of Ehrhardt
Keefe Steiner & Hottman PC, independent certified public accountants, given
on authority of that firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and
cash flows of Telecom Wireless Corporation and subsidiary for the year ended
June 30, 1998 included in this prospectus have been included herein in
reliance on the report of Gerstle, Rosen & Associates, P.A., independent
certified public accountants, given on authority of that firm as experts in
accounting and auditing.
The balance sheet of Sys-Group, Inc. d/b/a Prentice Technologies,
Inc. as of December 31, 1998 and the consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1998 included in this prospectus have been included herein in reliance on the
report of Ehrhardt Keefe Steiner & Hottman PC, independent certified public
accountants, given on authority of that firm as experts in accounting and
auditing.
83
<PAGE>
The balance sheets of America's Web Station as of December 31, 1997
and 1998 and the statements of operations, stockholders' equity and cash
flows for the period then ended included in this prospectus have been
included herein in reliance on the report of Girardin Baldwin & Associates
LLP, independent certified public accountants, given on authority of that
firm as experts in accounting and auditing.
With respect to the unaudited interim financial information included
herein, the independent certified public accountants have not audited or
reviewed the information and have not expressed an opinion or any other form
of assurance with respect to this information.
The pro forma combined statement of operations and cash flows for
the year ended June 30, 1999 and the three months ended September 30, 1999
have not been audited or reviewed by the independent certified public
accountants and they do not express an opinion or purport to give any other
form of assurance on them.
LEGAL MATTERS
Kruse, Landa & Maycock, L.L.C., Salt Lake City, Utah, has passed
upon the legality of the shares offered by this prospectus.
HOW TO OBTAIN ADDITIONAL INFORMATION
Telecom Wireless Corporation has filed a registration statement with
the SEC relating to the securities offered by this prospectus. The prospectus
does not contain all of the information set forth in the registration
statement. For further information with respect to Telecom Wireless and the
securities offered by this prospectus, refer to the registration statement.
In addition, Telecom Wireless will become a public company required to file
annual and quarterly reports with the SEC upon the effectiveness of the
registration statement. You may read and copy the registration statement and
any materials the company files with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov
where the company's SEC filings can be viewed.
84
<PAGE>
INDEX TO FINANCIAL STATEMENTS
85
<PAGE>
UNTIL FEBRUARY ___, 2000 (90 DAYS AFTER THE DATE OF THE PROSPECTUS),
ALL PERSONS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TELECOM WIRELESS CORPORATION
Independent Auditors' Reports..................................................F-1
Consolidated Financial Statements
Consolidated Balance Sheets................................................F-3
Consolidated Statements of Operations......................................F-4
Consolidated Statement of Changes in Shareholders' Equity..................F-5
Consolidated Statements of Cash Flows......................................F-6
Notes to Consolidated Financial Statements.....................................F-8
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
Independent Auditors' Report..................................................F-28
Financial Statements
Balance Sheets............................................................F-29
Statements of Operations..................................................F-30
Statement of Changes in Shareholders' Equity..............................F-31
Statements of Cash Flows..................................................F-32
Notes to Financial Statements.................................................F-33
AMERICA'S WEB STATION, INC.
Independent Auditors' Report..................................................F-39
Financial Statements
Balance Sheets............................................................F-40
Statements of Operations..................................................F-41
Statement of Changes in Shareholders' Equity..............................F-42
Statements of Cash Flows..................................................F-43
Notes to Financial Statements.................................................F-44
UNAUDITED PRO FORMA INFORMATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS..............................F-50
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CASH FLOWS..............................F-52
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.........................F-54
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Telecom Wireless Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Telecom Wireless
Corporation and Subsidiary (the Company) as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the fiscal year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telecom Wireless
Corporation and Subsidiary at June 30, 1999 the results of their operations and
their cash flows for the year then ended 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 recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
October 26, 1999
Denver, Colorado
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Telecom Wireless Corporation
Boca Raton, Florida
We have audited the accompanying consolidated statements of operations,
accumulated deficit, and cash flows of Telecom Wireless Corporation and
Subsidiary (the Company) for the year ended June 30, 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 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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Telecom Wireless Corporation and
Subsidiary's operations and their cash flows for the year ended June 30, 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 recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Gerstle, Rosen & Associates, P.A.
September 22, 1998
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 620,666 $ 695,779
Accounts receivable, net of allowance of $14,000 49,559 700,812
Accounts receivable - employees - 135,163
Stock subscription receivable (paid in full subsequent to year end) (Note 12) 352,666 -
----------- --------------
Total current assets 1,022,891 1,531,754
----------- --------------
Property and equipment, net (Note 4) 589,797 958,412
----------- --------------
Intangible assets
Subscribers list (Note 3) - 225,000
Licenses (Note 16) 523,117 523,117
Goodwill (note 3) 741,848 3,530,218
Less accumulated amortization (300,978) (357,963)
----------- --------------
Net intangible assets 963,987 3,920,372
----------- --------------
Idle equipment (Note 16) 181,256 174,285
Deferred acquisition costs - 391,858
Deferred offering costs - 100,850
Other assets 18,962 77,064
----------- --------------
Total assets $ 2,776,893 $ 7,154,595
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line-of-credit (Note 6) $ - $ 60,043
Note payable - financing agreement (Note 7) - 311,722
Accounts payable 618,006 1,766,996
Short-term notes payable (Note 9) - 1,294,135
Accrued expenses (Note 5) 140,703 62,961
Current portion of capital lease obligations (Note 8) - 13,921
Deferred rent liability - 163,221
Current portion of notes payable (Note 10) - 5,662
----------- ------------
Total current liabilities 758,709 3,678,664
Note payable, less current portion (Note 10) - 7,772
Capital lease obligation, less current portion (Note 8) - 149,800
----------- ------------
758,709 3,836,236
----------- ------------
Commitments and contingencies (Notes 12, 13, 16 and 17)
Minority interest (Note 3) - 16,061
Stockholders' equity (Notes 12, 13 and 14)
Preferred stock, $.001 par value, 25,000,000 shares authorized, 20,000 shares
issued and outstanding (Note 11) 2,000,000 2,000,000
Less discount on preferred stock (631,932) (607,493)
----------- ------------
1,368,068 1,392,507
Common stock, $.001 par value, 100,000,000 shares authorized; 15,107,920
(June 30, 1999) and 15,753,518 (September 30, 1999) shares issued and
outstanding
15,108 15,754
Additional paid-in capital 4,315,231 8,460,417
Accumulated deficit (3,680,223) (6,566,380)
----------- ------------
Total stockholders' equity 2,018,184 3,302,298
----------- ------------
Total liabilities and stockholders' equity $ 2,776,893 $ 7,154,595
----------- ------------
----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TELECOM WIRECOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months Ended
June 30, September 30,
------------------------------- -------------------------------
1998 1999 1998 1999
------------ ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Internet services $ - $ - $ - $ 28,535
Wireless TV revenues 45,060 517,261 137,859 138,390
Other 2,138 5,393 6,495 4,075
------------ ----------- ----------- ------------
Total revenues 47,198 522,654 144,354 171,000
Internet service operating costs - - - 27,823
Direct costs 29,032 275,705 100,044 106,342
General and administrative 119,463 2,144,299 234,881 2,406,348
Stock based compensation (Note 8) - 1,547,560 - 427,699
------------ ----------- ----------- ------------
Total operating expenses 148,495 3,967,564 334,925 2,968,212
------------ ----------- ----------- ------------
Net loss from operations (101,297) (3,444,910) (190,571) (2,797,212)
Other income (expense)
Interest expense - (1,114) - (64,506)
Accretion on preferred stock - (91,227) (22,807) (24,439)
------------ ----------- ----------- ------------
- (92,341) (22,807) (88,945)
------------ ----------- ----------- ------------
Net loss $ (101,297) $ (3,537,251) $ (213,378) $ (2,886,157)
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Net loss per common share
Basic and diluted $ (.87) $ (.94) $ (.05) $ (.19)
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Shares used in computing net loss per common share
Basic and diluted 116,250 3,759,050 3,928,015 15,256,675
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
------- ----------- ------- -------
<S> <C> <C> <C> <C>
Balance - June 30, 1997 - $ - 56,298 $ 56
Issuance of common stock for acquisition - - 463,093 463
Sale of common stock - - 100,000 100
Issuance of stock for services - - 78,600 79
Issuance of preferred stock to extinguish debt 20,000 1,276,841 - -
Net loss - - - -
------- ----------- ------- -------
Balance - June 30, 1998 20,000 1,276,841 697,991 698
Accretion on preferred stock discount (Note 6) - 91,227 - -
Issuance of stock for services - - 12,000 12
Sale of common stock - - 155,144 155
Common stock issued in connection with business
reorganization (Note 3) - - 13,825,000 13,825
Proceeds of private offering (net of offering
costs of $83,095) (Note 6) - - 120,000 120
Proceeds of private offering (net of offering
costs of $359,994) (Note 6) - - 297,785 298
Stock based compensation (Note 7) - - - -
Net loss - - - -
------- ----------- ------- -------
Balance - June 30, 1999 20,000 1,368,068 15,107,920 15,108
Proceeds from Private Offering (net of offering
costs of $95,630) (Note 12) (unaudited) - - 127,935 128
Proceeds from Private Offering (net of offering
costs of $59,382) (Note 12) (unaudited) - - 97,227 97
Accretion on preferred stock (Note 11) (unaudited) - 24,439 - -
Stock issued for acquisition of America's Web (Note 3) (unaudited) - - 28,562 29
Stock based compensation (Note 13) (unaudited) - - 27,707 28
Stock issued for acquisition of Prentice (Note 3) (unaudited) - - 346,667 347
Stock issued for services (unaudited) 17,500 17
Warrants issued in conjunction with bridge loan (Note 9) (unaudited) - - - -
Net loss (unaudited) - - - -
------- ----------- ------- -------
Balance - September 30, 1999 (unaudited) 20,000 $ 1,392,507 15,753,518 $15,754
------- ----------- ------- -------
------- ----------- ------- -------
<CAPTION>
Total
Accumulated Paid-in Stockholders
Deficit Capital Equity
------------- ----------- ------------
<S> <C> <C> <C>
Balance - June 30, 1997 (41,675) $ 41,619 $ -
Issuance of common stock for acquisition - 13,430 13,893
Sale of common stock - 92,400 92,500
Issuance of stock for services - 72,661 72,740
Issuance of preferred stock to extinguish debt - - 1,276,841
------------- ----------- ------------
Net loss (101,297) - (101,297)
Balance - June 30, 1998 (142,972) 220,110 1,354,677
Accretion on preferred stock discount (Note 6) - - 91,227
Issuance of stock for services - 29,988 30,000
Sale of common stock - 290,403 290,558
Common stock issued in connection with business
reorganization (Note 3) - (13,825) -
Proceeds of private offering (net of offering
costs of $83,095) (Note 6) - 516,785 516,905
Proceeds of private offering (net of offering
costs of $359,994) (Note 6) - 1,724,210 1,724,508
Stock based compensation (Note 7) - 1,547,560 1,547,560
Net loss (3,537,251) - (3,537,251)
------------- ----------- ------------
Balance - June 30, 1999 (3,680,223) 4,315,231 2,018,184
Proceeds from Private Offering (net of offering
costs of $95,630) (unaudited) - 641,242 641,370
Proceeds from Private Offering (net of offering
costs of $59,382) (unaudited) - 387,771 387,868
Accretion on preferred stock (unaudited) - - 24,439
Stock issued for acquisition of America's Web
(unaudited) - 199,902 199,931
Stock based compensation (unaudited) - 305,171 305,199
Stock issued for acquisition of Prentice
(unaudited) - 2,426,322 2,426,669
Stock issued for services (unaudited) 122,483 122,500
Warrants issued in conjunction with
bridge loan (unaudited) - 62,295 62,295
Net loss (unaudited) (2,886,157) - (2,886,157)
------------- ----------- ------------
Balance - September 30, 1999 (unaudited) $(6,566,380) $ 8,460,417 $ 3,302,298
------------- ----------- ------------
------------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months Ended
June 30, September 30,
--------------------------- ----------------------------
1998 1999 1998 1999
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(101,297) $(3,537,251) $(213,378) $(2,886,157)
--------- ----------- --------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 30,869 348,708 62,646 117,347
Stock issued for services - 30,000 30,000 122,500
Stock based compensation - 1,547,560 - 305,199
Warrants issued - - - 62,294
Other 1,241 - - -
Accretion on preferred stock - 91,227 22,807 24,439
Changes in assets and liabilities
Accounts receivable (1,551) 12,245 (4,612) (55,074)
Other assets 8,387 (3,880) (2,830) 1,049
Accounts payable (6,315) (14,510) (6,273) 1,072,336
Accrued expenses (14,080) 104,445 (28,049) (103,699)
Other liabilities (9,136) - - -
--------- ----------- --------- -----------
9,415 2,115,795 73,689 1,546,391
--------- ----------- --------- -----------
Net cash used by operating activities
(91,882) (1,421,456) (139,689) (1,339,766)
--------- ----------- --------- -----------
Cash flows from investing activities
Purchase of equipment (2,779) (121,117) (8,911) (164,726)
Cash acquired from acquisitions - - - 85,659
Disposal of leasehold improvements 2,761 - - -
Acquisition costs - - - (554,884)
--------- ----------- --------- -----------
Net cash used by investing activities (18) (121,117) (8,911) (633,951)
--------- ----------- --------- -----------
Cash flows from financing activities
Net activity - due to officer - (16,666) (2,000) (105,163)
Offering costs - - - (100,850)
Payments on short-term notes - - - (127,062)
Proceeds on short-term notes - - - 1,000,000
Proceeds from issuance of common stock 92,500 2,179,305 150,000 1,381,905
--------- ----------- --------- -----------
Net cash provided by financing activities
92,500 2,162,639 148,000 2,048,830
--------- ----------- --------- -----------
Net increase (decrease) in cash 600 620,066 (600) 75,113
Cash at beginning of period - 600 600 620,666
--------- ----------- --------- -----------
Cash at end of period $ 600 $ 620,666 $ - $ 695,779
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
Supplemental disclosure of cash flow information
Cash paid for interest for the years ended June 30, 1998 and 1999 was
$2,387 and $1,411, respectively and $0 and $2,211 for the three months
ended September 30, 1998 and 1999 (unaudited).
See notes to consolidated financial statements.
F-6
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing activities:
During the year ending June 30, 1998, Telecom Wireless Corporation (the
Company) issued 28,600 shares of common stock to pay legal fees of
$71,500 for services involved with the acquisition of Keys Microcable
Corporation (the Subsidiary).
During the year ending June 30, 1998, the Company agreed to issue
20,000 shares of preferred stock to settle the Subsidiary's $1,276,841
credit facility and 30,891 shares of common stock in exchange for an
18% interest held by the minority stockholder in Keys. The Company then
exchanged 432,202 shares of common stock for all of the stock of the
Subsidiary. In exchange for issuing the 432,202 shares of common stock,
the Company received 82% of the shares of the common stock of the
Subsidiary. Thus the Company acquired 100% of the outstanding stock of
Keys.
During the year ended June 30, 1999, the Company acquired 100% of the
outstanding common stock of Phoenix Communications, Inc. (Phoenix).
During the three months ended September 30, 1999, the Company acquired
100% of the outstanding stock of America's Web Station, Inc. (America's
Web) and 90% of the outstanding common stock of Prentice Technologies,
Inc. (Prentice) (Note 3).
See notes to consolidated financial statements.
F-7
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Telecom Wireless Corporation (the Company, formerly Stetson Oil Exchange, Inc.)
was incorporated on April 12, 1984 under the laws of the State of Utah.
Subsequent to incorporation, the Company participated in various ventures;
however, it was dormant for a number of years prior to 1998.
In June 1998, the Company acquired Keys Microcable Corporation (Keys) in a
stock-for-stock exchange that was accounted for as a reverse purchase.
Keys was incorporated on May 2, 1995 under the laws of the State of Florida to
operate a Wireless Cable Television (WCTV) system which serves the Lower Keys of
Florida. It was formed in 1995 to further the venture of Keys Microcable, JV,
the predecessor company in a tax free exchange of interests. To do this, its
majority shareholder, Wireless Development Group, Inc. (formerly Key West
Wireless Partners, G.P. (KWWP), had entered into a Joint Venture Agreement with
Satellite Microcable Corp. (SMC) to jointly develop a WCTV system to serve Key
West and the adjacent Lower Keys (the System).
REORGANIZATION
In April 1999, the Company completed a reorganization through a merger with
Phoenix Communications, Inc. by exchanging 13,825,000 shares of common stock for
all the outstanding common stock of Phoenix. At the time of the merger, Phoenix
had no assets, liabilities, equity or operations. After the merger, Phoenix
shareholders held 94% of the common stock of the Company. The transaction was
accounted for at historical cost as Phoenix was a shell company and acquired
control.
The business plan of the Company involves capitalizing on the convergence on the
Internet of video, voice and data through the acquisition of Internet Service
Providers ("ISPs"), Application Service Providers ("ASPs"), and Competitive
Local Exchange Carriers ("CLECs"). The goal of TWC is to provide broadband
connectivity, content, and electronic commerce via an Internet platform to
residential and business customers in both the United States and abroad.
The Company has acquired, in separate transactions, (the "Transactions") the
stock of one ASP and one ISP subsequent to year end and plans to continue to
acquire companies to expand its operations.
F-8
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPALS OF CONSOLIDATION
The consolidated balance sheet includes the accounts of the parent company,
Telecom Wireless Corporation and its wholly-owned subsidiaries, Keys and
Phoenix, as of June 30, 1999 and America's Web and Prentice as of September 30,
1999 (unaudited) (Note 3). All significant intercompany transactions and
balances have been eliminated.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of the Company at September 30, 1999
and 1998 and the results of its operations and changes in cash flows for the
three months then ended. The results of operations for the three months ended
September 30, 1998 and 1999 are not necessarily indicative of the results to be
expected for a full year.
PROPERTY AND EQUIPMENT
Equipment is recorded at cost and depreciated by the straight-line method over
the estimated useful lives of the assets ranging from 3 to 9 years. Leasehold
improvements are recorded at cost and amortized by the straight-line method over
the terms of the leases, or the estimated useful lives of the assets.
LICENSE DEVELOPMENT COSTS, SUBSCRIBER LISTS AND GOODWILL
Intangibles are capitalized and amortized utilizing the straight line method.
License development costs are amortized over the life of the license (7 - 8
years), and goodwill is amortized over its economic life of 5 to 8 years, as are
subscriber lists.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs consist of costs associated with the Company's
investigation of potential future acquisitions. These costs will be capitalized
upon completion of the acquisition or charged to expense if the acquisition is
unsuccessful.
DEFERRED OFFERING COSTS
Deferred offering costs represents costs incurred in conjunction with the
Company's equity offering and registration activities. Deferred offering costs
will be offset against net proceeds, if successful, or expensed in operations if
the offering is unsuccessful.
F-9
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company assesses valuation of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.
REVENUE RECOGNITION
Wireless T.V. revenue and internet service revenue consists of the monthly fees
charged to subscribers. Subscribers are billed at the beginning of each month
and revenue is recognized as service is provided.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs to date
have not been significant.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
NET LOSS PER SHARE
In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share", basic earnings per share is computed by
dividing net income by the number of weighted average common shares outstanding
during the year. Diluted earnings per share is computed by dividing net income
by the number of weighted average common shares outstanding during the year,
including potential common shares. For the years ended June 30, 1998 and 1999
all potential common shares, which included convertible preferred stock and
stock options, were antidilutive and therefore were excluded from these
calculations.
F-10
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard No. 130 ("FAS
130"), COMPREHENSIVE INCOME, for the years ending June 30, 1998 and 1999. There
were no components of comprehensive income; consequently, no separate statement
of comprehensive income has been presented.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value due to the short term maturity of these instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist primarily of temporary cash investments. The Company places
its cash investments with high credit quality financial institutions and, by
policy, limits the amount of credit exposure to any one institution. The Company
does, however, on occasion exceed the Federal Deposit Insurance Corporation
federally insured limits.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Statement No. 133 establishes
new standards by which derivative financial instruments must be recognized in
any entity's financial statements. Besides requiring derivatives to be
included on balance sheets at fair value, Statement No. 133 generally
requires that gains and losses from later changes in a derivative's fair
value be recognized currently in earnings. Statement No. 133 also unifies
qualifying criteria for hedges involving all kinds of derivatives, requiring
that a company document, designate and assess the effectiveness' of its
hedges. Statement No. 133 is required to be adopted by the Company in 2000.
Management, however, does not expect the impact from this statement to have a
material impact on the financial statement presentation, financial position
or results of operations.
F-11
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. During the year ended June 30, 1999, the
Company incurred a consolidated net loss of approximately $3,537,000, including
negative cash flow from operations of approximately $1,421,000. Cash
requirements were covered by sales in non-public offerings of the Company's
equity securities.
The Company will require substantial additional funds to satisfy its working
capital requirements and to meet the objectives of its business plan. Management
plans to obtain these funds primarily from debt and equity placements with
institutional investors and wealthy individuals until such time as its cash
requirements can be satisfied from operations. However, no assurance can be
given that the Company will be able to raise sufficient funds from such sources
or to generate sufficient cash flow from operations to meet its working capital
requirements. The consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE 3 - ACQUISITIONS
During the year ending June 30, 1998, the Company agreed to issue 20,000 shares
of preferred stock to settle the Subsidiary's $1,276,841 credit facility and
30,891 shares of common stock in exchange for an 18% interest held by the
minority stockholder in Keys.
In June 1998, the Company exchanged 432,202 shares of common stock for the
remaining 82% of the common stock of Keys. Thus the Company acquired 100% of the
outstanding stock of Keys. Keys had the following assets and liabilities that
approximate fair value at the date of the exchange:
<TABLE>
<S> <C>
Accounts receivable $ 60,252
Machinery and equipment 835,711
Leasehold improvements 35,747
Licenses 419,413
-----------
Total assets $ 1,351,123
===========
Accounts payable $ 638,832
Accrued expense 91,907
Credit facility 1,276,841
-----------
Total liabilities 2,007,580
Less preferred stock issued to extinguish debt (1,276,841)
-----------
$ 730,739
===========
</TABLE>
F-12
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (CONTINUED)
In April 1999, the Company completed a reorganization through a merger with
Phoenix Communications, Inc. by exchanging 13,825,000 shares of its common stock
for all the outstanding common stock of Phoenix. At the time of the merger,
Phoenix had no assets, liabilities, equity or operations. After the merger,
Phoenix shareholders held 94% of the outstanding common stock of the Company.
The transaction was accounted for at historical cost as Phoenix was a shell
company and acquired control.
In July 1999 the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of common
stock valued at $199,931 for purposes of the acquisition. The acquisition has
been accounted for as a purchase. The purchase price, including acquisition
costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
---------
311,176
Liabilities assumed (191,814)
---------
119,362
Consideration given and acquisition costs (255,390)
---------
Excess purchase price recorded as goodwill $ 136,028
=========
</TABLE>
Effective September 30, 1999 the Company consummated the acquisition of 90% of
the issued and outstanding common stock of Prentice Technologies, Inc for
346,667 shares of common stock (Note 16) valued at $2,426,669 for purposes of
the acquisition and issued a $253,750 note payable. The note is payable in six
monthly installments of $43,284 including interest at 8% per annum. Payments
were to begin October 23, 1999, however, no payments have been made. In
addition, options were issued under a separate employment contract (Note 13).
The acquisition has been accounted for as a purchase. The purchase price,
including acquisition costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 79,781
Accounts receivable, net 581,286
Property and equipment 203,740
Other assets 86,195
-----------
951,002
Liabilities assumed (790,389)
-----------
160,613
Consideration given and acquisition costs (2,754,942)
Minority interest (16,061)
-----------
Excess purchase price recorded as goodwill $ 2,610,390
===========
</TABLE>
F-13
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (CONTINUED)
The following unaudited pro forma data summarized the results of operations for
the year indicated as if the acquisition of America's Web and Prentice
Technologies had been completed as of the beginning of the period presented. The
proforma data gives effect to actual operating results prior to the acquisition,
adjusted to include depreciation of fixed assets, amortization of intangibles
and additional interest expense.
These pro forma amounts do not purport to be indicative of the results that
would have actually been obtained if the acquisitions occurred as of the
beginning of the periods presented of that may be obtained in the future.
<TABLE>
<S> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999 (A)
Revenues $ 882,432
Net (loss) $(2,930,270)
Basic and diluted (loss) per share
$ (.19)
YEAR ENDED JUNE 30, 1999
Revenues $ 2,664,886
Net (loss) $(4,227,468)
Basic and diluted (loss) per share
$ (1.02)
</TABLE>
(A) The figures for America's Web for the one month ended July 31, 1999
have been excluded as they are immaterial for this presentation.
NOTE 4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows.
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
--------- -------------
<S> <C> <C>
Service center property and equipment
Office equipment and computer $ 61,091 $408,066
Furniture and fixtures 14,696 82,524
-------- --------
75,787 490,590
-------- --------
</TABLE>
F-14
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- ------------
<S> <C> <C>
Wireless television plant
Machinery and equipment 61,752 29,109
Leasehold improvement headend 35,535 35,535
TV transmission equipment 314,387 350,938
Test equipment 26,879 42,057
Subscriber recoverable equipment 121,502 121,502
Subscriber non-Recoverable Equipment 45,997 45,997
Vehicles and Equipment 49,261 107,588
Engineering 10,164 51,623
----------- ------------
665,477 784,349
----------- ------------
Total property and equipment 741,264 1,274,939
Less accumulated depreciation (151,467) (316,527)
----------- ------------
$ 589,797 $ 958,412
=========== ===========
</TABLE>
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
-------- -------------
<S> <C> <C>
Accrued lawsuit settlements $ 97,000 $ 23,000
Accrued payroll costs 43,703 39,964
-------- --------
$140,703 $ 62,964
======== ========
</TABLE>
NOTE 6 - LINE-OF-CREDIT
Prentice has available a $75,000 line-of-credit with interest at 2.9% over prime
(totaling 10.65% at June 30, 1999). The line has no stated maturity and is
personally guaranteed by the minority stockholder of Prentice. At September 30,
1999, $60,043 was borrowed against the line.
F-15
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTE PAYABLE - FINANCING AGREEMENT
During 1999, Prentice entered into an agreement to transfer certain of its
accounts receivable with recourse to a finance company. Inventory, equipment,
accounts receivable and intangible assets collateralized the agreement. The
finance company advances 80% of the account receivable upon submission and
remits the remaining 20% less interest and fees when the account is paid by the
customer. In addition, Prentice is at risk for credit losses associated with
sold receivables and provides for such in its financial statements. The
receivables and related note payable are reflected in the Company's balance
sheet.
NOTE 8 - LEASE OBLIGATIONS
The Company leases certain telecommunications and technology equipment under an
operating lease agreement. The Company has leased equipment for the purpose of
expanding its Internet capabilities. The equipment presently is in storage in
Albuquerque, New Mexico. Lease payments on this equipment aggregate
approximately $45,780 per month and will commence in November, 1999.
The future minimum rental payments due under the lease agreements are as
follows:
<TABLE>
<CAPTION>
Year Ending June 30
-------------------
<S> <C>
1999 (nine months remaining) $ 309,179
2000 549,360
2001 549,360
-----------
Total $ 1,407,899
===========
</TABLE>
NOTE 9 - SHORT-TERM NOTES PAYABLE
On September 1, 1999, the Company obtained various bridge loans totaling
$250,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) October 31, 1999 or (b) the date
of the receipt by the Company of financing aggregating at least $2,000,000.
These loans are personally guaranteed by a shareholder of the Company.
On September 23, 1999, the Company obtained various bridge loans totaling
$750,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) November 23, 1999 or (b) the date
of the receipt by the Company of financing aggregating at least $2,000,000.
F-16
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SHORT-TERM NOTES PAYABLE (CONTINUED)
Attached to these loans are warrants for the purchase of 100,000 shares of
the Company's common stock at $7 per share. These warrants terminate after
four years or the date on which a registration statement relating to the
shares underlying the warrants has been in effect for two years. If the loans
are not repaid in full within one month of the date of issuance, the lenders
are entitled to receive an additional 100,000 warrants subject to the same
terms as the repricing warrants issued in conjunction with the private
placements discussed in Note 12. The Company also issued warrants for the
purchase of 300,000 shares at an exercise price of $.001. The Company will
recognize approximately $2,000,000 of interest expense in the first quarter
of fiscal year 2000 related to these warrants. (Note 13)
In connection with the acquisition of Prentice Technologies, the Company
signed a $253,750 note payable, due March 2000 and with principal and
interest of $43,284 payable monthly. Interest is calculated at 8% per annum.
The Company has not made any payments on this note.
The Company assumed notes payable in conjunction with the acquisition of
America's Web which are due on demand. Interest is calculated at 7% - 19% per
annum and the notes are unsecured.
NOTE 10 - NOTE PAYABLE
The Company assumed a note with a financial institution in conjunction with
the acquisition of America's Web. Payments of $364, including interest at
8.9%, are due monthly and the note is collateralized by a vehicle. The note
matures in April 2002.
Note payable matures as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
2000 $ 5,662
2001 5,662
2002 2,110
-------
$13,434
=======
</TABLE>
F-17
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - PREFERRED STOCK
AGREEMENT WITH MINORITY SHAREHOLDER
As of June 10, 1998, JRHW17 Corporation (owned by the three minority
shareholders of Keys) had advanced Keys $1,276,841. On that date, the Company
entered into an agreement with JRHW17 Corporation to cancel this debt for
consideration of 20,000 shares of the Company's $100 par value Class H
Non-voting, Convertible Preferred Stock, which has not been issued as of
September 30, 1999. The 20,000 shares of Class H stock shall be redeemable by
the Company at par value if not previously converted, provided that the
Company shall not exercise its redemption right prior to January 1, 2005.
Class H preferred stock shall be convertible to common stock of the Company
upon the filing of a Registration Statement with the Securities and Exchange
Commission (SEC) for a public offering of shares of the Company. One half of
the shares issuable upon exercise of the conversion will have "piggyback"
registration rights on the first public offerings, the remaining shares
resulting from the conversion will have registration rights on the next
subsequent or secondary offering. Subject to approval of the regulatory
authorities and the underwriters, the Class H shares will convert to common
stock of the Company on the following basis: the conversion rate will be
determined at the time of the public offering by first taking 125% of the
price at which a share of the Company's common stock will be offered to the
public. This number so calculated will be the divisor and the par value per
share of Class H stock (i.e., $100.00) will be the dividend and the quotient
will then be the number of common shares into which each share of Class H
stock will be convertible. The common stock received upon conversion by the
Class H stockholder, subject to the foregoing registration rights, shall be
restricted pursuant to SEC Rule 144 and shall contain a legend on each
certificate to that effect.
NOTE 12 - PRIVATE PLACEMENTS
In April 1999, the Company privately placed 120,000 shares of its common
stock at a price of $5 per share. The company received proceeds of $516,905
net of related costs of $83,095.
In May 1999, the Company privately placed 297,786 shares of its common stock
accompanied by registration rights at a price of $7.00 per share. Proceeds to
the company aggregated $1,724,508, net of $359,994 in offering costs. In July
1999, $352,666 of the proceeds were received and are reflected as a stock
subscription receivable as of June 30, 1999.
F-18
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - PRIVATE PLACEMENTS (CONTINUED)
In connection with the May 1999 private placement, the Company also issued a
warrant to Thomson Kernaghan & Co., Ltd., a Canadian broker-dealer that acted
as co-placement agent, for the purchase of 45,000 shares of common stock at
an average exercise price of $7.25 per share expiring June 8, 2002. In
addition, the company issued warrants for the benefit of the purchasers in
the name of Thomson Kernaghan & Co., Ltd., as Agent, for allocation by it as
placement agent, for the purchase of 27,000 shares of common stock at an
exercise price of $7.00 per share expiring on June 8, 2002.
In August 1999, the Company privately placed 105,285 shares of its common
stock accompanied by registration rights at a price of $7.00 per share.
Proceeds to the Company aggregated $641,242 net of $95,630 in offering costs.
The Company issued 22,650 shares of stock to the placement agent.
In September 1999, the Company privately placed 63,893 shares of its common
stock accompanied by registration rights at a price of $7.00 per share.
Proceeds to the Company aggregated $447,250 net of $59,383 in offering costs
in a private placement. In addition, the Company issued an additional 33,334
shares to one investor in a private placement at no additional cost for
failure to meet certain obligations.
The purchasers of restricted shares of the company's common stock in certain
private placements acquired certain registration rights in connection with
their purchases. The rights include a right to require the company, at its
cost, to file by specified deadlines registration statements covering such
common stock and the shares issuable upon exercise of the repricing warrants
issued in connection with the purchases of the common stock. If a
registration statement is not declared effective within 90 days after the
relevant filing deadline, the company may be obligated to pay a cash penalty
equal to 2% per month of the final amount of the completed offering until the
registration statement is declared effective. The filing deadline was August
31, 1999, with respect to $737,000; September 30, 1999, with respect
$447,250; and an unknown date with respect to $2,084,495.
The repricing warrants entitle the holder to purchase, at an exercise price
of $.001 per share, that number of shares as equals the number of shares
purchased by that holder multiplied by a fraction the numerator of which is
$8.75 minus the average closing bid prices of the common stock during the
twenty (20) days following the effective date of the registration statement,
and the denominator of which is the average closing bid prices of the common
stock during the twenty (20) days following the effective date.
NOTE 13 - COMMON STOCK, OPTIONS AND WARRANTS
CONSULTING AGREEMENT
On June 18, 1998 the Company entered into an option agreement with the former
minority shareholder of Keys under which the shareholder has the right to
purchase a number of shares of Company's common stock equal to $400,000
divided by the exercise price of the option. The exercise price of the
options is calculated as the lower of 50% of the closing bid price of the
shares on the trading day immediately prior to the exercise date or 50% of
the opening bid price on the next trading day. The options expire in June
2002. No options related to this agreement had been exercised as of September
30, 1999.
As a part of a June 1, 1998 agreement with a consultant, the Company granted
the consultant an irrevocable common stock purchase option exercisable for an
aggregate of 185,000 shares of common stock of the Company through June 2001.
The consultant may exercise the option as follows: 5,000 options are
exercisable at an exercise price of $2.50 per option, provided that the bid
price of the Company's common stock shall be at least $5.00 per share at the
date of exercise; 80,000 options are exercisable at an exercise price of
$3.75 per option, provided that the bid price of the Company's common stock
shall be at least $7.50 per share at the date of exercise; and 100,000
options are exercisable at an exercise price of $5.00 per option, provided
that the bid price of the Company's common stock shall be at least $10.00 per
share at the date of exercise.
F-19
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
CONSULTING AGREEMENT (CONTINUED)
In early 1999 two current officers of the Company of the company, entered
into a management agreement through an entity controlled by them whereby they
were to receive a 50% equity interest in Keys in consideration of the
performance of management services. At that time, these officers were not
associated with the Company, so that the agreement was negotiated at arms'
length. However, this agreement was terminated, after partial performance, in
connection with the Phoenix Communications share exchange (Note 3). A
settlement of the Company's obligations under this agreement has been made
for the issuance of 123,222 warrants to purchase common stock of the Company
at an exercise price of $5.275 per share. The fair value of these options
based upon the Black-Scholes pricing model was $212,560 and has been
reflected in the accompanying financial statements for the year ended June
30, 1999.
EMPLOYMENT AGREEMENT
In conjunction with one of the officer's employment agreement, 350,000 stock
options were granted in August 1999. All options are subject to achieving
certain performance criteria over a three year period. 175,000 of the options
have an exercise price of $0.10 and 175,000 options have an exercise price
$7.73. No compensation expense has been reflected in the accompanying
financial statements due to the uncertainty of meeting the performance
criteria.
1999 STOCK OPTION PLAN
In 1999, the Company adopted its Amended and Restated 1999 Stock Option and
Restricted Stock Plan (the Plan). The total number of shares of the Company's
common stock that may be issued to grantees and recipients under the plan is
800,000. The plan allows issuance of both qualified (or incentive) options
and non-qualified options as well as shares of restricted stock (stock
awards). Options and stock awards may be granted to employees, independent
contractors, officers, directors and consultants at the discretion of the
Board of Directors or a committee to be appointed by the Board of Directors.
No grant may be made under the 1999 Plan after ten years, but awards granted
prior to that time may extend beyond it. Unless otherwise fixed by the
committee that governs the Plan, the term of an option will be five years
from the date of grant, but no option may have a term of more than ten years
from the date of grant.
Options granted under the plan vest 20% at the end of each of the five years
of service following the grant date. The Board of Directors of the Company
may specify terms and conditions other than those noted above. During 1999,
options to purchase 83,868 shares were issued under this plan to employees
with exercise prices from $7.73 to $13.53, and none were vested as of June
30, 1999. The exercise prices of the options were greater than the fair value
of the commons stock on the date of grant. As the Company has adopted the
disclosure only provisions of the Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation," no compensation expense
has been recognized related to those options.
F-20
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board No. 25,
Accounting for Stock Issued to Employees; and complies with the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation. Under
APB No. 25, compensation cost, if any, is recognized over respective vesting
periods based on the difference, on the date of grant, between the fair value
of the Company's common stock and the grant price.
During 1999, the Company issued options to purchase 5,584,414 shares to
several employees of the Company. The fair value of the common stock on the
dates of issuance was $7 and the exercise prices are between $2.55 and
$10.55. Approximately $1,548,000 and $111,250 in compensation expense is
included in the June 30, 1999 and September 30, 1999 financial statements,
respectively. This expense is to reflect options granted to employees with
exercise prices below fair value on the date of grant.
The company issued 27,707 shares of common stock to employees of Prentice
which were valued at $7 per share for a total of $193,949. This expense has
been reflected as stock based compensation in the financial statements for the
three months ended September 30, 1999.
Had compensation cost for stock-based compensation been determined based on
the fair value or the grant date consistent with the method of SFAS 123, the
Company's net income and earnings per share would not have been reduced due
to (1) either the fair value of grants to employees at greater than fair
market value had no fair value based upon calculating the fair value
utilizing the Black-Scholes option pricing model or (2) the fair value of the
options will be reflected over the time of services to be rendered which will
correlate the individual employee's vesting schedule and no options vested in
the current year.
The fair value of the option grants is estimated on the date of grant
utilizing the Black-Scholes options pricing model with the following
assumptions for 1998 and 1999, respectively: expected life of 4 to 10 years,
0% volatility, risk free interest rate of 5.5%, and a 0% dividend yield.
F-21
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
Summarized information relating to stock options is as follows:
The following is a summary of options and warrants granted, exercised and
expired:
<TABLE>
<CAPTION>
Currently Exercisable
---------------------------------------------
Weighted Average Weighted Average
Exercise Price of Exercise Price of
Options and Options and
Options Warrants Warrants Options Warrants Warrants
--------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding June 30, 1997 - -
Granted 350,090 - $ 4.00
Exercised - -
--------- --------
Outstanding June 30, 1998 350,090 - 4.00 350,090 - $ 4.00
-------- --------
Granted 5,545,060 195,222 9.69 308,132 72,000 3.90
-------- --------
Exercised - -
Cancelled (115,090) -
--------- --------
Outstanding June 30, 1999 5,780,060 195,222 9.50 535,000 195,222 4.17
-------- --------
Granted 950,000 280,487 9.69 278,125 2,362
-------- -------- 9.69
Exercised - -
Cancelled - -
--------- --------
Outstanding
September 30, 1999 6,730,060 475,709 $ 9.53 936,347 74,362 $ 4.89
========= ======== ======== ========
</TABLE>
F-22
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Options and Warrants
Options and Warrants Outstanding Exercisable
------------------------------------ ----------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number Exercise Contractual Number Exercise
Outstanding Price Life Exercisable Price
----------- -------- ----------- ----------- ---------
Range of Options
and Warrants
Exercise Price
- -----------------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1999
$2.55 - $7.73 1,130,222 $ 4.86 7.38 680,222 $ 3.88
$10.00 - $13.53 4,845,060 10.56 4.75 50,000 8.00
SEPTEMBER 30, 1999
$2.55 - $7.73 1,760,709 5.05 6.26 455,487 4.22
$10.00 - $13.53 5,445,060 $ 10.98 4.55 775,000 $ 12.91
</TABLE>
The weighted average exercise prices for the options and warrants granted are
as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Number of Grant Date Fair
Options Warrants Value
--------- --------- ---------------
<S> <C> <C> <C>
Granted during the year ended June 30, 1998
Less than fair value 350,090 - $ 1.00
Equal to fair value - - -
Greater than fair value - - -
--------- ----------
350,000 -
========= ==========
Granted during the year ended June 30, 1999
Less than fair value 400,000 123,222 $ 3.81
Equal to fair value - 42,000 1.05
Greater than fair value 5,145,060 30,000 -
--------- ----------
5,545,060 195,222
========= ==========
Granted during the period ended September 30, 1999
Less than fair value 175,000 30,000 $ 6.33
Equal to fair value - 250,487 1.40
Greater than fair value 775,000 - .25
--------- ----------
950,000 280,487
========= ==========
</TABLE>
F-23
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK SPLITS
The Company approved a 1 for 5 reverse stock split to be effective May 3,
1999. The par value was changed from .006 per share to .001 per share.
All share and per share amounts have been restated to reflect the above stock
splits.
NOTE 15 - INCOME TAXES
No provision for federal and state income taxes has been recorded as the Company
has incurred net operating losses through September 30, 1999. The following
table sets forth the primary components of:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 690,000 $ 1,330,000 $ 762,000 $ 1,659,000
Valuation allowance (690,000) (1,330,000) (762,000) (1,659,000)
----------- ----------- ----------- -----------
$ - $ - $ - $ -
=========== =========== =========== ===========
</TABLE>
At June 30, 1998 and 1999 and September 30, 1998 and 1999, the Company fully
reserved its deferred tax assets. The Company believes sufficient uncertainty
exists regarding the reliability of tax assets such that a full valuation is
appropriate.
At September 30, 1999, the Company had approximately $4,850,000 of federal
net operating loss carryforwards for tax reporting purposes available to
offset future taxable income subject to certain limitations due to change in
control. These net operating losses expire through 2009.
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES
LICENSE RIGHTS
A Joint Venture affiliate of Keys, Satellite Microcable Corporation, has
negotiated lease agreements with ten third-party FCC commercial WCTV (Note 1)
license holders for exclusive use of their licenses for the purpose of
broadcasting WCTV transmissions. As of September 30, 1999, operation of some
channels are under STA (Special Temporary Authority) pending issuance of
permanent licenses.
EMPLOYMENT CONTRACTS
The Company entered into various employment agreements with certain officers
for terms of three years each, expiring March 31, 2002. The agreements call
for a minimum annual salary with increases based on annual review by the
compensation committee. If the Company terminates the employment agreement
without cause, the Company will be obligated to pay the base salary for the
remainder of the initial term.
F-24
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
IDLE EQUIPMENT
The Company purchased 15 transmitters which are not in current use. The
Company has negotiated acceptable terms for return of transmitters to the
seller. The asset is being carried at approximately $175,000, and the Company
owes approximately $210,000 on the transmitters as of September 30, 1999. The
seller has agreed to refund the full purchase price less damage, if any,
handling and shipping upon return of the equipment.
OFFICE SPACE AND TRANSMISSION TOWERS
Keys entered into a lease agreement for the non-exclusive use of a transmission
tower and the exclusive use of the space within a building which contains
satellite signal receiving equipment. The current lease period has expired as so
the lease is on a month to month basis. Keys has the option to renew the lease
for two additional five year periods. The Company is responsible for its
proportionate share of operating expenses, utilities, insurance and taxes.
On June 1, 1998, Keys entered into a lease agreement expiring May 31, 2001 for
office space in Key West, Florida, at $2,040 per month. This lease is subject to
increases based on the Consumer Price Index and has an option to renew for a
three year period.
On July 30, 1999, the Company entered into a lease agreement for office
facilities in West Palm Beach, Florida. The agreement, expiring July 31, 2004,
requires base monthly rental payments of $8,369, plus operating expenses, with a
4% annual increase in the base. The Company is responsible for its prorated
share of operating expenses, taxes, utilities and insurance on all office
spaces. The Company is currently in default on this lease.
Prentice leases office space under a non-cancelable operating lease which
expires 2002. Operating expenses and taxes are paid by Prentice. The Company
sub-leases a portion of this space under an oral agreement. The monthly rental
payment for September 1999 was $15,598 and increase during the term of the
lease.
Total annual minimum base rent commitments are as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------
<S> <C>
2000 (9 months remaining) $ 291,594
2001 517,447
2002 498,211
2003 502,513
2004 214,502
Thereafter 9,782
----------
Total $2,034,049
----------
----------
</TABLE>
F-25
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OFFICE SPACE AND TRANSMISSION TOWERS (CONTINUED)
Total rent expense for the years ended June 30, 1998 and 1999 was $17,053 and
$61,700, respectively and $16,246 and $88,132 for the three months ended
September 30, 1998 and 1999, respectively.
LITIGATION
The Company is subject to various lawsuits arising in the normal course of
business. In the opinion of management, the resolution of these matters will not
have a material adverse effect on the Company's financial position and all suits
filed against the Company during the past year have been settled and are
properly accrued in the accompanying financial statements.
SERVICES AGREEMENT
In August 1999, the Company entered into a Services Agreement with a consultant.
The Services Agreement requires that the consultant render financial consulting
and other services to the Company. As consideration, the Company issued to the
consultant two stock purchase warrants. The first is for the purchase of 500,000
shares of the Company's common stock at an exercise price of $5.50 per share,
which has a fair value of approximately $4,600,000. The second is for the
purchase of 720,000 shares of the Company's common stock which vests at the rate
of 15,000 shares per month for 48 consecutive months, which has an aggregate
fair value of approximately $5,900,000. The exercise price for each installment
is 50% of the market value (as defined) of the Company's common stock on the
vesting date for that installment. For this purpose, market value is deemed to
be the average of the closing prices for the 20 trading days preceding the
vesting date of the installment. In the event of a change in control (as
defined), an additional number of installments shall vest and become exercisable
as equals the number of previously vested installments and the number of shares
included in each monthly installment will double.
PLACEMENT AGENT AGREEMENT
In March 1999, the Company entered into an agreement whereby a placement
agent agreed to research and find sources for the Company's various needs of
financing and to make introductions to persons capable of providing such
financing to the Company. If any person introduced to the Company by the
agent provides any investment capital or other types of financing, the
Company is obligated to pay the agent 10% of the first $10,000,000 of
capital, 7.5% of the following $5,000,000 of capital, and 5% of any balance.
The fee is payable in cash at closing. The Company also agreed to pay the
agent a non-accountable project expense fee in the amount of 1% of the
financing.
In addition, the Company agreed to issue five-year warrants to the agent for
the purchase of up to five shares of the company's common stock for each $100
of funds raised at an exercise price equal to 85% of the fair market value of
the Company's common stock for the 20 trading days prior to closing of the
financing. The holders of the warrants were granted piggyback registration
rights with respect to the underlying shares and the Company agreed to pay
all costs of registration. As of September 30, 1999, the Company had issued
warrants for the purchase of up to 150,487 shares of its common stock to the
agent and its affiliates and 22,650 shares of common stock to the agent and
his affiliates. The fees earned under this agreement are included in the
offering costs reflected in these financial statements.
OTHER AGREEMENTS
In August 1999, the Company entered into an agreement with an individual giving
him the right, exercisable at any time until February 1, 2000, to cause the
Company to purchase from him a total of 2,600,000 shares of the capital stock of
International Datacasting Corporation, a Canadian corporation based in Ottawa,
Ontario, Canada ("IDC"). The purchase price is CDN $1.00 per share in cash or,
at the option of the seller, in the form of a note or the equivalent value of
the Company's common stock. In addition, the Company agreed to purchase from the
seller an additional 2,000,000 shares of IDC common stock upon the same terms
within 30 days after the date of the first purchase. To the extent the seller
elects to take shares of the Company's common stock in payment for the IDC
stock, the stock will be valued at the lower of US $5.00 per share or 70% of the
market price on the date of the transaction. IDC is a public Canadian company
whose stock is traded on the Montreal Stock Exchange (symbol:IDA).
F-26
<PAGE>
(Information with respect to September 30, 1998 and 1999 is Unaudited)
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OTHER AGREEMENTS (CONTINUED)
In August, the Company agreed to enter into a financial consulting agreement
with the same individual to provide financial review, analysis and consulting
services to the Company for a period of one year. As consideration, the Company
agreed to issue to the consultant a three-year warrant for the purchase of
100,000 shares of the Company's common stock at an exercise price of $6.25 per
share. The fair value of these warrants is approximately $170,000 and will be
recognized ratably over his period of service. The Company can terminate the
financial consulting agreement at any time upon the giving of ten days' written
notice.
In April, 1999 the company entered into a one-year agreement with a consultant
for various public relations services in exchange for shares of the Company's
common stock. The first payment of 17,500 shares was made in July, 1999. An
additional 17,500 shares are required to be issued since the Company elected to
continue these services. The Company will be impacted in the first quarter of
its 2000 fiscal year by approximately $122,000 of compensation expense for the
three months ended September 30, 1999.
In conjunction with the Prentice acquisition, the Company and the minority
shareholder of Prentice agreed to take all commercially reasonable best
efforts necessary to release the minority shareholder from his personal
guaranty of Prentice obligations by September 22, 2001. The Company deposited
200,000 shares of its common stock into an escrow account to provide a source
of funds to reimburse the minority shareholder if he is required to pay any
of the guaranteed obligations. These shares will be returned to the Company
to the extent the guaranteed obligations are released or satisfied, or when
the agreements underlying such obligations are terminated. The shares are not
reflected as outstanding becuase the Company believes that these conditions
will be satisfied.
NOTE 17 - SUBSEQUENT EVENTS
On November 16, 1999, the minority shareholder of Prentice presented the Company
with a request to rescind its purchase of 90% of the common stock of Prentice by
the Company. The minority shareholder alleges that the Company made material
misrepresentations and/or failed to disclose material information in connection
with the transaction. In addition, he seeks a substantial amount of recovery.
Management denies the allegations and intends to vigorously defend any legal
proceedings which may result from these claims.
UNAUDITED
PURCHASE AGREEMENT
In September 1999, the Company entered into agreements to acquire a small
equity interest in each of two entities for $1.6 million in cash and 500,000
shares of the Company's common stock with registration rights. The Company
paid $700,000 in October, 1999 (financed with borrowed funds under a
convertible promissory note due in May 2000) and the balance is due in
installments ending in June 2000. Concurrently, the Company entered into a
five-year license that purports to obligate the Company to place a purchase
order for equipment backed by a non-cancelable letter of credit. The Company
has not delivered the 500,000 shares. The seller/licensor has given notice of
default and termination of the right to purchase the equity interest in one
of the entities and the license agreement. Title to the equity interest in
the other entity has been delivered to the Company. In addition, the
seller/licensor claims the Company is obligated to pay the additional
$900,000.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
SYS-Group, Inc. d/b/a Prentice Technologies, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of SYS-Group, Inc. d/b/a Prentice
Technologies, Inc. as of December 31, 1998 and the related statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1997 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SYS-Group, Inc. d/b/a Prentice
Technologies, Inc. as of December 31, 1998 and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1998 in conformity with
generally accepted accounting principles.
As described in Note 7 to the financial statements, a significant part of the
Company's business is dependent on one customer and loss of this customer could
have a materially adverse effect on the Company.
Ehrhardt Keefe Steiner & Hottman PC
May 26, 1999
Denver, Colorado
F-28
<PAGE>
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 14,273 $104,156
Accounts receivable (Note 5) 213,270 416,604
-------- --------
Total current assets 227,543 520,760
Property and equipment, net (Notes 2, 4 and 5) 150,369 181,499
Other assets (Note 5) 8,711 51,648
Advance to shareholder - 30,000
-------- --------
Total assets $386,623 $783,907
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Line-of-credit (Note 3) $ 69,936 $ 63,055
Financing agreement (Note 5) - 218,924
Accounts payable 99,897 51,901
Accrued liabilities - 18,504
Current portion of capital lease obligations (Note 4) 27,110 44,345
Deferred revenue - 7,500
Deferred rent expense - 124,413
-------- --------
Total current liabilities 196,943 528,642
Capital lease obligations less current portion (Note 4) 76,582 91,412
-------- --------
Total liabilities 273,525 620,054
-------- --------
Commitments (Note 7)
Stockholder's equity
Common stock, no par value, 1,000,000 shares authorized; 600,000 shares
issued and outstanding 1,000 1,000
Retained earnings 112,098 162,853
-------- --------
113,098 163,853
-------- --------
Total liabilities and stockholder's equity $386,623 $783,907
-------- --------
-------- --------
</TABLE>
See notes to financial statements.
F-29
<PAGE>
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
For the Years Ended Six Months Ended
December 31, June 30,
---------------------------- -----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Consulting income (Note 8) $ 384,847 $ 1,197,801 $ 457,312 $ 1,251,325
----------- ----------- ----------- -----------
Direct expenses
Salaries and other direct expenses 158,271 563,550 146,565 549,371
Referral fees 54,563 132,999 40,782 218,218
----------- ----------- ----------- -----------
Total direct expenses 212,834 696,549 187,347 767,589
----------- ----------- ----------- -----------
Gross profit 172,013 501,252 269,965 483,736
General, administrative and selling expenses
70,583 303,736 130,463 391,627
Research and development - 45,068 5,136 74,335
----------- ----------- ----------- -----------
Income from operations 101,430 152,448 134,366 17,774
----------- ----------- ----------- -----------
Other income (expense)
Interest and other income - 7,213 - 47,887
Interest expense (297) (10,928) (3,723) (14,906)
----------- ----------- ----------- -----------
Total other income (expense) (297) (3,715) (3,723) 32,981
----------- ----------- ----------- -----------
Net income before taxes 101,133 148,733 130,643 50,755
Pro forma income tax provision (Note 6) 37,000 55,000 49,000 19,000
----------- ----------- ----------- -----------
Pro forma net income $ 64,133 $ 93,733 $ 81,643 $ 31,755
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements
F-30
<PAGE>
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------
Retained
Shares Amount Earnings
------- --------- ---------
<S> <C> <C> <C>
Balance - December 31, 1996 600,000 $ 1,000 $ 9,739
Stockholder distributions - - (58,488)
Net income - - 101,133
------- --------- ---------
Balance - December 31, 1997 600,000 1,000 52,384
Stockholder distributions - - (89,019)
Net income - - 148,733
------- --------- ---------
Balance - December 31, 1998 600,000 1,000 112,098
Net income (unaudited) - - 50,755
------- --------- ---------
Balance - June 30, 1999 (unaudited) 600,000 $ 1,000 $ 162,853
------- --------- ---------
------- --------- ---------
</TABLE>
See notes to financial statements.
F-31
<PAGE>
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
For the Years Ended Six Months Ended
December 31, June 30,
------------------------ ------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 101,133 $ 148,733 $ 130,643 $ 50,755
--------- --------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation - 20,899 7,421 33,322
Deferred rent expense - - - 124,413
Changes in assets and liabilities
Accounts receivable (84,539) (118,992) (9,954) (203,334)
Prepaid expenses (5,270) 5,270 5,270 3,000
Accounts payable 63,597 36,300 (12,701) (47,996)
Accrued liabilities - - - 18,504
Deferred revenue - - - 7,500
--------- --------- --------- ---------
(26,212) (56,523) (9,964) (64,591)
--------- --------- --------- ---------
Net cash provided (used) by operating activities 74,921 92,210 120,679 (13,836)
--------- --------- --------- ---------
Cash flows from investing activities
Decrease (increase) in other assets (8,711) - - (45,937)
Purchases of property and equipment (7,775) (41,592) - (10,736)
--------- --------- --------- ---------
Net cash (used) by investing activities (16,486) (41,592) - (56,673)
--------- --------- --------- ---------
Cash flows from financing activities
Distributions to stockholder (63,040) (89,019) (61,266) -
Payments of capital lease obligations (947) (17,262) (6,585) (21,651)
Financing agreement, net - - - 218,924
Line-of-credit, net - 69,936 - (6,881)
Advance to shareholder - - - (30,000)
--------- --------- --------- ---------
Net cash (used) provided by financing activities (63,987) (36,345) (67,851) 160,392
--------- --------- --------- ---------
Net increase (decrease) in cash (5,552) 14,273 52,828 89,883
Cash at beginning of period 5,552 - - 14,273
--------- --------- --------- ---------
Cash at end of period $ - $ 14,273 $ 52,828 $ 104,156
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Supplemental disclosure of cash flow information
Cash paid for interest for the years ended December 31, 1997 and 1998
was $297 and $10,492, respectively, and for the six months ended June
30, 1998 and 1999 was $3,723 and $15,285, respectively (unaudited).
During the years ended December 31, 1997 and 1998, the Company acquired
assets under capital leases totaling $11,860 and $110,041,
respectively, and $46,668 and $53,716 for the six months ended June 30,
1998 and 1999, respectively (unaudited).
See notes to financial statements.
F-32
<PAGE>
(Information with respect to June 30, 1998 and 1999 is Unaudited)
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Sys-Group, Inc. was incorporated in January 1994 under the laws of Texas.
The Company was doing business as The Enterprise Systems Group, Inc. from
January 1994 to January 1999 and has operated as Prentice Technologies, Inc.
since January 1999. In August 1999, the Company changed its legal name to
Sys-Group, Inc. (the Company). The Company provides computer related services
including enterprise application hosting and relating consulting services to
businesses in the United States, Canada and Europe.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of the Company at June 30, 1999 and the
results of its operations and changes in cash flows for the six months ended
June 30, 1999 and 1998. The results of operations for the six months ended June
30, 1999 and 1998 are not necessarily indicative of the results to be expected
for a full year.
CONCENTRATION OF CREDIT RISK
The Company grants credit in the normal course of business to customers in the
United States, Canada and Europe. The Company periodically performs credit
analysis and monitors the financial condition of its customers to reduce credit
risk.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost while equipment under capital lease
is stated at the lower of fair value or net present value of minimum lease
payments at the inception of the lease. Depreciation and amortization are
computed on the straight-line method over the estimated lives ranging from three
to five years.
DEFERRED RENT
For financial reporting purposes, rent expense is recorded on a straight-line
basis over the terms of the respective lease. Differences between rent expenses
recorded in the accompanying financial statements and the actual payments made
under each lease is recorded as deferred rent.
F-33
<PAGE>
(Information with respect to June 30, 1998 and 1999 is Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(CONTINUED)
REVENUE AND COST RECOGNITION
The Company generates revenue with both hourly-rate and fixed price contracts.
Revenue generated from hourly-rate contracts is recognized as costs are billed
to the customer. Revenue is determined by the contract billing rates and the
time incurred to perform the service plus reimbursable expenses. Expense is
determined by actual cost incurred. Revenue generated from fixed price contracts
is recognized when the contract is completed. The contract is considered
complete when all costs, except for insignificant amounts, have been incurred.
Revenue received in advance of being earned is deferred until earned.
RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future products are
charged to operations in the year incurred.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under these provisions, the Company is not subject to
income taxes as a separate entity. Income or loss of the Company is required to
be included in the income tax returns of the stockholders.
Included in the statement of operations are compiled pro forma income tax
adjustments computed using the statutory rates in effect, which represents the
estimated federal and state tax provisions that would have been required had the
Company been taxed as a C-corporation. The Company's effective statutory rate
based on the pretax income was 37% for all 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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash, receivables and
accounts payable approximate their fair values as of December 31, 1998 and June
30, 1999 because of the relatively short maturity of these instruments.
F-34
<PAGE>
(Information with respect to June 30, 1998 and 1999 is Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts of capital lease obligations and debt outstanding also
approximates their fair values as of December 31, 1998 and June 30, 1999 because
interest rates on these instruments approximate the interest rate on debt with
similar terms available to the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS No. 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS No. 133 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. This statement currently has no impact on
the financial statements of the Company, as the Company does not hold any
derivative instruments or participate in any hedging activities.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- ---------
(Unaudited)
<S> <C> <C>
Furniture and equipment $ 46,668 $ 54,443
Computer equipment 124,600 181,348
--------- ---------
171,268 235,791
Less accumulated depreciation (20,899) (54,221)
--------- ---------
$ 150,369 $ 181,570
--------- ---------
--------- ---------
</TABLE>
NOTE 3 - LINE-OF-CREDIT
The Company has available a $75,000 line-of-credit with interest at 2.9% over
prime (totaling 10.65% at June 30, 1999). The line has no stated maturity and is
personally guaranteed by the Company's Stockholder. At December 31, 1998 and
June 30, 1999, $69,936 and $63,055 respectively, was borrowed against the line.
F-35
<PAGE>
(Information with respect to June 30, 1998 and 1999 is Unaudited)
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - CAPITAL LEASE OBLIGATIONS
The Company leases computer equipment and office furniture under capital
leases with monthly payments ranging from $253 to $1,880 and interest rates
ranging from 9.4% to 21.5%. The future minimum rental payments due under
capital leases are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 (six months remaining) $ 35,970
2000 70,791
2001 62,048
2002 16,418
2003 2,804
--------
Total minimum lease payments 188,031
Less amount representing interest (50,847)
--------
Net minimum lease payments 137,184
Less current portion 43,940
--------
$ 93,244
========
</TABLE>
NOTE 5 - FINANCING AGREEMENT
During 1999, the Company entered into an agreement to transfer certain of its
accounts receivable with recourse to a finance company. Inventory, equipment,
accounts receivables and intangible assets collateralized the agreement. The
finance company advances 80% of the account receivable upon submission and
remits the remaining 20% less interest and fees when the account is paid by
the customer. Proceeds from the finance company, during the six months ended
June 30, 1999 were approximately $607,581. Fees and interest paid for the six
months ended June 30, 1999 were approximately $14,309. In addition, the
Company is at risk for credit losses associated with sold receivables and
provides for such in the Company's financial statements. The receivables and
related note payable are reflected in the Company's balance sheet.
NOTE 6 - INCOME TAXES
Upon consummation of an agreement with Telecom Wireless Corporation
("Telecom") to sell the outstanding stockholders' interest of the Company,
the Company's tax status as an S corporation will terminate and, accordingly,
the Company will be subject to federal and state corporate income taxes. The
Company has no significant differences between the book and tax basis of its
assets or liabilities and therefore no deferred tax asset of liability exists
at the date of consummation.
F-36
<PAGE>
(Information with respect to June 30, 1998 and 1999 is Unaudited)
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS
OPERATING LEASES
The Company leases office space and computer equipment under noncancelable
operating leases which expire in 2002. Operating expenses and taxes are paid
by the Company. During the six months ended June 30, 1999, the Company
subleased some of their office space. The rental expense for these leases was
$13,144 and $81,210 for the years ended December 31, 1997 and 1998,
respectively and $34,153 and $26,974 for the six months ended June 30, 1998
and 1999, respectively.
Future minimum lease payments as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 (six months remaining) $ 119,893
2000 380,167
2001 384,089
2002 389,949
2003 389,949
Thereafter 97,487
----------
$1,761,534
==========
</TABLE>
EMPLOYEE LEASING
The Company leases its employees from a third party. In the event an
individual ceases to be engaged by the Company, the Company could be
obligated to pay 60 days service fees, not including employee salaries, to
the leasing company.
NOTE 8 - MAJOR CUSTOMERS AND VENDORS
The Company has a certain customer that accounted for 96% and 81% of the
Company's total revenue for the year ended December 31, 1997 and 1998,
respectively. The same customer accounted for 90% and 30% of the Company's
total revenue for the six months ended June 30, 1998 and 1999, respectively.
A second customer, based in Europe, accounted for 26% of revenue for the six
months ended June 30, 1999.
F-37
<PAGE>
(Information with respect to June 30, 1998 and 1999 is Unaudited)
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - SUBSEQUENT EVENTS
In August 24, 1999, the Company merged with Prentice Technologies, Inc. (a
Delaware Corporation) which was a company with common ownership and no assets
or liabilities as of the date of the merger. Effective September 30, 1999,
90% of Prentice Technologies, Inc. was acquired by Telecom Wireless
Corporation.
F-38
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
America's Web Station, Inc.
Naples, Florida
We have audited the accompanying balance sheets of America's Web
Station, Inc. (an S corporation) as of December 31, 1998 and 1997, and the
related statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year ended December 31, 1998 and for the period from
January 29, 1997 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of America's Web
Station, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year and period then ended 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 7 to
the financial statements the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 7. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
GIRARDIN BALDWIN & ASSOCIATES LLP
Certified Public Accountants
Naples, Florida
July 30, 1999
F-39
<PAGE>
AMERICA'S WEB STATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1998 1997 1999
----------- ------------ ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 32,330 $ 942 $ 5,878
Accounts receivable - trade 10,476 11,877 14,893
--------- --------- ---------
Total current assets 42,806 12,819 20,771
--------- --------- ---------
FURNITURE AND EQUIPMENT, at cost 90,066 58,044 90,214
Less accumulated depreciation 27,459 8,259 36,509
--------- --------- ---------
62,607 49,785 53,705
--------- --------- ---------
OTHER ASSETS
Goodwill, net of accumulated amortization
1999 - $1,127; 1998 - $797; 1997 - $139 9,073 9,731 8,743
Other 3,326 347 2,957
--------- --------- ---------
12,399 10,078 11,700
--------- --------- ---------
$ 117,812 $ 72,682 $ 86,176
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 22,310 $ 3,945 $ 22,549
Demand notes payable-stockholders 66,360 7,432 77,460
Accounts payable and accrued expenses 6,986 3,437 10,933
--------- --------- ---------
Total current liabilities 95,656 14,814 110,942
LONG-TERM DEBT, less current maturities 92,157 15,997 80,872
--------- --------- ---------
Total liabilities 187,813 30,811 191,814
--------- --------- ---------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.05 per share; 1,500 shares
authorized, 1,200 shares issued and outstanding 60 60 60
Additional paid in capital 186,065 121,940 186,065
Accumulated (deficit) (256,126) (80,129) (291,763)
--------- --------- ---------
(70,001) 41,871 (105,638)
--------- --------- ---------
$ 117,812 $ 72,682 $ 86,176
========= ========= =========
</TABLE>
See accompanying notes and auditor's report.
F-40
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 19, 1997
(Inception)
Year Ended through Six Months Ended June 30,
December 31, December 31, --------------------------
1998 1997 1999 1998
----------- ----------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 170,736 $ 47,405 $ 76,708 $ 88,276
--------- --------- --------- ---------
Costs and expenses
Internet service operating costs 60,805 24,024 24,842 28,557
General and administrative 283,415 102,207 82,415 133,646
--------- --------- --------- ---------
344,220 126,231 107,257 162,203
--------- --------- --------- ---------
(Loss) from operations (173,484) (78,826) (30,549) (73,927)
Interest expense 2,513 1,303 5,088 136
--------- --------- --------- ---------
Net (loss) $(175,997) $ (80,129) $ (35,637) $ (74,063)
========= ========= ========= =========
Earnings (loss) per share, basic and diluted $ (146.66) $ (311.79) $ (29.70) $ (61.72)
========= ========= ========= =========
Weighted average shares outstanding 1,200 257 1,200 1,200
========= ========= ========= =========
</TABLE>
See accompanying notes and auditor's report.
F-41
<PAGE>
AMERICA'S WEB STATION, INC.
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital (Deficit) Total
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 29, 1997 -
(Inception) - $ - $ - $ - $ -
Capital contributions 1,200 60 121,940 - 122,000
Net (loss) - - - (80,129) (80,129)
------- --------- --------- -------- --------
Balance, December 31, 1997 1,200 60 121,940 (80,129) 41,871
Capital contributions - - 64,125 - 64,125
Net (loss) - - - (175,997) (175,997)
------- --------- --------- -------- --------
Balance, December 31, 1998 1,200 60 186,065 (256,126) (70,001)
Net (loss) (unaudited) - - - (35,637) (35,637)
------- --------- --------- -------- --------
Balance, June 30, 1999 (unaudited) 1,200 $ 60 $ 186,065 $(291,763) $(105,638)
======= ========= ========= ======== ========
</TABLE>
See accompanying notes and auditor's report.
F-42
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 29, 1997
(Inception)
Year Ended through Six Months Ended June 30,
December 31, December 31, ---------------------------
1998 1997 1999 1998
----------- ------------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(175,997) $ (80,129) $ (35,637) $ (74,065)
Adjustments to reconcile net loss to net cash used
by operating activities
Depreciation and amortization 19,858 8,398 9,380 9,600
(Increase) decrease in assets:
Accounts receivable 1,401 (11,877) (4,417) (1,454)
Other (2,979) (347) 369 (300)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 3,549 3,437 3,947 (547)
--------- --------- --------- --------
Net cash used by operating activities (154,168) (80,518) (26,358) (66,766)
--------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (32,022) (58,044) (148) (23,543)
Payment of goodwill - (9,870) - -
--------- --------- --------- --------
Net cash used by investing activities (32,022) (67,914) (148) (23,543)
--------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans 58,928 7,432 14,700 104,450
Proceeds from borrowings 100,000 22,368 - -
Principal payments on debt (5,475) (2,426) (14,646) (325)
Proceeds from capital contributions 64,125 122,000 - -
--------- --------- --------- --------
Net cash provided by financing activities 217,578 149,374 54 104,125
--------- --------- --------- --------
Net change in cash and cash equivalents 31,388 942 (26,452) 13,816
Cash and cash equivalents:
Beginning 942 - 32,330 942
--------- --------- --------- --------
Ending $ 32,330 $ 942 $ 5,878 $ 14,758
========= ========= ========= ========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 2,513 $ 1,303 $ 4,903 $ 138
========= ========= ========= ========
</TABLE>
See accompanying notes and auditor's report.
F-43
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 1. Organization and Summary of Significant Accounting Policies
Organization
America's Web Station, Inc. (the Company) formerly known as
Millennium Market Tech, Inc. (Note 4), commenced operations in
January 1997 for the purpose of providing regional internet services
throughout Southwest Florida.
Revenue Recognition
The Company recognizes revenue as services are rendered.
Interim Financial Statements (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position of the Company at June 30, 1999 and the results of its
operations and changes in cash flows for the six months ended June
30, 1999 and 1998. The results of operations for the six months
ended June 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers money
market accounts to be cash equivalents.
See auditor's report.
F-44
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to June 30, 1999
and 1998 is Unaudited)
Note 1. Organization and Summary of Significant Accounting Policies - Continued
Furniture and Equipment
Depreciation of furniture and equipment is computed under
accelerated methods over the estimated useful lives of the assets.
Depreciation expense for the six months ended June 30, 1999 and 1998
was $9,050 and $9,600, respectively, and totaled $19,200 and $8,259
for the year and period ended December 31, 1998 and 1997,
respectively.
The cost of assets retired or sold, together with the related
accumulated depreciation, is removed from the accounts and any
profit or loss on disposition is credited or charged to earnings.
Goodwill
Goodwill is recorded as the differences between net assets acquired
and the related purchase price. Amortization is calculated over an
estimated useful life of fifteen years.
Advertising Costs
All advertising costs are expensed as incurred. Total advertising
costs for the years ended December 31, 1998 and 1997 were $11,548
and $18,269, respectively and totaled $3,051 and $6,002 for the six
month periods ended June 30, 1999 and 1998, respectively.
Income Taxes
The Company, with the consent of its stockholders, elected under the
Internal Revenue Code to be taxed as an S corporation. In lieu of
corporate income taxes, the proportionate share of the Company's
taxable income or loss is recognized by the stockholders.
Accordingly, no provision for income taxes is included in the
accompanying financial statements.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed based upon the
weighted average number of common shares outstanding during the
period. Diluted earnings per share consists of the weighted average
number of common shares outstanding plus the dilutive effects of
options and warrants calculated using the treasury stock method. In
loss periods, dilutive common equivalent shares are excluded as the
effect would be anti-dilutive.
See auditor's report.
F-45
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to June 30, 1999
and 1998 is Unaudited)
Note 2. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- June 30,
1998 1997 1999
-------- -------- --------
<S> <C> <C> <C>
Note payable to financial institution, monthly payments of $1,500 plus interest
at 9.75%, collateralized by all equipment and personally guaranteed by the
stockholders, final balloon payment due November 2003 $ 98,500 $ - $ 89,500
Note payable to financial institution, monthly payments of $463, including
interest at 8.9%, collateralized by vehicle, final payment
due April 2002 15,967 19,942 13,921
-------- -------- --------
114,467 19,942 103,421
Less current maturities 22,310 3,945 22,549
-------- -------- --------
$ 92,157 $ 15,997 $ 80,872
-------- -------- --------
-------- -------- --------
</TABLE>
Long-term debt matures as follows as of June 30, 1999:
<TABLE>
<CAPTION>
Twelve Months Ending June 30,
------------------------------
<S> <C>
2000 $ 22,549
2001 22,923
2002 22,449
2003 18,000
2004 17,500
--------
$103,421
--------
--------
</TABLE>
Note 3. Related Party Transactions
Notes payable to stockholders are unsecured, payable on demand, and
bear interest at 7% to 19%.
See auditor's report.
F-46
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to June 30, 1999
and 1998 is Unaudited)
Note 4. Business Combinations
The Company commenced operations January 1997, as Millennium Market
Tech, Inc. In October 1997, America's Web Station, Inc. was formed
for the primary purpose of changing the name of the business.
Effective January 1998, the Company began operating under the
corporate name America's Web Station, Inc.
The outstanding shares of common stock of Millennium Market Tech,
Inc., which totaled 1,000 shares, were exchanged and canceled in
consideration for the issuance of 1,000 shares of America's Web
Station, Inc. common stock. The combination was accounted for as a
pooling of interests and neither entity recognized a gain or loss.
America's Web Station, Inc. was dormant until the merger occurred.
The Company acquired the assets of Wow Factor in October 1997 for
$12,470, which was accounted for using the purchase method. The
Company's results of operations include the Wow Factor effective
October 15, 1997.
Note 5. Lease Commitment
The Company leases office space and equipment under non-cancelable
operating leases expiring through November 2000. Future minimum
lease payments under the leases as of June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Twelve Months Ending June 30,
-----------------------------
<S> <C>
2000 $28,214
2001 6,809
-------
$35,023
-------
-------
</TABLE>
Rent expense for the six months ended June 30, 1999 and 1998 was
$18,408 and $12,610, respectively and rent expense for the year and
period ended December 31, 1998 and 1997 was $41,634 and $16,019,
respectively.
See auditor's report.
F-47
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to June 30, 1999
and 1998 is Unaudited)
Note 6. Subsequent Event
In July 1999, the Company's stockholders entered into an agreement
to exchange all outstanding shares of the Company for shares in
Telecom Wireless Corporation (TWC). Under the agreement, TWC will
assume or pay approximately $150,000 of the Company's indebtedness.
Such indebtedness includes the note payable to a financial
institution and accounts payable as of the closing date. Any
remaining amount of the $150,000 is to be applied towards the
Company's notes payable to stockholders. Any residual balance then
remaining for notes payable to stockholders will be converted to
additional paid in capital.
Note 7. Uncertainty
The Company incurred cumulative net losses through June 30, 1999
totaling $291,763 and its liabilities are substantially in excess of
its assets.
As discussed in Note 6, the stockholders have entered into an
agreement whereby $150,000 of Company liabilities are to be assumed
or repaid. In addition, TWC has committed to certain equipment
additions and upgrades resulting in increased capacity for customer
services. The Company will also benefit from administrative,
technical and marketing support from TWC.
The Company's continued existence is dependent upon obtaining
additional financing or capital, increasing revenues and/or reducing
expenses. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
See auditor's report.
F-48
<PAGE>
UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
AND CASH FLOWS
The unaudited pro forma statements of operations and cash flows for the year
ended June 30, 1999 and the three months ended September 30, 1999 give effect
to the business combination of Telecom Wireless Corporation, Sys-Group, Inc
d/b/a Prentice Technologies, Inc., and America's Web Station, Inc., as if it
occurred effective July 1, 1998 and July 1, 1999, respectively.
These financial statements include the related pro forma adjustments described
in the notes thereto. The transactions between Telecom Wireless Corporation and
the Companies have been accounted for under the purchase method of accounting.
These pro forma statements are not necessarily indicative of the results of
operations or cash flows as they may be in the future or as they
might have been had the transaction become effective on the above mentioned
dates.
The unaudited pro forma statements of operations and cash flows should be
read in conjunction with the historical financial statements and notes
thereto of Telecom Wireless Corporation.
F-49
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Sys-Group,
Inc. d/b/a
Telecom America's Prentice
Wireless Web Technologies,
Corp. Station, Inc. Inc. Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Internet services $ - $ 159,168 $ - $ 159,168
Wireless cable revenues 522,654 - - 522,654
Consulting fees - - 1,983,064 1,983,064
----------- ----------- ----------- -----------
522,654 159,168 1,983,064 2,664,886
----------- ----------- ----------- -----------
Expenses
Direct expenses 275,705 - 1,276,791 1,552,496
Internet service operating costs - 57,090 - 57,090
Stock based compensation 1,547,560 - - 1,547,560
Selling, general and administrative 2,144,299 232,182 658,642 3,035,123(3)
----------- ----------- ----------- -----------
Total cost of sales and expenses 3,967,564 289,272 1,935,433 6,192,269
----------- ----------- ----------- -----------
Income (loss) from operations (3,444,910) (130,104) 47,631 (3,527,383)
Other income (expenses)
Interest income - - 63,852 63,852
Interest expense (92,341) (7,465) (22,490) (122,296)(5)
----------- ----------- ----------- -----------
Total other income (expense) (92,341) (7,465) 41,362 (58,444)
----------- ----------- ----------- -----------
Income (loss) before income taxes and minority interest (3,537,251) (137,569) 88,993 (3,585,827)
Income tax expense (benefit) - - - -
----------- ----------- ----------- -----------
Income (loss) before minority interest (3,537,251) (137,569) 88,993 (3,585,827)
Minority interest - - - - (4)
----------- ----------- ----------- -----------
Net income (loss) (3,537,251) (137,569) 88,993 (3,585,827)
Dividends on preferred stock - - - -
----------- ----------- ----------- -----------
Net income (loss) available to common stockholders $(3,537,251) $ (137,569) $ 88,993 $(3,585,827)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per common share - basic and diluted $ (.94)
-----------
-----------
Weighted average shares outstanding - basic and diluted 3,759,050
-----------
-----------
<CAPTION>
Pro Forma Adjustments Pro Forma
---------------------- Consolidated
Debit Credit Total
----------- ------ -----------
<S> <C> <C> <C>
Revenues
Internet services $ - $ - $ 159,168)
Wireless cable revenues - - 522,654
Consulting fees - - 1,983,064
----------- ------ -----------
- - 2,664,886
----------- ------ -----------
Expenses
Direct expenses - - 1,552,496
Internet service operating costs 57,090
Stock based compensation - - 1,547,560
Selling, general and administrative 624,284 - 3,659,407
----------- ------ -----------
Total cost of sales and expenses 624,284 - 6,816,553
----------- ------ -----------
Income (loss) from operations (624,284) - (4,151,667)
Other income (expenses)
Interest income - 63,852
Interest expense (8,458) - (130,754)
----------- ------ -----------
Total other income (expense) (8,458) - (66,902)
----------- ------ -----------
Income (loss) before income taxes and minority interest (632,742) - (4,218,569)
Income tax expense (benefit) - - -
----------- ------ -----------
Income (loss) before minority interest (632,742) (4,218,569)
Minority interest (8,899) - (8,899)
----------- ------ -----------
Net income (loss) (641,641) (4,227,468)
Dividends on preferred stock - - -
----------- ------ -----------
Net income (loss) available to common stockholders $ (641,641) $ - $(4,227,468)
----------- ------ -----------
----------- ------ -----------
Earnings (loss) per common share - basic and diluted $ (1.02)
-----------
-----------
Weighted average shares outstanding - basic and diluted 4,134,279
-----------
-----------
</TABLE>
F-50
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Sys-Group,
Inc. d/b/a
Telecom America's Prentice
Wireless Web Technologies,
Corp. Station, Inc. Inc. Total
------------ -------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues
Internet services $ 28,535 $ - $ - $ 28,535
Wireless cable revenues 138,390 - - 138,390
Consulting fees - - 711,432 711,432
Other 4,075 - - 4,075
------------ -------------- ------------- ---------
171,000 - 711,432 882,432
------------ -------------- ------------- ---------
Expenses
Direct expenses 106,342 - 366,524 472,866
Internet service operating costs 27,823 - - 27,823
Stock based compensation 427,699 - - 427,699
Research and development - - 26,024 26,024
Selling, general and administrative 2,406,348 - 351,895 2,406,348(3)
------------ -------------- ------------- ---------
Total cost of sales and expenses 2,968,212 - 744,443 3,712,655
------------ -------------- ------------- ---------
Income (loss) from operations (2,797,212) - (33,011) (2,830,223)
Other income (expenses)
Interest and other income - - 40,135 40,135
Interest expense (64,506) - (10,364) (74,870)(5)
Other expense (24,439) - - (24,439)
------------ -------------- ------------- ---------
Total other income (expense) (88,945) - 29,771 (59,174)
------------ -------------- ------------- ----------
Income (loss) before income taxes and minority interest (2,886,157) - (3,240) (2,889,397)
Income tax expense (benefit) - - - -
------------ -------------- ------------- ---------
Income (loss) before minority interest (2,886,157) - (3,240) (2,889,397)
Minority interest - - - -
------------ -------------- ------------- ---------
Net income (loss) (2,886,157) - (3,240) (2,889,397)
Dividends on preferred stock - - - -
------------ -------------- ------------- ---------
Net income (loss) available to common stockholders $ (2,886,157) $ (3,240) $ (2,889,397)
------------ ------------- ---------
Earnings (loss) per common share - basic and diluted $ (.19)
------------
Weighted average shares outstanding - basic and diluted 15,256,675
------------
------------
<CAPTION>
Pro Forma Adjustments Pro Forma
----------------------- Consolidated
Debit Credit Total
------------ ------ ------------
<S> <C> <C> <C>
Revenues
Internet services $ - $ - $ 28,535
Wireless cable revenues - - 138,390
Consulting fees - - 711,432
Other - - 4,075
------------ ---- ------------
- - 882,432
------------ ---- ------------
Expenses
Direct expenses - - 472,866
Internet service operating costs - - 27,823
Stock based compensation - - 427,699
Research and development 26,024
Selling, general and administrative 156,071 - 2,914,314
------------ ---- ------------
Total cost of sales and expenses 156,071 - 3,868,726
------------ ---- ------------
Income (loss) from operations (156,071) (2,986,294)
Other income (expenses)
Interest and other income - - 40,135
Interest expense (5,075) - (79,945)
Other expense - - (24,439)
------------ ---- ------------
Total other income (expense) (5,075) - (64,249)
------------ ---- ------------
Income (loss) before income taxes and minority interest (161,146) (3,050,543)
Income tax expense (benefit) - - -
------------ ---- ------------
Income (loss) before minority interest (161,146) (3,050,543)
Minority interest 324 - 324
------------ ---- ------------
Net income (loss) (160,822) - (3,050,219)
Dividends on preferred stock - - -
------------ ---- ------------
Net income (loss) available to common stockholders $ (160,822) $ - $ (3,050,219)
------------ ---- ------------
Earnings (loss) per common share - basic and diluted $ (.20)
------------
Weighted average shares outstanding - basic and diluted 15,609,011
------------
------------
</TABLE>
F-51
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
Sys-Group,
Inc. d/b/a
Telecom America's Prentice Pro Forma Pro Forma
Wireless Web Technologies, Acquisition Consolidated
Corp. Station, Inc. Inc. Total Adjustments Total
----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(3,537,251) $ (137,569) $ 88,993 $(3,585,827) $ (616,834) $(4,202,661)
----------- ------------ ------------ ----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash used by operating activities
Depreciation and amortization 348,708 19,638 46,800 415,146 599,477 1,014,623
Stock issued for services 30,000 - - 30,000 - 30,000
Imputed value of options granted for services 1,547,560 - - 1,547,560 - 1,547,560
Accretion on preferred stock 91,227 - - 91,227 - 91,227
Changes in assets and liabilities
Accounts receivable 12,245 (1,562) (312,372) (301,689) - (301,689)
Other assets (3,880) (2,310) - (6,190) - (6,190)
Accounts payable (14,510) 8,043 1,005 (5,462) - (5,462)
Accrued expenses 104,445 - - 104,445 - 104,445
Other liabilities - - 131,913 131,913 - 131,913
----------- ------------ ------------ ----------- ----------- -----------
2,115,795 23,809 (132,654) 2,006,950 599,477 2,606,427
----------- ------------ ------------ ----------- ----------- -----------
Net cash used by operating activities (1,421,456) (113,760) (43,661) (1,578,877) (17,357) (1,596,234)
----------- ------------ ------------ ----------- ----------- -----------
Cash flows from investing activities
Acquisition of equipment (121,117) (8,627) (52,399) (182,143) - (182,143)
Net change in other assets - - (45,937) (45,937) - (45,937)
----------- ------------ ------------ ----------- ----------- -----------
Net cash used by investing activities (121,117) (8,627) (98,336) (228,080) - (228,080)
----------- ------------ ------------ ----------- ----------- -----------
Cash flows from financing activities
Net activity on line-of-credit/floor plans - - 281,979 281,979 - 281,979
Net repayments to related party (16,666) (30,822) - (47,488) - (47,488)
Sale of common stock/capital contribution 2,179,305 64,125 - 2,243,430 - 2,243,430
Net payments on notes payable - (19,796) - (19,796) - (19,796)
Net proceeds from notes payable - 100,000 - 100,000 - 100,000
Net payments on capital leases - - (30,901) (30,901) - (30,901)
Dividends/distributions paid - - (57,753) (57,753) - (57,753)
----------- ------------ ------------ ----------- ----------- -----------
Net cash provided by financing activities 2,162,639 113,507 193,325 2,469,471 - 2,469,471
----------- ------------ ------------ ----------- ----------- -----------
Net increase (decrease) in cash 620,066 (8,880) 51,328 662,514 (17,357) 645,157
Cash at beginning of period 600 14,758 52,828 68,186 - 68,186
----------- ------------ ------------ ----------- ----------- -----------
Cash at end of period $ 620,666 $ 5,878 $ 104,156 $ 730,700 $ (17,357) $ 713,343
----------- ------------ ------------ ----------- ----------- -----------
----------- ------------ ------------ ----------- ----------- -----------
</TABLE>
F-52
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
Sys-Group,
Inc. d/b/a
Telecom America's Prentice
Wireless Web Technologies,
Corp. Station, Inc. Inc.
---------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,886,157) $ - $ (3,240)
----------- ------------- -------------
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 117,347 - 20,774
Deferred rent expense - - 38,808
Provision for doubtful accounts - - -
Stock issued for services 427,699 - -
Warrants issued 62,294 - -
Accretion on preferred stock 24,439 - -
Loss on asset disposals - - -
Deferred tax expense - - -
Minority interest in subsidiary - - -
Changes in assets and liabilities
Accounts receivable (55,074) - (164,682)
Prepaid expenses - - (3,000)
Other assets 1,049 - -
Accounts payable 1,072,336 - 13,820
Deferred revenue - - -
Accrued expenses (103,699) - (7,500)
Other liabilities - - 7,457
----------- ------------- -------------
1,546,391 - (94,323)
----------- ------------- -------------
Net cash used by operating activities (1,339,766) - (97,563)
----------- ------------- -------------
Cash flows from investing activities
Acquisition of equipment (164,726) - -
Cash acquired from acquisitions 85,659 - -
Acquisition costs (554,884) - -
Net change in other assets - - (1,547)
----------- ------------- -------------
Net cash used by investing activities (633,951) - (1,547)
----------- ------------- -------------
Cash flows from financing activities
Net activity on line-of-credit/floor plans - - 89,786
Net advances from (repayments to) related party (105,163) - -
Sale of common stock/capital contribution 1,381,905 - -
Net payments on notes payable (127,062) - -
Net proceeds from notes payable 1,000,000 - -
Net payments on capital leases - - (15,051)
Offering costs (100,850) - -
Dividends/distributions paid - - -
----------- ------------- -------------
Net cash provided by financing activities 2,048,830 - 74,735
----------- ------------- -------------
Net increase (decrease) in cash 75,113 - (24,375)
Cash at beginning of period 620,666 - 104,156
----------- ------------- -------------
Cash at end of period $ 695,779 $ - $ 79,781
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
<TABLE>
Pro Forma Pro Forma
Acquisition Consolidated
Total Adjustments Total
----------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(2,889,397) $ (160,822) $(3,050,219)
----------- ------------- -------------
Adjustments to reconcile net loss to net cash provided (used) by
operating activities
Depreciation and amortization 138,121 156,071 294,192
Deferred rent expense 38,808 - 38,808
Provision for doubtful accounts - - -
Stock issued for services 427,699 - 233,750
Warrants issued 62,294 - 62,294
Accretion on preferred stock 24,439 - 24,439
Loss on asset disposals - - -
Deferred tax expense - - -
Minority interest in subsidiary - 324 324
Changes in assets and liabilities
Accounts receivable (219,756) - (219,756)
Prepaid expenses (3,000) - (3,000)
Other assets 1,049 - 1,049
Accounts payable 1,086,156 - 1,086,156
Deferred revenue - - -
Accrued expenses (111,199) - (111,199)
Other liabilities 7,457 - 7,457
----------- ------------- -------------
1,452,068 156,395 1,608,463
----------- ------------- -------------
Net cash provided (used) by operating activities (1,437,329) (4,427) (1,441,756)
----------- ------------- -------------
Cash flows from investing activities
Acquisition of equipment (164,726) - (164,726)
Cash acquired from acquisitions 85,659 - 85,659
Acquisition costs (554,884) - (554,884)
Net change in other assets (1,547) - (1,547)
----------- ------------- -------------
Net cash used in investing activities (635,498) - (635,498)
----------- ------------- -------------
Cash flows from financing activities
Net activity on line-of-credit/floor plans 89,786 - 89,786
Net advances from (repayments to) related party (105,163) - (105,163)
Sale of common stock/capital contribution 1,381,905 - 1,381,905
Net payments on notes payable (127,062) - (127,062)
Net proceeds from notes payable 1,000,000 - 1,000,000
Net payments on capital leases (15,051) - (15,051)
Offering costs (100,850) - (100,850)
Dividends/distributions paid - - -
----------- ------------- -------------
Net cash provided by financing activities 2,123,565 - 2,123,565
----------- ------------- -------------
Net increase in cash 50,738 (4,427) 46,311
Cash at beginning of period 724,822 - 724,822
----------- ------------- -------------
Cash at end of period $ 775,560 $ (4,427) $ 771,133
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
F-53
<PAGE>
In July 1999 the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of common
stock valued at $199,931 for purposes of the acquisition. The acquisition has
been accounted for as a purchase. The purchase price, including acquisition
costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment, net 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
-----------
311,176
Liabilities assumed (191,814)
-----------
119,362
Consideration given and acquisition costs (225,390)
-----------
Excess purchase price recorded as goodwill $ 136,028
-----------
-----------
</TABLE>
Effective September 30, 1999, the Company consummated the acquisition of 90% of
the issued and outstanding common stock of Prentice Technologies, Inc. for
346,667 shares of common stock valued at $2,680,419 for purposes of the
acquisition and issued at $253,750 note payable. The note is payable in six
monthly installments of $43,284 including interest at 8% per annum. Payments
were to begin October 23, 1999, however, no payments have been made. The
acquisition has been accounted for as a purchase. The purchase price, including
acquisition costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 104,156
Accounts receivable, net 416,604
Property and equipment, net 181,570
Other assets 54,648
-----------
756,978
Liabilities assumed (618,377)
Minority Interest (16,061)
-----------
122,540
Consideration given and acquisition costs (2,754,942)
-----------
Excess purchase price recorded as goodwill $ 2,610,390
-----------
-----------
</TABLE>
(1) To record amortization of goodwill and subscriber lists.
(2) To record 10% minority interest in earnings of Prentice.
(3) To record interest expenses on note issued in conjunction with
acquisition of Prentice.
F-54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company
shall provide indemnification and/or exculpation to its directors, officers,
employees, agents and other entities that deal with it to the maximum extent
provided, and under the terms provided, by the laws and decisions of the
courts of the State of Utah and by any additional applicable federal or state
laws or court decisions.
The Utah Revised Business Corporation Act ("URBCA") provides that a
corporation may indemnify a director of the corporation who was, is or is
threatened to be made, a named defendant or respondent in a proceeding by
virtue of his position in the corporation if his conduct was in good faith
and he reasonably believed that the conduct was in, or not opposed to, the
corporation's best interests; and in the case of any criminal proceeding, he
or she had no reasonable cause to believe the conduct was unlawful. However,
the URBCA provides that a corporation may not indemnify a director: (i) in
connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable or (ii) in connection with any other
proceeding charging that the director derived an improper personal benefit,
whether or not involving an action taken in his official capacity, in which
proceeding he was adjudged liable on the basis that he derived an improper
personal benefit. Indemnification is limited to reasonable expenses incurred
in connection with the proceeding. The URBCA further provides that unless
limited by the articles of incorporation, a corporation shall indemnify a
director who is successful, on the merits or otherwise, in the defense of any
proceeding or in the defense of any claim, issue or matter in the proceeding,
to which he or she was a party because he or she is or was a director of the
corporation, against reasonable expenses incurred in connection with the
successful defense of any such proceeding or claim.
A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition if (i) the director furnishes the corporation a written
affirmation of his or her good faith belief that he or she has met the
applicable standard of conduct described in the URBCA, (ii) the director
furnishes the corporation a written undertaking to repay the advance if it is
ultimately determined that he or she did not meet such standard of conduct
and (iii) a determination is made that the facts then known to those making
such determination would not preclude indemnification under the URBCA.
A director may also seek court-ordered indemnification under the
URBCA, provided that such indemnification is limited to reasonable expenses
incurred, and the court may order such indemnification regardless of whether
the director has met the applicable standard of conduct set forth in the
URBCA.
The URBCA outlines the requirements for determining and authorizing
indemnification of directors, and provides that a determination shall be made
(i) by a majority vote of the board of directors, with only those director
not party to the proceeding being counted in satisfying the presence of a
quorum; (ii) if a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of directors,
which committee shall consist of two or more directors not party to the
proceeding, except that directors who are party to the proceeding may
participate in the designation of directors for the committee, (iii) by
special legal counsel selected by a quorum of the board of directors or its
committee or, if a quorum of the board of directors cannot be obtained and a
committee cannot be designated, selected by a majority vote of the full board
of directors, in which selection directors who are parties to the proceeding
may participate or (iv) by the stockholders, by a majority of the votes
entitled to be cast by the holders of qualified shares present in person or
by proxy at a meeting.
An officer is entitled to mandatory indemnification and may apply
for court-ordered indemnification to the same extent as a director under the
URBCA. A corporation may also indemnify and advance expenses to an officer,
employee, fiduciary or agent to the same extent as to any director and to a
greater extent, if not
II-1
<PAGE>
inconsistent with public policy, and if provided for by its articles of
incorporation, bylaws, general or specific action of its board of directors
or contract.
A provision treating a corporation's indemnification of, or advance
for expenses to, directors that is contained in its articles of incorporation
or bylaws, in a resolution of its shareholders or board of directors, or in a
contract (except an insurance policy) or otherwise is valid only if and to
the extent the provision is not inconsistent with the URBCA.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, (the "Act") may be permitted to
directors, officers, and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to the court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $3,555
Printing and Engraving *
Transfer Agent's Fee and Expenses *
Legal Fees and Expenses *
Blue Sky Qualification Fees and Expenses *
Accountants' Fees and Expenses *
Miscellaneous Expenses *
------
Total $3,555
======
</TABLE>
--------------------
* To be supplied by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, Registrant has sold the following
securities without registering them under the Securities Act of 1933:
Present management assumed control of the issuer in April 1999.
Records regarding sales of Registrant's securities prior to that time are
incomplete and many records prior to about May 1998 are largely unavailable.
Between March 10, 1998 and July 20, 1998, Registrant authorized the
issuance of and issued 255,400 shares of common stock and an option for the
purchase of 260,000 shares of common stock to ten individuals and one entity
which appears to have been affiliated with one of such individuals.
Management believes these securities were issued in consideration of services
rendered to Registrant. The securities registration exemption relied upon by
Registrant is unknown.
On or about May 8, 1998, Registrant authorized the issuance of and
thereafter issued 5,200 shares of its common stock to four individuals in
consideration of $.50 per share. The securities registration exemption relied
upon by Registrant is unknown.
II-2
<PAGE>
In June, 1998, Registrant authorized the issuance of and issued
463,092 shares of its common stock to five persons in exchange for all of the
common stock of Keys Microcable Corporation. Registrant also authorized the
issuance to one of the former shareholders of Keys Microcable Corporation
convertible preferred stock in connection with the conversion to equity of
approximately $1.2 million of debt owed by Keys Microcable Corporation.
Registrant also issued an option for the purchase of shares of its common
stock to the same individual. It appears Registrant relied upon the exemption
from securities registration provided by Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
In August 1998, Registrant authorized the issuance of and issued
120,000 shares of common stock to Cavalier Securities, Ltd., or its nominees.
Management believes that all or a substantial portion of these securities
were sold for cash. It appears Registrant relied upon the exemption from
securities registration provided by Rule 504 of Regulation D under the
Securities Act.
On or about March 26, 1999, Registrant authorized for issuance and
thereafter issued 13,825,000 shares of its common stock in exchange for the
13,500 outstanding shares of the common stock of Phoenix Communications,
Inc., held by 13 persons of which nine are accredited investors. The exchange
was consummated in April 1999. Of the 13 former shareholders of Phoenix
Communications, Inc., 11 either are or have been members of management of
Registrant subsequent to the exchange.
In April, 1999, Registrant authorized for issuance and thereafter
sold 120,000 shares of common stock for gross proceeds aggregating $600,000
to six persons pursuant to the exemption from securities registration
provided by Rule 504 of Regulation D under the Securities Act. Placement
agent fees and costs aggregating $83,100 were paid to Jack Augsback &
Associates, Inc., a non-affiliated third party, and others.
Registrant entered into Common Stock Purchase Agreements dated May
25, 1999, July 28, 1999, and September 10, 1999, pursuant to which 466,963
shares of Registrant's common stock thereafter were sold to 28 persons for
gross proceeds aggregating $3,268,745. One such person is not accredited.
Registrant also issued repricing warrants to purchasers in the offering.
Placement agent fees and costs aggregating $500,020 were paid to Jack
Augsback & Associates, Inc., and Thomson Kernaghan & Co. Ltd., non-affiliated
third parties, and others. Jack Augsback & Associates, Inc., Thomson
Kernaghan & Co. Ltd. and their assignees also were issued warrants for the
purchase of 195,487 shares of the Company's common stock.
II-3
<PAGE>
On July 7, 1999, Registrant authorized for issuance and subsequently
issued 17,500 shares of its common stock to one entity in consideration of
services rendered to Registrant by that entity.
Effective in April, May and August 1999, Registrant issued
non-qualified options for the purchase of 5,561,192 shares of its common
stock to nine officers and one employee of Registrant of which eight are
accredited investors.
Between April 14, 1999, and September 30, 1999, Registrant issued
38,046 shares of its common stock and issued or has agreed to issue
non-qualified and incentive options for the purchase of 170,328 shares of its
common stock to employees of Registrant and a subsidiary of Registrant in
compensatory transactions pursuant to the exemption from securities
registration provided by Rule 701 under the Securities Act.
In August 1999, Registrant issued or authorized the issuance of
warrants for the purchase of up to 1,340,000 shares of its common stock to
three financial consultants.
Effective in August 1999, Registrant issued warrants for the
purchase of 119,432 shares of its common stock to two officers of Registrant,
one of which is accredited, in consideration of management services rendered
to a subsidiary of the company prior to April 1999.
In November 1999, Registrant issued to one person a promissory note
in the principal amount of $700,000 convertible into shares of the Company's
common stock at a conversion price of $7.00 per share in consideration of the
assignment of certain technology-related equity interests.
In September and October 1999, Registrant issued for $1,000,000 in
cash promissory notes aggregating $1,000,000 in principal amount and warrants
for the purchase of 200,000 shares of its common stock to seven persons.
Placement agent fees in the form of a warrant for the purchase of 300,000
shares of Registrant's common stock were paid to First Equity Capital
Securities, Inc., a non-affiliated third party.
In July and September 1999, Registrant issued 375,229 shares of its
common stock and options for the purchase of 350,000 shares of its common
stock in connection with its acquisition of America's Web Station, Inc., and
Prentice Technologies, Inc., to three individuals. Two of the three
individuals are not accredited investors as defined in the Securities Act.
With respect to all of the transactions which occurred after closing
of the acquisition by Registrant of Phoenix Communications, Inc., in April
1999:
1. The purchasers represented they were taking the securities for
investment and not for distribution.
2. The purchasers acknowledged that the certificates evidencing the
securities would bear a legend restricting transfer under the
Securities Act since they had not been sold in a registered
offering.
3. Except as stated above and except as to transactions claimed to
be exempt from registration pursuant to Rule 701 under the
Securities Act, all purchasers represented to Registrant that
they were accredited investors as defined in the Securities Act.
4. Except as stated above, Registrant relied upon the exemption
from securities registration provided by Section 4(2) and/or
Rule 506 of Regulation D under the Securities Act and/or
Rule 701 under the Securities Act with respect to certain
compensatory transactions. Section 4(2) of the Securities Act
covers "transactions by an issuer not involving any public
offering," with respect to the issuance of securities without
registration under the Securities Act of 1933. The Company
believes that the persons to whom the securities were issued
did not need the protections that registration would afford.
All share amounts in the discussion above have been restated to
reflect the 1-for-50 reverse stock split of the Registrant on April 23, 1998
and the 1-for-5 reverse stock split of the Registrant on May 4, 1999.
ITEM 27. EXHIBITS
The exhibits to this registration statement are listed in the
Exhibit Index, which appears immediately after the signature page and is
incorporated in this Item 27 by this reference.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the annual report of a registrant pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 that is incorporated by reference in
this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, 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 of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions discussed in
Item 20 or otherwise, the registrant 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 a registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed after the effective date of this Registration Statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in
Washington, D.C., on November 26, 1999.
TELECOM WIRELESS CORPORATION,
By: /s/ James C. Roberts
--------------------------
James C. Roberts
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints James C. Roberts, Calvin D.
Smiley and Kosta S. Kovachev, and each or any of them, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and any and all amendments
(including post-effective amendments) to this registration statement and to
any registration statement filed pursuant to Rule 462(b), and to file same,
with all exhibits thereto and, other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
/s/ James C. Roberts Chairman of the Board, Chief November 26, 1999
- ------------------------ Executive Officer (Principal
James C. Roberts Executive Officer) and Director
/s/ Calvin D. Smiley President and Director November 26, 1999
- ------------------------
Calvin D. Smiley
/s/ Kosta S. Kovachev Executive Vice President, November 26, 1999
- ------------------------ Chief Financial Officer
Kosta S. Kovachev (Principal Financial and
Accounting Officer) and Director
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Articles of Incorporation of Telecom Wireless as filed with the Utah
Secretary of State on April 12, 1984
3.2 Articles of Amendment to Articles of Incorporation as filed with the
Utah Secretary of State on March 12, 1998
3.3 Articles of Amendment to Articles of Incorporation as filed with the
Utah Secretary of State on April 20, 1999
3.4 Articles of Amendment to Articles of Incorporation setting forth the
Preferences, Limitations, and Relative Rights of Redeemable,
Non-voting, Cumulative Preferred Stock, Series 1998-1 as filed with the
Utah Secretary of State on November 9, 1999
3.5 Bylaws of Telecom Wireless
5.1* Opinion of [Law Firm]
10.1 Stock Purchase Option dated June 1, 1998, between Telecom Wireless and
Marc L. Baker Consulting, Inc., as amended and assigned to Joshua
Mailman
10.2 Stock Purchase Option dated June 18, 1998 between Telecom Wireless and
Herman L. Walker
10.3 Office Lease Agreement dated January 20, 1999 between Prentice Point
Limited Partnership and The Enterprise Systems Group, Inc.
10.4 Corporate Finance/Placement Agent Agreement dated March 26, 1999
between Telecom Wireless and Jack Augsback & Associates, Inc.
10.5 Executive Employment Agreement made and effective as of March 29, 1999
between Phoenix Communications, Inc. (predecessor to Telecom Wireless)
and each of its executive officers accompanied by a schedule
identifying such Agreements to which Telecom Wireless is a party that
are substantially identical and material details in which such
agreements differ from filed agreement
10.6 Common Stock Purchase Agreement dated April 6, 1999 between Telecom
Wireless and those persons identified on accompanying schedule
10.7 Nonqualified Stock Option Agreement dated April 13, 1999 between
Telecom Wireless and James C. Roberts accompanied by a schedule
identifying other Nonqualified Stock Option Agreements to which Telecom
Wireless is a party that are substantially identical and material
details in which such agreements differ from filed agreement
10.8 Non-Qualified Stock Option Agreement dated May 4, 1999, issued to Jay
W. Enyart, an employee of Telecom Wireless for the purchase of 400,000
shares
10.9 Non-Qualified Stock Option Agreement dated May 4, 1999, issued to Jay
W. Enyart, an employee of Telecom Wireless for the purchase of 261,192
shares
10.10 Placement Agent Agreement dated May 25, 1999 between Telecom Wireless
and Jack Augsback & Associates, Inc.
10.11 Common Stock Purchase Agreement dated May 25, 1999 between Telecom
Wireless and those persons identified on accompanying schedule
10.12 Registration Rights Agreement between Telecom Wireless and the persons
listed on the purchaser signature pages thereto accompanied by a
schedule identifying other Registration
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Rights Agreements to which Telecom Wireless is a party that are
substantially identical and material details in which such agreements
differ from filed agreement
10.13 Repricing Warrant issued by Telecom Wireless to each of the persons
identified in the accompanying schedule
10.14 Warrant Certificate No. TK-2 dated May 24, 1999 issued by Telecom
Wireless to Thomson Kernaghan & Co., Ltd., as Agent
10.15 Placement Agent Warrant Certificate No. TK-1 dated June 9, 1999 issued
by Telecom Wireless to Thomson Kernaghan & Co. Ltd.
10.16 Common Stock Purchase Agreement dated July 28, 1999 between Telecom
Wireless and those persons identified on accompanying schedule
10.17 Master Lease Agreement dated July 30, 1999 between Lucent Technologies,
Inc. Internetworking Division and Telecom Wireless
10.18 Warrant Agreement dated August 26, 1999 issued by Telecom Wireless to
Jack Augsback & Associates, Inc. accompanied by a schedule identifying
other Warrant Agreements to which Telecom Wireless is a party that are
substantially identical and material details in which such agreements
differ from filed agreement
10.19 Services Agreement dated August 30, 1999 between Telecom Wireless and
John H. Sununu
10.20 Letter Agreement dated September 1, 1999 between Telecom Wireless and
First Equity Capital Securities, Inc., as amended
10.21 Bridge Loan Agreement between Telecom Wireless and Commtel Services
Ltd. accompanied by a schedule identifying other Bridge Loan Agreements
to which Telecom Wireless is a party that are substantially identical
and material details in which such agreements differ from filed
agreement
10.22 Guaranty dated September 1, 1999 by Dr. James C. Roberts for the
benefit of Commtel Services Ltd., Kenneth R. Levine and Stanley Becker,
in their capacity as Bridge Lenders
10.23 Common Stock Purchase Agreement dated as of September 10, 1999
between Telecom Wireless and those persons identified on accompanying
schedule
10.24 Agreement and Plan of Merger dated September 21, 1999 among Telecom
Wireless, TWC/Prentice Acquisition Company, Inc. and Prentice
Technologies, Inc.
10.25 Executive Employment Agreement dated September 23, 1999, between
Telecom Wireless Corporation and Shawn P. Richmond
10.26 Warrant issued by Telecom Wireless to John H. Sununu for the purchase
of 720,000 shares
10.27 Warrant issued by Telecom Wireless to John H. Sununu for the purchase
of 500,000 shares
10.28 Amended and Restated 1999 Stock Option and Restricted Stock Plan
10.29 Put/Call Agreement between Telecom Wireless and Joshua Mailman, as
amended
10.30 Form of Warrant to Purchase Shares of Common Stock issued to each of
Calvin D. Smiley and Esper Gullatt, Jr. for the purchase of 61,611
shares
21.1 List of Subsidiaries of Telecom Wireless
23.1* Consent of [Law Firm] (included in Exhibit 5.1)
23.2 Consent of Ehrhardt Keefe Steiner & Hottman PC, Englewood, Colorado
23.3 Consent of Ehrhardt Keefe Steiner & Hottman PC, Englewood, Colorado
23.4 Consent of Gerstle, Rosen & Associates, P.A., Boca Raton, Florida
23.5 Consent of Girardin Baldwin & Associates LLP, Naples, Florida
</TABLE>
<PAGE>
<TABLE>
<S> <C>
27.1 Financial Data Schedule
</TABLE>
- ---------------------------------
* To be filed by amendment.
<PAGE>
ARTICLES OF INCORPORATION
OF
STETSON OIL EXCHANGE, INC.
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is Stetson Oil Exchange, Inc.
ARTICLE II
DURATION
The Corporation shall exist perpetually or until dissolved according to law.
ARTICLE III
PURPOSES
The purpose of the Corporation is to buy, sell, lease, rent or
otherwise supply used oil field or other industrial equipment to commercial
operators; and to engage in any lawful act or lawful activity under the Utah
Business Corporation Act or under any other federal, state or local laws and
regulations.
ARTICLE IV
SHARES
The aggregate number of shares which the Corporation shall have
authority to issue is Fifty Million (50,000,000) shares of Common Stock
having a par value of one mil ($.001) per share. All voting rights of the
Corporation shall be exercised by the holders of the Common Stock, with each
share of Common Stock being entitled to one vote. All shares of Common Stock
shall have equal rights in the event of dissolution or final liquidation.
ARTICLE V
REGULATION OF INTERNAL AFFAIRS
Section 1. SHAREHOLDERS' MEETINGS. Meetings of Shareholders may be
called by the President or by any one Director or by any number of
Shareholders owning not less than ten percent of the outstanding shares
entitled to vote at such Meeting. Notice of Shareholders' Meetings shall be
given in writing by mailing such notice to the address of every Shareholder,
at the last
1
<PAGE>
known address of such Shareholder, at least ten days prior to the date and
hour of said meeting. Publication of notice of a Shareholders' meeting is not
required for any purpose. Any notice required to be given any Shareholders of
this Corporation may be waived by written instrument signed by such
Shareholders.
Section 2. BY-LAWS. The majority of the Directors may adopt By-Laws
for the Corporation which are consistent with these Articles and the laws of
the State of Utah and may amend and repeal from time to time any By-Law.
Section 3. CONTRACTS WITH INTERESTED DIRECTORS OR OFFICERS. No
contract, lease, or other transaction between the Corporation and any other
corporation and no other act of the Corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected, by the fact that any one or more of the Directors or
Officers of the Corporation are pecuniarily or otherwise interested in, or
are Officers or Directors of, such other corporation. Any Officer may
recommend or approve, if it is within the scope of his authority to do so,
and any Director of the Corporation may vote upon any contract or other
transaction between the Corporation and any subsidiary or affiliated
corporation without regard to the fact that such officer or Director is also
an officer or Director of such subsidiary or individually, or any firm or
association of which any officer or Director may be a member, may be a party
to, or may be pecuniarily or otherwise interested in, any contract, lease, or
other transaction with the Corporation, provided that the fact that he
individually or as a member of such firm or association is such a party to,
or is so interested in, any contract, lease, or other transaction with the
Corporation, shall be disclosed, or shall have been known, to the Board of
Directors or by a majority of such members thereof as shall be present at any
meeting of the Board of Directors at which action upon any such contract or
transaction shall be taken-, and in any case described in this paragraph, any
such Director may be counted in determining the existence of a quorum at any
meeting of the Board of Directors which shall authorize any such contract,
lease, or other transaction and may vote thereat to authorize any such
contract or transaction.
ARTICLE VI
NO PREEMPTIVE RIGHTS
No holder of shares of the Capital Stock of any class of the
Corporation shall have any preemptive or preferential rights of subscription
to any shares of any class of stock of the Corporation, whether now or
hereafter authorized, or to any obligations convertible into stock of the
Corporation, issued or sold. The term, 'convertible obligations' as used
herein shall include any notes, bonds or other evidences of indebtedness to
2
<PAGE>
which are attached or with which are issued warrants or other rights to
purchase stock of the Corporation.
ARTICLE VII
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation is
1750 East 4800 South #35, Salt Lake City, Utah 84117, and the name of its
initial Registered Agent at such address is Denne Dixon.
ARTICLE VIII
DIRECTORS
The number of Directors which shall constitute the initial
Board of Directors of the Corporation is three. They shall serve as
Directors until the first regular Annual Meeting of the Shareholders or
until their successors are elected and shall qualify. They are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Denne Dixon 1750 East 4800 S. #35
Salt Lake City, UT 84117
Gus Dixon 150 S. 1st E.
Payson, UT 84651
Bonne Lacario 602 S. 800 W.
Payson, UT 84651
</TABLE>
ARTICLE IX
INCORPORATORS
The name and address of each incorporator is:
<TABLE>
<CAPTION>
NAME ADDRESSES
---- ---------
<S> <C>
Denne Dixon 1750 E. 4800 S. #35
Salt Lake City, UT 84117
Gus Dixon 150 S. 1st E.
Payson, UT 84651
Bonne Lacario 602 S. 800 W.
Payson, UT 84651
</TABLE>
ARTICLE X
COMMENCEMENT OF BUSINESS
The Corporation shall not commence business until a consideration of
the value of at least One Thousand Dollars ($1,000) has been received for the
issuance of the shares.
3
<PAGE>
ARTICLE XI
INDEMNIFICATION - EXCULPATION
The Corporation shall provide indemnification and/or exculpation to
its Directors, Officers, employees agents, and other entities which deal with
it to the maximum extent provided, and under the terms provided, by the laws
and decisions of the courts of the State of Utah and by any additional
applicable federal or state laws or court decisions.
DATED this 8th day of January, 1984.
/s/ DENNE DIXON
------------------------------
Denne Dixon
/s/ GUS DIXON
------------------------------
Gus Dixon
/s/ BONNE LACARIO
------------------------------
Bonne Lacario
STATE OF UTAH )
) s.s.
COUNTY OF SALT LAKE )
On the 8th day of January, 1984 personally appeared before me Denne
Dixon, Gus Dixon and Bonne Lacario who, being by me duly sworn, declared that
they are the persons who signed the within and foregoing Articles of
Incorporation as incorporators and that the statements contained therein are
true.
/s/ [illegible] SLC, UT
------------------------------
Notary Public, residing at
My Commission Expires: June 3, 1987
4
<PAGE>
ARTICLES OF AMENDMENT
ARTICLE I. NAME
The name of this Utah profit corporation is:
Stetson Oil Exchange, Inc.
ARTICLE II. AMENDMENTS
The Articles of Incorporation are amended as follows:
Article I is amended to change the name of the corporation from Stetson
Oil Exchange, Inc. to Telecom Wireless Corporation.
Article II is amended to increase the number of authorized shares of
Common Stock from 50,000,000 shares, par value $.006 to 500,000,000
shares, par value $.006.
The amendments set forth in these Articles of Amendment were proposed by the
Corporation's Board of Directors and approved by the shareholders by a vote
sufficient for approval on March 12, 1998. The designation and number of
shares outstanding is 9,826,674 of common stock. The number of votes entitled
to be cast on the amendments was 9,826,674. The number of undisputed votes
cast for the amendment was 5,500,000.
The undersigned authorized representative executed this document on date set
forth below.
BY: /s/ MARC L. BAKER
-------------------------------------
Name: Marc L. Baker
Title: President & Chairman of the Board
Date: March 12, 1998
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
TELECOM WIRELESS CORPORATION
Pursuant to the provisions of Section 16-10a-1006 of the Utah
Revised Business Corporation Act, Telecom Wireless Corporation, a Utah
corporation, hereinafter referred to as the "Corporation" hereby adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The Name of the Corporation is Telecom Wireless Corporation
SECOND: The Board of Directors and Shareholders of the Corporation, on April
17, 1999, adopted a resolution decreasing the authorized and
outstanding shares of common stock by means of a 1 for 5 reverse stock
split, and subsequently authorizing the par value at $.001. The number
and par value of authorized shares before the change is as follows:
Common Stock - 500,000,000 shares authorized; $0.006 par value. The
number and par value of authorized shares after the forward stock
split is as follows: Common Stock - 100,000,000 shares authorized;
$0.001 par value.
Pursuant to the 1-5 reverse stock split, one (1) share of common stock
shall be issued pursuant to the change for each issued share of common
stock prior to the change. No fractional shares shall be issued
pursuant to the change. In lieu of fractional shares, each fractional
share otherwise issuable shall be rounded up to the nearest whole
share. The reverse stock split was approved by unanimous consent of
the directors and ratified by majority consent of the shareholders.
THIRD: The Board of Directors and Shareholders of the Corporation, on April
17, 1999, likewise adopted a resolution to increase the number of
authorized shares following the 1 for 5 reverse split to 125,000,000
consisting of 100,000,000 common shares, par value $.001 and
25,000,000 Preferred Shares, par value $.001.
FOURTH: Article IV of the Articles of Incorporation shall be reconfirmed after
the decrease and increase to read in full as follows:
ARTICLE IV
SHARES
THE AGGREGATE NUMBER OF SHARES OF STOCK WHICH THE CORPORATION SHALL HAVE THE
AUTHORITY TO ISSUE IS ONE HUNDRED TWENTY-FIVE MILLION (125,000,000) SHARES,
CONSISTING OF ONE HUNDRED MILLION (100,000,000) SHARES OF COMMON STOCK HAVING A
PAR VALUE OF $.001 PER SHARE AND TWENTY FIVE MILLION (25,000,000) SHARES OF
PREFERRED STOCK HAVING A PAR VALUE OF $.001 PER SHARE.
[STAMP]
<PAGE>
A. PREFERRED STOCK: THE BOARD OF DIRECTORS IS AUTHORIZED, SUBJECT TO THE
LIMITATIONS PRESCRIBED BY LAW AND THE PROVISIONS OF THIS ARTICLE, TO PROVIDE FOR
THE ISSUANCE OF THE SHARES OF PREFERRED STOCK IN SERIES, AND BY FILING A
CERTIFICATE PURSUANT TO THE APPLICABLE LAW OF THE STATE OF UTAH, TO ESTABLISH
FROM TIME TO TIME THE NUMBER OF SHARES TO BE INCLUDED IN EACH SUCH SERIES AND TO
FIX THE DESIGNATION, POWERS, PREFERENCES AND RIGHTS OF THE SHARES OF EACH SUCH
SERIES AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF.
1. THE AUTHORITY OF THE BOARD WITH RESPECT TO EACH SERIES SHALL INCLUDE,
BUT NOT BE LIMITED TO, DETERMINATION OF THE FOLLOWING:
A. THE NUMBER OF SHARES CONSTITUTING THAT SERIES AND THE DISTINCTIVE
DESIGNATION OF THAT SERIES;
B. THE DIVIDEND RATE ON THE SHARES OF THAT SERIES, WHETHER DIVIDENDS
SHALL BE CUMULATIVE, AND IF SO, FROM WHICH DATE OR DATES, AND THE
RELATIVE RIGHTS OF PRIORITY, IF ANY, OF PAYMENT OF DIVIDENDS ON
SHARES OF THAT SERIES;
c. WHETHER THAT SERIES SHALL HAVE VOTING RIGHTS, IN ADDITION TO THE
VOTING RIGHTS PROVIDED BY LAW, AND IF SO, THE TERMS OF SUCH
VOTING RIGHTS;
d. WHETHER THAT SERIES SHALL HAVE CONVERSION PRIVILEGES AND, IF SO,
THE TERMS AND CONDITIONS OF SUCH CONVERSION, INCLUDING PROVISION
FOR ADJUSTMENT OF THE CONVERSION RATE IN SUCH EVENTS AS THE BOARD
OF DIRECTORS SHALL DETERMINE;
e. WHETHER OR NOT THE SHARES OF THAT SERIES SHALL BE REDEEMABLE AND,
IF SO, THE TERMS AND CONDITIONS OF SUCH REDEMPTION, INCLUDING THE
DATE OR DATES UPON OR AFTER WHICH THEY SHALL BE REDEEMABLE AND
THE AMOUNT PER SHARE PAYABLE IN CASE OF REDEMPTION, WHICH AMOUNT
MAY VARY UNDER DIFFERENT CONDITIONS AND AT DIFFERENT REDEMPTION
DATES;
f. WHETHER THAT SERIES SHALL HAVE A SINKING FUND FOR THE REDEMPTION
OR PURCHASE OF SHARES OF THAT SERIES AND, IF SO, THE TERMS AND
AMOUNT OF SUCH SINKING FUND;
g. THE RIGHTS OF THE SHARES OF THAT SERIES IN THE EVENT OF VOLUNTARY
OR INVOLUNTARY LIQUIDATION, DISSOLUTION OR WINDING UP OF THE
CORPORATION, AND THE RELATIVE RIGHTS OF PRIORITY, IF ANY, OF
PAYMENT OF SHARES OF THAT SERIES; AND
h. ANY OTHER RIGHTS, PREFERENCES AND LIMITATIONS OF THAT SERIES.
<PAGE>
2. DIVIDENDS ON OUTSTANDING SHARES OF PREFERRED STOCK SHALL BE PAID OR
DECLARED AND SET APART FOR PAYMENT, BEFORE ANY DIVIDENDS SHALL BE PAID
OR DECLARED AND SET APART FOR PAYMENT ON COMMON STOCK WITH RESPECT TO
THE SAME DIVIDEND PERIOD.
3. IF UPON ANY VOLUNTARY OR INVOLUNTARY LIQUIDATION, DISSOLUTION OR
WINDING UP OF THE CORPORATION, THE ASSETS AVAILABLE FOR DISTRIBUTION
TO HOLDERS OF SHARES OF PREFERRED STOCK OF ALL SERIES SHALL BE
INSUFFICIENT TO PAY SUCH HOLDERS THE FULL PREFERENTIAL AMOUNT TO WHICH
THEY ARE ENTITLED, THEN SUCH ASSETS SHALL BE DISTRIBUTED RATABLY AMONG
THE SHARES OF ALL SERIES OF PREFERRED STOCK IN ACCORDANCE WITH THE
RESPECTIVE PREFERENTIAL AMOUNTS (INCLUDING UNPAID CUMULATIVE
DIVIDENDS, IF ANY) PAYABLE WITH RESPECT THERETO.
4. UNLESS OTHERWISE PROVIDED IN ANY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR THE ISSUANCE OF ANY PARTICULAR SERIES OF PREFERRED
STOCK, NO HOLDER OF PREFERRED STOCK SHALL HAVE ANY PRE-EMPTIVE RIGHT
AS SUCH HOLDER TO SUBSCRIBE FOR, PURCHASE OR RECEIVE ANY PART OF ANY
NEW OR ADDITIONAL ISSUE OF CAPITAL STOCK OF ANY CLASS OR SERIES,
INCLUDING UNISSUED AND TREASURY STOCK, OR OBLIGATIONS OR OTHER
SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR CAPITAL STOCK OF ANY
CLASS OR SERIES, OR WARRANTS OR OTHER INSTRUMENTS EVIDENCING RIGHTS OR
OPTIONS TO SUBSCRIBE FOR, PURCHASE OR RECEIVE ANY CAPITAL STOCK OF ANY
CLASS OR SERIES, WHETHER NOW OR HEREAFTER AUTHORIZED AND WHETHER
ISSUED FOR CASH OR OTHER CONSIDERATION OR BY WAY OF DIVIDEND.
B. COMMON STOCK
1. SUBJECT TO THE PRIOR AND SUPERIOR RIGHTS OF THE PREFERRED STOCK AND ON
THE CONDITIONS SET FORTH IN THE FOREGOING PARTS OF THIS ARTICLE OR IN
ANY RESOLUTION OF THE BOARD OF DIRECTORS PROVIDING FOR THE ISSUANCE OF
ANY PARTICULAR SERIES OF PREFERRED STOCK, AND NOT OTHERWISE, SUCH
DIVIDENDS (PAYABLE IN CASH, STOCK OR OTHERWISE) AS MAY BE DETERMINED
BY THE BOARD OF DIRECTORS MAY BE DECLARED AND PAID ON THE COMMON STOCK
FROM TIME TO TIME OUT OF ANY FUNDS LEGALLY AVAILABLE THEREFOR.
2. EXCEPT AS OTHERWISE PROVIDED BY LAW, BY THIS CERTIFICATE OF
INCORPORATION OR BY THE RESOLUTION OR RESOLUTIONS OF THE BOARD OF
DIRECTORS PROVIDING FOR THE ISSUE OF ANY SERIES OF THE PREFERRED
STOCK, THE COMMON STOCK SHALL HAVE THE EXCLUSIVE RIGHT TO VOTE FOR THE
ELECTION OF DIRECTORS AND FOR ALL OTHER PURPOSES, EACH HOLDER OF THE
COMMON STOCK BEING ENTITLED TO ONE VOTE FOR EACH SHARE HELD.
3. UPON ANY LIQUIDATION, DISSOLUTION OR WINDING UP OF THE CORPORATION,
VOLUNTARY OR INVOLUNTARY, AND AFTER THE HOLDERS OF THE PREFERRED STOCK
OF EACH
<PAGE>
SERIES SHALL HAVE BEEN PAID IN FULL THE AMOUNT TO WHICH THEY
RESPECTIVELY SHALL BE ENTITLED, OR A SUM SUFFICIENT FOR SUCH PAYMENTS
IN ASSETS OF THE CORPORATION SHALL BE DISTRIBUTED PRO RATA TO THE
HOLDERS OF THE COMMON STOCK IN ACCORDANCE WITH THEIR RESPECTIVE RIGHTS
AND INTERESTS, TO THE EXCLUSION OF THE HOLDERS OF THE PREFERRED STOCK.
FIFTH: By executing these Articles of Amendment to the Articles of
Incorporation, the president and secretary of the Corporation do
hereby certify that on April 17, 1999, the foregoing amendments to the
Articles of Incorporation of Telecom Wireless Corporation were
authorized and approved pursuant to Section 16-10a-704 of the Utah
Revised Business Corporation Act by majority consent of the
Corporation's shareholders. The number of issued and outstanding
shares entitled to vote on the foregoing amendments to the Articles of
Incorporation was 73,449,969 of which 53,126,662 shares signed a
majority consent and 0 shares voted against and 0 shares abstained
from the foregoing amendment to the Articles of Incorporation. No
other class of shares was entitled to vote thereon as a class.
Dated: 19th of April, 1999.
-----
/s/ Jim Roberts
-----------------------------------
Jim Roberts, President
/s/ Lynne Roberts
-----------------------------------
Lynne Roberts, Secretary
<PAGE>
State of Colorado Section
Section
County of Arapahoe Section
------------------
On the 19th day of April, 1999, personally appeared before me the undersigned
notary public, Jim Roberts, who being by me first duly sworn, declared that he
is the president of the above named corporation, that he signed the foregoing
Articles of Amendment to the Articles of Incorporation and that the statements
contained therein are true and correct.
/s/ Ralph C. Epen
-------------------------------------
Notary Public Ralph C. Epen
Expires 6/19/99
State of Colorado Section
Section
County of Arapahoe Section
-------------------
On the 19th day of April, 1999, personally appeared before me the undersigned
notary public, Lynne Roberts, who being by me first duly sworn, declared that
she is the secretary of the above named corporation, that she signed the
foregoing Articles of Amendment to the Articles of Incorporation and that the
statements contained therein are true and correct.
/s/ Ralph C. Epen
---------------------------------------
Notary Public Ralph C. Epen
Expires 6/19/99
<PAGE>
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
REDEEMABLE, NON-VOTING, CONVERTIBLE
PREFERRED STOCK, SERIES 1998-1
OF
TELECOM WIRELESS CORPORATION
TELECOM WIRELESS CORPORATION, a Utah corporation (the "Corporation"),
does hereby certify that, pursuant to the authority conferred upon the Board
of Directors by the Articles of Incorporation, as amended, of the Corporation
and pursuant to Section 16-10a-821 of the Utah Revised Business Corporation
Act, said Board of Directors, pursuant to a Special Meeting of the Board of
Directors held October 6, 1999, duly adopted the following resolution without
shareholder action, which action was not required by the Articles of
Incorporation, as amended, of the Corporation:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of TELECOM WIRELESS CORPORATION, a Utah
corporation (the "Corporation"), by the Articles of Incorporation of the
Corporation, the Board of Directors hereby creates out of the authorized
preferred stock, par value $.001 per share, of the Corporation a series of
preferred stock to consist of not more than 20,000 shares, and this Board of
Directors hereby fixes the designation and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the shares of
such series as follows:
1. DESIGNATION. This resolution shall provide for a single series of
preferred stock, the designation of which shall be "Redeemable, Non-Voting,
Convertible Preferred Stock--Series 1998-1" (hereinafter the "Preferred
Shares" or the "Preferred Stock") and the number of authorized shares
constituting the Preferred Stock is 20,000. The number of authorized
Preferred Shares may be reduced or increased by a further resolution duly
adopted by the Board of Directors of the Corporation and by the filing of an
amendment to the Corporation=s Articles of Incorporation pursuant to the
provisions of the Utah Revised Business Corporation Act stating that such
reduction or increase has been so authorized.
2. VOTING. Except as provided herein or otherwise expressly required by
the laws of the State of Utah, the holders of the Preferred Shares shall have
no voting rights and shall not be entitled to notice of meetings of
shareholders, and the exclusive voting power shall be vested in the holders
of the shares of the Corporation=s Common Stock, $.001 par value per share
(the "Common Stock"), and/or in any other series of the Corporation=s
preferred stock now or at any time hereafter issued and outstanding having
voting rights.
2.1 MEETINGS. Whenever holders of the Preferred Stock are entitled
to vote as provided herein, the Corporation shall call a special meeting of
holders of the Preferred Stock upon not less than ten nor more than 60 days
notice to such holders. The Corporation shall also call a special meeting of
such holders upon the request made by any holder(s) of ten percent or more of
the number of outstanding Preferred Shares, In the event the matter to be
voted on shall be subject to any laws, rules or regulations with respect to
the solicitation of proxies or otherwise, the holders of the Preferred Stock
agree to timely provide the Corporation with such information as it shall
reasonably require to comply therewith.
2.2 QUORUM. The holders of a majority of the outstanding shares of
Preferred Stock, present in person or by proxy, shall constitute a quorum for
all meetings of Preferred Stockholders.
<PAGE>
2.3 VOTING RIGHTS. Unless otherwise required by law, action on a
matter required to be voted upon by the holders of the Preferred Stock shall
be approved if a quorum exists and if the votes cast favoring the action
exceed the votes cast opposing the action. If any corporate action shall
require a vote of the holders of the Preferred Shares other than as a class,
the Preferred Shares shall vote as a group with all other shares of capital
stock having voting rights. The holders of the Preferred Stock may also act
by unanimous written consent, signed by all such holders, without a meeting.
3. REDEMPTION.
3.1 VOLUNTARY REDEMPTION. Except as provided herein to the
contrary and subject to Regulatory Requirements, the Corporation shall have
the right to redeem the Preferred Stock at any time and from time to time in
whole or in part on or after January 1, 2005.
3.2 REDEMPTION PRICE. The redemption price for each share of
Preferred Stock shall be $100.00 (the "Redemption Price"). In the event of a
redemption of only a part of the outstanding Preferred Stock, the Corporation
shall effect such redemption ratably according to the number of shares held
by each holder of the Preferred Stock.
3.3 REDEMPTION NOTICE. At least ten and not more than 60 days
prior to the date fixed for any such redemption of the Preferred Stock (the
"Redemption Date"), written notice (the "Redemption Notice") shall be mailed,
postage prepaid, to each holder of record of the Preferred Stock at his or
her post office address last shown on the records of the Corporation. The
Redemption Notice shall state:
(a) Whether all or less than all of the outstanding shares of
Preferred Stock are to be redeemed and the total number of shares being
redeemed.
(b) The number of shares of Preferred Stock held by the holder
that the Corporation intends to redeem.
(c) The Redemption Date and the Redemption Price.
(d) That the holder is to surrender to the Corporation, in the
manner and at the place designated, his or her certificate or certificates
representing the shares of Preferred Stock to be redeemed.
3.4 SURRENDER OF CERTIFICATES. On or before the Redemption Date,
each holder of Preferred Stock to be redeemed shall surrender the certificate
or certificates representing such shares to the Corporation in the manner and
at the place designated in the Redemption Notice and, thereupon, the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof
and each surrendered certificate shall be canceled and retired. In the event
less than all the shares represented by such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
3.5 TERMINATION OF RIGHTS AS STOCKHOLDER. If the Redemption Notice
shall have been duly given and if on the Redemption Date the Redemption Price
is either paid or set apart for payment, then, notwithstanding that the
certificates evidencing any of the shares of Preferred Stock so called for
redemption shall not have been surrendered, all rights with respect to such
shares shall forthwith after the Redemption Date terminate, except only the
right of the holders to receive the Redemption Price, without interest, upon
surrender of their certificate or certificates therefor.
2
<PAGE>
4. CONVERSION.
4.1 VOLUNTARY CONVERSION. The Preferred Stock shall be convertible
into shares of Common Stock of the Corporation ("Conversion Shares") upon the
filing of a Registration Statement with the Securities and Exchange
Commission ("SEC") for a public offering of shares of the Corporation.
One-half of the shares upon exercise of the conversion will have "piggyback"
registration rights on the first public offering; the remaining shares
resulting from the conversion will have registration rights on the next
subsequent or secondary offering. These registration rights shall be granted
pursuant to Section 4.2. Subject to approval of the regulatory authorities
and the underwriters, the Preferred Shares will convert to Common Stock of
the Corporation on the following basis: The conversion rate will be
determined at the time of the public offering by first taking 25% of the
price at which a share of the Corporation=s Common Stock will be offered to
the public. This number so calculated will be the divisor and the Redemption
Price ($100) will be the dividend and the quotient will then be the number of
shares of Common Stock into which each share of Preferred Stock will be
convertible. For example, if the offering price to the public is $10.00, the
exchange or conversion rate will be determined as follows: 25% of the
offering price = $2.50, then $100.00 ) $2.50 = 40 shares of Common Stock for
each share of Preferred Stock. The Common Stock received upon conversion by a
holder of Preferred Shares, subject to the foregoing registration rights,
shall be restricted pursuant to Rule 144 and shall contain a legend on each
certificate to that effect.
4.2 REGISTRATION RIGHTS.
(a) DEFINITIONS.
(i) "Commission" means the Securities and Exchange
Commission.
(ii) "Exchange Act" means the Securities Exchange Act of 1934.
(iii) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement.
(iv) "Securities Act" means the Securities Act of 1933, as
amended.
(b) CORPORATION REGISTRATION. Subject to paragraph 4.2(f),
immediately prior to both the first and second public offerings after the
Preferred Shares are issued, in which the Corporation proposes to register
its Common Stock under the Securities Act, the Corporation shall promptly
give each holder of Preferred Stock written notice of such determination.
Upon the written request of any holder ("Selling Holder") given within ten
(10) days after mailing of any such notice by the Corporation, the
Corporation shall use its best efforts to cause to be registered under the
Securities Act up to one-half of the Conversion Shares in the first offering
and the remaining Conversion Shares in the second offering that each such
Selling Holder has requested to be registered. Such written request shall be
accompanied by the certificate or certificates evidencing the shares of
Preferred Stock to be converted, duly endorsed or accompanied by duly
executed stock powers and received at the office of the Corporation. The
Corporation shall concurrently with effectiveness of the registration
statement issue the Conversion Shares in the name of such converting holder
and/or in the name of such holder=s designee.
(c) OBLIGATIONS OF THE CORPORATION. Whenever required under
paragraph 4.2(b) to use its best efforts to effect the registration of any
Conversion Shares, the Corporation shall, as expeditiously as reasonably
possible:
3
<PAGE>
(i) Prepare and file with the Commission a registration
statement with respect to such Conversion Shares and use its best
efforts to cause such registration statement to become and remain
effective; provided, however, that in connection with any proposed
registration intended to permit an offering of any securities from
time to time (i.e., a so-called "shelf registration"), the
Corporation shall in no event be obligated to cause any such
registration to remain effective for more than ninety (90) days.
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement.
(iii)Furnish to the Selling Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition
of Conversion Shares owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue-sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered
by the registration statement, provided that the Corporation shall
not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and further provided
that (anything in this Agreement to the contrary notwithstanding with
respect to the bearing of expenses) if any jurisdiction in which the
securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that
jurisdiction be borne by selling shareholders pro rata, to the extent
required by such jurisdiction.
(d) FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Corporation to take any action that the Selling
Holders shall furnish to the Corporation such information regarding them, the
Conversion Shares held by them, and the intended method of disposition of
such securities as the Corporation shall reasonably request and as shall be
required in connection with the action to be taken by the Corporation.
(e) REGISTRATION EXPENSES. The Corporation shall pay all
costs and expenses relating to such registration; provided, however, that if
any such cost or expense is attributable solely to one or more but fewer than
all Selling Holders and does not constitute a normal cost or expense of such
a registration, such cost or expense shall be allocated to those Selling
Holders. In addition, each Selling Holder shall bear the fees and costs of
its own counsel.
(f) UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of Common Stock being issued by
the Corporation, the Corporation shall not be required under paragraph 4.2(b)
to include any of the Selling Holders' Conversion Shares in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Corporation and the underwriters selected by it, and then only in such
quantity as will not, in the written opinion of the underwriters, jeopardize
the success of the offering by the Corporation. If the total amount of
securities that all Selling Holders request to be included in such offering
exceeds the amount of securities that the underwriters reasonably believe
compatible with the success of the offering, the Corporation shall only be
required to include in the offering so many of the securities of the Selling
Holders as the underwriters believe will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
Selling Holders according to
4
<PAGE>
the total amount of securities owned by said selling Holders, or in such
other proportions as shall mutually be agreed to by such Selling Holders),
provided that no such reduction shall be made with respect to any securities
offered by the Corporation for its own account.
(g) DELAY OF REGISTRATION. No Selling Holder shall have any
right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
(h) INDEMNIFICATION. In the event any Conversion Shares are
included in a registration statement:
(i) To the extent permitted by law, the Corporation will
indemnify and hold harmless each Selling Holder requesting or joining
in a registration, any underwriter (as defined in the Securities Act)
for it, and each such person, if any, who controls such Selling
Holder or underwriter within the meaning of the Securities Act,
against any losses, claims, damages, or liabilities, joint or
several, to which they may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading;
and will reimburse each such Holder, such underwriter, or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this paragraph 4.2(h)(i) shall not apply to
amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the
consent of the Corporation (which consent shall not be unreasonably
withheld) nor shall the Corporation be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished expressly for
use in connection with such registration by any such Selling Holder,
underwriter, or controlling person.
(ii) To the extent permitted by law, each Selling Holder
requesting or joining in a registration will indemnify and hold
harmless the Corporation, each of its directors, each of its officers
who have signed the registration statement, each person, if any, who
controls the Corporation within the meaning of the Securities Act,
and each agent and any underwriter for the Corporation (within the
meaning of the Securities Act) against any losses, claims, damages,
or liabilities to which the Corporation or any such director,
officer, controlling person, agent, or underwriter may become
subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in
5
<PAGE>
reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or
other expenses reasonably incurred by the Corporation or any such
director, officer, controlling person, agent, or underwriter in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the
indemnity agreement contained in this paragraph 4.2(h)(ii) shall
not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected
without the consent of such Selling Holder (which consent shall
not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party under
this paragraph of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this paragraph, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified
party under this paragraph, but the omission to so notify the
indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this paragraph.
(i) LOCKUP AGREEMENT. In consideration for the Corporation
agreeing to its obligations under this Agreement, each Holder agrees in
connection with any registration of the Corporation's securities that, upon
the request of the Corporation or the underwriters managing any underwritten
offering of the Corporation's securities, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Conversion Shares (other than those included in the registration) without the
prior written consent of the Corporation or such underwriters, as the case
may be, for such period of time (not to exceed ninety (90) days) from the
effective date of such registration as the Corporation or the underwriters
may specify.
4.3 ADDITIONAL CONDITION. Notwithstanding anything herein
contained to the contrary, the Corporation shall not be obligated to issue
the Conversion Shares until there shall have been delivered to the
Corporation or to its transfer agent, as applicable, an opinion of counsel
reasonably satisfactory to the Corporation to the effect that the issuance of
such Common Stock is exempt from registration under the Securities Act of
1933, as amended, and from qualification under applicable state laws or that
a registration statement with respect thereto has been filed with the
Securities and Exchange Commission and with the appropriate state regulatory
authorities and has become effective.
4.4 RESERVATION OF SHARES. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuance upon the conversion of the
Preferred Shares, such number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock. All shares of Common Stock
which are so issuable shall, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to assure that
all such shares of Common Stock may be so issued without violation of any
applicable law or government regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any
action which would cause the number of authorized but unissued shares of
Common Stock to
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be less than the number of such shares required to be reserved hereunder for
issuance upon conversion of the Preferred Shares.
4.5 NO FRACTIONAL SHARES; CURRENT MARKET VALUE. No fractional
shares or scrip representing fractional shares shall be issued upon
conversion of the Preferred Stock. With respect to any fraction of a share
called for upon any conversion thereof, the Corporation shall pay to the
holder an amount in cash equal to such fraction multiplied by the per-share
public offering price of the Common Stock less underwriting discounts and
commissions.
5. EXCHANGE, ASSIGNMENT OR LOSS OF PREFERRED SHARES. Subject to the
provisions of Section 6 hereof, the Preferred Stock is assignable and
exchangeable, without expense, at the option of the holder, upon presentation
and surrender of such Preferred Stock to the Corporation, together with
written instructions signed by the holder of such Preferred Stock with
respect to reissuance thereof and good funds sufficient to pay any transfer
or similar tax; whereupon the Corporation shall, without charge, execute and
deliver Preferred Stock in the designated denominations and in the designated
name(s) and the Preferred Stock so surrendered promptly shall be canceled.
Upon receipt by the Corporation of evidence satisfactory to it of the loss,
theft, destruction or mutilation of Preferred Stock certificates, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification including a surety bond, and upon surrender and cancellation
of Preferred Stock certificates, if mutilated, the Corporation will execute
and deliver new Preferred Stock certificates of like tenor and date. Any such
new Preferred Stock certificates executed and delivered shall constitute
additional contractual obligation on the part of the Corporation, whether or
not the Preferred Stock certificates so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
6. LEGENDS AND SECURITIES LAW COMPLIANCE.
6.1 SECURITIES LAW COMPLIANCE. Neither the Preferred Stock nor the
Common Stock nor any other security issued or issuable upon conversion of the
Preferred Stock may be issued, offered or sold except in conformity with the
Securities Act of 1933, as amended, and applicable state laws, and then only
against receipt of an agreement of such person to whom such offer of sale is
made to comply with the provisions of this Section with respect to any resale
or other disposition of such securities.
6.2 SECURITIES LEGEND. The Corporation may cause the following
legend to be set forth on each certificate representing Preferred Stock or
any other security issued or issuable upon conversion of the Preferred Stock,
unless counsel for the Corporation is of the opinion as to any such
certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act"), or pursuant to an exemption from registration under the Act
the availability of which is to be established to the reasonable
satisfaction of the Corporation.
6.3 OTHER LEGENDS. All certificates representing the Preferred
Shares and any and all securities issued in replacement thereof or upon
conversion thereof shall bear such additional legends as shall be required by
law or contract.
7. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, resulting
in any distribution of its assets to its shareholders, the holders of the
Preferred Shares then issued and outstanding shall be entitled to receive an
amount equal
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to $100.00 per Preferred Share plus any accumulated but unpaid dividends (the
"Liquidation Value"), and no more, before any payment or distribution of the
assets of the Corporation is made to or set apart for the holders of Common
Stock. If the assets of the Corporation distributable to the holders of
Preferred Shares are insufficient for the payment to them of the full
preferential amount described above, such assets shall be distributed ratably
among the holders of the Preferred Shares. The holders of the Common Stock
shall be entitled to the exclusion of the holders of the Preferred Shares to
share in all remaining assets of the Corporation in accordance with their
respective interests. For purposes of this paragraph, a consolidation or
merger of the Corporation with any other corporation or corporations shall
not be deemed to be a liquidation, dissolution or winding up of the
Corporation.
8. DEFINITION. The term "Regulatory Requirements" shall mean any and
all applicable (i) laws (whether statutory or otherwise), rules, regulations,
requirements, restrictions, licenses and registrations of all governmental,
judicial, legislative, executive, administrative or regulatory authorities
(federal, state, municipal, departmental, foreign or otherwise); and (ii)
judgments, orders, directives, rulings, decisions, injunctions, decrees or
awards of any federal , state, municipal, departmental or foreign court,
arbitrator or administrative or governmental authority, bureau or agency.
Without limiting the foregoing, no distribution, by dividend, redemption or
otherwise, shall be made with respect the Preferred Shares if such
distribution would be in violation of Utah law or in violation of the net
capital or other financial requirements applicable to the Company or any of
its subsidiaries as a securities broker-dealer registered under the
Securities Exchange Act of 1934 or as an investment adviser registered under
the Investment Advisers Act or under applicable state laws.
9. NOTICE. Any notices or certificates by the Corporation to the Holder
and by the Holder to the Corporation shall be deemed to have been given if in
writing and upon the earlier of personal delivery (including by messenger,
facsimile or other receipted delivery during normal business hours or, if
delivered other than during normal business hours, at the beginning of the
first business day following such delivery) or three business days following
deposit in the United States mails, by registered or certified mail, return
receipt requested, addressed to the holder at such holder=s address of record
on the books of the Corporation or to the Corporation at its principal
executive offices. Any person may change the address for the giving of notice
by notice duly given effective five (5) business days thereafter.
IN WITNESS WHEREOF, TELECOM WIRELESS CORPORATION has caused its
corporate seal to be affixed hereto and this certificate to be signed by its
President this 8th day of November, 1999.
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
-----------------------------------------
James C. Roberts, Chief Executive Officer
[SEAL]
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BYLAWS
OF
STETSON OIL EXCHANGE, INC.
ARTICLE I
OFFICES
The principal office of the Corporation in the State of Utah shall
be located at 1750 East 4800 South #35, Salt Lake City, Utah 84117.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the fourth Saturday in the month of April in each year,
beginning with the year 1985, at the hour of 1:00 p.m., for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the election of directors shall not be held on the day
designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders,
for any purpose or purposes, may be called by the President or by any
director, and shall be called by the President at the request of the holders
of not less than one-third of all the outstanding shares of the corporation
entitled to vote at the meeting.
Section 3. PLACE OF MEETING. The Board of Directors shall designate
the office of the corporation as the place of meeting for any annual meeting
or far any special meeting called by the Board of Directors. A waiver of
notice signed by all shareholders entitled to vote at a meeting may designate
any place, either within or without the State of Utah as the place for the
holding of such meeting.
Section 4. NOTICE OF MEETING. Written notice stating the place, day,
and hour of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be mailed not less than ten
nor more than twenty days before the date of the meeting, by or at the
direction of the President or the director calling the meeting, to each
shareholder of record entitled to vote at such meeting.
Section 5. QUORUM. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders.
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If less than a majority of the outstanding shares is represented at a
meeting, a majority of the shares so represented may adjourn the meeting at
which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting, may continue
to transact business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 6. PROXIES. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder. Such proxy shall be
filed with the Secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after three months from the date of its
execution, unless otherwise provided in the proxy.
Section 7. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders.
Section 8. NON-CUMULATIVE VOTING. At each election for directors
every shareholder entitled to vote at such election shall have the right to
vote, in person or by proxy, the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote.
Section 9. INFORMAL ACTION BY SHAREHOLDERS. Any action required to
be taken at a meeting of the shareholders or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the shareholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
corporation shall be managed by its Board of Directors. The Board of
Directors shall determine matters of corporate policy and perform such duties
as are required of it, by law.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall be from three to seven as prescribed by
these Bylaws. Initially it shall be three and shall remain so until the
Bylaws are changed. Each director shall hold office until the next annual
meeting of shareholders and until his successor shall have been elected.
Directors need not be residents of the State of Utah.
Section 3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting
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of shareholders. The Board of Directors shall provide, by resolution, the
time and place for the holding of regular monthly meetings without other
notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors shall fix the office of the Corporation as the place for
the holding of any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice at any special meeting shall be given at
least five days previously thereto by written notice delivered personally or
mailed to each director at his business address. Any director may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver
of notice at such meeting.
Section 6. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
Section 7. MANNER OF ACTING; MINUTES. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. Minutes of the proceedings of Board of Directors'
meetings shall be prepared and shall be made available to shareholders.
Section 8. VACANCIES. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the
remaining directors even though such majority is less than a quorum of the
Board at Directors. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special meeting of shareholders called
for that purpose, unless at such a meeting the shareholders delegate the
filling of such vacancy to the Board of Directors.
Section 9. PRESUMPTION OF ASSENT. A director of the corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his
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written dissent to such action with the person acting as Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately attar the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 10. INFORMAL ACTION BY DIRECTORS. Any action required to be
taken at a meeting of the directors, or any action which may be taken at a
meeting of the directors, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all the
directors.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the corporation shall be a
President, a Vice President, a Secretary and a Treasurer, each of whom shall
be elected by the Board of Directors. Such other officers and assistant
officers as may be deemed necessary may be elected or appointed by the Board
of Directors. Any person may hold two or more offices except that the
President shall not also be the Secretary.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. Each officer shall hold office
until his successor shall have been duly elected or until his death or until
he shall resign or shall have been removed in the manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever, in its
judgment, the best interests of the corporation would be served thereby but
such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
Section 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. PRESIDENT. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. The President shall have power to assign work,
hire and discharge employees, determine the compensation employees, purchase
supplies, allocate vacation periods, grant leaves to employees, collect
outstanding accounts, borrow money in the ordinary course of
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business, and to do all acts necessary to the conduct of the business of the
corporation. He shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the corporation thereunto authorized by the
Board at Directors, certificates for shares of the corporation, any deeds,
mortgages, bonds, contracts or other instrument which the Board of Directors
has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or
by these Bylaws to some other officer or agent of the corporation, or shall
be required by law to be otherwise signed or executed, and in general shall
perform all duties as may be prescribed by the Board of Directors from time
to time.
Section 6. VICE PRESIDENT. In the absence of the President or, in
the event of his death, inability or refusal to act, the Vice President shall
assume the day-to-day duties of the President, and shall have power to assign
work, hire and discharge employees, determine the compensation of employees,
purchase supplies, allocate vacation periods, grant leaves to employees,
collect outstanding accounts; and do all acts necessary to the conduct of
business in the ordinary course. Other powers of the President set forth in
these Bylaws shall be performed by the Vice President in the absence of the
President only with the approval of the Board of Directors. The Vice
President at all times shall perform such duties as are from time to time
assigned to him by the President.
Section 7. SECRETARY. The Secretary shall:
(a) keep the minutes of the shareholders' and of the Board
of Directors' meetings in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with
the provisions of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal
of the corporation and see that the seal of the corporation is affixed to all
documents the execution of which on behalf of the corporation under its seal
is duly authorized;
(d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(e) sign with the President or Vice President certificates
for shares of the corporation, the issuance of which shall have been
authorized by resolution of the Board at Directors;
(f) have general charge of the stock record books of the
corporation; and
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(g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the President or the Board of Directors.
(h) The Board of Directors may appoint one or more
Assistant Secretaries to assist the Secretary as he shall direct.
Section 8. TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall
determine. He shall have charge and custody of and be responsible for all
funds and securities of the corporation; receive and give receipts for any
monies due and payable to the corporation from any source whatsoever, and
deposit all such monies in the name of the corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of Article V of these Bylaws.
Section 9. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf at the corporation,
and such authority may be general or confined to specific instances.
Section 2. LOANS. No loan shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the corporation shall be signed by such officer or officers,
agent or agents, of the corporation and in much manner as shall from time to
time be determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies, or other depositories as the
Board of Directors may select.
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ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares
of the corporation shall be in such form as shall be determined by the Board
of Directors. Such certificates shall be signed by the President or Vice
President and by the Secretary or Assistant Secretary if one or more is
appointed. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock record books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled
and no new certificates shall be issued until the former certificate for a
like number of shares shall have been surrendered and cancelled, except that
in case of a lost, destroyed, or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board
of Directors may prescribe.
Section 2. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the stock record books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
ARTICLE VII
ACCOUNTING
Full and accurate books of account shall be kept in accordance with
good accounting practices. Such books of account shall be available for
inspection by any shareholder at all reasonable times. All corporate
purchases shall be made on account and all accounts shall be paid by check.
So far as possible, no cash outlays shall be made.
The fiscal year of the corporation shall begin on the first day of
January and end on the last day of December in each year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and,
upon the terms and conditions provided by law and its articles of
incorporation.
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ARTICLE IX
SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the
corporation, the state of incorporation and the words "Corporate Seal."
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these Bylaws or under the
provisions of the articles of incorporation, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XI
INDEMNIFICATION--EXCULPATION
The provisions with respect to indemnification---exculpation shall
be as set forth in the Articles of Incorporation.
ARTICLE XII
LIABILITY OF DIRECTORS
The Directors of the Company will comply with the requirement of the
State of Utah relating to the liability of the Directors in such instances.
Directors of a corporation who vote for or assent to the
declaration of any dividend or other distribution of the assets of a
corporation to its shareholders contrary to the provisions of this act or
contrary to any restrictions contained in the Articles of Incorporation,
shall be jointly and severally liable to the corporation for the amount of
such dividend which is paid or the value of such assets which are
distributed in excess of the amount of such dividend or distribution which
could have been paid or distributed without a violation of the provisions
of this act or the restrictions in the articles of incorporation.
(b) Directors of a corporation who vote for or assent to the
purchase of its own shares contrary to the provisions of this act shall be
jointly and severally, liable to the
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corporation for the amount of consideration paid for such shares which
is in excess of the maximum amount which could have been paid therefor
without a violation of the provisions of this act.
(c) The directors of a corporation who vote for or assent to any
distribution at assets of a corporation to its shareholders during the
liquidation of the corporation without the payment and discharge of, or
making adequate provision for all known debts, obligations, and
liabilities of the corporation shall be jointly and severally liable to
the corporation for the value of such assets which are distributed to the
extent that such debts, obligations, and liabilities of the corporation
are not thereafter paid and discharged.
(d) The directors of a corporation who vote for or assent to the
making of any loan secured by shares of the corporation, shall be jointly
and severally liable to the corporation for the amount of such loan until
the repayment thereof.
(e) If a corporation shall commence business before it has
received at least one thousand dollars as consideration for the issuance
of shares, the directors who assent thereto shall be jointly and severally
liable to the corporation for such part of one thousand dollars as shall
not have been received before commencing business, but such liability
shall be terminated when the corporation has actually received one
thousand dollars as consideration for the issuance of shares.
A director of a corporation who is present at a meeting of its
board of directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such dissent
by registered mail to the secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
A director shall not be liable under subparagraphs (a), (b) or
(c) of this section if he relied and acted in good faith upon financial
statements of the corporation represented to him to be correct by the
president or the officer of such corporation having charge of its books of
account, or stated in a written report by an independent public or
certified public accountant or firm of such accountants fairly to reflect
the financial condition of such corporation, nor shall he be so liable if
in good faith in determining the amount available for any such dividend or
distribution he considered the assets to be of their book value.
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EXECUTION COPY
ASSIGNMENT OF OPTION AGREEMENT
THIS ASSIGNMENT, made and effective as of the 13th day of September,
1999, is from Marc L. Baker Consulting, Inc. ("Assignor") to Josh Mailman
("Assignee"), and is consented to by Telecom Wireless Corporation ("Company").
RECITALS. The Company and Assignor entered into a "Common Stock
Purchase Option" dated as of June 1, 1998, and amended as of May 4, 1999 (the
"Option Agreement"), a copy of which is attached hereto and by this reference
made a part hereof. The Option Agreement (as adjusted for the Company's
one-for-five reverse stock split effected on or about May 4, 1999) grants the
Assignor the right to acquire 80,000 Option Shares (as such term is defined
in the Option Agreement) at an exercise price of $2.50 per share (of which
75,000 Option Shares have been exercised by Assignor), an additional 80,000
Option Shares at an exercise price of $3.75 per Option Share and an
additional 100,000 Option Shares at an exercise price of $5.00 per Option
Share. Assignor wishes to assign all of its rights under the Option
Agreement to Assignee and Company wishes to consent to such assignment.
For and in consideration of the premises and the mutual covenants made
herein the parties agree as follows:
1. ASSIGNMENT BY ASSIGNOR. For and in consideration of the sum of $225,000
for the 185,000 Option Shares issuable upon full exercise of the Option
Agreement assigned hereby, paid to Assignor by Assignee, the receipt and
sufficiency of which is hereby acknowledged, Assignor hereby assigns,
transfers, sells and conveys to Assignee all of Assignor's right, title
and interest in and pursuant to the Option Agreement, including the right
to acquire the Option Shares as provided therein.
2. ACCEPTANCE BY ASSIGNEE. By his signature, Assignee hereby accepts such
assignment and expressly assumes and agrees to be bound by the terms of
the Option Agreement and affirms the representations and other provisions
contained Option Agreement as though he were the Assignor.
3, REPRESENTATIONS AND WARRANTIES OF ASSIGNEE. Assignee represents and
warrants to Assignor and the Company, which representations and
warranties shall survive the assignment of the Option Agreement to
Assignee, as follows:
a. The Option (as such term is defined in the Option Agreement) and
the Option Shares issuable upon exercise thereof (collectively,
the "Securities") will be acquired as an investment for Assignee's
own account, not as nominee or agent, and not with a view to the
sale or distribution of any part thereof.
b. Assignee has such knowledge and experience in business and
financial matters as to be capable of evaluating the merits and
risks of the investment
<PAGE>
in the Securities, that Assignee has sufficient financial
strength to hold the Securities as an investment and to bear the
economic risks of such investment (including possible complete
loss of such investment) for an indefinite period of time; and
that, during the negotiations of the transactions contemplated
herein, Assignee and Assignee's legal counsel and investment
advisers, if any, have been afforded full and free access to
corporate books, financial statements, records, contracts,
documents, and other information concerning the Company to the
extent such items exist, and to the Company's office and
facilities, and have been afforded an opportunity to ask such
questions of the Company's officers, employees, agents,
accountants, and representatives concerning the Company's
business, operations, financial condition, assets, liabilities,
and other relevant matters as they have deemed necessary or
desirable, and have been given all such information as has been
requested, in order to evaluate the merits and risks of the
prospective investment contemplated herein.
c. Assignee understands that the Option Shares will be, when issued,
restricted securities within the meaning of Rule 144 promulgated
pursuant to the Securities Act of 1933 (the "Securities Act");
that the Option Shares will not be registered and must be held
indefinitely unless they are subsequently registered under the
Securities Act and any applicable state and foreign securities
laws, or unless an exemption from registration is available
thereunder for any proposed transfer thereof.
d. Assignee acknowledges and understands that any and all
certificates representing the Securities and any and all
securities issued in replacement thereof or in exchange therefor
shall bear the following legend, or one substantially similar
thereto, which the Assignee has read and understands:
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.
The Assignee further acknowledges that the Company shall have the
right to give stop transfer instructions to its transfer agent, if
any, or to note stop transfer instructions in its stockholder
records, and acknowledges that the Company has informed the
Assignee of its intention to issue such instructions.
-2-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF ASSIGNOR. Assignor and Marc L, Baker
jointly and severally represent and warrant to the Assignee and the
Company, which representations and warranties shall survive the
assignment of the Option Agreement to Assignee, that:
a. Assignor has full and valid title to all rights, title and
interests pursuant to the Option Agreement, free and clear of all
claims, liens, encumbrances, security interests, charges, options,
restrictions, preferential rights of purchase or other legal or
equitable encumbrances, limitations or restrictions, and defects
of title of any kind, with full right and power to sell, assign,
and transfer the Option Agreement to the Assignee as provided in
this Agreement.
b. Assignor owns the Option to purchase 5,000 Option Shares at an
exercise price of $2.50 per Option Share, 80,000 Option Shares at
an exercise price of $3.75 per Option Share and 100,000 Option
Shares at an exercise price of $5.00 per Option Share pursuant to
the Option Agreement, which are the only Option Shares remaining
under the Option Agreement as of the date hereof.
c. No event has occurred or failed to occur which, with or without
notice or the passage of time, would or may constitute a default
under or breach of the Option Agreement, which is enforceable in
accordance with its terms. The execution and delivery of this
Agreement and the consummation by the Assignor of the transactions
herein contemplated and the fulfillment by the Assignor of the
terms hereof will not require any consent, approval, authorization
or other order of any entity, court, regulatory body or other
governmental body, other than the Company,
d. Assignor has full right, power, legal capacity, and authority to
execute this Agreement and sell, transfer, and assign to the
Assignee all of its rights, title and interests pursuant to the
Option Agreement, and to perform or observe all of Assignor's
obligations under this Agreement. The Assignor has taken all
action necessary for the authorization, execution, delivery, and
performance of this Agreement and its obligations hereunder, and,
upon execution and delivery by the Assignee, this Agreement shall
constitute the valid and binding obligation of the Assignor,
enforceable against the Assignor in accordance with its terms.
e. In connection with the offer and sale of the Securities and the
assignment of the Option Agreement to Assignee, Assignor has not
made any untrue statement or omitted to state a material fact
necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading.
-3-
<PAGE>
f, Marc L. Baker is the duly elected president of Assignor and is
duly authorized and empowered by Assignor to execute and deliver
this Agreement and to cause Assignor to consummate all
transactions contemplated hereby.
5. CONSENT BY COMPANY. Company hereby irrevocably consents to the
assignment of the Option Agreement pursuant to this Assignment and by
giving such consent shall not be deemed to be a party to this Agreement
for any other purpose.
6. INDEMNIFICATION.
a. Assignor and Marc L. Baker, jointly and severally, agree to
indemnify Assignee and the Company and its officers, directors,
affiliates, controlling persons, shareholders, employees, and
agents and the heirs, personal representatives, successors and
assigns of the foregoing (all of whom are hereinafter referred to
as the "Indemnified Persons") and to hold the Indemnified Persons
harmless from and against any and all loss, damage or liability
(including attorney's fees and disbursements) due to or arising
out of a breach of any representation, warranty, acknowledgment or
agreement made by the indemnifying party, or the consent by the
Company to the assignment of the Option Agreement as provided
herein.
b. Assignee agrees to indemnify Assignor, the Company and the
Company's Indemnified Persons and to hold Assignor, the Company
and the Company's Indemnified Persons harmless from and against
any damages arising directly out of a breach of any representation
or warranty made by Assignee as provided herein.
7. MISCELLANEOUS. Except as set forth herein, the Option Agreement shall
remain unchanged and in effect in accordance with its terms, subject to
exercise of a portion of the options by Assignor referred to herein.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the Company and Assignor have caused this
Assignment to be executed on its behalf by its officers thereunto duly
authorized and Assignee has executed, all as on the date first above written.
ASSIGNOR:
MARC L. BAKER CONSULTING, INC.
By: /s/ Marc L. Baker
---------------------------------
Marc L. Baker, President
ASSIGNEE:
/s/ Josh Mailman
-------------------------------------
Josh Mailman
Agreed to and acknowledged by:
TELECOM WIRELESS CORPORATION
By: /s/ Jay W. Enyart
---------------------------------
Name: Jay W. Enyart
Title: General Counsel
-5-
<PAGE>
EXECUTION COPY
ADDENDUM TO
TELECOM WIRELESS CORPORATION
COMMON STOCK PURCHASE OPTION
This agreement is an addendum (the "Addendum") dated as of May 4, 1999
to the Telecom Wireless Corporation Common Stock Purchase Option dated as of
June 1, 1998 (the "Option Agreement") between Marc L. Baker Consulting, Inc.
(the "Holder") and Telecom Wireless Corporation (the "Company"). The terms of
this Addendum are supplemental to the Option Agreement, and the Option
Agreement shall be deemed amended as appropriate. The defined terms used
herein shall, unless the context otherwise requires, have the same meanings
as used in the Option Agreement.
WHEREAS, the Company effected a one-for-five stock split on or about
May 4, 1999.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, it is hereby agreed as follows:
1. Section 1(A) of the Option Agreement shall be deleted and
replaced in its entirety by the following:
"(A) TIME AND PRICE. The Holder of the Option, or Holder's designees,
may exercise the Option as follows: with respect to 5,000 Option Shares (the
"First Option"), which shall be exercisable at an exercise price of $2.50 per
Option Share provided that the bid price shall be at least $5.00 per share at
the date of exercise of the First Option, commencing on the date first set
forth above and expiring after three years at the end of business on June 1,
2001 (the "Option Period"); with respect to 80,000 Option Shares (the "Second
Option"), which shall be exercisable at an exercise price of $3.75 per Option
Share provided that the bid price shall be at least $7.50 per share at the
date of exercise of the Second Option, commencing on the date first set forth
above and expiring at the end of the Option Period; and with respect to
100,000 Option Shares (the "Third Option"), which shall be exercisable at an
exercise price of $5.00 per Option Share provided that the bid price shall be
at least $10.00 per share at the date of exercise of the Third Option,
commencing on the date first set forth above and expiring at the end of the
Option Period. The Options granted hereunder shall be deemed exercised in
whole or in part when the Holder shall indicate its decision to do so in
writing to the Company and tender payment by check payable to the Company for
the number of Option Shares being exercised from time to time, as provided
hereinbelow."
2. Section 1(c) of the Option Agreement, "Additional Rights of
Holder," is hereby deleted in its entirety as the provisions thereof have
been performed by the parties. 3. Section 4 of the Option Agreement
shall be deleted and replaced in its entirety by the following:
4. OPTION SHARES NOT REGISTERED.
<PAGE>
The certificates representing Option Shares issued upon exercise of the
Option, unless and until the Option shares shall be registered on a Form S-1
Registration Statement or such other form as may be appropriate under the Act
or pursuant to an exemption from the registration provisions under the Act,
shall bear the following legend:
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."
4. Section 7 of the Agreement shall be modified as follows:
"If to the Company, to:
Telecom Wireless Corporation
5299 DTC Blvd., 12th Floor
Englewood, CO 80111
Attention: Dr. James C. Roberts, Chief Executive Officer
Jay W. Enyart, General Counsel"
5. In the event this Addendum is found void or unenforceable, the
Option Agreement shall be deemed canceled and the Option described therein
shall be reissued to the Holder by the Company in accordance with the terms
contained herein and the balance of the Option Agreement.
-2-
<PAGE>
This Addendum may be executed in one or more counterparts, each of
which shall be deemed an original. If you are in agreement with the
foregoing terms, please so indicate by signing and returning one copy of this
Addendum, whereupon this Addendum will constitute the agreement of the
Company and the Holder with respect to the subject matter hereof.
TELECOM WIRELESS CORPORATION
By: /s/ Jay W. Enyart
------------------------------------
Name: Jay W. Enyart
Title: General Counsel
Authorized Signatory
MARC L. BAKER CONSULTING, INC.
By:
------------------------------------
Name: Marc L. Baker
Title: President
Authorized Signatory
-3-
<PAGE>
This Addendum may be executed in one or more counterparts, each of
which shall be deemed an original. If you are in agreement with the
foregoing terms, please so indicate by signing and returning one copy of this
Addendum, whereupon this Addendum will constitute the agreement of the
Company and the Holder with respect to the subject matter hereof.
TELECOM WIRELESS CORPORATION
By:
------------------------------------
Name:
Title:
Authorized Signatory
MARC L. BAKER CONSULTING, INC.
By: /s/ Marc L. Baker
------------------------------------
Name: Marc L. Baker
Title: President
Authorized Signatory
-3-
<PAGE>
THE COMMON STOCK PURCHASE OPTION REPRESENTED BY THIS AGREEMENT (THE "OPTION")
AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE OPTION (THE
"OPTION SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND THEREFORE MAY BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE WITH THE ACT,
INCLUDING THE REGISTRATION PROVISIONS THEREIN CONTAINED OR PROVIDED AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT, AND SUBJECT TO THE
OPINION OF THOMAS J. CRAFT, JR., ESQ., COUNSEL TO TELECOM WIRELESS
CORPORATION.
TELECOM WIRELESS CORPORATION
COMMON STOCK PURCHASE OPTION
THIS IRREVOCABLE COMMON STOCK PURCHASE OPTION (the "Option") dated as
of this 1st day of June, 1998, is exercisable for an aggregate of 1,300,000
shares of common stock (the "Option Shares") of Telecom Wireless Corporation
(the "Company"), and is hereby granted to Marc L. Baker Consulting, Inc. (the
"Holder"), at the prices and subject to the terms and conditions contained
herein. This Option is in addition to those rights and agreements by and
between the Company and Holder, including but not limited to a Consulting
Agreement dated as of June 1, 1998, an Agreement and Plan of Merger dated as
of Mav 22, 1998, and the additional consideration and rights of Holder
provided herein and in such other documents and agreements as the parties may
execute.
1. EXERCISE OF OPTION.
(A) TIME AND PRICE: The Holder of the Option, or Holder's designees,
may exercise the Option as follows: with respect to 400,000 Option Shares
(the "First Option"), which shall be exercisable at an exercise price of $.50
per Option Share, provided that the bid price of the Shares shall be at least
$l.00 per Share at the date of exercise of the First Option, commencing on
the date first set forth above and expiring after three years at the end of
business on June 1, 2001 (the "Option Period"); with respect to 400,000
Option Shares (the "Second Option"), which shall be exercisable at an
exercise price of $.75 per Option Share, provided that the bid price of the
Shares shall be at least $1.50 per Share at the date of exercise of the
Second Option, commencing on the date first set forth above and expiring at
the end of the Option Period; and with respect to 500,000 Option Shares (the
"Third Option"), which shall be exercisable at an exercise price of $1.00 per
Option Share, provided that the bid price of the Shares shall be at least
$2.00 per Share at the date of exercise of the Third Option, commencing on
the date first set forth above and expiring at the end of the Option Period.
The Options granted hereunder shall be deemed exercised in whole or in part
when the Holder shall indicate its decision to do so in writing to the
<PAGE>
Company and tender payment by check payable to the Company for the number of
Option Shares being exercised from time to time, as provided hereinbelow.
(B) METHOD OF EXERCISE: The Option shall be exercisable, in whole or
in part, by written notice to the Company, stating the name in whom the
Option Shares shall be registered, and shall provide payment of the Option
Shares by check payable to the Company.
(C) ADDITIONAL RIGHTS OF HOLDER: In addition to the rights of Holder
under this Option, and as a condition precedent to the consummation of the
merger between Telecom Wireless, Inc. and the Company (the "Condition
Precedent"), the Company, on or before June 2, 1998, upon payment by Holder
to the Company of $.05 per Share, shall cause its transfer agent to
immediately issue to Holder a certificate evidencing 350,000 Shares of the
Company's common stock, which certificate shall be issued without a
restrictive legend. The 350,000 Shares shall be issued pursuant to Rule 504,
Regulation D Offering on the part of the Company. The issuance of the 350,000
Shares provided herein and in the abovementioned Consulting Agreement is an
irrevocable right of Holder and a Condition Precedent to the Merger. The
parties hereto agree that as a Condition Precedent, the Company has
instructed Thomas J. Craft, Jr., Esq., corporate securities counsel to the
Company, to immediately issue an opinion of counsel to the Company's transfer
agent to issue on or before June 2, 1998, the certificate(s) without legend,
evidencing the 350,000 Shares in such denominations and in such names as
Holder shall direct. The Company acknowledges that in the event of any breach
of Holder's Additional Rights set forth herein, including breach of the
Condition Precedent, or any of Holder's rights under this Option and Option
Agreement, or under the Consulting Agreement, that Holder may not have an
adequate remedy at law and therefore, damages may be unascertainable.
Therefore, the Company agrees that Holder shall have the right and shall be
entitled to injunctive relief against Company and all other remedies at law
and in equity in the event of an alleged breach by the Company.
2. HOLDER'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDERS.
Neither the Holder nor any successor shall be deemed to be a
stockholder of the Company until such time as it or he shall tender payment
for the Option Shares as provided hereinabove.
3. REVIEW AND EVALUATION OF INFORMATION REGARDING THE COMPANY.
The Holder warrants that it or he, as the case may be, has evaluated
the merits and risks associated with the investment in the Company as
represented by this Option, including review of the draft financial
statements prepared by or for the Company, and all other documentation that
Holder deems necessary. The Holder further represents that it or he
understands that neither this Option nor the
<PAGE>
Option Shares are presently registered under the Act, nor is the Company
obligated to effect the registration of the Option Shares.
4. OPTION SHARES NOT REGISTERED.
The certificates representing Option Shares issued upon exercise of the
Options, unless and until the Option Shares shall be registered on a Form S-1
Registration Statement or such other form as may be appropriate under the
Act, or pursuant to an exemption from the registration provisions under the
Act, such as pursuant to Rule 504 promulgated pursuant to Regulation D, shall
bear the following legend: THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN ANY
MANNER (1) WITHOUT REGISTRATION UNDER THE ACT AND IN COMPLIANCE WITH THE LAWS
OF ANY APPLICABLE JURISDICTION OR (2) AN OPINION OF THOMAS J. CRAFT, JR.,
ESQ., COUNSEL TO THE COMPANY (IN FORM AND SUBSTANCE ACCEPTABLE TO COUNSEL TO
THE COMPANY) THAT REGISTRATION IS NOT REQUIRED.
5. REGISTRATION RIGHTS.
The Company hereby grants Consultant the right to cause to the Company
to include all of the Consultant's or its designees Option Shares in a
Registration Statement, to the maximum extent permissible, which shall the
Company undertakes to file with the SEC (the "Registration Rights"). It is
understood by the parties that Consultant's Option Shares shall be included
in a Registration Statement on Form S-1 or such other form as may be
appropriate under the Act, as soon as reasonably practicable, based upon the
Company's stock price and the business conditions, as determined by the
Company's board of directors. With respect to the Registration Rights, any
expense of such registration or qualification will be paid by the Company,
except commissions and legal fees of Consultant. Notwithstanding the
foregoing, Consultant may provide additional services to the Company, whether
pursuant to any existing agreements or some future agreements with the
Company, and the grant of Options and Option Shares provided herein, or the
issuance of any other Shares provided herein or in any other agreement shall
not preclude any additional consideration in whatever form, as the parties
may mutually agree in writing. The Registration Rights are in addition to
any rights of Holder to avail itself of the exemption from registration as
set forth in Rule 504, promulgated under Regulation D under the Act.
<PAGE>
6. HOLDER'S FINANCIAL EXPERIENCE.
The Holder is sufficiently experienced in financial matters and matters
pertaining to securities to be capable of evaluating the merits and risks
associated with the acceptance of this Option, and has relied upon such
experience in so determining to accept this Option in partial consideration
for the services performed by Holder to the Company under a consulting
agreement between the Holder and the Company . The parties agree that this
Option is not the exclusive consideration granted or to be granted to Holder
for services heretofore provided or to be provided by Holder to the Company.
7. MISCELLANEOUS.
(A) AMENDMENT: This Agreement may not be amended or modified in any
respect except for the right of the Holder to transfer its interest in the
Option to persons or entities designated in writing to the Company and the
Company's stock transfer agent, with written notice to the Company.
(B) DESCRIPTIVE HEADINGS: The headings contained herein are for
convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
(C) COUNTERPARTS: This Agreement may be executed in on or more
counterparts, and by the separate parties hereto in separate counterparts,
each of which shall be deemed to be one and the same instrument.
(D) NOTICES: All notices, consents, requests, instructions and
other communications provided herein shall be in writing and shall be deemed
to have been duly given when delivered by United states Mail, postage
prepaid, as follows:
If to the Company, to:
Telecom Wireless Corporation
Attn.: N. Richard Grassano, President
1515 North Federal Highway
Suite 218
Boca Raton, FL 33432
If to Holder, to:
Marc L. Baker Consulting, Inc.
2700 North 29th Avenue
Suite 305
Hollywood, FL 33020
<PAGE>
(E) APPLICABLE LAW AND VENUE: This Agreement shall be construed and
enforced in accordance with and be governed by the laws of the State of
Florida. Venue for the purposes of this Option Agreement and the enforcement
of all remedies at law and in equity shall rest in the 15th Judicial Circuit
in and for Palm Beach County, Florida. THE PARTIES TO THIS AGREEMENT HAVE
READ THIS OPTION AND OPTION AGREEMENT, HAVE HAD OPPORTUNITY TO CONSULT WITH
COUNSEL OF THEIR OWN CHOICE, AND UNDERSTAND EACH OF THE PROVISIONS OF THIS
OPTION AND OPTION AGREEMENT.
Date of Grant: As of June 2, 1998
------------------
TELECOM WIRELESS CORPORATION
BY: /s/ N. Richard Grassano
------------------------------------
N. RICHARD GRASSANO, PRESIDENT
ACCEPTED BY
MARC L. BAKER CONSULTING, INC.
BY: /s/ Marc L. Baker
------------------------------------
MARC L. BAKER, PRESIDENT
<PAGE>
THE COMMON STOCK PURCHASE OPTION REPRESENTED BY THIS AGREEMENT (THE "OPTION")
AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE OPTION (THE
"OPTION SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND THEREFORE MAY BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE WITH THE ACT,
INCLUDING THE REGISTRATION PROVISIONS THEREIN CONTAINED OR PROVIDED AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE ACT, AND SUBJECT TO THE
OPINION OF COUNSEL TO TELECOM WIRELESS CORPORATION.
TELECOM WIRELESS CORPORATION
COMMON STOCK PURCHASE OPTION
THIS COMMON STOCK PURCHASE OPTION (the "Option") dated as of this 18th
day of June, 1998, is exercisable to purchase shares of common stock (the
"Option Shares") of Telecom Wireless Corporation (the "Company"), and is
hereby granted to Herman Walker (the "Holder"), for the number of Option
Shares and at the prices and subject to the terms and conditions contained
herein.
1. EXERCISE OF OPTION.
(A) NUMBER OF OPTION SHARES, TIME AND PRICE: The Holder of the Option
may exercise the Option to purchase a number of Option Shares having
aggregate value, based upon the exercise price set forth below, equal to
$400,000. The exercise price(s) of the Option Shares shall be determined as
set forth herein, or from time to time if the Option is not exercised in
whole, and shall equal the lower of fifty (50%) percent of: (i) the closing
bid price of the Shares on the trading day immediately prior to the exercise
by Holder of this Option; or (ii) the opening bid price of the Shares on the
next trading day. The number of Option Shares subject to this Option will be
determined based upon fifty (50%) percent of either the aforesaid closing or
opening bid prices of the Shares, at the election of the Holder, divided into
$400,000. This Option shall be exercisable commencing on the date first set
forth above and expiring after four years, at the end of business on June 18,
2002 (the "Option Period"). The Option granted hereunder shall be deemed
exercised in whole or in part when the Holder shall indicate the decision to
do so in writing to the Company and at the same time tendering payment by
certified check payable to the Company for the number of Option Shares being
exercised, either in whole or from time to time, as provided herein. All
Option Shares issuable upon exercise of this Option will bear a legend as set
forth in Section 4 below and may be sold by Holder in accordance with the
provisions of Rule 144 promulgated under the Act.
(B) METHOD OF EXERCISE: The Option shall be exercisable, in whole or
in part, by written notice to the Company, stating the name in whom the
Option Shares shall be registered, and shall provide payment of the Option
Shares by certified check payable to the Company.
2. HOLDER'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDERS.
Neither the Holder nor any heir, successor or assign shall be deemed to
be a stockholder of the Company until such time as he or they shall tender
payment for the Option Shares as provided hereinabove,
1
<PAGE>
3. REVIEW AND EVALUATION OF INFORMATION REGARDING THE COMPANY.
The Holder warrants that he has evaluated the merits and risks
associated with the investment in the Company as represented by this Option,
including review of the draft financial statements prepared by or for the
Company, and all other documentation that Holder deems necessary. The Holder
further represents that he understands that neither this Option nor the
Option Shares are presently registered under the Act, nor is the Company
obligated to effect the registration of the Option Shares under the Act.
4. OPTION SHARES NOT REGISTERED.
The certificates representing Option Shares issued upon exercise of the
Option have not been registered under the Act. As a result, the certificates
evidencing the Option Shares shall bear the following restrictive legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN ANY MANNER (1) WITHOUT REGISTRATION
UNDER THE ACT AND IN COMPLIANCE WITH THE LAWS OF ANY APPLICABLE JURISDICTION
OR (2) AN OPINION OF COUNSEL TO THE COMPANY (IN FORM AND SUBSTANCE ACCEPTABLE
TO COUNSEL TO THE COMPANY) THAT REGISTRATION IS NOT REQUIRED.
5. HOLDER'S FINANCIAL EXPERIENCE.
The Holder is sufficiently experienced in financial matters and matters
pertaining to securities and the business of the Company to be capable of
evaluating the merits and risks associated with the acceptance of this
Option, and has relied upon such experience in so determining to accept this
Option in consideration for the existing agreements between the Holder and
the Company. The parties agree that this Option is not the exclusive
consideration granted to Holder by the Company, which other consideration is
governed by and was given pursuant to separate written agreements with the
Company.
6. MISCELLANEOUS.
(A) AMENDMENT: This Agreement may not be amended or modified in any
respect except for the right of the Holder to transfer its interest in the
Option to persons or entities designated in writing to the Company, with
copies to the Company's stock transfer agent, with written notice to the
Company.
(B) DESCRIPTIVE HEADINGS: The headings contained herein are for
convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
(C) COUNTERPARTS: This Agreement may be executed in on or more
counterparts, and by the separate parties hereto in separate counterparts,
each of which shall be deemed to be one and the same instrument.
2
<PAGE>
(D) NOTICES: All notices, consents, requests, instructions and other
communications provided herein shall be in writing and shall be deemed to have
been duly given when delivered by United states Mail, postage prepaid, as
follows:
If to the Company, to:
Telecom Wireless Corporation.
Attn.: N. Richard Grassano, President
1515 North Federal Highway
Suite 218
Boca Raton, FL 33432
If to Holder, to:
Herman Walker
5350 Great Fosters
Rochester, MI 48306
(E) APPLICABLE LAW AND VENUE: This Agreement shall be construed and
enforced in accordance with and be governed by the laws of the State of
Florida. Venue for the purposes of this Option Agreement and the enforcement
of all remedies at law and in equity shall rest in the 15th Judicial Circuit
in and for Palm Beach County, Florida. THE PARTIES TO THIS AGREEMENT HAVE
READ THIS OPTION AND OPTION AGREEMENT, HAVE HAD OPPORTUNITY TO CONSULT WITH
COUNSEL OF THEIR OWN CHOICE, AND UNDERSTAND EACH OF THE PROVISIONS OF THIS
OPTION AND OPTION AGREEMENT.
DATE OF GRANT: As of June 18, 1999
----------------------
TELECOM WIRELESS CORPORATION
BY: /s/ N. Richard Grassano
-----------------------------------
N. RICHARD GRASSANO, PRESIDENT
ACCEPTED BY
HERMAN WALKER
/s/ Herman Walker 6-22-98
- ---------------------------------------
3
<PAGE>
OFFICE LEASE
BETWEEN
PRENTICE POINT LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
(AS LANDLORD)
AND
THE ENTERPRISE SYSTEMS GROUP, INC.,
A TEXAS CORPORATION
(AS TENANT)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. PRINCIPAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. GENERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5. COMPLETION OR REMODELING OF THE PREMISES. . . . . . . . . . . . . . . .3
6. OPERATING EXPENSES/REAL ESTATE TAXES. . . . . . . . . . . . . . . . . .3
7. SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
8. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
9. DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
10. CHARACTER OF OCCUPANCY. . . . . . . . . . . . . . . . . . . . . . . . .7
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD. . . . . . . . . . . .7
12. ALTERATIONS AND REPAIRS BY TENANT . . . . . . . . . . . . . . . . . . .8
13. MECHANICS' LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
14. SUBLETTING AND ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . .9
15. DAMAGE TO PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . 10
16. INDEMNITY TO LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . 10
17. SURRENDER AND NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . 10
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES. . . . . . . . . . . 10
19. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
20. DEFAULT BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . 11
21. DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . 13
22. SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . . . . . . . 13
23. REMOVAL OF TENANT'S PROPERTY. . . . . . . . . . . . . . . . . . . . . 13
24. HOLDING OVER: TENANCY MONTH-TO-MONTH. . . . . . . . . . . . . . . . . 14
25. PAYMENTS AFTER TERMINATION. . . . . . . . . . . . . . . . . . . . . . 14
26. STATEMENT OF PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . 14
27. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
28. AUTHORITIES FOR ACTION AND NOTICE . . . . . . . . . . . . . . . . . . 15
29. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
30. SUBSTITUTE PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 16
31. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
32. LEGAL FEES; PREPARATION OF LEASE. . . . . . . . . . . . . . . . . . . 16
33. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
34. ADDENDUM/EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
35. RIGHT OF OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
LEASE AGREEMENT
THIS LEASE, dated as of January 20, 1999, is by and between PRENTICE
POINT LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and
THE ENTERPRISE SYSTEMS GROUP, INC., a Texas corporation ("Tenant").
WITNESSETH:
1. PRINCIPAL TERMS. Capitalized terms, first appearing in
quotations in this Section, elsewhere in the Lease or any Exhibits, are
definitions of such terms as used in the Lease and Exhibits and shall have
the defined meaning whenever used.
<TABLE>
<S> <C>
1.1 "BUILDING": Prentice Point, 5299 DTC Boulevard,
Englewood, CO 80111
1.2 "PREMISES": Suite #1200
1.3 "INITIAL TERM": 5 years, 3 months
"Commencement Date": January 1, 1999
"Expiration Date": March 31, 2004
1.4 "MINIMUM RENT": PERIOD MONTHLY
Months 1-9 $15,598.00
Months 10-12 $23,397.00
Months 13-24 $31,196.00
Months 25-36 $31,845.92
Months 37-63 $32,495.83
1.5 OPERATING EXPENSES/ Base Operating Expenses:
calendar year 1999
REAL ESTATE TAXES: Base Real Estate Taxes:
calendar year 1999
Pro Rata Share: 7.772%
1.6 "DEPOSIT": $50,000.00
1.7 "PERMITTED USE": General Business Offices
1.8 "GUARANTOR": None
1.9 PARKING: 60 spaces ("Tenant's Maximum")
1.10 LANDLORD'S NOTICE ADDRESS: Prentice Point Limited
Partnership
c/o Schroder Real Estate
Associates
437 Madison Avenue, 18th Floor
New York, NY 10022
Attn: Legal Coordinator
copy to: Isaacson, Rosenbaum, Woods &
Levy, P.C.
633 17th Street, Suite 2200
Denver, CO 80202-3622
Attn: David L. Kuosman, Esq.
<PAGE>
and copy to: Mr. Randall G. Frisk
Schroder Real Estate Associates
211 East Ocean Boulevard, Suite
241
Long Beach, CA 90802
and copy to: Prentice Point Limited
Partnership
5299 South DTC Boulevard
Englewood, CO 80111
Attn: Building Manager
1.11 LANDLORD'S TAX I.D.: 84-1269269
1.12 TENANT'S NOTICE ADDRESS:
Precommencement Address: 4643 S. Ulster St., Suite 730
Denver, CO 80237
Post Commencement Address: 5299 DTC Boulevard, Suite 1200
Englewood, CO 80111
1.13 TENANT'S TAX I.D.: [PLEASE PROVIDE]
--------------------------------
1.14 LANDLORD'S BROKER: Venture Group Real Estate, LLC
1.15 COOPERATING BROKER: Fuller & Company
1.16 ATTACHMENTS: [check if applicable]
__x__ Exhibit A - Diagram of Premises
__x__ Exhibit B - Real Property
_____ Exhibit C - Premises Completion
_____ Exhibit D - Commencement Certificate
__x__ Exhibit E - Rules and Regulations
</TABLE>
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and
perform the obligations hereafter set forth and in consideration therefor
Landlord leases to Tenant the Premises as depicted on the plat attached as
Exhibit A, together with a non-exclusive right, subject to the provisions
hereof, to use plazas, common areas, or other areas on the real property
legally described on Exhibit B (the "Real Property") designated by Landlord
for the exclusive or non-exclusive use of the tenants of the Building
("Common Areas"). The Building, Real Property, Common Areas, and
appurtenances are hereinafter collectively sometimes called the "Building
Complex."
3. TERM. The Initial Term of the Lease commences at 12:01 a.m. on
the Commencement Date and terminates at 12:00 midnight on the Expiration Date
(the Initial Term together with any extensions thereof is herein referred to
as the "Term.").
4. RENT. Subject to the provisions below, commencing on the
Commencement Date and on the first day of each month thereafter, Tenant shall
pay Minimum Rent in the amount stated in Section 1.4, in advance without
notice (all amounts, including Minimum Rent, to be paid by Tenant pursuant to
this Lease as the context requires are sometimes referred to collectively as
"Rent(s)"). Rents shall be paid without set off, abatement, or diminution, at
the management office in the Building, or at such other place as Landlord
from time to time designates in writing. Notwithstanding the foregoing,
Tenant shall have the right to occupy the Premises without payment of Minimum
Rent for a period commencing January 1, 1999 and ending March 31, 1999 (the
"Deferred Rent Period"). It is agreed that the Rent payable under this Lease
is allocable to, and shall be accrued by the parties during, their fiscal
periods in which the same is actually paid. Landlord and Tenant agree that
no portion of the Minimum Rent paid by Tenant during the Initial Term
occurring after the expiration of the Deferred Rent Period will be allocated
by Landlord or Tenant to such Deferred Rent Period, nor is such Rent intended
by the parties to be allocable to the Deferred Rent Period. If for any
reason at any time during the Term Tenant is in default hereunder, which
default is not cured within any applicable cure periods,
2
<PAGE>
Tenant shall owe to Landlord, in addition to all other amounts otherwise set
forth herein, all amounts of Minimum Rent deferred pursuant to this Section.
Such amounts shall be immediately due and payable upon the occurrence of any
such default. Tenant shall have no obligation to pay such amounts if no
Event of Default has occurred prior to the expiration of the Term.
5. COMPLETION OR REMODELING OF THE PREMISES.
5.1 Landlord has no obligation for the completion or
remodeling of the Premises, and Tenant accepts the Premises in its "as is"
condition on the Commencement Date as set forth in Section 1.3. Landlord, at
its sole cost and expense, agrees to shampoo all of the carpets in the
Premises and replace any missing ceiling tiles in the Premises.
5.2 Taking possession of the Premises by Tenant is conclusive
evidence that the Premises are in the condition agreed between Landlord and
Tenant and acknowledgment by Tenant of satisfactory completion of any work
which Landlord has agreed to perform.
6. OPERATING EXPENSES/REAL ESTATE TAXES. Tenant shall pay
Operating Expense Rent and Tax Rent as additional Rent hereunder in
accordance with the following:
6.1 DEFINITIONS. The additional terms below have the
following meanings in this Lease:
(1) "Base Operating Expenses" means an amount equal to
the Operating Expenses for the calendar year set forth in Section 1.5, as
determined by Landlord in accordance with this Section. Tenant acknowledges
Landlord has not made any representations or warranties that the Base
Operating Expenses will equal any specified amounts (any estimates provided
by Landlord are non-binding estimates only).
(2) "Base Real Estate Taxes" means an amount equal to
the Real Estate Taxes for the calendar year set forth in Section 1.5, as
determined by Landlord in accordance with this Section. Tenant acknowledges
Landlord has not made any representations or warranties that the Base Real
Estate Taxes will equal any specified amounts (any estimates provided by
Landlord are non-binding estimates only).
(3) "Landlord's Accountants" means that individual or
firm employed by Landlord from time to time to keep the books and records for
the Building Complex, and/or to prepare the federal and state income tax
returns for Landlord with respect to the Building Complex, which books and
records shall be certified to by a representative of Landlord. All
determinations made hereunder shall be made by Landlord's Accountants unless
otherwise stated.
(4) "Tenant's Pro Rata Share" means the percentage set
forth in Section 1.5.
(5) "Operating Expense Year" means each calendar year
during the Term, except that the first Operating Expense Year begins on the
Commencement Date and ends on December 31 of such year and the last Operating
Expense Year begins on January 1 of the calendar year in which this Lease
expires or is terminated and ends on the date of such expiration or
termination. If an Operating Expense Year is less than twelve (12) months,
Operating Expenses for such year shall be prorated.
(6) "Operating Expenses" means all operating expenses
of any kind or nature which are in Landlord's reasonable judgment necessary,
appropriate, or customarily incurred in connection with the operation and
maintenance of the Building Complex. Operating Expenses include, but are not
limited to, the following:
(a) Costs of supplies, including costs of
relamping and replacing ballasts in all Building standard tenant
lighting;
(b) Costs of energy for the Building
Complex, including costs of propane, butane, natural gas, steam,
electricity, solar energy and fuel oils, coal or any other energy
sources;
(c) Costs of water and sanitary and storm
drainage services;
(d) Costs of janitorial and security services;
(e) Costs of general maintenance, repairs, and
replacements including costs under HVAC and other mechanical maintenance
contracts; and repairs and replacements of equipment used in maintenance
and repair work;
(f) Costs of maintenance, repair and replacement
of landscaping;
(g) Insurance premiums for the Building Complex,
including all-risk or multi-peril coverage, together with loss of rent
endorsement; the part of any claim paid under the deductible portion of
any insurance
3
<PAGE>
policy carried by Landlord; public liability insurance; and any other
insurance carried by Landlord on any component parts of the Building
Complex;
(h) All labor costs, including wages, costs of
worker's compensation insurance, payroll taxes, fringe benefits,
including pension, profit sharing and health, and legal fees and other
costs incurred in resolving any labor dispute;
(i) Professional building management fees, costs
and expenses, including costs of office space and storage space required
by management for performance of its services;
(j) Legal, accounting, inspection, and other
consulting fees (including fees for consultants for services designed to
produce a reduction in Operating Expenses or improve the operation,
maintenance or state of repair of the Building Complex);
(k) Costs of capital improvements and structural
repairs and replacements to the Building Complex to conform to changes
subsequent to the date of issuance of the shell and core certificate of
occupancy for the Building in any Applicable Laws (herein "Required
Capital Improvements"); and the costs of any capital improvements and
structural repairs and replacements designed primarily to reduce
Operating Expenses (herein "Cost Savings Improvements"). Expenditures
for Required Capital Improvements and Cost Savings Improvements will be
amortized at a market rate of interest over the useful life of such
capital improvement (as determined by Landlord's Accountants); however,
the amortized amount of any Cost Savings Improvement will be limited in
any year to the resulting reduction in Operating Expenses; and
(l) Costs incurred for Landlord's Accountants
including costs of any experts and consultants engaged to assist in
making the computations;
"Operating Expenses" do NOT include:
(i) Costs of work, including painting and
decorating, which Landlord performs for any tenant other than work of a
kind and scope which Landlord is obligated to furnish to all tenants
whose leases contain a rental adjustment provision similar to this one;
(ii) Costs of repairs or other work
occasioned by fire, windstorm or other insured casualty to the extent of
insurance proceeds received;
(iii) Leasing commissions, advertising
expenses, and other costs incurred in leasing space in the Building;
(iv) Costs of repairs or rebuilding
necessitated by condemnation;
(v) Interest on borrowed money or debt
amortization, except as specifically set forth above; or
(vi) Depreciation on the Building Complex.
(7) "Real Estate Taxes" means all real and personal property
taxes and assessments levied against the Building Complex by any governmental
or quasi-governmental authority, including taxes, assessments, surcharges, or
service or other fees of a nature not presently in affect which are hereafter
levied on the Building Complex as a result of the use, ownership or operation
of the Building Complex or for any other reason, whether in lieu of or in
addition to, any current real estate taxes and assessments. However, any
taxes which are levied on the rent of the Building Complex will be determined
as if the Building Complex were Landlord's only real property. In no event
do taxes and assessments include any federal or state income taxes levied or
assessed on Landlord. Expenses for tax consultants to contest taxes or
assessments are also included as Real Estate Taxes. Real Estate Taxes also
include special assessments, license taxes, business license fees, business
license taxes, commercial rental taxes, levies, charges, penalties or taxes,
imposed by any authority against the Premises, Building Complex or any legal
or equitable interest of Landlord. Special assessments are deemed payable in
such number of installments permitted by law, whether or not actually so
paid, and include any applicable interest on such installments. Real Estate
Taxes (other than special assessments) are computed on an accrual basis based
on the year in which they are levied, even though not paid until the
following Operating Expense Year;
(8) "Tax Year" means each calendar year during the Term,
except that the first Tax Year begins on the Commencement Date and ends on
December 31 of such year and the last Tax Year begins on January 1 of the
calendar year in which this Lease expires or is terminated and ends on the
date of such expiration or termination. If a Tax Year is less than twelve
(12) months, Real Estate Taxes for such year shall be prorated.
4
<PAGE>
6.2 COMPUTATION AND PAYMENT OF OPERATING EXPENSE RENT.
6.2.1 If the actual Operating Expenses payable by
Landlord for any Operating Expense Year exceed the Base Operating Expenses
("Excess Operating Expenses"), Tenant shall pay its Pro Rata Share of the
Excess Operating Expenses ("Operating Expense Rent") to Landlord as provided
herein. Following the end of each Operating Expense Year, Landlord shall
submit a statement ("Operating Expense Statement") to Tenant setting forth
the following:
(1) The total Operating Expense Rent payable by Tenant
for the just completed Operating Expense Year;
(2) The total amount Tenant has paid as Estimated
Operating Expense Rent (hereafter defined) during
the just completed Operating Expense Year;
(3) The difference, if any, between the total Operating
Expense Rent set forth in item (1) above and the
Estimated Operating Expense Rent previously paid as
set forth in item (2) above ("Operating Expense Rent
Shortfall");
(4) Tenant's Pro Rata Share of Landlord's estimate of
Excess Operating Expenses for the new Operating
Expense Year ("Estimated Operating Expense Rent")
determined in accordance with this Paragraph; and
(5) The amount of the Retroactive Adjustment, if any, in
accordance with the following.
6.2.2 Commencing on the Commencement Date, Tenant shall
pay, at the same time as monthly Minimum Rent is paid, 1/12 of the Estimated
Operating Expense Rent. To the extent an Operating Expense Statement
reflects an Operating Expense Rent Shortfall Tenant will pay such shortfall
within 30 days after receipt of the Operating Expense Statement (or receive a
credit for the difference against the next due Rent, as the case may be).
Until Tenant receives an Operating Expense Statement, Tenant shall continue
to pay the Estimated Operating Expense Rent for the prior Operating Expense
Year. However, Tenant is responsible for payment (or is eligible for a
credit, as the case may be) of any difference between the old Estimated
Operating Expense Rent paid for any period of the new Operating Expense Year
and the new Estimated Operating Expense Rent payable for that same period
("Retroactive Adjustment"). Tenant shall commence payment of the new
Estimated Operating Expense Rent beginning on the first day of the month
following the month in which Tenant receives the Operating Expense Statement,
at which time the Tenant shall also pay Landlord or deduct from the next-due
Rent, as the case may be, the Retroactive Adjustment. If, during any
Operating Expense Year, there is a change in the information on which
Tenant's Estimated Operating Expense Rent is based so that the prior estimate
is no longer accurate, Landlord may revise the estimate and there shall be a
corresponding adjustment to the Estimated Operating Expense Rent for the
balance of the Operating Expense Year following notice to Tenant.
6.3 COMPUTATION AND PAYMENT OF TAX RENT.
6.3.1 If the actual Real Estate Taxes payable by
Landlord for any Tax Year exceed the Base Real Estate Taxes ("Excess Taxes"),
Tenant shall pay its Pro Rata Share of the Excess Taxes ("Tax Rent") to
Landlord as provided herein. Following the end of each Tax Year, Landlord
shall submit a statement ("Tax Statement") to Tenant setting forth the
following:
(1) The total Tax Rent payable by Tenant for the
just completed Tax Year;
(2) The amount Tenant has paid as Estimated Tax
Rent (hereafter defined) during the just
completed Tax Year;
(3) The difference, if any, between the total Tax
Rent set forth in item (1) above and the
Estimated Tax Rent previously paid as set
forth in item (2) above ("Tax Rent
Shortfall");
(4) Tenant's Pro Rata Share of Landlord's
estimate of Excess Taxes for the new Tax Year
("Estimated Tax Rent") determined in
accordance with this Paragraph; and
(5) The amount of the Retroactive Adjustment, if
any, in accordance with the following.
6.3.2 Commencing with the first month of the second Tax
Year, Tenant shall pay, at the same time as monthly Minimum Rent is paid,
1/12 of the Estimated Tax Rent. To the extent a Tax Statement reflects a Tax
Rent Shortfall, Tenant will pay such shortfall within 30 days after receipt
of the Tax Statement (or receive a credit for the difference against the next
due Rent, as the case may be). Until Tenant receives a Tax Statement, Tenant
shall continue to pay the Estimated Tax Rent for the prior Tax Year.
However, Tenant is responsible for payment (or is eligible for a credit, as
the case may be) of any difference between the old Estimated Tax Rent paid
for any period of the new Tax Year and the new Estimated Tax Rent payable
for that same period ("Retroactive Adjustment"). Tenant shall commence
payment of the new Estimated Tax Rent beginning on the first day of the month
following the month in which Tenant receives the Tax Statement, at which time
the Tenant shall also Pay Landlord or deduct from the next-due Rent, as the
case may be, the Retroactive Adjustment. If, during any Tax Year, there is a
change in the information on which Tenant's Estimated Tax Rent is based so
that the prior estimate is no longer accurate, Landlord may revise the
estimate and there shall be a corresponding adjustment to the Estimated Tax
Rent for the balance of the Tax Year following notice to Tenant.
5
<PAGE>
6.4 MISCELLANEOUS. If any lease entered into by Landlord with
any tenant in the Building is on a so-called "net" basis, or provides for a
separate basis of computation for any Operating Expenses or Real Estate Taxes
with respect to its leased premises, Landlord's Accountants may modify the
computation of Base Operating Expenses, Base Real Estate Taxes, Tenant's Pro
Rata Share, Operating Expenses and Real Estate Taxes for a particular
Operating Expense Year and/or Tax Year (as applicable) to eliminate or modify
any Operating Expenses and/or Real Estate Taxes which are paid for in whole
or in part by such tenant. If the Building is not fully occupied during any
particular Operating Expense Year or Tax Year, Landlord's Accountants may
adjust those Operating Expenses and Real Estate Taxes which are affected by
occupancy for the particular Operating Expense Year or Tax Year to reflect
100% occupancy. Furthermore, in making any computations contemplated hereby,
Landlord's Accountants may make such other modifications to the computations
as are required in their judgment to achieve the intention of the parties
hereto. In no event will any decrease in Rent pursuant to any provision
hereof result in a reduction of Rent below the Minimum Rent. Delay by
Landlord in submitting any statement for any Operating Expense Year or Tax
Year does not affect the provisions of this Section or constitute a waiver of
Landlord's rights for such Operating Expense Year, Tax Year, or any
subsequent Operating Expense Years or Tax Years.
6.5 DISPUTE. If Tenant disputes an adjustment submitted by
Landlord or a proposed increase or decrease in an Estimated Operating Expense
Rent or Estimated Tax Rent, Tenant shall give Landlord notice of such dispute
within 30 days after Tenant's receipt of the adjustment. If Tenant does not
give Landlord timely notice, Tenant waives its right to dispute the
particular adjustment. If Tenant timely objects, Tenant may engage, at its
expense, its own certified public accountants ("Tenant's Accountants") to
verify the accuracy of the statement complained of or the reasonableness of
the estimated increase or decrease. If Tenant's Accountants determine that
an error has been made, Landlord's Accountants and Tenant's Accountants shall
endeavor to agree upon the matter, failing which such matter shall be
submitted to an independent certified public accountant selected by Landlord,
with Tenant's reasonable approval, for a determination which will be
conclusive and binding upon Landlord and Tenant. Tenant agrees that all
information obtained or generated in connection with such audit shall be kept
confidential and may not be disclosed to any other tenants or third parties.
Notwithstanding the pendency of any dispute, Tenant shall continue to pay
Landlord the amount of the Estimated Operating Expense Rent or Estimated Tax
Rent being disputed or adjustment determined by Landlord's Accountants until
the adjustment has been determined to be incorrect. If it is determined that
any portion of the Operating Expenses and/or Real Estate Taxes were not
properly chargeable to Tenant, then Landlord shall promptly credit or refund
the appropriate sum to Tenant.
7. SERVICES.
7.1 Subject to the provisions below, Landlord agrees, without
charge, in accordance with standards determined by Landlord from time to time
for the Building: (1) to furnish running water at those points of supply for
general use of tenants of the Building; (2) during Ordinary Business Hours to
furnish to interior Common Areas heated or cooled air (as applicable),
electrical current, janitorial services, and maintenance; (3) during Ordinary
Business Hours to furnish heated or cooled air to the Premises for standard
office use provided the recommendations of Landlord's engineer regarding
occupancy and use of the Premises are complied with by Tenant; (4) to
furnish, subject to availability and capacity of building systems, unfiltered
treated chilled water for use in Tenant's packaged HVAC systems provided that
such systems are approved by Landlord, including strainers, pumping systems
and controls; (5) to provide, during Ordinary Business Hours, the general use
of passenger elevators for ingress and egress to and from the Premises (at
least one such elevator shall be available at all times except in the case of
emergencies or repair); (6) to provide janitorial services for the Premises
to the extent of the Initial Tenant Finish (including window washing of the
outside of exterior windows); and (7) to cause electric current to be
supplied to the Premises for Tenant's Standard Electrical Usage (items (1)
through (7) are collectively called "Services"). "Tenant's Standard
Electrical Usage" means weekly electrical consumption in an amount determined
by (i) multiplying 3.5 watts/square foot by 59 hours and (ii) multiplying the
product thereof by the number of rentable square feet in the Premises.
"Ordinary Business Hours" means 7:00 a.m. to 6:00 p.m. Monday through Friday
and 9:00 a.m. to 12:00 p.m. on Saturdays, Legal Holidays excepted. "Legal
Holidays" mean New Year's Day, Martin Luther King Day, Presidents' Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day,
and such other national holidays hereafter established by the United States
Government.
7.2 "Excess Usage" means any usage of electricity (1) during
other than Ordinary Business Hours; (2) in an amount in excess of Tenant's
Standard Electrical Usage; or (3) for Special Equipment or for standard HVAC
services during other than Ordinary Business Hours. "Special Equipment"
means (a) any equipment consuming more than 0.5 kilowatts at rated capacity,
(b) any equipment requiring a voltage other than 120 volts, single phase, or
(c) equipment that requires the use of self-contained HVAC units. If Tenant
desires Excess Usage, Landlord will use reasonable efforts to supply the
same. Tenant shall reimburse Landlord for all Landlord's costs of providing
services for Excess Usage, including costs for materials, additional wear and
tear on equipment, utilities, and labor (including fringe and overhead
costs). Computation of such costs will be made by Landlord's engineer, based
on his engineering survey of Tenant's Excess Usage. Tenant shall also
reimburse Landlord for all costs of supplementing the Building HVAC System
and/or extending or supplementing any electrical service, as Landlord
determines is necessary, as a result of Tenant's Excess Usage. Prior to
installation or use of Special Equipment or operation of the Premises for
extended hours on an ongoing basis, Tenant shall notify Landlord of such
intended installation or use and obtain Landlord's consent. Not less than 48
6
<PAGE>
hours' prior notice shall be given Landlord of Tenant's request for such
services. Tenant may request that Landlord install at Tenant's cost a check
meter and/or flow meter to determine the cost of Tenant's Excess Usage.
Tenant shall also pay the cost of replacing light bulbs and/or tubes and
ballast used in all lighting in the Premises other than that provided by
Landlord to all tenants of the Building.
7.3 If Tenant requires janitorial services other than those
included as standard Services, Tenant shall separately pay for such services
monthly upon billings by Landlord, or Tenant shall, at Landlord's option,
separately contract for such services with the same company used by Landlord
to furnish janitorial services to the Building.
7.4 Landlord may discontinue, reduce, or curtail Services
(either temporarily or permanently) when necessary due to accident, repairs,
alterations, strikes, lockouts, Applicable Laws, or any other happening
beyond Landlord's reasonable control. Landlord is not liable for damages to
Tenant or any other party as a result of any interruption, reduction, or
discontinuance of Services (either temporary or permanent) nor shall the
occurrence of any such event be construed as an eviction of Tenant, cause or
permit an abatement, reduction or setoff of Rent, or operate to release
Tenant from Tenant's obligations.
7.5 Tenant shall promptly notify Landlord of any accidents or
defects in the Building of which Tenant becomes aware, including defects in
pipes, electric wiring, and HVAC equipment, and of any condition which may
cause injury or damage to the Building or any person or property therein.
7.6 Landlord understands that Tenant's contemplated operation
in the Premises may require Tenant to install a natural gas backup generator
on the roof of the Building (the size, type, shielding and location of the
generator is subject to Landlord's prior written approval). As such, Landlord
generally consents to the installation of the natural gas backup generator,
subject to its right to review and approve the plans for consistency with the
base Building systems, impact on other tenants, impact on the Building
Complex, compliance with laws and all other items as set forth in Article 12.
Tenant will be solely responsible for all costs, fees and expenses in
connection with the installation, use and maintenance of the generator. Upon
installation of the generator, Tenant (or its authorized maintenance
personnel) shall have reasonable access, during Ordinary Business Hours, to
the generator on the roof for purposes of customary maintenance and repairs.
8. QUIET ENJOYMENT. So long as an Event of Default has not
occurred, Tenant is entitled to the quiet enjoyment and peaceful possession
of the Premises subject to the provisions of this Lease.
9. DEPOSIT. Tenant has deposited and will keep on deposit at all
times during the Term with Landlord the Deposit as security for the payment
and performance of Tenant's obligations under this Lease. If, at any time,
Tenant is in default, Landlord has the right to use the Deposit, or so much
thereof as necessary, in payment of Rent, in reimbursement of any expense
incurred by Landlord, and in payment of any damages incurred by Landlord by
reason of such default. In such event, Tenant shall on demand of Landlord
forthwith remit to Landlord a sufficient amount in cash to restore the
Deposit to the original amount. If the entire Deposit has not been utilized,
the remaining amount will be refunded to Tenant or to whoever is then the
holder of Tenant's interest in this Lease, without interest, within 60 days
after full performance of this Lease by Tenant. Landlord may commingle the
Deposit with other funds of Landlord. Landlord may deliver the Deposit to
any purchaser of Landlord's interest in the Premises and Landlord shall be
discharged from further liability therefor. Tenant agrees that if a
Mortgagee succeeds to Landlord's interest in the Premises by reason of
foreclosure or deed in lieu of foreclosure, Tenant has no claim against the
Mortgagee for the Deposit or any portion thereof unless such Mortgagee has
actually received the same from Landlord. If claims of Landlord exceed the
Deposit, Tenant shall remain liable for the balance.
10. CHARACTER OF OCCUPANCY. Tenant shall occupy the Premises for
the Permitted Use and for no other purpose, and use it in a careful, safe,
and proper manner and pay on demand for any damage to the Premises caused by
misuse or abuse by Tenant, Tenant's agents or employees, or any other person
entering upon the Premises under express or implied invitation of Tenant
(collectively, "Tenant's Agents"). Tenant, at Tenant's expense, shall comply
with all applicable federal, state, city, quasi-governmental and utility
provider laws, codes, rules, and regulations now or hereafter in effect
("Applicable Laws") which impose any duty upon Landlord or Tenant with
respect to the occupation or alteration of the Premises. Tenant shall not
commit or permit waste or any nuisance on or in the Premises. Tenant agrees
not to store, keep, use, sell, dispose of or offer for sale in, upon or from
the Premises any article or substance prohibited by any insurance policy
covering the Building Complex nor shall Tenant keep, store, produce or
dispose of on, in or from the Premises or the Building Complex any substance
which may be deemed an infectious waste or hazardous substance under any
Applicable Laws, except customary office and cleaning supplies.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
11.1 Landlord will (i) make repairs and replacements to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) deemed necessary by Landlord for normal
operations of the Building Complex; and (ii) provide upkeep, maintenance, and
repairs to all Common Areas. Except as provided
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in this Section or otherwise expressly required in this Lease, Landlord is
not required to make improvements or repairs to the Premises during the Term.
11.2 Landlord or Landlord's agents may at any time enter the
Premises for examination and inspection, if Landlord elects, to perform any
obligations of Tenant which Tenant fails to perform, to perform such
cleaning, maintenance, janitorial services, repairs, replacements, additions,
or alterations as Landlord deems necessary for the safety, improvement or
preservation of the Premises or other portions of the Building Complex, or as
required by Applicable Laws. Landlord or Landlord's agents may also show the
Premises to prospective tenants, purchasers and Mortgagees. Any such reentry
does not constitute an eviction or entitle Tenant to abatement of Rent.
Landlord may make such alterations or changes in other portions of the
Building Complex as Landlord desires so long as such alterations and changes
do not unreasonably interfere with Tenant's occupancy of the Premises.
Landlord may use the Common Areas and one or more street entrances to the
Building Complex as may be necessary in Landlord's judgment to complete such
work.
12. ALTERATIONS AND REPAIRS BY TENANT.
12.1 Tenant shall not make any alterations to the Premises
during the Term, including installation of equipment or machinery which
requires modifications to existing electrical outlets or increases Tenant's
usage of electricity beyond Tenant's Standard Electrical Usage (collectively
"Alterations") without in each instance first obtaining the written consent
of Landlord, which shall not be unreasonably withheld. Landlord's consent or
approval of the plans, specifications and working drawings for any
Alterations shall not constitute any warranty or representation by Landlord
(and shall not impose any liability on Landlord) as to their completeness,
design sufficiency, or compliance with Applicable Laws. Tenant shall at its
cost: pay all engineering and design costs incurred by Landlord as to all
Alterations, obtain all governmental permits and approvals required, and
cause all Alterations to be completed in compliance with Applicable Laws and
requirements of Landlord's insurance. All such work relating to Alterations
shall be performed in a good and workmanlike manner, using new materials and
equipment at least equal in quality to the Initial Tenant Finish. All
Alterations, repair and maintenance work performed by Tenant shall be done at
Tenant's expense by Landlord's employees or, with Landlord's prior consent
and subject to any conditions imposed by Landlord, by other persons requested
by Tenant; however, if such work is not performed by Landlord's employees,
Tenant shall pay Landlord a supervisory fee of 2.5% of the total construction
cost upon receipt of an invoice. If Landlord authorizes such persons to
perform work, Tenant shall deliver to Landlord prior to commencement
certificates issued by insurance companies qualified to do business in the
State of Colorado, evidencing that worker's compensation, public liability
insurance, and property damage insurance (in amounts, with companies and on
forms satisfactory to Landlord) are in force and maintained by all
contractors and subcontractors engaged to perform such work. All liability
policies shall name Landlord, Building Manager, and Mortgagee as additional
insureds. Each certificate shall provide that the insurance may not be
cancelled or modified without 10 days' prior written notice to Landlord and
Mortgagee. Landlord also has the right to post notices in the Premises in
locations designated by Landlord stating that Landlord is not responsible for
payment for such work and containing such other information as Landlord deems
necessary. All such work shall be performed in a manner which does not
unreasonably interfere with Landlord or other tenants of the Building, or
impose additional expense upon Landlord in the operation of the Building
Complex.
12.2 Tenant shall keep the Premises in as good order,
condition, and repair and in an orderly state, as on the Commencement Date,
loss by fire or other casualty or ordinary wear excepted.
12.3 All Alterations, including partitions, paneling,
carpeting, drapes or other window coverings, and light fixtures (but not
including movable office furniture not attached to the Building), are deemed
a part of the real estate and the property of Landlord and remain upon and be
surrendered with the Premises at the end of the Term, whether by lapse of
time or otherwise, unless Landlord notifies Tenant no later than 15 days
prior to the end of the Term that it elects to have Tenant remove all or part
of such Alterations, and in such event, Tenant shall at Tenant's expense
promptly remove the Alterations specified and restore the Premises to its
prior condition, reasonable wear and tear excepted. Notwithstanding the
foregoing, in the event that Landlord, at the time it consents to the
installation of a specific Alteration, agrees that a specific Alteration may
be removed by Tenant at the end of the Initial Term without a return of the
Premises to its prior condition, then the provisions of this Section 12.3
shall not apply with respect to that specific Alteration.
13. MECHANICS' LIENS. Tenant shall pay for all work done on the
Premises by Tenant or at its request (other than the Initial Tenant Finish)
of a character which may result in liens on Landlord's or Tenant's interest
and Tenant will keep the Premises free of all mechanics' liens, and other
liens on account of such work. Tenant indemnifies, defends, and saves
Landlord harmless from all liability, loss, damage, or expenses, including
attorneys' fees, on account of any claims of laborers, materialmen or others
for work performed or for materials or supplies furnished to Tenant or
persons claiming under Tenant. If any lien is recorded against the Premises
or Building or any suit affecting title thereto is commenced as a result of
such work, or supplying of materials, Tenant shall cause such lien to be
removed of record within 5 days after notice from Landlord. If Tenant desires
to contest any claim, Tenant must furnish Landlord adequate security of at
least 150% of the amount of the claim, plus estimated costs and interest and,
if a final judgment establishing the validity of any lien is entered, Tenant
shall immediately pay and satisfy the same. If Tenant fails to proceed as
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aforesaid, Landlord may pay such amount and any costs, and the amount paid,
together with reasonable attorneys' fees incurred, shall be immediately due
Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
14.1 Tenant shall not sublet any part of the Premises nor
assign or otherwise transfer this Lease or any interest herein (sometimes
referred to as "Transfer," and the subtenant or assignee may be referred to
as "Transferee") without the consent of Landlord first being obtained, which
consent will not be unreasonably withheld provided that: (1) Tenant complies
with the provisions of Section 14.4; (2) Landlord declines to exercise its
rights under Section 14.3; (3) the Transferee is engaged in a business and
the portion of the Premises will be used in a manner which is in keeping with
the then standards of the Building and does not conflict with any exclusive
use rights granted to any other tenant of the Building Complex; (4) the
Transferee has reasonable financial worth in light of the responsibilities
involved; (5) Tenant is not in default at the time it makes its request; (6)
the Transferee is not a governmental or quasi-governmental agency; (7) the
Transferee is not a tenant or currently negotiating a lease with Landlord in
any Building owned by Landlord in the Denver metropolitan area (including the
Building Complex); and (8) the rent to be paid by the Transferee is not less
than 80% of the Rent paid by Tenant for such space and is not less than 80%
of the rental rate then being offered by Landlord for similar space in the
Building. Transfer includes a sale by Tenant of substantially all of its
assets or stock if Tenant is a publicly traded corporation, a merger of
Tenant with another corporation, the transfer of 25% or more of the stock in
a corporate tenant whose stock is not publicly traded, or transfer of 25% or
more of the beneficial ownership interests in a partnership or limited
liability company tenant.
14.2 Following any Transfer in accordance with this Section
14, Landlord may, after default by Tenant, collect rent from the Transferee
or occupant and apply the net amount collected to the Rent, but no Transfer
or collection will be deemed an acceptance of the Transferee or occupant as
Tenant or release Tenant from its obligations. Consent to a Transfer shall
not relieve Tenant from obtaining Landlord's consent to any other Transfer.
Notwithstanding Landlord's consent to a Transfer, Tenant shall continue to be
liable for its obligations. If Tenant collects any rent or other amounts from
a Transferee in excess of the Rent for any monthly period, Tenant shall pay
Landlord the excess monthly, as and when received.
14.3 Notwithstanding the above, if Tenant requests Landlord's
consent to sublet 25% or more of the Premises, Landlord may refuse to grant
such consent in its sole discretion and terminate this Lease as to the
portion of the Premises with respect to which such consent was requested;
provided, however, if Landlord does not consent and elects to terminate the
Lease as to such portion, Tenant may within 15 days after notice from
Landlord to this effect withdraw Tenant's request for consent. If such
termination occurs, it shall be effective on the date designated in a notice
from Landlord and shall not be more than 30 days following such notice.
14.4 Tenant must notify Landlord at least 60 days prior to the
desired date of the Transfer ("Tenant's Notice"). Tenant's Notice shall
describe the portion of the Premises to be transferred and the terms and
conditions. Landlord has, without obligation, 30 days following receipt of
Tenant's Notice to sublet the space on Tenant's behalf or to exercise its
rights pursuant to Section 14.3 if Tenant's Notice discloses that 25% or more
of the Premises is involved. If the space covered by Tenant's Notice is
subleased by Landlord, rent and other sums due from the subtenant will be
paid to Tenant directly and Landlord has no responsibility for the
performance by such subtenant of its obligations under its sublease with
Tenant. If Landlord is unwilling or unable to locate a subtenant (and, if
applicable, declines to exercise its rights under Section 14.3), Landlord
will notify Tenant not later than 60 days after receipt of Tenant's Notice
and Tenant shall be free to sublet the specified portion of the Premises to
any third party on terms substantially identical to those described in
Tenant's Notice, subject to Landlord's consent as set forth above. If Tenant
does not sublet such portion of the Premises within 60 days following
Landlord's notice to Tenant, Tenant must reoffer the Premises to Landlord in
accordance with the provisions hereof prior to subleasing to a third party.
14.5 All documents utilized by Tenant to evidence a Transfer
are subject to reasonable approval by Landlord. Tenant shall pay Landlord's
reasonable expenses, including reasonable attorneys' fees, of determining
whether to consent and in reviewing and approving the documents. Tenant shall
provide Landlord with such information as Landlord reasonably requests
regarding a proposed subtenant, including financial information.
14.6 If a trustee or debtor in possession in bankruptcy is
entitled to assume control over Tenant's rights under this Lease and assigns
such rights to any third party notwithstanding the provisions hereof, the
rent to be paid by such party shall be increased to the current Minimum Rent
(if greater than that being paid for the Premises) which Landlord charges for
comparable space in the Building as of the date of such third party's
occupancy. If Landlord is entitled under the Bankruptcy Code to "Adequate
Assurance" of future performance of this Lease, the parties agree that such
term includes the following:
(1) Any assignee must demonstrate to Landlord's
reasonable satisfaction a net worth (as defined in accordance with generally
accepted accounting principles consistently applied) at least as large as the
net worth of Tenant on the Commencement Date increased by 7%, compounded
annually, for each year thereafter through the date of the proposed
assignment. Tenant's financial condition was a material inducement to
Landlord in executing this Lease.
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(2) The assignee must assume and agree to be bound by
the provisions of this Lease.
15. DAMAGE TO PROPERTY. Tenant agrees Landlord is not liable for
any injury or damage, either proximate or remote, occurring through or
caused by fire, water, steam, or any repairs, alterations, injury, accident,
or any other cause to the Premises, to any furniture, fixtures, Tenant
improvements, or other personal property of Tenant kept or stored in the
Premises, or in other parts of the Building Complex, whether by reason of the
negligence or default of Landlord, other occupants, any other person, or
otherwise; and the keeping or storing of all property of Tenant in the
Premises and Building Complex is at the sole risk of Tenant.
16. INDEMNITY TO LANDLORD.
16.1 Tenant agrees to indemnify, defend, and hold Landlord and
Building Manager harmless from all liability, costs, or expenses, including
attorneys' fees, on account of damage to the person or property of any third
party, including any other tenant in the Building Complex, to the extent
caused by the negligence or breach of this Lease by the Tenant or Tenant's
Agents. Landlord agrees to indemnify, defend and hold Tenant harmless from
all liability, costs or expenses, including attorneys' fees, on account of
damage to the person or property of any third party (excluding Tenant's
Agents), including any other tenant in the Building Complex, to the extent
caused by the negligence or breach of this Lease by Landlord, subject to the
provisions of Section 18.6
16.2 Tenant shall maintain throughout the Term a commercial
general liability policy, including protection against death, personal
injury and property damage, issued by an insurance company qualified to do
business in the State of Colorado, with a single limit of not less than
$1,000,000.00. Such policy shall name Landlord, Building Manager, and
Mortgagee as additional insureds, be primary to any other similar insurance
of such additional insureds, and provide that it may not be cancelled or
modified without at least 20 days' prior notice to Landlord and Mortgagee.
The minimum limits of such insurance do not limit the liability of Tenant
hereunder. Prior to occupancy of the Premises, and prior to expiration of
the then-current policy, Tenant shall deliver certificates evidencing that
insurance required under this Lease is in effect.
17. SURRENDER AND NOTICE. Upon the expiration or other termination
of this Lease, Tenant shall immediately quit and surrender to Landlord the
Premises broom clean, in good order and condition, ordinary wear and tear and
loss by fire or other casualty excepted, and Tenant shall remove all of its
movable furniture and other effects, all telephone cable and related
equipment in the Building installed for Tenant, and such Alterations, as
Landlord requires. If Tenant fails to timely vacate the Premises as
required, Tenant is responsible to Landlord for all resulting costs and
damages of Landlord, including any amounts paid to third parties who are
delayed in occupying the Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.
18.1 Landlord shall maintain casualty insurance for the
Building Complex, the shell and core of the Building and the Premises in such
amounts, from such companies, and on such terms and conditions, including
insurance for loss of Rent as Landlord deems appropriate, from time to time.
18.2 Tenant shall maintain throughout the Term "all risk" or
"multi-peril" insurance for the full replacement cost of Tenant's property
and betterments in the Premises, including tenant finish in excess of the
Initial Tenant Finish.
18.3 If the Building is damaged by fire or other casualty
which renders the Premises wholly untenantable or the damage is so extensive
that an architect selected by Landlord certifies in writing to Landlord and
Tenant within 60 days of said casualty that the Premises cannot, with the
exercise of reasonable diligence, be made fit for occupancy within 180
working days from the happening thereof, then, at the option of Landlord or
Tenant exercised in writing to the other within 30 days of such
determination, this Lease shall terminate as of the occurrence of such
damage. In the event of termination, Tenant shall pay Rent duly apportioned
up to the time of such casualty and forthwith surrender the Premises and all
interest. If Tenant fails to do so, Landlord may reenter and take possession
of the Premises and remove Tenant. If, however, the damage is such that the
architect certifies that the Premises can be made tenantable within such
180-day period or neither Landlord or Tenant elects to terminate the Lease
despite the extent of damage, then the provisions below apply.
18.4 If the Premises are damaged by fire or other casualty
that does not render it wholly untenantable or require a repair period in
excess of 180 days, Landlord shall with reasonable promptness except as
hereafter provided repair the Premises to the extent of the Initial Tenant
Finish.
18.5 If the Building is damaged (though the Premises may not
be affected, or if affected, can be repaired within 180 days) and within 60
days after the damage Landlord decides not to reconstruct or rebuild the
Building, then, notwithstanding anything contained herein, upon notice to
that effect from Landlord within said 60 days, Tenant shall pay the Rent
apportioned to such date, this Lease shall terminate from the date of such
notice, and both parties discharged from further obligations except as
otherwise expressly provided.
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18.6 Landlord and Tenant waive all rights of recovery against
the other and its respective officers, partners, members, agents,
representatives, and employees for loss or damage to its real and personal
property kept in the Building Complex, or for loss of business arising out of
or related the use and occupancy of the Premises which is capable of being
insured against under all risk or multi-peril insurance, including coverage
for damage due to water leakage. Tenant also waives all such rights of
recovery against Building Manager. Each party shall, upon obtaining the
property damage insurance required by this Lease, notify the insurance
carrier that the foregoing waiver is contained in this Lease and use
reasonable efforts to obtain an appropriate waiver of subrogation provision
in the policies.
18.7 Rent shall abate during any period of repair and
restoration to the extent of any recovery by Landlord under its loss of rent
insurance related to the Premises in the same proportion that the part of the
Premises rendered untenantable bears to the whole.
19. CONDEMNATION. If the Premises or substantially all of it or any
portion of the Building Complex which renders the Premises untenantable is
taken by right of eminent domain, or by condemnation (which includes a
conveyance in lieu of a taking), this Lease, at the option of either Landlord
or Tenant exercised by notice to the other within 30 days after the taking,
shall terminate and Rent shall be apportioned as of the date of the taking.
Tenant shall forthwith surrender the Premises and all interest in this Lease,
and, if Tenant fails to do so, Landlord may reenter and take possession of
the Premises. If less than all the Premises is taken, Landlord shall
promptly repair the Premises as nearly as possible to its condition
immediately prior to the taking, unless Landlord elects not to rebuild under
Section 18.5. Landlord shall receive the entire award or consideration for
the taking.
20. DEFAULT BY TENANT.
20.1 Each of the following events is an "Event of Default":
(1) Any failure by Tenant to pay Rent on the due date
unless such failure is cured within 3 days after written notice that such
amount is due but unpaid;
(2) Tenant abandons the Premises without payment of
rent;
(3) This Lease or Tenant's interest is transferred
whether voluntarily or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by
process of law and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any
provision of federal or state law relating to insolvency, bankruptcy, or
reorganization ("Bankruptcy Proceeding");
(6) Commencement of a Bankruptcy Proceeding against
Tenant, unless dismissed within 60 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of
an assignment for the benefit of creditors; the convening by Tenant of a
meeting of its creditors or any significant class thereof for purposes of
effecting a moratorium upon or extension or composition of its debts; or the
failure of Tenant generally to pay its debts as they mature;
(8) The admission in writing by Tenant (or any general
partner of Tenant if Tenant is a partnership), that it is unable to pay its
debts as they mature or it is generally not paying its debts as they mature;
(9) Tenant fails to perform any of its other
obligations and nonperformance continues for 30 days after notice by Landlord
or, if such performance cannot be reasonably had within such 30 day period,
Tenant does not in good faith commence performance within such 30 day period
and diligently proceed to completion; provided, however, Tenant's right to
cure shall not exceed the period provided by Applicable Law.
20.2 REMEDIES OF LANDLORD. If an Event of Default occurs,
Landlord may then or at any time thereafter, either:
(1) (a) Without further notice except as required by
Applicable Laws, reenter and repossess the Premises or any part and expel
Tenant and those claiming through or under Tenant and remove the effects of
both without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or preceding breach of this
Lease. Should Landlord reenter or take possession pursuant to legal
proceedings or any notice provided for by Applicable Law, Landlord may, from
time to time, without terminating this Lease, relet the Premises or any part,
either alone or in conjunction with other portions of the Building Complex,
in Landlord's or Tenant's name but for the account of Tenant, for such
periods (which may be greater or less than the period which would otherwise
have constituted the balance of the Term) and on such conditions and upon
such other terms (which may include concessions of free rent and alteration
and repair of the Premises) as Landlord, in its sole discretion, determines
and Landlord may collect the
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rents therefor. Landlord is not in any way responsible or liable for failure
to relet the Premises, or any part thereof, or for any failure to collect any
rent due upon such reletting. No such reentry or repossession or notice from
Landlord shall be construed as an election by Landlord to terminate this
Lease unless specific notice of such intention is given Tenant. Landlord
reserves the right following any reentry and/or reletting to exercise its
right to terminate this Lease by giving Tenant notice, in which event this
Lease will terminate as specified in the notice.
(b) If Landlord takes possession of the
Premises without terminating this Lease, Tenant shall pay Landlord (i) the
Rent which would be payable if repossession had not occurred, less (ii) the
net proceeds, if any, of any reletting of the Premises after deducting all of
Landlord's expenses incurred in connection with such reletting, including all
repossession costs, brokerage commissions, attorneys' fees, expenses of
employees, alteration, and repair costs (collectively, "Reletting Expenses").
If, in connection with any reletting, the new lease term extends beyond the
Term or the premises covered thereby include other premises not part of the
Premises, a fair apportionment of the rent received from such reletting and
the Reletting Expenses, will be made in determining the net proceeds received
from the reletting. In determining such net proceeds, rent concessions will
also be apportioned over the term of the new lease. Tenant shall pay such
amounts to Landlord monthly on the days on which the Rent would have been
payable if possession had not been retaken, and Landlord is entitled to
receive the same from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease on
the date specified and, on such date, Tenant's right to possession of the
Premises shall cease and the Lease will terminate except as to Tenant's
liability as hereafter provided as if the expiration of the term fixed in
such notice were the end of the Term. If this Lease terminates pursuant to
this Section, Tenant remains liable to Landlord for damages in an amount
equal to the Rent which would have been owing by Tenant for the balance of
the Term had this Lease not terminated, less the net proceeds, if any, of
reletting of the Premises by Landlord subsequent to termination after
deducting Reletting Expenses. Landlord may collect such damages from Tenant
monthly on the days on which the Rent would have been payable if this Lease
had not terminated and Landlord shall be entitled to receive the same from
Tenant on each such day. Alternatively, if this Lease is terminated, Landlord
at its option may recover forthwith against Tenant as damages for loss of the
bargain and not as a penalty an amount equal to the worth at the time of
termination of the excess, if any, of the Rent reserved in this Lease for the
balance of the Term over the then Reasonable Rental Value of the Premises for
the same period plus all Reletting Expenses. "Reasonable Rental Value" is
the amount of rent Landlord can obtain for the remaining balance of the Term.
20.3 RECAPTURE OF RENT CONCESSIONS AND TENANT IMPROVEMENT
ALLOWANCES. In the Event of Default by Tenant, in addition to all other
rights and remedies, Landlord shall be entitled to receive from Tenant all
sums, the payment of which may previously have been waived or abated by
Landlord, or which may have been paid by Landlord pursuant to any agreement
to grant Tenant a rental abatement or other monetary inducement or
concession, including but not limited to any tenant improvement or finish
allowance or moving allowance, together with interest thereon from the date
or dates such amounts were paid by Landlord or would have been due from
Tenant but for the abatement, at the rate of eighteen percent (18%) per
annum, until paid; it being understood and agreed that such concession or
abatement was made on the condition and basis that Tenant fully perform all
obligations and covenants under the Lease for the entire term.
20.4 CUMULATIVE REMEDIES. Suits to recover Rent and damages
may be brought by Landlord, from time to time, and nothing herein requires
Landlord to await the date the Term would expire had there been no Event of
Default or termination, as the case may be. Each right and remedy provided
for in this Lease is cumulative and non-exclusive and in addition to every
other right or remedy now or hereafter existing at law or equity, including
suits for injunctive relief and specific performance. The exercise or
beginning of the exercise by Landlord of one or more rights or remedies shall
not preclude the simultaneous or later exercise by Landlord of other rights
or remedies. All costs incurred by Landlord to collect any Rent and damages
or to enforce this Lease are also recoverable from Tenant. If any suit is
brought because of an alleged breach of this Lease, the prevailing party is
also entitled to recover from the other party all reasonable attorneys' fees
and costs incurred in connection therewith.
20.5 NO WAIVER. No failure by Landlord to insist upon strict
performance of any provision or to exercise any right or remedy upon a
breach thereof, and no acceptance of full or partial Rent during the
continuance of any breach constitutes a waiver of any such breach or such
provision, except by written instrument executed by Landlord. No waiver shall
affect or alter this Lease but each provision hereof continues in effect with
respect to any other then existing or subsequent breach thereof.
20.6 BANKRUPTCY. Nothing contained in this Lease limits
Landlord's right to obtain as liquidated damages in any bankruptcy or similar
proceeding the maximum amount allowed by law at the time such damages are to
be proven, whether such amount is greater, equal to, or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything in this Section to the
contrary, any proceeding described in Section 20.1(5), (6), (7) and (8) is an
Event of Default only when such proceeding is brought by or against the then
holder of the leasehold estate under this Lease.
20.7 LATE PAYMENT CHARGE. Any Rent not paid within 3 days
after the due date shall thereafter bear interest at 5 percentage points
above the Prime Rate or the highest rate permitted by law, whichever is
lower, until paid. Further, if such Rent is not paid within 3 days after the
due date, Tenant agrees Landlord will incur additional administrative
12
<PAGE>
expenses, the amount of which will be difficult to determine; Tenant
therefore shall also pay Landlord a late charge for each late payment of 5%
of such payment. Any amounts paid by Landlord to cure a default of Tenant
which Landlord has the right but not the obligation to do, shall, if not
repaid by Tenant within 3 days of demand by Landlord, thereafter bear
interest at 5 percentage points above the Prime Rate until paid. "Prime
Rate" means that rate announced by Wells Fargo Bank, N.A., or its successor,
as its prime rate on the date closest to the date interest commences.
20.8 WAIVER OF JURY TRIAL. Tenant and Landlord waive any
right to a trial by jury in suits arising out of or concerning the provisions
of this Lease.
21. DEFAULT BY LANDLORD. In the event of any alleged default on the
part of Landlord, Tenant shall give notice to Landlord and afford Landlord a
reasonable opportunity to cure such default. Such notice shall be
ineffective unless a copy is simultaneously also delivered in the manner
required in this Lease to any holder of a mortgage and/or deed of trust
affecting all or any portion of the Building Complex (collectively,
"Mortgagee"), provided that prior to such notice Tenant has been notified (by
way of notice of Assignment of Rents and Leases, or otherwise), of the
address of a Mortgagee. If Landlord fails to cure such default within the
time provided, then Mortgagee shall have an additional 30 days following a
second notice from Tenant or, if such default cannot be cured within that
time, such additional time as may be necessary provided within such 30 days,
Mortgagee commences and diligently pursues a cure (including commencement of
foreclosure proceedings if necessary to effect such cure). Tenant's sole
remedy will be equitable relief or actual damages but in no event is Landlord
or any Mortgagee responsible for consequential damages or lost profit
incurred by Tenant as a result of any default by Landlord.
22. SUBORDINATION AND ATTORNMENT.
22.1 This Lease will be subordinate to any mortgage, deed of
trust and related documents now or hereafter placed upon the Building Complex
(including all advances made thereunder), and to all amendments, renewals,
replacements, or restatements thereof (collectively, "Mortgage"), unless
Landlord or Mortgagee advises Tenant that it will not be subordinate. Tenant
agrees that no documentation other than this Lease is required to evidence
such subordination.
22.2 If any Mortgagee elects to have this Lease superior to
the lien of its Mortgage and gives notice to Tenant, this Lease will be
deemed prior to such Mortgage whether this Lease is dated prior or subsequent
to the date of such Mortgage or the date of recording thereof.
22.3 In confirmation of subordination or superior position, as
the case may be, Tenant will execute such documents as may be required by
Mortgagee and, if it fails to do so within 10 days after demand, Tenant
hereby irrevocably appoints Landlord as Tenant's attorney-in-fact in Tenant's
name, place, and stead to do so.
22.4 Tenant hereby attorns to all successor owners of the
Building, whether such ownership is acquired by sale, foreclosure of a
Mortgage, or otherwise.
22.5 If it becomes necessary to foreclose the Mortgage,
Mortgagee shall neither terminate the Lease nor join Tenant in summary or
foreclosure proceedings so long as Tenant is not in default under any of the
terms, covenants, or conditions of the Lease. If Mortgagee succeeds to the
interest of Landlord under the Lease, Mortgagee shall not be: (a) liable for
any act or omission of any prior landlord (including Landlord); (b) liable
for return of any security deposit unless such deposit has been delivered to
the Mortgagee by Landlord or is in an escrow fund available to Mortgagee; (c)
subject to any offsets or defenses that Tenant might have against any prior
landlord (including Landlord); (d) bound by any Rent or additional Rent that
Tenant might have paid for more than the current month to any prior landlord
(including Landlord); (e) personally liable under the Lease, Mortgagee's
liability thereunder being limited to its interest in the Real Property; or
(f) bound by any notice of termination given by Landlord to Tenant without
Mortgagee's prior written consent thereto.
22.6 Tenant acknowledges that a current Mortgagee requires
that Rent payable to Landlord under this Lease be paid directly by Tenant to
Mortgagee upon a default by Landlord under the Mortgage. After receipt of
notice from Mortgagee to Tenant, at the address set forth above (or at such
other address of which Mortgagee has been notified in writing), Tenant shall
pay to Mortgagee all monies due or to become due to Landlord under the Lease.
Tenant shall have no responsibility to ascertain whether such demand by
Mortgagee is permitted under the Mortgage, or to inquire into the existence
of a default. Landlord hereby waives any right, claim, or demand it may now
or hereafter have against Tenant by reason of such payment to Mortgagee, and
any such payment shall discharge the obligations of Tenant to make such
payment to Landlord.
23. REMOVAL OF TENANT'S PROPERTY.
23.1 All movable personal property of Tenant not removed from
the Premises upon vacation, abandonment, or termination of this Lease shall
be conclusively deemed abandoned and may be sold, or otherwise disposed of
by
13
<PAGE>
Landlord without notice to Tenant and without obligation to account; Tenant
shall pay Landlord's expenses in connection with such disposition.
23.2 Subject to any purchase money security interests granted
by Tenant, Tenant conveys to Landlord all of Tenant's property at any time
situated on the Premises (and all replacements) as security for the
performance of its obligations; Tenant shall execute such documents as
Landlord requires to evidence and perfect Landlord's security interest, and
for this purpose this Lease is considered a security agreement covering such
personal property. Upon the occurrence of an Event of Default, Landlord may
exercise all rights of a secured party under the Colorado Uniform Commercial
Code. Such security interest is prior and superior to any other security
interest except a purchase money security interest. Tenant's property shall
not be removed from the Premises without Landlord's consent unless such
property is replaced with an item of equal or greater value.
24. HOLDING OVER; TENANCY MONTH-TO-MONTH. If, after the expiration
or termination of this Lease, Tenant remains in possession of the Premises
and continues to pay rent without a written agreement as to such holding
over, even though Landlord accepts such rent, such possession is a tenancy
from month-to-month, subject to all provisions hereof but at a monthly rent
equivalent to 150% of the monthly Rent paid by Tenant immediately prior to
such expiration or termination. Rent shall continue to be payable in advance
on the first day of each calendar month. Such tenancy may be terminated by
either party upon 10 days' notice prior to the end of any monthly period.
Nothing contained herein obligates Landlord to accept rent tendered after the
expiration of the Term or relieves Tenant of its liability under Section 17.
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after
expiration or termination of this Lease or after any notice (other than a
demand for payment of money) by Landlord to Tenant reinstates, continues,
extends the Term, or affects any notice given to Tenant prior to such
payments. After notice, commencement of a suit, or final judgment granting
Landlord possession of the Premises, Landlord may collect any amounts due or
otherwise exercise Landlord's remedies without waiving any notice or
affecting any suit or judgment.
26. STATEMENT OF PERFORMANCE. Tenant agrees at any time upon not
less than 10 days' notice to execute and deliver to Landlord a written
statement certifying that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force
and effect as modified stating the modifications); that there have been no
defaults by Landlord or Tenant (or, if there have been defaults, setting
forth the nature thereof); the date to which Rent has been paid in advance
and such other information as Landlord requests. Such statement may be
relied upon by a prospective purchaser of Landlord's interest or Mortgagee.
Tenant's failure to timely deliver such statement is conclusive upon Tenant
that: (i) this Lease is in full force and effect without modification except
as may be represented by Landlord; (ii) there are no uncured defaults in
Landlord's performance; and (iii) not more than 1 month's Rent has been paid
in advance. Upon request, Tenant will furnish Landlord an appropriate
resolution confirming that the party signing the statement is authorized to
do so.
27. MISCELLANEOUS.
27.1 TRANSFER BY LANDLORD. The term "Landlord" means so far as
obligations of Landlord are concerned, only the owner of the Building at the
time in question and, if any transfer of the title occurs, Landlord herein
named (and in the case of any subsequent transfers, the then grantor) is
automatically released from and after the date of such transfer of all
liability as respects performance of any obligations of Landlord thereafter
to be performed. Any funds in Landlord's possession at the time of transfer
in which Tenant has an interest will be turned over to the grantee and any
amount then due Tenant under this Lease will be paid to Tenant.
27.2 NO MERGER. The termination or mutual cancellation of this
Lease will not work a merger, and such termination or cancellation will at
the option of Landlord either terminate all subleases or operate as an
automatic assignment to Landlord of such subleases.
27.3 COMMON AREA USE. Landlord may use any of the Common
Areas for the purposes of completing or making repairs or alterations in any
portion of the Building Complex.
27.4 INDEPENDENT COVENANTS. This Lease is to be construed as
though the covenants between Landlord and Tenant are independent and not
dependent and Tenant is not entitled to any setoff of the Rent against
Landlord if Landlord fails to perform its obligations; provided, however, the
foregoing does not impair Tenant's right to commence a separate suit against
Landlord for any default by Landlord so long as Tenant complies with Section
21.
27.5 VALIDITY OF PROVISIONS. If any provision is invalid
under present or future laws, then it is agreed that the remainder of this
Lease is not affected and that in lieu of each provision that is invalid,
there will be added as part of this Lease a provision as similar to such
invalid provision as may be possible and is valid and enforceable.
27.6 CAPTIONS. The caption of each Section is added for
convenience only and has no effect in the construction of any provision of
this Lease.
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27.7 CONSTRUCTION. The parties waive any rule of construction
that ambiguities are to be resolved against the drafting party. Any words
following the words "include," "including," "such as," "for example," or
similar words or phrases shall be illustrative only and are not intended to
be exclusive, whether or not language of non-limitation is used.
27.8 APPLICABILITY. Except as otherwise provided, the
provisions of this Lease are applicable to and binding upon Landlord's and
Tenant's respective heirs, successors and assigns. Such provisions are also
considered to be covenants running with the land to the fullest extent
permitted by law.
27.9 AUTHORITY. Tenant and the party executing this Lease on
behalf of Tenant represent to Landlord that such party is authorized to do so
by requisite action of Tenant and agree, upon request, to deliver Landlord a
resolution, similar document, or opinion of counsel to that effect.
27.10 SEVERABILITY. If there is more than one party which is
the Tenant, the obligations imposed upon Tenant are joint and several.
27.11 ACCEPTANCE OF KEYS, RENT OR SURRENDER. No act of
Landlord or its representatives during the Term, including any agreement to
accept a surrender of the Premises or amend this Lease, is binding on
Landlord unless such act is by a partner, member or officer of Landlord, as
the case may be, or other party designated in writing by Landlord as
authorized to act. The delivery of keys to Landlord or its representatives
will not operate as a termination of this Lease or a surrender of the
Premises. No payment by Tenant of a lesser amount than the entire Rent owing
is other than on account of such Rent nor is any endorsement or statement on
any check or letter accompanying payment an accord and satisfaction.
Landlord may accept payment without prejudice to Landlord's right to recover
the balance or pursue any other remedy available to Landlord.
27.12 BUILDING NAME AND SIZE. Landlord may as it relates to
the Building and Building Complex: change the name, increase the size by
adding additional real property, construct other buildings or improvements,
change the location and/or character, or make alterations or additions. If
additional buildings are constructed or the size is increased, Landlord and
Tenant shall execute an amendment which incorporates any necessary
modifications to Tenant's Pro Rata Share. Tenant may not use the Building's
name for any purpose other than as part of its business address.
27.13 DIMINUTION OF VIEW. Tenant agrees that no diminution of
light, air, or view from the Building entitles Tenant to any reduction of
Rent under this Lease, results in any liability of Landlord, or in any way
affects Tenant's obligations.
27.14 LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary contained in this Lease, Landlord's liability is limited to
Landlord's interest in the Building.
27.15 NON-RELIANCE. Tenant confirms it has not relied on any
statements, representations, or warranties by Landlord or its representatives
except as set forth herein.
27.16 WRITTEN MODIFICATION. No amendment or modification of
this Lease is valid or binding unless in writing and executed by the parties.
27.17 LENDER'S REQUIREMENTS. Tenant will make such
modifications to this Lease as may hereafter be required to conform to any
lender's requirements, so long as such modifications do not increase Tenant's
obligations or materially alter its rights.
27.18 EFFECTIVENESS. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option to lease and it is not effective unless and until execution and
delivery by both Landlord and Tenant.
27.19 SURVIVAL. This Lease, notwithstanding expiration or
termination, continues in effect as to any provisions requiring observance or
performance subsequent to termination or expiration.
27.20 TIME OF ESSENCE. Time is of the essence herein.
27.21 RULES AND REGULATIONS. If rules and regulations are
attached hereto, they are a part of this Lease and Tenant agrees that Tenant
and Tenant's Agents shall at all times abide by such rules and regulations.
27.22 RECORDING, Tenant will not record this Lease. Recording
of the Lease by or on behalf of Tenant is an Event of Default.
28. AUTHORITIES FOR ACTION AND NOTICE.
15
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28.1 Unless otherwise provided, Landlord may act through
Landlord's Building Manager or other designated representatives from time to
time.
28.2 All notices or other communications required or desired
to be given to Landlord must be in writing and shall be deemed received when
delivered personally to any officer, partner, or member of Landlord
(depending upon the nature of Landlord) or the manager of the Building (the
"Building Manager") whose office is in the Building, or when deposited in the
United States mail, postage prepaid, certified or registered, return receipt
requested, addressed as provided in Section 1.10. All notices or
communications required or desired to be given to Tenant shall be in writing
and deemed duly served when delivered personally to any officer, employee,
partner, or member of Tenant (depending upon the nature of Tenant),
individually if a sole proprietorship, or manager of Tenant whose office is
in the Building, or when deposited in the United States mail, postage
prepaid, certified or registered, return receipt requested, addressed as
provided in Section 1.12. Either party may designate in writing served as
above provided a different address to which notice is to be mailed. The
foregoing does not prohibit notice from being given as provided in Rule 4 of
Colorado Rules of Civil Procedure, as amended from time to time.
29. PARKING. Landlord will make available parking spaces up to
Tenant's Maximum set forth in Section 1.9, if any, for Tenant's use during
the term hereof. Tenant shall notify Landlord on or before the Commencement
Date of the number of parking spaces up to Tenant's Maximum it will initially
require and, thereafter, Tenant shall give Landlord written notice at least
30 days prior to the date that Tenant shall require the use of any parking
spaces in addition to those initially accepted, the total of which shall not
exceed Tenant's Maximum. Tenant shall pay the monthly rate in effect for
each parking space utilized as such rate may change from time to time. The
monthly parking rates are currently as follows: $65.00 for an assigned
reserved space, $40 for an unassigned covered space, and $20 for an
unassigned deck (uncovered) space. Landlord reserves the right to determine
the type of parking spaces allocated for Tenant's use. Tenant will receive
one monthly bill for all spaces taken which shall be paid in the same manner
and at the same place as Minimum Rent for the Premises. Tenant has no rights
to use parking spaces except as provided in this Section. The right granted
to Tenant to use any space is a license only and Landlord's inability to make
any space available at any time for reasons beyond Landlord's reasonable
control is not a material breach by Landlord of its obligations hereunder.
The abatement of Tenant's obligation to pay for unavailable spaces during any
period of unavailability constitutes Tenant's sole remedy. If Tenant fails
to timely pay a parking bill, in addition to being a default under the Lease,
Tenant may, at Landlord's option, forfeit its right to all parking spaces.
All vehicles parked in the parking garage and the personal property therein
shall be at the sole risk of Tenant, Tenant's Agents and the users of such
spaces and Landlord shall have no liability for loss or damage thereto for
whatever cause.
Landlord hereby covenants and agrees that ten (10) of Tenant's Maximum
spaces will be specifically allocated as roof/deck (uncovered) spaces in the
parking garage and designated via appropriate signage as reserved for the
visitors of Tenant. Tenant shall be solely responsible for all costs and
expenses incurred by Landlord in installing and maintaining the signage
designating the visitor parking spaces for Tenant.
30. SUBSTITUTE PREMISES. [Intentionally Deleted]
31. BROKERAGE. Tenant represents it has not employed any broker
with respect to this Lease and has no knowledge of any broker's involvement
in this transaction except those listed in Sections 1.14 and 1.15
(collectively, the "Brokers"). Tenant shall indemnify Landlord against any
expense incurred by Landlord as a result of any claim for commissions or fees
by any other broker, finder, or agent, whether or not meritorious, employed
by Tenant or claiming by, through, or under Tenant, other than the Brokers.
Tenant acknowledges Landlord is not liable for any representations by the
Brokers regarding the Premises, Building, Building Complex, or this Lease.
32. LEGAL FEES; PREPARATION OF LEASE. Tenant acknowledges that if
Landlord incurs legal fees in connection with the preparation and negotiation
of this Lease in excess of $7,799.00 the amount of such excess shall be
payable to Landlord as a one-time payment of additional Rent promptly upon
the final determination of Landlord's legal fees.
33. COUNTERPARTS. This Lease may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any one or more
counterpart signature pages may be removed from one counterpart of the Lease
and annexed to another counterpart of the Lease to form a completely executed
original instrument without impairing the legal effect of the signature
thereon.
34. ADDENDUM/EXHIBITS. Any Addenda or Exhibits referred to herein
are attached hereto and incorporated herein by reference.
35. RIGHT OF OFFER. Landlord grants Tenant a right of offer (the
"Right of Offer") to lease Suite 1130, as depicted on Exhibit A hereto (the
"Offer Space"), on the following basis:
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35.1 Tenant's Right of Offer is subordinate to all rights of
extension, expansion, offer or refusal of other tenants as to the Offer Space
in place as of the date of this Lease and to Landlord's desire to extend the
term or renew the lease of the tenant then occupying the Offer Space, or any
portion thereof.
35.2 Tenant has 3 business days after being notified by
Landlord of Landlord's desire to lease the Offer Space or any portion thereof
("Landlord's Notice") within which to notify Landlord of its election to
exercise its Right of Offer. Landlord will determine the exact square
footage of the Offer Space at the time such space or any portion thereof is
offered to Tenant. Tenant must take all of the Offer Space identified in
Landlord's Notice and may not elect to lease only a portion thereof.
35.3 If Tenant does not timely notify Landlord, it will be
conclusively presumed that Tenant has waived its Right of Offer to the
portion of the Offer Space identified in Landlord's Notice, Landlord shall be
free to lease that Offer Space to anyone whom it desires, and Tenant will
have no further rights to that portion of the Offer Space.
35.4 The Offer Space will be offered to Tenant for a term
coterminous with the Term and upon the provisions and at the rental rate
Landlord would offer to lease the Offer Space to third parties for a lease
term comparable to the remaining Term, but in no event shall the rental rate
be less than the rental rate that Tenant is paying for the Premises. Such
provisions will include, among other things, escalations, pass-throughs and
an increase in Tenant's Deposit. Upon exercise of the Right of Offer, the
Offered Space will be deemed added to the Premises and Tenant will accept
such space in its "as is" condition without any remodeling or fix-up work
performed by Landlord, except as may be provided in Landlord's Notice. All
costs of preparing the Right of Offer Space for Tenant's occupancy, including
costs of compliance with Applicable Laws will be paid by Tenant. After all of
the Offer Space has been offered to Tenant, whether added or declined, Tenant
has no further rights to add additional space to the Premises. After exercise
of the Right of Offer, the parties, at the request of either party, will
execute an amendment to the Lease evidencing the addition of such space.
35.5 The Right of Offer, if not earlier expired, shall expire
upon the first to occur of the following: (i) the occurrence of an Event of
Default, (ii) an assignment of the Lease, (iii) Tenant's waiver of its Right
of Offer pursuant to Paragraph 35.3 above; or (iv) the expiration of the
Initial Term.
35.6 All notifications contemplated by this Paragraph, whether
from Tenant to Landlord, or from Landlord to Tenant, must be in writing and
given in the manner provided in this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written and it is effective upon delivery of a
fully-executed copy to Tenant.
THE ENTERPRISE SYSTEMS GROUP, INC., a PRENTICE POINT LIMITED PARTNERSHIP, a
Texas corporation Delaware limited partnership
By: PRENTICE POINT, INC., General
Partner
By: /s/ Shawn P. Richmond
-------------------------------
Print Name: Shawn P. Richmond By: /s/ Charles McIntyre
----------------------- ------------------------------------
Print Title: President Charles McIntyre, Vice President
----------------------
"Landlord"
ATTEST:
By: /s/ Stephen J. Hensen
-------------------------------
Print Name: Stephen J. Hensen
-----------------------
Print Title: Secretary
----------------------
"Tenant"
17
<PAGE>
EXHIBIT A TO LEASE
DIAGRAM OF PREMISES
[Diagram showing layout of Premises with existing offices]
<PAGE>
EXHIBIT B TO LEASE
REAL PROPERTY
PARCEL 1:
That part of Lot 3, Block 2, A RESUBDIVISION OF BLOCK 6, DENVER TECHNOLOGICAL
CENTER FILING NO. 2, described as follows:
Beginning at the Northeast comer of
said Block 2;
thence Southerly along the Easterly line of said Block 2, the same
being the Westerly line of South Wabash Street, a distance of 437.78 feet to a
point of curvature;
thence along a curve to the right with a radius of 75.00
feet and a central angle of 2DEG.59'53" an arc distance of 3.92 feet;
thence along a curve to the right whose tangent makes an angle to the right of
26DEG.06'30" from the tangent of the preceding curve and having a radius of
80.00 feet and a central angle of 77DEG.04'05" an arc distance of 107.61
feet to a point of tangency;
thence along the tangent to the aforesaid curve
141.62 feet;
thence at a deflection angle of 14DEG.28'39" to the left 120.00
feet to a point on the Northeasterly line of East Prentice Avenue;
thence Northwesterly along said Northeasterly line at East Prentice a distance
of 32.60 feet;
thence Northeasterly at an angle of 88DEG.18'38" to the right a distance of
438.06 feet to the North line of said Block 2;
thence Easterly at an angle of 74DEG.47'33" to the right and along said
North line, a distance of 270.00 feet to the point of beginning,
County of Arapahoe,
State of Colorado.
PARCEL 2:
That part of Lot 3, Block 2, A RESUBDIVISION OF BLOCK 6, DENVER TECHNOLOGICAL
CENTER FILING NO. 2, described as follows:
Commencing at the Northeast corner of said Block 2;
thence Westerly along the North line of said Block 2, a distance of 270.00 feet
to the TRUE POINT OF BEGINNING;
thence continuing along said North line of Block 2, a distance of 98.43 feet;
thence Southwesterly at a deflection angle of 89DEG.16'39" to the left
203.35 feet;
thence on an angle to the left of 90DEG.00'00", a distance of
45.57 feet;
thence on an angle to the left of 75DEG.30'54", a distance of
211.31 feet to the TRUE POINT OF BEGINNING,
County of Arapahoe,
State of Colorado.
PARCEL 3:
An easement for ingress and egress granted in First Amended and Restated Cross
Easement Agreement by and between The Dow Chemical Company and Prentice Point,
Ltd. recorded September 8, 1989, in Book 5769, at Page 19,
County of Arapahoe,
State of Colorado.
PARCEL 4:
A license to construct, operate, maintain, repair and replace a concrete
courtyard across the City of Aurora's Rampart Waterline Easement, as granted by
the City of Aurora, Colorado, pursuant to a License Agreement dated August 16,
1985 and recorded September 10, 1985 in Book 4541 at image 336, as assigned to
Prentice Point Associates, L.P., a California limited partnership by Assignment
thereof recorded June 3, 1994 in Book 7581 at Page 122, as assigned to Prentice
Point Limited Partnership, a Delaware limited partnership, by Assignment thereof
recorded January 1, 1997, at Reception No. R7003471.
County of Arapahoe,
State of Colorado.
<PAGE>
EXHIBIT C
PREMISES COMPLETION
[Intentionally Omitted]
<PAGE>
EXHIBIT D TO LEASE
COMMENCEMENT CERTIFICATE
[Intentionally Omitted]
2
<PAGE>
EXHIBIT E TO LEASE
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety
and well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any
continuing violation of these rules and regulations by Tenant shall
constitute a default by Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii)
any such waiver shall not relieve such tenant from the obligation to comply
with such rule or regulation in the future unless otherwise agreed to by
Landlord, (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of complying with these rules and regulations,
unless such other tenant has received a similar written waiver from
Landlord;.and (iv) any such waiver shall not relieve such tenant from any
liability to Landlord for any loss or damage occasioned as a result of such
tenant's failure to comply.
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors, roof, halls and other parts of the Building
not exclusively occupied by any tenant shall not be obstructed or encumbered
by any tenant or used for any purpose other than ingress and egress to and
from each tenant's premises. Landlord shall have the right to control and
operate the public portions of the Building, and the facilities furnished for
common use of the tenants, in such manner as Landlord deems best for the
benefit of the tenants generally. No tenant shall permit the visit to its
premises of persons in such numbers or under such conditions as to interfere
with the use and enjoyment of the entrances, corridors, elevators and other
public portions or facilities of the Building by other tenants.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior
written consent of Landlord. All awnings, projections, curtains, blinds,
shades, screens and other fixtures must be of a quality, type, design and
color, and attached in the manner approved by Landlord.
3. No showcases or other articles shall be put in front of or
affixed to any part of the exterior of the Building or any tenant's premises,
nor placed in the halls, corridors or vestibules without the prior written
consent of Landlord.
4. The water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were constructed,
and no debris, rubbish, rags or other substances shall be thrown therein.
All damage resulting from any misuse of the fixtures shall be borne by the
tenant who, or whose servants, employees, agents, visitors or licensees,
shall have caused the same.
5. There shall be no marking, painting, drilling into or defacement
of the Building, or any part of any tenant's premises that is visible from
public areas of the Building. Tenants shall not construct, maintain, use or
operate within their respective premises any electrical device, wiring or
apparatus in connection with a loud speaker system or other sound system,
except as reasonably required as part of a communication system approved
prior to the installation thereof by Landlord. No such loud speaker or sound
system shall be constructed, maintained, used or operated outside the
premises of any tenant.
6. No bicycles or vehicles and no animals, birds or pets of any
kind shall be brought into or kept in or about the Building or any tenant's
premises, except that this rule shall not prohibit the parking of bicycles or
vehicles in areas specifically designated therefor by Landlord. No cooking
or heating of food shall be done or permitted by any tenant on its premises
except for food prepared in portable microwave ovens (provided that no odors
are emitted such as in the preparation of popcorn). No tenant shall cause or
permit any unusual or objectionable odors to be produced upon or permeate
from its premises.
7. No space in the Building shall be used for the manufacture of
goods for sale in the ordinary course of business, or for the sale at auction
of merchandise, goods or property of any kind. Furthermore, the use of its
premises by any tenant shall not be changed without the prior approval of
Landlord.
8. No tenant shall make any unseemly or disturbing noises or
disturb or interfere with the occupants of the Building or neighboring
buildings or premises or those having business with them, whether by the use
of any musical instrument, radio, talking machine, whistling, singing, or in
any other way. No tenant shall throw anything out of the doors or windows or
into or down the corridors or stairs of the Building.
<PAGE>
9. No flammable, combustible or explosive fluid, chemical or
substance shall be brought into or kept upon the Premises.
10. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by any tenant, nor shall any changes be made in
any existing locks or the locking mechanism therein, without Landlord's
approval. The doors leading to the corridors or main halls shall be kept
closed during business hours except as they may be used for ingress or
egress. Each tenant shall, upon the termination of its tenancy, restore to
Landlord all keys of stores, offices, storage and toilet rooms either
furnished to, or otherwise procured by, such tenant, and in the event of the
loss of any keys so furnished, such tenant shall pay to Landlord the
replacement cost thereof. Tenant's key system shall be separate from that
for the rest of the Building.
11. Landlord reserves the right to inspect all freight to be brought
into the Building and to exclude from the Building all freight which violates
any of these rules and regulations of the Lease.
12. Landlord reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself or
herself to the Building management or watchman, if any, on duty. Landlord
may, at its option, require all persons admitted to or leaving the Building
between the hours of 6:00 p.m. and 7:00 a.m., Monday through Friday, and at
any hour on Saturdays, Sundays and legal holidays, to register. Each tenant
shall be responsible for all persons for whom it authorizes entry in the
Building, and shall be liable to Landlord for all acts or omissions of such
persons.
13. The Premises shall not, at any time, be used for lodging or
sleeping or for any immoral or illegal purposes.
14. Tenant assumes all responsibility for protecting the Premises
from theft, and each tenant, before closing and leaving the Premises at any
time, shall see that all doors and windows are closed and locked, and all
lights turned off.
15. Landlord's employees shall not perform any work or do anything
outside of their regular duties, unless under special instruction from the
management of the Building. The requirements of tenants will be attended to
only upon application to Landlord, and any such special requirements shall be
billed to Tenant (and paid when the next installment of rent is due) in
accordance with the schedule of charges maintained by Landlord from time to
time or at such charge as is agreed upon in advance by Landlord and Tenant.
16. Canvassing, soliciting and peddling in the Building and on the
Property are prohibited and each tenant shall cooperate to prevent the same.
Peddlers, solicitors and beggars shall be reported to the Building manager or
as Landlord otherwise requests.
17. There shall not be used in any space, or in the public halls of
the Building, either by any tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards. Tenant shall be responsible to Landlord for any loss
or damage resulting from any deliveries made by or for Tenant to the Building.
18. Mats, trash or other objects shall not be placed in the public
corridors of the Building.
19. Landlord does not maintain suite finishes which are
non-standard, such as kitchens, bathrooms, wallpaper, special lights, etc.
However, should the need arise for repairs of items not maintained by
Landlord, Landlord will arrange for the work to be done at Tenant's expense.
20. Drapes installed by Landlord for the use of Tenant or drapes
installed by Tenant, with Landlord's approval, which are visible from the
exterior of the Building, must be cleaned by Tenant at least once a year,
without notice, at the tenant's own expense.
21. The Building directory located in the Building lobby as provided
by Landlord shall be available to Tenant solely to display its name and
location in the Building, which display shall be as directed by Landlord.
22. 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.
23. 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.
24. No furniture, packages, supplies, equipment or merchandise will
be received in the Building or carried up or down in the elevators, except
between such hours and in such elevators and under such other conditions as
shall be designated by Landlord.
2
<PAGE>
25. Tenant shall not waste heat or air-conditioning and shall
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning, and shall refrain from attempting to
adjust any controls other than room thermostats installed for Tenant's use.
26. Landlord shall have sole power and discretion to control the
quantity, size, location, and design of all tenant identification signage.
No such signage shall be erected without Landlord's written consent.
27. The loading dock area is exclusively reserved for authorized
traffic and Tenant shall not use same for temporary parking.
28. No eating, drinking, sleeping, or loitering shall be permitted
in the lobby areas.
29. Landlord may from time to time alter or amend these Rules and
Regulations, and Tenant shall comply with the Amended Rules and Regulations.
3
<PAGE>
- --------------------------------------------------------------------------------
Jack Augsback & Associates Incorporated
1325 South Congress Avenue- Suite 223
Boynton Beach, Florida 33426-5876
Toll Free 888-745-4565- Phone 561-735-4565- Fax 561-735-3359
E-mail: [email protected]
- --------------------------------------------------------------------------------
Corporate Finance/Placement Agent Agreement
This Corporate Finance/Placement Agreement is entered into Telcom Wireless
Inc, ("Client") and Jack Augsback & Associates Incorporated ("JAA"), this
date of March 26, 1999.
Witnesseth:
Telcom Wireless Inc, herein referred to as "Client", desires to be assured of
the exclusive association of JAA in order to avail itself of JAA's skills,
abilities, background and knowledge. JAA shall research and find sources for
Client's various needs of financing, including bridge loans, convertible
debt, private placement of convertible preferred or common stock
(collectively the "Financing") and make "Introductions" to resources capable
of providing same to Client in order to facilitate long-range financial
planning for Client's business and financial needs in an orderly and
efficient manner for such success-based compensation as outlined below in
this document provided, however, this shall not include any introductions to
public underwriters.
"Introduction(s)" shall mean the contact of a qualified financial source
during which Client's financing proposal is offered to the source. A schedule
of all parties contacted on Client's behalf shall be provided monthly as an
addendum to this Agreement. At its sole discretion, Client may submit a
schedule of firms JAA should not contact.
"Financing" shall mean the acceptance of a negotiated instrument
(Subordinated Debenture with Warrants, Convertible Preferred Stock, Common
Stock, Common Stock with attached warrants, Warrant Units convertible into
Common Stock, or any hybrid combination of the foregoing) which leads to the
funding of Client's operations, or any other consideration negotiated and
agreed to by the parties to any agreement.
<PAGE>
Jack Augsback & Associates Inc.
Corporate Finance/Placement Agent Agreement
Page 2 of 5
"Consideration" shall mean the gross value of all cash, securities and any
other property paid directly or indirectly by a financial source in
connection with a financing. The value of such securities (whether debt or
equity) or other property shall be deemed as follows: (1) the value of
securities freely tradable in an established public market as determined on
the basis of closing market price on the last trading day prior to public
announcement of such sale or placement; and (2) the value of securities
that are not freely tradable or have no established public market, and the
value of consideration that consists of other property or services traded
for any instrument mentioned above shall be the fair market value thereof
as mutually agreed to by the parties hereto.
Now therefore, in consideration of the promises and mutual covenants herein
set forth, it is agreed as follows:
CLIENT FULL NAME hereby agrees that all fees due JAA under this agreement
or any agreement by a cooperating financing source are in consideration of
financial consulting or placement agent services, and technical
administrative services related thereto, the sufficiency of which is hereby
acknowledged.
1. It shall be expressly understood that if JAA, through its efforts,
Introduces Client and/or its Associates, Affiliates, Consultants, Agents or
Employees during the term of this Agreement to any persons or entity that,
during the term hereof, or within twelve (12) months following the term
hereof, provides any investment capital, loan or other equity or corporate
debt financing to Client or any affiliates thereof, or becomes a party to a
merger, acquisition, joint venture, private placement or any similar
transaction with Client or any affiliate thereof, or related company, and for
which within 24 hours of such introduction Client has not informed JAA of
prior contact or introduction to such party, upon the closing of said
financial transaction, Client shall pay to JAA a consulting/investment
banking fee of ten (10) percent of the first $10,000,000. (US$) value in the
transaction; seven and one half percent (7.5%) of the following $5,000,000.
(US$) value in the transaction; and five (5) percent of any balance of gross
funds of said Financing value which shall be paid in cash, certified or
cashiers check or money order at time of closing. Bank wire transfers shall
be accomplished at the time of funds being disbursed by escrow agent via wire
directly to JAA's receiving account. Financing transaction value shall be the
aggregate value of all cash, securities and other property received either
(i) transferred to Client, its affiliates, subsidiaries or related company
relating to any financial transaction involving, loan or any equity or
corporate debt financing or of the acquisition of any property thereof, or
(ii) obtaining any property in lieu of cash that will aid Client in
furthering its operational goals, or (iii) assets, money or services
transferred or otherwise contributed by a third party to cause formation of
joint venture. The aggregate value of such cash, securities and other
property shall be for the aggregate market value thereof as determined by JAA
and Client. In the event the parties cannot come to agreement as to market
value, an
<PAGE>
Jack Augsback & Associates Inc.
Corporate Finance/Placement Agent Agreement
Page 3 of 5
independent jointly selected by them shall make an appraisal and their
decision shall be binding upon the parties. Client shall have the sole and
exclusive discretion to accept or reject any funding located by JAA.
A NON-ACCOUNTABLE PROJECT EXPENSE fee in the amount of one (1) percent shall
be collected at closing. Expense check shall be separate from Investment
Banking Fee as outlined above.
Exceptions to Paragraph (1) above is the procurement of any collateralized
financing for bridge/temporary loans. Upon closing of any collateralized
loan, JAA shall be paid an investment banking fee of five (5) percent of
aggregate value of such financing.
Exception to paragraph (1) above is the search and aid in any public stock
underwriting shall be limited to an investment banking fee of three (3)
percent of gross amount raised in such offering.
Exception to paragraph (1) above is all mergers and acquisition activity
shall bear a commission rate of five (5) percent.
Exception to paragraph (1) above is that any financing offer that contains
JAA's fee, even if lower than paragraph (1) above shall be the prevailing
document.
Additionally, ON A SUCCESS BASIS ONLY, Client shall provide JAA with warrants
to purchase up to five shares of common stock for each One Hundred Dollars of
funds raised in this offering at a strike price equal to EIGHTY-FIVE PERCENT
OF THE FAIR MARKET VALUE OF THE CLIENT'S COMMON STOCK FOR TWENTY (20) TRADING
DAYS PRIOR TO THE CLOSING OF THE FINANCING, OR AT TIME OF INITIAL PUBLIC
OFFERING (IPO). Warrants shall remain in effect for five (5) years. All such
shares granted shall have "piggy back rights" and shall be registered on the
next registration statement filed by the Company. All expenses relative to
registration of shares shall be borne by Client.
Both parties to this Agreement recognize that no compensation as defined
above shall be earned by or payable to JAA unless a Financing or corporate
combination of some sort is actually consummated, in which case, JAA shall be
compensated as stated above.
2. Out of pocket expenses for exclusive visits to Client's principle place
of business and any international travel to meet with or negotiate details of
this transaction shall be billed as agreed upon in advance. All other
expenses relative to this assignment shall be borne by JAA. All expenses paid
prior to closing shall be credited against NON-ACCOUNTABLE EXPENSES as
outlined in Paragraph (1) above.
<PAGE>
Jack Augsback & Associates Inc.
Corporate Finance/Placement Agent Agreement
Page 4 of 5
3. Client and JAA shall mutually:
Indemnify and hold each other harmless against any and all losses, claims,
damages or liabilities to which they shall become subject to arising in any
manner from the presentation of financial data provided by Client, or from
damages associated with the rendering of services by JAA hereunder, unless
such losses, damages or liabilities resulted directly from the gross
negligence of either party, and shall reimburse JAA promptly for any legal
or other expenses reasonably incurred by it in connection with
investigating, preparing to defend or defending, providing evidence in or
preparing to serve as a witness with respect to any lawsuits,
investigations, claims or other proceedings arising in any manner out of or
in connection with the rendering of services by JAA hereunder.
JAA and Client agree to indemnification and reimbursement commitments set
forth in this Agreement shall extend to any controlling person, affiliates,
directors and officers. They further agree that consent to settle matters
in dispute shall not be unreasonably delayed or denied.
4. Client acknowledges responsibility for all legal, accounting or other
professional services obtained in closing this transaction, except any expenses
incurred solely by JAA.
5. This Agreement may not be amended or modified except in writing signed by
each of the parties and shall be governed by and construed and enforced in
accordance with the laws of Florida, The Client and JAA hereby irrevocably and
unconditionally consent to submit exclusive jurisdiction of the courts of the
State of Florida and of the United States District Court located in West Palm
Beach, Florida for any lawsuits, actions, or other proceedings arising out of or
relating to this Agreement and agree not to commence any such lawsuits, action
or other proceeding in any other court. Client hereby agrees to cause any entity
that may be formed for the purpose of engaging in further activities as a result
of this Financing/corporate combination to accept and be bound by all terms and
conditions of this Agreement.
6. This Agreement will be effective through December 31, 1999. Upon
termination of this Agreement, JAA will provide Client with a list of those
parties JAA introduced to Client and that list will conclusively evidence the
parties for which Client will have the continuing 12 month obligation as
provided in Paragraph (1) above.
7. JAA shall maintain the right to post "tombstone" announcements in financial
news sources regarding the successful closing of any transaction or financing.
All announcements by Client or its public relations firms shall carry the
following
<PAGE>
Jack Augsback & Associates Inc.
Corporate Finance/Placement Agent Agreement
Page 5 of 5
sentence near the end of said announcement: ... the (client's name) was
assisted in negotiating this placement (or merger, or purchase) by the
Investment banking firm of Jack Augsback & Associates inc., Boynton Beach,
Florida.
JAA has been retained to aid in the structuring and closing of a financial
transaction. All final negotiations have been conducted by the parties and their
legal representatives.
The prevailing party shall have their legal fees paid by the party found to be
legally deficient in complying with this Agreement by any court, arbitration
hearing or mediation.
All parties to this Agreement agree to a non-circumvent arrangement whereas no
contacts with any source identified by JAA shall be made without full disclosure
to JAA prior to such contact.
Signatures below by authorized officers of Client and JAA shall constitute a
binding agreement as of the date hereof.
AGREED AND CONSENTED TO:
CLIENT: /s/ James C. Roberts ,PRESIDENT DATE: March 26, 1999
------------------------------------ ----------------------
/s/ Jack Augsback ,PRESIDENT DATE: March 26, 1999
------------------------------------ ----------------------
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is made and effective this
29th day of March 1999 by and between Phoenix Communications, Inc. ("Company")
and __________________________ ("Executive").
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT
A. Company hereby agrees to initially employ Executive as its
___________________ ________________________________ and Executive hereby
accepts such employment in accordance with the terms of this Agreement and the
terms of employment applicable to regular employees of Company. In the event of
any conflict or ambiguity between the terms of this Agreement and terms of
employment applicable to regular employees, the terms of this Agreement shall
control. Election or appointment of Executive to another office or position,
regardless of whether such office or position is inferior to Executive's initial
office or position, shall not be a breach of this Agreement.
B. The Employee will devote full time, attention, and energies to the business
of the Company and during this employment, will not engage in any other business
activity, regardless of whether such activity is pursued for profit, gain, or
other pecuiany advantage unless approved by the Chief Executive Officer of
Phoenix Communications Inc. A list of those approved activities will be
contained in Attachment A to this document. Employee is not prohibited from
making personal investments in other business provided those investments do not
require active involvement in the operation of said companies.
C. Employee agrees, during and after the term of this employment, not to
reveal confidential information, or trade secrets to any person, firm,
corporation, or entity. Should Employee reveal to reveal this information,
the Company Shall be entitled to an injunction restraining the Employee from
disclosing same, of from rendering any services to any entity to whom said
information has been or threatened to be disclosed. The right to secure an
injunction is not exclusive, and the Company may pursue any other remedies it
has against the Employee for breach or threatened breach of this condition,
including the recovery of damages from the Employee.
2.0 DUTIES OF EXECUTIVE
A. The duties of Executive shall include the performance of all of the
duties typical of the office held by Executive as described in the bylaws of
the Company and such other duties and projects as may be assigned by a
superior officer of the Company, if any, or the board of directors of the
Company. Executive shall devote his entire productive time, ability and
attention to the business of the Company and shall perform all duties in a
professional, ethical and businesslike manner. Executive will not, during
the term of this Agreement, directly or indirectly engage in any other
business, either as an employee, employer, consultant, principal,
<PAGE>
officer, director, advisor, or in any other capacity, either with or without
compensation, without the prior written consent of Company as defined in
Paragraph 1.B above. In addition to the duties described herein, Executive is
also authorized and directed to do the following:
[Other Specific Duties or Authorization].
3. COMPENSATION
Executive will be paid compensation during this Agreement as follows:
A. A base salary of $___________________________ per year, payable in
installments according to the Company's regular payroll schedule. The base
salary may be increased at the end of each year by the compensation committee of
the board of directors. The adjustment will be based upon a written evaluation
of the Executive, prepared by the Executive's immediate supervisor.
B. The Executive is eligible for an award of an Executive Bonus computed as
defined in 3.C below beginning with the Company's fiscal year end 1999 and each
fiscal year thereafter during the term of this Agreement.
C. An Executive Bonus pool equal to 5.0% of the adjusted net profits
(hereinafter defined) of the Company. "Adjusted net profit" shall be the net
profit of the Company before federal and state income taxes, determined in
accordance with generally accepted accounting practices by the Company's
independent accounting firm and adjusted to exclude: (i) any Executive Bonus
payments paid pursuant to this Agreement; (ii) any contributions to pension
and/or profit sharing plans; (iii) any extraordinary gains or losses (including,
but not limited to, gains or losses on disposition of assets); (iv) any refund
or deficiency of federal and state income taxes paid in a prior year; and (v)
any provision for federal or state income taxes made in prior years which is
subsequently determined to be unnecessary. The determination of the adjusted
net profits made by the independent accounting firm employed by the Company
shall be final and binding upon Executive and Company. The Executive Bonus
payment shall be made within thirty (30) days after the Company's independent
accounting firm has concluded its audit. If the final audit is not prepared
within ninety (90) days after the end of the fiscal year, then Company shall
make a preliminary payment equal to fifty percent (50%) of the amount due based
upon the adjusted net profits preliminarily determined by the independent
accounting firm, subject to payment of the balance, if any, promptly following
completion of the audit by the Company's independent accounting firm. The
maximum Executive Bonus payable for any one year shall not exceed 100% of the
then applicable base salary of Executive.
D. Executive will be entitled to participate in the employee stock option
plan as detailed in that agreement.
4. BENEFITS.
A. HOLIDAYS. Executive will be entitled to at least seven (7) paid holidays
and and four (4) personal days each calendar year. Company will notify
Executive on or about the beginning of
<PAGE>
each calendar year with respect to the holiday schedule for the coming year.
Personal holidays, if any, will be scheduled in advance subject to
requirements of Company. Such holidays must be taken during the calendar
year and cannot be carried forward into the next year. Executive is not
entitled to any personal holidays during the first six months of employment.
B. VACATION. Following the first six months of employment, Executive shall
be entitled to twenty paid vacation days each year.
C. SICK LEAVE. Executive shall be entitled to sick leave and emergency
leave according to the regular policies and procedures of Company.
Additional sick leave or emergency leave over and above paid leave provided
by the Company, if any, shall be unpaid and shall be granted at the
discretion of the board of directors.
D. MEDICAL AND GROUT) LIFE INSURANCE. Company agrees to include Executive
in the group medical and hospital plan of Company and provide group life
insurance for Executive at no charge to Executive in the amount of one times
the annual income during this Agreement. Executive shall be responsible for
payment of any federal or state income tax imposed upon these benefits.
E. PENSION AND PROFIT SHARING PLANS. Executive shall be entitled to
participate in any pension or profit sharing plan or other type of plan
adopted by Company for the benefit of its officers and/or regular employees.
F. EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement for
all preapproved reasonable expenses, including travel and entertainment,
incurred by Executive in the performance of Executive's duties. Executive
will maintain records and written receipts as required by the Company policy
and reasonably requested by the board of directors to substantiate such
expenses.
G. AUTOMOBILE. Company will provide to Executive with an auto allowance of
$500.00 per month
5. TERM AND TERMINATION.
A. The Initial Term of this Agreement shall commence on April 1, 1999 and it
shall continue in effect for a period of Three Years. Thereafter, the Agreement
shall be renewed upon the mutual agreement of Executive and Company. This
Agreement and Executive's employment may be terminated at Company's discretion
during the Initial Term, provided that Company shall pay to Executive an amount
equal to payment at Executive's base salary rate for the remaining period of
Initial Term. In the event of such termination, Executive shall not be entitled
to any incentive salary payment or any other compensation then in effect,
prorated or otherwise.
B. This Agreement and Executive's employment may be terminated by Company
at its discretion at any time after the Initial Term, provided that in such
case, Executive shall be paid
<PAGE>
a payment equal to six (6) months of Executive's then applicable base salary.
In the event of such a discretionary termination, Executive shall not be
entitled to receive any incentive salary payment or any other compensation
then in effect, prorated or otherwise.
C. This Agreement may be terminated by Executive at Executive's discretion by
providing at least thirty (30) days prior written notice to Company. In the
event of termination by Executive pursuant to this subsection, Company may
immediately relieve Executive of all duties and immediately terminate this
Agreement, provided that Company shall pay Executive at the then applicable base
salary rate to the termination date included in Executive's original termination
notice.
D. In the event that Executive is in breach of any material obligation owed
Company in this Agreement, habitually neglects the duties to be performed
under this Agreement, engages in any conduct which is dishonest, damages the
reputation or standing of the Company, or is convicted of any criminal act or
engages in any act of moral turpitude, then Company may terminate this
Agreement upon five (5) days notice to Executive. Prior to termination the
Executive will be given written notification of lack of performance of breach
of items identified in this paragraph. The notification will identify the
breach and provide an adequate (typically 60 days or less) time for the
Executive to remedy the breach. In event of termination of the agreement
pursuant to this subsection, Executive shall be paid only at the then
applicable base salary rate up to and including the date of termination.
Executive shall not be paid any incentive salary payments or other
compensation, prorated or otherwise.
E. In the event Company is acquired, or is the non-surviving party in a
merger, or sells all or substantially all of its assets, The Company will use
its best efforts to have this Agreement assigned to the acquirer or surviving
Company.
6. NOTICES.
Any notice required by this Agreement or given in connection with it, shall
be in writing and shall be given to the appropriate party by personal
delivery or by certified mail, postage prepaid, or recognized overnight
delivery services;
If to Company:
Phoenix Communications, Inc.
11413 Hilltop Road
Parker, CO @ 80134
If to Executive:
[Executive]
[Executive's Address]
7. FINAL AGREEMENT.
<PAGE>
This Agreement terminates and supersedes all prior understandings or
agreements on the subject matter hereof. This Agreement may be modified only
by a further writing that is duly executed by both parties.
8. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the laws of
the state of Colorado.
9. HEADINGS.
Headings used in this Agreement are provided for convenience only and shall not
be used to construe meaning or intent.
10. NO ASSIGNMENT.
Neither this Agreement nor any or interest in this Agreement may be assigned by
Executive without the prior express written approval of Company, which may be
withheld by Company at Company's absolute discretion.
11. SEVERABILITY.
If any term of this Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, then this Agreement, including all of the remaining
terms, will remain in full force and effect as if such invalid or unenforceable
term had never been included.
12. ARBITRATION.
The parties agree that they will use their best efforts to amicably resolve any
dispute arising out of or relating to this Agreement. Any controversy, claim or
dispute that cannot be so resolved shall be settled by final binding arbitration
in accordance with the rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator or arbitrators may be entered
in any court having jurisdiction thereof. Any such arbitration shall be
conducted in Denver, Colorado, or such other place as may be mutually agreed
upon by the parties. Within fifteen (15) days after the commencement of the
arbitration, each party shall select one person to act as arbitrator, and the
two arbitrators so selected shall select a third arbitrator within ten (10) days
of their appointment. Each party shall bear its own costs and expenses and an
equal share of the arbitrator's expenses and administrative fees of arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
<PAGE>
Employee Dr. J. Roberts-CEO
- -------------------------------- -------------------------------------------
Dated Dated
<PAGE>
Schedule to Executive Employment Agreement
Identifying Other Employment Agreements
to Which Telecom Wireless Is a Party
That Are Substantially Identical And
Material Details in Which Such Agreements
Differ from Filed Agreement
<TABLE>
<CAPTION>
Automobile
Employee Title Annual Salary Allowance
- -------- ----- ------------- -----------
<S> <C> <C> <C>
Paul L. Francis Vice President and Chief Technical Officer hourly
Robert L. Fredrick Senior Vice President $225,000 $500.00
Esper Gullatt, Jr. Executive Vice President-Business Development $225,000 $500.00
Kosta Kovachev Executive Vice President-Finance,
Chief Financial Officer $250,000 $500.00
Lewis Pollack Vice President-Product Development $125,000 $500.00
Calvin D. Smiley President $225,000 $500.00
</TABLE>
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and
entered into as of this 6th day of April, 1999, by and between TELECOM
WIRELESS CORPORATION, a Utah corporation (the "COMPANY"), and the person
whose name appears on the signature page hereof adjacent to the caption "Name
of Purchaser" (the "PURCHASER").
BACKGROUND
The Company has authorized the issuance, sale, and delivery of up to
$600,000 of common stock of the Company par value $.006 (the "COMMON STOCK")
pursuant to Rule 504 of Regulation D ("REGULATION D") of the Securities Act
of 1933, as amended (the "1933 ACT"). The Company has within twelve months
of the date of this Agreement sold and issued certain shares of its common
stock pursuant to Rule 504 of Regulation D, and desires to complete the
transactions contemplated herein as permitted by the limits of Regulation D
and the 1933 Act. Purchaser desires to purchase, on the terms set forth
herein, the number of shares of Common Stock set forth on the signature page
hereto adjacent to the caption "Number of Shares Purchased" (the "SHARES"),
at the price per Share set forth on the signature page hereto adjacent to the
caption "Purchase Price Per Share" (the "PRICE PER SHARE"). Pursuant to the
terms of an Escrow Agreement (the "ESCROW AGREEMENT") dated April 2, 1999, by
and among the Company, the Escrow Agent, and the Purchaser, the Company has
established an escrow account (the "ESCROW ACCOUNT") with SunTrust Bank,
Atlanta (the "ESCROW AGENT"), providing for the initial receipt of all funds
submitted pursuant to this Agreement.
AGREEMENT
For and in consideration of the premises, the mutual covenants
contained herein, and other good and valuable consideration, the parties
hereto agree as follows:
SECTION 1. PURCHASE OF STOCK. Purchaser hereby purchases the
Shares at the Price Per Share and herewith delivers to the Escrow Agent by
wire transfer (pursuant to the wire transfer instructions established in the
Escrow Agreement) or check, an amount equal to the product of the number of
Shares purchased MULTIPLIED BY the Price Per Share (such amount is the
"PURCHASE PRICE").
SECTION 2. THE CLOSING. Within two (2) business days following the
receipt of the Purchase Price and this Agreement executed by Purchaser, the
Company shall accept or reject this Agreement. If the Company rejects this
Agreement, the Company shall so notify Purchaser in writing, which writing
shall direct the Escrow Agent to remit the amount tendered by Purchaser in
payment of the Purchase Price, and shall destroy this Agreement. If the
Company accepts this Agreement, the Company shall: (i) promptly indicate its
acceptance of this Agreement, (ii) issue and deliver to Purchaser a
certificate, registered in the name of Purchaser, evidencing the Shares, and
(iii) furnish to Purchaser a copy of this Agreement, executed by the Company.
Thereafter, the Company may transmit to Escrow Agent a release notice
directing the release of funds held in the Escrow Account, in accordance with
the instructions contained in such notice.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. To
induce Purchaser to purchase the Shares, the Company hereby represents and
warrants to Purchaser that:
3.1. ORGANIZATION, STANDING, AND QUALIFICATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Utah and is duly qualified
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<PAGE>
to transact business as a foreign corporation and is in good standing in each
state in which the nature of the business transacted by it or the character
of the properties owned or leased by it requires such qualification. The
Company has the requisite corporate power and authority to own, lease, and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted, and prior to the date hereof has
not and as of the date hereof does not operate as a "blind-pool" or other
similar corporation.
3.2. SUBSIDIARIES AND OTHER EQUITY INTERESTS. The Company does not
(a) own of record or beneficially, directly, or indirectly, (i) any shares of
capital stock or securities convertible into capital stock of any
corporation, or (ii) any participating interest in any partnership, joint
venture, or other non-corporate business enterprise or (b) control, directly
or indirectly, any other entity, PROVIDED HOWEVER, that the Company has
previously disclosed that it owns, controls, or beneficially holds all of the
issued and outstanding stock of (i) Phoenix Communications, Inc., a Colorado
corporation, and (ii) Keys Microcable Corporation, a Florida corporation.
3.3. AUTHORIZATION OF AGREEMENTS, ETC. All corporate action on the
part of the Company, its officers, directors, and shareholders necessary for
the sale and issuance of the Shares and the execution, delivery, and
performance by the Company of this Agreement has been duly and validly taken.
This Agreement is the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to
or affecting enforcement of creditors' rights, and by the exercise of
judicial discretion in accordance with general equitable principles.
3.4. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of or default under any provision of its articles of incorporation
or bylaws, or any provision of any indenture, contract, agreement, mortgage,
deed of trust, loan, commitment, judgment, decree, order, or obligation to
which it is a party or by which any of its properties or assets are bound, or
to the best of the Company's knowledge, of any provision of any federal,
state, or local statute, rule, or governmental regulation applicable to the
Company. The execution and delivery by the Company of this Agreement and the
other documents and instruments contemplated hereby, the performance by the
Company of its obligations hereunder and thereunder, and the issuance, sale,
and delivery of the Shares, will not result in any such violation, conflict
with, breach of, or constitute (with due notice or lapse of time or both) a
default under, any such provision, require any consent or waiver under any
such provision, or result in the creation or imposition of any lien, charge,
restriction, claim, or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
3.5. TITLE TO PROPERTIES. The Company has good and marketable title
to all the tangible properties and assets owned by it, free and clear of all
mortgages, pledges, security interests, liens, charges, claims, restrictions,
and other encumbrances, except liens for current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of
the property subject thereto or impairing the operations or proposed
operations of the Company. The Company owns, leases, or licenses all
tangible properties and assets necessary to the operation of its business as
now conducted.
3.6. LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or
personal, is a valid and subsisting agreement without any default of the
Company thereunder and, to the best of the Company's knowledge, without any
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute
a default or event of default by the Company under any such lease
-2-
<PAGE>
or agreement or, to the best of the Company's knowledge, by any other party
thereto. The Company's possession of such property has not been disturbed
and, to the best of the Company's knowledge, no claim has been asserted
against the Company adverse to its rights in such leasehold interests.
3.7. BROKERS. The Company has no contract, arrangement, or
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement, EXCEPT for the Placement Agency
Agreement of even date herewith, between the Company and Jack Augsback &
Associates, Inc., a Florida corporation.
3.8. TAXES. The Company has filed or obtained filing extensions for
all tax returns, federal, state, county, and local, required to be filed by
it, and the Company has paid or established adequate reserves (in accordance
with generally accepted accounting principles) for the payment of all taxes
shown to be due by such returns as well as all other taxes, assessments, and
governmental charges which have become due or payable, including, without
limitation, all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors, and third parties.
3.9. CONFIDENTIAL COMPANY INFORMATION. The unaudited Balance Sheet
dated December 31, 1998, and an Income Statement for the twelve months then
ended (collectively, the "FINANCIAL STATEMENTS") are in accordance with the
books and records of the Company and present fairly the financial condition
of the Company as of the respective dates indicated and the results of
operations for such periods, except that the Financial Statements are subject
to year-end audit adjustments. The books, records, and accounts of the
Company accurately and fairly reflect, in reasonable detail, the
transactions, the assets, and the liabilities of the Company. The Company
has not engaged in any transaction, maintained any bank account, or used any
of the funds of the Company, except for transactions, bank accounts, and
funds which have been and are reflected in the normally maintained books and
records of the Company.
3.10. PRIOR OFFERINGS. The Company has not engaged in any offering
or sale of its securities within the twelve (12) month period prior to the
date of this Agreement that resulted in greater than $300,000.00 in proceeds
to the Company pursuant to any offering(s) under Regulation D of the
Securities Act (as defined below).
3.11. CAPITALIZATION. Immediately prior to Closing, the authorized
capital stock of the Company consisted of 500,000,000 shares of capital
stock, of which 500,000,000 shares are Common Stock, par value $.006, of
which approximately 4,634,969 shares are issued and outstanding, and there
are no shares of preferred stock (the "PREFERRED STOCK") authorized as of the
date hereof. All of such outstanding shares have been duly authorized and
validly issued and are fully paid and nonassessable. No shares of Common
Stock are subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company, EXCEPT that the
Purchaser purchasing Shares hereunder is entitled to receive repricing
warrants being issued by the Company under certain circumstances, as more
fully outlined in the Term Sheet (as defined in Section 5.5 below). As of
the effective date of this Agreement, the Company has previously granted to
an existing shareholder of the Company warrants for the exercise of Common
Stock of the Company under certain circumstances, and has entered into an
agreement with an existing shareholder of the Company to issue to such
shareholder additional Company securities (either additional Common Stock or
a class of convertible preferred stock not existing as of the date of this
Agreement). These agreements may contain certain obligations of the Company
in respect of registration rights in favor of certain shareholders of the
Company and not others. As of the effective date hereof, there are no
outstanding debt securities of the Company and, except as stated in this
Section 3.11, no agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act. There are no
-3-
<PAGE>
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Shares in the manner contemplated by
this Agreement. The Company has furnished or agreed to make available to the
Purchaser true and correct copies of: (x) the Company's Certificate of
Incorporation, as amended prior to the date here of (the "CHARTER"), (y) the
Company's Bylaws, as in effect on the date hereof (the "BYLAWS"), and (z) the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto, if any, and as
of the date hereof is planning no other changes to its corporate or
capitalization structure; PROVIDED HOWEVER, that the Company is planning to
effect a reverse stock split within thirty days after the date hereof,
substantially under the terms that each five (5) shares of currently issued
and outstanding Common Stock of the Company will be exchanged for one (1)
share of newly issued Common Stock of the Company, and the number of
authorized shares of Common Stock of the Company available for issuance will
be reduced to 100,000,000 at at a restated par value of $.001.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
acknowledges that the Shares have not been registered under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and are being offered and
sold pursuant to an exemption from registration contained in the Securities
Act based in part upon the representations of Purchaser contained herein.
Purchaser represents and warrants to the Company that:
(a) The Shares are being acquired for Purchaser's own account,
for investment and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the
Securities Act or the securities laws of any other state applicable to
Purchaser.
(b) Purchaser and any representatives of Purchaser have been
afforded full and free access to corporate books, records, contracts,
documents, and other information concerning the Company and to offices
and facilities of the Company, have been afforded an opportunity to ask
such questions of the Company's officers, employees, agents, accountants,
and representatives concerning the Company's business, operations,
financial condition, assets, liabilities, and other relevant matters as
they have deemed necessary or desirable, and have been given all such
information as has been requested, in order to evaluate the merits and
risks of the prospective investments contemplated herein.
(c) Purchaser and Purchaser's representatives have been solely
responsible for Purchaser's own "due diligence" investigation of the
Company and the Company's management and business, for Purchaser's own
analysis of the merits and risks of this investment, and for Purchaser's
own analysis of the fairness and desirability of the terms of the
investment. Purchaser has such knowledge and experience in financial and
business matters that Purchaser is capable of evaluating the merits and
risks of the purchase of the Shares pursuant to the terms of this
Agreement and of protecting Purchaser's interests in connection
therewith.
(d) Purchaser acknowledges that the purchase of the Shares is a
speculative investment, and that no assurance has been given by the
Company or any person authorized to act on its behalf that the purchase
of the Shares will not ultimately result in a total loss of Purchaser's
investment. Purchaser acknowledges that Purchaser is able to bear the
economic risk of the purchase of the Shares pursuant to the terms of this
Agreement, including a complete loss of Purchaser's investment in the
Shares. Purchaser has no need for current income from the Shares and has
sufficient liquid financial resources remaining after the purchase of the
Shares to provide for Purchaser's current needs and reasonable
contingencies.
-4-
<PAGE>
4.1. ACKNOWLEDGMENT OF STATUS OF SHARES. Purchaser acknowledges
that the Shares have not been registered under the Securities Act or any
applicable state blue sky laws by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 3(b) thereof and Rule 504 promulgated under the Securities Act and
exemptions under applicable state blue sky law;
4.2. PURCHASER INFORMATION. The information furnished by Purchaser
on the signature page hereof is true and correct.
4.3. POWER AND AUTHORITY. Purchaser has the full right, power,
authority, and capacity to enter into and perform Purchaser's obligations
under this Agreement, and this Agreement constitutes a valid and binding
obligation of Purchaser enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws of general application relating to or affecting enforcement of
creditors' rights and rules or laws concerning equitable remedies.
4.4. NO PUBLIC SOLICITATIONS. Purchaser knows of no public
solicitations or advertisements in connection with the offer and sale of the
Shares.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and
agrees with Purchaser that, until the first to occur of the closing of a
public offering or the date Purchaser is no longer a holder of any Shares:
5.1. FINANCIAL STATEMENTS, REPORTS, ETC. The Company shall furnish,
upon the written request of Purchaser:
(a) within ninety (90) days after the end of each fiscal year
of the Company, an unaudited balance sheet of the Company, as of the end
of such fiscal year, and the related unaudited statements of income,
shareholders' equity, and changes in cash flows for such fiscal year,
prepared in accordance with generally accepted accounting principles and
certified by the President and chief financial officer of the Company;
(b) within thirty (30) days after the end of each fiscal month,
other than the last month in each fiscal year, an unaudited summary
balance sheet of the Company and an unaudited summary income statement of
the Company; and,
(c) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations,
property, or affairs of the Company as Purchaser reasonably may request;
PROVIDED HOWEVER that the Company shall not be required to disclose
information it deems to be a trade secret or confidential information
unless Purchaser shall have signed a confidentiality agreement.
5.2. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep adequate records and books of account, in which complete entries will be
made in accordance with generally accepted accounting principles,
consistently applied, reflecting all financial transactions of the Company
and in which, for each fiscal year, all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts, and other purposes
in connection with its business shall be made.
5.3. PIGGY-BACK REGISTRATION RIGHTS. Commencing with any initial
public offering, the Holder shall have unlimited piggyback registrations
until all shares of Common Stock issued or issuable upon the exercise of any
warrants obtained hereby (the "WARRANTS") have been registered. The
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<PAGE>
Company agrees to give the registered Holder of the Warrants notice of its
intent to file a registration statement with the Securities and Exchange
Commission relating to any equity securities of the Company at least 45 days
prior to the date of filing with the Securities and Exchange Commission of
any such registration statement and to include in such registration
statement, all shares of Common Stock issuable upon exercise hereof which
Holder requests be included in such registration. Holder will bear customary
selling expenses such as underwriter's discount and commissions and the
Company will bear all other costs associated with the registration and sale
of the shares included in such registration.
5.4. CO-SALE RIGHTS. The Company agrees that in the event any
founder, officer, or director of the Company enters into an Agreement to sell
20% of more of the capital Stock of the Company held by such founder,
officer, and director and Subscriber is not a party to such purchase, the
Company will not transfer the securities involved in such sale, unless, as a
condition precedent to the sale by such founder, officer, or director, the
transferee of such founder, officer, or director offers to purchase, on the
same terms and conditions, of the sale by such founder, officer, or director,
the same percentage of shares as the percentage purchased from such founder,
officer, or director.
5.5. COMPLIANCE WITH TERM SHEET. The Company agrees to comply with
the terms and provisions of the term sheet (the "TERM SHEET") between the
Company and its placement agent dated March 29, 1999, including without
limitation its obligations concerning the repricing rights provided for in
the Term Sheet that accompany the Shares.
SECTION 6. GENERAL PROVISIONS.
6.1. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between Purchaser and the Company,
their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein. Except as specifically set forth herein
or therein, neither the Company nor Purchaser makes any representation,
warranty, covenant, or undertaking with respect to such matters other than
those contained in this Agreement. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party
to be charged with enforcement.
6.2. GOVERNING LAWS. This Agreement shall be construed,
administered and enforced according to the laws of the State of Colorado
without giving effect to its conflict of law principles; PROVIDED HOWEVER, no
Shares shall be issued except, in the reasonable judgment of the Board of
Directors, in compliance with exemptions available under applicable state
securities laws of the state in which Purchaser resides, and/or any other
applicable securities laws.
6.3. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the heirs, legal representatives, successors, and permitted
assigns of the parties.
6.4. SEVERABILITY. In the event that any one or more of the
provisions or portion thereof contained in this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, the
same shall not invalidate or otherwise affect any other provisions of this
Agreement, and this Agreement shall be construed as if the invalid, illegal,
or unenforceable provision or portion thereof had never been contained herein.
6.5. HEADINGS. Paragraph and Section headings used herein are for
convenience of reference only and shall not be considered in construing this
Agreement.
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<PAGE>
6.6. CORRECTNESS OF REPRESENTATIONS. Acceptance by the Purchaser of
the certificate representing the Shares shall constitute a confirmation by
the Purchaser that all agreements and representations made herein shall be
true and correct at such time.
[Remainder of this page intentionally left blank]
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<PAGE>
SIGNATURE PAGE TO
COMMON STOCK PURCHASE AGREEMENT
PROVIDE THE FOLLOWING IDENTIFYING INFORMATION:
1. NAME OF PURCHASER: PRINCETON INSURANCE COMPANY
-------------------------------------------------
2. PURCHASER'S ADDRESS: P O BOX 5322
-------------------------------------------------
T46 ALEXANDER ROAD
-------------------------------------------------
3. PURCHASER'S TELEPHONE: PRINCETON NJ 08543 609520-9404
-------------------------------------------------
4. PURCHASER'S TAX ID OR SOCIAL SECURITY NUMBER: 22-2386692
--------------------------
PROVIDE THE FOLLOWING INFORMATION CONCERNING YOUR PURCHASE:
NUMBER OF SHARES PURCHASED: 20,000
------------------
PURCHASE PRICE PER SHARE: 1.00
------------------
TOTAL PURCHASE PRICE: 20,000
------------------
ANSWER THE FOLLOWING QUESTIONS:
1. Are you aware of the fact that you have the opportunity to question a
representative of the Company about this investment, the Company, the
Company's properties, the Company's operations and the Company's methods
of doing business?
X
-------- --------
Yes No
2. (a) Do you understand the merits and risks associated with investments
in closely-held companies?
X
-------- --------
Yes No
(b) Do you understand the merits and risks associated with an
investment in the Company?
X
-------- --------
Yes No
3. Do you understand that there is no guarantee of any financial return on
this investment and that you run the risk of losing your entire
investment?
X
-------- --------
Yes No
4. Do you understand that this investment is illiquid?
X
-------- --------
Yes No
SIGNATURE: Executed by Purchaser this 23 day of April, 1999 at
-----
Princeton , NJ
--------------- -------
Purchaser Name (Printed): ART AARONSON UPI
--------------------------------
Purchaser Signature: /s/ Art Aaronson
--------------------------------
Accepted by the Company this ______ day of April, 1999: By:
____________________
_________, President
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<PAGE>
Schedule to Common Stock Purchase Agreement
Dated April 6, 1999
Identifying Purchasers
<TABLE>
<CAPTION>
Purchaser and Address Date No. of Shares
--------------------- ---- -------------
<S> <C> <C>
GBS Capital Management, Ltd. April 6, 1999 42,000
Silenus Limited April 6, 1999 20,000
Princeton Insurance Company April 23, 1999 4,000
Chelverton Fund, Ltd. April 15, 1999 18,000
Mach Products, Inc. May 1999 28,000
SovCap Equity Partners Ltd. May 1999 8,000
</TABLE>
<PAGE>
SECURITIES ISSUED UPON EXERCISE OF THIS OPTION 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 SECURITIES 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.
TELECOM WIRELESS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, hereinafter referred to as the "Option" or the
"Agreement," made on the ______ day of ________________________, 19_____,
between TELECOM WIRELESS CORPORATION, a Utah corporation (the "Company"), and
_________________________________________________ ("the Optionee"), residing at
__________________________________________________________________________.
The Company hereby grants an option (the "Option") for the purchase of
_________ shares of common stock (the "Option Shares") of the Company, $.001 par
value per share ("Common Stock"), to the Optionee at the price and in all
respects subject to the terms, definitions and provisions of this Agreement. The
Option is NOT granted pursuant to the terms of the TELECOM WIRELESS CORPORATION
1999 Stock Option Plan (the "Plan") and shall not reduce the shares of Common
Stock available for issuance under the Plan.
1. DESIGNATION OF OPTION. The option granted hereby is a
Nonqualified Option which is not intended to qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code.
2. OPTION EXERCISE PRICE. The option exercise price is $_________
for each share.
3. OPTION PERIOD. The option period during which this Option may be
exercised shall expire at 12:00 o'clock p.m., Denver time, on the _________ day
of _____________________, 20____.
4. EXERCISE OF OPTION.
4.1 STANDARD VESTING. The number of shares optioned shall be
divided as nearly as possible into three (3) equal installments. The first
installment shall accrue and the Option shall be exercisable with respect to the
shares included therein on the date which is one year after the grant of the
Option. Each succeeding installment shall accrue and the Option shall be
exercisable with respect to the shares included therein on each yearly
anniversary date thereafter. An option may be exercised when installments
accrue and at any time thereafter within the option period set forth in
Section 3 above with respect to all or a part of the shares covered by such
accrued installments, subject, however, to further provisions of this Section 4.
4.2 DEFERRED VESTING. Notwithstanding subsection 4.1 herein, in
the event Optionee was a member of the Board of Directors of the Company at the
time the grant of this Option was approved, this Option shall not be exercisable
until the grant of this Option shall have been ratified, confirmed and approved
by the shareholders of the Company in the manner required by law.
4.3 ACCELERATED VESTING. Except as provided to the contrary in
subsection 4.2 herein, all Options shall immediately vest and become exercisable
in full upon a Change in Control, even if all or any portion of the Options
shall not have vested in accordance with subsection 4.1 herein. "Change in
Control" shall mean (i) any transaction or series of transactions in which any
person or group of persons, other than Dr. James C. Roberts, directly or
indirectly (a) becomes the beneficial owner of outstanding securities of the
Company having 30% or more of the power to vote
<PAGE>
upon the election of the Company's directors or (b) acquires 50% or more of
the Company's assets, or (ii) the occurrence of any transaction or event in
connection with which all or substantially all of the voting securities of
the Company are exchanged for, converted into, acquired for or constitute
solely the right to receive cash, securities, property or other assets, or
(iii) the conveyance, sale, lease, assignment, transfer or other disposal of
all or substantially all of the Company's property, business or assets
otherwise than in the ordinary course of business.
4.4 RIGHT TO EXERCISE. The Option shall be exercisable only
during the option period by the Optionee while the Optionee is in "continuous
employment with the Company;" provided, however, if the Optionee's employment is
terminated by Optionee for cause or by the Company without cause, the Optionee
shall have a period of three (3) months from the date his employment terminates
in which to exercise the Option to the extent the Option was exercisable at the
time of termination, but in no event later than the expiration of the option
period. If the Optionee should die during this three (3) month period, the
Option may be exercised by the person or persons to whom the rights under the
Option passed by will or the laws of descent and distribution to the same extent
and during the same period the Optionee could have exercised the Option had he
not died. In the event the Optionee should terminate his employment by the
Company without cause or the Company should terminate his employment with cause,
then all unexercised Options granted to Optionee shall be forfeited and canceled
effective upon such termination.
4.4.1 If the Optionee should die or become permanently and
totally disabled while employed by the Company, the Option or unexercised
portion thereof, to the extent exercisable at the time of his death or
disability, may be exercised by Optionee, his conservator or legal guardian or
by the person or persons to whom his rights under the Option passed by will or
the laws of descent and distribution not later than twelve months after the
Optionee's death or not later than twelve months after the Optionee's
disability, but in no event later than the expiration of the option period.
4.4.2 The Option granted shall be void if not exercised
during the option period. Except as otherwise provided, the option period shall
terminate in the event the Optionee ceases to be an Employee of the Company
(including any Subsidiary Corporation) if that date is earlier than the term of
the Option.
4.4.3 For the purposes of the foregoing, "continuous
employment with the Company" shall mean the absence of any interruption or
termination of employment by the Company and/or by a corporation in which the
Company owns capital stock having a majority of the voting power with respect to
the election of directors ("Subsidiary Corporation"). Continuous employment
shall not be considered interrupted in the case of leave of absence approved by
the Company or the Subsidiary Corporation.
4.5 METHOD OF EXERCISE. This Option shall be exercisable by a
written notice which shall:
4.5.1 State the election to exercise the Option, the
number of shares in respect of which it is being exercised (which must be in
multiples of one hundred (100) shares), the person in whose name the stock
certificate or certificates for such shares of Common Stock is to be registered,
his address and Social Security number (or if more than one, the names,
addresses and Social Security numbers of such persons);
4.5.2 Contain such representations and agreement as to the
holder's investment intent with respect to such shares of Common Stock as may be
satisfactory to the Company's counsel;
4.5.3 Be signed by the person or persons entitled to
exercise the Option and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof, satisfactory to
counsel for the Company, of the right of such person or persons to exercise the
Option.
4.5.4 Payment of the purchase price of any shares with
respect to which the Option is being exercised shall be by cash or certified
check, previously acquired shares having a fair market value equal to the option
price or previously acquired shares having a fair market value less than the
option price, plus cash or certified check, and shall be delivered with the
notice of exercise. The certificate or certificates for shares of Common Stock
as to which the Option shall be exercised shall be registered in the name of the
person or persons exercising the Option.
-2-
<PAGE>
4.6 RESTRICTIONS ON EXERCISE. As a condition to his exercise
of this Option, the Company may require the person exercising this Option to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
5. NONTRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner and may be exercised during the lifetime of the Optionee only by
him and after his death by the person or persons to whom his rights under the
Option passed by will or the laws of descent and distribution.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Whenever a stock
split, stock dividend or other relevant change in capitalization occurs, the
number of shares that can thereafter be purchased, and the option price per
share, under each Option that has been granted and not exercised, and every
number of shares used in determining whether a particular option is grantable
thereafter, shall be appropriately adjusted.
7. NOTICES. Each notice relating to this Agreement shall be in
writing and delivered in person or by certified mail to the proper address.
Each notice shall be deemed to have been given on the date it is received. Each
notice to the Company shall be addressed to it at its principal office,
attention of the Secretary. Each Optionee or other person or persons then
entitled to exercise the Option shall be addressed to the Optionee or such other
person or persons at the Optionee's address set forth in the heading of this
Agreement. Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect.
8. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon each successor of the Company. All obligations imposed
upon the Optionee and all rights granted to the Company under this Agreement
shall be binding upon the Optionee's heirs, legal representatives and
successors. This Agreement shall be the sole and exclusive source of any and
all rights which the Optionee, his heirs, legal representatives, or successors
may have in respect to the Option or Common Stock granted or issued thereunder,
whether to himself or to any other person.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement which should
arise under, or as a result of, or in any way relate to, the interpretation,
construction or applicability of this Agreement will be determined by the Board
of Directors of the Company. Any determination made hereunder shall be final,
binding, and conclusive for all purposes.
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the day, month and year first above written.
TELECOM WIRELESS CORPORATION
By
----------------------------------
James C. Roberts, CEO
------------------------------------
Optionee
-3-
<PAGE>
Schedule to Nonqualified Stock Option Agreement
Identifying Other Nonqualified Stock Option Agreements
to Which Telecom Wireless Is a Party
That Are Substantially Identical And
Material Details in Which Such Agreements
Differ from Filed Agreement
<TABLE>
<CAPTION>
Option
Exercise Issuance Period
Optionee No. of Shares Price Date Expires
- -------- ------------- -------- --------- ---------
<S> <C> <C> <C> <C>
Paul L. Francis 200,000 $10.55 4/13/1999 4/13/2004
Robert L. Fredrick 500,000 $10.55 4/13/1999 4/13/2004
Esper Gullatt, Jr. 200,000 $10.55 4/13/1999 4/13/2004
Esper Gullatt, Jr. 300,000 $14.42 8/23/1999 8/23/2004
Kosta Kovachev 1,000,000 $10.55 4/13/1999 4/13/2004
Allen Leeds 200,000 $10.55 4/13/1999 4/13/2004
Lewis Pollack 200,000 $10.55 4/13/1999 4/13/2004
James C. Roberts 2,000,000 $10.55 4/13/1999 4/13/2004
Lynne K. Roberts 100,000 $10.55 4/13/1999 4/13/2004
Calvin D. Smiley 200,000 $10.55 4/13/1999 4/13/2004
Calvin D. Smiley 300,000 $14.42 8/23/1999 8/23/2004
</TABLE>
<PAGE>
SECURITIES ISSUED UPON EXERCISE OF THIS OPTION 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 SECURITIES 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.
TELECOM WIRELESS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement") is made as of the 4th day of
May, 1999, between TELECOM WIRELESS CORPORATION, a Utah corporation (the
"Company"), and JAY W. ENYART ("the Optionee"), residing at 542 High Street,
Denver, CO 80218.
The Company hereby grants an option (the "Option") for the purchase of
400,000 shares of common stock (the "Option Shares") of the Company, $.001
par value per share ("Common Stock"), to the Optionee at the price and in all
respects subject to the terms, definitions and provisions of this Agreement.
The Option is not granted pursuant to the terms of the TELECOM WIRELESS
CORPORATION 1999 Stock Option Plan (the "Plan") and shall not reduce the
shares of Common Stock available for issuance under the Plan.
1. DESIGNATION OF OPTION. The Option granted hereby is a non-qualified
option. A "non-qualified option" means a stock option which is not intended
to qualify as an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code.
2. OPTION EXERCISE PRICE. The Option exercise price is $2.56 for each
share.
3. OPTION EXERCISE PERIOD. The period during which this Option may be
exercised (the "Option Exercise Period") shall expire at 12:00 o'clock p.m.,
Denver time, on the 4th day of May, 2009.
4. VESTING AND EXERCISE OF OPTION. 200,000 Option Shares shall be
exercisable with respect to the shares included therein on the date of grant
of this Option. The remaining 200,000 Option Shares shall be divided into two
(2) equal installments. So long as Optionee is then employed by or a
consultant to the Company or any affiliate of the Company, the first
installment shall accrue and the Option shall be exercisable with respect to
the shares included therein on June 30, 1999, and each succeeding installment
shall accrue and the Option shall be exercisable with respect to the shares
included therein on each yearly anniversary date thereafter. An Option may
be exercised when installments accrue and at any time thereafter within the
Option Exercise Period set forth in Section 3 above with respect to all or a
part of the shares covered by such accrued installments, subject, however, to
further provisions of this Section 4. Installments which have accrued and are
exercisable may be referred to herein as the "Vested Options." Vested Options
shall be void if not exercised during the Option Exercise Period.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, Vested
Options shall be exercisable during the Option Exercise Period only by the
Optionee whether or not the Optionee is then an employee of or consultant to
the Company or any affiliate of the Company. If Optionee should die or
become permanently and totally disabled while an employee of or consultant to
the Company or any affiliate of the Company, any Vested Option or unexercised
portion thereof, at the time of his death or disability, may be exercised by
Optionee, his conservator or legal guardian or by the person or persons to
whom his rights under the Vested Options passed by will or the laws of
descent and distribution at any time during the Option Exercise Period.
4.2 ACCELERATED VESTING. All Options shall immediately vest and
become exercisable in full in the event Optionee's position as an employee of
or consultant to the Company or any affiliate of the Company shall be
terminated by the Company without cause or by Optionee with cause or upon a
Change in Control. "Cause" with respect to termination of such relationship
by the Company or by Optionee and "Change in Control" shall be as defined in
the Executive Employment Agreement between the Company and Optionee dated May
4, 1999.
<PAGE>
4.3 METHOD OF EXERCISE. This Option shall be exercisable by a
written notice which shall:
4.3.1 State the election to exercise the Option, the number of
shares in respect of which it is being exercised (which must be in
multiples of one hundred (100) shares), the person in whose name the
stock certificate or certificates for such shares of common stock is to
be registered, his address and Social Security number (or if more than
one, the names, addresses and Social Security numbers of such persons);
4.3.2 Contain such representations and agreement as to the
holder's investment intent with respect to such shares of common stock as
may be satisfactory to the Company's counsel; and
4.3.3 Be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or persons
other than the Optionee, be accompanied by proof, satisfactory to counsel
for the Company, of the right of such person or persons to exercise the
Option.
Payment of the purchase price of any shares with respect to which the
Option is being exercised shall be by (A) cash or certified check, (B)
previously acquired shares having a fair market value equal to the
purchase price, (C) previously acquired shares having a fair market value
less than the purchase price, plus cash or certified check, or
(D)reduction of the number of vested Option Shares having a fair market
value equal to the purchase price on the date of exercise, and shall be
delivered with the notice of exercise. The certificate or certificates
for shares of Common Stock as to which the Option shall be exercised
shall be registered in the name of the person or persons exercising the
Option.
4.4 RESTRICTIONS ON EXERCISE. As a condition to his exercise of
this Option, the Company may require the person exercising this Option to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
5. NONTRANSFERABILITY OF OPTION. Except as otherwise provided herein,
this Option may not be transferred in any manner and may be exercised during
the lifetime of the Optionee only by him and after his death by the person or
persons to whom his rights under the Option passed by will or the laws of
descent and distribution.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Whenever a stock split,
stock dividend or other relevant change in capitalization occurs, the number
of shares that can thereafter be purchased, and the Option exercise price per
share, under each Option that has been granted and not exercised, and every
number of shares used in determining whether a particular Option is grantable
thereafter, shall be appropriately adjusted.
7. NOTICES. Each notice relating to this Agreement shall be in writing
and delivered in person or by certified mail to the proper address. Each
notice shall be deemed to have been given on the date it is received. Each
notice to the Company shall be addressed to it at its principal office,
attention of the Secretary. Each notice to Optionee or other person or
persons then entitled to exercise the Option shall be addressed to the
Optionee or such other person or persons at the Optionee's address set forth
in the heading of this Agreement. Anyone to whom a notice may be given under
this Agreement may designate a new address by notice to that effect.
8. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon each successor of the Company. All obligations imposed
upon the Optionee and all rights granted to the Company under this Agreement
shall be binding upon the Optionee's heirs, legal representatives and
successors.
9. ARBITRATION. The parties agree that they will use their best efforts
to amicably resolve any dispute arising out of or relating to this Agreement.
Any controversy, claim or dispute that cannot be so resolved shall be
settled by final binding arbitration in accordance with the rules of the
American Arbitration Association and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. Any such arbitration shall be conducted in Denver, Colorado, or
such other place as may be mutually agreed upon by the parties. Within
fifteen (15) days after the commencement of the arbitration, each party shall
select one person to act as arbitrator, and the two arbitrators so selected
shall select a third arbitrator within ten (10) days of their appointment.
2
<PAGE>
10. REGISTRATION. The Company covenants and agrees that, as soon as
practicable but not later than one year after the date of this Agreement, the
Company, at its sole cost and expense, will have taken any necessary action
so as to allow removal of any legends and transfer restrictions with respect
to the Option Shares and public sale thereof for the remaining term of the
Option Exercise Period under the Securities Act of 1933 and applicable state
laws by the Optionee or any other person as provided herein, other than any
applicable volume limitations with respect to control securities imposed by
Rule 144 under that Act.
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the day, month and year first above written.
TELECOM WIRELESS CORPORATION
By
-------------------------------
Dr. James C. Roberts, CEO
---------------------------------
Optionee
3
<PAGE>
SECURITIES ISSUED UPON EXERCISE OF THIS OPTION 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 SECURITIES 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.
TELECOM WIRELESS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement") is made as of the 4th day of
May, 1999, between TELECOM WIRELESS CORPORATION, a Utah corporation (the
"Company"), and JAY W. ENYART (the "Optionee"), residing at 542 High Street,
Denver, CO 80218.
The Company hereby grants an option (the "Option") for the purchase of
261,192 shares of common stock (the "Option Shares") of the Company, $.001
par value per share ("Common Stock"), to the Optionee at the price and in all
respects subject to the terms, definitions and provisions of this Agreement.
The Option is not granted pursuant to the terms of the TELECOM WIRELESS
CORPORATION 1999 Stock Option Plan (the "Plan") and shall not reduce the
shares of Common Stock available for issuance under the Plan.
1. DESIGNATION OF OPTION. The Option granted hereby is a non-qualified
option. A "non-qualified option" means a stock option which is not intended
to qualify as an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code.
2. OPTION EXERCISE PRICE. The Option exercise price is $7.73 for each
share.
3. OPTION EXERCISE PERIOD. The period during which this Option may be
exercised (the "Option Exercise Period") shall expire at 12:00 o'clock p.m.,
Denver time, on the 4th day of May, 2009.
4. VESTING AND EXERCISE OF OPTION. The Option Shares shall be divided
into three (3) equal installments. So long as Optionee is then employed by or
a consultant to the Company or any affiliate of the Company, each installment
shall accrue and the Option shall be exercisable with respect to the shares
included therein on each yearly anniversary date thereafter. An Option may be
exercised when installments accrue and at any time thereafter within the
Option Exercise Period set forth in Section 3 above with respect to all or a
part of the shares covered by such accrued installments, subject, however, to
further provisions of this Section 4. Installments which have accrued and are
exercisable may be referred to herein as the "Vested Options." Vested Options
shall be void if not exercised during the Option Exercise Period.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, Vested
Options shall be exercisable during the Option Exercise Period only by the
Optionee whether or not the Optionee is then an employee of or consultant to
the Company or any affiliate of the Company. If Optionee should die or
become permanently and totally disabled while an employee of or consultant to
the Company or any affiliate of the Company, any Vested Option or unexercised
portion thereof, at the time of his death or disability, may be exercised by
Optionee, his conservator or legal guardian or by the person or persons to
whom his rights under the Vested Options passed by will or the laws of
descent and distribution during the Option Exercise Period.
4.2 ACCELERATED VESTING. All Options shall immediately vest and
become exercisable in full in the event Optionee's position as an employee of
or consultant to the Company or any affiliate of the Company shall be
terminated by the Company without cause or by Optionee with cause or upon a
Change in Control. "Cause" with respect to termination of such relationship
by the Company or by Optionee and "Change in Control" shall be as defined in
the Executive Employment Agreement between the Company and Optionee dated May
4, 1999, as amended.
4.3 METHOD OF EXERCISE. This Option shall be exercisable by a
written notice which shall:
<PAGE>
4.3.1 State the election to exercise the Option, the number of
shares in respect of which it is being exercised (which must be in
multiples of one hundred (100) shares), the person in whose name the
stock certificate or certificates for such shares of common stock is to
be registered, his address and Social Security number (or if more than
one, the names, addresses and Social Security numbers of such persons);
4.3.2 Contain such representations and agreement as to the
holder's investment intent with respect to such shares of common stock as
may be satisfactory to the Company's counsel; and
4.3.3 Be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or persons
other than the Optionee, be accompanied by proof, satisfactory to counsel
for the Company, of the right of such person or persons to exercise the
Option.
Payment of the purchase price of any shares with respect to which the
Option is being exercised shall be by (A) cash or certified check, (B)
previously acquired shares having a fair market value equal to the
purchase price, (C) previously acquired shares having a fair market value
less than the purchase price, plus cash or certified check, or
(D)reduction of the number of vested Option Shares having a fair market
value equal to the purchase price on the date of exercise, and shall be
delivered with the notice of exercise. The certificate or certificates
for shares of Common Stock as to which the Option shall be exercised
shall be registered in the name of the person or persons exercising the
Option.
4.4 RESTRICTIONS ON EXERCISE. As a condition to his exercise of
this Option, the Company may require the person exercising this Option to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
5. NONTRANSFERABILITY OF OPTION. Except as otherwise provided herein,
this Option may not be transferred in any manner and may be exercised during
the lifetime of the Optionee only by him and after his death by the person or
persons to whom his rights under the Option passed by will or the laws of
descent and distribution.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Whenever a stock split,
stock dividend or other relevant change in capitalization occurs, the number
of shares that can thereafter be purchased, and the Option exercise price per
share, under each Option that has been granted and not exercised, and every
number of shares used in determining whether a particular Option is grantable
thereafter, shall be appropriately adjusted.
7. NOTICES. Each notice relating to this Agreement shall be in writing
and delivered in person or by certified mail to the proper address. Each
notice shall be deemed to have been given on the date it is received. Each
notice to the Company shall be addressed to it at its principal office,
attention of the Secretary. Each notice to Optionee or other person or
persons then entitled to exercise the Option shall be addressed to the
Optionee or such other person or persons at the Optionee's address set forth
in the heading of this Agreement. Anyone to whom a notice may be given under
this Agreement may designate a new address by notice to that effect.
8. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon each successor of the Company. All obligations imposed
upon the Optionee and all rights granted to the Company under this Agreement
shall be binding upon the Optionee's heirs, legal representatives and
successors.
9. ARBITRATION. The parties agree that they will use their best efforts
to amicably resolve any dispute arising out of or relating to this Agreement.
Any controversy, claim or dispute that cannot be so resolved shall be
settled by final binding arbitration in accordance with the rules of the
American Arbitration Association and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. Any such arbitration shall be conducted in Denver, Colorado, or
such other place as may be mutually agreed upon by the parties. Within
fifteen (15) days after the commencement of the arbitration, each party shall
select one person to act as arbitrator, and the two arbitrators so selected
shall select a third arbitrator within ten (10) days of their appointment.
2
<PAGE>
10. REGISTRATION. The Company covenants and agrees that, as soon as
practicable but not later than one year after the date of this Agreement, the
Company, at its sole cost and expense, will have taken any necessary action
so as to allow removal of any legends and transfer restrictions with respect
to the Option Shares and public sale thereof for the remaining term of the
Option Exercise Period under the Securities Act of 1933 and applicable state
laws by the Optionee or any other person as provided herein, other than any
applicable volume limitations with respect to control securities imposed by
Rule 144 under that Act.
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the day, month and year first above written.
TELECOM WIRELESS CORPORATION
By
----------------------------------
President
------------------------------------
Optionee
3
<PAGE>
PLACEMENT AGENT AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made as of the 25th day of May 1999, by
and between TELECOM WIRELESS CORPORATION, a Utah corporation (the "COMPANY"),
and JACK AUGSBACK & ASSOCIATES, INC., a Florida corporation (the "AGENT").
BACKGROUND
The Company proposes to issue and sell Common Stock (the "SECURITIES")
resulting in gross proceeds to the Company of up to $2, 1 00,000 (the
"OFFERING") in a transaction not involving a public offering and without
registration under the Securities Act of 1933, as amended (the "ACT"),
pursuant to exemptions from the registration requirements of the Act under
Section 4(2) of the Act and Regulation D promulgated under the Act
("REGULATION D"). Agent has offered to assist the Company to structure the
Offering and the Securities, and introduce the Company to prospective
investors on a "best efforts basis." The Company desires to secure the
services of Agent on the ten-ns and conditions hereinafter set forth.
AGREEMENT
For and in consideration of the mutual covenants herein, and other
good and valuable consideration, the receipt and legal sufficiency of which
is hereby acknowledged, the parties hereto agree:
SECTION 1. ENGAGEMENT OF AGENT.
SECTION 1.1. APPOINTMENT. The Company hereby appoints Agent as its
exclusive agent in connection with the proposed issuance and sale by the
Company of securities resulting in gross proceeds to the Company of up to
$2,100,000. Agent, on the basis of the representations and warranties herein
contained, and upon and subject to the terms and conditions herein set forth,
accepts such appointment. This appointment shall be irrevocable for the
period commencing May 10, 1999, and ending July 30, 1999, which period maybe
extended by the consent of the Company and Agent (the "OFFERING PERIOD").
SECTION 1.2. COMPENSATION. The Company shall pay Agent a finder's
fee of ten percent (10%) of the gross proceeds derived from the offer, sale,
and issuance of the Securities or any other securities issued by the Company
issued by the Company during the Offering Period (the "GROSS PROCEEDS") PLUS
a non-accountable expense allowance of one percent (I%) of the Gross Proceeds.
SECTION 1.3. REIMBURSEMENT OF EXPENSES. The Company agrees to pay
the out-of-pocket expenses of Agent including the fees and expenses of
counsel to Agent for the preparation of the Transaction Agreements. The
Company agrees that the amount of such fees and expenses shall be deducted by
Escrow Agent from the proceeds of the issuance and sale of the Securities.
SECTION 1.4. LIMITED ROLE OF AGENT. Agent has acted only as an
advisor to the Company, Agent has advised the Company on the structure of the
Offering and Securities, and has identified potential investors. The Company
has offered the Securities to the investors and has negotiated directly with
the investors in the Offering. Agent will use its best efforts to introduce
the Company only to "accredited investors" as defined in Regulation D.
Wherever possible Agent will introduce the Company to prospective investors
who are not "U.S. Persons," as defined in Regulation S.
<PAGE>
SECTION 1.5. RIGHT OF FIRST REFUSAL. The Company hereby grants Agent
a right of first refusal to act as placement agent for any future private
financings of the Company, whether of equity securities, convertible debt
securities, or securities or instruments convertible into or exchangeable for
debt or equity securities of the Company, mergers, acquisitions, or similar
transactions. The duration of Agent's right of first refusal under this
Section 1.5 shall be for a period of one (1) year following the final Closing
of the Offering. In the event that the Company wishes to undertake a
transaction described in this Section 1.5, the Company shall send Agent a
written notice of the proposed transaction (whether the transaction is
initiated by the Company or is offered to the Company by a third party) in
sufficient specificity to allow Agent to clearly understand the proposed
transaction. This notice must be delivered to Agent at least twenty days
prior to the proposed closing of the transaction. Agent shall have ten days
from receipt of that notice to determine whether or not it wishes to exercise
its right of first refusal with respect to that transaction. Agent shall
notify the Company in writing of its decision to exercise or waive its right
of first refusal with respect to the transaction described in the notice. If
Agent waives its right of first refusal with respect to a particular
transaction, the Company may proceed with that transaction, PROVIDED HOWEVER,
that if the terms of the transaction are changed in any material way from the
terms set forth in the notice to Agent, Agent's right of first refusal shall
commence again. Agent's waiver of its rights of first refusal with respect
to any specific transaction shall not act as a waiver of its rights with
respect to future transactions within the applicable time period.
SECTION 1.6. CONFIDENTIALITY. The Company agrees to maintain the
confidentiality of all prospective investors identified to the Company by
Agent, except as required by applicable law. For a period of two (2) years
from the Closing, the Company will not solicit or enter into any financing
transaction with such investors without the written consent of Agent AND
payment to Agent of compensation no less than the compensation to be paid to
Agent hereunder for raising a like amount.
SECTION 1.7. REMEDIES. In the event that Company breaches Section
1.5 or Section 1.6 hereof, Agent shall be entitled to receive compensation in
respect of the financing giving rise to the breach of this Agreement at the
rates set forth in Section 1.2 hereof.
SECTION 2. CONDUCT OF THE OFFERING.
SECTION 2.1. OFFERING DOCUMENTS. The Company shall utilize a Common
Stock Purchase Agreement (the "PURCHASE AGREEMENT"), the Repricing Warrant in
the form of EXHIBIT A to the Purchase Agreement (the "REPRICING WARRANT"), a
Registration Rights Agreement in the form of EXHIBIT B to the Purchase
Agreement the ("REGISTRATION RIGHTS AGREEMENT"), an Escrow Agreement in the
form of EXHIBIT C to the Purchase Agreement (the "ESCROW AGREEMENT"), a form
of opinion of Company counsel in the form of EXHIBIT D to the Purchase
Agreement (the "COMPANY OPINION"), a Form of Irrevocable Transfer Agent
Instructions in the form of EXHIBIT E to the Purchase Agreement (the
"TRANSFER AGENT INSTRUCTIONS"), a certificate of the Company's Secretary (the
"SECRETARY CERTIFICATE") and a certificate of the Company's chief executive
officer ("COMPLIANCE CERTIFICATE") (collectively, the Purchase Agreement and
all Exhibits thereto, the Secretary Certificate and the Compliance
Certificate are herein after referred to as the "TRANSACTION AGREEMENTS") in
connection with the Offering. The Company and its counsel have reviewed,
commented upon, and approved the Transaction Agreements.
SECTION 2.2. PUBLIC INFORMATION. The Company within a reasonable
amount of time prior to any Closing, shall provide each prospective investor
with a copy of all information required by Rule 502(b)(2)(ii) of Regulation D
promulgated pursuant to the Securities Act (collectively, "SEC DOCUMENTS"),
The SEC Documents have been prepared in conformity with the requirements (to
the extent applicable) of the Securities and Exchange Act of 1934, as amended
(the "ACT") and the rules and
-1-
<PAGE>
regulations ("RULES AND REGULATIONS") of the Commission promulgated
thereunder. As used in this Agreement, the term "OFFERING DOCUMENTS" means
collectively the SEC Documents and the Transaction Agreements, and all
amendments, exhibits, and supplements thereto, together with any other
documents which are provided to Agent by, or approved for Agent's use by, the
Company for this Offering.
SECTION 2.3. ACCURACY OF OFFERING DOCUMENTS. The Offering Documents,
at the time of delivery to Purchasers, conformed in all material respects
with the requirements, to the extent applicable, of the Act and the
applicable Rules and Regulations, and did not include any untrue statement of
a material fact, or omit to state any material fact required to be stated
therein, or necessary, to make the statements therein, in light of the
circumstances under which they were made, not misleading. At each Closing,
the Offering Documents will contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations for
the purposes of the proposed Offering, and all statements of material fact
contained in the Offering memorandum will be true and correct, and the
Offering Documents will not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; PROVIDED HOWEVER, that the Company does not
make any representations or warranties as to the information contained in or
omitted from the Offering Documents in reliance upon written information
furnished on behalf of Agent specifically for use therein. Agent has no
responsibility for the contents, accuracy, or adequacy of the Offering
Documents, or for the compliance of the Offering Documents, with the
requirements of Rule 502(b)(2)(ii) of Regulation D promulgated pursuant to
the Securities Act.
SECTION 2.4. DUTY TO AMEND. If, at any time during the Offering, or
such longer period as the Offering Documents are required to be delivered
under the Act, any event occurs or any event known to the Company relating to
or affecting the Company shall occur as a result of which the Offering
Documents as then amended or supplemented would include an untrue statement
of a material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time after the date hereof to
amend or supplement the Offering Documents to comply with the Act or the
applicable Rules and Regulations, the Company shall forthwith notify Agent
thereof and shall prepare such further amendment or supplement to the
Offering Documents as may be required and shall furnish and deliver to Agent
and to others, whose names and addresses are designated by Agent, all at the
cost of the Company, a reasonable number of copies of the amendment or
supplement or of the amended or supplemented Offering Documents which, as so
amended or supplemented, will not contain an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
Offering Documents not misleading in the light of the circumstances when such
documents are delivered to a purchaser or prospective purchaser, and which
will comply in all respects with the requirements (to the extent applicable)
of the Act and the applicable Rules and Regulations.
SECTION 2.5. ESCROW OF FUNDS. Pursuant to the Escrow Agreement,
executed by the Company, the person named as escrow agent in the Escrow
Agreement (the "ESCROW AGENT"), and the prospective investors who have
executed signature pages to the Purchase Agreement, the Registration Rights
Agreement, and the Escrow Agreement (the "PURCHASERS"), the purchase price
for the Securities to be purchased as reflected on the Purchaser Signature
Page to the Purchase Agreement shall be wired to the Escrow Agent to be held
by the Escrow Agent as provided in the Escrow Agreement.
SECTION 2.6. APPROVAL OF INVESTORS. Prior to each closing, the
Company shall have the right to approve each Purchaser. If the Company
withholds approval of any Purchaser, the purchase price
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<PAGE>
wired to Escrow Agent by such Purchaser shall be returned to such Purchaser
along with the Purchaser Signature Pages of such Purchaser to the Purchase
Agreement, the Registration Rights Agreement, and the Escrow Agreement. The
right to withhold approval of any Purchaser shall be deemed to have been
waived if the Company authorizes the Escrow Agent to disburse funds provided
by any Purchaser at any Closing.
SECTION 2.7. DELIVERY OF SECURITIES. Securities in such form that,
subject to applicable transfer restrictions as described in the Purchase
Agreement, they can be negotiated by the holders thereof (issued in such
denominations and in such names as the Purchasers of the Securities may
request) shall be delivered by the Company to the counsel for Agent, with
copies made available to Agent for checking at least one (1) full business
day prior to the Closing Date, it being understood that the directions from
Agent to the Company shall be given at least two (2) full business days prior
to the Closing Date. The Securities shall be delivered at the Initial Closing
and at each Subsequent Closing.
SECTION 2.8. INITIAL CLOSING. The Initial Closing (the "INITIAL
CLOSING") shall occur at such time as (a) Purchasers have delivered to the
Company (care of Balboni Law Group LLC, counsel for Agent) executed Purchaser
Signature Pages to each of the Purchase Agreement, the Registration Rights
Agreement, and the Escrow Agreement, (b) the Company has not withheld
approval of the Purchasers, and (c) all other conditions to the obligation of
the Purchasers and the Company to close the transactions contemplated by the
Purchase Agreement at such Initial Closing have been satisfied or waived.
SECTION 2.9. SUBSEQUENT CLOSINGS. In the event that the Initial
Closing shall be for an amount of Securities that is less than the amount of
the Offering, the Offering may be continued, and additional Closings may be
held (each a "SUBSEQUENT CLOSING") throughout the Offering Period if: (a)
Purchasers have delivered to the Company (care of Balboni Law Group LLC,
counsel for Agent) executed Purchaser Signature Pages to each of the Purchase
Agreement, the Registration Rights Agreement, and the Escrow Agreement, (b)
the Company has not withheld approval of the Purchasers, and (c) all other
conditions to the obligation of the Purchasers and the Company to close the
transactions contemplated by the Purchase Agreement at each such Subsequent
Closing have been satisfied or waived.
SECTION 2.10. DISBURSEMENTS AT CLOSING. At each Closing, the Company
shall execute a Release Notice that authorizes the Escrow Agent to pay the
expenses of the Offering in the amounts specified, and effect a wire transfer
of the net proceeds of such Closing to the Company or another entity
designated therein by the Company. The authorization of the Company to
release the funds held by the Escrow Agent is the Company's authorization to
release the executed Transaction Agreements and Securities to the Purchasers.
One complete set of executed Transaction Agreements will be delivered to the
Company.
SECTION 2.11. TIME AND PLACE OF CLOSINGS. The Initial Closing and any
Subsequent Closing shall be held at the offices of Balboni Law Group LLC,
3475 Lenox Road, Suite 990, Atlanta, Georgia 30326, at 10:00 a.m. on such
dates as are fixed in accordance with the Purchase Agreement and the
agreement of all the parties to each such closing. A Closing Date may be
changed by mutual agreement of Agent and the Company. The Company agrees to
rely on faxed signature pages from the Purchasers, without the requirement of
obtaining an originally signed version of any of the Transaction Agreements
to which a Purchaser is a Party.
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<PAGE>
SECTION 3. CONDITIONS OF AGENT'S OBLIGATIONS.
Agent's obligations hereunder shall be subject to the accuracy, as of
the Closing Date, of the representations and warranties on the part of the
Company contained in this Agreement, to the fulfillment of or compliance by
the Company with all covenants and conditions hereof, and to the following
additional conditions:
(a) There shall be no outstanding objection to any Transaction
Agreement by the Company or its counsel or any Purchaser or its counsel.
(b) The Company shall not have disclosed that the Offering
Documents, or any amendment thereof or supplement thereto, contains an
untrue statement of fact, which, in the opinion of counsel to Agent, is
material, or omits to state a fact, which, in the opinion of such
counsel, is material and is required to be stated therein, or is
necessary to make the statements therein, under the circumstances in
which they were made, not misleading.
(c) Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity, or any other cause of such character as would
materially adversely affect its business or property considered as an
entire entity, whether or not such loss is covered by insurance.
(d) There shall be no litigation instituted or overtly
threatened against the Company, and there shall be no proceeding
instituted or threatened against the Company before or by any federal or
state commission, regulatory body, or administrative agency, or other
governmental body, domestic or foreign, wherein an unfavorable ruling,
decision, or finding would materially adversely affect the business,
franchises, license, permits, operations, or financial condition or
income of the Company considered as an entity.
(e) Except as contemplated herein or as set forth in the
Offering Documents, during the period subsequent to the most recent
financial statements contained in the Offering Documents, if any, and
prior to the Closing Date, the Company (i) shall have conducted its
business in the usual and ordinary manner as the same is being conducted
as of the date hereof and (ii) except in the ordinary course of business,
the Company shall not have incurred any liabilities or obligations
(direct or contingent) or disposed of any assets, or entered into any
material transaction, or suffered or experienced any substantially
adverse change in its condition, financial or otherwise. At the Closing
Date, the equity account of the Company shall be substantially the same
as reflected in the most recent balance sheet contained in the Offering
Documents without considering the proceeds from the sale of the
Securities other than as may be set forth in the Offering Documents.
(f) The authorization of the Securities by the Company and all
proceedings and other legal matters incident thereto and to this
Agreement shall be reasonably satisfactory in all respects to Agent and
its counsel.
(g) The Company shall have furnished Agent a copy of the
Company opinion with respect to the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement as Agent
may reasonably require.
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<PAGE>
(h) The Company shall have furnished to Agent the opinion,
dated the Initial Closing, addressed to Agent, from counsel to the
Company, as required by the Purchase Agreement.
(i) The Company shall have furnished to Agent a copy of the
Compliance Certificate and the Secretary Certificate each dated as of the
Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
For the purpose of inducing Agent to enter into this and perform this
Agreement, the Company hereby represents and warrants to and agrees with
Agent as follows:
SECTION 4.1. CORPORATION CONDITION. The Company's condition is as
described in its Offering Documents, except for changes in the ordinary
course of business and normal year-end adjustments that are not in the
aggregate materially adverse to the Company. The Offering Documents, taken
as a whole, present fairly the business and financial position of the Company
as of the Closing Date.
SECTION 4.2. NO MATERIAL ADVERSE CHANGE. Except as may be reflected
in or contemplated by the Offering Documents, subsequent to the dates as of
which information is given in the Offering Documents, and prior to the
Closing Date, there shall not have been any material adverse change in the
condition, financial or otherwise, or in the results of operations of the
Company or in its business taken as a whole.
SECTION 4.3. NO DEFAULTS. Except as disclosed in the Offering
Documents or in writing to Agent, the Company is not in default in any
material respect in the performance of any material obligation, agreement, or
condition contained in any debenture, note, or other evidence of indebtedness
or any indenture or loan agreement of the Company. The execution and
delivery of this Agreement, and the consummation of the transactions herein
contemplated, and compliance with the terms of this Agreement, will not
conflict with, or result in, a breach of any of the terms, conditions, or
provisions of, or constitute a default under, the Articles of Incorporation
or bylaws of the Company (in any respect that is material to the Company),
any material note, indenture, mortgage, deed of trust, or other agreement or
instrument to which the Company is a party or by which the Company or any
property of the Company is bound, or to the Company's knowledge, any existing
law, order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality, agency, or body, arbitration tribunal or court,
domestic or foreign, having jurisdiction over the Company or any property of
the Company. The consent, approval, authorization, or order of any court or
governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state
or jurisdiction.
SECTION 4.4. INCORPORATION AND STANDING. The Company is, and at the
Closing Date will be, duly formed and validly existing in good standing as a
corporation under the laws of the State of Utah and with full power and
authority (corporate and other) to own its properties and conduct its
business, present and proposed, as described in the Offering Documents; the
Company, has full power and authority to enter into this Agreement; and the
Company is duly qualified and in good standing as a foreign entity in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the Company or its properties.
SECTION 4.5. LEGALITY OF SECURITIES. Prior to the Closing Date, the
Securities will have been duly and validly authorized and issued, will be
valid, binding, and enforceable against the Company in
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<PAGE>
accordance with their terms, and will conform in all material respects to the
statements with regard thereto contained in the Offering Documents.
SECTION 4.6. LEGALITY OF CONVERSION SHARES. The Common Stock into
which the Securities are convertible, when converted in accordance with the
Securities will be duly and validly issued and outstanding, fully paid, and
non-assessable and conform in all material respects to the statements with
regard thereto contained in the Offering Documents.
SECTION 4.7. LITIGATION. Except as set forth in the Offering
Documents, there is now, and at the Closing Date there will be, no action,
suit, or proceeding before any court or governmental agency, authority or
body pending or, to the knowledge of the Company, threatened, which might
result in judgments against the Company not adequately covered by insurance
or which collectively might result in any material adverse change in the
condition (financial or otherwise) or business of the Company or which would
materially adversely affect the properties or assets of the Company.
SECTION 4.8. FINDERS. The Company does not know of any outstanding
claims for services in the nature of a finder's fee or origination fees with
respect to the sale of the Securities hereunder for which Agent may be
responsible, and the Company will indemnify Agent from any liability for such
fees by any party who has a claim for such compensation from the Company and
for which person Agent is not legally responsible.
SECTION 4.9. TAX RETURNS. The Company has filed all federal and
state tax returns which are required to be filed, and has paid all taxes
shown on such returns and on all assessments received by it to the extent
such taxes have become due. All taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover any
such unpaid taxes.
SECTION 4.10. AUTHORITY. The execution and delivery by the Company of
this Agreement have been duly authorized by all necessary action, and this
Agreement is the valid, binding, and legally enforceable obligation of the
Company subject to standard qualifications as to the availability of
equitable remedies, the effect of bankruptcy and other laws relating to the
protection of debtors and public policy opinions promulgated by the
Commission with respect to indemnification against liabilities under the Act.
SECTION 4.11. ACTIONS BY THE COMPANY. The Company will not take any
action which will impair the effectiveness of the transactions contemplated
by this Agreement.
SECTION 5. COVENANTS OF THE COMPANY.
The Company covenants and agrees with Agent that:
SECTION 5.1. RESTRICTIONS ON AMENDMENTS. After the date hereof, the
Company will not at any time, prepare and distribute any amendment or
supplement to the Offering Documents, of which amendment or supplement Agent
shall not previously have been advised and Agent and its counsel furnished
with a copy within a reasonable time period prior to the proposed adoption
thereof, or to which Agent shall have reasonably objected in writing on the
ground that it is not in compliance with the Act or the Rules and Regulations
(if applicable).
SECTION 5.2. EXPENSES OF OFFERING. The Company will pay, whether or
not the transactions contemplated by the Transaction Agreements are
consummated, all costs and expenses incident to the Transaction Agreements,
including all expenses incident to the authorization of the Securities, their
issue
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and delivery to the Escrow Agent, any original issue taxes in connection
therewith, all transfer taxes, if any, incident to the initial sale of the
Securities, the fees and expenses of Agent's and the Company's counsel
(except as provided below) and accountants, and the cost of reproduction of
and furnishing to Agent copies of the Offering Documents as herein provided,
PROVIDED HOWEVER, that the Company shall not be responsible for the payment
of fees and expenses incurred by Agent's counsel, if Agent is unable to
procure Purchaser Signature Pages to the Transaction Agreements from a
Purchaser that the Company was willing to accept.
SECTION 5.3. AVAILABILITY OF INFORMATION. Prior to the Closing Date,
the Company will cooperate with Agent in such investigation as it may make or
cause to be made of all of the properties, business, and operations of the
Company in connection with the Offering of the Securities. The Company will
make available to it in connection therewith such information in its
possession as Agent may reasonably request and will make available to Agent
such persons as Agent shall deem reasonably necessary and appropriate in
order to verify or substantiate any such information so supplied.
SECTION 5.4. REPORTS AND FILINGS. The Company shall be responsible
for making any and all filings required by the blue sky authorities and
filings required by the laws of the jurisdictions in which the subscribers
who are accepted for purchase of Securities are located, if any. Agent shall
assist Company in this respect, but such filings shall be the responsibility
of Company.
SECTION 5.5. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. The Company's condition is as described in its Offering
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not individually or in the aggregate materially
adverse to the Company. The Offering Documents, taken as a whole, will
present fairly the business and financial position of the Company as of each
Closing Date.
SECTION 5.6. NO MATERIAL ADVERSE CHANGE. Except as may be reflected
in or contemplated by the Offering Documents, subsequent to the dates as of
which information is given in the Offering Documents, and prior to each
Closing Date, there shall not have been any material adverse change in the
condition, financial, or otherwise, or in the results of operations of the
Company or in its business taken as a whole.
SECTION 6. INDEMNIFICATION.
SECTION 6.1. INDEMNIFICATION OF AGENT. The Company agrees to
indemnify and hold harmless Agent, each person who controls Agent within the
meaning of Section 15 of the Act, and Agent's employees, accountants,
attorneys and agents (the "AGENT'S INDEMNITEES") against any and all losses,
claims, damages, or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law
for any legal or other expenses (including the costs of any investigation and
preparation) incurred by them in connection with any litigation, whether or
not resulting in any liability, but only insofar as such losses, claims,
damages, liabilities, and litigation arise out of or are based upon any
untrue statement of material fact contained in the Offering Documents or any
amendment or supplement thereto or any application or other document filed in
any state or jurisdiction in order to qualify the Securities under the Blue
Sky or securities laws thereof, or the omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, under the circumstances under which they were made, not misleading,
all as of the date of the Offering Documents or of such amendment as the case
may be; PROVIDED HOWEVER, that the indemnity agreement contained in this
Section 6.1 shall not apply to any amounts paid in settlement of any such
litigation, if such settlements are made without the consent of the Company,
nor shall it apply to Agent's Indemnitees in respect to any such losses,
claims, damages, or liabilities arising out of or based upon any
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<PAGE>
such untrue statement or alleged untrue statement or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to the Company by Agent specifically for use
in connection with the preparation of the Offering Documents or any such
amendment or supplement thereto or any application or other document filed in
any state or jurisdiction in order to qualify the Securities under the Blue
Sky or securities law thereof. This indemnity agreement is in addition to
any other liability which the Company may otherwise have to Agent's
Indemnitees. Agent's Indemnitees agree, within ten (10) days after the
receipt by them of written notice of the commencement of any action against
them in respect to which indemnity may be sought from the Company under this
Section 6. 1, to notify the Company in writing of the commencement of such
action; PROVIDED HOWEVER, that the failure of Agent's Indemnitees to notify
the Company of any such action shall not relieve the Company from any
liability which it may have to Agent's Indemnitees on account of the
indemnity agreement contained in this Section 6. 1, and further shall not
relieve the Company from any other liability which it may have to Agent's
Indemnitees, and if Agent's Indemnitees shall notify the Company of the
commencement thereof, the Company shall be entitled to participate in (and,
to the extent that the Company shall wish, to direct) the defense thereof at
its own expense, but such defense shall be conducted by counsel of recognized
standing and reasonably satisfactory to Agent's Indemnitees, defendant or
defendants, in such litigation. The Company agrees to notify Agent's
Indemnitees promptly of the commencement of any litigation or proceedings
against the Company or any of the Company's officers or directors of which
the Company may be advised in connection with the issue and sale of any of
the Securities and to furnish to Agent's Indemnitees, at their request,
copies of all pleadings therein and to permit the Company's Indemnitees to be
observers therein and apprise Agent's Indemnitees of all developments
therein, all at the Company's expense.
SECTION 6.2. INDEMNIFICATION OF COMPANY. Agent agrees, in the same
manner and to the same extent as set forth in Section 6.1 above, to indemnify
and hold harmless the Company, and the Company's and Company's employees,
accountants, attorneys, and agents (the "COMPANY'S INDEMNITEES") with respect
to (a) any statement in or omission from the Offering Documents or any
amendment or supplement thereto or any application or other document filed in
any state or jurisdiction in order to qualify the Securities under the Blue
Sky or securities laws thereof, or any information furnished pursuant to
Section 2.2 hereof, if such statement or omission was made in reliance upon
information furnished in writing to the Company by Agent on its behalf
specifically for use in connection with the preparation thereof or supplement
thereto, or (b) any untrue statement of a material fact made by Agent or its
agents not based on statements in the Offering Documents or authorized in
writing by the Company, or with respect to any misleading statement made by
Agent or its agents resulting from the omission of material facts which
misleading statement is not based upon the Offering Documents, or information
furnished in writing by the Company or, (c) any breach of any representation,
warranty, or covenant made by Agent in this Agreement. Agent's liability
hereunder shall be limited to the amount received by it for acting as Agent
in connection with the Offerings. Agent shall not be liable for amounts paid
in settlement of any such litigation if such settlement was effected without
its consent. In case of the commencement of any action in respect of which
indemnity may be sought from Agent, the Company's Indemnitees shall have the
same obligation to give notice as set forth in Section 6.1 above, subject to
the same loss of indemnity in the event such notice is not given, and Agent
shall have the same right to participate in (and, to the extent that it shall
wish, to direct) the defense of such action at its own expense, but such
defense shall be conducted by counsel of recognized standing reasonably
satisfactory to the Company. Agent agrees to notify the Company's
Indemnitees and, at their request, to provide copies of all pleadings therein
and to permit the Company's Indemnitees to be observers therein and apprise
them of all the developments therein, all at Agent's expense.
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<PAGE>
SECTION 7. TERMINATION.
SECTION 7.1. TERMINATION BY AGENT. This Agreement may be terminated
at any time during the Offering Period by Agent by written notice to the
Company, if the Company shall have failed or been unable to comply with any
of the terms, conditions, or provisions of the Transaction Agreements to be
performed, complied with, or fulfilled by the Company within the respective
times, if any, herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by Agent
in writing.
SECTION 7.2. TERMINATION BY COMPANY. This Agreement may be
terminated by the Company at the conclusion of the Offering Period by notice
to Agent if Agent shall have failed or been unable to comply with any of the
terms, conditions, or provisions of this Agreement to be performed, complied
with, or fulfilled by Agent within the respective times, if any, herein
provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Company in writing.
SECTION 7.3. TERMINATION FOR FORCE MAJEURE EVENTS. This Agreement
may be terminated by Agent by notice to the Company at any time, if, in the
reasonable, good faith judgment of Agent, payment for and delivery of the
Securities is rendered impracticable or inadvisable because: (a) additional
material governmental restrictions not in force and effect on the date hereof
shall have been imposed upon trading in securities generally; (b) a war or
other national calamity shall have occurred; or (c) the condition of the
market (either generally or with reference to the sale of the Securities to
be offered hereby) or the condition of any matter affecting the Company or
any other circumstance is such that it would be undesirable, impracticable or
inadvisable, in the judgment of Agent, to proceed with this Agreement or with
the Offering.
SECTION 7.4. TERMINATION WITHOUT LIABILITY. Any termination of this
Agreement pursuant to this Section shall be without liability of any
character (including, but not limited to, loss of anticipated profits or
consequential damages) on the part of any party thereto, except that the
Company shall remain obligated to pay the costs and expenses provided to be
paid by it specified in Sections 1.3 and 5.2, and the Company and Agent shall
be obligated to pay, respectively, all losses, claims, damages, or
liabilities, joint or several, under Section 6.1 in the case of the Company
and Section 6.2 in the case of Agent.
SECTION 8. MISCELLANEOUS.
SECTION 8.1. NOTICES. Whenever notice is required by the provisions
of this Agreement to be given, such notice shall be in writing, addressed:
If to Company:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, CO 80111
Attention: James C. Roberts, President
Tel: (303) 357-0170
Fax: (303) 357-0100
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<PAGE>
With a copy to:
Jody M. Walker, Esq.
7841 South Coalfield Way
Littleton, CO 80122
Tel: (303) 850-7637
Fax: (303) 220-9902
If to Agent:
Jack Augsback & Associates, Inc.
1325 South Congress Avenue, Suite 223
Boynton Beach, Florida 33426
Attention: Mark Stys
Tel: (561) 735-4565
Fax: (561) 735-3379
With a copy to:
Balboni Law Group LLC
3475 Lenox Road
Suite 990
Atlanta, Georgia 30326
Attention: Gerardo M. Balboni II, Esq.
el: (404) 812-3100
Fax: (404) 812-3101
8.2. BENEFIT. This Agreement is made solely for the benefit of
Agent and the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the Act and their respective
successors and assigns, and no other person may acquire or have any right
under or by virtue of this Agreement, including, without limitation, the
holders of any Securities. The term "SUCCESSOR" or the term "SUCCESSORS AND
ASSIGNS" as used in this Agreement shall not include any purchasers, as such,
of any of the Securities.
8.3. SURVIVAL. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company
and Agent, or the officers, directors or controlling persons of the Company
and Agent as set forth in or made pursuant to this Agreement and the
indemnity agreements of the Company and Agent contained in Section 6 hereof
shall survive and remain in full force and effect, regardless of (a) any
investigation made by or on behalf of the Company or Agent or any such
officer, director or controlling person of the Company or of Agent; (b)
delivery of or payment for the Securities; or (c) the Closing Date, and any
successor of the Company or Agent or any controlling person, officer or
director thereof, as the case may be, shall be entitled to the benefits
hereof.
8.4. GOVERNING LAW. The validity, interpretation, and construction
of this Agreement will be governed by the laws of the State of Florida
without regard to its principles of conflict of laws. Any dispute or
controversy between the parties arising in connection with this Agreement or
the subject matter contemplated by this Agreement shall be resolved by
arbitration before a three-member panel of the American Arbitration
Association in accordance with the commercial arbitration rules of said forum
and the Federal Arbitration Act, 9 U.S.C. 1 ET SEQ., with the resulting award
being final and conclusive. Said arbitrators shall be empowered to award all
forms of relief and damaged claimed, including, but not
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limited to, attorney's fees, expenses of litigation and arbitration,
exemplary damages, and prejudgment interest. The parties further agree that
any arbitration action between them shall be heard in Atlanta, Georgia, and
expressly consent to the jurisdiction and venue of the Superior Court of
Fulton County, Georgia, and the United States District Court for the Northern
District of Georgia, Atlanta Division for the adjudication of any civil
action asserted pursuant to this Paragraph.
8.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which
together will constitute one and the same instrument.
8.6. CONFIDENTIAL INFORMATION. All confidential financial or
business information (except publicly available or freely usable material
otherwise obtained from another source) respecting either party will be used
solely by the other party in connection with the within transactions, be
revealed only to employees or contractors of such other party who are
necessary to the conduct of such transactions, and be otherwise held in
strict confidence.
8.7. PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, neither party
hereto will issue any public announcement concerning the within transactions
without the approval of the other party.
8.8. FINDERS. The parties acknowledge that no person has acted as a
finder in connection with the transactions contemplated herein and each will
agree to indemnify the other with respect to any other claim for a finder's
fee in connection with the Offering.
8.9. RECITALS. The recitals to this Agreement are a material part
hereof, and each recital is incorporated into this Agreement by reference and
made apart of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed as of the day and year first above written.
[Signatures on the following page]
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COMPANY SIGNATURE PAGE
TO
PLACEMENT AGENT AGREEMENT
COMPANY:
TELECOM WIRELESS CORPORATION
By:
------------------------------------
James C. Roberts, President
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<PAGE>
AGENT SIGNATURE PAGE
TO
PLACEMENT AGENT AGREEMENT
AGENT:
JACK AUGSBACK & ASSOCIATES, INC.
By:
------------------------------------
Mark Stys
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===============================================================================
COMMON STOCK
PURCHASE AGREEMENT
among
TELECOM WIRELESS CORPORATION
(the "COMPANY")
and
THE PERSONS LISTED ON SCHEDULE 1
(the "PURCHASERS")
RULE 506 OFFERING - PART A
Dated as of May 25, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
Section 1. Common Stock. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Authorization, Issuance, and Sale of Common Stock.. . . . .1
Section 1.2 Form of Payment.. . . . . . . . . . . . . . . . . . . . . .2
Section 1.3 Initial and Additional Closings.. . . . . . . . . . . . . .2
Section 1.4 Deliveries at Closing.. . . . . . . . . . . . . . . . . . .2
Section 2. Purchaser's Representatives and Warranties. . . . . . . . .3
Section 2.1 Investment Purpose. . . . . . . . . . . . . . . . . . . . .3
Section 2.2 Accredited Purchaser Status.. . . . . . . . . . . . . . . .3
Section 2.3 Reliance on Exemptions. . . . . . . . . . . . . . . . . . .3
Section 2.4 Information.. . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.5 No Governmental Review. . . . . . . . . . . . . . . . . . .3
Section 2.6 Transfer or Resale. . . . . . . . . . . . . . . . . . . . .4
Section 2.7 Legends.. . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.8 Authorization Enforcement.. . . . . . . . . . . . . . . . .5
Section 2.9 Residence.. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.10 No Scheme to Evade Registration.. . . . . . . . . . . . . .5
Section 3. Representations And Warranties Of The Company . . . . . . .5
Section 3.1 Organization and Qualification. . . . . . . . . . . . . . .5
Section 3.2 Authorization, Enforcement, Compliance with Other
Instruments.. . . . . . . . . . . . . . . . . . . . . . . .5
Section 3.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . .6
Section 3.4 Issuance of Securities. . . . . . . . . . . . . . . . . . .6
Section 3.5 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.6 Financial Statements. . . . . . . . . . . . . . . . . . . .7
Section 3.7 Absence of Certain Changes. . . . . . . . . . . . . . . . .8
Section 3.8 Absence of Litigation.. . . . . . . . . . . . . . . . . . .8
Section 3.9 Purchase of Purchased Common Shares.. . . . . . . . . . . .8
Section 3.10 No Undisclosed Events, Liabilities, Developments, or
Circumstances.. . . . . . . . . . . . . . . . . . . . . . .8
Section 3.11 No General Solicitation.. . . . . . . . . . . . . . . . . .8
Section 3.12 No Integrated Offering. . . . . . . . . . . . . . . . . . .9
Section 3.13 Employee Relations. . . . . . . . . . . . . . . . . . . . .9
Section 3.14 Intellectual Property Rights. . . . . . . . . . . . . . . .9
Section 3.15 Environmental Laws. . . . . . . . . . . . . . . . . . . . .9
Section 3.16 Title.. . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.17 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.18 Regulatory Permits. . . . . . . . . . . . . . . . . . . . 10
Section 3.19 Internal Accounting Controls. . . . . . . . . . . . . . . 10
Section 3.20 No Materially Adverse Contracts, Etc. . . . . . . . . . . 10
Section 3.21 Tax Status. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.22 Certain Transactions. . . . . . . . . . . . . . . . . . . 11
Section 3.23 Dilutive Effect.. . . . . . . . . . . . . . . . . . . . . 11
Section 3.24 Fees and Rights of First Refusal. . . . . . . . . . . . . 11
Section 4. Covenants.. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.1 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . 11
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Section 4.2 Form D. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Reporting Status. . . . . . . . . . . . . . . . . . . . . 12
Section 4.4 Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . 12
Section 4.5 Financial Information.. . . . . . . . . . . . . . . . . . 12
Section 4.6 Listings. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.7 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.8 Authorized Shares of Common Stock, Reservation of Shares. 13
Section 4.9 Corporate Existence.. . . . . . . . . . . . . . . . . . . 13
Section 4.10 Transactions With Affiliates. . . . . . . . . . . . . . . 13
Section 4.11 Transfer Agents.. . . . . . . . . . . . . . . . . . . . . 14
Section 4.12 Shareholder Approval. . . . . . . . . . . . . . . . . . . 14
Section 4.13 Transfer Agent Instructions.. . . . . . . . . . . . . . . 14
Section 5. Conditions To The Company's Obligation To Sell. . . . . . 15
Section 6. Conditions To The Purchasers' Obligation To Purchase. . . 15
Section 7. Indemnification.. . . . . . . . . . . . . . . . . . . . . 16
Section 8. Governing Law: Miscellaneous. . . . . . . . . . . . . . . 17
Section 8.1 Governing Law.. . . . . . . . . . . . . . . . . . . . . . 17
Section 8.2 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.3 Headings. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.4 Severability. . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.5 Entire Agreement. Amendments. . . . . . . . . . . . . . . 18
Section 8.6 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.7 Successors and Assigns. . . . . . . . . . . . . . . . . . 19
Section 8.8 No Third Party Beneficiaries. . . . . . . . . . . . . . . 19
Section 8.9 Survival. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.10 Publicity.. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.11 Further Assurances. . . . . . . . . . . . . . . . . . . . 20
Section 8.12 Termination.. . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.13 Finder. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.14 No Strict Construction. . . . . . . . . . . . . . . . . . 20
SCHEDULES AND EXHIBITS
Schedule 1 List of Purchasers
Schedule 2 Disclosure Schedule
Exhibit A Form of Repricing Warrant
Exhibit B Registration Rights Agreement
Exhibit C Escrow Agreement
Exhibit D Placement Agent Agreement
Exhibit E Opinion of Company Counsel
Exhibit F Irrevocable Transfer Agent Instructions
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CROSS REFERENCE TO DEFINED TERMS
Term Defined in Section
---- ------------------
Accredited Purchaser Section 2.2
Affiliate Section 4.10
Agreement Preamble
Articles of Incorporation Section 3.3
Augsback Section 1.4(e)
Blue Sky Section 4.2
Bylaws Section 3.3
Certificate of Designations Background
Certificates Section 1.4(b)
Closing Section 1.3
Closing Date Section 1.3
Common Stock Background
Company Preamble
Controls Section 4.10
ERISA Section 2.20(a)(i)
Environmental Laws Section 3.15
Escrow Agreement Section 1.2
Financial Statements Section 3.6
Indemnified Liabilities Section 7
Indemnities Section 7
Intellectual Property Section 3.14
Irrevocable Transfer Agent Instructions Section 1.4(i)
NASD Section 4.12
Purchase Price Section 1.1
Purchaser Preamble
Person Preamble
Placement Agreement Section 1.4(e)
Purchased Common Shares Section 1.1
Registration Period Section 4.3
Registration Rights Agreement Background
Regulation D Background
Related Party Section 4.10
Rule 144 Section 2.6(b)
Sale of the Company Section 4.9
Purchased Common Shares Background
SEC Background
1934 Act Section 3.6
1933 Act Background
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COMMON STOCK
PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("AGREEMENT") is made and entered
into as of July 28, 1999, between TELECOM WIRELESS CORPORATION, a Utah
corporation (the "COMPANY") and the Persons listed on Purchaser Signature Pages
attached hereto (each of whom is individually referred to as a "PURCHASER" and
all of whom collectively are referred to as the "PURCHASERS").
BACKGROUND
The Company has most recently authorized the issuance, sale, and
delivery of up to Two Hundred Thousand (200,000) shares of the Company's
Common Stock, par value $.001 (the "PURCHASED COMMON SHARES"), having
previously authorized the issuance, sale, and delivery of up to 300,000
shares of the Company's Common Stock in the first part of this offering. The
Purchased Common Shares upon issuance have accompanying repricing rights
evidenced by a warrant in substantially the form attached hereto as EXHIBIT A
(the "REPRICING WARRANT"), exercisable under certain circumstances for
additional shares of Common Stock (the "REPRICING SHARES") at the exercise
price of $.001. The Purchasers collectively wish to purchase, upon the terms
and conditions stated in this Agreement, up to Two Hundred Thousand (200,000)
shares of Common Stock in the respective amounts set forth on each
Purchaser's signature page hereto. Contemporaneously with the execution and
delivery of this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement in substantially the form attached hereto as
EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company
has agreed to provide certain registration rights under the 1933 Act (as
defined below) and the rules and regulations promulgated thereunder, and
applicable state securities laws. The Company and the Purchasers are
executing and delivering this Agreement in reliance upon the exemption from
securities registration pursuant to Section 4(2) and/or Regulation D
("REGULATION D") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"1933 ACT"), at the sole election of Purchasers in the event that a
registration statement filed by the Company pursuant to Section 2(a) of the
Registration Rights Agreement is not declared effective by the Registration
Deadline (as defined therein).
AGREEMENT
For and in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
hereby agree as follows:
SECTION 1. COMMON STOCK.
SECTION 1.1 AUTHORIZATION, ISSUANCE, AND SALE OF COMMON STOCK. The
Company has authorized in this Part B of the offering the sale and issuance in
accordance with the terms of this Agreement of up to Two Hundred Thousand
(200,000) shares of Common Stock having the rights and privileges set forth
herein. The Company agrees to issue and sell to each Purchaser and each
Purchaser agrees to purchase from the Company, at a Closing, the number of
Purchased Common Shares set forth adjacent to the caption "PURCHASED COMMON
SHARES" on the signature page to this Agreement of each Purchaser hereto at a
purchase price of $7.00 per share (the "PURCHASE PRICE").
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SECTION 1.2 FORM OF PAYMENT. On or before the Closing Date, each
Purchaser shall pay the Purchase Price for the Purchased Common Shares to be
issued and sold to such Purchaser at the Closing, by wire transfer of
immediately available funds to the Escrow Agent as follows:
Bank: SunTrust Bank, Atlanta
Corporate Trust Department
ABA Routing No.: 061000104
Center: 008
Account No.: 9088000008
Attn: Rebecca Fischer
Re: Telecom Wireless Corporation --
Escrow Account
as more particularly described in Section 3 of that certain Escrow Agreement in
the form attached hereto as EXHIBIT C (the "ESCROW AGREEMENT").
SECTION 1.3 INITIAL AND ADDITIONAL CLOSINGS. The closings of the
purchase and sale of the Purchased Common Shares shall take place at the offices
of Balboni Law Group LLC, 3475 Lenox Road, N.E., Suite 990, Atlanta, Georgia
30326 at 10:00 a.m., within five (5) business days after the date hereof,
subject to the satisfaction or waiver of the conditions set forth in Sections 5
and 6 below, or at such other location, date, and time as may be agreed upon
between Purchaser and the Company (each such closing being called a "CLOSING"
and such date and time being called the "CLOSING DATE"). Additional Closings
shall take place at the above location by agreement of the parties from time to
time in accordance with the terms of this Agreement.
SECTION 1.4 DELIVERIES AT CLOSING. At the Closing the Company shall
deliver to Purchasers:
(a) this Agreement, executed by the Company;
(b) certificates in definitive form, registered in the name of
each Purchaser, or the designee of such Purchaser, representing the
Purchased Common Shares purchased by such Purchaser (the "CERTIFICATES");
(c) a Repricing Warrant registered in the name of each
Purchaser or the designee of such Purchaser, executed by the Company;
(d) the Registration Rights Agreement, executed by the Company;
(e) the Placement Agent Agreement between the Company and
Augsback and Associates, Inc. ("AUGSBACK"), in substantially the form
attached hereto as EXHIBIT D (the "PLACEMENT AGREEMENT"), executed by the
Company;
(f) the opinion of Jody M. Walker, Esq., counsel to the
Company, in substantially the form of EXHIBIT E hereto;
(g) the Escrow Agreement, executed by the parties thereto;
(h) the certificates described in Sections 6(c) (the
"COMPLIANCE CERTIFICATE") and 6(i) (the "SECRETARY CERTIFICATE") hereof,
each executed by the Company; and
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(i) the Irrevocable Transfer Agent Instructions, in
substantially the form of EXHIBIT F hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"), executed by the Company.
SECTION 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser represents and warrants with respect to only itself that:
SECTION 2.1 INVESTMENT PURPOSE. Such Purchaser is acquiring the
Purchased Common Shares and accompanying Repricing Warrants, and, upon
conversion of the Repricing Warrants, will acquire the Repricing Shares then
issuable (the Purchased Common Shares, the accompanying Repricing Warrant, and
the Repricing Shares are hereinafter sometimes collectively, the "SECURITIES"),
for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; PROVIDED HOWEVER,
that by making the representations herein, such Purchaser does not agree to hold
any Securities for any minimum or other specific term, and reserves the right to
dispose of such Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
SECTION 2.2 ACCREDITED INVESTOR STATUS. Such Purchaser is an
"accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D.
SECTION 2.3 RELIANCE ON EXEMPTIONS. Such Purchaser understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments, and understandings of such Purchaser
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Purchaser to acquire such Securities.
SECTION 2.4 INFORMATION. Such Purchaser and its advisors, if any,
have been furnished with all materials relating to the business, finances,
and operations of the Company and materials relating to the offer and sale of
the Securities, which have been requested by such Purchaser. Such Purchaser
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Purchaser or its advisors, if any, or its
representatives shall modify, amend, or affect such Purchaser's right to rely
on the Company's representations and warranties contained in Section 3 below.
Such Purchaser understands that its investment in the Securities involves a
high degree of risk. Such Purchaser has sought such accounting, legal, and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
SECTION 2.5 NO GOVERNMENTAL REVIEW. Such Purchaser understands that
no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement
of the Securities, or the fairness or suitability of the investment in the
Securities, nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
SECTION 2.6 TRANSFER OR RESALE. Such Purchaser understands that
except as provided in the Registration Rights Agreement:
(a) the Securities have not been and are not being registered
under the 1933 Act or any state securities laws, and may not be offered
for sale, sold, assigned, or transferred unless;
(i) subsequently registered thereunder;
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(ii) such Purchaser shall have delivered to the Company
an opinion of counsel, in a generally acceptable form, to the
effect that such securities to be sold, assigned, or transferred
may be sold, assigned, or transferred pursuant to an exemption
from such registration; or
(iii) such Purchaser provides the Company with reasonable
assurance that such securities can be sold, assigned, or
transferred pursuant to Rule 144 or promulgated under the 1933 Act
(or a successor rule thereto);
(b) any sale of such securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("RULE 144")
may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and
(c) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
SECTION 2.7 LEGENDS. Such Purchaser understands that the certificates
or other instruments representing the Purchased Common Shares and, if and when
issued until such time as the sale of the Repricing Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Repricing Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be
placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, when, (a) the sale of the Purchased Common Shares and the Repricing
Shares is registered under the 1933 Act, (b) in connection with a sale
transaction, such holder provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment, or
transfer of the Securities may be made without registration under the 1933 Act,
or (c) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
SECTION 2.8 AUTHORIZATION ENFORCEMENT. This Agreement has been duly
and validly authorized, executed, and delivered on behalf of such Purchaser and
is a valid and binding agreement of such Purchaser enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
and other
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<PAGE>
similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
SECTION 2.9 RESIDENCE. Such Purchaser is a resident of that country
specified in its address on the Section of the Disclosure Schedule of
Purchasers.
SECTION 2.10 NO SCHEME TO EVADE REGISTRATION. Purchaser represents and
warrants to the Company that the acquisition of the Purchased Common Shares and
the Repricing Shares is not a transaction (or any element of a series of
transactions) that is part of a plan or scheme by the Purchaser to evade the
registration provisions of the 1933 Act.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
The Company represents and warrants to each of the Purchasers that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdictions of their respective incorporation,
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiary
corporations is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification necessary, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole.
SECTION 3.2 AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS.
(a) The Company has the requisite corporate power and authority
to enter into and perform each of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Placement Agreement, the Repricing
Warrants, and any related agreements (collectively, the "TRANSACTION
AGREEMENTS"), and to issue the Securities in accordance with the terms
hereof and thereof;
(b) the execution and delivery of each of this Agreement and
the other Transaction Agreements by the Company, and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Purchased Common Shares and the
reservation for issuance and the issuance of the Repricing Shares
issuable upon conversion or exercise thereof, have been duly authorized
by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders;
(c) each of the Transaction Agreements has been duly executed
and delivered by the Company; and
(d) each of the Transactions Agreements constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited
by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
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SECTION 3.3 CAPITALIZATION. Immediately prior to Closing, the
authorized capital stock of the Company consisted of 125,000,000 shares of
capital stock, of which 100,000,000 shares are Common Stock, par value $.001,
of which 14,990,135 are issued and outstanding, and 25,000,000 shares are
Preferred Stock, par value $.001 ("PREFERRED STOCK") of which no shares are
issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in Section
3.3 of the Disclosure Schedule, no shares of Common Stock or Preferred Stock
are subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in
Section 3.3 of the Disclosure Schedule, as of the effective date of this
Agreement, (a) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls, or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments,
understandings, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its subsidiaries, or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, (b) there are no other
outstanding debt securities, and (c) except for the Registration Rights
Agreement and this Agreement, there are no other agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register
the sale of any of their securities under the 1933 Act. There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in this
Agreement. The Company has furnished to the Purchaser true and correct copies
of the Company's Articles of Incorporation, as amended and as in effect on
the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws,
as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
SECTION 3.4 ISSUANCE OF SECURITIES. The Purchased Common Shares are
duly authorized and, upon issuance in accordance with the terms hereof, shall be
validly issued, fully paid, and nonassessable, are free from all taxes, liens,
and charges with respect to the issue thereof and are entitled to the rights and
preferences set forth in the Purchased Common Shares. The Repricing Shares
issuable upon conversion of the Repricing Warrants have been duly authorized and
reserved for issuance. Upon conversion or exercise of the Repricing Warrants,
the Repricing Shares will be validly issued, fully paid, and nonassessable, and
free from all taxes, liens, and charges, with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
SECTION 3.5 NO CONFLICTS.
Except as disclosed in Section 3.5 of the Disclosure Schedule, the execution,
delivery, and performance of this Agreement and the Transaction Agreements by
the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby, will not (a) result in a violation of the
Articles of Incorporation, any Certificate of Designations, Preferences, and
Rights applicable to any Preferred Stock of the Company, or the Bylaws of the
Company or (b) conflict with, constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration, or cancellation of, any
agreement, indenture, or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment, or decree (including federal and state securities laws and
regulations and the rules and regulations of the principal market or exchange on
which the Common Stock is traded or listed) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. Except as disclosed in Section 3.5 of the
Disclosure Schedule, neither the Company nor any subsidiary is in violation of
any term of, or in default under, its Articles of Incorporation or Bylaws or
their organizational charter or Bylaws, respectively, or any material contract,
agreement, mortgage,
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<PAGE>
indebtedness, indenture, instrument, judgment, decree, or order or any
statute, rule, or regulation applicable to the Company or its subsidiaries.
The business of the Company and its subsidiaries is not being conducted, and
shall not be conducted in violation of any law, ordinance, or regulation of
any governmental entity. Except as specifically contemplated by this
Agreement and the other Transaction Agreements, and as required under the
1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization, or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver, and perform any of its obligations under or contemplated
by this Agreement and the Transaction Agreements in accordance with the terms
hereof or thereof. Except as disclosed in Section 3.5 of the Disclosure
Schedule, all consents, uthorizations, orders, filings, and registrations
which the Company is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the date hereof. The Company
and its subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
SECTION 3.6 FINANCIAL STATEMENTS. Attached as Section 3.6 of the
Disclosure Schedule are true, correct, and complete copies of: the 06/30/98
financial statements of the Company together with the audit report dated
September 22, 1998 thereon, and the unaudited Balance Sheet of the Company
dated March 31, 1999, and the unaudited Statements of Income, Cash Flows, and
Stockholder's Equity for the nine months then ended (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements (i) are in accordance with
the books and records of the Company, (ii) present fairly the financial
condition of the Company as of the respective dates indicated and the results
of operations for such periods, and (iii) the audited Financial Statements
have been prepared with consistently applied accounting principles throughout
the periods involved. The Financial Statements do not contain any items of
special or nonrecurring income, or other income not earned in the ordinary
course of business, except as specifically set forth in Section 3.6 of the
Disclosure Schedule. The financial books, financial records, and financial
accounts of the Company shown to Purchaser accurately and fairly reflect, in
reasonable detail, all transactions, assets, and liabilities of the Company.
The Company has not engaged in any transaction, maintained any bank account,
or used any of the funds of the Company, except for transactions, bank
accounts, and funds which have been and are reflected in the normally
maintained books and records of the Company. Except as reflected on Section
3.6 of the Disclosure Schedule, there is no liability or indebtedness of the
Company for dividends or other distributions declared or accumulated but
unpaid with respect to the Common Stock or the Purchased Common Shares. No
other information provided by or on behalf of the Company to the Purchaser
which is not included in the Financial Statements, including, without
limitation, information referred to in Section 2.4 of this Agreement,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the light
of the circumstance under which they are or were made, not misleading.
SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Section 3.7 of the Disclosure Schedule, since the date of the most recent
audited Balance Sheet included in the Financial Statements, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations, or
prospects of the Company or its subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its subsidiaries have
any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
SECTION 3.8 ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry, or investigation before or by any court, public board,
government agency, self-regulatory organization, or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
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affecting the Company, the Common Stock, or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would (a)
have a material adverse effect on the transactions contemplated hereby, (b)
adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under the Transaction
Agreements, or any of the other documents contemplated therein, or (c) except
as expressly set forth in Section 3.8 of the Disclosure Schedule, have a
material adverse effect on the business, operations, properties, financial
condition, or results of operation of the Company and its subsidiaries taken
as a whole.
SECTION 3.9 PURCHASE OF PURCHASED COMMON SHARES. The Company
acknowledges and agrees that each Purchaser is acting solely in the capacity
of an arm's length purchaser with respect to this Agreement and the other
Transaction Agreements and the transactions contemplated hereby and thereby.
The Company further acknowledges that each Purchaser is not acting as a
financial advisor or agent or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by such Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Purchaser's
purchase of the Securities. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation by the Company and its representatives.
SECTION 3.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. No event, liability, development, or circumstance has
occurred or exists, or is contemplated to occur, with respect to the Company
or its subsidiaries or their respective businesses, properties, prospects,
operations, or financial condition, which could be material but which has not
been publicly announced or disclosed in writing to Purchasers.
SECTION 3.11 NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
SECTION 3.12 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions.
SECTION 3.13 EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
SECTION 3.14 INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets, and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Section 3.14 of the
Disclosure Schedule, none of the Company's trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets, or other intellectual
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property rights have expired or terminated, or are expected to expire or
terminate in the near future. The Company and its subsidiaries do not have
any knowledge of any infringement by the Company or its subsidiaries of the
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade
secret, or other similar rights of others, or of any such development of
similar or identical trade secrets, or technical information by others and,
except as set forth on Section 3.14 of the Disclosure Schedule, there is no
claim, action, or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its
subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret, or other infringement, and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and its subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality, and
value of all of their intellectual properties.
SECTION 3.15 ENVIRONMENTAL LAWS. The Company and its subsidiaries are
(a) in compliance with any and all applicable foreign, federal, state, and local
laws and regulations relating to the protection of human health and safety, the
environment, or hazardous, toxic substances, wastes, pollutants, or contaminants
("ENVIRONMENTAL LAWS"), (b) have received all permits, licenses, or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses, and (c) are in compliance with all terms and conditions
of any such permit, license, or approval.
SECTION 3.16 TITLE. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances, and defects except as described in Section 3.16 of the Disclosure
Schedule or as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries. Any real property and facilities held under lease
by the Company and its subsidiaries are held by them under valid, subsisting,
and enforceable leases with such exceptions as are not material, and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
SECTION 3.17 INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks, and in such amounts, as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for, and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial, or otherwise, or the earnings, business, or operations of
the Company and its subsidiaries, taken as a whole.
SECTION 3.18 REGULATORY PERMITS. The Company and its subsidiaries
possess all certificates, authorizations, and permits issued by the appropriate
federal, state, or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization, or permit.
SECTION 3.19 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b)
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transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 3.20 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its subsidiaries is subject to any charter, corporate, or other legal
restriction, or any judgment, decree, order, rule, or regulation which in the
judgment of the Company's officers has, or is expected in the future to have, a
material adverse effect on the business, properties, operations, financial
condition, results of operations, or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has, or is
expected to have, a material adverse effect on the business, properties,
operations, financial condition, results of operations, or prospects of the
Company or its subsidiaries.
SECTION 3.21 TAX STATUS. Except as set forth on Section 3.21 of the
Disclosure Schedule, the Company and each of its subsidiaries has made or filed
all federal and state income and all other tax returns, reports, and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports, and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports,
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
SECTION 3.22 CERTAIN TRANSACTIONS. Except as set forth on Section 3.22
of the Disclosure Schedule, and except for arm's length transactions pursuant to
which the Company makes payments in the ordinary course of business upon terms
no less favorable than the Company could obtain from third parties, and none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers,
and directors), including any contract, agreement, or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director, or such employee or, to the knowledge of the Company, any
corporation, partnership, trust, or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee, or partner.
SECTION 3.23 DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Repricing Shares issuable upon conversion of the Repricing
Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Repricing Shares upon conversion of
the Repricing Warrants in accordance with this Agreement and the Repricing
Warrant is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 3.24 FEES AND RIGHTS OF FIRST REFUSAL. The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents, or other
third parties.
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SECTION 4. COVENANTS.
SECTION 4.1 BEST EFFORTS. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
5 and 6 of this Agreement.
SECTION 4.2 FORM D. The Company shall, on or before the Closing Date,
take such action as is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Purchasers at the Closing pursuant
to this Agreement under applicable securities or "BLUE SKY" laws of the
respective states of the United States applicable to each Purchaser, and shall
provide evidence of any such action so taken to the Purchasers on or prior to
the Closing Date. Unless required to do so sooner under applicable state
securities laws pursuant to the previous sentence, the Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing not later
than 15 days after each such Purchaser's purchase hereunder.
SECTION 4.3 REPORTING STATUS. Until the earlier of (a) the date as of
which the Purchasers (as that term is defined in the Registration Rights
Agreement) may sell all of the Repricing Shares without restriction pursuant to
Rule l44(k) promulgated under the 1933 Act (or successor thereto), or (b) the
date on which (i) the Purchasers shall have sold all the Repricing Shares and
(ii) none of the Purchased Common Shares is owned by any Purchaser (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act. The Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
SECTION 4.4 USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Purchased Common Shares for substantially the same purposes and
in substantially the same amounts as indicated in Section 4.4 of the Disclosure
Schedule.
SECTION 4.5 FINANCIAL INFORMATION. The Company agrees to send the
following to each Purchaser during the Registration Period and while a
Registration Statement with respect to the Securities is in effect: (a) within
five (5) days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K, and any registration statements or amendments filed pursuant to the
1933 Act; (b) within one (1) day after release thereof, copies of all press
releases issued by the Company or any of its subsidiaries, (c) copies of the
same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders; and
(d) with reasonable promptness, such other financial information and data with
respect to the Company as Purchaser may request.
SECTION 4.6 LISTINGS. The Company shall promptly secure the listing
of the Purchased Common Shares and Repricing Shares upon each national
securities exchange or automated quotation system, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance) and
shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Purchased Common Shares and Repricing Shares from
time to time issuable under the terms of the Registration Rights Agreement.
The Company shall maintain the Common Stock's authorization for quotation in
the over-the-counter market. The Company shall promptly provide to each
Purchaser copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading in the over-the-counter market.
SECTION 4.7 EXPENSES. Any costs and expenses incurred by a
Purchaser in connection with its own negotiation, investigation, preparation,
execution, and delivery of this Agreement and the Registration Rights
Agreement and the Escrow Agreement shall be borne by such Investor. The
legal costs and expenses for Augsback and its counsel (not to exceed $12,000
in legal fees plus all expenses for the First Closing) shall be paid for by
the Company at the First Closing, and the legal fees
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and expenses for all subsequent Closings (not to exceed $4,000 in legal fees
plus all expenses for the Second Closing and $2,500 for each subsequent
Closing) shall be paid for by the Company at each subsequent Closing. These
Transaction Fees are fixed at this level based upon Augsback's counsel
providing all documents necessary for a given Transaction, and receiving a
level of comments to these documents that do not require extensive
negotiations or redrafting. However, should such counsel encounter any
situation requiring extensive negotiation or redrafting of documents (for
example if, after a first closing, substantial comments are received from the
issuer or an investor or substantial revisions are required for a subsequent
Closing), the fee limits discussed above would not apply and the fees in such
case would be substantially based upon such firm's hourly rates for those
attorneys and Firm personnel performing work on that Closing.
SECTION 4.8 AUTHORIZED SHARES OF COMMON STOCK, RESERVATION OF SHARES.
The Company shall at all times, so long as any of the Repricing Warrants are
outstanding and subject to conversion, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Repricing Warrants, such number of shares of Common Stock
equal to or greater than 200% of the number of shares of Common Stock which are
issuable upon conversion of all Repricing Warrants which are then outstanding or
which could be issued at any time under this Agreement.
SECTION 4.9 CORPORATE EXISTENCE. So long as any Repricing Warrants
remain outstanding, the Company shall not directly or indirectly consummate
any merger, reorganization, restructuring, consolidation, sale of all or
substantially all of the Company's assets, or any similar transaction or
related transactions (each such transaction, a "SALE OF THE COMPANY") except
if the surviving or successor entity in such transaction (a) expressly
assumes, in writing, the Company's obligations hereunder and under the
Registration Rights Agreement, the Repricing Warrants, and any other
agreements and instruments entered into or delivered by the Company in
connection herewith and (b) is a publicly traded corporation whose Common
Stock is listed for trading on the New York Stock Exchange, Inc., the
American Stock Exchange, or the NASDAQ National Market.
SECTION 4.10 TRANSACTIONS WITH AFFILIATES. So long as (a) any
Repricing Warrants are outstanding or (b) any Purchaser owns Repricing Shares
with a market value equal to or greater than $200,000, the Company shall not,
and shall cause each of its subsidiaries not to, enter into, amend, modify,
or supplement, or permit any subsidiary to enter into, amend, modify, or
supplement any agreement, transaction, commitment, or arrangement with any of
its or any subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock or affiliates, or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (i) customary
employment arrangements and benefit programs on reasonable terms, (ii) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (iii) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who
is also an officer of the Company or any subsidiary of the Company shall not
be disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "AFFILIATE" for purposes hereof means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (1) has a 5% or more equity interest in that person or entity,
(2) has 5% or more common ownership with that person or entity, (3) controls
that person or entity, or (4) share common control with that person or
entity. "CONTROL" or "CONTROLS" for
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purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
SECTION 4.11 TRANSFER AGENTS. The Company covenants and agrees that,
in the event that the Company's agency relationship with the transfer agent
should be terminated for any reason prior to a date which is two (2) years
after the Closing Date, the Company shall immediately appoint a new transfer
agent and shall require that the transfer agent execute and agree to be bound
by the terms of the Irrevocable Instructions to Transfer Agent.
SECTION 4.12 SHAREHOLDER APPROVAL. The Company covenants to submit to
its shareholders at its next shareholder meeting a proposal for ratification of
the issuance of the Securities, if and as required by the rules of the National
Association of Securities Dealers, Inc. (the "NASD") applicable to the
transaction. To the best of the Company's knowledge and belief, no Shareholder
approval is required.
SECTION 4.13 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
the Irrevocable Transfer Agent Instructions to its transfer agent or any
successor transfer agent appointed pursuant to Section 4.11, above, to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Repricing Shares in such amounts as specified from time
to time by the Purchaser to the Company upon conversion of the Repricing
Warrants. Prior to registration of the Purchased Common Shares and Repricing
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2.7 of this Agreement. The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 4.13, and stop transfer instructions to give
effect to Section 2.6 hereof (in the case of the Repricing Shares, prior to
registration of such shares under the 1933 Act) will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 4.13 shall affect in any way the Purchaser's obligations and
agreement to comply with all applicable securities laws upon resale of the
Purchased Common Shares or Repricing Shares. If the Purchaser provides the
Company with an opinion of counsel, reasonably satisfactory in form, and
substance to the Company, that registration of a resale by any Purchaser of
any of the Purchased Common Shares or Repricing Shares is not required under
the 1933 Act, the Company shall permit the transfer, and, in the case of the
Repricing Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to Purchasers by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under
this Section 4.13 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 4.13, that
Purchasers shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
SECTION 5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Purchased
Common Shares to Purchasers at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, PROVIDED that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) The Purchaser shall have executed Purchaser Signature Pages
to this Agreement, the Registration Rights Agreement, and the Escrow
Agreement and delivered the same to the
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Company.
(b) Purchasers shall have delivered to the Company the Purchase
Price for the Purchased Common Shares being purchased by the Purchaser at
the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(c) The representations and warranties of the Purchaser shall
be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the
Purchaser shall have performed, satisfied, and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied, or complied with by the Purchaser
at or prior to the Closing Date.
SECTION 6. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE.
The obligation of Purchasers hereunder to purchase the Purchased Common
Shares at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, PROVIDED that these conditions are
for the Purchasers' sole benefit and may be waived by Purchasers at any time in
their sole discretion:
(a) The Company shall have executed this Agreement and the
other applicable Transaction Agreements and delivered the same to
Purchasers.
(b) The Common Stock shall be authorized for quotation on the
electronic bulletin board, over-the-counter market, AMEX, the NASDAQ
National Market, or The New York Stock Exchange, Inc., trading in the
Common Stock shall not have been suspended for any reason, and all of the
Repricing Shares issuable upon conversion of the Repricing Warrants shall
be approved for listing on the electronic bulletin board,
over-the-counter market, AMEX, the NASDAQ National Market, or The New
York Stock Exchange, Inc.
(c) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any
of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied, and complied in
all material respects with the covenants, agreements, and conditions
required by this Agreement to be performed, satisfied, or complied with
by the Company at or prior to the Closing Date. Purchasers shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by Purchasers
including, without limitation an update as of the Closing Date regarding
the representation contained in Section 3.3 above.
(d) The Purchaser shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope, and
substance reasonably satisfactory to the Purchaser and in substantially
the form of EXHIBIT E attached hereto.
(e) The Company shall have executed and delivered to the
Purchaser the Certificates (in such denominations as the Purchaser shall
request) for the Purchased Common Shares being purchased by the Purchaser
at the Closing.
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(f) The Board of Directors of the Company shall have authorized
and adopted the resolutions in substantially the form attached to the
Secretary Certificate delivered herewith.
(g) As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Repricing Warrants, such number of shares
of Common Stock equal to or greater than 200% of the number of shares of
Common Stock for which are issuable upon conversion of all of the
Repricing Warrants which could be issued at any time under this
Agreement.
(h) The Irrevocable Transfer Agent Instructions, in
substantially the form of EXHIBIT F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(i) Purchaser shall have received a certificate of the
Secretary or an Assistant Secretary of the Company dated the Closing Date
and certifying: (A) that attached thereto is a true and complete copy of
the Articles of Incorporation as then in effect, certified or bearing
evidence of filing by the Department of State of the State of Utah, and
(B) a certificate of said Department of State, dated as of a recent date
as to the due incorporation and good standing of the Company, the payment
of all franchise taxes by the Company, and listing all documents of the
Company on file with said Department of State; (C) that attached thereto
is a true and complete copy of the Bylaws of the Company as in effect on
the date of such certification; (D) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors or the
shareholders of the Company authorizing the execution, delivery, and
performance of this Agreement and the issuance, sale, and delivery of the
Purchased Common Shares, the issuance and delivery of the Repricing
Shares issuable upon conversion of the Repricing Warrants, and that all
such resolutions are in full force and effect and are all the resolutions
adopted in connection with the foregoing agreements and the transactions
contemplated thereby; (E) that the Charter has not been amended since the
date of the last amendment referred to in the certificate delivered
pursuant to clause (A) above; and (F) to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the
other Transaction Agreements, and any certificate or instrument furnished
pursuant hereto and thereto, and a certification by another officer of
the Company as to the incumbency and signature of the officer signing the
certificate.
SECTION 7. INDEMNIFICATION.
In consideration of the Purchaser's execution and delivery of this
Agreement and acquiring the Securities hereunder and in addition to all of
the Company's other obligations under this Agreement, the Company shall
defend, protect, indemnify, and hold harmless the Purchaser and each other
holder of the Securities and all of their officers, directors, employees, and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities, and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the other
Transaction Agreements or any other certificate, instrument, or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement, or
obligation of the Company contained in this
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<PAGE>
Agreement, the other Transaction Agreements or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit, or claim brought or made against such Indemnitee and arising
out of or resulting from the execution, delivery, performance, or enforcement
of this Agreement or any other instrument, document, or agreement executed
pursuant hereto by any of the Indemnities, any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Purchased Common Shares, or the status of the Purchaser
or holder of the Purchased Common Shares or the Repricing Shares, as a
Purchaser in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
SECTION 8. GOVERNING LAW; MISCELLANEOUS.
SECTION 8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado without
regard to the principles of conflict of laws. Any dispute or controversy
between the parties arising in connection with this agreement or the subject
matter contemplated by this agreement shall be resolved by arbitration before
a three-member panel of the American Arbitration Association in accordance
with the commercial arbitration rules of said forum and the Federal
Arbitration Act, 9 U.S.C. 1 ET SEQ., with the resulting award being final and
conclusive. Said arbitrators shall be empowered to award all forms of relief
and damages claimed, including, but not limited to, attorney's fees, expenses
of litigation and arbitration, exemplary damages, and pre-judgment interest.
Notwithstanding the foregoing, Purchaser may at any time and at its option,
whether or not an arbitration action is then pending, initiate a civil action
for temporary and permanent injunctive and other equitable relief against
Company. Company acknowledges that upon any breach of Purchaser's conversion
rights hereunder, Purchaser's resulting injury may not be adequately
compensated by a remedy at law. Accordingly, upon such breach, Purchaser, at
its election and without limitation of its other remedies, shall be entitled
to pursue a claim for specific performance of this Agreement, and Company
hereby waives the right to assert any defense thereto that Purchaser has an
adequate remedy at law. The parties further agree that any arbitration
action between them shall be heard in Littleton, Colorado, and expressly
consent to the jurisdiction and venue of the Superior Court of Arapahoe
County, Colorado, and the United States District Court for the District of
Colorado, Denver Division, for the adjudication of any civil action asserted
pursuant to this Paragraph.
SECTION 8.2 COUNTERPARTS. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to
be physically delivered to the other party within five (5) days of the
execution and delivery hereof.
SECTION 8.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 8.4 SEVERABILITY. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
-16-
<PAGE>
SECTION 8.5 ENTIRE AGREEMENT. AMENDMENTS. This Agreement supersedes
all other prior oral or written agreements between the Purchaser, the
Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant, or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged with
enforcement.
SECTION 8.6 NOTICES. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (a) upon
receipt, when delivered personally, (b) upon receipt, when sent by facsimile,
PROVIDED a copy is mailed by U.S. certified mail, return receipt requested, (c)
three (3) days after being sent by U.S. certified mail, return receipt
requested, or (d) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
if to the Company:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: James C. Roberts, President
Telephone: (303) 357-0170
Facsimile: (303) 357-0100
with a copy (which shall not constitute notice) to:
Jody M. Walker, Esq.
7841 South Garfield Way
Littleton, Colorado 80122
Telephone: (303) 850-7637
Facsimile: (303) 220-9902
if to Transfer Agent:
Corporate Stock Transfer, Inc.
370 17th Street, Suite 2350
Denver, Colorado 80202
Attn: Compliance Department
Telephone: (303) 282-4800
Facsimile: (303) 282-5800
If to any Purchaser, to the address and facsimile number on its
Purchaser signature page attached hereto, with copies to such Purchaser's
counsel as set forth on such Purchaser's signature page. Each party shall
provide five (5) day's prior written notice to the other party of any change
in address or facsimile number.
SECTION 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns. The Company shall not assign this
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<PAGE>
Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers. Any Purchaser may assign its rights hereunder
without the consent of the Company, PROVIDED HOWEVER, that any such
assignment shall not release such Purchaser from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption.
SECTION 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
SECTION 8.9 SURVIVAL. Unless this Agreement is terminated under
Section 8.12, the representations and warranties of the Company and the
Purchaser contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4, 5, and 6, and the indemnification provisions set forth in Section
7, shall survive the Closing. The Purchaser shall be responsible only for its
own representations, warranties, agreements, and covenants hereunder.
SECTION 8.10 PUBLICITY. The Company and Purchasers shall have the right
to approve, before issuance, any press releases or any other public statements
with respect to the transactions contemplated hereby; PROVIDED HOWEVER, that the
Company shall be entitled, without the prior approval of Purchasers, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Purchaser shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
SECTION 8.11 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments, and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 8.12 TERMINATION. In the event that the Closing shall not have
occurred with respect to the Purchaser on or before five (5) business days from
the date hereof due to the Company's or Purchasers' failure to satisfy the
conditions set forth in Sections 5 and 6 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party.
SECTION 8.13 FINDER. The Company acknowledges that it has engaged a
finder in connection with the sale of the Purchased Common Shares, which finder
may have formally or informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any finder's fees (which includes cash
and warrants to purchase Common Stock) relating to or arising out of the
transactions contemplated hereby.
SECTION 8.14 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
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<PAGE>
COMPANY SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, Purchasers and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written above.
COMPANY
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
-----------------------------
James C. Roberts, President
[SIGNATURES OF PURCHASERS ON FOLLOWING PAGES.]
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<PAGE>
PURCHASER SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
PURCHASER
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
===============================================================================
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
SECURITIES PURCHASED
- -------------------------------------------------------------------------------
PURCHASE PRICE
- -------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
===============================================================================
-1-
<PAGE>
PURCHASER SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
PURCHASER
----------------------------------
[Individual Purchaser Name]
===============================================================================
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
SECURITIES PURCHASED
- -------------------------------------------------------------------------------
PURCHASE PRICE
- -------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
===============================================================================
-1-
<PAGE>
SCHEDULE 1
DISCLOSURE SCHEDULE
TO
COMMON STOCK
PURCHASE AGREEMENT
SECTION 3.3 CAPITALIZATION.
SECTION 3.5 CONFLICTS.
SECTION 3.6 FINANCIAL STATEMENTS.
SECTION 3.8 LITIGATION
SECTION 3.14 INTELLECTUAL PROPERTY
SECTION 3.16 LIENS
SECTION 3.21 TAX STATUS
SECTION 3.22 CERTAIN TRANSACTIONS
SECTION 4.4 USE OF PROCEEDS
-1-
<PAGE>
EXHIBIT A
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF REPRICING WARRANT
-1-
<PAGE>
EXHIBIT B
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
-1-
<PAGE>
EXHIBIT C
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF ESCROW AGREEMENT
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<PAGE>
EXHIBIT D
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF PLACEMENT AGENT AGREEMENT
-1-
<PAGE>
EXHIBIT E
TO
COMMON STOCK
PURCHASE AGREEMENT
OPINION OF COMPANY COUNSEL
-2-
<PAGE>
EXHIBIT F
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
-1-
<PAGE>
Schedule to Common Stock Purchase Agreement
Dated May 25, 1999
Identifying Purchasers
<TABLE>
<CAPTION>
Purchaser Date No. of Shares
--------- ---- -------------
<S> <C> <C>
Anglo Irish Nominees (Trusts) Ltd. A/C GRC241 May 1999 10,000
Warren Zee May 25, 1999 35,000
Chelverton Fund Ltd. May 25, 1999 15,000
Thomson Kernaghan & Co., Ltd., As Agent June 9, 1999 180,000
William R. Gillespie July 2, 1999 2,000
Daniel A. Gooze July 2, 1999 6,000
Robert L. Primm July 2, 1999 2,000
Gray M. Magee, Jr. July 2, 1999 2,000
Arab Commerce Bank Ltd. July 2, 1999 14,285
Steve Bell July 16, 1999 1,000
Robert L. Franks July 16, 1999 1,000
Francis J. Fernandez, Jr. July 16, 1999 7,000
Dale Geringer July 16, 1999 5,000
Richard Geringer July 16, 1999 5,000
Robert Geringer July 16, 1999 2,000
Victor P. LaRosa July 16, 1999 6,000
Magid Family Trust July 16, 1999 3,500
James and Donita Zeller July 16, 1999 1,000
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("AGREEMENT"), is made and entered
into as of the 28th day of July, 1999, by and among TELECOM WIRELESS
CORPORATION, a Utah corporation (the "COMPANY"), and the Persons listed on
the Purchaser Signature Pages hereto (each of whom is individually referred
to as a "PURCHASER" and all of whom collectively are referred to as the
"PURCHASERS"). Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings ascribed to them in the Purchase
Agreement.
BACKGROUND
In connection with the consummation of the transactions contemplated
by that certain Common Stock Purchase Agreement (the "PURCHASE AGREEMENT") of
even date herewith by and among the Company and the Purchasers in connection
with Part B of the Company's Rule 506 offering, the Company has agreed, upon
the terms and subject to the conditions of the Purchase Agreement, to issue
and sell to the Purchasers from time to time up to 200,000 shares of Common
Stock (the "PURCHASED COMMON SHARES") and to issue to all Purchasers of the
Purchased Common Shares accompanying Repricing Warrants (the "REPRICING
WARRANTS"), and to issue to Agent a Placement Agent Warrant (collectively,
the "PLACEMENT AGENT WARRANTS). Collectively, the Purchased Common Shares,
the Repricing Warrants, and the Placement Agent Warrants are hereinafter
collectively referred to as the "PURCHASED SECURITIES". The Repricing
Warrants and the Placement Agent Warrants are exercisable for shares of the
Company's common stock, $.001 par value per share (the "COMMON STOCK"). The
Common Stock issuable upon exercise of the Repricing Warrants is hereinafter
called the "REPRICING WARRANT SHARES," and the Common Stock issuable upon
exercise of the Placement Agent Warrants is hereinafter called the "PLACEMENT
WARRANT SHARES" (the Repricing Warrant Shares that may be issuable from time
to time and the Placement Warrant Shares are sometimes collectively referred
to as the "WARRANT SHARES"). To induce Purchasers to execute and deliver the
Purchase Agreement, the Company has agreed to file a Registration Statement
covering the Purchased Common Shares and the Warrant Shares under the
Securities Act of 1933, as amended, and the rules and regulations thereunder,
or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.
AGREEMENT
For and in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following
capitalized terms are used with the meanings there after ascribed:
(a) "INVESTOR" means any Purchaser and any transferee or
assignee thereof to whom any Purchaser assigns its rights under this
Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.
(b) "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof, or a
governmental agency.
(c) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by
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<PAGE>
preparing and filing one or more Registration Statements in compliance
with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor rule providing for offering securities on a continuous basis
("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
(d) "REGISTRABLE SECURITIES" means the Purchased Common Shares,
the Repricing Warrant Shares, the Placement Warrant Shares, and any
shares of capital stock issued or issuable with respect to the Purchased
Securities, the Purchased Common Shares, the Repricing Warrant Shares, or
the Placement Warrant Shares, as a result of any stock split, stock
dividend, recapitalization, exchange, or similar event.
(e) "REGISTRATION STATEMENT" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Purchase Agreement.
SECTION 2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file
with the SEC a Registration Statement or Registration Statements (as is
necessary) on Form S-3 (or, if such form is unavailable for such a
registration, on such other form as is available for such a registration,
subject to the consent of each Purchaser and the provisions of Section
2(e), which consent will not be unreasonably withheld), covering the
resale of all of the Registrable Securities, within thirty (30) days
after the first to occur of (1) the issuance, sale, and delivery of
200,000 shares of the Company's Common Stock, or (2) the date the Company
receives written notice from Augsback & Associates, Inc. of termination
of further offers of the Purchased Common Shares, or (3) but in any event
not later than August 31, 1999 (the "FILING DEADLINE"). The Registration
Statement(s) shall state that, in accordance with Rule 416 promulgated
under the 1933 Act, such Registration Statement(s) also covers such
indeterminate number of additional shares of Common Stock as may become
issuable by reason of the Repricing Warrants in accordance with the terms
thereof. Such Registration Statement shall initially register for resale
at least 100% of the Purchased Common Shares and the Warrant Shares,
subject to adjustment as provided in Section 3(b) hereof, and such
registered shares of Common Stock shall be allocated among the Investors
pro rata based on the total number of Registrable Securities issued or
issuable as of each date that a Registration Statement, as amended,
relating to the resale of the Registrable Securities is declared
effective by the SEC. The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC within ninety (90)
days after the Filing Deadline (the "REGISTRATION DEADLINE"). The
Company shall permit the registration statement to become effective
within five (5) business days after receipt of a "no review" notice from
the SEC. Such Registration Statement shall be kept current and effective
for a period of twelve (12) months from the Closing Date. If a
Registration Statement with respect to the Purchased Common Shares and
the Warrant Shares is not effective on the Registration Deadline date,
the Company agrees to and shall pay to all Investors hereunder a cash
penalty equal to two percent (2%) per month of the final amount of the
completed offering under the Purchase Agreement, payable monthly and
pro-rated for partial months until the Registration Statement is
effective.
(b) UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement
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<PAGE>
pursuant to Section 2(a) involves an underwritten offering, the
Purchasers shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer
their interest in the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company.
(c) PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the
Company proposes to file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under the
1933 Act of any of its securities (other than on Form S-4 or Form S-8 or
their then equivalents relating to securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee
benefit plans) the Company shall promptly send to each Investor who is
entitled to registration rights under this Section 2(c) written notice of
the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(c) and, if within twenty (20) days
after receipt of such notice, such Investor shall so request in writing,
the Company shall include in such Registration Statement all or any part
of the Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(d) below. No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a) hereof.
The obligations of the Company under this Section 2(c) may be waived by
each individual Investor holding Registrable Securities, in their sole
discretion, without effect to any other Investor. If an offering in
connection with which an Investor is entitled to registration under this
Section 2(c) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall,
unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the
same terms and conditions as other shares of Common Stock included in
such underwritten offering.
(d) PRIORITY IN PIGGY-BACK REGISTRATION RIGHTS IN CONNECTION
WITH REGISTRATIONS FOR COMPANY ACCOUNT. If the registration referred to
in Section 2(c) is to be an underwritten public offering for the account
of the Company and the managing underwriter(s) advise the Company in
writing, that in their reasonable good faith opinion, marketing or other
factors dictate that a limitation on the number of shares of Common Stock
which may be included in the Registration Statement is necessary to
facilitate and not adversely affect the proposed offering, then the
Company shall include in such registration: (i) first, all securities the
Company proposes to sell for its own account, (ii) second, up to the full
number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, and (iii)
third, the securities requested to be registered by the Investors and
other holders of securities entitled to participate in the registration,
drawn from them pro rata based on the number each has requested to be
included in such registration.
(e) ELIGIBILITY FOR FORM S-3. The Company represents, warrants
covenants that it has filed and shall file all reports required to be
filed by the Company with the SEC in a timely manner so as to obtain and
maintain such eligibility for the use of Form S-3. In the event that
Form S-3 is not available for sale by the Investors of the Registrable
Securities, then (i) the Company, with the consent of each Investor
pursuant to Section 2(a), shall register the sale of the Registrable
Securities on another appropriate form, such as Form SB-2 and (ii) the
Company shall undertake to register the Registrable Securities on
Form S-3 as soon as such form is
-3-
<PAGE>
available.
SECTION 3. RELATED OBLIGATIONS. Whenever an Investor has requested
that any Registrable Securities be registered pursuant to Section 2(c)
hereof, or at such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) hereof, the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the respective method of disposition thereof as required by
such provisions and, pursuant thereto, the Company shall have the following
obligations:
(a) The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or
prior to the Filing Deadline), for the registration of Registrable
Securities pursuant to Section 2(a) or Section 2(c), if applicable, and
use its best efforts to cause such Registration Statement(s) relating to
Registrable Securities to become effective as soon as possible after such
filing and in any event by the Registration Deadline, and keep the
Registration Statement(s) effective pursuant to Rule 415 at all times
until the later of (i) the date as of which the Investors may sell all of
the Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on
which (A) the Investors shall have sold all the Registrable Securities
and (B) none of the Purchased Common Shares are owned by any Purchaser
(the "REGISTRATION PERIOD"), which Registration Statement(s) (including
any amendments or supplements thereto and prospectuses contained therein)
shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading. The provisions of this Section 3(a)
notwithstanding, nothing in this Section 3(a) shall limit the Company's
obligation to keep current and effective such a Registration Statement
with respect to the Registrable Securities for the time period set forth
in Section 2(a), above.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus (es) used in connection with
the Registration Statement(s), which prospectus (es) are to be filed
pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary
to keep the Registration Statement(s) effective at all times during the
Registration Period, and, during such period, comply with the provisions
of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement(s) until
such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement(s). In the
event the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any
event within fifteen (15) days after the necessity therefor arises (based
on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely) or upon reasonable request
therefor by any Investor. The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under
a Registration Statement shall be deemed "insufficient to cover all of
the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable is at least equal to the greater of (i) the
number of Purchased Common Shares PLUS the number of Registrable
Securities issued or issuable upon
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<PAGE>
exercise of the Repricing Warrants OR (ii) the quotient determined by
dividing (A) the number of shares of Common Stock available for resale
under such Registration Statement by (B) 1.0. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility or exercise of the Repricing Warrants shall be disregarded
and such calculation shall assume that the Repricing Warrants are
exercised at the then current exercise price.
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s) and
its legal counsel, without charge, (i) promptly after the same is
prepared and filed with the SEC at least one copy of the Registration
Statement and any amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference, and all
exhibits, the prospectus(es) included in such Registration Statement(s)
(including each preliminary prospectus) and all correspondence by or on
behalf of the Company to the SEC or the staff of the SEC and all
correspondence from the SEC or the staff of the SEC to the Company or its
representatives, related to such Registration Statement(s), (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request), and (iii) such other documents, including any
preliminary prospectus, as such Investor may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
(d) The Company shall (i) register and qualify the Registrable
Securities covered by the Registration Statement(s) under such other
securities or "blue sky" laws of such jurisdictions in the United States
as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary
to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions. The Company shall promptly notify each Investor who holds
Registrable Securities of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of
any of the Registrable Securities for sale under the securities or "blue
sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
(e) In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters
for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
(f) As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening
of any event, of which the Company has knowledge, as a result of which,
the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and promptly prepare a supplement or amendment to
the Registration Statement to correct such untrue statement or omission,
and deliver ten (10) copies of such supplement or amendment to each
Investor (or such other number of copies as such Investor may reasonably
request). The Company shall also promptly notify each Investor
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in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor
by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and
(iii) of the Company's reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate.
(g) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction and, if such an
order or suspension is issued, to obtain the withdrawal of such order or
suspension at the earliest possible moment, and to notify each Investor
who holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof, or its receipt of actual notice of the
initiation, or threatened initiation of any proceeding for such purpose.
(h) The Company shall permit each Investor a single firm of
counsel or such other counsel as thereafter designated as selling
stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at
least seven (7) days prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects. The Company
shall not submit a request for acceleration of the effectiveness of a
Registration Statement(s) or any amendment or supplement thereto without
the prior approval of such counsel, which consent shall not be
unreasonably withheld.
(i) At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date
that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement (i) if required by an
underwriter, a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope, and substance as
is customarily given in an underwritten public offering, addressed to the
underwriters and the Investors.
(j) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant
to a Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Investors, and (iv) one firm
of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the
"RECORDS"), as shall be reasonably deemed necessary by each Inspector to
enable each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors, and employees to supply all
information which any Inspector may reasonably request for purposes of
such due diligence; PROVIDED HOWEVER, that each Inspector shall hold in
strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (A) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is
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otherwise required under the 1933 Act, (B) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (C) the
information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other
agreement. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
(k) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with
federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court
or governmental body of competent jurisdiction, or (iv) such information
has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company agrees that it
shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to such
Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
(l) The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be
listed on each national securities exchange on which securities of the
same class or series issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules
of such exchange, (ii) to secure designation and quotation of all the
Registrable Securities covered by the Registration Statement on the
Nasdaq National Market, (iii) if, despite the Company's best efforts to
satisfy the preceding clause (i) or (ii), the Company is unsuccessful in
satisfying the preceding clause (i) or (ii) to secure the inclusion for
quotation on the Nasdaq National Market for such Registrable Securities
or, (iv) if, despite the Company's best efforts to satisfy the preceding
clause (iii), the Company is unsuccessful in satisfying the preceding
clause (iii), to secure the inclusion for quotation on the
over-the-counter market for such Registrable Securities, and, without
limiting the generality of the foregoing, in the case of clause (iii) or
(iv), to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this
Section 3(1).
(m) The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to
a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as any managing underwriter
or underwriters or the Investors may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or the
Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any reasonably required opinion of counsel, that permit
sales of unlegended securities in a timely fashion that complies with
then mandated securities settlement procedures
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for regular way market transactions.
(n) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
(o) The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
(p) If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters
and the Investors agree should be included therein relating to the sale
and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable
Securities being sold to such underwriters, the purchase price being paid
therefor by such underwriters, and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or make amendments to any
Registration Statement if requested by a shareholder or any underwriter
of such Registrable Securities.
(q) The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such
Registrable Securities.
(r) The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
SECTION 4. OBLIGATIONS OF THE INVESTORS.
(a) At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each
such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. It shall
be a condition precedent to the obligations of the Company to complete
the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to
effect the registration of such Registrable Securities, and shall execute
such documents in connection with such registration as the Company may
reasonably request.
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statement(s) hereunder, unless such Investor has
notified the Company in writing of such Investor's election to exclude
all of such Investor's Registrable Securities from the Registration
Statement.
(c) In the event Investors holding a majority of the
Registrable Securities being registered determine to engage the services
of an underwriter, each Investor agrees to enter into
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and perform such Investor's obligations under an underwriting agreement,
in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities, unless such Investor notifies the Company in
writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement(s).
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement(s) covering such Registrable Securities until
such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(g) or the first sentence of 3(f)
and, if so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy all copies in such
Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Investors entitled hereunder to
approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements,
and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
SECTION 5. EXPENSES OF REGISTRATION. All expenses incurred in
connection with registrations, filings, or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and
qualifications fees, printers and printing fees, accounting fees, and fees and
disbursements of counsel for the Company and fees and disbursements of one
counsel for the Investors, shall be borne by the Company.
SECTION 6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless, and defend each Investor who
holds such Registrable Securities, the directors, officers, partners,
employees, agents, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 ACT"), and any underwriter (as defined in the
1933 Act) for the Investors, and the directors and officers of, and each
Person, if any, who controls, any such underwriter within the meaning of
the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any
losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, attorneys' fees, amounts paid in settlement or expenses,
joint or several (collectively, "CLAIMS") incurred in investigating,
preparing, or defending any action, claim, suit, inquiry, proceeding,
investigation, or appeal taken from the foregoing by or before any court
or governmental, administrative, or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party
is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of
them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any
post-effective amendment
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thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any
jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which the
statements therein were made, not misleading, (ii) any untrue statement
or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein,
in light of the circumstances under which the statements therein were
made, not misleading, or, (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of the Registrable Securities
pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject to
the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to
the Company by any Indemnified Person or underwriter for such Indemnified
Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary
prospectus, shall not inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling
such person) if the untrue statement or mission of material fact
contained in the preliminary prospectus was corrected in the prospectus,
as then amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 3(c), and the Indemnified
Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such
Indemnified Person, notwithstanding such advice, used (iii) shall not be
available to the extent such Claim is based on a failure of the Investor
to deliver or to cause to be delivered the prospectus made available by
the Company, and (iv) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so
furnished in writing expressly for inclusion in the Registration
Statement.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action or proceeding (including any governmental action or
proceeding) involving a Claim such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this
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Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party,
as the case may be; PROVIDED HOWEVER, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the
fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in
such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which
the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying
party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to
the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent,
PROVIDED HOWEVER, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall,
without the consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such
claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of
the Indemnified Party or Indemnified Person with respect to all third
parties, firms, or corporations relating to the matter for which
indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
(e) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified
Party or Indemnified Person against the indemnifying party or others, and
(ii) any liabilities the indemnifying party may be subject to pursuant to
the law.
SECTION 7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED HOWEVER, that: (i) no contribution shall be made under
circumstances where the party against whom indemnification is otherwise sought
would not have been liable for indemnification under the fault standards set
forth in Section 6; (ii) no seller of Registrable Securities
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guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of fraudulent misrepresentation,
and (iii) contribution by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds received by such seller from
the sale of such Registrable Securities.
SECTION 8. REPORTS UNDER THE 1934 ACT. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the 1933
Act or any other similar rule or regulation of the SEC that may at any time
permit the investors to sell securities of the Company to the public without
registration ("RULE 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 4.5 of the Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of
Rule 144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the 1933 Act, and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as
may be reasonably requested to permit the investors to sell such
securities pursuant to Rule 144 without registration.
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SECTION 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assignable by the Investors to any transferee of all or any
portion of Registrable Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (A) the name and address of such transferee or
assignee, and (B) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; (v) such
transfer shall have been made in accordance with the applicable requirements of
the Purchase Agreement; (vi) such transferee shall be an "accredited investor"
as that term is defined in Rule 501 of Regulation D promulgated under the 1933
Act; and (vii) in the event the assignment occurs subsequent to the date of
effectiveness of the Registration Statement required to be filed pursuant to
Section 2(a), the transferee agrees to pay all reasonable expenses of amending
or supplementing such Registration Statement to reflect such assignment.
SECTION 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold two-thirds of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company.
SECTION 11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices,
or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice, or election received from the registered owner of
such Registrable Securities.
(b) Any notices consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt
requested; (iii) three (3) days after being sent by U.S. certified mall,
return receipt requested, or (iv) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, CO 80111
Attn: James C. Roberts, President
Telephone: (303) 357-0170
Facsimile: (303) 357-0100
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with a copy (which shall not constitute notice) to:
Jody M. Walker, Esq.
7841 South Garfield Way
Littleton, Colorado 80122
Telephone: (303) 850-7637
Facsimile: (303) 220-9902
If to a Purchaser, to its address and facsimile number on the Schedule of
Purchasers, with copies to such Purchaser's counsel as set forth on the Schedule
of Purchasers. Each party shall provide five (5) days prior written notice to
the other party of any change in address or facsimile number.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado without regard to the
principles of conflict of laws. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
(e) This Agreement and the Purchase Agreement constitute the
entire agreement among the parties hereto with respect to the subject
matter hereof and thereof. There are no restrictions, promises,
warranties, or undertakings, other than those set forth or referred to
herein and therein. This Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof.
(f) Subject to the requirements of Section 9, this Agreement
shall inure to the benefit and of and be binding upon the permitted
successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(h) This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments, and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
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COMPANY SIGNATURE PAGE
TO
REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY:
TELECOM WIRELESS CORPORATION
By:
-----------------------------------
James C. Roberts, President
[Purchasers Signatures on Following Pages]
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<PAGE>
PURCHASER SIGNATURE PAGE
TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER:
[PURCHASER NAME]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
===============================================================================
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
SECURITIES PURCHASED
- -------------------------------------------------------------------------------
PURCHASE PRICE
- -------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
===============================================================================
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<PAGE>
PURCHASER SIGNATURE PAGE
TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER:
------------------------------
[Individual Purchaser Name]
===============================================================================
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
SECURITIES PURCHASED $_____________
- -------------------------------------------------------------------------------
PURCHASE PRICE ____________________________________________
- -------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL ____________________________________________
ADDRESS AND
FACSIMILE NUMBER ____________________________________________
____________________________________________
- -------------------------------------------------------------------------------
===============================================================================
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<PAGE>
Schedule to Registration Rights Agreement
Identifying Other Registration Rights Agreements
to Which Telecom Wireless Is a Party
That Are Substantially Identical And
Material Details in Which Such Agreements
Differ from Filed Agreement
Section 2(a) of the Registration Rights Agreement between Telecom
Wireless and the following individuals provides that the Company is obligated
to file a registration statement covering the resale of all Registrable
Securities within 30 days after the first to occur of (1) the issuance, sale
and delivery of 300,000 shares of the Company's common stock, or (2) the date
the Company receives written notice from Augsback & Associates of termination
of further offers of the Purchased Common Shares:
<TABLE>
<CAPTION>
Purchaser No. of Shares
--------- -------------
<S> <C>
Anglo Irish Nominees (Trusts) Ltd. A/C GRC241 10,000
Warren Zee 35,000
Chelverton Fund Ltd. 15,000
Thomson Kernaghan & Co., Ltd., As Agent 180,000
William R. Gillespie 2,000
Daniel A. Gooze 6,000
Robert L. Primm 2,000
Gray M. Magee, Jr. 2,000
Arab Commerce Bank Ltd. 14,285
Steve Bell 1,000
Robert L. Franks 1,000
Francis J. Fernandez, Jr. 7,000
Dale Geringer 5,000
Richard Geringer 5,000
Robert Geringer 2,000
Victor P. LaRosa 6,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Purchaser No. of Shares
--------- -------------
<S> <C>
Magid Family Trust 3,500
James and Donita Zeller 1,000
</TABLE>
Section 2(a) of the Registration Rights Agreement between Telecom
Wireless and the following individuals provides that the Company is obligated
to file a registration statement covering the resale of all Registrable
Securities within 30 days after the first to occur of (1) the issuance, sale
and delivery of 200,000 shares of the Company's common stock, or (2) the date
the Company receives written notice from Augsback & Associates of termination
of further offers of the Purchased Common Shares, but in any event not later
than August 31, 1999:
<TABLE>
<CAPTION>
Purchaser No. of Shares
--------- -------------
<S> <C>
Warren Zee 22,000
Caribbean Investors Group, Ltd. 14,285
Princeton Insurance 2,000
David Hettinger 1,000
Marie Walch Loughlin 13,000
JHS Assoc., Ltd. Retirement Account 53,000
</TABLE>
Section 2(a) of the Registration Rights Agreement between Telecom
Wireless and the following individuals provides that the Company is obligated
to file a registration statement covering the resale of all Registrable
Securities within 30 days after the first to occur of (1) the issuance, sale
and delivery of 500,000 shares of the Company's common stock, or (2) the date
the Company receives written notice from Augsback & Associates of termination
of further offers of the Purchased Common Shares, but in any event not later
than September 15, 1999:
<TABLE>
<CAPTION>
Purchaser No. of Shares
--------- -------------
<S> <C>
SovCap Equity Partners Ltd. 57,143
John Kozik 6,750
SovCap Equity Partners Ltd. 33,334
</TABLE>
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND
NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) THE COMPANY SHALL HAVE RECEIVED A WRITTEN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
TELECOM WIRELESS CORPORATION
ATTACHED REPRICING WARRANT
Warrant No. RPW-__ ______,000 shares
Original Issue Date: _____________, 1999
THIS CERTIFIES THAT, FOR VALUE RECEIVED, _______________ {PURCHASER OF
SECURITIES}, a [_______ CORPORATION/LIMITED LIABILITY COMPANY] [A RESIDENT OF
THE STATE OF ______] or its assigns (the "HOLDER") is entitled to purchase,
on the terms and conditions hereinafter set forth, at any time or from time
to time during the Exercise Period, but not thereafter, a number of shares of
the Common Stock, par value $.001 (the "COMMON STOCK"), of TELECOM WIRELESS
CORPORATION, a Utah corporation (the "COMPANY"), determined in accordance
with Section 2 hereof, at a price of $.001 per share (the "EXERCISE PRICE").
Each share of Common Stock as to which this Repricing Warrant is exercisable
is a "REPRICING SHARE" and all such shares are collectively referred to as
the "REPRICING SHARES." This Repricing Warrant is being issued to Holder as
part of Holder's purchase of Common Stock of the Company pursuant to that
certain Common Stock Purchase Agreement, Rule 506 - Part C Offering, dated
August ___, 1999 (the "PURCHASE AGREEMENT") and the Company's offering of
Common Stock thereunder, and shall remain attached to the shares of Common
Stock issued to Holder on the Original Issue Date (the "PURCHASED COMMON
SHARES"), until exercise of this Repricing Warrant, at which time it shall
automatically detach.
SECTION 1. DEFINITIONS.
The following capitalized terms are not defined elsewhere in this
Repricing Warrant, and are used herein with the meanings thereafter ascribed:
"AVERAGE MARKET PRICE" means, the arithmetic mean of the Closing Bid
Prices of the Common Stock for each trading day in a twenty (20) trading day
period which commences on the Registration Date.
"CLOSING BID PRICE" means, the last closing bid price of the Common
Stock on the NASDAQ National Market (the "NASDAQ-NM") as reported by
Bloomberg Financial Markets ("BLOOMBERG"), or, if the NASDAQ-NM is not the
principal trading market for the Common Stock, the last closing bid price of
the Common Stock on the principal securities exchange or trading market where
the Common Stock is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of the Common Stock in the
over-the-counter market on the pink sheets or bulletin board for the Common
Stock as reported by Bloomberg, or, if no closing bid price is reported for
the Common Stock by Bloomberg, the last closing trade price of the Common
Stock as reported by Bloomberg. If the Closing Bid Price cannot be
calculated for the Common Stock on such date on any of the foregoing bases,
the Closing Bid Price of the Common Stock on such date shall be the fair
market value as
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<PAGE>
reasonably determined in good faith by the Board of Directors of the Company
(all as appropriately adjusted for any stock dividend, stock split, or other
similar transaction during such period);
"CONVERSION DATE" means the date Holder converts this Repricing Warrant.
"EXERCISE PERIOD" means a thirty (30) period which commences on the
Repricing Date and ends at 5:00 p.m. (Eastern Time) on the Expiration Date.
"EXPIRATION DATE" means the thirtieth (30th) day after the Repricing
Date.
"PURCHASED COMMON SHARES" means the number of shares of Common Stock
issued to and purchased by each Purchaser pursuant to the Purchase Agreement.
"REGISTRATION DATE" means the date on which the Registration Statement
to be filed in accordance with the Purchase Agreement and the issuance of the
Purchased Common Shares becomes effective with the Securities and Exchange
Commission.
"REPRICING DATE" means the twenty-first (21st) Trading Day after the
Registration Date.
"REPRICING PRICE" means $8.75, the repricing price set by the Company
applicable to the Purchased Common Shares.
SECTION 2. DETERMINATION OF NUMBER OF REPRICING SHARES. The number
of Repricing Shares issuable upon exercise of this Repricing Warrant shall be
determined on the Repricing Date. The number of Repricing Shares shall be
equal to: the number of Purchased Common Shares MULTIPLIED BY a fraction, (a)
the numerator of which is the Repricing Price MINUS the Average Market Price
and (b) the denominator of which is the Average Market Price. In the case of
a dispute as to the determination of the Average Market Price or the
arithmetic calculation of the Exercise Price, the Company shall promptly
issue to such Holder(s) the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within three (3) business days of
receipt of such holder's Conversion Notice. If such Holder(s) and the
Company are unable to agree upon the determination of the Average Market
Price or arithmetic calculation of the Exercise Price within two (2) business
days of such disputed determination or arithmetic calculation being submitted
to the holder, then the Company shall within one (1) business day submit via
facsimile (A) the disputed determination of the Average Market Price to an
independent, reputable investment bank or (B) the disputed arithmetic
calculation of the Exercise Price to its independent, outside accountant.
The Company shall cause the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company
and such Holders of the results no later than forty-eight (48) hours from the
time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
SECTION 3. EXERCISE OF WARRANT; CONVERSION OF WARRANT; ELECTION TO
PAY CASH.
(a) This Warrant may, at the option of the Holder, be exercised
in whole or in part from time to time by delivery to the Company at its
office at 5299 DTC Boulevard, 12th Floor, Englewood, Colorado 80111,
Attention: President, or to any transfer agent for the Common Stock, on
or before 5:00 p.m., Eastern Time, on the Expiration Date, (i) a written
notice of such registered Holder's election to exercise this Warrant
(the "EXERCISE NOTICE"), which notice may be in the form of the Notice
of Exercise attached hereto, properly executed and completed by the
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<PAGE>
registered Holder or an authorized officer thereof, (ii) a check payable
to the order of the Corporation, in an amount equal to the product of
the Exercise Price MULTIPLIED BY the number of Repricing Shares
specified in the Exercise Notice, AND (iii) this Repricing Warrant (the
items specified in (i), (ii), and (iii) are collectively the "EXERCISE
MATERIALS").
(b) This Warrant may, at the option of the Holder, be converted
into Common Stock in whole but not in part, if and only if the value of
one share of Common Stock on the Effective Date (as defined in Section
3(c) hereof) is greater than the Exercise Price, by delivery to the
Company at the address designated in Section 3(a) above or to any
transfer agent for the Common Stock, on or before 5:00 p.m. Eastern Time
on the Expiration Date, (i) a written notice of Holder's election to
convert this Warrant (the "CONVERSION NOTICE"), properly executed and
completed by the registered Holder or an authorized officer thereof, AND
(ii) this Repricing Warrant (the items specified in (i) and (ii) are
collectively the "CONVERSION MATERIALS"). The number of shares of
Common Stock issuable upon conversion of this Repricing Warrant is equal
to the quotient of (x) the product of the number of Repricing Shares
then issuable upon exercise of this Warrant (assuming an exercise for
cash) MULTIPLIED BY the difference between (A) the Average Market Price
MINUS (B) the then effective Exercise Price DIVIDED BY (y) the Average
Market Price. Any fraction resulting from the calculation of the number
of Repricing Shares then issuable in a conversion of this Repricing
Warrant shall be truncated.
(c) Upon timely receipt of the Exercise Materials or Conversion
Materials (whichever is applicable), the Company shall, as promptly as
practicable, and in any event within five (5) business days after its
receipt of the Exercise Materials or Conversion Materials, execute or
cause to be executed and delivered to Holder a certificate or
certificates representing the number of Repricing Shares specified in
the Exercise Notice or if Holder delivered a Conversion Notice, the
number of shares of Common Stock issuable upon conversion of this
Warrant (whichever is applicable), together with cash in lieu of any
fraction of a share, and, (x) if the Warrant is exercised in full, a
copy of this Warrant marked "Exercised," or (y) if the Warrant is
partially exercised, a copy of this Warrant marked "Partially
Exercised" together with a new Warrant on the same terms for the
unexercised balance of the Repricing Shares, or (z) if the Warrant is
converted, a copy of this Warrant marked "Converted." The stock
certificate or certificates shall be registered in the name of the
registered Holder of this Warrant or such other name or names as shall
be designated in the Exercise Notice or Conversion Notice. The date
on which the Warrant shall be deemed to have been exercised or
converted (the "EFFECTIVE DATE"), and the date the person in whose
name any certificate evidencing the Common Stock issued upon the
exercise or conversion hereof is issued shall be deemed to have become
the holder of record of such shares, shall be the date the Corporation
receives the Exercise Materials or Conversion Materials, irrespective
of the date of delivery of a certificate or certificates evidencing
the Common Stock issued upon the exercise or conversion hereof, except
that, if the date on which the Exercise Materials or Conversion
Materials are received by the Company is a date on which the stock
transfer books of the Company are closed, the Effective Date shall be
the date the Company receives the Exercise Materials or Conversion
Materials, and the date such person shall be deemed to have become the
holder of the Common Stock issued upon the exercise or conversion
hereof shall be the next succeeding date on which the stock transfer
books are open. All shares of Common Stock issued upon the exercise
or conversion of this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens, and charges with respect
thereto.
(d) If the Company shall fail to issue to Holder within five
(5) business days following the date of receipt by the Company or the
Transfer Agent of the Exercise Materials or
-3-
<PAGE>
the Conversion Materials, a certificate for the number of shares of
Common Stock to which such holder is entitled upon such holder's
exercise or conversion of this Warrant, in addition to all other
available remedies which such holder may pursue hereunder and under
this Warrant and the Common Stock Purchase Agreement between the
Company and the initial holder of the Warrant (the "SECURITIES
PURCHASE AGREEMENT"), including indemnification rights pursuant to
Section 7 thereof, the Company shall pay additional damages to such
holder on each day after the Effective Date, an amount equal to 1.0%
of the product of (A) the number of Repricing Shares not issued to
Holder and to which Holder is entitled MULTIPLIED BY (B) the Closing
Bid Price of the Common Stock on the Effective Date. Such damages
shall be computed daily and are due and payable daily.
(e) The Company may, in lieu of issuing the Repricing Shares
pay Holder an amount equal to the number of Repricing Shares issuable on
the Effective Date (assuming an exercise for cash) MULTIPLIED BY the
Average Market Price (the "PAYMENT AMOUNT"). In such event, the Company
shall be obligated to provide notice to Holder of its intention to pay
the Payment Amount, and must deliver the Payment Amount to Holder within
seven (7) business days following the Effective Date. If the Company
shall fail to deliver the Payment Amount within seven (7) business days
after the Effective Date, in addition to all other available remedies
which Holder may pursue at law or equity, including indemnification
pursuant to Section 7 of the Securities Purchase Agreement, the Company
shall pay additional damages to Holder on each day after the Effective
Date, until the Payment Amount has been paid, in an amount equal to one
percent (1.0%) of the Payment Amount. Such damages shall be computed
daily and are due and payable daily.
SECTION 4. ADJUSTMENTS TO REPRICING SHARES. The number of Repricing
Shares issuable upon the exercise hereof shall be subject to adjustment as
follows:
(a) In the event the Company is a party to a consolidation,
share exchange, or merger, or the sale of all or substantially all of
the assets of the Company to, any person or entity, or in the case of
any consolidation or merger of another corporation into the Company in
which the Company is the surviving corporation, and in which there is
a reclassification or change of the shares of Common Stock of the
Company, this Warrant shall after such consolidation, share exchange,
merger, or sale be exercisable for the kind and number of securities
or amount and kind of property of the Company or the corporation or
other entity resulting from such share exchange, merger, or
consolidation, or to which such sale shall be made, as the case may be
(the "SUCCESSOR COMPANY"), to which a holder of the number of shares
of Common Stock deliverable upon the exercise (immediately prior to
the time of such consolidation, share exchange, merger, or sale) of
this Warrant would have been entitled upon such consolidation, share
exchange, merger, or sale; and in any such case appropriate
adjustments shall be made in the application of the provisions set
forth herein with respect to the rights and interests of the
registered Holder of this Warrant, such that the provisions set forth
herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be possible, in relation to the number and kind of
securities or the type and amount of property thereafter deliverable
upon the exercise of this Warrant. The above provisions shall
similarly apply to successive consolidations, share exchanges,
mergers, and sales. Any adjustment required by this Section 4(a)
because of a consolidation, share exchange, merger, or sale shall be
set forth in an undertaking delivered to the registered Holder of this
Warrant and executed by the Successor Company which provides that the
Holder of this Warrant shall have the right to exercise this Warrant
for the kind and number of securities or amount and kind of property
of the Successor Company or to which the holder of a number of shares
of Common Stock deliverable upon exercise (immediately prior to
-4-
<PAGE>
the time of such consolidation, share exchange, merger, or sale) of
this Warrant would have been entitled upon such consolidation, share
exchange, merger, or sale. Such undertaking shall also provide for
future adjustments to the number of Repricing Shares and the Exercise
Price in accordance with the provisions set forth in Section 2 hereof.
(b) In the event the Company should at any time, or from time
to time after the Original Issue Date, fix a record date for the
effectuation of a stock split or subdivision of the outstanding shares
of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares
of Common Stock, or securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly, additional shares
of Common Stock (hereinafter referred to as "COMMON STOCK EQUIVALENTS")
without payment of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon exercise or exercise
thereof), then, as of such record date (or the date of such dividend,
distribution, split, or subdivision if no record date is fixed), the
number of Repricing Shares issuable upon the exercise hereof shall be
proportionately increased and the Exercise Price shall be appropriately
decreased by the same proportion as the increase in the number of
outstanding Common Stock Equivalents of the Company resulting from the
dividend, distribution, split, or subdivision. Notwithstanding the
preceding sentence, no adjustment shall be made to decrease the Exercise
Price below $.001 per Share.
(c) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for the
effectuation of a reverse stock split, or a transaction having a
similar effect on the number of outstanding shares of Common Stock of
the Company, then, as of such record date (or the date of such reverse
stock split or similar transaction if no record date is fixed), the
number of Repricing Shares issuable upon the exercise hereof shall be
proportionately decreased and the Exercise Price shall be appropriately
increased by the same proportion as the decrease of the number of
outstanding Common Stock Equivalents resulting from the reverse stock
split or similar transaction.
(d) In the event the Company should at any time or from time to
time after the Original Issue Date, fix a record date for a
reclassification of its Common Stock, then, as of such record date (or
the date of the reclassification if no record date is set), this
Warrant shall thereafter be convertible into such number and kind of
securities as would have been issuable as the result of such
reclassification to a holder of a number of shares of Common Stock
equal to the number of Repricing Shares issuable upon exercise of this
Warrant immediately prior to such reclassification, and the Exercise
Price shall be unchanged.
(e) The Company will not, by amendment of its Articles of
Incorporation or through reorganization, consolidation, merger,
dissolution, issue, or sale of securities, sale of assets or any other
voluntary action, void or seek to avoid the observance or performance
of any of the terms of the Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking
of all such actions as may be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (x)
will not create a par value of any share of stock receivable upon the
exercise of the Warrant above the amount payable therefor upon such
exercise, and (y) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares upon the exercise of the Warrant.
-5-
<PAGE>
(f) When any adjustment is required to be made in the number or
kind of shares purchasable upon exercise of the Warrant, or in the
Exercise Price, the Company shall promptly notify the Holder of such
event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of the Warrants and of the
Exercise Price, together with the computation resulting in such
adjustment.
(g) The Company covenants and agrees that all Repricing Shares
which may be issued will, upon issuance, be validly issued, fully paid,
and non-assessable. The Company further covenants and agrees that the
Company will at all times have authorized and reserved, free from
preemptive rights, a sufficient number of shares of its Common Stock to
provide for the exercise of the Warrant in full.
SECTION 5. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle the
Holder hereof to any voting rights or other rights as a stockholder of the
Company.
SECTION 6. TRANSFER OF SECURITIES.
(a) This Warrant and the Repricing Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon, or
otherwise, shall not be transferable except upon compliance with the
provisions of the Securities Act of 1933, as amended (the "SECURITIES
ACT") and applicable state securities laws with respect to the transfer
of such securities. The Holder of this Warrant, by acceptance of this
Warrant, agrees to be bound by the provisions of Section 4 hereof and to
indemnify and hold harmless the Company against any loss or liability
arising from the disposition of this Warrant or the Repricing Shares
issuable upon exercise hereof or any interest in either thereof in
violation of the provisions of this Warrant.
(b) Each certificate for the Repricing Shares and any shares of
capital stock received in respect thereof, whether by reason of a stock
split or share reclassification thereof, a stock dividend thereon or
otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise
permitted by the provisions hereof) be stamped or otherwise imprinted
with a legend in substantially the following form:
Legend for Repricing Shares or other shares of capital stock:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND
NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) THE COMPANY SHALL HAVE RECEIVED A WRITTEN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH
SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED
IN CONNECTION WITH SUCH PROPOSED TRANSFER.
SECTION 7. MISCELLANEOUS.
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or assigns of the Company and of
the holder or holders hereof and of the Common Stock issued or issuable
upon the exercise hereof.
(b) Except as otherwise provided herein, this Warrant and all
rights hereunder are transferable by the registered holder hereof in
person or by duly authorized attorney on the books
-6-
<PAGE>
of the Company upon surrender of this Warrant, properly endorsed, to the
Company. The Company may deem and treat the registered holder of this
Warrant at any time as the absolute owner hereof for all purposes and
shall not be affected by any notice to the contrary.
(c) Notwithstanding any provision herein to the contrary,
Holder hereof may not exercise, sell, transfer, or otherwise assign this
Warrant unless the Company is provided with an opinion of counsel
satisfactory in form and substance to the Company, to the effect that
such exercise, sale, transfer, or assignment would not violate the
Securities Act or applicable state securities laws.
(d) This Warrant may be divided into separate Warrants covering
one share of Common Stock or any whole multiple thereof, for the total
number of shares of Common Stock then subject to this Warrant at any
time, or from time to time, upon the request of the registered holder of
this Warrant and the surrender of the same to the Company for such
purpose. Such subdivided Warrants shall be issued promptly by the
Company following any such request and shall be of the same form and
tenor as this Warrant, except for any requested change in the name of
the registered holder stated herein.
(e) All notices, requests, demands, and other communications
required or permitted under this Warrant and the transactions
contemplated herein shall be in writing and shall be deemed to have been
duly given, made, and received when personally delivered the day after
deposited with a recognized national overnight delivery service prior to
its dead-line for receiving packages for next day delivery or upon the
fifth day after deposited in the United States registered or certified
mail with postage prepaid, return receipt requested, in each case
addressed as set forth below:
If to the Company:
Telecom Wireless Corporation.
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: James C. Roberts, President
Facsimile: (303) 357-0100
If to the Holder hereof, to the address of such Holder appearing
on the books of the Company.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, irrespective of the
choice of law provisions thereof. The parties agree that any appropriate
state court located in Littleton, Arapahoe County, Colorado, or any
federal Court located in Denver, Colorado, including without limitation
to the United States District Court of Colorado, Denver Division, shall
have exclusive jurisdiction of any case or controversy arising under or
in connection with this Agreement and shall be a proper forum in which
to adjudicate such case or controversy. The parties consent to the
jurisdiction of such courts.
[Signatures on the following page]
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<PAGE>
SIGNATURE PAGE
TO
COMPANY
COMMON STOCK REPRICING WARRANT
IN WITNESS WHEREOF, the Company, has caused this Warrant to be executed
in its name by its duly authorized officers under its corporate seal, and to be
dated as of the date first above written.
TELECOM WIRELESS CORPORATION.
By:
---------------------------
James C. Roberts, President
ATTEST:
- -----------------------------------
Secretary/Assistant Secretary
-8-
<PAGE>
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and
transfers unto
___________________________________________________________________________ the
foregoing Warrant and the rights represented thereto to purchase shares of
Common Stock of Telecom Wireless Corporation. in accordance with terms and
conditions thereof, and does hereby irrevocably constitute and appoint
________________ Attorney to transfer the said Warrant on the books of the
Company, with full power of substitution.
Holder:
-------------------------------
-------------------------------
Address
Dated: __________________, 19__
In the presence of:
-------------------------------
<PAGE>
FORM OF NOTICE OF EXERCISE OR CONVERSION
[To be signed only upon exercise of Warrant]
To: TELECOM WIRELESS CORPORATION.
The undersigned registered Holder of the attached Warrant hereby
irrevocably elects to exercise the Warrant for, and to purchase thereunder,
_____ shares of Common Stock of Telecom Wireless Corporation., issuable upon
exercise of said Warrant and hereby surrenders said Warrant.
CHOOSE ONE:
The Holder herewith delivers to Telecom Wireless Corporation., a
check in the amount of $______ representing the Exercise Price
for such shares.
OR
The Holder elects a cashless exercise pursuant to Section 3(b) of
the Warrant. The Average Market Price as of _______ was $_____.
The undersigned herewith requests that the certificates for such shares
be issued in the name of, and delivered to the undersigned, whose address is
________________________________.
Dated: ___________________
Holder:
------------------------------
------------------------------
By:
---------------------------
NOTICE
The signature above must correspond to the name as written upon the face
of the within Warrant in every particular, without alteration or enlargement or
any change whatsoever.
<PAGE>
Schedule to Repricing Warrant
Identifying Other Repricing Warrants
to Which Telecom Wireless Is a Party
That Are Substantially Identical And
Material Details in Which Such Agreements
Differ from Filed Agreement
<TABLE>
<CAPTION>
No. of
Shares
Original Issuance Originally
Holder Date Purchased
- ------------------------------------------------- ----------------- -----------
<S> <C> <C>
Anglo Irish Nominees (Trusts) Ltd. A/C GRC241 May 1999 10,000
Warren Zee May 25, 1999 35,000
Chelverton Fund Ltd. May 25, 1999 15,000
Thomson Kernaghan & Co., Ltd., As Agent June 9, 1999 180,000
William R. Gillespie July 2, 1999 2,000
Daniel A. Gooze July 2, 1999 6,000
Robert L. Primm July 2, 1999 2,000
Gray M. Magee, Jr. July 2, 1999 2,000
Arab Commerce Bank Ltd. July 2, 1999 14,285
Steve Bell July 16, 1999 1,000
Robert L. Franks July 16, 1999 1,000
Francis J. Fernandez, Jr. July 16, 1999 7,000
Dale Geringer July 16, 1999 5,000
Richard Geringer July 16, 1999 5,000
Robert Geringer July 16, 1999 2,000
Victor P. LaRosa July 16, 1999 6,000
Magid Family Trust July 16, 1999 3,500
James and Donita Zeller July 16, 1999 1,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
No. of
Shares
Original Issuance Originally
Holder Date Purchased
- ------------------------------------------------- ----------------- -----------
<S> <C> <C>
Warren Zee July 28, 1999 22,000
Caribbean Investors Group, Ltd. July 28, 1999 14,285
Princeton Insurance August 20, 1999 2,000
David Hettinger August 20, 1999 1,000
Marie Walch Loughlin August 20, 1999 13,000
JHS Assoc., Ltd. Retirement Account August 1999 53,000
SovCap Equity Partners Ltd. September 10, 1999 90,477
John Kozik September 20, 1999 6,750
</TABLE>
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
WARRANT CERTIFICATE
No. TK-1
ORIGINAL ISSUE DATE MAY 24,1999
This Warrant Certificate certifies that THOMSON KERNAGHAN & CO. LTD.,
as AGENT ("THOMSON KERNAGHAN") or registered assigns, is the registered
holder of One Warrant, and is entitled to purchase, on the terms and
conditions hereinafter set forth, at any time or from time to time from the
date hereof until 5:00 p.m., Eastern Time, on the third (3rd) anniversary of
the Original Issue Date set forth above, or if such date is not a day on
which the Company is open for business, then the next succeeding day on which
the Company is open for business (such date is the "EXPIRATION DATE"), but
not thereafter, up to 27,000 shares ("SHARES") of fully-paid and
nonassessable common stock, par value $.001 ("COMMON STOCK"), of Telecom
Wireless Corporation, a Utah corporation (the "COMPANY"), at the Initial
Exercise Price, subject to adjustment in certain events (the "EXERCISE
PRICE"), of $7.00 per Share upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein and in the Warrant Agreement dated
as of May 24, 1999 between the Company and Thomson Kernaghan (the "WARRANT
AGREEMENT"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to
the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Daylight Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event,
the Company will, at the, request of the holder, issue a new Warrant
Certificate
<PAGE>
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; PROVIDED HOWEVER, that
the failure of the Company to issue such new Warrant Certificates shall not
in any way change, alter, or otherwise impair, the rights of the holder as
set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferees) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax, or other
governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate that are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[Signature On Following Page]
<PAGE>
COMPANY SIGNATURE PAGE
TO
THOMSON KERNAGHAN, AGENT, WARRANT CERTIFICATE
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: June 9, 1999
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
------------------------------
James C. Roberts, President
<PAGE>
[FORM OF EXERCISE NOTICE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
__________________________________ in the amount of $________________ all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of whose address
______________________________________________________ and that such Certificate
be delivered to _________________________________________________ whose address
is ______________________________________________________.
Dated:________________ Signature:___________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
- -------------------------------------------
- -------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________________ hereby sells,
assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title, and interest therein,
and does hereby irrevocably constitute and appoint
_____________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated:__________________ Signature:___________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
- -----------------------------------
- -----------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
PLACEMENT AGENT WARRANT CERTIFICATE
No. TK -2
ORIGINAL ISSUE DATE JUNE 9,1999
This Warrant Certificate certifies that THOMSON KERNAGHAN & CO. LTD.
("THOMSON KERNAGHAN") or registered assigns, is the registered holder of One
Warrant, and is entitled to purchase, on the terms and conditions hereinafter
set forth, at any time or from time to time from the date hereof until 5:00
p.m., Eastern Time, on the third (3rd) anniversary of the Original Issue Date
set forth above, or if such date is not a day on which the Company is open
for business, then the next succeeding day on which the Company is open for
business (such date is the "EXPIRATION DATE"), but not thereafter, up to
45,000 shares ("SHARES") of fully-paid and non-assessable common stock, par
value $.001 ("COMMON STOCK"), of Telecom Wireless Corporation, a Utah
corporation (the "COMPANY"), at the following Exercise Price, subject to
adjustment in certain events (the "EXERCISE PRICE"): (i) for Shares 1 through
15,000 purchased pursuant to this Warrant; the Exercise Price shall be equal
to $7.00 per share; (ii) for Shares 15,001 through 30,000 purchased pursuant
to this Warrant; the Exercise Price shall be equal to $7.25 per share; and
(iii) for Shares 30,001 through 45,000 purchased pursuant to this Warrant,
the Exercise Price shall be equal to $7.50 per share, upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency
of the Company, but subject to the conditions set forth herein and in the
Warrant Agreement dated as of June 9, 1999 between the Company and Thomson
Kernaghan (the "WARRANT AGREEMENT"). Payment of the Exercise Price may be
made in cash, or by certified or official bank check in New York Clearing
House funds payable to the order of the Company, or any combination of cash
or check.
No Warrant may be exercised after 5:00 P.M., Eastern Daylight Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event,
the Company will, at the, request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants;
PROVIDED HOWEVER, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferees) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax, or other
governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate that are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[Signature On Following Page]
<PAGE>
COMPANY SIGNATURE PAGE
TO
THOMSON KERNAGHAN, AGENT, WARRANT CERTIFICATE
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: June 9, 1999
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
----------------------------------
James C. Roberts, President
<PAGE>
[FORM OF EXERCISE NOTICE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official
bank check payable in New York Clearing House Funds to the order of
____________________________________ in the amount of $_______________ all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of whose address is
______________________________________ and that such Certificate be delivered
to__________________________________________________ whose address is
_________________________________________.
Dated: Signature:
----------------- ---------------------------
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________ hereby sells,
assigns and transfers unto_______________________________________________
(Please print name and address of transferee) this Warrant Certificate,
together with all right, title, and interest therein, and does hereby
irrevocably constitute and appoint_________________________________, Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
--------------- -------------------------
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
===============================================================================
COMMON STOCK
PURCHASE AGREEMENT
among
TELECOM WIRELESS CORPORATION
(the "COMPANY")
and
THE PERSONS LISTED ON SCHEDULE 1
(the "PURCHASERS")
RULE 506 OFFERING - PART B
Dated as of July 28, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
Section 1. Common Stock.. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Authorization, Issuance, and Sale of Common Stock. . . . . .1
Section 1.2 Form of Payment. . . . . . . . . . . . . . . . . . . . . . .2
Section 1.3 Initial and Additional Closings. . . . . . . . . . . . . . .2
Section 1.4 Deliveries at Closing. . . . . . . . . . . . . . . . . . . .2
Section 2. Purchaser's Representations and Warranties.. . . . . . . . .3
Section 2.1 Investment Purpose.. . . . . . . . . . . . . . . . . . . . .3
Section 2.2 Accredited Investor Status.. . . . . . . . . . . . . . . . .3
Section 2.3 Reliance on Exemptions.. . . . . . . . . . . . . . . . . . .3
Section 2.4 Information. . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.5 No Governmental Review.. . . . . . . . . . . . . . . . . . .3
Section 2.6 Transfer or Resale.. . . . . . . . . . . . . . . . . . . . .3
Section 2.7 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.8 Authorization Enforcement. . . . . . . . . . . . . . . . . .4
Section 2.9 Residence. . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.10 No Scheme to Evade Registration. . . . . . . . . . . . . . .5
Section 3. Representations And Warranties Of The Company. . . . . . . .5
Section 3.1 Organization and Qualification.. . . . . . . . . . . . . . .5
Section 3.2 Authorization, Enforcement, Compliance with Other
Instruments. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 3.3 Capitalization.. . . . . . . . . . . . . . . . . . . . . . .5
Section 3.4 Issuance of Securities.. . . . . . . . . . . . . . . . . . .6
Section 3.5 No Conflicts.. . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.6 Financial Statements.. . . . . . . . . . . . . . . . . . . .7
Section 3.7 Absence of Certain Changes.. . . . . . . . . . . . . . . . .7
Section 3.8 Absence of Litigation. . . . . . . . . . . . . . . . . . . .7
Section 3.9 Purchase of Purchased Common Shares. . . . . . . . . . . . .7
Section 3.10 No Undisclosed Events, Liabilities, Developments, or
Circumstances. . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.11 No General Solicitation. . . . . . . . . . . . . . . . . . .8
Section 3.12 No Integrated Offering.. . . . . . . . . . . . . . . . . . .8
Section 3.13 Employee Relations.. . . . . . . . . . . . . . . . . . . . .8
Section 3.14 Intellectual Property Rights.. . . . . . . . . . . . . . . .8
Section 3.15 Environmental Laws.. . . . . . . . . . . . . . . . . . . . .9
Section 3.16 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.18 Regulatory Permits.. . . . . . . . . . . . . . . . . . . . .9
Section 3.19 Internal Accounting Controls.. . . . . . . . . . . . . . . .9
Section 3.20 No Materially Adverse Contracts, Etc.. . . . . . . . . . . .9
Section 3.21 Tax Status.. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.22 Certain Transactions.. . . . . . . . . . . . . . . . . . . 10
Section 3.23 Dilutive Effect. . . . . . . . . . . . . . . . . . . . . . 10
Section 3.24 Fees and Rights of First Refusal.. . . . . . . . . . . . . 10
Section 4. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 Best Efforts.. . . . . . . . . . . . . . . . . . . . . . . 10
i-
<PAGE>
Section 4.2 Form D.. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.3 Reporting Status.. . . . . . . . . . . . . . . . . . . . . 11
Section 4.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 Financial Information. . . . . . . . . . . . . . . . . . . 11
Section 4.6 Listings.. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.7 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.8 Authorized Shares of Common Stock, Reservation of Shares.. 12
Section 4.9 Corporate Existence. . . . . . . . . . . . . . . . . . . . 12
Section 4.10 Transactions With Affiliates.. . . . . . . . . . . . . . . 12
Section 4.11 Transfer Agents. . . . . . . . . . . . . . . . . . . . . . 12
Section 4.12 Shareholder Approval.. . . . . . . . . . . . . . . . . . . 13
Section 4.13 Transfer Agent Instructions. . . . . . . . . . . . . . . . 13
Section 5. Conditions To The Company's Obligation To Sell.. . . . . . 13
Section 6. Conditions To The Purchasers' Obligation To Purchase.. . . 14
Section 7. Indemnification. . . . . . . . . . . . . . . . . . . . . . 15
Section 8. Governing Law; Miscellaneous.. . . . . . . . . . . . . . . 16
Section 8.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.2 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.3 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.4 Severability.. . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.5 Entire Agreement. Amendments.. . . . . . . . . . . . . . . 16
Section 8.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.7 Successors and Assigns.. . . . . . . . . . . . . . . . . . 17
Section 8.8 No Third Party Beneficiaries.. . . . . . . . . . . . . . . 18
Section 8.9 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.10 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.11 Further Assurances.. . . . . . . . . . . . . . . . . . . . 18
Section 8.12 Termination. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.13 Finder.. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.14 No Strict Construction.. . . . . . . . . . . . . . . . . . 18
SCHEDULES AND EXHIBITS
Schedule 1 Disclosure Schedule
Exhibit A Form of Repricing Warrant
Exhibit B Registration Rights Agreement
Exhibit C Escrow Agreement
Exhibit D Placement Agent Agreement
Exhibit E Opinion of Company Counsel
Exhibit F Irrevocable Transfer Agent Instructions
ii-
<PAGE>
CROSS REFERENCE TO DEFINED TERMS
Term Defined in Section
---- ------------------
Accredited Purchaser Section 2.2
Affiliate Section 4.10
Agreement Preamble
Articles of Incorporation Section 3.3
Augsback Section 1.4(e)
Blue Sky Section 4.2
Bylaws Section 3.3
Certificate of Designations Background
Certificates Section 1.4(b)
Closing Section 1.3
Closing Date Section 1.3
Common Stock Background
Company Preamble
Controls Section 4.10
ERISA Section 2.20(a)(i)
Environmental Laws Section 3.15
Escrow Agreement Section 1.2
Financial Statements Section 3.6
Indemnified Liabilities Section 7
Indemnities Section 7
Intellectual Property Section 3.14
Irrevocable Transfer Agent Instructions Section 1.4(i)
NASD Section 4.12
Purchase Price Section 1.1
Purchaser Preamble
Person Preamble
Placement Agreement Section 1.4(e)
Purchased Common Shares Section 1.1
Registration Period Section 4.3
Registration Rights Agreement Background
Regulation D Background
Related Party Section 4.10
Rule 144 Section 2.6(b)
Sale of the Company Section 4.9
Purchased Common Shares Background
SEC Background
1934 Act Section 3.6
1933 Act Background
iii-
<PAGE>
COMMON STOCK
PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("AGREEMENT") is made and entered
into as of July 28, 1999, between TELECOM WIRELESS CORPORATION, a Utah
corporation (the "COMPANY") and the Persons listed on Purchaser Signature Pages
attached hereto (each of whom is individually referred to as a "PURCHASER" and
all of whom collectively are referred to as the "PURCHASERS").
BACKGROUND
The Company has most recently authorized the issuance, sale, and
delivery of up to Two Hundred Thousand (200,000) shares of the Company's
Common Stock, par value $.001 (the "PURCHASED COMMON SHARES"), having
previously authorized the issuance, sale, and delivery of up to 300,000
shares of the Company's Common Stock in the first part of this offering. The
Purchased Common Shares upon issuance have accompanying repricing rights
evidenced by a warrant in substantially the form attached hereto as EXHIBIT A
(the "REPRICING WARRANT"), exercisable under certain circumstances for
additional shares of Common Stock (the "REPRICING SHARES") at the exercise
price of $.001. The Purchasers collectively wish to purchase, upon the terms
and conditions stated in this Agreement, up to Two Hundred Thousand (200,000)
shares of Common Stock in the respective amounts set forth on each
Purchaser's signature page hereto. Contemporaneously with the execution and
delivery of this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement in substantially the form attached hereto as
EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company
has agreed to provide certain registration rights under the 1933 Act (as
defined below) and the rules and regulations promulgated thereunder, and
applicable state securities laws. The Company and the Purchasers are
executing and delivering this Agreement in reliance upon the exemption from
securities registration pursuant to Section 4(2) and/or Regulation D
("REGULATION D") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"1933 ACT"), at the sole election of Purchasers in the event that a
registration statement filed by the Company pursuant to Section 2(a) of the
Registration Rights Agreement is not declared effective by the Registration
Deadline (as defined therein).
AGREEMENT
For and in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
hereby agree as follows:
SECTION 1. COMMON STOCK.
SECTION 1.1 AUTHORIZATION, ISSUANCE, AND SALE OF COMMON STOCK. The
Company has authorized in this Part B of the offering the sale and issuance in
accordance with the terms of this Agreement of up to Two Hundred Thousand
(200,000) shares of Common Stock having the rights and privileges set forth
herein. The Company agrees to issue and sell to each Purchaser and each
Purchaser agrees to purchase from the Company, at a Closing, the number of
Purchased Common Shares set forth adjacent to the caption "PURCHASED COMMON
SHARES" on the signature page to this Agreement of each Purchaser hereto at a
purchase price of $7.00 per share (the "PURCHASE PRICE").
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SECTION 1.2 FORM OF PAYMENT. On or before the Closing Date, each
Purchaser shall pay the Purchase Price for the Purchased Common Shares to be
issued and sold to such Purchaser at the Closing, by wire transfer of
immediately available funds to the Escrow Agent as follows:
Bank: SunTrust Bank, Atlanta
Corporate Trust Department
ABA Routing No.: 061000104
Center: 008
Account No.: 9088000008
Attn: Rebecca Fischer
Re: Telecom Wireless Corporation--Escrow Account
as more particularly described in Section 3 of that certain Escrow Agreement in
the form attached hereto as EXHIBIT C (the "ESCROW AGREEMENT").
SECTION 1.3 INITIAL AND ADDITIONAL CLOSINGS. The closings of the
purchase and sale of the Purchased Common Shares shall take place at the
offices of Balboni Law Group LLC, 3475 Lenox Road, N.E., Suite 990, Atlanta,
Georgia 30326 at 10:00 a.m., within five (5) business days after the date
hereof, subject to the satisfaction or waiver of the conditions set forth in
Sections 5 and 6 below, or at such other location, date, and time as may be
agreed upon between Purchaser and the Company (each such closing being called
a "CLOSING" and such date and time being called the "CLOSING DATE").
Additional Closings shall take place at the above location by agreement of
the parties from time to time in accordance with the terms of this Agreement.
SECTION 1.4 DELIVERIES AT CLOSING. At the Closing the Company shall
deliver to Purchasers:
(a) this Agreement, executed by the Company;
(b) certificates in definitive form, registered in the name of
each Purchaser, or the designee of such Purchaser, representing the
Purchased Common Shares purchased by such Purchaser (the
"CERTIFICATES");
(c) a Repricing Warrant registered in the name of each
Purchaser or the designee of such Purchaser, executed by the Company;
(d) the Registration Rights Agreement, executed by the Company;
(e) the Placement Agent Agreement between the Company and
Augsback and Associates, Inc. ("AUGSBACK"), in substantially the form
attached hereto as EXHIBIT D (the "PLACEMENT AGREEMENT"), executed by
the Company;
(f) the opinion of Jody M. Walker, Esq., counsel to the
Company, in substantially the form of EXHIBIT E hereto;
(g) the Escrow Agreement, executed by the parties thereto;
(h) the certificates described in Sections 6(c) (the
"COMPLIANCE CERTIFICATE") and 6(i) (the "SECRETARY CERTIFICATE") hereof,
each executed by the Company; and
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(i) the Irrevocable Transfer Agent Instructions, in
substantially the form of EXHIBIT F hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"), executed by the Company.
SECTION 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser represents and warrants with respect to only itself that:
SECTION 2.1 INVESTMENT PURPOSE. Such Purchaser is acquiring the
Purchased Common Shares and accompanying Repricing Warrants, and, upon
conversion of the Repricing Warrants, will acquire the Repricing Shares then
issuable (the Purchased Common Shares, the accompanying Repricing Warrant,
and the Repricing Shares are hereinafter sometimes collectively, the
"SECURITIES"), for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
PROVIDED HOWEVER, that by making the representations herein, such Purchaser
does not agree to hold any Securities for any minimum or other specific term,
and reserves the right to dispose of such Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
SECTION 2.2 ACCREDITED INVESTOR STATUS. Such Purchaser is an
"accredited investor" as that term is defined in Rule 501(a)(3) of
Regulation D.
SECTION 2.3 RELIANCE ON EXEMPTIONS. Such Purchaser understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments, and understandings of such Purchaser
set forth herein in order to determine the availability of such exemptions
and the eligibility of such Purchaser to acquire such Securities.
SECTION 2.4 INFORMATION. Such Purchaser and its advisors, if any,
have been furnished with all materials relating to the business, finances,
and operations of the Company and materials relating to the offer and sale of
the Securities, which have been requested by such Purchaser. Such Purchaser
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Purchaser or its advisors, if any, or its
representatives shall modify, amend, or affect such Purchaser's right to rely
on the Company's representations and warranties contained in Section 3 below.
Such Purchaser understands that its investment in the Securities involves a
high degree of risk. Such Purchaser has sought such accounting, legal, and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
SECTION 2.5 NO GOVERNMENTAL REVIEW. Such Purchaser understands that
no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement
of the Securities, or the fairness or suitability of the investment in the
Securities, nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
SECTION 2.6 TRANSFER OR RESALE. Such Purchaser understands that
EXCEPT as provided in the Registration Rights Agreement:
(a) the Securities have not been registered under the 1933 Act
or any state securities laws, and may not be offered for sale, sold,
assigned, or transferred until;
(i) subsequently registered thereunder; or
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(ii) such Purchaser shall have delivered to the Company
an opinion of counsel, in a generally acceptable form, to the
effect that such securities to be sold, assigned, or transferred
may be sold, assigned, or transferred pursuant to an exemption
from such registration; or
(iii) such Purchaser provides the Company with reasonable
assurance that such securities can be sold, assigned, or
transferred pursuant to Rule 144 or promulgated under the 1933
Act (or a successor rule thereto);
(b) any sale of such securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("RULE
144") may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities
under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder.
SECTION 2.7 LEGENDS. Such Purchaser understands that the certificates
or other instruments representing the Purchased Common Shares and, if and when
issued until such time as the sale of the Repricing Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Repricing Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be
placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it
is stamped, when, (a) the sale of the Purchased Common Shares and the
Repricing Shares is registered under the 1933 Act, (b) in connection with a
sale transaction, such holder provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment, or transfer of the Securities may be made without registration
under the 1933 Act, or (c) such holder provides the Company with reasonable
assurances that the Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold.
SECTION 2.8 AUTHORIZATION ENFORCEMENT. This Agreement has been duly
and validly authorized, executed, and delivered on behalf of such Purchaser
and is a valid and binding agreement of such Purchaser enforceable in
accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
SECTION 2.9 RESIDENCE. Such Purchaser is a resident of that country
specified in its address on the Section of the Disclosure Schedule of
Purchasers.
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SECTION 2.10 NO SCHEME TO EVADE REGISTRATION. Purchaser represents
and warrants to the Company that the acquisition of the Purchased Common
Shares and the Repricing Shares is not a transaction (or any element of a
series of transactions) that is part of a plan or scheme by the Purchaser to
evade the registration provisions of the 1933 Act.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Purchasers that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdictions of their respective
incorporation, and have the requisite corporate power to own their properties
and to carry on their business as now being conducted. The Company and each
of its subsidiary corporations is duly qualified as a foreign corporation to
do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company and its subsidiaries taken
as a whole.
SECTION 3.2 AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS.
(a) The Company has the requisite corporate power and authority
to enter into and perform each of this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Placement Agreement, the
Repricing Warrants, and any related agreements (collectively, the
"TRANSACTION AGREEMENTS"), and to issue the Securities in accordance
with the terms hereof and thereof;
(b) the execution and delivery of each of this Agreement and
the other Transaction Agreements by the Company, and the consummation
by it of the transactions contemplated hereby and thereby, including
without limitation the issuance of the Purchased Common Shares and the
reservation for issuance and the issuance of the Repricing Shares
issuable upon conversion or exercise thereof, have been duly
authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or
its stockholders;
(c) each of the Transaction Agreements has been duly executed
and delivered by the Company; and
(d) each of the Transactions Agreements constitute the valid
and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, or similar laws
relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
SECTION 3.3 CAPITALIZATION. Immediately prior to Closing, the
authorized capital stock of the Company consisted of 125,000,000 shares of
capital stock, of which 100,000,000 shares are Common Stock, par value $.001,
of which 14,990,135 are issued and outstanding, and 25,000,000 shares are
Preferred Stock, par value $.001 ("PREFERRED STOCK") of which no shares are
issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in Section
3.3 of the Disclosure Schedule, no shares of Common Stock or Preferred Stock
are
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subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in
Section 3.3 of the Disclosure Schedule, as of the effective date of this
Agreement, (a) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls, or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings,
or arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company or
any of its subsidiaries, or options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company or any
of its subsidiaries, (b) there are no other outstanding debt securities, and
(c) except for the Registration Rights Agreement and this Agreement, there
are no other agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement.
SECTION 3.4 ISSUANCE OF SECURITIES. The Purchased Common Shares are
duly authorized and, upon issuance in accordance with the terms hereof, shall
be validly issued, fully paid, and nonassessable, are free from all taxes,
liens, and charges with respect to the issue thereof and are entitled to the
rights and preferences set forth in the Purchased Common Shares. The Repricing
Shares issuable upon conversion of the Repricing Warrants have been duly
authorized and reserved for issuance. Upon conversion or exercise of the
Repricing Warrants, the Repricing Shares will be validly issued, fully paid,
and nonassessable, and free from all taxes, liens, and charges, with respect
to the issue thereof, with the holders being entitled to all rights accorded
to a holder of Common Stock.
SECTION 3.5 NO CONFLICTS. Except as disclosed in Section 3.5 of the
Disclosure Schedule, the execution, delivery, and performance of this
Agreement and the Transaction Agreements by the Company, and the consummation
by the Company of the transactions contemplated hereby and thereby, will not
(a) result in a violation of the Articles of Incorporation, any Certificate
of Designations, Preferences, and Rights applicable to any Preferred Stock of
the Company, or the Bylaws of the Company or (b) conflict with, constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration, or cancellation of, any agreement, indenture, or instrument to
which the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment, or decree (including
federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is
bound or affected. Except as disclosed in Section 3.5 of the Disclosure
Schedule, neither the Company nor any subsidiary is in violation of any term
of, or in default under, its Articles of Incorporation or Bylaws or their
organizational charter or Bylaws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree,
or order or any statute, rule, or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any law, ordinance, or
regulation of any governmental entity. Except as specifically contemplated
by this Agreement and the other Transaction Agreements, and as required under
the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization, or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver, and perform any of its obligations under or contemplated
by this Agreement and the Transaction Agreements in accordance with the terms
hereof or thereof. Except as disclosed in Section 3.5 of the Disclosure
Schedule, all consents, uthorizations, orders, filings, and registrations
which the Company is required to obtain pursuant to the preceding
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sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
SECTION 3.6 FINANCIAL STATEMENTS. Attached as Section 3.6 of the
Disclosure Schedule are true, correct, and complete copies of: the 06/30/98
financial statements of the Company together with the audit report dated
September 22, 1998 thereon, and the unaudited Balance Sheet of the Company
dated March 31, 1999, and the unaudited Statements of Income, Cash Flows, and
Stockholder's Equity for the nine months then ended (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements (i) are in accordance with
the books and records of the Company, (ii) present fairly the financial
condition of the Company as of the respective dates indicated and the results
of operations for such periods, and (iii) the audited Financial Statements
have been prepared with consistently applied accounting principles throughout
the periods involved. The Financial Statements do not contain any items of
special or nonrecurring income, or other income not earned in the ordinary
course of business, except as specifically set forth in Section 3.6 of the
Disclosure Schedule. The financial books, financial records, and financial
accounts of the Company shown to Purchaser accurately and fairly reflect, in
reasonable detail, all transactions, assets, and liabilities of the Company.
The Company has not engaged in any transaction, maintained any bank account,
or used any of the funds of the Company, except for transactions, bank
accounts, and funds which have been and are reflected in the normally
maintained books and records of the Company. Except as reflected on Section
3.6 of the Disclosure Schedule, there is no liability or indebtedness of the
Company for dividends or other distributions declared or accumulated but
unpaid with respect to the Common Stock or the Purchased Common Shares. No
other information provided by or on behalf of the Company to the Purchaser
which is not included in the Financial Statements, including, without
limitation, information referred to in Section 2.4 of this Agreement,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the light
of the circumstance under which they are or were made, not misleading.
SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Section 3.7 of the Disclosure Schedule, since the date of the most recent
audited Balance Sheet included in the Financial Statements, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations, or
prospects of the Company or its subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its subsidiaries have
any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
SECTION 3.8 ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry, or investigation before or by any court, public board,
government agency, self-regulatory organization, or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company, the Common Stock, or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would (a)
have a material adverse effect on the transactions contemplated hereby, (b)
adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under the Transaction
Agreements, or any of the other documents contemplated therein, or (c) except
as expressly set forth in Section 3.8 of the Disclosure Schedule, have a
material adverse effect on the business, operations, properties, financial
condition, or results of operation of the Company and its subsidiaries taken
as a whole.
SECTION 3.9 PURCHASE OF PURCHASED COMMON SHARES. The Company
acknowledges and agrees that each Purchaser is acting solely in the capacity
of an arm's length purchaser with respect to this Agreement and the other
Transaction Agreements and the transactions contemplated hereby and
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thereby. The Company further acknowledges that each Purchaser is not acting
as a financial advisor or agent or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by such Purchaser or any of their
respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to such Purchaser's
purchase of the Securities. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation by the Company and its representatives.
SECTION 3.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. No event, liability, development, or circumstance has
occurred or exists, or is contemplated to occur, with respect to the Company
or its subsidiaries or their respective businesses, properties, prospects,
operations, or financial condition, which could be material but which has not
been publicly announced or disclosed in writing to Purchasers.
SECTION 3.11 NO GENERAL SOLICITATION. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or
sale of the Securities.
SECTION 3.12 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions.
SECTION 3.13 EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their
employees are good.
SECTION 3.14 INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets, and rights necessary to conduct
their respective businesses as now conducted. Except as set forth on Section
3.14 of the Disclosure Schedule, none of the Company's trademarks, trade
names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, government
authorizations, trade secrets, or other intellectual property rights have
expired or terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of the trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secret, or other
similar rights of others, or of any such development of similar or identical
trade secrets, or technical information by others and, except as set forth on
Section 3.14 of the Disclosure Schedule, there is no claim, action, or
proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service mark registrations, trade secret, or
other infringement, and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality, and value of all of their intellectual
properties.
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SECTION 3.15 ENVIRONMENTAL LAWS. The Company and its subsidiaries
are (a) in compliance with any and all applicable foreign, federal, state,
and local laws and regulations relating to the protection of human health and
safety, the environment, or hazardous, toxic substances, wastes, pollutants,
or contaminants ("ENVIRONMENTAL LAWS"), (b) have received all permits,
licenses, or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses, and (c) are in compliance with
all terms and conditions of any such permit, license, or approval.
SECTION 3.16 TITLE. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and clear of
all liens, encumbrances, and defects except as described in Section 3.16 of
the Disclosure Schedule or as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries. Any real property and
facilities held under lease by the Company and its subsidiaries are held by
them under valid, subsisting, and enforceable leases with such exceptions as
are not material, and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.
SECTION 3.17 INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks, and in such amounts, as management of the Company believes
to be prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for, and neither the
Company nor any such subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial, or otherwise, or the earnings,
business, or operations of the Company and its subsidiaries, taken as a whole.
SECTION 3.18 REGULATORY PERMITS. The Company and its subsidiaries
possess all certificates, authorizations, and permits issued by the
appropriate federal, state, or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization, or permit.
SECTION 3.19 INTERNAL ACCOUNTING CONTROLS. The Company and each of
its subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (a) transactions are executed in
accordance with management's general or specific authorizations, (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 3.20 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate, or
other legal restriction, or any judgment, decree, order, rule, or regulation
which in the judgment of the Company's officers has, or is expected in the
future to have, a material adverse effect on the business, properties,
operations, financial condition, results of operations, or prospects of the
Company or its subsidiaries. Neither the Company nor any of its subsidiaries
is a party to any contract or agreement which in the judgment of the
Company's officers has,
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or is expected to have, a material adverse effect on the business,
properties, operations, financial condition, results of operations, or
prospects of the Company or its subsidiaries.
SECTION 3.21 TAX STATUS. Except as set forth on Section 3.21 of the
Disclosure Schedule, the Company and each of its subsidiaries has made or
filed all federal and state income and all other tax returns, reports, and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes), and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to
be due on such returns, reports, and declarations, except those being
contested in good faith and has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods
to which such returns, reports, or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
SECTION 3.22 CERTAIN TRANSACTIONS. Except as set forth on Section
3.22 of the Disclosure Schedule, and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of
business upon terms no less favorable than the Company could obtain from
third parties, and none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than
for services as employees, officers, and directors), including any contract,
agreement, or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director, or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust, or other entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee, or partner.
SECTION 3.23 DILUTIVE EFFECT. The Company understands and
acknowledges that the number of Repricing Shares issuable upon conversion of
the Repricing Warrants will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Repricing Shares upon
conversion of the Repricing Warrants in accordance with this Agreement and
the Repricing Warrant is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
SECTION 3.24 FEES AND RIGHTS OF FIRST REFUSAL. The Company is not
obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not limited
to, current or former shareholders of the Company, underwriters, brokers,
agents, or other third parties.
SECTION 4. COVENANTS.
SECTION 4.1 BEST EFFORTS. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 5 and 6 of this Agreement.
SECTION 4.2 FORM D. The Company shall, on or before the Closing
Date, take such action as is necessary to qualify the Securities for, or
obtain exemption for the Securities for, sale to the Purchasers at the
Closing pursuant to this Agreement under applicable securities or "BLUE SKY"
laws of the respective states of the United States applicable to each
Purchaser, and shall provide evidence of any such action so taken to the
Purchasers on or prior to the Closing Date. Unless required to do so sooner
under applicable state securities laws pursuant to the previous sentence, the
Company agrees to file a Form D
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with respect to the Securities as required under Regulation D and to provide
a copy thereof to each Purchaser promptly after such filing not later than 15
days after each such Purchaser's purchase hereunder.
SECTION 4.3 REPORTING STATUS. Until the earlier of (a) the date as
of which the Purchasers (as that term is defined in the Registration Rights
Agreement) may sell all of the Repricing Shares without restriction pursuant
to Rule l44(k) promulgated under the 1933 Act (or successor thereto), or (b)
the date on which (i) the Purchasers shall have sold all the Repricing Shares
and (ii) none of the Purchased Common Shares is owned by any Purchaser (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act. The Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if
the 1934 Act or the rules and regulations thereunder would otherwise permit
such termination.
SECTION 4.4 USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Purchased Common Shares for substantially the same purposes
and in substantially the same amounts as indicated in Section 4.4 of the
Disclosure Schedule.
SECTION 4.5 FINANCIAL INFORMATION. The Company agrees to send the
following to each Purchaser during the Registration Period and while a
Registration Statement with respect to the Securities is in effect: (a)
within five (5) days after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K, and any registration statements or amendments filed
pursuant to the 1933 Act; (b) within one (1) day after release thereof,
copies of all press releases issued by the Company or any of its
subsidiaries, (c) copies of the same notices and other information given to
the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders; and (d) with reasonable promptness, such other
financial information and data with respect to the Company as Purchaser may
request.
SECTION 4.6 LISTINGS. The Company shall promptly secure the listing
of the Purchased Common Shares and Repricing Shares upon each national
securities exchange or automated quotation system, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance) and
shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Purchased Common Shares and Repricing Shares from
time to time issuable under the terms of the Registration Rights Agreement.
The Company shall maintain the Common Stock's authorization for quotation in
the over-the-counter market. The Company shall promptly provide to each
Purchaser copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading in the over-the-counter market.
SECTION 4.7 EXPENSES. Any costs and expenses incurred by a
Purchaser in connection with its own negotiation, investigation, preparation,
execution, and delivery of this Agreement and the Registration Rights
Agreement and the Escrow Agreement shall be borne by such Investor. The
legal costs and expenses for Augsback and its counsel (not to exceed $12,000
in legal fees plus all expenses for the First Closing) shall be paid for by
the Company at the First Closing, and the legal fees and expenses for all
subsequent Closings (not to exceed $4,000 in legal fees plus all expenses for
the Second Closing and $2,500 for each subsequent Closing) shall be paid for
by the Company at each subsequent Closing. These Transaction Fees are fixed
at this level based upon Augsback's counsel providing all documents necessary
for a given Transaction, and receiving a level of comments to these documents
that do not require extensive negotiations or redrafting. However, should
such counsel encounter any situation requiring extensive negotiation or
redrafting of documents (for example if, after a first closing, substantial
comments are received from the issuer or an investor or substantial revisions
are required for a
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subsequent Closing), the fee limits discussed above would not apply and the
fees in such case would be substantially based upon such firm's hourly rates
for those attorneys and Firm personnel performing work on that Closing.
SECTION 4.8 AUTHORIZED SHARES OF COMMON STOCK, RESERVATION OF
SHARES. The Company shall at all times, so long as any of the Repricing
Warrants are outstanding and subject to conversion, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Repricing Warrants, such number of
shares of Common Stock equal to or greater than 200% of the number of shares
of Common Stock which are issuable upon conversion of all Repricing Warrants
which are then outstanding or which could be issued at any time under this
Agreement.
SECTION 4.9 CORPORATE EXISTENCE. So long as any Repricing Warrants
remain outstanding, the Company shall not directly or indirectly consummate
any merger, reorganization, restructuring, consolidation, sale of all or
substantially all of the Company's assets, or any similar transaction or
related transactions (each such transaction, a "SALE OF THE COMPANY") except
if the surviving or successor entity in such transaction (a) expressly
assumes, in writing, the Company's obligations hereunder and under the
Registration Rights Agreement, the Repricing Warrants, and any other
agreements and instruments entered into or delivered by the Company in
connection herewith and (b) is a publicly traded corporation whose Common
Stock is listed for trading on the New York Stock Exchange, Inc., the
American Stock Exchange, or the NASDAQ National Market.
SECTION 4.10 TRANSACTIONS WITH AFFILIATES. So long as (a) any
Repricing Warrants are outstanding or (b) any Purchaser owns Repricing Shares
with a market value equal to or greater than $200,000, the Company shall not,
and shall cause each of its subsidiaries not to, enter into, amend, modify,
or supplement, or permit any subsidiary to enter into, amend, modify, or
supplement any agreement, transaction, commitment, or arrangement with any of
its or any subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock or affiliates, or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (i) customary
employment arrangements and benefit programs on reasonable terms, (ii) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (iii) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who
is also an officer of the Company or any subsidiary of the Company shall not
be disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "AFFILIATE" for purposes hereof means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (1) has a 5% or more equity interest in that person or entity,
(2) has 5% or more common ownership with that person or entity, (3) controls
that person or entity, or (4) share common control with that person or
entity. "CONTROL" or "CONTROLS" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies
of another person or entity.
SECTION 4.11 TRANSFER AGENTS. The Company covenants and agrees that,
in the event that the Company's agency relationship with the transfer agent
should be terminated for any reason prior to a date which is two (2) years
after the Closing Date, the Company shall immediately appoint a new transfer
agent and shall require that the transfer agent execute and agree to be bound
by the terms of the Irrevocable Instructions to Transfer Agent.
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SECTION 4.12 SHAREHOLDER APPROVAL. The Company covenants to submit
to its shareholders at its next shareholder meeting a proposal for
ratification of the issuance of the Securities, if and as required by the
rules of the National Association of Securities Dealers, Inc. (the "NASD")
applicable to the transaction. To the best of the Company's knowledge and
belief, no Shareholder approval is required.
SECTION 4.13 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
the Irrevocable Transfer Agent Instructions to its transfer agent or any
successor transfer agent appointed pursuant to Section 4.11, above, to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Repricing Shares in such amounts as specified from time
to time by the Purchaser to the Company upon conversion of the Repricing
Warrants. Prior to registration of the Purchased Common Shares and Repricing
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2.7 of this Agreement. The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 4.13, and stop transfer instructions to give
effect to Section 2.6 hereof (in the case of the Repricing Shares, prior to
registration of such shares under the 1933 Act) will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 4.13 shall affect in any way the Purchaser's obligations and
agreement to comply with all applicable securities laws upon resale of the
Purchased Common Shares or Repricing Shares. If the Purchaser provides the
Company with an opinion of counsel, reasonably satisfactory in form, and
substance to the Company, that registration of a resale by any Purchaser of
any of the Purchased Common Shares or Repricing Shares is not required under
the 1933 Act, the Company shall permit the transfer, and, in the case of the
Repricing Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to Purchasers by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under
this Section 4.13 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 4.13, that
Purchasers shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
SECTION 5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Purchased Common Shares to Purchasers at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, PROVIDED that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(a) The Purchaser shall have executed Purchaser Signature Pages
to this Agreement, the Registration Rights Agreement, and the Escrow
Agreement and delivered the same to the Company.
(b) Purchasers shall have delivered to the Company the Purchase
Price for the Purchased Common Shares being purchased by the Purchaser
at the Closing by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company.
(c) The representations and warranties of the Purchaser shall
be true and correct in all material respects as of the date when made
and as of the Closing Date as though made at that
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time (except for representations and warranties that speak as of a
specific date), and the Purchaser shall have performed, satisfied, and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied, or
complied with by the Purchaser at or prior to the Closing Date.
SECTION 6. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE.
The obligation of Purchasers hereunder to purchase the Purchased
Common Shares at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, PROVIDED that these
conditions are for the Purchasers' sole benefit and may be waived by
Purchasers at any time in their sole discretion:
(a) The Company shall have executed this Agreement and the
other applicable Transaction Agreements and delivered the same to
Purchasers.
(b) The Common Stock shall be authorized for quotation on the
electronic bulletin board, over-the-counter market, AMEX, the NASDAQ
National Market, or The New York Stock Exchange, Inc., trading in the
Common Stock shall not have been suspended for any reason, and all of
the Repricing Shares issuable upon conversion of the Repricing
Warrants shall be approved for listing on the electronic bulletin
board, over-the-counter market, AMEX, the NASDAQ National Market, or
The New York Stock Exchange, Inc.
(c) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations
and warranties shall be true and correct without further qualification)
as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of
a specific date) and the Company shall have performed, satisfied, and
complied in all material respects with the covenants, agreements, and
conditions required by this Agreement to be performed, satisfied, or
complied with by the Company at or prior to the Closing Date. Purchasers
shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
Purchasers including, without limitation an update as of the Closing
Date regarding the representation contained in Section 3.3 above.
(d) The Purchaser shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope, and
substance reasonably satisfactory to the Purchaser and in substantially
the form of EXHIBIT E attached hereto.
(e) The Company shall have executed and delivered to the
Purchaser the Certificates (in such denominations as the Purchaser shall
request) for the Purchased Common Shares being purchased by the
Purchaser at the Closing.
(f) The Board of Directors of the Company shall have authorized
and adopted the resolutions in substantially the form attached to the
Secretary Certificate delivered herewith.
(g) As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Repricing Warrants, such number of
shares of Common Stock equal to or greater than 200% of the number
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of shares of Common Stock for which are issuable upon conversion of all
of the Repricing Warrants which could be issued at any time under this
Agreement.
(h) The Irrevocable Transfer Agent Instructions, in substantially
the form of EXHIBIT F attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(i) Purchaser shall have received a certificate of the Secretary
or an Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that attached thereto is a true and complete copy of
the Articles of Incorporation as then in effect, certified or bearing
evidence of filing by the Department of State of the State of Utah,
and (B) a certificate of said Department of State, dated as of a
recent date as to the due incorporation and good standing of the
Company, the payment of all franchise taxes by the Company, and
listing all documents of the Company on file with said Department of
State; (C) that attached thereto is a true and complete copy of the
Bylaws of the Company as in effect on the date of such certification;
(D) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors or the shareholders of
the Company authorizing the execution, delivery, and performance of
this Agreement and the issuance, sale, and delivery of the Purchased
Common Shares, the issuance and delivery of the Repricing Shares
issuable upon conversion of the Repricing Warrants, and that all such
resolutions are in full force and effect and are all the resolutions
adopted in connection with the foregoing agreements and the
transactions contemplated thereby; (E) that the Charter has not been
amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (A) above; and (F) to the
incumbency and specimen signature of each officer of the Company
executing this Agreement, the other Transaction Agreements, and any
certificate or instrument furnished pursuant hereto and thereto, and a
certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate.
SECTION 7. INDEMNIFICATION.
In consideration of the Purchaser's execution and delivery of this
Agreement and acquiring the Securities hereunder and in addition to all of
the Company's other obligations under this Agreement, the Company shall
defend, protect, indemnify, and hold harmless the Purchaser and each other
holder of the Securities and all of their officers, directors, employees, and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities, and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the other
Transaction Agreements or any other certificate, instrument, or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement, or
obligation of the Company contained in this Agreement, the other Transaction
Agreements or any other certificate, instrument or document contemplated
hereby or thereby, or (c) any cause of action, suit, or claim brought or made
against such Indemnitee and arising out of or resulting from the execution,
delivery, performance, or enforcement of this Agreement or any other
instrument, document, or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Purchased
Common Shares, or the status of the Purchaser or holder of the
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<PAGE>
Purchased Common Shares or the Repricing Shares, as a Purchaser in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which
is permissible under applicable law.
SECTION 8. GOVERNING LAW; MISCELLANEOUS.
SECTION 8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado without
regard to the principles of conflict of laws. Any dispute or controversy
between the parties arising in connection with this agreement or the subject
matter contemplated by this agreement shall be resolved by arbitration before
a three-member panel of the American Arbitration Association in accordance
with the commercial arbitration rules of said forum and the Federal
Arbitration Act, 9 U.S.C. 1 ET SEQ., with the resulting award being final and
conclusive. Said arbitrators shall be empowered to award all forms of relief
and damages claimed, including, but not limited to, attorney's fees, expenses
of litigation and arbitration, exemplary damages, and pre-judgment interest.
Notwithstanding the foregoing, Purchaser may at any time and at its option,
whether or not an arbitration action is then pending, initiate a civil action
for temporary and permanent injunctive and other equitable relief against
Company. Company acknowledges that upon any breach of Purchaser's conversion
rights hereunder, Purchaser's resulting injury may not be adequately
compensated by a remedy at law. Accordingly, upon such breach, Purchaser, at
its election and without limitation of its other remedies, shall be entitled
to pursue a claim for specific performance of this Agreement, and Company
hereby waives the right to assert any defense thereto that Purchaser has an
adequate remedy at law. The parties further agree that any arbitration
action between them shall be heard in Littleton, Colorado, and expressly
consent to the jurisdiction and venue of the Superior Court of Arapahoe
County, Colorado, and the United States District Court for the District of
Colorado, Denver Division, for the adjudication of any civil action asserted
pursuant to this Paragraph.
SECTION 8.2 COUNTERPARTS. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to
be physically delivered to the other party within five (5) days of the
execution and delivery hereof.
SECTION 8.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 8.4 SEVERABILITY. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
SECTION 8.5 ENTIRE AGREEMENT. AMENDMENTS. This Agreement supersedes
all other prior oral or written agreements between the Purchaser, the
Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor any
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Purchaser makes any representation, warranty, covenant, or undertaking with
respect to such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the party to be
charged with enforcement.
SECTION 8.6 NOTICES. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (a)
upon receipt, when delivered personally, (b) upon receipt, when sent by
facsimile, PROVIDED a copy is mailed by U.S. certified mail, return receipt
requested, (c) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (d) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
if to the Company:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: James C. Roberts, President
Telephone: (303) 357-0170
Facsimile: (303) 357-0100
with a copy (which shall not constitute notice) to:
Jody M. Walker, Esq.
7841 South Garfield Way
Littleton, Colorado 80122
Telephone: (303) 850-7637
Facsimile: (303) 220-9902
if to Transfer Agent:
Corporate Stock Transfer, Inc.
370 17th Street, Suite 2350
Denver, Colorado 80202
Attn: Compliance Department
Telephone: (303) 282-4800
Facsimile: (303) 282-5800
If to any Purchaser, to the address and facsimile number on its
Purchaser signature page attached hereto, with copies to such Purchaser's
counsel as set forth on such Purchaser's signature page. Each party shall
provide five (5) day's prior written notice to the other party of any change
in address or facsimile number.
SECTION 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers.
Any Purchaser may assign its rights hereunder without the consent of the
Company, PROVIDED HOWEVER, that any such assignment shall not release such
Purchaser from its obligations hereunder unless such obligations are assumed
by such assignee and the Company has consented to such assignment and
assumption.
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SECTION 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
SECTION 8.9 SURVIVAL. Unless this Agreement is terminated under
Section 8.12, the representations and warranties of the Company and the
Purchaser contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5, and 6, and the indemnification provisions set forth
in Section 7, shall survive the Closing. The Purchaser shall be responsible
only for its own representations, warranties, agreements, and covenants
hereunder.
SECTION 8.10 PUBLICITY. The Company and Purchasers shall have the
right to approve, before issuance, any press releases or any other public
statements with respect to the transactions contemplated hereby; PROVIDED
HOWEVER, that the Company shall be entitled, without the prior approval of
Purchasers, to make any press release or other public disclosure with respect
to such transactions as is required by applicable law and regulations
(although the Purchaser shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
SECTION 8.11 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments, and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
SECTION 8.12 TERMINATION. In the event that the Closing shall not
have occurred with respect to the Purchaser on or before five (5) business
days from the date hereof due to the Company's or Purchasers' failure to
satisfy the conditions set forth in Sections 5 and 6 above (and the
non-breaching party's failure to waive such unsatisfied condition(s)), the
non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party.
SECTION 8.13 FINDER. The Company acknowledges that it has engaged a
finder in connection with the sale of the Purchased Common Shares, which
finder may have formally or informally engaged other agents on its behalf.
The Company shall be responsible for the payment of any finder's fees (which
includes cash and warrants to purchase Common Stock) relating to or arising
out of the transactions contemplated hereby.
SECTION 8.14 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
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COMPANY SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, Purchasers and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written
above.
COMPANY
TELECOM WIRELESS CORPORATION
By:
---------------------------
James C. Roberts, President
[SIGNATURES OF PURCHASERS ON FOLLOWING PAGES.]
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<PAGE>
PURCHASER SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
PURCHASER
By:
------------------------
Name:
----------------------
Title:
---------------------
- ----------------------------------------------------------------------------
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- ----------------------------------------------------------------------------
SECURITIES PURCHASED
- ----------------------------------------------------------------------------
PURCHASE PRICE
- ----------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
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PURCHASER SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
PURCHASER
---------------------------
[Individual Purchaser Name]
- ----------------------------------------------------------------------------
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- ----------------------------------------------------------------------------
SECURITIES PURCHASED
- ----------------------------------------------------------------------------
PURCHASE PRICE
- ----------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
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SCHEDULE 1
DISCLOSURE SCHEDULE
TO
COMMON STOCK
PURCHASE AGREEMENT
SECTION 3.3 CAPITALIZATION.
SECTION 3.5 CONFLICTS.
SECTION 3.6 FINANCIAL STATEMENTS.
SECTION 3.8 LITIGATION
SECTION 3.14 INTELLECTUAL PROPERTY
SECTION 3.16 LIENS
SECTION 3.21 TAX STATUS
SECTION 3.22 CERTAIN TRANSACTIONS
SECTION 4.4 USE OF PROCEEDS
-1-
<PAGE>
EXHIBIT A
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF REPRICING WARRANT
-1-
<PAGE>
EXHIBIT B
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
-1-
<PAGE>
EXHIBIT C
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF ESCROW AGREEMENT
-1-
<PAGE>
EXHIBIT D
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF PLACEMENT AGENT AGREEMENT
-1-
<PAGE>
EXHIBIT E
TO
COMMON STOCK
PURCHASE AGREEMENT
OPINION OF COMPANY COUNSEL
-1-
<PAGE>
EXHIBIT F
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
-1-
<PAGE>
Schedule to Common Stock Purchase Agreement
Dated July 28, 1999
Identifying Purchasers
<TABLE>
<CAPTION>
Purchaser Date No. of Shares
--------- ---- -------------
<S> <C> <C>
Warren Zee July 28, 1999 22,000
Caribbean Investors Group, Ltd. July 28, 1999 14,285
Princeton Insurance August 20, 1999 2,000
David Hettinger August 20, 1999 1,000
Marie Walch Loughlin August 20, 1999 13,000
JHS Assoc., Ltd. Retirement Account August 1999 53,000
</TABLE>
<PAGE>
MASTER LEASE AGREEMENT
No. _______
This Master Lease Agreement (the "MLA") is entered into by and between Lucent
Technologies, Inc. Internetworking Division ("Lessor"), having its principal
place of business at 1701 Harbor Bay Parkway, Alameda, CA 94502 and Telecom
Wireless, Inc. ("Lessee"), having its principal place of business at 5299 DTC
Blvd., Suite 1200, Englewood, Colorado 80111.
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") provided no Event of Default has occurred or is
continuing, subject to the following conditions, which Lessor in its sole
discretion may elect to waive with respect to any Schedule: (i) in no event
shall Lessor be obligated to lease Equipment to Lessee hereunder where the
aggregate purchase price of all Equipment under all Schedules would exceed
Twenty Million and no/100 Dollars ($20,000,000.00); (ii) Lessor shall agree
to lease Equipment with a value of up to Five Million and no/100 Dollars
($5,000,000.00) without satisfying the provisions of section 1(iii); (iii) if
the aggregate Equipment Value exceeds Five Million and no/100 Dollars
($5,000,000.00), then Lessee shall either (a) demonstrate that it has
obtained a ratio of Adjusted EBITDA to Adjusted Debt Service of 1.75 or
greater for the fiscal quarter ending just prior to the date of any new
Schedule, or (b) demonstrate that it has raised new cash equity of Twenty
Million Dollars ($20,000,000) or more from the date of this MLA to the date
of any new Schedule; (iv) Lessor's agreement to provide Equipment under the
terms hereof shall expire on December 31, 2000. "Adjusted EBITDA" is defined
as, for fiscal quarter most recently ended, earnings before interest, taxes,
depreciation, and amortization plus the portion of payments required under
this Agreement that may have been included in expenses for the period
measured. "Adjusted Debt Service" is defined as the sum of (a) the total
Equipment Value of all Equipment shipped to date, which Equipment shall be or
has been financed hereunder, plus the Equipment Value of the amount requested
to be shipped, each multiplied by 3.03810; plus (b) the principal portion of
required payments made during the measurement period on any other debt, note,
loan, or
Page 1 of 8
<PAGE>
capital lease obligation excluding obligations undered under this Agreement;
plus (c) capital expenditures made during the quarter, net of the proceeds of
financing received during the quarter to fund such expenditures (with a
minimum value for (c) of -0-).
2. TERM. Each Lease shall be effective upon the execution of the MLA
and the related Schedule by the Lessor and the Lessee. The least 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 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 REPRESENTATION 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
Page 2 of 8
<PAGE>
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. Equipment shall not be located outside
the continental United States of America.
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
Page 3 of 8
<PAGE>
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
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
Page 4 of 8
<PAGE>
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.
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 thereof from Lessor; (c) the occurrence and continuance of any
default under any other lease or agreement for borrowed money made between
Ascend Communications, Inc., Lucent Technologies, 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 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 occasioned 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.
Page 5 of 8
<PAGE>
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. Upon the request of Lessor,
Lessee shall provide copies of its 10K and 10Q statements within 10 days of
the date such statements are required to be filed with the Securities and
Exchange Commission. At Lessor's request, if 10K or 10Q statements are not
required to be filed, Lessee shall deliver to Lessor a balance sheet,
statement of cash flows, and profit and loss statement for any of its fiscal
months or quarters, and 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
Page 6 of 8
<PAGE>
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 required 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, wavier, 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 of 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
notice by either party given at least ninety (90) days prior to the end of
the month on which the termination is to 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 the choice of laws provisions, of
the State of California. The titles of the sections of this MLA are for
convenience
Page 7 of 8
<PAGE>
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:
LESSOR: LESSEE:
LUCENT TECHNOLOGIES, INC. TELECOM WIRELESS, INC.
INTERNETWORKING SERVICES
BY: /s/ Annette Severiens BY: /s/ James C. Roberts
-------------------------- --------------------------
NAME: Annette Severiens NAME: James C. Roberts
------------------------ ------------------------
TITLE: Assistant Treasurer TITLE: CEO
------------------------ ------------------------
DATE: July 30, 1999 DATE: 7/29/99
------------------------ ------------------------
Page 8 of 8
<PAGE>
WARRANT AGREEMENT
To Purchase Shares of
Telecom Wireless Corporation
Name and Address of Holder: Jack Augsback & Associates, Inc
580 Village Blvd., Suite 140
West Palm Beach, FL 33409
Number of Shares Purchasable: 55,673
-----------
Date: August 26,1999
-------------------
This certifies that, for value received, the holder hereof, or permitted
assigns, is entitled to subscribe for and purchase from Telecom Wireless
Corporation (the "Company"), at any time commencing on and after August
26,1999, and before 5:00 p.m. (EST) August 26, 2004 time, Warrants to
Purchase, that number of shares specified above at the Purchase Price set
forth herein, subject to adjustment as hereinafter set forth.
This Warrant is issued pursuant to the terms of that certain Agreement, Board
of Directors minutes dated August 27,1999, by and between the Company and
Jack Augsback & Associates, Inc.
1. DEFINITIONS. For all purposes, the following terms shall have the
meanings stated:
"COMMISSION" shall mean the Securities and Exchange Commission,
or any other federal agency then administering the Securities
Act.
"COMMON STOCK" shall mean the shares of common stock of the
Company as defined in Section 8 hereof.
"COMPANY" shall mean Telecom Wireless Corp. a Utah
corporation, and any corporation which shall succeed to, or
assume, the obligations of said corporation hereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission
thereunder, as in effect from time to time.
"PURCHASE PRICE" shall mean the price of $(USD)7.00 per
share, which is the purchase price of each Warrant Share, as
adjusted from time to time as provided herein.
<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission
thereunder, as in effect from time to time.
"SUBSCRIPTION FORM" shall mean the subscription forms attached
hereto.
"TRANSFER" shall mean any sale, assignment, pledge or other
disposition of any Warrants and/or Warrant Shares, or of any
interest in either, which would constitute a sale thereof within
the meaning of Section 2 (3) of the Securities Act.
"WARRANT SHARES" shall mean the Shares purchased or purchasable
by the warrantholder upon the exercise of the Warrants pursuant
to Section 2 hereof.
"WARRANTHOLDER" shall mean the holder or holders of the Warrants
or any related Warrants or any related Warrant Shares.
"WARRANTS" shall mean the Warrants (including this Warrant),
identical as to terms, conditions and date, except as to the
number of Shares for which they may be exercised, evidencing the
right to purchase an aggregate of up to 55,673 Shares and
all Warrants issued in exchange, transfer or replacement thereof.
All terms used in this Warrant which are not defined in Section 1 hereof have
the meanings respectively set forth elsewhere in this Warrant.
2. EXERCISE OF WARRANT, ISSUANCE OF CERTIFICATES AND PAYMENT FOR WARRANT
SHARES. The rights represented by this Warrant may be exercised at any
time on or after August 26,1999, and from time to time, prior to
expiration hereof, by the Warrantholder, in whole or in part (but not
as to less than 1000 Shares, nor as to any fractional Unit), by: (a)
delivery to the Company of a completed Subscription Form, (b)
surrender to the Company the Warrant Certificate properly endorsed and
signature guaranteed, and (c) delivery to the Company of a certified
or cashier's check made payable to the Company in an amount equal to
the aggregate Purchase Price of the Shares being purchased, at its
office or agency at 5299 DTC Blvd., 12TH floor, Englewood, CO 80111
(or such other office or agency of the Company as the Company may
designate by notice in writing to the holder hereof). The Company
agrees and acknowledges that the Shares so purchased shall be deemed
to be issued to the presenting Warrantholder as the record owner of
such Shares as of the close of business on the date on which this
Warrant, properly endorsed, and the Subscription Form shall have been
surrendered and payment made for such Shares as a foresaid. Upon
receipt thereof, the Company shall, as promptly as practicable, and in
any event within 15 days thereafter, execute or cause to be executed
and delivered to the
<PAGE>
Warrantholder a certificate or certificates representing the
aggregate number of Shares specified in said denomination as may be
requested by the Warrantholder and shall be registered in the name
of the Warrantholder. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery the
Company shall, at the time of delivery of said stock certificate or
certificates, deliver to the Warrantholder a new Warrant evidencing
the rights of such holder to purchase the remaining Shares covered
by this Warrant. The Company shall pay all expenses, taxes and
other charges payable in connection with preparation, execution and
delivery of such stock and warrant certificates pursuant to this
Section 2, except that, in case any such stock and warrant
certificate or certificates shall be registered in a name or names
other than the name of the Warrantholder, funds sufficient to pay
all stock and warrant transfer taxes which shall be payable upon
the execution and delivery of such stock and warrant certificate or
certificates shall be paid by the Warrantholder to the Company at
the time of delivering this Warrantholder to the Company at the
time of delivering this Warrant to the Company as mentioned above.
3. OWNERSHIP OF THE WARRANT. The Company may deem and treat the
registered Warrantholder as the holder and owner hereof
(notwithstanding any notations of ownership or writing made hereon by
anyone other than the Company) for all purposes and shall not be
affected by any notice to the contrary, until presentation of this
Warrant for transfer as provided herein and then only if such transfer
meets the requirements of Section 5 hereof.
4. EXCHANGE, TRANSFER AND REPLACEMENT. Subject to Section 5 hereof, this
Warrant is exchangeable upon the surrender hereof by the Warrantholder
to the Company and its office or agency described in Section 2 hereof
for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of Shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such number of
Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Warrantholder at the time of
such surrender. Subject to Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon the books
of the Company by the Warrantholder in person or by duly authorized
attorney, and a new Warrant of the same tenor and date as this
Warrant, but registered in the name of the transferee , shall be
executed and delivered by the Company upon surrender of this Warrant,
duly endorsed, at said office or agency of the Company. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant (or a Warrant issued
in exchange for this Warrant under this Section 4), and, in case of
loss, theft, destruction, of indemnity or security reasonable
satisfactory to it, and upon surrender and cancellation of such
Warrant, if mutilated, the Company will make and deliver a new Warrant
of like tenor, in lieu of such Warrant. Such Warrant shall be promptly
canceled by the Company upon the surrender hereof in connection
<PAGE>
with any exchange, transfer, or replacement. The Company shall pay all
expenses, taxes (other than stock or warrant transfer taxes), and
other charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 4.
5. RESTRICTIONS ON TRANSFER. There shall be no transfer of this Warrant
(or any Warrant issued in exchange for this Warrant under Section 4
hereof) and no assignment (with or without consideration), or
hypothecation of the Warrant for a period of one (1) year from the
date hereof except to officers or partners of the original holder
hereof. Notwithstanding any provisions contained in the Warrant to the
contrary, neither the Warrant not the Warrant Shares shall be
transferable except upon the conditions specified in this Section 5,
which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Ace in respect of the
transfer of the Warrant or such Warrant Shares. The holder of the
Warrant agrees that such holder will not transfer the Warrant or the
related Warrant Shares (a) prior to delivery to the Company of an
opinion of counsel selected by the Warrantholder and reasonably
satisfactory to the Company stating that such transfer is exempt from
registration under the Securities Act and applicable state securities
laws or (b) until registration of such Warrants and/or Warrant Shares
under the Securities Act has become effective and continues to be
effective at the time of such transfer. An appropriate legend may be
endorsed on the Warrants and the certificates representing the Warrant
Shares evidencing these restrictions.
6. PROVISIONS FOR REGISTRATION. The Warrantholders shall have the
following rights regarding registration of the Warrant Shares:
(a) Registration of Warrant Shares. The Company will, at all times
during the term of this Warrant, use its best efforts to keep the
Warrant Shares registered under the Securities Act.
(b) Right to Participate in Registrations. If the Company at any time
within five (5) years from the date hereof proposes to register
any of the securities of the Company under the Securities Act on
Form S-1, Form S-2, Form S-3, Form SB-2, or on any other form
upon which securities similar to the Warrant Shares may be
registered, except (i) securities to be offered to employees
pursuant to a stock option, stock savings, or employee benefit
plan, (ii) securities proposed to be issued in exchange for
securities or assets of, or in connection with a merger or
consolidation with, another corporation, (iii) securities to be
offered by the Company generally to holders of any class or
series of its then outstanding securities, (iv) securities
issuable upon conversion of securities that are the subject of an
underwritten redemption, or (v) securities to be offered or
issued pursuant to a combination of transactions described in
clauses (i) through (iv), the Company will at each such time give
written request of any Warrantholder given within
<PAGE>
twenty (20) days after the giving by the Company of any such
notice, the Company will use its best efforts to cause all
Warrant Shares that the Company has been requested to register
by such Warrantholder to be registered under the Securities
Act to the extent required to permit the sale or other
disposition by such Warrantholder of the Warrant Shares so
registered. There shall be no limit on the number of
registrations in which Warrantholders are allowed to
participate, nor on the number of Warrant Shares which may be
included in any one registration. If the proposed registration
statement relates to an offering of securities of the same
class as the Warrant Shares and such securities are to be
distributed by or through an underwriter selected by the
Company, each selling Warrantholder shall agree either to sell
his Warrant Shares through such underwriter on the same terms
and conditions as the underwriter agrees to sell securities on
behalf of the Company or to withhold the Warrant Shares from
the market for a period of ninety (90) days after the
effective date of the registration statement. If a greater
number of securities is offered for participation in the
proposed underwriting than in the written opinion of the
managing underwriter can be accommodated without adversely
affecting the proposed underwriting, the Company may elect to
reduce pro rata, in accordance with the number of securities
issued to each such Warrantholder, the number of securities
proposed to be offered for registration for the accounts of
the Warrantholders to a number deemed satisfactory by the
managing underwriter. If the proposed offering does not
include securities of the same class as the Warrant Shares and
if, in the written opinion of the managing underwriter it is
not feasible to effect such offering in conjunction with the
offering of the Warrant Shares, the Company shall have no
further obligation to include or to endeavor to include the
Warrant Shares in such registration. In the event that the
number of Warrant Shares included in a registration are
reduced pro rata, or in the event that the Warrant Shares are
excluded from the registration, as provided above, the rights
of the Warrantholders under this Section 6(a) with respect to
such excluded securities shall survive such registration.
(c) Company's Obligations in Registration. If and whenever the
Company, under the provisions of this Section 6, undertakes to
effect the registration of any Warrant Shares under the
Securities Ace, it will as expeditiously as possibly use its
best efforts to:
(i) prepare and file with the Commission a registration
statement with respect to such Warrant Shares and cause
such registration statement to become and remain
effective throughout the term hereof.
(ii) Prepare and file with the Commission such amendments
and supplements to such Registration statement and the
Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective
<PAGE>
and to comply with the provisions of the Securities Act
with respect to the disposition of all Warrant Shares
covered by such Registration Statement whenever the
Warrantholders for whom such Warrant Shares are
registered or are to be registered shall desire to
dispose of the same, throughout the term hereof.
(iii) Furnish to the Warrantholders for whom such Warrant
Shares are registered or are to be registered such
number of copies of a Prospectus, including a
preliminary Prospectus, in conformity with the
requirements of the Securities Act and such other
documents as such Warrantholders may reasonably request
in order to facilitate the disposition of such Warrant
Shares, but only throughout the term hereof.
(iv) Register or qualify the Warrant Shares covered by such
Registration Statement under the Securities or Blue Sky
laws of the same jurisdictions as those in which the
Shares were registered or are to be registered pursuant
to the Prospectus, or jurisdiction in which the Company
is registering its securities for purposes of a public
offering of such securities and to any and all other
acts and things which may reasonable be necessary or
advisable to enable such Warrantholders to consummate
the disposition in such jurisdiction or such Warrant
Shares; provided, however, that the Company shall not
be obligated, by reason hereof, to qualify as a foreign
corporation under the laws of any such jurisdiction or
to file any general consent to service of process.
(d) Payment of Registration Expenses. All underwriting discounts
and commissions attributable to the Warrant Shares included
in any registration effected pursuant to this Section 6
shall be borne by the selling Warrantholder. The Company
shall pay for the Commission registration fee, printing
expenses, the reasonable expenses of qualifying the offering
under applicable Blue Sky or other securities laws, and the
fees and expenses of the Company's attorneys and auditors.
Any other fees or expenses incurred by one of the parties,
shall be borne by such party.
(e) Information from Warrantholders. Notices and requests
delivered by the Warrantholders to the Company pursuant to
this Section 6 shall contain such information regarding the
Warrant Shares and the intended method of disposition
thereof as reasonably shall be required in connection with
the action to be taken.
(f) Indemnification. Subject to any terms or conditions that may
be required by the managing underwriter of any offering
contemplated by this Section 6, the Company will indemnify
and hold harmless each
<PAGE>
Warrantholder whose Warrant Shares are included in a
Registration Statement pursuant to the provisions of this
Section 6 and any underwriter (as defined in the
Securities Act) and each person, if any, who controls
such Warrantholder or such underwriter within the meaning
of the Securities Act from and against any and all loss,
claim, damage, liability, cost or expense to which such
Warrantholder or any such underwriter or controlling
person may become subject under the Securities Act or
otherwise, insofar as any such loss, claim, damage,
liability, cost or expense (or proceedings in respect
thereof) arises out of or is based upon any untrue
statement of any material fact contained, on the
effective date thereof, in any Registration Statement
under which such Warrant Shares were registered under the
Securities Ace in any preliminary Prospectus or final
Prospectus contained therein, or in any amendment or
supplement thereto, or arises out of or is based upon the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however,
that the Company will not be liable in any such case to
the extent that any such loss, claim, damage, liability,
cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or
alleger omission made in such registration statement,
said preliminary Prospectus or final Prospectus, or said
amendment or supplement, in reliance upon and in
conformity with written information furnished to the
Company by such Warrantholder, underwriter, or
controlling person, as the case may be, specifically for
use in the preparation thereof.
Each Warrantholder whose Warrant Shares are included in a
Registration Statement pursuant to the provisions of this
Section 6 will indemnify and hold harmless the Company, any
controlling person, and any underwriter from and against any
and all loss, claim, damage, liability, cost or expense to
which the Company or any controlling person or any
underwriter may become subject under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability,
cost or expense arises out of or is based upon any untrue
statement of any material fact contained in such
registration statement, in any preliminary Prospectus or
final Prospectus contained therein, or in any amendment or
supplement thereto or arises out of or is based upon the
omission or alleged omission to state therein any material
fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written
information furnished or required to be furnished by such
Warrantholder under the Securities Act.
<PAGE>
Promptly after receipt by any party entitled to be
indemnified hereunder of notice of the commencement of any
action in respect to which indemnity may be sought
hereunder, such party shall notify the indemnifying party in
writing of the commencement thereof, and the indemnifying
party may assume the defense of such action (including the
employment of counsel reasonably satisfactory to the
notifying party and the payment of expenses) insofar as such
action shall relate to any alleged liability in respect to
which indemnity may be sought against the indemnifying
party. Any such indemnified party shall have the right to
employ counsel and to participate in the defense thereof,
but the fees and expenses of such counsel (except fees and
expenses incurred prior to the assumption by the
indemnifying party of the defense of such action) shall not
be at the expense of the indemnifying party unless the
employment of such counsel has been specifically authorized
by the indemnifying party.
(g) Conditions to Obligations of the Company. The obligations of
the Company to use its best efforts to cause the Warrant
Shares to be registered under the Securities Act in
accordance with the provisions of this Section 6 are subject
to the following conditions:
(i) Any request by a Warrantholder for registration shall
specify the amount of Warrant Shares intended to be
sold, contain the undertaking of such Warrantholder to
provide all such information as may be reasonably
required in order to permit the Company to comply with
all applicable requirements of the Commission and to
obtain acceleration of the effective date of the
registration statement, identify any proposed
underwriters, specify the proposed method of offering
and sale, and agree to observe all applicable terms and
conditions of this Warrant.
(ii) The Company may require, as a condition of fulfilling
its obligations under this Warrant, execution of
separate indemnity agreements in the form described in
Section 6(f) hereof.
7. ANTIDILUTION PROVISIONS. The rights granted hereunder are subject to
the following:
(a) STOCK DIVIDENDS. In case the Company shall declare a dividend or
make any other distribution upon the Common Stock of the Company
payable in shares of Common Stock or other securities, upon
exercise of this Warrant, the Warrantholder shall be entitled to
receive, for each share of Common Stock purchased pursuant to
such Warrant, the number of shares of Common Stock or other
securities, as the case
<PAGE>
may be, issued per share of Common Stock in payment of such
dividend or distribution.
(b) EFFECT OF CERTAIN DIVIDENDS. In case at any time the Company
shall declare a cash dividend upon the Common Stock payable
otherwise than out of earnings or earned surplus, the Purchase
Price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal to the amount
thereof payable per Share. Such reductions shall take effect as
of the date on which a record is taken for the purpose of such
dividend, or, if a record is not taken, the date as of which the
holders of record of Common Stock entitled to such dividend are
to be determined.
(c) STOCK SPLITS AND REVERSE SPLITS. In case at any time the Company
shall subdivide its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect
immediately prior to such subdivision shall be proportionately
reduced and the number of Warrant Shares purchasable pursuant to
this Warrant immediately prior to such subdivision shall be
proportionately increased, and conversely, in case at any time
the Company shall combine its outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately
reduced. Except as provided in this paragraph (c), no adjustment
in the Purchase Price and no change in the number of Warrant
Shares so purchasable shall be made pursuant to this Section 7 as
a result of or by reason of any such subdivision or combination.
(d) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the
Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
proposed, then, in any one or more of said cases, the Company
shall give written notice, by first class mail, postage prepaid,
addressed to the Warrantholder at its address, as shown on the
books of the Company, of the date on which such reorganization,
reclassification, consolidation, merger or sale shall take place,
as the case may be. Such notices shall also specify the dates as
of which the holders of Common Stock of record shall be entitled
to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger or sale, as the case may be. Such written
notice shall be given at least 20 days prior to the action in
question.
8. DEFINITION OF COMMON STOCK. As used herein, the term "common Stock"
shall mean and include the Company's authorized Common Stock, no par
value, as constituted at the date of the Prospectus, and shall also
include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage of
par value in respect of the right of the
<PAGE>
holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Company, and shall include any Common Stock of any
class or classes resulting from any reclassification or
reclassifications thereof.
9. SPECIAL AGREEMENTS OF THE COMPANY. The Company covenants and agrees
that:
(a) WILL RESERVE SHARES. The Company will reserve and set apart and
have at all times, free from preemptive rights, the number of
shares of authorized but unmissed Common Stock deliverable upon
the exercise of the Warrants, and it will have at all times any
other rights or privileges provided for herein sufficient to
enable it at any time to fulfill all of its obligations
hereunder.
(b) WILL SUPPLY CERTAIN INFORMATION. The Company will, upon request
of any Warrantholder, supply such Warrantholder with any
information necessary to enable such Warrantholder to make
routine sales of Warrant Shares under Rule 144 of the Commission.
(c) WILL OPEN BOOKS. The Company will keeps its books open for
transfer of any Warrant and/or Warrant Shares, except at
otherwise provided by law.
10. NOTIFICATION BY THE COMPANY. In case at any time:
(a) The Company shall declare any cash dividend on its Common
Stock;
(b) The Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than regular
cash dividends) to the holders of its Common Stock;
(c) The Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock
of any class or other rights;
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company, for
consolidation or merger of the Company with, or sale of all
or substantially all of its assets to another corporation,
or
(e) There shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
Then, in any one or more of said cases, the Company shall give
written notice, by first class mail, postage prepaid, addressed
to each Warrantholder at the address of such holder as shown on
the books of the Company, of the date on which (a) the books of
the Company shall close or a record shall be taken for such
dividend, distribution, or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up shall take place, as the
case may be. Such notice shall also specify the date as of which
the holders of Common Stock or record shall participate in such
dividend, distribution or subscription rights, or shall be
entitled to exchange their Common Stock
<PAGE>
for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, as the case may be.
Such written notice shall begin at least twenty (20) days prior
to the action in question and not less than twenty (20) days
prior to the record date of the date on which the Company's
transfer books are closed in respect thereto.
11. NOTICES. Any notice or other document required or permitted to be
given or delivered to Warrantholders shall be delivered or sent by
certified mail to each Warrantholder at the last address shown on the
books of the Company maintained for the registry and transfer of the
Warrants. Any notice or other document required or permitted to be
given or delivered to the Company shall be delivered or sent by
certified mail to the principal office of the Company at 5299 DTC
Blvd., 12th floor, Englewood, CO 80111 or such other address as
shall have been furnished to the Warrantholders by the Company.
12. NO RIGHTS AS SHAREHOLDERS; LIMITATION OF LIABILITY. This Warrant shall
not entitle any holder hereof to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action
taken by the holder hereof to purchase shares of Common Stock, and no
mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the
Purchase Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
13. GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Florida.
14. MISCELLANEOUS. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, THE company has caused this Warrant to be signed by a
duly authorized officer and to be dated as of the 18th day of
October, 1999.
By /s/ Calvin D. Smiley
-----------------------------
Calvin D. Smiley, President
Attest:
----------------------------
By
---------------------------------
<PAGE>
FULL SUBSCRIPTION FORM
To Be Executed By The Registered Holder In Order
To Exercise The Within Warrant In Full
The undersigned hereby exercises the right to purchase
______________ Shares covered by the within Warrant at the date of this
subscription and herewith Makes payment of the sum of $ _____________
representing the Purchase Price of $ ______________________ per Share.
Certificates for such Shares shall be issued in the name of and
delivered to the undersigned, unless otherwise specified by written
instructions, signed by the undersigned and accompanying this
subscription.
Dated
---------------------
Signature:
--------------------------
Name and
Address:
--------------------------
--------------------------
--------------------------
(please print or type)
IRS Identification No.
------------------
<PAGE>
PARTIAL SUBSCRIPTION FORM
To Be Executed By The Registered Holder In Order
To Exercise The Within Warrant In Full
The undersigned hereby exercises the right to purchase
_____________ Shares of the total Shares covered by the within Warrant
at the date of this subscription and herewith makes payment of the sum
of $ __________________ representing the Purchase Price of
$ ___________________ per Share. Certificates for such Shares and a new
Warrant of like tenor and date for the balance of the Shares not
subscribed for shall be issued in the name of and delivered to the
undersigned, unless otherwise specified by written instructions, signed
by the undersigned and accompanying this subscription.
Dated
---------------------
Signature:
--------------------------
Name and
Address:
--------------------------
--------------------------
--------------------------
(please print or type)
IRS Identification No.
------------------
<PAGE>
Schedule to Warrant Agreement
Identifying Other Warrant Agreements
to Which Telecom Wireless Is a Party
That Are Substantially Identical And
Material Details in Which Such Agreements
Differ from Filed Agreement
<TABLE>
<CAPTION>
Date of Expiration No. of
Warrant Date Holder Shares Exercise Price
- ------- ---------- ------ ------ --------------
<S> <C> <C> <C> <C>
08/26/99 08/26/04 Mark Stys 10,000 $5.00
08/26/99 08/26/04 Mark Stys 5,100 $7.00
08/26/99 08/26/04 Jack Augsback 10,200 $7.00
08/26/99 08/26/04 Jack Augsback 20,000 $5.00
08/26/99 08/26/04 David Hettinger 335 $7.00
08/26/99 08/26/04 Robert Hughes 817 $7.00
08/26/99 08/26/04 Jack Augsback & Associates, Inc. 55,673 $7.00
08/26/99 08/26/04 Sovereign Capital Advisors, LLC 46,000 $7.00
09/20/99 09/20/04 Jack Augsback & Associates, Inc. 2,362 $7.00
</TABLE>
<PAGE>
SERVICE AGREEMENT
THIS SERVICE AGREEMENT ("Agreement") is made and entered into this 30st day
of August, 1999, effective as of August 30, 1999, between TELECOM WIRELESS
CORPORATION, a Utah corporation (the "Company"), and JOHN H. SUNUNU ("JHS").
For and in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. TERM AND TERMINATION. Agreement shall commence on the effective date
set forth above and shall continue for a period of 48 months thereafter
unless earlier terminated by either party for any reason upon not less than
ten days' notice given to the other party. Notwithstanding any such
termination, accrued compensation and expenses payable to JHS by the Company
shall be paid promptly in accordance with this Agreement.
2. SERVICES AND RECORDS. The Company hereby engages JHS to provide
assistance in acquisitions, strategic business development analysis,
financial review, and other services (the "Services"). JHS accepts such
engagement and agrees to timely perform the Services fully, faithfully and in
a professional manner. The scope of the Services shall be defined by the
Company and shall be performed within the time frame agreed upon between the
Company and JHS. Electronic mail shall serve as an acceptable form to
authorize specific tasks. JHS agrees to be available to perform the Services
for up to 1000 hours per year as required by the Company. JHS shall maintain
records and status reports in such form as may be agreed upon between JHS and
the Company and she provide such time records and reports to the Company
periodically as required by it.
3. COMPENSATION. Compensation to JHS from the Company will include
items 3.1 through 3.4 as .follows:
3.1. An immediate grant to JHS of 250,000 shares of Telecom Wireless.
3.2. A grant to JHS of 7,500 shares of Telecom Wireless each month
for 48 months.
The Company and JHS agree that the considerations 3.1, and 3.2 above
should be structured in detail to accommodate good financial and tax planning
for all parties. If Options or other instruments are more appropriate
vehicles for items 3.1 and 3.2 above the Company recognizes that the numbers
of shares must be increased to reflect equivalent value.
4. REPRESENTATIONS AND WARRANTIES OF JHS. JHS represents and warrants
to the Company as follows:
4.1. The Shares and the shares of common stock issued upon exercise
of any Options (the "Option Shares") (collectively, the "Securities") will be
acquired as an investment for JHS's own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and JHS
has no present intention of selling, granting participation in, or otherwise
distributing the same,
4.2. JHS has such knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risks of the investment
in the Securities; that JHS has sufficient financial strength to hold the
Securities as an investment and to bear the economic risks of such investment
(including possible complete loss of such investment) for an indefinite
period of time; and that during the
<PAGE>
negotiations of the transactions contemplated herein, JHS and JHS's legal
counsel and investment advisers, if any, have been afforded full and free
access to corporate books, financial statements, records, contracts,
documents, and other information concerning the Company to the extent such
items exist, and to the Company's office and facilities, and have been
afforded an opportunity to ask such questions of the Company's officers,
employees, agents, accountants, and representatives concerning the Company's
business, operations, financial condition, assets, liabilities, and other
relevant matters as they have deemed necessary or desirable, and have been
given all such information as has been requested, in order to evaluate the
merits and risks of the prospective investment contemplated herein.
5. REIMBURSEMENT FOR EXPENSES. The Company shall reimburse JHS for all
preapproved reasonable out of pocket expenses incurred by JHS in the
performance of JHS's duties. Expenses shall not include JHS's overhead such
as rent, telephone, salaries and other operating expenses. JHS will maintain
such records and written receipts as may be required by the Company to
substantiate such expenses.
6. CORPORATE OPPORTUNITY. JHS acknowledges and agrees that any actual
or potential opportunity within the area of interest of the Company which
comes to its attention at any time during the term of this Agreement shall be
made available to the Company.
7. NONCOMPETITION AND NONSOLICITATION. JHS agrees that it will not,
directly or indirectly, (i) engage in or become financially interested in any
business which competes with the business of the Company or any subsidiary or
affiliate of the Company, or (ii) induce or attempt to induce any employee of
the Company or of any subsidiary or affiliate of the Company to terminate
such employment, in all cases during the term of this Agreement and for a
period of two years thereafter. JHS acknowledges and agrees that the terms
of this Section 7 are fair and equitable in all respects and are reasonably
necessary to protect the business and goodwill of the Company.
8. CONFIDENTIAL INFORMATION. JHS agrees that during the entire term of
this Agreement and at all times thereafter, any confidential information or
trade secrets ("Confidential Information") owned or used by the Company or
any subsidiary or affiliate of the Company of which JHS shall acquire
knowledge shall be considered and kept by JHS as the private, privileged and
proprietary records of the Company and will not be divulged to or used by any
person except on the direct authority of the Company. JHS agrees that the
Company shall be entitled, with or without notice, to temporary restraining
orders and preliminary and permanent injunctions restraining and enjoining
JHS, any persons acting in concert with JHS and any other persons having or
proposed to have the use or benefit of Confidential Information or for any
other breach of either Section 7 or Section 8. Confidential Information
includes, without limitation, all documentation and other tangible or
intangible discoveries, ideas, concepts, software, designs, drawings,
specifications, techniques, models, information, source code, object code,
diagrams, flow charts, procedures, know-how, financial statements and other
financial information, customer and supplier lists, tax records, personnel
records, accounting procedures and other business records and information,
whether similar or dissimilar to the foregoing. Confidential information
also includes any information described above which the Company obtains from
another person which the Company treats or designates as proprietary or
confidential, whether or not owned or developed by the Company.
9. ARBITRATION. Except as provided in Section 8 above, in the event of
any differences, claims or disputed matters between the parties hereto
arising out of this Agreement or connected herewith, the parties agree to
submit such matters to arbitration by the American Arbitration Association or
its successor. Either party can invoke arbitration upon ten days notice to
the other party. The determination of the arbitrator shall be final and
absolute. The arbitrator shall be governed by the duly Promulgated
<PAGE>
rules and regulations of the American Arbitration Association or its
successor, and the pertinent provisions of the laws of the State of Colorado
relating to arbitration. The decision of the arbitrator may be entered in a
judgment in any court of the State of Colorado or elsewhere. The arbitrator
shall not have the power to award consequential or exemplary damages.
10. MISCELLANEOUS. (i) This Agreement sets forth the understanding of the
parties and supercedes all prior written or oral understandings and
agreements and may be modified only by a writing signed by all parties; (ii)
No party shall have the right to assign all or any portion of its rights,
duties or obligations under this Agreement to any other person. Subject to
the foregoing, all terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the successors and
assigns of the parties hereto; (iii) This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado without regard
to the conflict of laws provisions thereof, (iv) The failure of any party to
insist in any one or more instances upon performance of any terms or
conditions of this Agreement shall not be construed as a waiver of future
performance of such or any other term, covenant or condition; (v) In the
event any party takes legal action against any other party in order to
enforce the terms of this Agreement, the party in whose favor a final
judgment or order is rendered shall be entitled to recover from the other
party its reasonable attorneys fees and costs to be fixed by the court or
arbitrator which renders such judgment or order. Such fees and costs shall
include those incurred in connection with any appeal or appeals; (vi) Should
any term or condition of this Agreement be determined by a court of competent
jurisdiction to be void or unenforceable, all other provisions of this
Agreement shall remain in full force and effect; and (vii) All notices
required hereunder shall be deemed to have been given when in writing upon
the earlier of personal delivery by courier, facsimile or other receipted
delivery or three days following deposit in the United States mails by
certified or registered mail, postage prepaid, to the party at the addresses
set forth below. Any party hereto, by notice duly given, may change the
address for the giving of notice.
11. REMEDIES NOT EXCLUSIVE. The remedies provided herein are not and
shall not be, exclusive but shall be cumulative with and in addition to any
other remedy which may be available to any party hereto at law or in equity,
including, but not by way of limitations damages for any breach hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
TELECOM WIRELESS CORPORATION,
a Utah corporation
By: /s/ James C. Roberts
---------------------------------
Title: Chief Executive Officer
------------------------------
Address: 5299 DTC Blvd., Suite 1200
---------------------------
Englewood, CO 80111
---------------------------
By: /s/ John H. Sununu
---------------------------------
Title: President
------------------------------
Address: 24 Samoset Drive
---------------------------
Salem, NH 03079
---------------------------
<PAGE>
FIRST EQUITY CAPITAL SECURITIES, INC.
1776 BROADWAY - STE. 1403 (212) 765-9710
NEW YORK, N.Y. 10019 fax: (212)765-9714
MEMBER: NASD
September 1, 1999
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Fl.
Englewood, Colorado 80111
Attention: Dr. James C. Roberts
CEO and Chairman
Gentlemen:
WHEREAS Telecom Wireless Corporation (the "Company") desires to be
introduced to certain potential sources of funding by First Equity Capital
Securities, Inc. ("First Equity"), the parties hereto agree in consideration of
the mutual covenants set forth herein, and intending to be legally bound hereby,
as follows:
1. INTRODUCTIONS:
First Equity shall use its best efforts to introduce the Company to the
potential investors and agents (collectively, and including all of their
affiliates and related parties, the "Investors/Agents") for the purpose of
procuring equity and/or debt funding.
With regard to paragraphs 2, 3, 4, 5 and 6, the Company shall be obligated
to pay certain fees to First Equity as follows:
2. THE $250,000 SEPTEMBER 1, 1999 BRIDGE LOAN:
a. The Company has requested that First Equity procure a bridge loan in
the amount of at least $250,000. In consideration for the provision of such
loan the Company shall issue to First Equity (and/or its designees warrants to
purchase 30,000 shares of the Company's common stock at a price of $7.00 per
share for a period terminating five years from issuance. The exercise price of
such warrants shall be subject to adjustment on the same basis as the repricing
warrants issued in conjuncion with the Company's Rule 506 Part B offering. The
Company agrees to provide piggyback registration rights for the shares
underlying the warrants and the warrants shall contain reasonable and standard
cashless exercise provisions.
<PAGE>
b. In consideration for the provision of at least $250,000 of bridge loan
proceeds, the Company hereby designates First Equity as its Placement Agent to
procure up to $10.0 million in equity financing in accordance with the general
terms as embodied in the Rule 506 - Part B offering currently outstanding (i.e.,
$7.00 per share with repricing warrants). The Company agrees to cooperate in
good faith with First Equity in order to permit funding of such equity private
placement. The compensation due to First Equity for such equity placement is
set forth in Section 4 hereof.
c. As additional consideration for the provision of at least $250,000 of
bridge loan proceeds, the Company hereby designates First Equity as its
Placement Agent to procure up to $3.0 million in sale and leaseback financing
upon terms to be negotiated with the company. The Company agrees to cooperate
in good faith with First Equity in order to permit funding of such sale and
leaseback financing. The compensation due to First Equity for such debt
financing is set forth in Section 5 hereof
3. BRIDGE LOAN:
a. For bridge loan financing (other than the $250,000 bridge loan
provided for in Section 2 above) provided by Investors/Agents introduced by
First Equity consideration equal to a cash fee of 6% of the gross proceeds
thereof.
b. Except for bridge loan financing described in Section 3.a. above, for
debt financing procured or arranged by any Investors/Agents introduced by First
Equity in exchange for a fee, a cash finders fee of 1.5% of the gross proceeds
thereof.
4. EQUITY:
a. For equity financing provided by Investors/Agents introduced by First
Equity consideration equal to (i) a cash fee of 10% of the gross proceeds
thereof and (ii) a warrant, exercisable for a period of five years and
containing standard cashless exercise provisions, to purchase securities equal
to 10% of such securities purchased by such Investors/Agents.
b. Except for equity financing described in paragraph a. above, for
equity financing procured or arranged by any Investors/Agents introduced by
First Equity in exchange for a fee, a cash finders fee of 2.5% of the gross
proceeds thereof
c. If any of the lenders who provide the bridge loans procured by First
Equity to the Company (or its parent or subsidiary) eventually convert their
bridge loan interests
<PAGE>
into equity, a cash fee of 10% of the gross amount of such conversion.
5. DEBT FINANCING:
a. For debt financing provided by Investors/Agents introduced by First
Equity consideration equal to a cash fee of 6% of the gross proceeds thereof.
b. Except for debt financing described in paragraph a. above, for debt
financing procured or arranged by any Investors/Agents in exchange for a fee, a
cash finders fee of 1.25% of the gross proceeds thereof.
6. INITIAL PUBLIC OFFERING:
a. Subject to paragraph b., if any of the Investors/Agents shall serve as
an underwriter for a registered public offering of the Company's equity
securities, the Company shall pay First Equity a finders fee as follows:
5% up to and including $1.0 million of gross proceeds; plus
4% between $1.0 million and up to and including $2.0 million of gross
proceeds; plus
3% between $2.0 million and up to and including $3.0 million of gross
proceeds; plus
2% between $3.0 million and up to and including $4.0 mllion of gross
proceeds; plus
1% of gross proceeds in excess of $4.0 million.
b. Any fees payable under this paragraph 5 shall be payable instead of,
and not in addition to, any other fees payable by the Company pursuant to this
letter.
<PAGE>
7. EQUITY:
a. Subject to the following paragraphs, all fees may be received, solely
at the election of First Equity, in cash or equity in the Company or in such
other financing interests (i.e., notes, warrants, etc.) the terms and conditions
of which are the same as those of the securities received by such investors or
lenders.
b. Upon the closing of any transaction in respect of which the Company
incurs an obligation to pay a fee to First Equity, First Equity (or its
designee) shall, for a period of 10 days from the date of written notice from
the Company of the amount of such fee, have the right to exchange all or part of
such fee for interests in the Company or such respective related entity in
accordance with the terms and valuation of the financing transaction in respect
of which the obligation to pay First Equity such fee arose. If First Equity
(and/or its designees)) exercises this right following receipt of such fee,
First Equity may return funds and exercise the corresponding portion of this
option as set forth herein.
8. PAYMENT:
The term "gross proceeds", as used herein, shall mean the aggregate amount
of proceeds loaned or invested, prior to any deduction for fees, commissions,
taxes due in connection with such transaction, transaction expenses, offsets or
other similar items or matters of any kind or nature.
All fees, whether to be received in cash or securities, shall be delivered
by the Company to First Equity or its designees) within 10 (ten) days of the
receipt of proceeds by the Company.
9. INDEMNIFICATION:
The Company agrees to indemnify First Equity in accordance with the
indemnification provision (the "Indemnification Provisions") attached to this
Agreement, which Indemnification Provisions are incorporated herein and made a
part hereof and which shall survive the termination, expiration, or supersession
of this Agreement. The Company also represents that it has the authority to
enter into this agreement and agrees to indemnify and defend First Equity
against the claims of any other brokers and finders which may arise in relation
to this agreement.
<PAGE>
10. EXPENSES:
The Company agrees to reimburse out-of-pocket expenses incurred by First
Equity in relation to the provision of its services in relation to procuring
funding, each within ten (10) days after submission of reasonable evidence of
such expenses.
11. FINDERS FEES:
The Company acknowledges that it is aware that First Equity may receive
additional fees from the Investors/Agents and that the Company consents thereto
and agrees that such fees shall be in addition to the fees set forth herein and
that the Company shall not claim or have any right to an offset for such fees,
if any, provided that the existence of such fee arrangements are provided in
writing.
12. NOTICES:
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered by hand or
faxed followed by written confirmation, or mailed by registered or certified
mail, return receipt requested:
(a) If to the Company, to 5299 DTC Boulevard, 12th Fl., Englewood,
Colorado (fax no.: 303-357-0100), or to such other address as the Company may
designate; or
(b) If to First Equity, to 1776 Broadway, Suite 1403, New York, N.Y. 10019
(fax no.: 212-765-9710), or to such other address as First Equity or Levine may
designate.
13. GOVERNING LAW, SUBMISSION TO JURISDICTION:
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SAID STATE WITHOUT GIVING EFFECT TO THE RULES OF SAID STATE GOVERNING
THE CONFLICTS OF LAWS, EXCEPT THAT SECTIONS 5-1401 AND 51402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY.
The Company and First Equity hereby agree that any action, proceeding or
claim against any of them arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the state or federal courts of the
United States located in the State of New York, and irrevocably submits to such
jurisdiction. The Company, iaxis and First Equity hereby irrevocably waive any
objection to such jurisdiction or inconvenient forum. Any such process or
summons to be served upon the Company or
<PAGE>
First Equity (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or
certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 11 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in
any action, proceeding or claim, The Company and First Equity agree that the
prevailing party in any such action or proceeding shall be entitled to
recover from the other party all of its reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
14. WAIVER OF RIGHT TO JURY TRIAL:
Each of the Company and First Equity hereby knowingly, voluntarily and
irrevocable waives any right it may have to a trial by jury in respect of any
claim based upon, arising out of or in connection with this Agreement. Each of
the Company and First Equity hereby certifies that no representative or agent of
the other party has represented expressly or otherwise that such party would not
seek to enforce the provisions of this waiver. Further, each of the Company and
First Equity acknowledges that each party has been induced to enter this
Agreement by, inter alia, the provisions of this paragraph.
15. ENTIRE AGREEMENT; MODIFICATION:
This Agreement and constitutes the entire agreement among the parties on
the subject matter hereof and supercedes all prior agreements the parties may
have had. In the event that the Company transfer all or substantially all of
its assets to another entity, the obligations set forth in this Agreement shall
also bind such assignee.
16. CORPORATE POWER:
The Company and First Equity have all requisite corporate power and
authority to enter into this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly authorized by all necessary
corporate action on the part of the Company and First Equity has been duly
executed and delivered by the Company and First Equity, and constitutes a
legal, valid and binding agreement of the Company and First Equity,
enforceable in accordance with its terms.
17. SEVERABILITY:
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
<PAGE>
18. CAPTIONS:
The caption headings of the paragraphs of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
19. COUNTERPARTS:
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as
of the day and year first above written.
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
---------------------------
Name: James C. Roberts
--------------------
Title: CEO
-------------------
FIRST EQUITY CAPITAL SECURITIES, INC.
By: /s/ Kenneth R. Levine
---------------------------
Name: Ken Levine
--------------------
Title: CEO
-------------------
<PAGE>
INDEMNIFICATION PROVISIONS
The Company (as defined in the Agreement) agrees to indemnify and hold
harmless First Equity, to the fullest extent permitted by law, from and against
any and all losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements (and any and all actions, suits,
proceedings and investigations in respect thereof and any and all legal and
other costs, expenses or disbursements in giving testimony or furnishing
documents in response to a subpoena or otherwise), including, without
limitation, the costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, suit, proceeding or
investigation (whether or not in connection with litigation in which First
Equity is a party), directly or indirectly, caused by, relating to based upon,
arising out of or in connection with (a) First Equity's acting for the Company,
including, without limitation, any act or omission by First Equity in connection
with its acceptance of or the performance or non-performance of its obligations
under the .agreement between First Equity and the Company, as it may be amended
from time to time (the "Agreement"), to which these indemnification provisions
are attached, (b) any financing, (c) any untrue statement or alleged untrue
statement of a material fact contained in, or omissions or alleged omissions
from, any business plain or offering memorandum or similar statements or
omissions in or from any other information furnished by the Company to First
Equity or any prospective investor, or (d) any use of proceeds; provided
however, such indemnity agreement shall not apply to any portion of any such
loss, claim, damage, obligation, penalty, judgment, award, liability, cost,
expense or disbursement to the extent it is found in a final judgment by a court
of competent jurisdiction (not subject to further appeal) to have resulted
primarily and directly from the gross negligence or willful misconduct of First
Equity.
These Indemnification Provisions shall be in addition to any liability
which the Company may otherwise have to First Equity or the person identified
below in this sentence and shall extend to the directors, officers, employees,
legal counsel and controlling persons (within the meaning of the federal
securities laws). All references to First Equity in these Indemnification
Provisions shall be understood to include any and all of the foregoing.
If any action, suit or investigation is commenced, as to which First Equity
propose to demand indemnification, it shall notify the Company with reasonable
promptness; provided, however, that any failure by First Equity to notify the
Company shall not relieve the Company from any liability which it may have under
these provisions except to
<PAGE>
the extent that it has been materially prejudiced by such failure and
provided further that the failure to notify the Company shall not relieve it
from any liability which it may have to either or bother First Equity
otherwise than under these provisions. If any such claim or action shall be
brought against First Equity and First Equity shall notify the Company
thereof, the Company shall be entitled to participate therein, and, to the
extent that it wishes, to assume the defense thereof with counsel reasonably
satisfactory to First Equity. After notice from the Company to First Equity
of this election to assume the defense of such claim or action, the Company
shall not be liable to First Equity under these provisions for any legal
expenses subsequently incurred by First Equity in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
First Equity shall have the right to employ separate counsel selected by
First Equity in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of First Equity
unless (i) the employment thereof has been specifically authorized by the
Company in writing, (ii) First Equity shall have been advised by such counsel
that there may be one or more legal defenses available to First Equity which
are different from or additional to those available to the Company or (iii)
the Company has failed to assume the defense of such action and employ
counsel reasonably satisfactory to First Equity, in which case, if First
Equity notifies the Company in writing that First Equity elects to employ
separate counsel at the expense of the Company, the Company shall not have
the right to assume the defense of such action an behalf of First Equity, it
being understood however that the Company shall not, in connection with any
one such action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (plus separate local counsel, if retained by First Equity) at any
time for all indemnified parties which firm(s) shall be designated in writing
by First Equity. The Company shall be liable for any settlement of any claim
against First Equity made with the Company's written consent, which consent
shall not be unreasonably, delegated, withheld or conditioned. The Company
shall not, without the prior written consent of First Equity, settle or
compromise any claim, or permit a default or consent to the entry of any
judgment in respect thereof, unless such settlement, compromise or consent
includes, as an unconditional term thereof, the giving by the claimant to
First Equity of an unconditional and irrevocable release from all liability
in respect of such claim.
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to
<PAGE>
these Indemnification Provisions is made but it is found in a final judgment
by a court of competent jurisdiction (not subject to further appeal) that
such indemnification may not be enforced in such case, then the Company, on
the one hand, and, First Equity on the other hand, shall contribute to the
losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements to which the indemnified
persons may be subject in accordance with the relative benefits received by
the Company, on the one hand, and First Equity, on the other hand, and also
the relative fault of the Company, on the one hand, and First Equity, on the
other hand, in connection with the statements, acts or omissions which
resulted in such losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses and disbursements and the relevant
equitable considerations shall also be considered. No person found liable
for a fraudulent misrepresentation shall be entitled to contribution from any
person who is not also found liable for such fraudulent misrepresentation.
Notwithstanding the foregoing, First Equity shall not be obligated to
contribute any amount hereunder that exceeds the amount of fees previously
received by First Equity pursuant to the Agreement.
Neither termination nor completion of the engagement of First Equity referred to
above shall affect these Indemnification Provisions which shall then remain
operative and in full force and effect.
<PAGE>
FIRST EQUITY CAPITAL SECURITIES, INC.
1776 BROADWAY - STE. 1403 (212) 765-9710
NEW YORK, N.Y. 10019 FAX: (212) 765-9714
MEMBER: NASD
October 15, 1999
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Fl.
Englewood, Colorado 80111
Attention: Dr. James C. Roberts
CEO and Chairman
Amendment No. 1 to September 1, 1999 Letter Agreement Between
FIRST EQUITY CAPITAL SECURITIES, INC. AND TELECOM WIRELESS CORPORATION
Dear Jim:
WHEREAS Telecom Wireless Corporation (the "Company") and First
Equity Capital Securities, Inc. ("First Equity") entered into an agreement as
of September 1, 1999 (the "September 1st Agreement") whereby the Company
retained First Equity for the purposes of procuring financing for the Company;
WHEREAS First Equity has, to date, procured or introduced parties
which have funded a total of $1,700,000 in bridge loans to the Company;
WHEREAS, in accordance with the September 1st Agreement the Company
owes First Equity a fee of $87,500 plus 30,000 warrants to purchase shares of
the Company's common stock at $7.00 per share as consideration for the
procurement of such bridge loans;
WHEREAS, the Company desires First Equity to provide certain
consulting and related services which were not provided for in the September
1st Agreement and desires to compensate First Equity for such services;
The parties hereto agree in consideration of the mutual covenants
set forth herein to modify and amend the September 1st Agreement as follows:
1. As consideration for its consulting services, the Company shall compensate
First Equity as follows:
a. the Company shall immediately issue warrants to First Equity
(and/or its designees) warrants to purchase 300,000 shares of the Company's
common stock at a price of $7.00 per share for a period terminating five
years from issuance (the "Warrants"). The
<PAGE>
Company agrees to provide piggyback registration rights for the shares
underlying the Warrants and the Warrants shall contain reasonable and
standard cashless exercise provisions;
b. the Company shall reimburse First Equity for all of its out of
pocket expenses in relation to its work on behalf of the Company, including
payment of $5,000 of expenses incurred to date, and;
c. the Company shall pay First Equity a monthly consulting fee of
$7,500 per month commencing November, 1999 and continuing for a period of at
least one year.
2. First Equity shall agree to exchange the fees currently due to it from the
Company for the procurement of the $1,700,000 in bridge loans (i.e., $87,500
and 30,000 warrants) in exchange for the reduction of the exercise price of
the 300,000 Warrants from $7.00 to par value. Paragraphs 2 and 3 of the
September 1st Agreement are hereby amended by this Agreement.
3. The provisions of this Agreement and the September 1st Agreement shall
bind the successors, acquirors and assigns of the parties thereto.
4. Except for the modifications and amendments to the September 1st Agreement
set forth herein, the September 1st Agreement shall remain in full force and
affect pursuant to its terms.
This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be any original, and such
counterparts shall together constitute but one and the same instrument. Faxed
signatures shall have the same effect of original signatures with respect to
this Agreement.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed as of the day and year first above written.
TELECOM WIRELESS CORPORATION
By: /s/ James Roberts
--------------------------
Name: James Roberts
Title: CEO
FIRST EQUITY CAPITAL SECURITIES, INC.
By: /s/ Kenneth R. Levine
--------------------------
Name: Kenneth R. Levine
Title: CEO
<PAGE>
TELECOM WIRELESS CORPORATION
5299 DTC BOULEVARD, 12TH FL.
ENGLEWOOD, CO 80111
September 23,1999
Commtel Services Ltd
C/o Teacher Stern Selby
37-41 Bedford Row
London WC1R4JH
("Bridge Lender")
Re: BRIDGE LOAN TO TELECOM WIRELESS CORPORATION
Dear Bridge Lender.
This letter agreement will confirm our understanding and agreement with
respect to the proposed bridge loan (the "Bridge Loan") in the principal
amount of $__________ to be made by you and certain others (the "Lenders", or
individually, the "Lender") to the undersigned Telecom Wireless Corporation.
a Utah Corporation (the "Borrower"), and is entered into in order to induce
you to make the Bridge Loan and in consideration therefor, as follows,
1. The Bridge Loan made by you will be evidenced by promissory
notes of the Company, dated the date of the making of the Bridge Loan (the
"Notes") payable to each Lender, in the aggregate principal amount of
$___________, bearing interest at ten (10%) percent per annum, with principal
and interest due and payable in full on the earlier of (a) ___________, 1999
and (b) the date of the receipt by the Company of financing aggregating at
least $2,000,000 (the "Maturity Date").
2. The Bridge Loan will be disbursed in immediately available funds
by wire transfer to the following account:
Bank One
1515 North Federal Hwy., Ste. 100
Boca Raton, FL 33432
ABA #: 072000326
For the Account of: Telecom Wireless Corporation
Account #: 10065599387
Bank #250
<PAGE>
3. In consideration for the the loan the Company shall issue to the
Bridge Lender an aggregate of warrants to purchase _________ shares of the
Company's common stock at a price of $7.00 per share for a period terminating
on the later of (a) four years from issuance and (b) the date on which a
registration statement relating to the shares underlying the warrants has
been in effect for two years (the "Initial Warrants"). If the loan has not
been repaid in full (inclusive of accrued interest) on or before
_____________, 1999, the Company shall issue to the Bridge Lender additional
warrants to purchase ____________ shares on the same terms and conditions as
the Initial Warrants. The exercise price of all such warrants shall be
subject to adjustment on the same basis as the repricing warrants issued in
conjunction with the Company's Rule 506 offering. The Company agrees to
provide piggyback registration rights for the shares underlying the warrants
and the warrants shall contain reasonable and standard cashless exercise
provisions.
4. In the event that the Company has not paid to the Lender all
principal and interest due and owing on or prior to the Maturity Date, the
Borrower shall be in default of the Note and:
a. The interest rate on all principal and accrued interest
shall become 18%;
b. The Borrower shall be immediately obligated to maintain
with the SEC an effective registration statement pursuant to the
Securities Exchange Act of 1933 which would provide for the resale
of (i) the stock underlying the. warrants and (ii) any common
stock of the Borrower into which the Lender has the option to
convert the Note.
c. 1) The Borrower shall, at its option, have the right to
convert the Note (principal and accrued interest) into
common stock of the Borrower at a price which is equal to
50% of the five day average closing bid price of the
Borrower's common stock for that period immediately prior
to the Lender's notice of conversion. Such conversion
option shall commence upon the Borrower's default under the
Note and shall terminate on the following the effectiveness
of the registration statement referred to in subsection
4.b. above for a period of two years.
2) If following a default and the vesting of the
Lender conversion option the Borrower desires to cure such
default by making payment on its financial obligations
under the Note, the Borrower must provide the Lender with
written notice at least 30 days prior to such payment of
its desire to make such Payment. The Lender may, upon the
receipt of
<PAGE>
such notice, by written notice received during such 30
day period, refuse the Borrower's offer to redeem the
note and thus retain the conversion rights which accrued
to the Note upon such default. This conversion option,
and any other rights of the Lender upon default, do not
limit or compromise the Bridge Lender's other remedies,
including those set forth in the other provisions of this
Agreement or the Note and at law.
3) The conversion of the Note shall be deemed to
have been made immediately prior to the close of business
on the date (each, an "EXERCISE DATE") of the surrender to
the Company for exercise of the Note. Such conversion,
evidenced in writing, shall be executed by the Bridge
Lender or his attorney duly authorized in writing and shall
be delivered to the Company at its corporate offices
located at 5299 DTC Boulevard, 12th Fl., Englewood, CO
80111 (the "CORPORATE OFFICE"), or at any such other office
or agency as the Company may designate.
4) The person entitled to receive the number of
shares deliverable on conversion shall be treated for all
purposes as the holder of such shares as of the close of
business on the Exercise Date. The Company shall not be
obligated to issue any fractional share interest in shares
issuable or deliverable an such conversion and such
fractional shares shall be of no value whatsoever.
5) Within ten days after the conversion date,
the Company, at its own expense, shall cause to be issued
and delivered to the person or persons entitled to receive
the same, a certificate or certificates in the name
requested by the Bridge Lender for the number of shares
deliverable on such conversion. No adjustment shall be
made in respect of cash dividends on shares delivered on
such conversion. All shares of Common Stock delivered upon
such conversion shall be validly issued, fully paid and
non-assessable.
5. The Lenders shall have no obligation to make the Bridge Loan
unless and until the following conditions precedent have been satisfied in
the sole judgment of the Lenders:
a.. The Notes and the warrants shall have been executed and
delivered and all other legal matters related to the Bridge Loan
have been satisfied;
<PAGE>
b. All legal matters relating to the Bridge Loan shall be
reasonably satisfactory to counsel for the Lenders.
6. The Company represents to the Lenders that this letter agreement
(the "Agreement"), the Notes and the Warrant Agreements and Warrant
Certificates have been duly executed by it, have been duly authorized by all
necessary corporate action on the part of the Company, constitute the valid
and legally binding obligation of the Company, enforceable in accordance with
their terms except as such enforceability may be limited by laws of
bankruptcy, fraudulent conveyance, creditors rights or principles of equity,
and are not inconsistent with the terms of the Company's certificate of
incorporation or bylaws, and that the execution, delivery and performance of
the Agreement, the Notes and the Warrants do not and will not breach or
result in a default under any agreement to which the Company is a party.
7. The Lender shall have the Opportunity to convert its Note into
the private equity placement being conducted on behalf of the Company by
First Equity Capital Securities, Inc.
This Agreement shall be governed by and construed in accordance with
the law of the State of New York. may not be amended, modified or waived
except in writing, signed by both parties hereto, shall be binding upon the
Company and inure to benefit of the Lenders and its respective successors,
assigns, heirs and legal representatives.
Very truly yours,
TELECOM WIRELESS CORPORATION, INC.
By: /s/ Kosta S. Kovachev
----------------------------------------
Kosta S. Kovachev
EVP, CFO
Agreed and Accepted
By:
-----------------------------------
<PAGE>
NOTE
$250,000.00 September 23, 1999
For value received, the undersigned, TELECOM WIRELESS, INC., a Utah
corporation having an address at 5299 DTC Boulevard, 12th Fl., Englewood,
Colorado 80111 (the "Borrower"), hereby promises to pay to the order of
Commtel Services Ltd, c/o Teacher Stern Selby, 37-41 Bedford Row, London
WC1R4JH (the "Payee"), the principal sum of Two Hundred and Fifty Thousand
Dollars ($250,000.00), on the earlier of (i) November 23, 1999 and (ii) the
date on which the Borrower receives, in aggregate, financing in an amount of
gross proceeds of at least $2,000,000, together with all accrued interest
through and including the date of payment. Interest shall be payable at a
rate per annum (computed for actual days elapsed on the basis of a 365-day
year) of ten percent (10.0%). The Borrower may prepay this Note at any time
prior to the due date hereof, in full, without premium or penalty.
All indebtedness outstanding under this Note after maturity shall bear
interest (computed in the same manner as interest on this Note prior to
maturity) at the rate of eighteen (18.0%) percent per annum, and all such
interest shall be payable on demand.
Payments of both principal and interest on this Note are to be made at
the office of the Payee at Commtel Services Ltd, c/o Teacher Stern Selby,
37-41 Bedford Row, London WC1R4JH, or such other place as the holder hereof
shall designate to the Borrower in writing, in lawful money of the United
States of America in immediately available funds.
The Borrower shall pay reasonable costs and expenses of collection,
including, without limitation, reasonable attorneys' fees and disbursements
in the event that any action, suit or proceeding is brought by the holder
hereof to collect this Note and either the holder obtains a judgment in its
favor that is not appealed from or is upheld on appeal, or such action, suit
or proceeding is settled with any sum due and owing to the holder as a result
of such settlement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES
PERTAINING TO CONFLICT OF LAWS.
<PAGE>
THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST IT, UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE MAY
BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR IN
THE UNITED STATES DISTRICT COURT FOR THE STATE OF NEW YORK. THE BORROWER, BY
THE EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY ASSENTS
AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURT IN ANY SUCH
ACTION OR PROCEEDING. BY ITS ACCEPTANCE OF THIS NOTE BY THE HOLDER AND BY THE
EXECUTION HEREOF BY THE BORROWER, EACH AGREES THAT ANY AND ALL LEGAL ACTION
RELATING TO THIS NOTE SHALL BE BROUGHT, AND MAINTAINED, ONLY IN SUCH COURTS.
THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT,
SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR PROCEEDING BY
DELIVERY THEREOF TO IT AT THE ADDRESS SET FORTH ABOVE OR SUCH OTHER ADDRESS
AS THE BORROWER SHALL HAVE THERETOFORE NOTIFIED THE HOLDER HEREOF IN WRITING
OR IN ANY OTHER MANNER PERMITTED BY LAW. IN THE EVENT SERVICE ON THE BORROWER
IS EFFECTED AS SET FORTH IN THE PRECEDING SENTENCE, THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR
PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE, FORUM NON CONVENIENS, OR ANY SIMILAR BASIS. THE BORROWER SHALL NOT BE
ENTITLED IN ANY ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED
UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH
DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK.
TELECOM WIRELESS, INC.
By: /s/ Kosta S. Kovachev
-------------------------------------
Kosta S. Kovachev
EVP CFO
<PAGE>
Schedule to Bridge Loan Agreement
Identifying Other Bridge Loan Agreements
to Which Telecom Wireless Is a Party
That Are Substantially Identical And
Material Details in Which Such Agreements
Differ from Filed Agreement
<TABLE>
<CAPTION>
Date Requiring
Issuance of
Additional
No. of Warrants if
Amount of Initial Loan Not Paid
Date Holder Loan Due Date Warrants in Full by
- -------- ---------------------------- --------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
09/01/99 Commtel Services Ltd. $125,000 10/31/99 12,500 10/01/99
09/01/99 Kenneth R. Levine $75,000 10/31/99 7,500 10/01/99
09/01/99 Stanley S. Becker $50,000 10/31/99 5,000 10/01/99
09/23/99 Commtel Services Ltd. $250,000 11/23/99 25,000 10/23/99
09/23/99 A.I. International Corporate
Holdings Ltd. $175,000 11/23/99 17,500 10/23/99
09/23/99 Marshall M. Becker $75,000 11/23/99 7,500 10/23/99
09/23/99 Kiam Interests Ltd. $250,000 11/23/99 25,000 10/23/99
</TABLE>
<PAGE>
GUARANTY
This GUARANTY, dated as of the 1st day of September, 1999 (this
"Guaranty"), is made by Dr. James C. Roberts ("Guarantor"), for the benefit
of Commtel Services Ltd., Kenneth R. Levine and Stanley Becker, in their
capacity as Bridge Lenders (the "Lenders").
RECITALS:
WHEREAS, Guarantor is the legal and beneficial owner of a majority of
the issued and outstanding capital stock of Telecom Wireless Corporation (the
"Borrower"); and
WHEREAS, Borrower and Lenders are parties to certain Bridge Loan
Agreements dated August 1, 1999 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Bridge Loan
Agreements") pursuant to which Lenders have agreed to make loans available to
Borrower; and
WHEREAS, Guarantor acknowledges that he will receive substantial
direct and indirect benefits by reason of the making of loans to Borrower as
provided in the Bridge Loan Agreements;
NOW, THEREFORE, in consideration of the premises and in order to
induce Lenders to make the loans and extend other financial accomodations to
Borrower under the Bridge Loan Agreements, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor hereby agrees with Lenders, as follows:
1. INCORPORATION OF RECITALS, DEFINED TERMS. The foregoing
recitals are incorporated herein by this reference. Capitalized terms used
in this Guaranty without definition shall have the respective meanings
ascribed to such terms in the Credit Agreement.
2. GUARANTY OF PAYMENT AND PERFORMANCE. Guarantor hereby
unconditionally and irrevocably guarantees to Lenders the punctual payment
and performance when due, whether at stated maturity, by acceleration or
otherwise, of the Obligations. Without limitation of the foregoing, the
Obligations shall include (a) all costs and expenses (including reasonable
attorneys' fees and expenses) incurred by Lenders in collecting any amount
due Lenders under this Guaranty or in prosecuting any action against Borrower
or Guarantor with respect to all or any part of the Obligations
(collectively, the "Enforcement Costs"), and (b) all interest, fees, costs
and expenses due Lenders after the filing of a bankruptcy petition by or
against Guarantor or Borrower regardless of whether such amounts can be
collected during the pendency of the bankruptcy proceedings. Guarantor agrees
that this Guaranty is a present and continuing guaranty of payment and not of
collectibility, and that Lenders shall not be required to
<PAGE>
prosecute collection, enforcement or other remedies against Borrower, or to
enforce or resort to any of the Collateral or other rights or remedies
pertaining thereto, before calling on Guarantor for payment. Guarantor
agrees that if, for any reason, Borrower or any other guarantor of the
Obligations shall fail or be unable to pay, punctually and fully, any of the
Obligations, Guarantor shall pay such obligations to Lenders in full
immediately upon demand. Guarantor agrees that one or more successive actions
may be brought against Guarantor, as often as Lenders deem advisable, until
all of the Obligations are paid and performed in full.
3. CONTINUING GUARANTY. Guarantor agrees that the obligations of
Guarantor pursuant to Section 2 above shall be primary obligations, such not
be subject to any counterclaim, set-off, abatement, deferment or defense
based upon any claim that Guarantor may have against Lenders, Borrower, any
other guarantor of the Obligations or any other Person, and shall remain in
full force and effect without regard to, and shall not be released,
discharged or affected in any way by any circumstance or condition (whether
or not Guarantor shall have any knowledge thereof), including without
limitation;
(a) any lack of validity or enforceability of any of the
Loan Documents;
(b) any termination, amendment, modification or other change
in any of the Loan Documents;
(c) any failure, omission or delay on the part of Borrower,
Guarantor or Lenders to conform or comply with any term of any of the Loan
Documents or any failure of Lenders to give notice of any Default or Event of
Default;
(d) any waiver, compromise, release, settlement or extension
of time of payment or performance or observance of any of the obligations or
agreements contained in any of the Loan Documents;
(e) any action or inaction by Lenders under or in respect of
any of the Loan Documents, any failure, lack of diligence, omission or delay
on the part of the Lenders to enforce, assert or exercise any right, power or
remedy conferred on them in any of the Loan Documents, or any other action or
inaction on the part of Lenders;
(f) any dissolution of Guarantor or any voluntary or
involuntary bankruptcy, insolvency, reorganization, arrangement,
readjustment, assignment for the benefit of creditors, composition,
receivership, liquidation, marshaling of assets and liabilities or similar
events or proceedings with respect to Borrower, Guarantor or any other
guarantor of the Obligations, as applicable, or any of their respective
property or creditors, or any action taken by any trustee or receiver or by
any court in any such proceeding including, without limitation, any
proceeding under Title 11 of the United States Code (11 U.S.C. Section 101 et
seq.), as amended (the "Bankruptcy Code");
<PAGE>
(g) any merger or consolidation of Borrower, Guarantor or
any other guarantor of the Obligations into or with any Person, or any sale,
lease or transfer of any of the assets of Borrower, Guarantor or any other
guarantor of the Obligations to any other Person;
(h) any change in the ownership of the capital stock of
Borrower or any change in the relationship between Borrower and Guarantor, or
any termination of any such relationship;
(i) any release or discharge by operation of law of Borrower
or Guarantor from any obligation or agreement contained in any of the Loan
Documents;
(j) any Lender's election in any proceeding instituted under
the Bankruptcy Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(k) any borrowing or grant of a security interest by
Borrower as debtor-in-possession under Section 364 of the Bankruptcy Code;
(l) the inability of any Lender to enforce the Obligations
of Borrower as a result of the automatic stay provisions of Section 362 of
the Bankruptcy Code;
(m) the disallowance, under Section 502 of the Bankruptcy
Code, of all or any portion of Agent's or any Lender's claim or claims for
repayment of the Obligations, or
(n) any other occurrence, circumstance, happening or event,
whether similar or dissimilar to the foregoing and whether foreseen or
unforeseen, which otherwise might constitute a legal or equitable defense or
discharge of the liabilities or a guarantor or surety or which otherwise
might limit recourse against Borrower or Guarantor.
4. WAIVERS. Guarantor unconditionally waives, to the extent
permitted by law, (i) notice of any of the matters referred to in Section 3
above, (ii) all notices which may be required by statute, rule of law or
otherwise, now or hereafter in effect, to preserve intact any rights against
Guarantor, including, without limitation, any demand, presentment and
protest, proof of notice on non-payment under any of the Loan Documents and
notice of any Default or any Event of Default or any failure on the part of
Borrower or Guarantor of the Obligations to perform or comply with any
covenant, agreement, term or condition of any of the Loan Documents, (iii)
any right to the enforcement, assertion or exercise against Borrower,
Guarantor or any other guarantor of the Obligations of any right or remedy
conferred under any of the Loan Documents, (iv) any requirement of diligence
on the part of any Person, (v) any requirement to exhaust any remedies or to
mitigate the damages resulting from any default under any of the Loan
Documents, and (vi) any notice of any sale, transfer or other disposition of
any right, title or interest of Lenders under any of the Loan Documents.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lenders as follows:
(a) QUALIFICATION. Guarantor is an individual residing in the
state of Colorado.
(b) POWER AND AUTHORITY. Guarantor has the power and authority to
enter into, execute, deliver, and carry out the terms of the Guaranty and to
incur the obligations provided for herein.
(c) BINDING OBLIGATION. This Guaranty, when executed and
delivered, will constitute the valid and legally binding obligations of
Guarantor, enforceable against the Guarantor in accordance with its terms.
(d) NO CONFLICT. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions
contemplated hereby do not and will not: (1) violate any provision of law
applicable to Guarantor, or any order, judgment or decree of any court or
other agency of government binding on Guarantor; (2) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a
default under any contract or agreement to which Guarantor is a party or by
which Guarantor is bound; (3) result in or require the creation or imposition
of any material Lien upon any of the properties or assets of Guarantor; or
(4) require any approval or consent of any Person under any contract or
agreement to which Guarantor is a party or by which Guarantor is bound.
(e) GOVERNMENTAL CONSENTS. The execution, delivery and performance
by Guarantor of this Guaranty, and the consummation of the transactions
contemplated thereby do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
(f) BURDENSOME OBLIGATIONS; SOLVENCY. After giving effect to the
transactions contemplated by this Guaranty, Guarantor (i) does not intend to
incur, and does not believe that it will incur, debts beyond its ability to
pay such debts as they become due, (ii) owns and will own property, the fair
salable value of which is (A) greater than the total amount of his
liabilities (including contingent liabilities) and (B) greater than the
amount that will be required to pay the probable liabilities of his then
existing debts as they become absolute and matured, and (iii) has and will
have capital that is not unreasonably small in relation to his business as
presently conducted and proposed to be conducted.
6. REINSTATEMENT. The obligations of Guarantor pursuant to this
Guaranty shall continue to be effective or automatically be reinstated, as
the case may be, if at any time payment of any of the Obligations is
rescinded or otherwise must be restored or returned by Lenders upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of
Guarantor or Borrower or otherwise, all as though such payment had not been
made.
<PAGE>
7. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the
benefit of Lenders, and their respective successors and assigns. This
Guaranty shall be binding on Guarantor, its successors and assigns, and shall
continue in full force and effect until all of the Obligations are paid and
performed in full.
8. NO WAIVER OF RIGHTS. No delay or failure on the part of
Lenders to exercise any right, power or privilege under this Guaranty or any
of the other Loan Documents shall operate as a waiver thereof, and no single
or partial exercise of any right, power or privilege shall be deemed to
establish a custom or course of dealing or performance between the parties
hereto. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law. No notice to or demand
on Guarantor in any case shall entitle Guarantor to any other or further
notice or demand in the same, similar or other circumstance.
9. MODIFICATION. The terms of this Guaranty may be waived,
discharged, or terminated only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought. No amendment, modification, waiver or other change of
any of the terms of the Guaranty shall be effective without the prior written
consent of Lenders.
10. COSTS AND EXPENSES. Guarantor agrees to pay on demand all
costs and expenses incurred by or on behalf of Lenders (including, without
limitation, reasonable attorneys' fees and expenses) in enforcing the
obligations of Guarantor under this Guaranty.
11. JOINDER. Guarantor agrees that any action to enforce this
Guaranty may be brought against Guarantor without any reimbursement or
joinder of Borrower in such action.
12. SEVERABILITY. If any provision of this Guaranty is deemed to
be invalid by reason of the operation of any law, or by reason of the
interpretation placed thereon by any court or other governmental authority,
this Guaranty shall be construed as not containing such provision and the
invalidity of such provision shall not affect the validity of any other
provision hereof, and any and all other provisions hereof which otherwise are
lawful shall remain in full force and effect.
13. NOTICES. Unless otherwise specifically provided herein, any
notice or other communication required or permitted to be given shall be in
writing addressed to the respective party as set forth below and may be
personally served, telecopied, telexed or sent by overnight courier service
or United States mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by telecopy or telex,
on the date of transmission if transmitted on a Business Day before 4:00 p.m.
(New York time) or, if not, on the very next succeeding Business Day; (c) if
delivered by overnight courier, two days after delivery to such courier
properly addressed; or (d) if by
<PAGE>
U.S. Mail, four Business Days after depositing in the United States mail,
with postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to Lender Commtel Services Ltd:
Commtel Services Ltd.
c/o Teacher Stern Selby
37-41 Bedford Row
London WC1R4JH
Attn: David Teacher
Telecopy:
If to Lender Kenneth R. Levine:
1776 Broadway, Ste. 1403
New York, N.Y. 10019
Telecopy: (212) 765-9710
If to Lender Stanley Becker:
55 East End Avenue, Apt. 7A
New York, N.Y. 10021
If to Guarantor:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Fl.
Englewood, CO 80111
Telecopy: (303) 357-0190
Or to such other address as the party addressed shall have previously
designated by written notice to the serving party given in accordance with
this Section 13. A notice not given as provided above shall, if it is in
writing, be deemed given if and when actually received by the party to whom
given.
14. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
15. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. GUARANTOR
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLE AGREES THAT,
SUBJECT TO AGENT'S
<PAGE>
ELECTION ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
GUARANTY SHALL BE LITIGATED IN SUCH COURTS. GUARANTOR EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE
OF FORUM NON CONVENIENS. GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON
GUARANTOR BY CERTIFIED OR REGISTERED MAJL, RETURN RECEIPT REQUESTED,
ADDRESSED TO GUARANTOR, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN
POSTED.
16. WAIVER OF JURY TRIAL. GUARANTOR AND LENDERS HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS GUARANTY. GUARANTOR AND LENDERS ACKNOWLEDGE THAT HIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY AND THAT EACH
WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
GUARANTOR AND LENDERS WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY
OF REVIEWING THIS JURE WAIVE WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
IN WITNESS WHEREOF, Guarantor bas executed this Guaranty as of the
date first above written
/s/ Dr. James C. Roberts
-----------------------------------
Dr. James C. Roberts
COMMTEL SERVICES LTD
By:
-------------------------------
/s/ Kenneth R. Levine
- -----------------------------------
Kenneth R. Levine
- -----------------------------------
Stanley Becker
<PAGE>
===============================================================================
COMMON STOCK
PURCHASE AGREEMENT
among
TELECOM WIRELESS CORPORATION
(the "COMPANY")
and
THE PERSONS LISTED ON SCHEDULE 1
(the "PURCHASERS")
RULE 506 OFFERING - PART C
Dated as of September 10, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
Section 1. Common Stock.. . . .... . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Authorization, Issuance, and Sale of Common Stock. . . . . .1
Section 1.2 Form of Payment. . . . . . . . . . . . . . . . . . . . . . .2
Section 1.3 Initial and Additional Closings. . . . . . . . . . . . . . .2
Section 1.4 Deliveries at Closing. . . . . . . . . . . . . . . . . . . .2
Section 2. Purchaser's Representatives and Warranties..... . . . . . . . .3
Section 2.1 Investment Purpose.. . . . . . . . . . . . . . . . . . . . .3
Section 2.2 Accredited Investor Status.. . . . . . . . . . . . . . . . .3
Section 2.3 Reliance on Exemptions.. . . . . . . . . . . . . . . . . . .3
Section 2.4 Information. . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.5 No Governmental Review.. . . . . . . . . . . . . . . . . . .3
Section 2.6 Transfer or Resale.. . . . . . . . . . . . . . . . . . . . .3
Section 2.7 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.8 Authorization Enforcement. . . . . . . . . . . . . . . . . .4
Section 2.9 Residence. . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.10 No Scheme to Evade Registration. . . . . . . . . . . . . . .5
Section 3. Representations And Warranties Of The Company.... . . . . . . .5
Section 3.1 Organization and Qualification.. . . . . . . . . . . . . . .5
Section 3.2 Authorization, Enforcement, Compliance with Other
Instruments. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 3.3 Capitalization.. . . . . . . . . . . . . . . . . . . . . . .6
Section 3.4 Issuance of Securities.. . . . . . . . . . . . . . . . . . .6
Section 3.5 No Conflicts.. . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.6 Financial Statements.. . . . . . . . . . . . . . . . . . . .7
Section 3.7 Absence of Certain Changes.. . . . . . . . . . . . . . . . .7
Section 3.8 Absence of Litigation. . . . . . . . . . . . . . . . . . . .7
Section 3.9 Purchase of Purchased Common Shares. . . . . . . . . . . . .8
Section 3.10 No Undisclosed Events, Liabilities, Developments, or
Circumstances. . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.11 No General Solicitation. . . . . . . . . . . . . . . . . . .8
Section 3.12 No Integrated Offering.. . . . . . . . . . . . . . . . . . .8
Section 3.13 Employee Relations.. . . . . . . . . . . . . . . . . . . . .8
Section 3.14 Intellectual Property Rights.. . . . . . . . . . . . . . . .8
Section 3.15 Environmental Laws.. . . . . . . . . . . . . . . . . . . . .9
Section 3.16 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.18 Regulatory Permits.. . . . . . . . . . . . . . . . . . . . .9
Section 3.19 Internal Accounting Controls.. . . . . . . . . . . . . . . .9
Section 3.20 No Materially Adverse Contracts, Etc.. . . . . . . . . . . 10
Section 3.21 Tax Status.. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.22 Certain Transactions.. . . . . . . . . . . . . . . . . . . 10
Section 3.23 Dilutive Effect. . . . . . . . . . . . . . . . . . . . . . 10
Section 3.24 Fees and Rights of First Refusal.. . . . . . . . . . . . . 10
Section 4. Covenants.... . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 Best Efforts.. . . . . . . . . . . . . . . . . . . . . . . 11
-i-
<PAGE>
Section 4.2 Form D.. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Reporting Status.. . . . . . . . . . . . . . . . . . . . . 11
Section 4.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 Financial Information. . . . . . . . . . . . . . . . . . . 11
Section 4.6 Listings.. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.7 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.8 Authorized Shares of Common Stock, Reservation of Shares.. 12
Section 4.9 Corporate Existence. . . . . . . . . . . . . . . . . . . . 12
Section 4.10 Transactions With Affiliates.. . . . . . . . . . . . . . . 12
Section 4.11 Transfer Agents. . . . . . . . . . . . . . . . . . . . . . 13
Section 4.12 Shareholder Approval.. . . . . . . . . . . . . . . . . . . 13
Section 4.13 Transfer Agent Instructions. . . . . . . . . . . . . . . . 13
Section 5. Conditions To The Company's Obligation To Sell.. . . . .... . 13
Section 6. Conditions To The Purchasers' Obligation To Purchase.. . .... 14
Section 7. Indemnification. . . . . . . . . . . . . . . . . . . . . . ...15
Section 8. Governing Law; Miscellaneous.. . . . . . . . . . . . . . . ...16
Section 8.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.2 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.3 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.4 Severability.. . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.5 Entire Agreement. Amendments.. . . . . . . . . . . . . . . 17
Section 8.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.7 Successors and Assigns.. . . . . . . . . . . . . . . . . . 17
Section 8.8 No Third Party Beneficiaries.. . . . . . . . . . . . . . . 18
Section 8.9 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.10 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.11 Further Assurances.. . . . . . . . . . . . . . . . . . . . 18
Section 8.12 Termination. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.13 Finder.. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.14 No Strict Construction.. . . . . . . . . . . . . . . . . . 18
SCHEDULES AND EXHIBITS
Schedule 1 Disclosure Schedule
Exhibit A Form of Repricing Warrant
Exhibit B Registration Rights Agreement
Exhibit C Escrow Agreement
Exhibit D Placement Agent Agreement
Exhibit E Opinion of Company Counsel
Exhibit F Irrevocable Transfer Agent Instructions
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CROSS REFERENCE TO DEFINED TERMS
Term Defined in Section
---- ------------------
Accredited Purchaser Section 2.2
Affiliate Section 4.10
Agreement Preamble
Articles of Incorporation Section 3.3
Augsback Section 1.4(e)
Blue Sky Section 4.2
Bylaws Section 3.3
Certificate of Designations Background
Certificates Section 1.4(b)
Closing Section 1.3
Closing Date Section 1.3
Common Stock Background
Company Preamble
Controls Section 4.10
ERISA Section 2.20(a)(i)
Environmental Laws Section 3.15
Escrow Agreement Section 1.2
Financial Statements Section 3.6
Indemnified Liabilities Section 7
Indemnities Section 7
Intellectual Property Section 3.14
Irrevocable Transfer Agent Instructions Section 1.4(i)
NASD Section 4.12
Purchase Price Section 1.1
Purchaser Preamble
Person Preamble
Placement Agreement Section 1.4(e)
Purchased Common Shares Section 1.1
Registration Period Section 4.3
Registration Rights Agreement Background
Regulation D Background
Related Party Section 4.10
Rule 144 Section 2.6(b)
Sale of the Company Section 4.9
Purchased Common Shares Background
SEC Background
1934 Act Section 3.6
1933 Act Background
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COMMON STOCK
PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("AGREEMENT") is made and entered
into as of September 10, 1999, between TELECOM WIRELESS CORPORATION, a Utah
corporation (the "COMPANY") and the Persons listed on Purchaser Signature
Pages attached hereto (each of whom is individually referred to as a
"PURCHASER" and all of whom collectively are referred to as the "PURCHASERS").
BACKGROUND
The Company has authorized the issuance, sale, and delivery of up to Five
Hundred Thousand (500,000) shares of the Company's Common Stock, par value $.001
(the "PURCHASED COMMON SHARES") in this Part C of the Company's Rule 506
offering. The Purchased Common Shares upon issuance have accompanying repricing
rights evidenced by a warrant in substantially the form attached hereto as
EXHIBIT A (the "REPRICING WARRANT"), exercisable under certain circumstances for
additional shares of Common Stock (the "REPRICING SHARES") at the exercise price
of $.001. The Purchasers collectively wish to purchase, upon the terms and
conditions stated in this Agreement, up to Five Hundred Thousand (500,000)
shares of Common Stock in the respective amounts set forth on each Purchaser's
signature page hereto. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in substantially the form attached hereto as EXHIBIT B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act (as defined below) and
the rules and regulations promulgated thereunder, and applicable state
securities laws. The Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
pursuant to Section 4(2) and/or Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT"), at the sole election of Purchasers in the
event that a registration statement filed by the Company pursuant to Section
2(a) of the Registration Rights Agreement is not declared effective by the
Registration Deadline (as defined therein).
AGREEMENT
For and in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
hereby agree as follows:
SECTION 1. COMMON STOCK.
SECTION 1.1 AUTHORIZATION, ISSUANCE, AND SALE OF COMMON STOCK. The
Company has authorized in this Part A of the offering the sale and issuance in
accordance with the terms of this Agreement of up to Five Hundred Thousand
(500,000) shares of Common Stock having the rights and privileges set forth
herein. The Company agrees to issue and sell to each Purchaser and each
Purchaser agrees to purchase from the Company, at a Closing, the number of
shares of Common Stock (the "PURCHASED COMMON SHARES") set forth adjacent to the
caption "PURCHASED COMMON SHARES" on the signature page to this Agreement of
each Purchaser hereto at a purchase price of $7.00 per share (the "PURCHASE
PRICE").
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SECTION 1.2 FORM OF PAYMENT. On or before the Closing Date, each
Purchaser shall pay the Purchase Price for the Purchased Common Shares to be
issued and sold to such Purchaser at the Closing, by wire transfer of
immediately available funds to the Escrow Agent as follows:
Bank: SunTrust Bank, Atlanta
Corporate Trust Department
ABA Routing No.: 061000104
Center: 008
Account No.: 9088000008
Attn: Rebecca Fischer
Re: Telecom Wireless Corporation --
Escrow Account
as more particularly described in Section 3 of that certain Escrow Agreement in
the form attached hereto as EXHIBIT C (the "ESCROW AGREEMENT").
SECTION 1.3 INITIAL AND ADDITIONAL CLOSINGS. The closings of the
purchase and sale of the Purchased Common Shares shall take place at the offices
of Balboni Law Group LLC, 3475 Lenox Road, N.E., Suite 990, Atlanta, Georgia
30326 at 10:00 a.m., within five (5) business days after the date hereof,
subject to the satisfaction or waiver of the conditions set forth in Sections 5
and 6 below, or at such other location, date, and time as may be agreed upon
between Purchaser and the Company (each such closing being called a "CLOSING"
and such date and time being called the "CLOSING DATE"). Additional Closings
shall take place at the above location by agreement of the parties from time to
time in accordance with the terms of this Agreement.
SECTION 1.4 DELIVERIES AT CLOSING. At the Closing the Company shall
deliver to Purchasers:
(a) this Agreement, executed by the Company;
(b) certificates in definitive form, registered in the name of
each Purchaser, or the designee of such Purchaser, representing the
Purchased Common Shares purchased by such Purchaser (the "CERTIFICATES");
(c) a Repricing Warrant registered in the name of each
Purchaser or the designee of such Purchaser, executed by the Company;
(d) the Registration Rights Agreement, executed by the Company;
(e) the Placement Agent Agreement between the Company and
Augsback and Associates, Inc. ("AUGSBACK"), in substantially the form
attached hereto as EXHIBIT D (the "PLACEMENT AGREEMENT"), executed by the
Company;
(f) the opinion of Jody M. Walker, Esq., counsel to the
Company, in substantially the form of EXHIBIT E hereto;
(g) the Escrow Agreement, executed by the parties thereto;
(h) the certificates described in Sections 6(c) (the
"COMPLIANCE CERTIFICATE") and 6(i) (the "SECRETARY CERTIFICATE") hereof,
each executed by the Company; and
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(i) the Irrevocable Transfer Agent Instructions, in
substantially the form of EXHIBIT F hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"), executed by the Company.
SECTION 2. PURCHASER'S REPRESENTATIVES AND WARRANTIES.
Each Purchaser represents and warrants with respect to only itself that:
SECTION 2.1 INVESTMENT PURPOSE. Such Purchaser is acquiring the
Purchased Common Shares and accompanying Repricing Warrants, and, upon
conversion of the Repricing Warrants, will acquire the Repricing Shares then
issuable (the Purchased Common Shares, the accompanying Repricing Warrant, and
the Repricing Shares are hereinafter sometimes collectively, the "SECURITIES"),
for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; PROVIDED HOWEVER,
that by making the representations herein, such Purchaser does not agree to hold
any Securities for any minimum or other specific term, and reserves the right to
dispose of such Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
SECTION 2.2 ACCREDITED INVESTOR STATUS. Such Purchaser is an
"accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D.
SECTION 2.3 RELIANCE ON EXEMPTIONS. Such Purchaser understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments, and understandings of such Purchaser
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Purchaser to acquire such Securities.
SECTION 2.4 INFORMATION. Such Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances, and
operations of the Company and materials relating to the offer and sale of the
Securities, which have been requested by such Purchaser. Such Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by such Purchaser or its advisors, if any, or its representatives
shall modify, amend, or affect such Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Such Purchaser
understands that its investment in the Securities involves a high degree of
risk. Such Purchaser has sought such accounting, legal, and tax advice as it
has considered necessary to make an informed investment decision with respect to
its acquisition of the Securities.
SECTION 2.5 NO GOVERNMENTAL REVIEW. Such Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities, or the fairness or suitability of the investment in the Securities,
nor have such authorities passed upon or endorsed the merits of the offering of
the Securities.
SECTION 2.6 TRANSFER OR RESALE. Such Purchaser understands that EXCEPT
as provided in the Registration Rights Agreement:
(a) the Securities have not been and are not being registered
under the 1933 Act or any state securities laws, and may not be offered
for sale, sold, assigned, or transferred unless;
(i) subsequently registered thereunder;
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(ii) such Purchaser shall have delivered to the Company
an opinion of counsel, in a generally acceptable form, to the
effect that such securities to be sold, assigned, or transferred
may be sold, assigned, or transferred pursuant to an exemption
from such registration; or
(iii) such Purchaser provides the Company with reasonable
assurance that such securities can be sold, assigned, or
transferred pursuant to Rule 144 or promulgated under the 1933 Act
(or a successor rule thereto);
(b) any sale of such securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("RULE 144")
may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and
(c) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
SECTION 2.7 LEGENDS. Such Purchaser understands that the certificates
or other instruments representing the Purchased Common Shares and, if and when
issued until such time as the sale of the Repricing Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Repricing Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be
placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
the Purchased Common Shares and the Repricing Shares is registered under the
1933 Act, (b) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment, or transfer of the Securities may be made
without registration under the 1933 Act, or (c) such holder provides the Company
with reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
SECTION 2.8 AUTHORIZATION ENFORCEMENT. This Agreement has been duly
and validly authorized, executed, and delivered on behalf of such Purchaser and
is a valid and binding agreement of such Purchaser enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
and other
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<PAGE>
similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
SECTION 2.9 RESIDENCE. Such Purchaser is a resident of that country
specified in its address on the Section of the Disclosure Schedule of
Purchasers.
SECTION 2.10 NO SCHEME TO EVADE REGISTRATION. Purchaser represents and
warrants to the Company that the acquisition of the Purchased Common Shares and
the Repricing Shares is not a transaction (or any element of a series of
transactions) that is part of a plan or scheme by the Purchaser to evade the
registration provisions of the 1933 Act.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Purchasers that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdictions of their respective incorporation,
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
SECTION 3.2 AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS.
(a) The Company has the requisite corporate power and authority
to enter into and perform each of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Placement Agreement, the Repricing
Warrants, and any related agreements (collectively, the "TRANSACTION
AGREEMENTS"), and to issue the Securities in accordance with the terms
hereof and thereof;
(b) the execution and delivery of each of this Agreement and
the other Transaction Agreements by the Company, and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Purchased Common Shares and the
reservation for issuance and the issuance of the Repricing Shares
issuable upon conversion or exercise thereof, have been duly authorized
by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders;
(c) each of the Transaction Agreements has been duly executed
and delivered by the Company; and
(d) each of the Transactions Agreements constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited
by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
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SECTION 3.3 CAPITALIZATION. Immediately prior to Closing, the
authorized capital stock of the Company consisted of 125,000,000 shares of
capital stock, of which 100,000,000 shares are Common Stock, par value $.001,
of which 14,810,135 shares are issued and outstanding, and 25,000,000 shares
are Preferred Stock ("PREFERRED STOCK") of which no shares are issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in Section 3.3 of the
Disclosure Schedule, no shares of Common Stock or Preferred Stock are subject
to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in Section 3.3 of
the Disclosure Schedule, as of the effective date of this Agreement, (a)
there are no outstanding options, warrants, scrip, rights to subscribe to,
calls, or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company or any
of its subsidiaries, or contracts, commitments, understandings, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of
its subsidiaries, or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its subsidiaries, (b) there are no outstanding debt securities and (c)there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (exceptthe Registration Rights Agreement). There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in this
Agreement. The Company has furnished to the Purchaser true and correct
copies of the Company's Articles of Incorporation, as amended and as in
effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's Bylaws, as in effect on the date hereof (the "BYLAWS"), and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
SECTION 3.4 ISSUANCE OF SECURITIES. The Purchased Common Shares are
duly authorized and, upon issuance in accordance with the terms hereof, shall be
validly issued, fully paid, and nonassessable, are free from all taxes, liens,
and charges with respect to the issue thereof and are entitled to the rights and
preferences set forth in the Purchased Common Shares. The Repricing Shares
issuable upon conversion of the Repricing Warrants have been duly authorized and
reserved for issuance. Upon conversion or exercise of the Repricing Warrants,
the Repricing Shares will be validly issued, fully paid, and nonassessable, and
free from all taxes, liens, and charges, with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
SECTION 3.5 NO CONFLICTS. Except as disclosed in Section 3.5 of the
Disclosure Schedule, the execution, delivery, and performance of this
Agreement and the Transaction Agreements by the Company, and the consummation
by the Company of the transactions contemplated hereby and thereby, will not
(a) result in a violation of the Articles of Incorporation, any Certificate
of Designations, Preferences, and Rights applicable to any Preferred Stock of
the Company, or the Bylaws of the Company or (b) conflict with, constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration, or cancellation of, any agreement, indenture, or instrument to
which the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment, or decree (including
federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is
bound or affected. Except as disclosed in Section 3.5 of the Disclosure
Schedule, neither the Company nor any subsidiary is in violation of any term
of, or in default under, its Articles of Incorporation or Bylaws or their
organizational charter or Bylaws, respectively, or any material contract,
agreement, mortgage,
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<PAGE>
indebtedness, indenture, instrument, judgment, decree, or order or any
statute, rule, or regulation applicable to the Company or its subsidiaries.
The business of the Company and its subsidiaries is not being conducted, and
shall not be conducted in violation of any law, ordinance, or regulation of
any governmental entity. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization, or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver, and perform
any of its obligations under or contemplated by this Agreement and the
Transaction Agreements in accordance with the terms hereof or thereof.
Except as disclosed in Section 3.5 of the Disclosure Schedule, all consents,
authorizations, orders, filings, and rgistrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its subsidiaries
are unaware of any facts or circumstances which might give rise to any of the
foregoing.
SECTION 3.6 FINANCIAL STATEMENTS. Attached as Section 3.6 of the
Disclosure Schedule are true, correct, and complete copies of: the 06/31/98
financial statements of the Company together with the audit report dated
September 22, 1998 thereon, and the unaudited Balance Sheet of the Company
dated March 31, 1999, and the unaudited Statements of Income, Cash Flows, and
Stockholder's Equity for the nine months then ended (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements (i) are in accordance with
the books and records of the Company, (ii) present fairly the financial
condition of the Company as of the respective dates indicated and the results
of operations for such periods, and (iii) the audited Financial Statements
have been prepared with consistently applied accounting principles throughout
the periods involved. The Financial Statements do not contain any items of
special or nonrecurring income, or other income not earned in the ordinary
course of business, except as set forth in the notes to the Financial
Statements or on Section 3.6 of the Disclosure Schedule. The financial
books, financial records, and financial accounts of the Company shown to
Purchaser accurately and fairly reflect, in reasonable detail, all
transactions, assets, and liabilities of the Company. The Company has not
engaged in any transaction, maintained any bank account, or used any of the
funds of the Company, except for transactions, bank accounts, and funds which
have been and are reflected in the normally maintained books and records of
the Company. Except as reflected on Section 3.6 of the Disclosure Schedule,
there is no liability or indebtedness of the Company for dividends or other
distributions declared or accumulated but unpaid with respect to the Common
Stock or the Purchased Common Shares. No other information provided by or on
behalf of the Company to the Purchaser which is not included in the Financial
Statements, including, without limitation, information referred to in Section
2.4 of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made,
not misleading.
SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Section 3.7 of the Disclosure Schedule, since the date of the most recent
audited Balance Sheet included in the Financial Statements, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations, or
prospects of the Company or its subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its subsidiaries have
any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
SECTION 3.8 ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry, or investigation before or by any court, public board,
government agency, self-regulatory organization, or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
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affecting the Company, the Common Stock, or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would (a)
have a material adverse effect on the transactions contemplated hereby, (b)
adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under the Transaction
Agreements, or any of the other documents contemplated therein, or (c) except
as expressly set forth in Section 3.8 of the Disclosure Schedule, have a
material adverse effect on the business, operations, properties, financial
condition, or results of operation of the Company and its subsidiaries taken
as a whole.
SECTION 3.9 PURCHASE OF PURCHASED COMMON SHARES. The Company
acknowledges and agrees that each Purchaser is acting solely in the capacity
of an arm's length purchaser with respect to this Agreement and the other
Transaction Agreements and the transactions contemplated hereby and thereby.
The Company further acknowledges that each Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and
any advice given by such Purchaser or any of their respective representatives
or agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to such Purchaser's purchase of the Securities.
The Company further represents to each Purchaser that the Company's decision
to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.
SECTION 3.10 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. No event, liability, development, or circumstance has
occurred or exists, or is contemplated to occur, with respect to the Company
or its subsidiaries or their respective businesses, properties, prospects,
operations, or financial condition, which could be material but which has not
been publicly announced or disclosed in writing to Purchasers.
SECTION 3.11 NO GENERAL SOLICITATION. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or
sale of the Securities.
SECTION 3.12 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions.
SECTION 3.13 EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their
employees are good.
SECTION 3.14 INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets, and rights necessary to conduct
their respective businesses as now conducted. Except as set forth on Section
3.14 of the Disclosure Schedule, none of the Company's trademarks, trade
names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, government
authorizations, trade secrets, or other intellectual property rights have
expired or terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its
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subsidiaries of the trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret, or other similar rights of others, or of any
such development of similar or identical trade secrets, or technical
information by others and, except as set forth on Section 3.14 of the
Disclosure Schedule, there is no claim, action, or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret, or other infringement, and the Company and
its subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company and its subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality, and
value of all of their intellectual properties.
SECTION 3.15 ENVIRONMENTAL LAWS. The Company and its subsidiaries
are (a) in compliance with any and all applicable foreign, federal, state,
and local laws and regulations relating to the protection of human health and
safety, the environment, or hazardous, toxic substances, wastes, pollutants,
or contaminants ("ENVIRONMENTAL LAWS"), (b) have received all permits,
licenses, or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses, and (c) are in compliance with
all terms and conditions of any such permit, license, or approval.
SECTION 3.16 TITLE. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and clear of
all liens, encumbrances, and defects except as described in Section 3.16 of
the Disclosure Schedule or as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries. Any real property and
facilities held under lease by the Company and its subsidiaries are held by
them under valid, subsisting, and enforceable leases with such exceptions as
are not material, and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.
SECTION 3.17 INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks, and in such amounts, as management of the Company believes
to be prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for, and neither the
Company nor any such subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial, or otherwise, or the earnings,
business, or operations of the Company and its subsidiaries, taken as a whole.
SECTION 3.18 REGULATORY PERMITS. The Company and its subsidiaries
possess all certificates, authorizations, and permits issued by the
appropriate federal, state, or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization, or permit.
SECTION 3.19 INTERNAL ACCOUNTING CONTROLS. The Company and each of
its subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (a) transactions are executed in
accordance with management's general or specific authorizations, (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is
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permitted only in accordance with management's general or specific
authorization, and (d) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
SECTION 3.20 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate, or
other legal restriction, or any judgment, decree, order, rule, or regulation
which in the judgment of the Company's officers has, or is expected in the
future to have, a material adverse effect on the business, properties,
operations, financial condition, results of operations, or prospects of the
Company or its subsidiaries. Neither the Company nor any of its subsidiaries
is a party to any contract or agreement which in the judgment of the
Company's officers has, or is expected to have, a material adverse effect on
the business, properties, operations, financial condition, results of
operations, or prospects of the Company or its subsidiaries.
SECTION 3.21 TAX STATUS. Except as set forth on Section 3.21 of the
Disclosure Schedule, the Company and each of its subsidiaries has made or filed
all federal and state income and all other tax returns, reports, and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports, and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports,
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
SECTION 3.22 CERTAIN TRANSACTIONS. Except as set forth on Section 3.22
of the Disclosure Schedule and in the SEC Documents, and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties, and none of the officers, directors, or employees of the Company
is presently a party to any transaction with the Company (other than for
services as employees, officers, and directors), including any contract,
agreement, or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director, or such employee or, to the
knowledge of the Company, any corporation, partnership, trust, or other entity
in which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee, or partner.
SECTION 3.23 DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Repricing Shares issuable upon conversion of the Repricing
Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Repricing Shares upon conversion of
the Repricing Warrants in accordance with this Agreement and the Repricing
Warrant is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 3.24 FEES AND RIGHTS OF FIRST REFUSAL. The Company is not
obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not limited
to, current or former shareholders of the Company, underwriters, brokers,
agents, or other third parties.
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SECTION 4. COVENANTS.
SECTION 4.1 BEST EFFORTS. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 5 and 6 of this Agreement.
SECTION 4.2 FORM D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Purchaser promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Purchasers at the Closing
pursuant to this Agreement under applicable securities or "BLUE SKY" laws of
the respective states of the United States applicable to each Purchaser, and
shall provide evidence of any such action so taken to the Purchasers on or
prior to the Closing Date.
SECTION 4.3 REPORTING STATUS. Until the earlier of (a) the date as
of which the Purchasers (as that term is defined in the Registration Rights
Agreement) may sell all of the Repricing Shares without restriction pursuant
to Rule l44(k) promulgated under the 1933 Act (or successor thereto), or (b)
the date on which (i) the Purchasers shall have sold all the Repricing Shares
and (ii) none of the Purchased Common Shares is outstanding (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act. The Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if
the 1934 Act or the rules and regulations thereunder would otherwise permit
such termination.
SECTION 4.4 USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Purchased Common Shares for substantially the same purposes
and in substantially the same amounts as indicated in Section 4.4 of the
Disclosure Schedule.
SECTION 4.5 FINANCIAL INFORMATION. The Company agrees to send the
following to each Purchaser during the Registration Period and while a
Registration Statement with respect to the Securities is in effect: (a)
within five (5) days after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K, and any registration statements or amendments filed
pursuant to the 1933 Act; (b) within one (1) day after release thereof,
copies of all press releases issued by the Company or any of its
subsidiaries, (c) copies of the same notices and other information given to
the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders; and (d) with reasonable promptness, such other
financial information and data with respect to the Company as Purchaser may
request.
SECTION 4.6 LISTINGS. The Company shall promptly secure the listing
of the Repricing Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all
Purchased Common Shares and Repricing Shares from time to time issuable under
the terms of the Registration Rights Agreement. The Company shall maintain
the Common Stock's authorization for quotation in the over-the-counter
market. The Company shall promptly provide to each Purchaser copies of any
notices it receives regarding the continued eligibility of the Common Stock
for trading in the over-the-counter market.
SECTION 4.7 EXPENSES. Each of the Company and Purchasers shall pay
all costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution, and delivery of this
Agreement and the Registration Rights Agreement and the Escrow Agreement.
The legal costs and expenses for Augsback and its counsel (not to exceed
$12,000 in legal fees plus all expenses for the First Closing) shall be paid
for by the Company at the First Closing, and the legal fees
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and expenses for all subsequent Closings (not to exceed $4,000 in legal fees
plus all expenses for the Second Closing and $2,500 for each subsequent
Closing) shall be paid for by the Company at each subsequent Closing. These
Transaction Fees are fixed at this level based upon Augsback's counsel
providing all documents necessary for a given Transaction, and receiving a
level of comments to these documents that do not require extensive
negotiations or redrafting. However, should such counsel encounter any
situation requiring extensive negotiation or redrafting of documents (for
example if, after a first closing, substantial comments are received from the
issuer or an investor or substantial revisions are required for a subsequent
Closing), the fee limits discussed above would not apply and the fees in such
case would be substantially based upon such firm's hourly rates for those
attorneys and Firm personnel performing work on that Closing.
SECTION 4.8 AUTHORIZED SHARES OF COMMON STOCK, RESERVATION OF
SHARES. The Company shall at all times, so long as any of the Repricing
Warrants are outstanding and subject to conversion, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Repricing Warrants, such number of
shares of Common Stock equal to or greater than 200% of the number of shares
of Common Stock which are issuable upon conversion of all Repricing Warrants
which are then outstanding or which could be issued at any time under this
Agreement.
SECTION 4.9 CORPORATE EXISTENCE. So long as any Repricing Warrants
remain outstanding, the Company shall not directly or indirectly consummate
any merger, reorganization, restructuring, consolidation, sale of all or
substantially all of the Company's assets, or any similar transaction or
related transactions (each such transaction, a "SALE OF THE COMPANY") except
if the surviving or successor entity in such transaction (a) expressly
assumes, in writing, the Company's obligations hereunder and under the
Registration Rights Agreement, the Repricing Warrants, and any other
agreements and instruments entered into or delivered by the Company in
connection herewith and (b) is a publicly traded corporation whose Common
Stock is listed for trading on the New York Stock Exchange, Inc., the
American Stock Exchange, or the NASDAQ National Market.
SECTION 4.10 TRANSACTIONS WITH AFFILIATES. So long as (a) any
Repricing Warrants are outstanding or (b) any Purchaser owns Repricing Shares
with a market value equal to or greater than $200,000, the Company shall not,
and shall cause each of its subsidiaries not to, enter into, amend, modify,
or supplement, or permit any subsidiary to enter into, amend, modify, or
supplement any agreement, transaction, commitment, or arrangement with any of
its or any subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock or affiliates, or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (i) customary
employment arrangements and benefit programs on reasonable terms, (ii) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (iii) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who
is also an officer of the Company or any subsidiary of the Company shall not
be disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "AFFILIATE" for purposes hereof means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (1) has a 5% or more equity interest in that person or entity,
(2) has 5% or more common ownership with that person or entity, (3) controls
that person or entity, or (4) share common control with that person or
entity. "CONTROL" or "CONTROLS" for
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purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
SECTION 4.11 TRANSFER AGENTS. The Company covenants and agrees that,
in the event that the Company's agency relationship with the transfer agent
should be terminated for any reason prior to a date which is two (2) years
after the Closing Date, the Company shall immediately appoint a new transfer
agent and shall require that the transfer agent execute and agree to be bound
by the terms of the Irrevocable Instructions to Transfer Agent.
SECTION 4.12 SHAREHOLDER APPROVAL. The Company covenants to submit
to its shareholders at its next shareholder meeting a proposal for
ratification of the issuance of the Securities, if and as required by the
rules of the National Association of Securities Dealers, Inc. (the "NASD")
applicable to the transaction.
SECTION 4.13 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
the Irrevocable Transfer Agent Instructions to its transfer agent to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Repricing Shares in such amounts as specified from time
to time by the Purchaser to the Company upon conversion of the Repricing
Warrants, except as provided in Section 4.11 herein. Prior to registration
of the Purchased Common Shares and Repricing Shares under the 1933 Act, all
such certificates shall bear the restrictive legend specified in Section 2.7
of this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 4.13, and
stop transfer instructions to give effect to Section 2.6 hereof (in the case
of the Repricing Shares, prior to registration of such shares under the 1933
Act) will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 4.13 shall affect in
any way the Purchaser's obligations and agreement to comply with all
applicable securities laws upon resale of the Purchased Common Shares or
Repricing Shares. If the Purchaser provides the Company with an opinion of
counsel, reasonably satisfactory in form, and substance to the Company, that
registration of a resale by any Purchaser of any of the Purchased Common
Shares or Repricing Shares is not required under the 1933 Act, the Company
shall permit the transfer, and, in the case of the Repricing Shares, promptly
instruct its transfer agent to issue one or more certificates in such name
and in such denominations as specified by such Purchaser. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Purchasers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 4.13
will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Section 4.13, that Purchasers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
SECTION 5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Purchased Common Shares to Purchasers at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, PROVIDED that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(a) The Purchaser shall have executed Purchaser Signature Pages
to this Agreement, the Registration Rights Agreement, and the Escrow
Agreement and delivered the same to the
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Company.
(b) Purchasers shall have delivered to the Company the Purchase
Price for the Purchased Common Shares being purchased by the Purchaser at
the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(c) The representations and warranties of the Purchaser shall
be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the
Purchaser shall have performed, satisfied, and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied, or complied with by the Purchaser
at or prior to the Closing Date.
SECTION 6. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE.
The obligation of Purchasers hereunder to purchase the Purchased Common
Shares at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, PROVIDED that these conditions are
for the Purchasers' sole benefit and may be waived by Purchasers at any time in
their sole discretion:
(a) The Company shall have executed this Agreement and the
other applicable Transaction Agreements and delivered the same to
Purchasers.
(b) The Common Stock shall be authorized for quotation on the
electronic bulletin board, over-the-counter market, AMEX, the NASDAQ
National Market, or The New York Stock Exchange, Inc., trading in the
Common Stock shall not have been suspended for any reason, and all of the
Repricing Shares issuable upon conversion of the Repricing Warrants shall
be approved for listing on the electronic bulletin board,
over-the-counter market, AMEX, the NASDAQ National Market, or The New
York Stock Exchange, Inc.
(c) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any
of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied, and complied in
all material respects with the covenants, agreements, and conditions
required by this Agreement to be performed, satisfied, or complied with
by the Company at or prior to the Closing Date. Purchasers shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by Purchasers
including, without limitation an update as of the Closing Date regarding
the representation contained in Section 3.3 above.
(d) The Purchaser shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope, and
substance reasonably satisfactory to the Purchaser and in substantially
the form of EXHIBIT E attached hereto.
(e) The Company shall have executed and delivered to the
Purchaser the Certificates (in such denominations as the Purchaser shall
request) for the Purchased Common Shares being purchased by the Purchaser
at the Closing.
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(f) The Board of Directors of the Company shall have authorized
and adopted the resolutions in substantially the form attached to the
Secretary Certificate delivered herewith.
(g) As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Repricing Warrants, such number of shares
of Common Stock equal to or greater than 200% of the number of shares of
Common Stock for which are issuable upon conversion of all of the
Repricing Warrants which could be issued at any time under this
Agreement.
(h) The Irrevocable Transfer Agent Instructions, in
substantially the form of EXHIBIT F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(i) Purchaser shall have received a certificate of the
Secretary or an Assistant Secretary of the Company dated the Closing Date
and certifying: (A) that attached thereto is a true and complete copy of
the Articles of Incorporation as then in effect, certified or bearing
evidence of filing by the Department of State of the State of Utah, and
(B) a certificate of said Department of State, dated as of a recent date
as to the due incorporation and good standing of the Company, the payment
of all franchise taxes by the Company, and listing all documents of the
Company on file with said Department of State; (C) that attached thereto
is a true and complete copy of the Bylaws of the Company as in effect on
the date of such certification; (D) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors or the
shareholders of the Company authorizing the execution, delivery, and
performance of this Agreement and the issuance, sale, and delivery of the
Purchased Common Shares, the issuance and delivery of the Repricing
Shares issuable upon conversion of the Repricing Warrants, and that all
such resolutions are in full force and effect and are all the resolutions
adopted in connection with the foregoing agreements and the transactions
contemplated thereby; (E) that the Charter has not been amended since the
date of the last amendment referred to in the certificate delivered
pursuant to clause (A) above; and (F) to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the
other Transaction Agreements, and any certificate or instrument furnished
pursuant hereto and thereto, and a certification by another officer of
the Company as to the incumbency and signature of the officer signing the
certificate.
SECTION 7. INDEMNIFICATION.
In consideration of the Purchaser's execution and delivery of this
Agreement and acquiring the Securities hereunder and in addition to all of
the Company's other obligations under this Agreement, the Company shall
defend, protect, indemnify, and hold harmless the Purchaser and each other
holder of the Securities and all of their officers, directors, employees, and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities, and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the other
Transaction Agreements or any other certificate, instrument, or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement, or
obligation of the Company contained in this
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Agreement, the other Transaction Agreements or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit, or claim brought or made against such Indemnitee and arising
out of or resulting from the execution, delivery, performance, or enforcement
of this Agreement or any other instrument, document, or agreement executed
pursuant hereto by any of the Indemnities, any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Purchased Common Shares, or the status of the Purchaser
or holder of the Purchased Common Shares or the Repricing Shares, as a
Purchaser in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
SECTION 8. GOVERNING LAW; MISCELLANEOUS.
SECTION 8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado without
regard to the principles of conflict of laws. Any dispute or controversy
between the parties arising in connection with this agreement or the subject
matter contemplated by this agreement shall be resolved by arbitration before
a three-member panel of the American Arbitration Association in accordance
with the commercial arbitration rules of said forum and the Federal
Arbitration Act, 9 U.S.C. 1 ET SEQ., with the resulting award being final and
conclusive. Said arbitrators shall be empowered to award all forms of relief
and damages claimed, including, but not limited to, attorney's fees, expenses
of litigation and arbitration, exemplary damages, and pre-judgment interest.
Notwithstanding the foregoing, Purchaser may at any time and at its option,
whether or not an arbitration action is then pending, initiate a civil action
for temporary and permanent injunctive and other equitable relief against
Company. Company acknowledges that upon any breach of Purchaser's conversion
rights hereunder, Purchaser's resulting injury may not be adequately
compensated by a remedy at law. Accordingly, upon such breach, Purchaser, at
its election and without limitation of its other remedies, shall be entitled
to pursue a claim for specific performance of this Agreement, and Company
hereby waives the right to assert any defense thereto that Purchaser has an
adequate remedy at law. The parties further agree that any arbitration
action between them shall be heard in Littleton, Colorado, and expressly
consent to the jurisdiction and venue of the Superior Court of Arapahoe
County, Colorado, and the United States District Court for the District of
Colorado, Denver Division, for the adjudication of any civil action asserted
pursuant to this Paragraph.
SECTION 8.2 COUNTERPARTS. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to
be physically delivered to the other party within five (5) days of the
execution and delivery hereof.
SECTION 8.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 8.4 SEVERABILITY. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
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<PAGE>
SECTION 8.5 ENTIRE AGREEMENT. AMENDMENTS. This Agreement supersedes
all other prior oral or written agreements between the Purchaser, the
Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant, or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged with
enforcement.
SECTION 8.6 NOTICES. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (a)
upon receipt, when delivered personally, (b) upon receipt, when sent by
facsimile, PROVIDED a copy is mailed by U.S. certified mail, return receipt
requested, (c) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (d) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
if to the Company:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: James C. Roberts, President
Telephone: (303) 357-0170
Facsimile: (303) 357-0100
with a copy (which shall not constitute notice) to:
Jody M. Walker, Esq.
7841 South Garfield Way
Littleton, Colorado 80122
Telephone: (303) 850-7637
Facsimile: (303) 220-9902
if to Transfer Agent:
Corporate Stock Transfer, Inc.
370 17th Street, Suite 2350
Denver, Colorado 80202
Attn: Compliance Department
Telephone: (303) 282-4800
Facsimile: (303) 282-5800
If to any Purchaser, to the address and facsimile number on its
Purchaser signature page attached hereto, with copies to such Purchaser's
counsel as set forth on such Purchaser's signature page. Each party shall
provide five (5) day's prior written notice to the other party of any change
in address or facsimile number.
SECTION 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns. The Company shall not assign this
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<PAGE>
Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers. Any Purchaser may assign its rights hereunder
without the consent of the Company, PROVIDED HOWEVER, that any such
assignment shall not release such Purchaser from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption.
SECTION 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
SECTION 8.9 SURVIVAL. Unless this Agreement is terminated under
Section 8.12, the representations and warranties of the Company and the
Purchaser contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5, and 6, and the indemnification provisions set forth
in Section 7, shall survive the Closing. The Purchaser shall be responsible
only for its own representations, warranties, agreements, and covenants
hereunder.
SECTION 8.10 PUBLICITY. The Company and Purchasers shall have the
right to approve, before issuance, any press releases or any other public
statements with respect to the transactions contemplated hereby; PROVIDED
HOWEVER, that the Company shall be entitled, without the prior approval of
Purchasers, to make any press release or other public disclosure with respect
to such transactions as is required by applicable law and regulations
(although the Purchaser shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
SECTION 8.11 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments, and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
SECTION 8.12 TERMINATION. In the event that the Closing shall not
have occurred with respect to the Purchaser on or before five (5) business
days from the date hereof due to the Company's or Purchasers' failure to
satisfy the conditions set forth in Sections 5 and 6 above (and the
non-breaching party's failure to waive such unsatisfied condition(s)), the
non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; PROVIDED HOWEVER, that if this
Agreement is terminated pursuant to this Section ERROR! REFERENCE SOURCE NOT
FOUND., the Company shall remain obligated to reimburse Purchasers for the
expenses described in Section 4.7 above.
SECTION 8.13 FINDER. The Company acknowledges that it has engaged a
finder in connection with the sale of the Purchased Common Shares, which
finder may have formally or informally engaged other agents on its behalf.
The Company shall be responsible for the payment of any finder's fees (which
includes cash and warrants to purchase Common Stock) relating to or arising
out of the transactions contemplated hereby.
SECTION 8.14 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
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<PAGE>
COMPANY SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, Purchasers and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written above.
COMPANY
TELECOM WIRELESS CORPORATION
By:
---------------------------
James C. Roberts,
Chief Executive Officer
[SIGNATURES OF PURCHASERS ON FOLLOWING PAGES.]
-19-
<PAGE>
PURCHASER SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
PURCHASER
[PURCHASER NAME]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
===============================================================================
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
SECURITIES PURCHASED
- -------------------------------------------------------------------------------
PURCHASE PRICE
- -------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
===============================================================================
-1-
<PAGE>
PURCHASER SIGNATURE PAGE
TO
COMMON STOCK PURCHASE AGREEMENT
PURCHASER
-----------------------------
[Individual Purchaser Name]
===============================================================================
PURCHASER NAME
("PURCHASER")
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
SECURITIES PURCHASED
- -------------------------------------------------------------------------------
PURCHASE PRICE
- -------------------------------------------------------------------------------
PURCHASER'S LEGAL COUNSEL
ADDRESS AND
FACSIMILE NUMBER
- -------------------------------------------------------------------------------
===============================================================================
-1-
<PAGE>
SCHEDULE 1
DISCLOSURE SCHEDULE
TO
COMMON STOCK
PURCHASE AGREEMENT
SECTION 3.3 CAPITALIZATION.
SECTION 3.5 CONFLICTS.
SECTION 3.6 FINANCIAL STATEMENTS.
SECTION 3.8 LITIGATION
SECTION 3.14 INTELLECTUAL PROPERTY
SECTION 3.16 LIENS
SECTION 3.21 TAX STATUS
SECTION 3.22 CERTAIN TRANSACTIONS
SECTION 4.4 USE OF PROCEEDS
-1-
<PAGE>
EXHIBIT A
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF REPRICING WARRANT
-1-
<PAGE>
EXHIBIT B
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
-1-
<PAGE>
EXHIBIT C
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF ESCROW AGREEMENT
-1-
<PAGE>
EXHIBIT D
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF PLACEMENT AGENT AGREEMENT
-1-
<PAGE>
EXHIBIT E
TO
COMMON STOCK
PURCHASE AGREEMENT
OPINION OF COMPANY COUNSEL
-1-
<PAGE>
EXHIBIT F
TO
COMMON STOCK
PURCHASE AGREEMENT
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
-1-
<PAGE>
Schedule to Common Stock Purchase Agreement
Dated September 10, 1999
Identifying Purchasers
<TABLE>
<CAPTION>
Purchaser Date No. of Shares
--------- ---- -------------
<S> <C> <C>
SovCap Equity Partners Ltd. September 10, 1999 57,143
John Kozik September 20, 1999 6,750
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TELECOM WIRELESS CORPORATION
(BUYER)
TWC/PRENTICE ACQUISITION COMPANY, INC.
(SUB)
PRENTICE TECHNOLOGIES, INC.
(TARGET)
AND
SHAWN P. RICHMOND
(SELLER)
DATED AS OF SEPTEMBER 21, 1999
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. The Merger, Conversion of Securities. . . . . . . . . . . . . . . . . . . . . .4
(a) Effective Time of the Merger . . . . . . . . . . . . . . . . . . . .4
(b) The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Deliveries at the Closing. . . . . . . . . . . . . . . . . . . . . .4
(d) Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . .5
(e) Directors and Officers . . . . . . . . . . . . . . . . . . . . . . .5
(f) Conversion of Capital Stock. . . . . . . . . . . . . . . . . . . . .5
(g) Stock Escrow Deposit . . . . . . . . . . . . . . . . . . . . . . . .6
(h) Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . .6
(i) Distributions with Respect to Unexchanged Shares . . . . . . . . . .6
(j) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . .6
3. Representations and Warranties Concerning the Transaction . . . . . . . . . . .6
(a) Representations and Warranties of Seller. . . . . . . . . . . . . .6
(i) Authorization of Transaction . . . . . . . . . . . . . . . . .6
(ii) Noncontravention . . . . . . . . . . . . . . . . . . . . . . .7
(iii) Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . .7
(iv) Target Common Stock. . . . . . . . . . . . . . . . . . . . . .7
(b) Representations and Warranties of the Buyer. . . . . . . . . . . . .7
(i) Organization of the Buyer. . . . . . . . . . . . . . . . . . .7
(ii) Authorization of Transaction . . . . . . . . . . . . . . . . .7
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . . . . .7
(iv) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . .8
(v) Investment . . . . . . . . . . . . . . . . . . . . . . . . . .8
(vi) Capitalization . . . . . . . . . . . . . . . . . . . . . . . .8
(vii) Buyer Action . . . . . . . . . . . . . . . . . . . . . . . . .8
(viii)Interim Operations of Sub. . . . . . . . . . . . . . . . . . .8
4. Representations and Warranties Concerning Target. . . . . . . . . . . . . . . .8
(a) Organization, Qualification, and Corporate Power . . . . . . . . . .8
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(c) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . .9
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(e) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .9
(f) Events Subsequent to the Most Recent Fiscal Year End . . . . . . . .9
(g) Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . 11
(h) Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) Tangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 11
(j) Owned Real Property. . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 11
(l) Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . 12
(m) Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(n) Notes and Accounts Receivable. . . . . . . . . . . . . . . . . . . 13
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<PAGE>
(o) Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . 13
(p) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(q) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(r) Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(s) Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 14
(t) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(u) Environment, Health, and Safety. . . . . . . . . . . . . . . . . . 15
(v) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 16
(w) Certain Business Relationships with Target . . . . . . . . . . . . 17
(x) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(y) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(z) Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(aa) Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(bb) Accounting Controls. . . . . . . . . . . . . . . . . . . . . . . . 18
(cc) Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . 18
(dd) Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . . 18
(ee) Personal Guaranty Obligations. . . . . . . . . . . . . . . . . . . 18
5. [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Additional Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Litigation Support . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(e) Termination of Bank Facilities; Release of Guaranties. . . . . . . 19
(f) Monitoring Information . . . . . . . . . . . . . . . . . . . . . . 19
(g) Landlords' Consents. . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Additional Tax Matters . . . . . . . . . . . . . . . . . . . . . . 19
(i) Covenant Not to Solicit. . . . . . . . . . . . . . . . . . . . . . 20
(j) Operation of Business. . . . . . . . . . . . . . . . . . . . . . . 20
(k) Access and Information . . . . . . . . . . . . . . . . . . . . . . 21
(l) Appropriate Action; Consents; Filings. . . . . . . . . . . . . . . 21
(m) Event Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(n) Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(o) Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(p) Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . 22
(q) Resignation of Target Directors. . . . . . . . . . . . . . . . . . 22
(r) Post-Closing Operation of Target . . . . . . . . . . . . . . . . . 22
(s) Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(t) Other Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(u) Continuity of Business Enterprise. . . . . . . . . . . . . . . . . 25
7. Conditions to Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Conditions to Obligation of the Buyer. . . . . . . . . . . . . . . 25
(b) Conditions to Obligations of the Seller. . . . . . . . . . . . . . 27
8. Remedies for Breaches of This Agreement . . . . . . . . . . . . . . . . . . . 28
(a) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-ii-
<PAGE>
(b) Indemnification Provisions for Benefit of the Buyer. . . . . . . . 28
(c) Indemnification Provisions for Benefit of the Seller . . . . . . . 29
(d) Matters Involving Third Parties. . . . . . . . . . . . . . . . . . 29
(e) Determination of Loss. . . . . . . . . . . . . . . . . . . . . . . 30
(f) Other Indemnification Provisions . . . . . . . . . . . . . . . . . 30
(g) Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 30
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . 30
(b) Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . 31
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . . 31
(b) Press Releases and Announcements . . . . . . . . . . . . . . . . . 31
(c) No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . 31
(d) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Succession and Assignment. . . . . . . . . . . . . . . . . . . . . 31
(f) Facsimile/Counterparts . . . . . . . . . . . . . . . . . . . . . . 31
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(i) Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . 33
(j) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 33
(k) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(l) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(m) Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(n) Incorporation of Exhibits, Annexes, and Schedules. . . . . . . . . 34
(o) Specific Performance . . . . . . . . . . . . . . . . . . . . . . . 34
(p) Buyout Option. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Richmond Employment Agreement
Exhibit C Form of Opinion of Seller's Legal Counsel
Exhibit D Form of Stock Escrow Agreement
Exhibit E Form of Promissory Note
ANNEXES
Annex I Exceptions to Representations and Warranties of Buyer
SCHEDULES
Disclosure Schedule of Target and Seller
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("AGREEMENT") is entered into as of
the 21st day of September, 1999, by and among TELECOM WIRELESS CORPORATION, a
Utah corporation (the "BUYER"), TWC/PRENTICE ACQUISITION COMPANY, INC., a
Delaware corporation and wholly-owned subsidiary of Buyer ("SUB"), PRENTICE
TECHNOLOGIES, INC., a Delaware corporation ("TARGET"), and SHAWN P. RICHMOND
(the "SELLER"). The Buyer and the Seller are referred to herein individually
as a "PARTY" and collectively as the "PARTIES."
RECITALS
A. The Boards of Directors of Buyer, Sub and Target deem it
advisable and in the best interests of each corporation and their respective
stockholders that Buyer and Target combine in order to advance the long-term
business interests of Buyer and Target.
B. The combination of Buyer and Target shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with
and into Target and Target will become a subsidiary of Buyer (the "MERGER").
C. Seller has been an officer of Buyer since April 1, 1999.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and
court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"APPLICABLE RATE" means the announced prime rate in effect from time to
time at Texas Commerce Bank, National Association plus two percent (2%) per
annum.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms the basis for any specified
consequence.
"BUSINESS" means the business of the Target as currently conducted in
the Ordinary Course of Business, including, without limitation, lines of
business with respect to internet service providers, application service
providers and competitive local exchange carriers.
"BUYER" has the meaning set forth in the preface above.
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<PAGE>
"BUYER COMMON STOCK" means the shares of Buyer's Common Stock, par value
of $0.001 per share.
"CLOSING" has the meaning set forth in SECTION 2(b) below.
"CLOSING DATE" has the meaning set forth in SECTION 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and trade
secrets of Target and Surviving Company including, without limitation, the
identity, lists or descriptions of any customers, referral sources or
organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee
structure; and management systems, policies or procedures, including related
forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"CUSTOMER CONTRACT OR AGREEMENT" means any agreement whereby Target
provides contract computer support and/or consulting services to a third
party.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Treas.
Reg. Sec. 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in SECTION 4 below.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in SECTION
3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4(e) below.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 8(d) below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing, and business data, pricing
and cost information, business and marketing plans, and customer and supplier
lists
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and information), (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means, the person having such knowledge, actual knowledge
after reasonable investigation and inquiry, which inquiry shall include an
inquiry of the inquirer's or, in the case of the Target the Target's,
employees with responsibility for the matters in question.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated
or unliquidated, and whether due or to become due) including any liability
for Taxes.
"MERGER" has the meaning given it in the recitals.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in SECTION
4(e) below as the same may be adjusted prior to the Closing with the mutual
consent of Parties.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in SECTION 4(e)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET WORKING CAPITAL OF TARGET" means total current assets of Target
less the sum of the following: (i) total current liabilities (including, but
not limited to, all deferred Taxes), and (ii) any long-term debt of Target,
determined in accordance with GAAP, consistently applied.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PERSONAL GUARANTY OBLIGATIONS" means the personal guarantees made by
Shawn P. Richmond pursuant to the agreements identified in SECTION 4(ee) of
the Disclosure Schedule.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's
and similar liens, (b) liens for Taxes not yet due and payable (or for Taxes
that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under workers' compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods
in transit incurred pursuant to documentary letters of credit, (f) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (g) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
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"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET COMMON STOCK" means the outstanding shares (on a fully diluted
basis) of the Common Stock, $0.0001 par value per share, of Target.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. THE MERGER, CONVERSION OF SECURITIES.
(a) EFFECTIVE TIME OF THE MERGER.
(i) Subject to the provisions of this Agreement,
articles of merger (the "ARTICLES OF MERGER") in such mutually acceptable
form as is required by the relevant provisions of the Delaware General
Corporation Law ("DELAWARE LAW") shall be duly executed and delivered by the
Parties hereto and thereafter delivered to the Secretary of State of the
State of Delaware for filing on the Closing Date (as defined below).
(ii) Subject to the provisions of this Agreement, a
certificate of merger (the "CERTIFICATE OF MERGER") in such mutually
acceptable form as is required by the relevant provisions of the Delaware
General Corporation Law ("DELAWARE LAW") shall be duly executed and delivered
by the Parties hereto and thereafter delivered to the Secretary of State of
the State of Delaware for filing on the Closing Date (as defined below).
(iii) The Merger shall become effective upon the due and
valid filing of the Articles of Merger with the Secretary of State of the
State of Delaware and the due and valid filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at such time
thereafter as is provided in the Agreement or the Articles of Merger (the
"EFFECTIVE TIME").
(b) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Buyer in
5299 DTC Boulevard, 12th Floor, Englewood, Colorado 80111 commencing at 9:00
a.m. local time on the first business day following the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby, or such other date as the Buyer and the
Seller may mutually determine (the "CLOSING DATE"); PROVIDED, HOWEVER, that
the Closing Date shall be no later than September 24, 1999.
(c) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller
will deliver to the Buyer the various certificates, instruments, and
documents referred to in SECTION 7(a) below, (ii) the Buyer will deliver to
the Seller the various certificates, instruments, and documents referred to
in SECTION 7(b) below, (iii) the Seller will deliver to the Buyer stock
certificates representing all of its Target Common Stock, endorsed in blank
or accompanied by duly executed assignment documents, (iv) the Buyer will
deliver to the Seller the consideration specified in SECTION 2(f) below, and
(v) the Buyer will deliver to Seller evidence satisfactory to Seller that the
board of directors of Buyer have approved and authorized the issuance of the
shares described in SECTION 2(f) of this Agreement, and the Employment
Agreement of the Seller, in the form attached hereto as EXHIBIT B, and the
grant of the stock options described therein.
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(d) EFFECTS OF THE MERGER.
(i) At the Effective Time (i) the separate existence
of Sub shall cease and Sub shall be merged with and into Target (Sub and
Target are sometimes referred to herein as the "CONSTITUENT CORPORATIONS" and
Target following consummation of the Merger is sometimes referred to herein
as the "SURVIVING CORPORATION"), (ii) the Articles of Incorporation of Target
shall be the Articles of Incorporation of the Surviving Corporation, and
(iii) the Bylaws of Target as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation.
(ii) At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, at and after the Effective Time,
the Surviving Corporation shall possess all the rights, privileges, powers
and franchises, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations.
(e) DIRECTORS AND OFFICERS. The directors of Sub immediately
prior to the Effective Time shall become the directors of the Surviving
Corporation; provided that Seller shall have the right to appoint one
director of Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation, and the
officers of Sub immediately prior to the Effective Time shall become the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
(f) CONVERSION OF CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Target Common Stock or capital stock of Sub:
(i) CAPITAL STOCK OF SUB. Each of the 900 issued and
outstanding shares of the capital stock of Sub shall be converted into and
become one fully paid and nonassessable share of Common Stock, $0.0001 par
value, of the Surviving Corporation.
(ii) CANCELLATION OF BUYER-OWNED AND TARGET-OWNED
STOCK. Any shares of Target Common Stock that are owned by Buyer, Sub,
Target or any other direct or indirect wholly-owned Subsidiary of Buyer or
Target shall be canceled and retired and shall cease to exist and no stock of
Buyer or other consideration shall be delivered in exchange.
(iii) EXCHANGE OF TARGET COMMON STOCK.
(A) Shares owned by Seller. Seller shall
receive, (i) in exchange for shares of Target Common Stock representing
10% of the outstanding stock in Target, 100 shares of common stock in
Surviving Corporation (which equals 10% of the fully outstanding common
stock in the Surviving Corporation), and (ii) in exchange for each
remaining share of Target Common Stock (consisting of 3,888,889 shares,
in the aggregate): (y) 0.089143 (the "EXCHANGE RATIO") shares of Buyer
Common Stock and (z) $0.06525077, which will be paid pursuant to a
promissory note as specified in greater detail in SECTION 7(b)(xiii)
below.
(B) All shares of Target Common Stock, when
converted pursuant to this SECTION 2(f)(iii), shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to
receive the shares of Buyer Common Stock and/or stock in Surviving
Corporation (as specified in Subsection 2(f)(iii)(A)) upon the surrender of
such certificate in accordance with SECTION 2(h), without interest.
(C) If, on or after the date of this Agreement
and prior to the Effective Time, the outstanding shares of Buyer capital
stock or Target Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
split-up, stock dividend or stock combination, then the Exchange Ratio
shall be correspondingly adjusted.
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(g) STOCK ESCROW DEPOSIT. On the Closing Date, 200,000 shares
of Buyer Common Stock, in addition to the shares issued pursuant to SECTION
2(f), shall be delivered by the Buyer to an escrow agent pursuant to an
escrow agreement to be entered into as of the date hereof in substantially
the form attached hereto as EXHIBIT D (the "STOCK ESCROW AGREEMENT"). Buyer
agrees to prepare and file, at its expense, a registration statement with the
Securities and Exchange Commission (the "SEC") covering the Escrow Stock upon
the earlier of (i) such time as Buyer undertakes to register other Buyer
Common Stock, subject to underwriter approval and commitments made to selling
shareholders, on a piggyback basis, (ii) on demand in the event the fair
market value of the Escrow Stock is less than 150% of the Personal Guaranty
Obligations, or (iii) upon demand by Buyer, at any time after one year after
the Closing Date.
(h) EXCHANGE OF CERTIFICATES From and after the Effective
Time, each holder of an outstanding certificate or certificates which
represented shares of Target Common Stock immediately prior to the Effective
Time ("CERTIFICATES") shall have the right to surrender each Certificate to
Buyer (or at Buyer's option, an exchange agent to be appointed by Buyer), and
receive promptly in exchange for all Certificates held by such holder a
certificate representing the number of whole shares of Buyer Common Stock
and/or stock of Surviving Corporation into which the Target Common Stock
evidenced by the Certificates so surrendered shall have been converted
pursuant to the provisions of ARTICLE 2 of this Agreement. From and after
the Effective Time, there shall be no further registration of transfers on
the records of Surviving Company or Target of shares of Target Common Stock
outstanding immediately prior to the Effective Time.
(i) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES No
dividends or other distributions declared or made after the Effective Time
with respect to Buyer capital stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Buyer capital stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Buyer capital stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any
dividends or other distributions with a record date after the Effective Time
previously paid with respect to such whole shares of Buyer capital stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Buyer capital stock.
(j) NO FRACTIONAL SHARES. No certificate or scrip
representing fractional shares of Buyer Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a shareholder
of Buyer. The total number of shares of Buyer Common Stock and shares of
stock of Surviving Corporation issuable to any single holder of Target Common
Stock shall be rounded down to the nearest whole share.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF TARGET. Target
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth below, the statements contained in
this SECTION 3(a) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this
Agreement throughout this SECTION 3(a)) with respect to itself, except as set
forth in the Disclosure Schedule (as defined in SECTION 4 below) to be
delivered by the Target to the Buyer on or before the execution of this
Agreement, and initialed by the Parties.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been duly
executed and delivered by the Seller. This Agreement constitutes
the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable
principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally,
and to general equity principles, and
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(B) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding
therefore may be brought (the terms of clause (A) and (B) are
sometimes collectively referred to as the "EQUITABLE
EXCEPTIONS"). The Seller need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement by the Seller, nor the consummation of
the transactions contemplated hereby by the Seller, will (A)
violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any part
the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject.
(iii) BROKER'S FEES. Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with whom Seller has contracted with respect to the
transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(iv) TARGET COMMON STOCK. The Seller owns
beneficially, and will own of record and beneficially at the
Closing Date, the number of Target Common Stock set forth next to
its name in SECTION 4(b) of the Disclosure Schedule, free and clear
of any restrictions on transfer (other than any restrictions under
the Securities Act and state securities laws), claims, Taxes,
Security Interests, options, warrants, rights, contracts, calls,
commitments, equities, and demands. The Seller is not a party to
any option, warrant, right, contract, call, put, or other agreement
or commitment providing for the disposition or acquisition of any
capital stock of Target (other than this Agreement). Except as set
forth in SECTION 3(a)(iv) the Disclosure Schedule, the Seller is
not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller that the statements contained in this
SECTION 3(b) are correct and complete in all respects as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this SECTION 3(b)), except as set forth in ANNEX I
attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a
corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full
power and authority (including full corporate power and authority)
to execute and deliver this Agreement and to perform its
obligations hereunder and this Agreement has been duly executed and
delivered by the Buyer. This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions except for the Equitable Exceptions.
The Buyer need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement by the Buyer, nor the consummation of
the transactions contemplated hereby by the Buyer, will (A) violate
any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is
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subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
material contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other arrangement
to which the Buyer is a party or by which it is bound or to which
any of its assets is subject and which has a adverse effect on
Buyer.
(iv) BROKERS' FEES. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement for which the Seller could become liable or obligated.
(v) INVESTMENT. The Buyer is not acquiring Target
Common Stock with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
(vi) CAPITALIZATION. The entire authorized capital
stock of Buyer consists of 100,000,000 shares of capital stock,
14,999,135 of which are issued and outstanding as of June 24, 1999.
All of the issued and outstanding shares of Buyer Common Stock have
been duly authorized, are validly issued, fully paid, and
nonassessable.
(vii) BUYER ACTION. The Board of Directors of Buyer and
Sub, by unanimous written consent or at a meeting duly called and
held, has by the unanimous vote of all directors (i) determined
that the Merger is fair and in the best interests of Buyer and Sub
and their respective stockholders, (ii) approved the Merger and
this Agreement in accordance with the provisions of Colorado and
Delaware Law, and (iii) directed that this Agreement and the Merger
be submitted to Sub stockholders for their approval and resolved to
recommend that Sub stockholders vote in favor of the approval of
this Agreement and the Merger.
(viii) INTERIM OPERATIONS OF SUB. Sub was formed solely
for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Target
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this SECTION 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this SECTION 4), except as set forth in the Disclosure Schedule to
be delivered by the Target to the Buyer concurrently with the execution of
this Agreement (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in SECTIONS 3 AND 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification. Target has full
corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. SECTION 4(a)
of the Disclosure Schedule lists the directors and officers of Target. The
Seller has delivered to the Buyer correct and complete copies of the charter
and bylaws of Target (as amended to date). The minute books containing the
records of meetings and/or resolutions of the stockholders, the board of
directors, and any committees of the board of directors, the stock
certificate books, and the stock record books of Target are or will be
correct and complete at the Closing Date. Target is not in default under or
in violation of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of
Target consists of 10,000,000 shares of capital stock, 3,888,889 of which
shall be issued and outstanding as of the Closing Date and no Target Common
Stock are held in treasury. All of the issued and outstanding Target Common
Stock has been duly
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authorized, are validly issued, fully paid, and nonassessable, and are held
of record by the Seller. There are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements or commitments to which Target is a party or
which are binding upon Target providing for the issuance, disposition, or
acquisition of any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, or similar rights with respect
to Target. There are no voting trusts, proxies, or any other agreements or
understandings with respect to the voting of the capital stock of Target.
(c) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any material contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest, or other arrangement to
which Target is a party or by which it is bound or to which any of its assets
is subject (or result in the imposition of any Security Interest upon any of
its assets). Target does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) SUBSIDIARIES. Target has no Subsidiaries and Target does
not control, directly or indirectly, or have any direct or indirect equity
participation in, any corporation, partnership, limited liability company,
organization or other business association.
(e) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) drafts of compiled balance sheets and statements of income, changes in
stockholder's equity, and cash flows as of and for the year ended December
31, 1998 (the "MOST RECENT FISCAL YEAR END") and for the year ended December
31, 1997 for Target; and (ii) unaudited balance sheets and statements of
income, changes in stockholder's equity, and cash flow (the "MOST RECENT
FINANCIAL STATEMENTS") as of and for the three months ended March 31, 1999
(the "MOST RECENT FISCAL MONTH END") prepared by Buyer's certified public
accountant. To Target's Knowledge, the Financial Statements fairly represent
the financial condition of the Target. At the Closing Date, the Financial
Statements shall be correct and complete, fairly present the financial
condition of Target as of such dates, and shall be consistent with the books
and records of Target (which books and records are correct and complete).
(f) EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL YEAR END.
Since the Most Recent Fiscal Year End, except as set forth on the Disclosure
Schedule, there has not been any adverse change in the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of Target. Without limiting the generality of the foregoing since
that date:
(i) Target has not sold, leased, transferred, or
assigned any of its significant assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of
Business;
(ii) Target has not entered into any contract, lease,
sublease, license or sublicense (or series or related contracts,
leases, subleases, licenses and sublicenses) either involving more
than $30,000 or outside the Ordinary Course of Business;
(iii) Target has not accelerated, terminated, modified,
or canceled any contract, lease, sublease, license or sublicense
(or series of related contracts, leases, subleases, licenses and
sublicenses) involving more than $50,000, in the aggregate, to
which Target is a party or by which it is bound;
(iv) no party has notified Target of any acceleration,
termination modification or cancellation of any Customer Contract
or any contract, agreement, lease, sublease, license or sublicense
(or series of related contracts, leases, subleases, licenses and
sublicenses), other than any
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employment or consulting agreements entered into in the Ordinary
Course of Business, involving more than $25,000 to which a Target
is a party or by which it is bound;
(v) Target has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(vi) Target has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$50,000 individually or $100,000 in the aggregate, or outside the
Ordinary Course of Business;
(vii) Target has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any
other person (or series of related capital investments, loans, and
acquisitions) either involving more than $50,000 individually or
$100,000 in the aggregate;
(viii) Target has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease
obligations) either involving more than $50,000 in the aggregate or
outside the Ordinary Course of Business;
(ix) Target has not delayed or postponed (beyond its
normal practice) the payment of accounts payable and other
Liabilities;
(x) Target has not canceled, compromised, waived, or
released any right or claim (or series of related rights and
claims) either involving more than $50,000 in the aggregate or
outside the Ordinary Course of Business;
(xi) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xii) there has been no change made or authorized in the
charter or bylaws of Target;
(xiii) Target has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion or
exercise) any of its capital stock;
(xiv) Except for distributions to Seller to pay its
income tax liabilities (but not cash-to-accrual tax liabilities),
Target has not declared, set aside, or paid any dividend or
distribution with respect to its capital stock nor redeemed,
purchased, or otherwise acquired any of its capital stock;
(xv) Target has not made any consulting or other
payment to the Seller outside the Ordinary Course of Business;
(xvi) Target has not experienced any damage, destruction
or loss involving more than $50,000 in the aggregate (whether or
not covered by insurance) to its property;
(xvii) Target has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business involving more
than $50,000 in the aggregate giving rise to any claim or right on
its part against the person or on the part of the person against it;
(xviii) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement with
any of its full-time staff employees;
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(xix) Target has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees;
(xx) Target has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract or commitment for any of
its directors, officers, and employees, or modified or terminated
any existing such plan, contract or commitment;
(xxi) Target has not made any other material change in
employment terms for any of its directors, officers, and full-time
staff employees;
(xxii) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary
Course of Business;
(xxiii) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving Target; and
(xxiv) Target has not committed to any of the foregoing.
(g) UNDISCLOSED LIABILITIES. To the best of Target's
Knowledge, Target does not have any Liability which is in excess of $50,000
in the aggregate, except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto), and (ii)
Liabilities which have arisen after the Most Recent Fiscal Year End in the
Ordinary Course of Business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of law or arose out of
any charge, complaint, action, suit, proceedings, hearing, investigation,
claim, or demand).
(h) TAX MATTERS. The Target has filed all federal, state,
local and foreign income withholding and franchise Tax Returns which have
been required to be filed and have paid all Taxes indicated by said returns
and all assessments received by them or any of them to the extent such Taxes
have become due and payable. The Target does not have any tax deficiency or
claim outstanding, proposed or assessed. The Target has provided to Buyer
true and complete copies of all federal and state income Tax Returns for its
past five Tax years or such shorter period of time that Target has been in
existence.
(i) TANGIBLE ASSETS. Target owns or leases all material
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted.
(j) OWNED REAL PROPERTY. Target does not own nor does it have
any interest in any real property or improvements thereon (other than the
leases disclosed in SECTION 4(j) of the Disclosure Schedule, and the
leasehold improvements relating to the same) nor does Target have any
options, agreements or contracts under which it has the right or obligation
to acquire any interest in any real property or improvements (other than as
disclosed in SECTION 4(j) of the Disclosure Schedule).
(k) INTELLECTUAL PROPERTY. The Target owns or possesses
adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations,
trade secretes and rights necessary to conduct the business as now conducted
(the "TARGET INTELLECTUAL PROPERTY RIGHTS"). Except as set forth in SECTION
4(k) of the Disclosure Schedule, none of the Target Intellectual Property
Rights have expired or terminated or are expected to expire or terminate
during the five year period beginning on the date of execution of this
Agreement. Target does not have any knowledge that the Target Intellectual
Property Rights infringe on the similar rights of others or of any
development of similar or identical intellectual property rights by others
and, except as set forth in SECTION 4(k) of the Disclosure Schedule, there is
no claim, action or proceeding being made or brought against or, to the
Target's Knowledge, being threatened against the Target regarding trademarks,
trade names, patents, patent rights, inventions, copyrights, licenses,
service names, service marks, service mark registrations, trade secrets or
other infringement and the Target is unaware of
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any facts or circumstances which might give rise to any of the foregoing.
The Target has taken reasonable security measures to protect the secrecy,
confidentiality and value of all if its Intellectual Property Rights.
(l) REAL PROPERTY LEASES. SECTION 4(l) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
Target. Target has delivered to the Buyer correct and complete copies of the
leases and subleases listed in SECTION 4(l) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in SECTION
4(l) of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable
Exceptions;
(ii) the execution, delivery and performance of this
Agreement by the Seller and Target will not invalidate or make
unenforceable any lease or sublease;
(iii) Target is not and no other party to the lease or
sublease is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(iv) Target has not and no other party to the lease or
sublease has repudiated any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(vii) all facilities leased or subleased by Target
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and
regulations;
(m) CONTRACTS. SECTION 4(m) of the Disclosure Schedule lists
the following contracts, agreements, Customer Contracts or Agreements and
other written arrangements to which Target is a party:
(i) any written arrangement (or group of related
written arrangements) for the lease of personal property from or
to third parties providing for lease payments in excess of
$30,000 per annum;
(ii) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property or
for the furnishing or receipt of services which either calls for
performance over a period of more than one year or involves more
than the sum of $30,000;
(iii) any written arrangement concerning a limited
liability company, partnership or joint venture;
(iv) any written arrangement (or group of related
written arrangements) under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or
guarantee) indebtedness (including capitalized lease obligations)
involving more than $30,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or
intangible;
(v) any written arrangement requiring confidentiality
or noncompetition;
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(vi) any written arrangement involving the Seller and
its Affiliates;
(vii) any written arrangement with any of its directors,
officers, and employees in the nature of a collective bargaining
agreement, employment agreement, or severance agreement;
(viii) any written arrangement under which the
consequences of a default or termination could have an adverse
effect on the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of Target;
(ix) any written Customer Contract or Agreement; or
(x) any other written arrangement (or group of related
written arrangements) either involving more than $30,000 or not
entered into in the Ordinary Course of Business.
Target has delivered to the Buyer a correct and complete copy of each
written arrangement listed in SECTION 4(m) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A)
the written arrangement is legal, valid, binding, enforceable, and in full
force and effect, subject to the Equitable Exceptions; (B) the written
arrangement will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the Closing; (C) Target is
not, nor is any other party, in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration, under the written
arrangement; and (D) Target is not, nor has any other party, repudiated any
provision of the written arrangement. Target is not a party to any verbal
contract, agreement, or other arrangement which, if reduced to written form,
would be required to be listed in SECTION 4(m) of the Disclosure Schedule
under the terms of this SECTION 4(m). No unfilled Customer Contract or
Agreement obligating Target to perform services will result in a loss to
Target upon completion of performance. No customer of Target which accounts
for more than $50,000 of the annualized revenues of Target has indicated to
the Seller within the past year that it will stop, or decrease the rate of,
buying services from it.
(n) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on its books and records, are
valid receivables subject to no setoffs or counterclaims, are presently
current and collectible, and will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Target.
(o) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(p) INSURANCE. SECTION 4(p) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target has
been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past five (5) years:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings
are calculated and operate) of coverage; and
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(v) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy (A) Target is not in breach
or default (including with respect to the payment of premiums or the giving
of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination,
modification, or acceleration, under the policy; and (B) to the Knowledge of
the Seller, no party to the policy has repudiated any provision thereof.
Target has been covered during the past five (5) years by insurance in scope
and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. SECTION 4(p) of the Disclosure
Schedule describes any self-insurance arrangements affecting Target.
(q) LITIGATION. SECTION 4(o) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any unsatisfied
judgment, order, decree, stipulation, injunction, or charge or (ii) is a
party or, to the Knowledge of the Target, is threatened to be made a party to
any charge, complaint, action, suit, proceeding, hearing, or investigation of
or in any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as
specifically described on SECTION 4(o) of the Disclosure Schedule, no matter
listed thereon could individually result in a material adverse effect to
Target. Neither the Seller nor any of the directors or the officers (or
employees with responsibility for litigation matters) of Target has any
reason to believe that any such charge, complaint, action, suit, proceeding,
hearing, or investigation may be brought or threatened against Target.
(r) EMPLOYEES. To the Knowledge of the Target, no key employee
or full-time group of employees has any plans to terminate employment with
Target. Target is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. To the Knowledge
of Target, Target has not committed any unfair labor practice. Target has no
Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of Target.
(s) EMPLOYEE BENEFITS. SECTION 4(s) of the Disclosure Schedule
lists all Employee Benefit Plans that Target maintains or to which Target
contributes for the benefit of any current or former employee of Target.
(i) Each Employee Benefit Plan (and each related trust
or insurance contract) complies in form and in operation in all
respects with the applicable requirements of ERISA and the Code.
(ii) All required reports and descriptions, if any,
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each Employee Benefit
Plan. The requirements of Part 6 of Subtitle B of Title I of
ERISA and of Code Sec. 4980B have been met with respect to each
Employee Welfare Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each Employee
Pension Benefit Plan or accrued in accordance with the past
custom and practice of Target. All premiums or other payments
which are due for all periods ending on or before the Closing
Date have been paid with respect to each Employee Welfare Benefit
Plan.
(iv) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Sec. 401(a) and has received, within the last two
years, a favorable determination letter from the Internal Revenue
Service.
(v) The market value of assets under each Employee
Pension Benefit Plan (other than any Multiemployer Plan) equals
or exceeds the present value of Liabilities thereunder
(determined on an accumulated benefit obligation basis) as of the
last day of the most recent plan year. No Employee
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Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of a
Reportable Event as to which notices would be required to be
filed with the PBGC. No proceeding by the PBGC to terminate any
Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been instituted or, to the Knowledge of the Seller and
directors and officers (and employees with responsibility for
employee benefits matters) of Target, threatened.
(vi) There have been no Prohibited Transactions with
respect to any Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or investment
of the assets of any Employee Benefit Plans. No charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, or demand with respect to the administration or the
investment of the assets of any Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of
the Seller and the directors and officers (and employees with
responsibility for employee benefits matters) of Target,
threatened. Neither the Seller nor any of the directors or the
officers (or employees with responsibility for litigation
matters) of Target has any Knowledge of any Basis for any such
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand.
(vii) The Target has delivered to the Buyer correct and
complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received
from the Internal Revenue Service, (C) the most recent Form 5500
Annual Report, and (D) all related trust agreements, insurance
contracts, and other funding agreements which implement each
Employee Benefit Plan.
Target does not contribute to, has never contributed to, nor ever has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan. Target has
not incurred, and neither the Seller nor any of the directors or the officers
(or employees with responsibility for litigation matters) of Target has any
reason to expect that Target will incur, any Liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal Liability) or under the Code with respect to any Employee
Pension Benefit Plan that Target and the Controlled Group of Corporations
which includes Target maintains or ever has maintained or to which any of
them contributes, ever has contributed, or ever has been required to
contribute. Target does not maintain, nor has it ever maintained or
contributed to, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing health, accident, or life insurance benefits
to former employees, their spouses, or their dependents (other than in
accordance with Code Sec. 162(k)).
(t) GUARANTIES. Target is not a guarantor nor is it otherwise
liable for any Liability or obligation (including indebtedness) of any other
person.
(u) ENVIRONMENT, HEALTH, AND SAFETY.
(i) Target and its respective predecessors and Affiliates
have complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments
(and all agencies thereof) concerning the environment, public
health and safety, and employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced against any
of them alleging any failure to comply with any such law or
regulation.
(ii) Target has no Liability (and, to the best of
Target's Knowledge, there is no Basis related to the past or
present operations, properties, or facilities of Target and its
respective predecessors and Affiliates for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against Target giving rise to any
Liability) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation
and Recovery Act of 1976, the Federal Water Pollution Control Act
of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act
of 1974, the Toxic Substances Control Act of 1976, the Refuse Act
of 1899, or the Emergency Planning and Community Right-to-Know
Act of 1986 (each as
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amended), or any other law (or rule or regulation thereunder) of
any federal, state, local, or foreign government (or agency
thereof), concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection
of the environment.
(iii) Target has no Liability (and Target, and its
respective predecessors or Affiliates have not handled or
disposed of any substance, arranged for the disposal of any
substance, or owned or operated any property or facility in any
manner that could form the Basis for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant
to any statute) against Target giving rise to any Liability) for
damage to any site, location, or body of water (surface or
subsurface) or for illness or personal injury.
(iv) Target has no Liability (and to the best of
Target's Knowledge, there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against Target giving rise to any
Liability) under the Occupational Safety and Health Act, as
amended, or any other law (or rule or regulation thereunder) of
any federal, state, local, or foreign government (or agency
thereof) concerning employee health and safety.
(v) Target does not have any Liability (and to the best
of Target's Knowledge, Target has not exposed any employee to any
substance or condition that could form the Basis for any present
or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant
to statute) against Target giving rise to any Liability) for any
illness of or personal injury to any employee.
(vi) Target has obtained and been in compliance in all
respects with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and
has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all federal,
state, local, and foreign laws (including rules, regulations,
codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health
and safety, worker health and safety, and pollution or protection
of the environment, including laws relating to emissions,
discharge, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
(vii) To the best of Target's Knowledge, all properties
and equipment used in the business of Target have been free of
asbestos, PCB's, methylene chloride, trichloroethylene, 1,2
trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.
(viii) To the best of Target's Knowledge, no pollutant,
contaminant, or chemical, industrial, hazardous, or toxic
material or waste ever has been buried, stored, spilled, leaked,
discharged, emitted, or released on any real property that Target
owns or ever has owned or that Target leases or ever has leased.
(v) LEGAL COMPLIANCE. Except as it would not, individually or
in the aggregate, have a material adverse effect:
(i) Target has, to the best of Target's Knowledge,
complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments
(and all agencies thereof). No charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has
been filed or commenced against Target which is currently pending
and alleges any failure to comply with any such law or regulation.
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(ii) Target has, to the best of Target's Knowledge,
complied with all applicable laws (including rules and
regulations thereunder) relating to the employment of labor
(including but not limited to the engagement of independent
contractors under the Fair Labor Standards Act of 1938, as
amended, and the rules and regulations promulgated thereunder),
employee civil rights, hiring of engaging non-United States
citizens, and equal employment opportunities.
(iii) To the best of Target's Knowledge, Target has not
violated in any respect or received a notice or charge asserting
any violation of the Sherman Act, the Clayton Act, the
Robinson-Patman Act, or the Federal Trade Act, each as amended.
(iv) To the best of Target's Knowledge, Target has not:
(A) made or agreed to make any contribution,
payment, or gift of funds or property to any governmental
official, employee, or agent where either the
contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or
foreign jurisdiction;
(B) established or maintained any unrecorded
fund or asset for any purpose, or made any false entries
on any books or records for any reason; or
(C) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for federal, state, local,
or foreign public office in excess of $500.
(v) Target has filed in a timely manner all reports,
documents, and other materials it was required to file (and the
information contained therein was correct and complete in all
respects) under all applicable laws (including rules and
regulations thereunder).
(vi) Target has possession of all records and documents
it was required to retain under all applicable laws (including
rules and regulations thereunder).
(w) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Except as set
forth in SECTION 4(w) of the Disclosure Schedule, Target has not been
involved in any business arrangement or relationship with Seller or his
Affiliates within the past twenty-four (24) months, and neither the Seller
nor its Affiliates owns any material property or right, tangible or
intangible, which is used in the business of Target.
(x) BROKERS' FEES. Target does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or similar
representative with respect to the transactions contemplated by this
Agreement.
(y) DISCLOSURE. The representations and warranties contained
in this SECTION 4 as amended, modified and/or supplemented by the Disclosure
Schedules do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in
this SECTION 4 not misleading.
(z) INVENTORY Target has no inventory.
(aa) WARRANTIES To the best of Target's Knowledge, each
product or service sold, leased, or delivered by the Target has been in
conformity with all applicable contractual commitments and all express and
implied warranties in all material respects, and the Target has no Liability
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for warranty claims set forth in the Most Recent
Financial Statements as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Target. No
product or service, sold, leased, or delivered by the Target is subject to
any guaranty, warranty, or other indemnity beyond the standard terms and
conditions of sale or lease. SECTION 4(aa) of the Disclosure Schedule
includes copies of
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the standard terms and conditions of sale or lease for the products or
services sold, leased or delivered by Target containing applicable guaranty,
warranty, and indemnity provisions).
(bb) ACCOUNTING CONTROLS. The Target maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization; (ii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iii) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) YEAR 2000 COMPLIANCE. Based upon warranties made by
suppliers, all of Target's products, hardware and software, mechanical,
electrical or other system that contains a microchip or software which is
date sensitive (including, but not limited to: business, accounting and order
fulfillment systems, payroll and employee benefit systems, security systems
and equipment controllers), and which are material to Target's continued
operations (hereinafter the "PRODUCTS AND SYSTEMS") are designed to be used
prior to, during, and after the calendar year 2000 AD, and that the Products
and Systems will operate during each such time period without error relating
to date data, specifically including any error relating to, or the product
of, data which represents or references different centuries or more than one
century. Target has not independently conducted a 2000 AD compliance audit.
(dd) ACCREDITED INVESTOR. Seller (A) understands that the
Buyer Common Stock has not been, and will not be, registered under the
Securities Act, or under any state securities laws, and is being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring the Buyer Common Stock solely
for his or its own account for investment purposes, and not with a view to
the distribution thereof, (C) is a sophisticated investor with knowledge and
experience in business and financial matters, (D) effective on or before the
Closing Date, has received certain information concerning the Buyer and has
had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Common Stock,
(E) is able to bear the economic risk and lack of liquidity inherent in
holding the Buyer Common Stock., and (F) is an Accredited Investor.
(ee) PERSONAL GUARANTY OBLIGATIONS. SECTION 4(ee) of the
Disclosure Schedule shall identify all of the agreements underlying the
Personal Guaranty Obligations of the Stockholder and sets forth, with respect
to each such agreement, (i) the name of the creditor, (ii) the type of
instrument (e.g. finance lease), (iii) the periodic payment due under the
agreement, and (iv) the remaining principal balance due under the agreement.
The Personal Guaranty Obligations of the Stockholder do not exceed, in the
aggregate $1,000,000.
5. [RESERVED].
6. ADDITIONAL COVENANTS. The Parties covenant and agree as follows:
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under SECTION 8 below). The Seller acknowledges and agrees that from
and after the Closing the Buyer will be entitled to possession of all
documents, books, records, agreements, and financial data of any sort
relating to Target; provided that Seller may retain any copies of the
foregoing as shall be necessary to comply with applicable tax and other laws,
regulations and ordinances.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving Target, each of the other Parties will
cooperate with him or it and his, her or its counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be
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necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under SECTION 8
below).
(c) TRANSITION. The Seller will not take any action that
primarily is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of Target
from maintaining the same business relationships with Target (and with
Surviving Corporation) after the Closing for a period of 24 months
thereafter as it maintained with Target prior to the Closing. The Seller
will refer all customer inquiries relating to Target 's Business to the Buyer
and/or Surviving Corporation from and after the Closing for a period of 24
months thereafter.
(d) CONFIDENTIALITY. The Seller will treat and hold as such
all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement for a
period of three (3) years from the Closing, and deliver promptly to the Buyer
or destroy, at the request and option of the Buyer, all tangible embodiments
(and all copies) of the Confidential Information which are in its possession,
other than information held by Seller required for tax purposes. In the
event that the Seller is requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, the Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this SECTION 6(d). If, in
the absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, that Seller
may disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that the Seller shall use its reasonable best efforts to obtain, at the
reasonable request and at the expense of the Surviving Corporation, an order
or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public prior to
the time of disclosure.
(e) TERMINATION OF BANK FACILITIES; RELEASE OF GUARANTIES.
Buyer and Seller shall take all commercially reasonable best efforts
necessary to completely and unconditionally release Shawn P. Richmond as
guarantor on all Personal Guaranty Obligations within the 24 month period
after the Closing Date.
(f) MONITORING INFORMATION. Prior to the Closing, Target
shall deliver such information as may reasonably be requested by Buyer.
(g) LANDLORDS' CONSENTS. Seller shall exercise his best
efforts to cause, on or before the expiration of thirty (30) days after the
Closing Date, Surviving Corporation to obtain from its landlords (to the
extent required under the pertinent premises lease) written consent to this
transaction, which consents are necessary resulting from the transactions
contemplated by this Agreement.
(h) ADDITIONAL TAX MATTERS.
(i) The Seller shall cause his Certified Public
Accountant to prepare for Target's predecessor, Enterprise
Systems Group, Inc., ("ENTERPRISE") (at Seller's sole cost and
expense) all Tax Returns required to be filed by Enterprise for
the period January 1, 1999 through the effective date of the
Merger with Target. In the event that Enterprise reports a
profit for such period, Surviving Corporation shall distribute to
Seller an amount equal to his tax liability for such period on or
before the date Seller is obligated to pay such Tax. Surviving
Corporation shall cause its Certified Public Accountant to
prepare all tax returns for Target covering the period January 1,
1998 through the Closing Date. The cost of preparation of such
short period tax return shall be paid by Buyer. Buyer shall
cause Surviving Corporation to file such returns.
(ii) Buyer and Seller recognize that each of them will
need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by the
Buyer and/or Surviving Corporation to the extent such records and
information pertain to events occurring on or prior to the
Closing Date; therefore, Buyer agrees to cause Surviving
Corporation to (A) use its
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best efforts to properly retain and maintain such records for a
period of six (6) years from the date the Tax Returns for the
year in which the Closing occurs are filed or until the
expiration of the statute of limitations that applies to the Tax
Return in question (i.e., including Tax Returns for years
preceding the year in which the Closing occurs), whichever is
later, and (B) allow the Seller and its agents and
representatives at times and dates mutually acceptable to the
Parties, to inspect, review and make copies of such records as
such other Party may deem necessary or appropriate from time to
time, such activities to be conducted during normal business
hours and at the other Party's expense.
(iii) Each of Buyer, Target, Surviving Corporation and
Seller agree to report the merger for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the
Code.
(i) COVENANT NOT TO SOLICIT. For a period of five (5) years
from and after the Closing Date, the Seller will not, directly or
indirectly, as principal, agent, trustee or through the agency of any
corporation, partnership, association or agent or agency, (i) service or
solicit any of Surviving Corporation 's Business from any customer of
Surviving Corporation, (ii) request or advise any customer of Surviving
Corporation to withdraw, curtail or cancel such customer 's business with
Surviving Corporation, or (iii) hire, assist others in hiring, or solicit for
employment or consulting services any person employed or engaged by Surviving
Corporation, other than Craig Honekor or his replacement, at any time within
the two (2) year period immediately preceding such solicitation; PROVIDED,
HOWEVER, that (x) no owner of less than five percent (5%) of the outstanding
stock of any publicly traded corporation shall be deemed to engage solely by
reason thereof in any of its businesses or (y) the provision of accounting
services shall not be deemed to be engaged in the Business. For purposes of
this Agreement, the Parties have agreed to allocate US $1.00 to the covenant
contained in this SECTION 6(i). The covenant contained in this SECTION 6(i)
shall terminate immediately upon consummation of a repurchase acquisition by
the Seller, as contemplated in SECTION 10(p).
(j) OPERATION OF BUSINESS. Prior to Closing, the Seller will
cause Target not to, and the Target will not, engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business without Buyer's prior written consent. Without limiting the
generality of the foregoing:
(i) the Target will not authorize or effect any change
in its charter, articles of incorporation or bylaws;
(ii) the Target will not grant any options, warrants, or
other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock
(except upon the conversion or exercise of options, warrants,
and other rights currently outstanding);
(iii) the Target will not declare, set aside, or pay any
dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock;
(iv) the Target will not issue any note, bond, or other
debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation
outside the Ordinary Course of Business;
(v) the Target will not impose any Security Interest
upon any of its assets outside the Ordinary Course of Business;
(vi) the Target will not make any capital investment in,
make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) the Target will not make any change in employment
terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(viii) the Target will not commit to do any of the
foregoing.
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(k) ACCESS AND INFORMATION. Each of the Parties will (i)
afford to the other Party and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "REPRESENTATIVES") full access at reasonable times upon
reasonable prior notice to the officers, employees, agents, properties,
offices and other facilities of such Party and to their books and records,
(ii) furnish promptly to the other Party and its Representatives such
information concerning the business, properties, contracts, records and
personnel of such Party (including financial, operating and other data and
information) as may be reasonably requested, from time to time, by or on
behalf of the other Party. No investigation by any Party hereto shall affect
any representation or warranty in this Agreement of any Party hereto or any
condition to the obligations of the Parties hereto.
(l) APPROPRIATE ACTION; CONSENTS; FILINGS.
(i) The Target and Buyer will each use reasonable
efforts (i) to take, or to cause to be taken, all appropriate
action, and to do, or to cause to be done, all things necessary,
proper or advisable under applicable law or otherwise to
consummate and make effective the transactions contemplated by
this Agreement, (ii) to obtain from any governmental authorities
any permits or orders required to be obtained by Target or Buyer
in connection with the authorization, execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby, (iii) to make all necessary
filings, and thereafter make any other required submissions, with
respect to this Agreement required under (A) the Securities Act
and the Securities Exchange Act, and any other applicable federal
or state securities laws, and (B) any other applicable law.
(ii) Each of the Target and Buyer will give prompt
notice to the other of (i) any notice or other communication from
any Person alleging that the consent of such Person is or may be
required in connection with the transaction contemplated hereby,
(ii) any notice or other communication from any governmental
authority in connection with the transaction contemplated hereby,
(iii) any litigation or claim, relating to or involving or
otherwise affecting the Target or the Buyer that relates to the
consummation of the transactions contemplated hereby; and (iv)
any change that is reasonably likely to have an adverse effect on
the Target or Buyer.
(iii) Each of the Target and Buyer will give any notices
to third Persons, and use reasonable efforts to obtain any
consents from third Persons necessary, proper or advisable (as
determined in good faith by Buyer with respect to such notices or
consents to be delivered or obtained by the Target) to consummate
the transactions contemplated by this Agreement.
(m) EVENT NOTICES. From and after the date of this Agreement
until the Closing, each Party hereto will promptly notify the other Party
hereto of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any condition to the
obligations of such Party to effect the transactions contemplated by this
Agreement not to be satisfied and (ii) the failure of such Party to comply
with any covenant or agreement to be complied with by it pursuant to this
Agreement which would be likely to result in any condition to the obligations
of such Party to effect the transactions contemplated by this Agreement not
to be satisfied. No delivery of any notice pursuant to this SECTION 6(m)
will cure any breach of any representation or warranty of such Party
contained in this Agreement or otherwise limit or affect the remedies
available hereunder to the Party receiving such notice.
(n) EXCLUSIVITY. Prior to the termination of this Agreement,
the Target and the Seller will not solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition of all or substantially all of or a controlling interest in the
capital stock or assets of the Target (including any acquisition structured
as a merger, consolidation, or share exchange). If Target or Seller receive
any such proposals prior to the termination of this Agreement, Target and
Seller agree to (1) notify Buyer of such proposal or offer within 1 business
day, and (2) notify the party making such proposal or offer that Target is
not interested in any transaction involving such offer or proposal, or any
modification to such offer or proposal. Target will not consider or enter
into any transaction, or commitment to enter into any transaction, with any
party that makes an offer or proposal prior to the termination of this
Agreement, or that inquires of Target prior to the termination of this
Agreement whether Target might be interested in receiving or considering any
offer, proposal, or transaction of the type described in this section.
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(o) LEGEND. The Target and the Seller acknowledge and agree
that certificates evidencing Surviving Corporation's common stock and Buyer
Common Stock to be issued to the Seller as contemplated under this Agreement
will bear the following legend or a substantially similar endorsement:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THE HOLDER HEREOF, BY ACCEPTING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) IN
ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN
ACCORDANCE WITH ANY OTHER EXEMPTION UNDER THE SECURITIES ACT AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS UPON THE
DELIVERY OF A LEGAL OPINION, REASONABLY SATISFACTORY TO THE
ISSUER, TO THE FOREGOING EFFECT.
(p) NOTICES AND CONSENTS. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in SECTIONS
3(a)(ii), 3(b)(iii), and 4(c) above. Without limiting the generality of the
foregoing, each of the Parties will file any Notification and Report Forms
and related material that it may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, will use its reasonable best efforts
to obtain a waiver from the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary in connection
therewith.
(q) RESIGNATION OF TARGET DIRECTORS. As of the Closing Date,
Target shall have received the resignations of each of its directors. Buyer
covenants that as long as Shawn P. Richmond remains a shareholder of
Surviving Corporation, he shall be entitled to appoint or elect at least one
member of the board of directors of the Surviving Corporation.
(r) POST-CLOSING OPERATION OF SURVIVING CORPORATION.
(i) From the Closing Date through the period until the
Escrow Stock (as defined in the Escrow Agreement provided for
herein) is released in accordance with the terms of the Stock
Escrow Agreement, Buyer shall not cause Surviving Company to pay
dividends or to pay any of Buyer's allocated general and
administrative expenses.
(ii) Buyer will use commercially reasonable efforts to
spin-off the Surviving Corporation within twenty-four (24) months
after the Closing Date. Buyer agrees not to sell any stock of
the Surviving Corporation in an initial public offering, unless
Seller shall also have the right to sell his shares in the
Surviving Corporation at the price per share at which Buyer sells
similar equity interests (subject only to customary underwriter
cutbacks that apply to all shareholders equally), and the
above-described spin-off covenant shall terminate upon a public
offering. Notwithstanding anything to the contrary in this
sub-Section (ii), Buyer will not spin-off (and Seller will not
ask Buyer to spin-off) Surviving Company in a transaction that
would cause (in the opinion of Seller's tax counsel, subject to
review and acceptance of such opinion by Buyer's counsel) either
the Merger
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contemplated herein to be re-characterized as a taxable event or
cause the spin-off to be a taxable event (whether due to a
failure to satisfy the continuity of business enterprise
requirements or for other reasons).
(iii) During the twelve (12) month period following the
Closing Date, Seller shall not sell more than 1,000 shares of
Buyer Common Stock per day in any public transaction without the
prior written approval of James C. Roberts, or his successor as
CEO of Buyer, so long as the price per share of Buyer Common
Stock is greater than Ten Dollars ($10) (provided that such
approval shall not be unreasonably withheld, if the sale is to
pay any income tax or expense incurred by Seller as a result of
the transactions contemplated under this Agreement). Buyer will
use good faith, commercially reasonable efforts to register, at
Buyer's sole cost and expense, for resale the Buyer Common Stock
held by Seller, on or before April 1, 2000. Nothing contained
herein shall prohibit or restrict Seller from selling any of his
shares in a private transaction.
(iv) Buyer shall not enter into a transaction whereby
any of the stock of Surviving Corporation or substantially all of
the assets of the Surviving Corporation is to be transferred to a
third party, unless Seller shall also have the right to
participate in such sale at the same consideration received by
Buyer for shares or assets, as the case may be, in the Surviving
Corporation.
(v) In the event that the consummation of the
transactions contemplated hereby results in the Surviving
Corporation being unable to obtain financing required in the
ordinary operation of its business from traditional lending
sources, Buyer will support the Surviving Corporation's
reasonable cash flow requirements and operating deficits as set
forth in the Surviving Corporation's budget, so long as such
budget is reasonable and has been approved in advance by Buyer.
Buyer shall not cause Surviving Corporation to pay dividends or
issue stock to finance Surviving Corporation 's cash flow needs.
(vi) After the Closing Date, all ASP-related businesses
acquired by Buyer or its wholly owned subsidiaries shall be held
as subsidiaries by the Surviving Corporation. For a period of
one year following the Closing, all ASP-related businesses shall
be acquired for consideration, other than issuing shares in
Surviving Corporation. Notwithstanding the foregoing, nothing
contained herein shall prevent Surviving Corporation from issuing
shares in Surviving Corporation to Buyer and nothing shall
prevent Buyer from selling or reissuing such shares.
(vii) Upon any issuance or sale by the Surviving
Corporation of its shares of capital stock, Seller shall be
provided prior notice of such proposed transaction and shall have
the right to purchase that number of Surviving Corporation shares
as is required to maintain the percentage of equity Seller held
in the Surviving Corporation immediately prior to such issuance
or sale. The price to be paid by Seller for such additional
shares in Surviving Corporation pursuant to the exercise of such
preemptive right shall be the price at which Buyer Common Stock
is valued for purposes of calculating the consideration that is
paid for the acquired company. If Seller does not exercise the
above right to purchase, the dilution of his interest shall be
determined at a price equal to (I), in a cash transaction, the
per share price offered to or by the third party or (II), if not
a cash transaction, a per share price of the amount, as agreed to
by Buyer and Seller, that would reflect what the Buyer would have
paid in cash (for example, discounting the value of any
consideration paid for illiquidity). In the event that the Buyer
and Seller do not reach an agreement as to the valuation of such
additional shares, the Buyer and Seller shall select an
independent third party appraiser to determine the appropriate
price per share. The valuation reached by such independent third
party appraiser shall be binding on the Buyer and Seller.
(viii) Buyer shall cause Surviving Corporation not to
dividend any cash or assets to Buyer for so long as any of
Seller's Personal Guaranty Obligations remain outstanding.
(ix) Buyer shall provide piggyback registration rights
at Surviving Corporation's
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expense, upon reasonable and customary terms, involving all stock
owned by Seller in Surviving Corporation and all Buyer Common
Stock subsequently acquired by Seller or any employees of
Surviving Corporation pursuant to options issued
contemporaneously herewith or with Closing.
(x) Target and Seller acknowledges that Buyer is not a
public reporting company under the Exchange Act. With a view to
making available to the Seller the benefits of Rule 144
promulgated under the Securities Exchange Act, or any other
similar rule or regulation of the Securities Exchange Commission
that may at any time permit the Seller to sell securities of the
Buyer to the public without registration ("RULE 144"), the Buyer
agrees, for a period of one year commencing upon effectiveness of
any registration statement filed by the Buyer with the SEC (or if
no registration statement becomes effective within one year
subsequent to Closing Date, then at any time upon Seller's
demand), to:
(I) make and keep adequate and current public
information with respect to the buyer available, as those
terms are understood and defined in Rule 144;
(II) file with the SEC in a timely manner all
reports and other documents required to filed by an issuer
of securities registered under the Exchange Act so as to
maintain the availability of Rule 144 to the Seller,
notwithstanding that the Buyer would not have to maintain
such filing but for this provision of the Agreement; and
(III) furnish to the Seller so long as such Seller
owns Buyer Common Stock, promptly upon request, (i) a copy
of the most recent annual or quarterly report of the
Buyer, and (ii) such other information as may be
reasonably requested to permit the Seller to sell such
securities pursuant to Rule 144 without registration.
(xi) So long as Seller is an officer and/or director of
Surviving Corporation, Surviving Corporation shall maintain the
indemnity provisions contained in the bylaws of Target on the
date hereof and shall, within a reasonable time following the
Closing Date, obtain, if available for a commercially reasonable
price, and maintain, "errors and omissions" insurance for all
directors and officers in commercially reasonable amounts and on
commercially reasonable terms.
(xii) Neither Buyer nor Surviving Corporation shall issue
a press release or otherwise announce the effectiveness of the
merger unless Seller, in his reasonable discretion, has approved
the manner and content of the offer of employment to be made to
all of Target's employees.
(s) BLUE SKY LAWS. Buyer shall take such steps as may be
necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the Buyer Common Stock
in connection with the Merger. Target shall use its reasonable good faith
efforts to assist Buyer, at Surviving Corporation's expense, as may be
necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Buyer
Common Stock in connection with the Merger.
(t) OTHER FILINGS. As promptly as practicable after the date
of this Agreement, Surviving Corporation and Buyer will prepare and file any
other filings required under the Securities Act or any other Federal, foreign
or state securities or blue sky laws relating to the Merger and the
transactions contemplated by this Agreement (the "OTHER FILINGS"). The Other
Filings will comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any
event occurs which is required to be set forth in an amendment or supplement
to the Other Filings, Surviving Corporation or Buyer, as the case may be,
will promptly inform the other of such occurrence and cooperate in making any
appropriate amendment or supplement, and/or mailing to stockholders of
Surviving Corporation, such amendment or supplement.
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(u) CONTINUITY OF BUSINESS ENTERPRISE. Buyer will continue the
historic business line of Surviving Corporation, or use at least a
significant portion of Surviving Corporation 's historic business assets in a
business, in each case within the meaning of Treasury Regulation Sec.
1.368-1(d).
7. CONDITIONS TO THE MERGER.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(i) the representations and warranties set forth in
SECTION 3(a) and SECTION 4 above shall be true and correct in all
respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with
all of its covenants hereunder in all respects through the
Closing;
(iii) Target (A) will have given (and the Seller will
have caused Target to give) any notices to third parties, and
Target will have used (and Seller will have caused Target to use)
its reasonable best efforts to obtain third-party consents, that
the Buyer may reasonably request in connection with the matters
pertaining to Target disclosed or required to be disclosed in the
Disclosure Schedule; (B) will have procured all necessary third
party consents required to consummate this Agreement and the
transactions contemplated hereby; and (C) will have taken any
additional action (and the Seller will cause Target to take any
additional action) that may be necessary, proper, or advisable in
connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments,
governmental agencies, and third parties that he, she or it may
be required to give, make, or obtain to consummate this Agreement
and the transactions contemplated hereby;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation,
injunction, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of the
Buyer to own, operate, or control the Surviving Corporation or
its stock (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(v) the Target shall have delivered to the Buyer a
certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified
above in SECTION 7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties and Target shall have
received all other authorizations, consents and approvals of
governments and governmental agencies set forth herein and in the
Disclosure Schedule;
(vii) the Buyer and Target shall have received from Shawn
P. Richmond an executed employment agreement in the form and
substance attached hereto as EXHIBIT B;
(viii) the Buyer shall have received from counsel to the
Target an opinion with respect to the matters set forth in
EXHIBIT C attached hereto, addressed to the Buyer and dated as of
the Closing Date;
(ix) the Buyer shall have received the resignations,
effective as of the Closing, of each director of Target (other
than Seller) prior to the Closing;
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(x) the Buyer shall be satisfied in its sole discretion
with the results of its continuing legal, financial and business
due diligence investigations of Target, all of which shall be
final and completed to Buyer's satisfaction prior to Closing;
(xi) no material adverse change shall have occurred in
Target's Business or its future prospects;
(xii) Seller shall have caused Target to cancel each
outstanding phantom stock, deferred bonus or option plan, if any,
and all outstanding bonuses, options, interests or rights
thereunder, at no cost to the Buyer or Target except for the
Seller;
(xiii) all liens and Security Interests securing debts of
Target which have been paid in full prior to or at the Closing
shall have been fully released of record to the satisfaction of
the Buyer and all Uniform Commercial Code financing statements
covering such debts shall have been terminated;
(xiv) no unsatisfied liens for the failure to pay Taxes
of any nature whatsoever shall exist against Target, or against
or in any way affecting any Target Share;
(xv) all deferred Taxes shall be assumed and/or
discharged by Target;
(xvi) Target shall have caused all of Target's officers,
directors and/or employees of Target to, have repaid in full all
debts and other obligations such persons may owe, if any, owed to
Target;
(xvii) the Buyer shall have received from Target the
Financial Statements;
(xviii) all appropriate corporate and shareholder
authorizations of Target shall have been obtained, including but
not limited to the following: the holders of the issued and
outstanding Target Common Stock shall have duly approved this
Agreement and the Merger all in accordance with applicable law,
the certificate of incorporation and bylaws of Target;
(xix) since December 31, 1998, Target shall have made no
dividend, consulting or other payment to the Seller, except for
normal payments to the Seller to cover its federal and state
income tax obligations as calculated on a cash basis for income
tax purposes, but not to exceed the accrued earnings generated
for the period January 1, 1999 through the date of Closing, and
to Seller for its employment salaries (not to exceed current
compensation); provided, however, that no payment shall be made
for any cash-to-accrual tax liability as a result of the
transactions contemplated hereby;
(xx) except as set forth on the Disclosure Schedule,
since December 31, 1998, Target shall not have transferred,
conveyed, disposed of and/or sold any of material assets, except
in the Ordinary Course of Business;
(xxi) except as set forth on the Disclosure Schedule,
since December 31, 1998, Target, without the prior written
consent of Buyer, shall not have made any capital expenditure (or
series of related capital expenditures) either involving more
than $50,000 individually or $100,000 in the aggregate, or
outside the Ordinary Course of Business;
(xxii) the Buyer and Shawn P. Richmond shall have
delivered an executed copy of the Stock Escrow Agreement in the
form and substance attached hereto as EXHIBIT D and Buyer shall
have deposited the shares with the escrow agent;
(xxiii) Seller shall have obtained a tax opinion from
Seller's counsel that the transactions contemplated herein will
not result in any income Tax;
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(xxiv) Buyer shall have received the consents from third
parties to consummate the transaction, including J.D. Edwards; and
(xxv) Target shall have completed a tax free
consolidation with The Enterprise Systems Group, Inc.;
The Buyer may waive any condition specified in this SECTION 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations
of the Seller to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(i) the representations and warranties set forth in
SECTION 3(b) above shall be true and correct in all respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all respects through the
Closing;
(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation,
injunction, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement or (B) cause any
of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such judgment, order,
decree, stipulation, injunction, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified
above in SECTION 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties and Target shall have
received all other authorizations, consents, and approvals of
governments and governmental agencies set forth herein and in the
Disclosure Schedule;
(vi) Seller shall have received from the Buyer an
executed employment agreement in the form and substance attached
hereto as EXHIBITS B and shall have received the written grant of
the founders options, consisting of 200,000 shares of Buyer
Common Stock at an exercise price of $10.55 per share;
(vii) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Seller;
(viii) the Buyer and Seller shall have delivered an
executed copy of the Stock Escrow Agreement in the form and
substance attached hereto as EXHIBIT D and Buyer shall have
deposited the shares with the escrow agent;
(ix) the Buyer shall have exercised its good faith
efforts to obtain an opinion of counsel for the benefit of Seller
opining as to the matters contained in SECTION 3(b)(vi);
(x) Seller shall have obtained a tax opinion from
Seller's counsel that the transactions contemplated herein will
not result in any income Tax;
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(xi) Buyer shall have received the consents from third
parties to consummate the transaction, including J.D. Edwards;
(xii) Target shall have completed a tax free
consolidation with The Enterprise Systems Group, Inc.; and
(xii) all appropriate corporate and shareholder
authorizations of Target shall have been obtained, including but
not limited to the following: the holders of the issued and
outstanding Target Common Stock shall have duly approved this
Agreement and the Merger all in accordance with applicable law,
the certificate of incorporation and bylaws of Target.
(xiii) Buyer shall have issued to Target a promissory note
in the form of the promissory note attached hereto as EXHIBIT E.
The promissory note shall have an original principle balance of
$253,753, payable in six (6) equal monthly installments of
$43,753.
The Seller may waive any condition specified in this SECTION 7(b) if it
executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the
Target contained in SECTION 4 above (other than the representations and
warranties of the Target contained in SECTION 4(k) above) shall survive the
Closing hereunder (even if the Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of the Closing) and continue
in full force and effect for a period of three (3) years thereafter (subject to
any applicable statutes of limitations). The other representations, warranties,
and covenants of the Parties contained in this Agreement (including the
representations and warranties of the Target contained in SECTION 4(k) above)
shall survive the Closing (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty or covenant at the time of the
Closing) and continue in full force and effect for a period of five (5) years
thereafter, except as otherwise provided elsewhere in this Agreement.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event Target breaches any of its
representations, warranties, agreements, and covenants contained
herein, and provided that the particular representation,
warranty, agreement, or covenant survives the Closing and that
the Buyer makes a written claim for indemnification against the
Target pursuant to SECTION 10(h) below within the applicable
survival period, then the Target agrees to severally indemnify
the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach.
(ii) In the event the Seller breaches any of his
covenants contained in Section 6, then the Seller agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach. Additionally, Buyer may
pursue an action for specific performance and/or damages. Seller
acknowledges that an action for damages may not be sufficient and
waives any defense that an action for damages would be sufficient
to compensate Buyer in the event of a breach. In addition, upon
a material breach by Seller, Buyer shall be relieved of its
obligations to perform and comply with any covenants to be
performed after Closing.
(iii) Target agrees to indemnify Buyer from and against
the entirety of any Adverse Consequences Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
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caused by any Liability of the Target for Taxes of the Target
with respect to any Tax year or portion thereof ending on or
before the Closing Date, to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown in the Most Recent
Target Financial Statements, as such reserve is adjusted for the
passage of time through the Closing Date in accordance with the
past custom and practice of the Target in filing its Tax Returns
and (b) for the unpaid Taxes of any Person (other than the
Target) under Treasury Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER.
(i) In the event the Buyer breaches any of its
representations, warranties, and covenants contained herein, and provided
that the particular representation, warranty, or covenant survives the
Closing and that the Seller makes a written claim for indemnification against
the Buyer pursuant to SECTION 10(h) below within the applicable survival
period, then the Buyer agrees to indemnify the Seller from and against the
entirety of any Adverse Consequences the Seller may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of the applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by
the breach and, in the case of a breach of a covenant to be performed after
Closing, Seller may pursue an action for specific performance and/or damages.
Buyer acknowledges that an action for damages may not be sufficient and
waives any defense that an action for damages would be sufficient to
compensate Seller in the event of a breach. In addition, upon a material
breach by Buyer, Seller shall be relieved of his obligations to perform and
comply with any covenants to be performed after Closing, including, without
limitation, Sections 6 (c), 6(d), 6 (i) and 6(r).
(ii) Buyer agrees to indemnify Seller from and against the
entirety of any Adverse Consequences Seller may suffer from, arising out of,
relating to, in the nature of, or caused by any Liability with respect to the
Target's, Surviving Corporation's and/or obligations to issue or cause to be
issued any stock, options and/or equity compensation to any existing or
former employee of Target, whether based upon contract, tort or other legal
theory, including, without limitation, Securities Act claims or claims of
breach of fiduciary duty.
(iii) Buyer agrees to indemnify Seller from and against the
entirety of any Adverse Consequences Seller may suffer from, arising out of,
relating to, in the nature of or caused by any Liability with respect to the
Guaranteed Obligations.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which
may give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this SECTION 8, then the Indemnified Party shall
notify in writing each Indemnifying Party thereof promptly; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is damaged and materially prejudiced from adequately defending
such claim. In the event any Indemnifying Party notifies the Indemnified
Party within 30 days after the Indemnified Party has given notice of the
matter that the Indemnifying Party is assuming the defense thereof, (A) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (B)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense (except that the Indemnifying Party will be responsible for the fees
and expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has
a conflict of interest), (C) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the matter
without the written consent of the Indemnifying Party (not to be withheld
unreasonably), and (D) the Indemnifying Party will not consent to the entry
of any judgment with respect to the matter, or enter into any settlement
which does not include a provision whereby the plaintiff or claimant in the
matter releases the Indemnified Party from all Liability with respect
thereto, without the written consent of the Indemnified Party (not to be
withheld unreasonably). In the event no Indemnifying Party notifies in
writing the Indemnified Party within twenty (20) days after the Indemnified
Party has given notice of the matter that the Indemnifying Party is assuming
the defense thereof, however, the Indemnified Party
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may defend against, or enter into any settlement with respect to, the matter
in any manner it reasonably may deem appropriate. At any time after
commencement of any such action, any Indemnifyin Party may request an
Indemnified Party to accept a bona fide offer from the other Party(ies) to
the action for a monetary settlement payable solely by such Indemnifying
Party (which does not burden or restrict the Indemnified Party nor otherwise
prejudice him or her) whereupon such action shall be taken unless the
Indemnified Party determines that the dispute should be continued, the
Indemnifying Party shall be liable for indemnity hereunder only to the extent
of the lesser of (i) the amount of the settlement offer or (ii) the amount
for which the Indemnified Party may be liable with respect to such action.
In addition, the Party controlling the defense of any third party claim shall
deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of the
third party claim, and timely notices of, and the right to participate in (as
an observer) any hearing or other court proceeding relating to the third
party claim.
(e) DETERMINATION OF LOSS. The Parties shall make appropriate
adjustments for Tax benefits and insurance proceeds (reasonably certain of
receipt and utility in each case) and for the time cost of money (using the
Applicable Rate as the discount rate) in determining the amount of loss for
purposes of this SECTION 8.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory or common law remedy any Party may have for breach of
representation, warranty, covenant or indemnity.
(g) DISPUTE RESOLUTION. The Parties hereby covenant and agree
that, except as otherwise set forth in this Agreement, any suit, dispute,
claim, demand, controversy or cause of action of every kind and nature
whatsoever, known or unknown, fixed or contingent, that the Parties may now
have or at any time in the future claim to have based in whole or in part, or
arising from or that in any way is related to the negotiations, execution,
interpretation or enforcement of this Agreement (collectively, the
"DISPUTES") shall be completely and finally settled by submission of any such
Disputes to arbitration under the Commercial Rules of Arbitration of the
American Arbitration Association ("AAA") then in effect. If the Parties to
the Dispute are unable to agree on a single arbitrator, then such binding
arbitration shall be conducted before a panel of three (3) arbitrators that
shall be comprised of one (1) arbitrator designated by each Party to the
Dispute and a third arbitrator designated by the two (2) arbitrators selected
by the Parties to the Dispute. Unless the Parties to the Dispute agree
otherwise, the arbitration proceedings shall take place in Denver, Colorado
and the arbitrator(s) shall apply the law of the State of Colorado, USA, to
all issues in dispute, in accordance with Section 10(j), below. The findings
and any award of the arbitrator(s) shall be final and binding on the Parties
to the Dispute. Judgment on such award may be entered in any court of
appropriate jurisdiction, or application may be made to that court for a
judicial acceptance of the award and an order of enforcement, as the Party
seeking to enforce that award may elect. Notwithstanding any applicable
rules of arbitration, all arbitral awards shall be in writing and shall set
forth in particularity the findings of fact and conclusions of law of the
arbitrator or arbitrators. The arbitrators shall have no power or authority
to make any award for consequential or punitive damages.
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing in
the event the Seller is in breach of any representation,
warranty, or covenant contained in this Agreement in any respect
and such breach has not been cured within ten (10) days of
written notice thereof, and the Seller may terminate this
Agreement by giving written notice to the Buyer at any time prior
to the Closing in the event the Buyer is in breach of any
representation, warranty, or covenant contained in this Agreement
in any respect and such breach has not been cured within ten (10)
days of written notice thereof;
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(iii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing if
the Closing shall not have occurred on or before September 24,
1999 by reason of the failure of any condition precedent under
SECTION 7(a) hereof (unless the failure results primarily from
the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement);
(iv) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing if
the Buyers are in breach of any warranty or covenant contained
herein or if the Closing shall not have occurred on or before
September 24, 1999 by reason of the failure of any condition
precedent under SECTION 7(b) hereof (unless the failure results
primarily from the Seller himself or itself breaching any
representation, warranty, or covenant contained in this
Agreement);
(v) the Buyer may terminate this Agreement by giving
written notice to Seller on or before September 24, 1999, if the
Buyer is not reasonably satisfied with the results of its
continuing business, legal, environmental, and accounting due
diligence regarding the Target; or
(vi) the Seller may terminate this Agreement by giving
written notice to Seller on or before September 24, 1999, if the
Seller is not reasonably satisfied with the results of their
continuing business, legal, environmental, and accounting due
diligence regarding the Buyer.
Nothing contained in this SECTION 9(a) shall alter, affect, modify or
restrict either Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) EFFECT OF TERMINATION. If either Buyer or Seller terminates
this Agreement pursuant to SECTION 9(a) above, all obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party.
10. MISCELLANEOUS.
(a) [INTENTIONALLY OMITTED]
(b) PRESS RELEASES AND ANNOUNCEMENTS. Either Party may issue
press releases and announcements relating to the subject matter of this
Agreement without the prior written approval of the other Party hereto;
PROVIDED, HOWEVER, that any Party making such disclosure shall provide copies
of such disclosures to the other Party as soon as reasonably practicable.
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and
their respective successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, that may have related in any way to the
subject matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of his, her or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the Seller;
PROVIDED, HOWEVER, that the Buyer may assign any or all of its rights and
interests hereunder to a wholly-owned Subsidiary or an Affiliate (in any or
all of which cases the Buyer nonetheless shall remain liable and responsible
for the performance of all of its obligations hereunder).
(f) FACSIMILE/COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all
of which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or
more Parties hereto, and an
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executed copy of this Agreement may be delivered by one or more Parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such Party can be seen,
and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all Parties
hereto agree to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
(g) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given if
(and then two business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to Target:
Prentice Technologies, Inc.
5299 DTC Boulevard, #1200
Englewood, CO 80111
Attn: Shawn P. Richmond, President
Tel: (303) 357-0101
Fax: (303) 265-9350
If to Seller:
Shawn Richmond
16011 Relic Rock Terrace
Parker, CO 80134
Tel: (303) 840-0869
with a copy to:
Hensen & Drake, P.C.
1515 Arapahoe Street
Tower I, Suite 1515
Denver, CO 80202
Attn: Stephen J. Hensen
Tel: (303) 572-1515
Fax: (303) 623-1734
If to the Buyer:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: James C. Roberts, CEO
Jay W. Enyart, General Counsel
Tel: (303) 357-0174
Fax: (303) 357-0190
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with a copy to:
Hogan & Hartson L.L.P.
One Tabor Center
1200 17th Street, Suite 1500
Denver, Colorado 80202
Attn: John P. Fitzgerald, Esq.
Tel: (303) 899-7300
Fax: (303) 899-7333
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) SUBMISSION TO JURISDICTION. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE SELLER AND BUYER HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS (AND NOT THE CONFLICT OF LAWS) OF
THE STATE OF COLORADO.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed
by the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the Parties agree that the
court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as
so modified after the expiration of the time within which the judgment may be
appealed.
(l) EXPENSES. Buyer and Seller agree that legal fees and
costs incurred by Seller and Target in connection with this Agreement and the
transactions contemplated herein shall be borne equally by Seller and Target.
The Seller acknowledges and agrees that Target has not borne or will bear any
of the Seller's costs and expenses (including any of its legal fees and
expenses and investment banking fees) in connection with this Agreement or
any of the transactions contemplated hereby. In the event that the
transactions contemplated hereby result in Seller owing monies to Surviving
Corporation or Buyer, Seller may satisfy such obligations by surrendering
that number of shares of Buyer Common Stock, the value of which is equal to
such obligation. For purposes of this SECTION 10(l), Buyer Common Stock
shall be valued at the average closing price for the Buyer Common Stock for
the twenty (20) days immediately prior to such surrender.
(m) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any
Party. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant relating to the same subject matter as any other
representation, warranty or
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<PAGE>
covenant (regardless of the relative levels of specificity) which the Party
has not breached, it shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter, in addition to any other
remedy to which they may be entitled, at law or in equity.
(p) BUYOUT OPTION. In the event, within one year after the
Closing Date, Buyer (i) shall file a voluntary bankruptcy petition, (ii) an
involuntary bankruptcy petition shall be filed against Buyer and not
discharged within sixty (60) days, (iii) shall admit in writing its inability
to pay its debts as they mature or (iv) shall cease to be a going concern,
then Seller may repurchase the stock of the Surviving Corporation held by
Buyer or its assignee(s) for consideration consisting of (1) the stock of the
Surviving Corporation received hereunder by Seller, plus (2) the stock of
Buyer received hereunder by Seller, plus (3) cash in the amount of any
increase in the shareholders' equity of Surviving Corporation from the
Closing Date to the closing of such repurchase (the "REPURCHASE PRICE"). In
connection with any repurchase of the stock of the Surviving Corporation,
Buyer, its assignee(s) and their respective affiliates shall be removed from
any and all personal guarantees associated with the operation of the Target
or Surviving Corporation. Notwithstanding the foregoing, Seller shall no
longer have the right to repurchase stock of the Surviving Corporation if (i)
Surviving Corporation has acquired stock or assets of any other entities, or
(ii) the Surviving Corporation has merged with any other activities after the
Closing Date, or (iii) the Surviving Corporation has been spun off or has
registered any stock for public sale.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
TELECOM WIRELESS CORPORATION
By: /s/ Kosta S. Kovachev
---------------------------------------
Name: Kosta S. Kovachev
Title: E.V.P. CFO
TWC/PRENTICE ACQUISITION COMPANY, INC.
By: /s/ Kosta S. Kovachev
---------------------------------------
Name: Kosta S. Kovachev
Title: E.V.P. CFO
TARGET:
PRENTICE TECHNOLOGIES, INC.
By: /s/ Shawn P. Richmond
---------------------------------------
Name: Shawn P. Richmond
Title: President
SELLER:
/s/ Shawn P. Richmond
---------------------------------------------
Shawn P. Richmond
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EXHIBIT A
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FINANCIAL STATEMENTS
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<PAGE>
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EXHIBIT B
-------------
FORM OF RICHMOND EMPLOYMENT AGREEMENT
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<PAGE>
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EXHIBIT C
-------------
FORM OF OPINION OF SELLER'S LEGAL COUNSEL
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<PAGE>
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EXHIBIT D
-------------
FORM OF STOCK ESCROW AGREEMENT
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<PAGE>
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EXHIBIT E
-------------
FORM OF PROMISSORY NOTE
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<PAGE>
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ANNEX I
-------------
EXCEPTIONS TO REPRESENTATIONS
AND WARRANTIES OF THE BUYER
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<PAGE>
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DISCLOSURE SCHEDULE OF THE TARGET AND SELLER
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<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("AGREEMENT") is made and effective
this 23rd day of September, 1999, by and between Telecom Wireless Corporation
("COMPANY") and Shawn P. Richmond ("EXECUTIVE").
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT
A. Company hereby agrees to initially employ Executive as Vice President
and Executive accepts such employment in accordance with the terms of
employment applicable to regular employees. Company hereby appoints
Executive as President of Prentice Technologies, Inc., a subsidiary of
the Company, through March 31, 2002 and Executive hereby accepts such
appointment. In the event of any conflict or ambiguity between the
terms of this Agreement and terms of employment applicable to regular
employees, the terms of this Agreement shall control. Election or
appointment of Executive to another office or position, regardless of
whether such office or position is inferior to Executive's initial
office or position, shall not be a breach of this Agreement.
B. The Employee will devote full time, attention, and energies to the
business of the Company and during this employment, will not engage in
any other business activity, regardless of whether such activity is
pursued for profit, gain, or other pecuniary advantage, except as
approved in writing, not to be unreasonably withheld. Employee is not
prohibited from making personal investments in other business provided
those investments do not require active involvement in the operation of
said companies.
C. Employee agrees, during and after the term of this employment, not to
reveal confidential information, or trade secrets to any person, firm,
corporation, or entity. Should Employee reveal or threaten to reveal
this information, the Company shall be entitled to an injunction
restraining the Employee from disclosing same, or from rendering any
services to any entity to whom said information has been or threatened
to be disclosed. The right to secure an injunction is not exclusive,
and the Company may pursue any other remedies it has against the
Employee for breach or threatened breach of this condition, including
the recovery of damages from the Employee.
2. DUTIES OF EXECUTIVE
A. The duties of Executive shall include the performance of all of the
duties typical of the office held by Executive as described in the
bylaws of the Company and such other duties and projects as may be
assigned by a superior officer of the Company, if any, or the board of
directors of the Company. Executive shall devote his entire productive
time, ability and attention to the business of the Company and shall
perform all duties in a professional, ethical and businesslike manner.
Executive will not, during the term of this Agreement, directly or
indirectly engage in any other business, except as approved in writing
by
<PAGE>
Company, such approval not to be unreasonably withheld, either as an
employee, employer, consultant, principal, officer, director, advisor,
or in any other capacity, either with or without compensation, without
the advisor, or in any other capacity, either with or without
compensation, without the prior written consent of Company as defined
in Paragraph I.B above. In addition to the duties described herein,
Executive is also authorized and directed to do the following:
Unrestricted involvement as a principal in Richmond & Company Capital
Group, LLC, a venture capital firm.
3. COMPENSATION
Executive will be paid compensation during this Agreement as follows:
A. A base salary of $125,000.00 per year, payable in installments
according to the Company's regular payroll schedule. The base salary
may be increased at the end of each year by the compensation committee
of the board of directors. The adjustment will be based upon a written
evaluation of the Executive, prepared by the Executive's immediate
supervisor.
B. The Executive is eligible for an award of an Executive Bonus, computed
as defined in 3.C below beginning with the Company's fiscal year end
2000 and each fiscal year thereafter during the term of this Agreement.
C. A portion (as determined by the Company's Board of Directors) of an
Executive Bonus pool, such pool equal to 5.0% of the adjusted net
profits (hereinafter defined) of the Company. "ADJUSTED NET PROFIT"
shall be the net profit of the Company before federal and state income
taxes, determined in accordance with generally accepted accounting
practices by the Company's independent accounting firm and adjusted to
exclude: (i) any Executive Bonus payments paid pursuant to this
Agreement; (ii) any contributions to pension and/or profit sharing
plans; (iii) any extraordinary gains or losses (including, but not
limited to, gains or losses on disposition of assets); (iv) any refund
or deficiency of federal and state income taxes paid in a prior year;
and (v) any provision for federal or state income taxes made in prior
years which is subsequently determined to be unnecessary. The
determination of the adjusted net profits made by the independent
accounting firm employed by the Company shall be final and binding upon
Executive and Company. The Executive Bonus payment shall be made within
thirty (30) days after the Company's independent accounting firm has
concluded its audit. If the final audit is not prepared within ninety
(90) days after the end of the fiscal year, then Company shall make a
preliminary payment equal to fifty percent (50%) of the amount due
based upon the adjusted net profits preliminarily determined by the
independent accounting firm, subject to payment of the balance, if any,
promptly following completion of the audit by the Company's independent
accounting firm. The maximum Executive Bonus payable for any one year
shall not exceed 100% of the then applicable base salary of Executive.
D. In addition, Executive is entitled to a discretionary bonus, to be
based upon an annual, or more frequent, review of Executive's
performance, such bonus to be determined entirely
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at the discretion of the Board of Directors of the Company or an
authorized committee constituted thereof.
E. Executive will be entitled to participate in the Company's employee
stock option plan as detailed therein.
4. INCENTIVE STOCK OPTION GRANT. Employee shall be issued incentive stock
options, so long as Company employs Executive in a senior executive
position, such options to be issued in addition to any options which
may be issued Executive pursuant to the Company stock option plan, and
in accordance with the provisions set forth below:
A. The Company hereby grants to the Executive the right and option (the
"OPTION") to purchase from the Company, on the terms and subject to the
conditions set forth below, 350,000 shares of the common stock of the
Company (the "STOCK"). This Option shall constitute an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "CODE"), to the maximum extent permitted by
applicable law, rule and regulation, and otherwise shall be treated as
a non-incentive option. The date of grant of this Option is September
23, 1999. This Option shall expire September 23, 2009.
B. The purchase prices (the applicable price being referred to herein as
the "OPTION PRICE") for the shares of Stock subject to the Option
evidenced by this Agreement and the vesting of the Option shall be as
set forth below:
(i) a portion of the Option consisting of options to purchase
50,000 shares shall have an Option Price equal to $.10 per
share and shall vest on July 1, 2000, and a portion of the
Option consisting of options to purchase an additional 50,000
shares shall have an Option Price equal to $7.73 and shall
vest on July 1, 2000, if Executive has been providing services
to the Company or a subsidiary continuously from the date of
grant through such date, subject to achievement of certain
reasonable financial performance targets approved by the
Board, consisting of, annual projections for revenue and cash
from operations and minimum annual revenues from the Company's
ASP business line (including acquisitions related thereto) of
not less than $10,000,000 for the fiscal year ended June 30,
2000.
(ii) a portion of the Option consisting of options to purchase
50,000 shares shall have an Option Price equal to $.10 per
share and shall vest on July 1, 2001, and a portion of the
Option consisting of options to purchase an additional 50,000
shares shall have an Option Price equal to $7.73 and shall
vest on July 1, 2001, if Executive has been providing services
to the Company or a subsidiary continuously from the date of
grant through such date, subject to achievement of certain
reasonable financial performance targets approved by the
Board, consisting of, annual projections for revenue and cash
from operations and minimum annual
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revenues from the Company's ASP business line (including
acquisitions related thereto) of not less than $20,000,000
for the fiscal year ended June 30, 2001.
(iii) a portion of the Option consisting of options to
purchase 75,000 shares shall have an Option Price equal to
$.10 per share and shall vest on July 1, 2002, and a portion
of the Option consisting of options to purchase an additional
75,000 shares shall have an Option Price equal to $7.73 and
shall vest on July 1, 2002, if Executive has been providing
services to the Company or a subsidiary continuously from the
date of grant through such date, subject to achievement of
certain reasonable financial performance targets approved by
the Board, consisting of, annual projections for revenue and
cash from operations and minimum annual revenues from the
Company's ASP business line (including acquisitions related
thereto) of not less than $30,000,000 for the fiscal year
ended June 30, 2002.
C. Service for this purpose includes service as an employee or director
providing bona fide services to the Company or a subsidiary. For
purposes of this Agreement, termination of service would not be deemed
to occur if the Executive, after terminating service in one capacity,
continues to provide service to the Company or any subsidiary in
another capacity. Termination of service is sometimes also referred to
herein as termination of employment or other relationship with the
Company or its subsidiaries.
D. All Options shall immediately vest and become exercisable in full upon
a Change in Control, even if all or any portion of the Options shall
have not vested. For purposes of this Agreement, a "CHANGE IN CONTROL"
shall mean: (i) any transaction or series of transactions in which any
person or group of persons, other than Dr. James C. Roberts, directly
or indirectly (a) becomes the beneficial owner of outstanding
securities of the Company having 30% or more of the power to vote upon
the election of the Company's directors or (b) acquires 50% or more of
the Company's assets, or (ii) the occurrence of any transaction or
event in connection with which all or substantially all of the voting
securities of the Company are exchanged for, converted into, acquired
for or constitute solely the right to receive cash, securities,
property or other assets, or (iii) the conveyance, sale, lease,
assignment, transfer or other disposal of all or substantially all of
the Company's property, business or assets otherwise than in the
ordinary course of business.
5. BENEFITS
CAR ALLOWANCE. Executive will be entitled to a monthly car allowance of $650.
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HOLIDAYS. Executive will be entitled to at least seven (7) paid holidays and
four (4) personal days each calendar year. Company will notify
Executive on or about the beginning of each calendar year with
respect to the holiday schedule for the coming year. Personal
holidays, if any, will be scheduled in advance subject to
requirements of Company. Such holidays must be taken during the
calendar year and cannot be carried forward into the next year.
Executive is not entitled to any personal holidays during the first
six months of employment.
VACATION. Following the first six months of employment, Executive shall be
entitled to twenty-one paid vacation days each year.
SICK LEAVE. Executive shall be entitled to sick leave and emergency
leave according to the regular policies and procedures of Company.
Additional sick leave or emergency leave over and above paid leave
provided by the Company, if any, shall be unpaid and shall be
granted at the discretion of the board of directors.
MEDICAL AND GROUP LIFE INSURANCE. Company agrees to include Executive in
the group medical and hospital plan of Company and provide group
life insurance for Executive at no charge to Executive in the
amount of one times the annual income during this Agreement.
Executive shall be responsible for payment of any federal or state
income tax imposed upon these benefits.
PENSION AND PROFIT SHARING PLANS. Executive shall be entitled to
participate in any pension or profit sharing plan or other type of
plan adopted by Company for the benefit of its officers and/or
regular employees.
EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement for all
preapproved reasonable expenses, including travel and
entertainment, incurred by Executive in the performance of
Executive's duties. Executive will maintain records and written
receipts as required by the Company policy and reasonably requested
by the board of directors to substantiate such expenses.
6. TERM AND TERMINATION.
A. The Initial Term of this Agreement shall commence on September 23, 1999
and it shall continue in effect for a period of three years.
Thereafter, the Agreement shall be renewed upon the mutual agreement of
Executive and Company. This Agreement and Executive's employment may be
terminated at Company's discretion during the Initial Term, provided
that Company shall pay to Executive an amount equal to payment at
Executive's then applicable base salary rate for the remaining period
of Initial Tenn. In the event of such termination, Executive shall not
be entitled to any incentive salary payment or any other compensation
then in effect, prorated or otherwise, except that all Options that
have a vesting date after the date of termination above shall
immediately vest in full upon termination regardless of whether Company
has attained the performance criteria.
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This Agreement and Executive's employment may be terminated by Company
at its discretion at any time after the Initial Term, provided that in
such case, Executive shall be paid a payment equal to six (6) months of
Executive's then applicable base salary. In the event of such a
discretionary termination, Executive shall not be entitled to receive
any incentive salary payment or any other compensation then in effect,
prorated or otherwise, except that all Options that have a vesting date
after the date of termination shall immediately vest in full upon
termination regardless of whether Company has attained the performance
criteria.
B. This Agreement may be terminated by Executive at Executive's discretion
by providing at least thirty (30) days prior written notice to Company.
In the event of termination by Executive pursuant to this subsection,
Company may immediately relieve Executive of all duties and immediately
terminate this Agreement, provided that Company shall pay Executive at
the then applicable base salary rate to the termination date included
in Executive's original termination notice.
C. In the event that Executive is in breach of any material obligation
owed Company in this Agreement, habitually neglects the duties to be
performed under this Agreement, engages in any conduct which is
dishonest, damages the reputation or standing of the Company, or is
convicted of any criminal act or engages in any act of moral turpitude
(a "CAUSE"), then Company may terminate this Agreement upon five (5)
days notice to Executive. Prior to termination the Executive will be
given written notification of lack of performance of breach of items
identified in this paragraph. The notification will identify the breach
and provide an adequate (typically 60 days or less) time for the
Executive to remedy the breach. In e ' vent of termination of the
agreement pursuant to this subsection, Executive shall be paid only at
the then applicable base salary rate up to and including the date of
termination. Executive shall not be paid any incentive salary payments
or other compensation, prorated or otherwise, including any unvested
Options described in Paragraph 4.B, above.
D. In the event Company is acquired, or is the non-surviving party in a
merger, or sells all or substantially all of its assets, The Company
will use its best efforts to have this Agreement assigned to the
acquirer or surviving Company.
7. NOTICES
Any notice required by this Agreement or given in connection with it,
shall be in writing and shall be given to the appropriate party by
personal delivery or by certified mail, postage prepaid, or recognized
overnight delivery services;
If to Company:
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Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, CO 80111
Attn: Jay W. Enyart, General Counsel
Tel: (303) 357-0174
Fax: (303) 357-0190
If to Executive:
Shawn P. Richmond
16011 Relic Rock Terrace
Parker, CO 80134
Tel: (303)
8. FINAL AGREEMENT
This Agreement terminates and supersedes all prior understandings or
agreements on the subject matter hereof. This Agreement may be modified
only by a further writing that is duly executed by both parties.
9. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the
laws of the state of Colorado.
10. HEADINGS
Headings used in this Agreement are provided for convenience only and
shall not be used to construe meaning or intent.
11. NO ASSIGNMENT
Neither this Agreement nor any or interest in this Agreement may be
assigned by Executive without the prior express written approval of
Company, which may be withheld by Company at Company's absolute
discretion.
12. SEVERABILITY
If any term of this Agreement is held by a court of competent
jurisdiction to be invalid or unenforceable, then this Agreement,
including all of the remaining terms, will remain in full force and
effect as if such invalid or unenforceable term had never been
included.
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13. ARBITRATION
The parties agree that they will use their best efforts to amicably
resolve any dispute arising out of or relating to this Agreement. Any
controversy, claim or dispute that cannot be so resolved shall be
settled by final binding arbitration in accordance with the rules of
the American Arbitration Association and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court
having jurisdiction thereof. Any such arbitration shall be conducted in
Denver, Colorado, or such other place as may be mutually agreed upon by
the parties. Within fifteen (15) days after the commencement of the
arbitration, each party shall select one person to act as arbitrator,
and the two arbitrators so selected shall select a third arbitrator
within ten (10) days of their appointment. Each party shall bear its
own costs and expenses and an equal share of the arbitrator's expenses
and administrative fees of arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TELECOM WIRELESS CORPORATION
/s/ Shawn P. Richmond By: /s/ R. L. Fredrick
- ----------------------------- -----------------------------
Shawn P. Richmond Title: President
--------------------------
Name: R. L. Fredrick
---------------------------
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NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUED OR ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") OR REGISTERED OR QUALIFIED UNDER ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE EXERCISED AND THESE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION FILED IN
ACCORDANCE WITH THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
Void after 3:30 P.M., Denver Time, on September 30, 2005
Warrant to Purchase
720,000 Shares
of Common Stock
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
TELECOM WIRELESS CORPORATION
This Is to Certify That, FOR VALUE RECEIVED,
JOHN H. SUNUNU
or registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from TELECOM WIRELESS CORPORATION, a Utah
corporation ("Company"), at any time not later than 3:30 P.M., Denver Time,
on September 30, 2005 (the "Expiration Date") up to 720,000 shares of common
stock, having $.001 par value per share, of the Company ("Common Stock") at
exercise prices, subject to adjustment as set forth below, determined as
provided herein. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
are subject to adjustment from time to time as hereinafter set forth. The
shares of the Common Stock deliverable upon such exercise, and as adjusted
from time to time, are hereinafter sometimes referred to as "Warrant Stock"
and the exercise price of a share of Common Stock in effect at any time and
as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
The Warrant Stock shall be divided into 48 installments of 15,000 shares
each. The first installment shall accrue and this Warrant shall be
exercisable with respect to the shares included therein on October 1, 1999,
and each succeeding installment shall accrue and this Warrant shall be
exercisable with respect to the shares included therein on the first day of
each calendar month thereafter. Except as otherwise provided herein, this
Warrant may be exercised when installments accrue and at any time thereafter
at or before the Expiration Date with respect to all or a part of the shares
covered by such accrued installments. The exercise price with respect to each
accrued installment shall be 50% of the average of the last reported sale
prices of the Common Stock on the OTC Bulletin Board or other trading market
for the 20 trading days prior to the date such installment accrued, provided
that if no sale is made on any such trading day, the last reported sale price
shall be the average of the closing bid and asked prices for such day. Upon a
Change in Control, as defined herein, an additional number of installments
shall accrue and become exercisable as equals the number of accrued and
exercisable installments existing immediately before the Change in Control,
and after such Change in
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Control the number of shares included in each monthly installment shall
double. "Change in Control" shall mean (i) any transaction or series of
related transactions in which any person or group of persons, other than Dr.
James C. Roberts, directly or indirectly (a) becomes the beneficial owner of
outstanding securities of the Company having more than 50% of the power to
vote upon the election of the Company's directors or (b) acquires more than
50% of the Company's assets, or (ii) the occurrence of any transaction or
event in connection with which all or substantially all of the voting
securities of the Company are exchanged for, converted into, acquired for or
constitute solely the right to receive cash, securities, property or other
assets, or (iii) the conveyance, sale, lease, assignment, transfer or other
disposal of all or substantially all of the Company's property, business or
assets otherwise than in the ordinary course of business. Notwithstanding
anything herein contained to the contrary, no installments shall accrue and
become exercisable (i) from and after termination of that certain Services
Agreement dated August 30, 1999, between the Company and Mr. John H. Sununu
by the Company for cause or by Mr. Sununu without cause, (ii) from and after
the death, disability, insolvency or bankruptcy of Mr. Sununu, (iii) should
Mr. Sununu engage in any conduct which is dishonest or damages the reputation
or standing of the Company, or be convicted of any criminal act other than
minor traffic offenses, or (iv) upon any act or omission which constitutes a
breach of any express or implied material duty, obligation or covenant of Mr.
Sununu under the Services Agreement.
(a) EXERCISE OF WARRANT. Subject to the provisions of Section (o)
hereof, the accrued and exercisable installments of this Warrant may be
exercised in whole or in part at any time or from time to time not later than
3:30 P.M., Denver Time, on the Expiration Date, or if the Expiration Date is
a day on which banking institutions are authorized by law to close, then on
the next succeeding day which shall not be such a day, by presentation and
surrender hereof to the Company with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares specified in such form. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the holder to
purchase the balance of the shares purchasable hereunder. Upon receipt by the
Company of this Warrant at the office or agency of the Company, in proper
form for exercise, the Holder shall be deemed to be the holder of record of
the shares of Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such securities shall not then be actually
delivered to the Holder. The Exercise Price shall be paid (i) in cash, (ii)
by certified check or cashier's check, (iii) by previously acquired shares of
Common Stock having a Current Market Value equal to the Exercise Price, (iv)
by previously acquired shares of Common Stock having a Current Market Value
less than the Exercise Price, plus cash or a certified or cashier's check for
the balance of the Exercise Price, or (v) at the Holder's option, by exchange
of this Warrant for the aggregate number of shares of Warrant Stock issuable
upon exercise of this Warrant, less that number of shares of Warrant Stock as
have a then Current Market Value equal to the aggregate Exercise Price of
this Warrant and the Holder shall pay no cash or other consideration in
connection with such exercise other than surrender to the Company of this
Warrant.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of such fractional share, determined
as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or
listed on the Nasdaq Stock Market, the Current Market Value shall be
the last reported sale price of the Common Stock on the composite tape
of
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<PAGE>
such exchange or on Nasdaq on the last trading day prior to the date
of exercise of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on the composite tape
of such exchange or on Nasdaq; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the Current Market Value shall be the
average of the closing bid and asked prices reported by the National
Quotation Bureau, Inc. or the OTC Bulletin Board on the last trading
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the Current Market Value shall be an amount, not less than
book value, determined in such reasonable manner as may be prescribed
by the Board of Directors of the Company, such determination to be
final and binding on the Holder.
(d) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. Subject to Section (o)
herein, but only to the extent of installments which have accrued and are
exercisable, this Warrant is assignable and exchangeable, without expense, at
the option of the Holder, upon presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, for other
Warrants of different denominations entitling the holder thereof to purchase
in the aggregate the same number of shares of Common Stock purchasable
hereunder. Any such assignment shall be made by surrender of this Warrant to
the Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay
transfer taxes, if any; whereupon the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant promptly shall be canceled. This
Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation hereof at the office of the Company or at the office
of its stock transfer agent, if any, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder hereof. The term "Warrant" as used herein includes
any Warrants issued in substitution for or replacement of this Warrant, or
into which this Warrant may be divided or exchanged. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification including a surety bond, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
This Warrant is neither assignable nor exchangeable with respect to
installments which have not accrued and are not exercisable, and any actual
or attempted assignment contrary to the provisions of this Warrant shall be
null and void and of no effect whatsoever.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS.
(1) STOCK SPLITS AND STOCK DIVIDENDS. In case the Company
shall at any time issue Common Stock by way of dividend or other
distribution on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the case
of such subdivision
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<PAGE>
or increased in the case of such combination (on the date that such
subdivision or combination shall become effective).
(2) NO ADJUSTMENT FOR SMALL AMOUNTS. The Company shall not be
required to give effect to any adjustment in the Exercise Price unless
and until the net effect of one or more adjustments, determined as
above provided, shall have required a change of the Exercise Price by
at least one cent, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least two cents, such change in the Exercise Price shall
thereupon be given effect.
(3) NUMBER OF SHARES ADJUSTED. Upon any adjustment of the
Exercise Price, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock issuable
upon exercise of this Warrant by the Exercise Price in effect
immediately prior to effectiveness of the new Exercise Price and
dividing the product so obtained by the new Exercise Price.
(4) COMMON STOCK DEFINED. Whenever reference is made in this
Section (f) to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean the Common Stock of the Company of the class
authorized as of the date hereof and any other class of stock ranking
on a parity with such Common Stock. However, subject to the provisions
of Section (i) hereof, shares issuable upon exercise hereof shall
include only shares of the class designated as Common Stock of the
Company as of the date hereof.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f) hereof, the Company
shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its stock transfer agent, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided and setting forth in reasonable detail the facts requiring
such adjustment and the calculation thereof. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder
and the Company shall, forthwith after each such adjustment, mail a copy of
such certificate to the Holder.
(h) NOTICES TO HOLDERS. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock, or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to
the Holder, at least 30 days prior to the date specified in (x) or (y) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the
purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any,
is to be fixed, as of which the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company (other than a change
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<PAGE>
in par value, or from par value to no par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a
subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the class issuable upon
exercise of this Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the Company shall cause effective provision to be made so that
the holder shall have the right thereafter, by exercising this Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance as if the holder had
exercised this Warrant prior to such transaction. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Warrant. A copy of
such provision shall be furnished to the holder(s) of Warrants within ten
days after execution of the appropriate agreement pertaining to same and, in
any event, prior to any consolidation, merger, sale or conveyance subject to
the provisions of this Section (i). The foregoing provisions of this Section
(i) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(j) DISSOLUTION. If, at any time prior to the expiration of this
Warrant and prior to the exercise thereof, any dissolution, liquidation or
winding up of the Company shall be proposed, the Company shall cause at least
30 days' notice to be mailed by certified mail to the registered holder of
this Warrant Certificate at his address as it appears on the books of the
Company. Such notice shall specify the date as of which holders of record of
Common Stock shall participate in any distribution or shall be entitled to
exchange their Common Stock for securities or other property, deliverable
upon such dissolution, liquidation or winding up, as the case may be; to the
end that, during such period of 30 days, the holders of this Warrant may
exercise this Warrant and purchase Common Stock (or other stock substituted
therefor as hereinbefore provided) and be entitled in respect of shares so
purchased to all of the rights of the other holders of Common Stock of the
Company. In case of a dissolution, liquidation or winding up of the Company,
all purchase rights under this Warrant shall terminate at the close of
business on the date as of which holders of record of the Common Stock shall
be entitled to participate in a distribution of the assets of the Company in
connection with such dissolution, liquidation or winding up (provided that in
no event shall said date be less than 30 days after completion of service by
certified mail of notice as aforesaid). Any Warrant not exercised prior to
such time shall be void and no rights shall exist thereunder. In any such
case of termination of purchase rights, a statement thereof shall be included
in the notice provided for herein.
(k) SPIN-OFFS. In the event the Company spins-off a subsidiary or
stock held in another corporation as an investment by distributing to the
shareholders of the Company, as a dividend or otherwise, the stock of the
subsidiary or other corporation, the Company shall reserve, for the life of
the Warrant, shares of the subsidiary or other corporation to be delivered to
the holders of the Warrants upon exercise to the same extent as if they were
owners of record of the Warrant Stock on the record date for payment of the
shares of the subsidiary or other corporation.
(l) NOTICE. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing and
delivered personally (including by telex, facsimile, telegram or other
acknowledged receipt) or three business days following deposit in the United
States mails, sent by registered or certified mail, return receipt requested,
addressed as follows:
Holder: John H. Sununu
24 Samoset Drive
Salem, New Hampshire 03079
5
<PAGE>
Company: Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: President
With a copy (which shall not constitute
notice) to:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: General Counsel
Any person may change the address for the giving of notice by notice duly
given effective five (5) business days thereafter.
(m) AMENDMENTS AND WAIVERS. Any term, condition or provision of this
Warrant may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holders.
(n) ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
among the parties thereto and supersedes any and all prior agreements whether
written or oral regarding the subject matter hereof.
(o) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
(1) This Warrant or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be offered or
sold except in conformity with the Securities Act of 1933, as amended,
and then only against receipt of an agreement of such person to whom
such offer of sale is made to comply with the provisions of this
Section (o) with respect to any resale or other disposition of such
securities.
(2) The Company may cause the following legend to be set forth
on each certificate representing Warrant Stock or any other security
issued or issuable upon exercise of this Warrant unless counsel for the
Company is of the opinion as to any such certificate that such legend
is unnecessary:
The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under the
Securities Act of 1933 (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.
(3) Notwithstanding anything herein contained to the contrary,
this Warrant shall not be exercisable unless and until the Company is
satisfied that exercise hereof would not result in loss of a claimed
securities registration exemption in connection with any other actual
or proposed transaction the effect of which would be materially adverse
to the Company.
6
<PAGE>
(p) APPLICABLE LAW. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of Colorado.
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
------------------------
Authorized Officer
[SEAL] Date: 10/17/99
------------------------
7
<PAGE>
PURCHASE FORM
Dated
----------------
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ______ shares of Common Stock and hereby
makes payment of $______ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF UNITS
Name
--------------------------------------------------------
(please typewrite or print in block letters)
Address
-----------------------------------------------------
Signature
---------------------------------------------------
Social Security or Employer I.D. No.
------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________ hereby sells, assigns
and transfers unto
Name
-----------------------------------------------------------------
(please typewrite or print in block letters)
Address
--------------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent
of _________ Shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ____________________, attorney, to
transfer the same on the books of the Company with full power of substitution
in the premises.
Signature:
-------------------------
Dated:
-----------------------------
8
<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUED OR ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") OR REGISTERED OR QUALIFIED UNDER ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE EXERCISED AND THESE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION FILED IN
ACCORDANCE WITH THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
Void after 3:30 P.M., Denver Time, on September 30, 2005
Warrant to Purchase
500,000 Shares
of Common Stock
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
TELECOM WIRELESS CORPORATION
This Is to Certify That, FOR VALUE RECEIVED,
JOHN H. SUNUNU
or registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from TELECOM WIRELESS CORPORATION, a Utah
corporation ("Company"), at any time not later than 3:30 P.M., Denver Time,
on September 30, 2005 (the "Expiration Date") 500,000 shares of common stock,
having $.001 par value per share, of the Company ("Common Stock") at an
exercise price, subject to adjustment as set forth below, of $5.50 per share.
The number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for a share of Common Stock are subject to
adjustment from time to time as hereinafter set forth. The shares of the
Common Stock deliverable upon such exercise, and as adjusted from time to
time, are hereinafter sometimes referred to as "Warrant Stock" and the
exercise price of a share of Common Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
(a) EXERCISE OF WARRANT. Subject to the provisions of Section (o)
hereof, this Warrant may be exercised in whole or in part at any time or from
time to time not later than 3:30 P.M., Denver Time, on the Expiration Date,
or if the Expiration Date is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not
be such a day, by presentation and surrender hereof to the Company with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares specified in such form. If this
Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the holder to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant at the
office or agency of the Company, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such
securities shall not then be actually delivered to the Holder. The Exercise
Price shall be
1
<PAGE>
paid (i) in cash, (ii) by certified check or cashier's check, (iii) by
previously acquired shares of Common Stock having a Current Market Value
equal to the Exercise Price, (iv) by previously acquired shares of Common
Stock having a Current Market Value less than the Exercise Price, plus cash
or a certified or cashier's check for the balance of the Exercise Price, or
(v) at the Holder's option, by exchange of this Warrant for the aggregate
number of shares of Warrant Stock issuable upon exercise of this Warrant,
less that number of shares of Warrant Stock as have a then Current Market
Value equal to the aggregate Exercise Price of this Warrant and the Holder
shall pay no cash or other consideration in connection with such exercise
other than surrender to the Company of this Warrant.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of such fractional share, determined
as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or
listed on the Nasdaq Stock Market, the Current Market Value shall be
the last reported sale price of the Common Stock on the composite tape
of such exchange or on Nasdaq on the last trading day prior to the date
of exercise of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on the composite tape
of such exchange or on Nasdaq; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the Current Market Value shall be the
average of the closing bid and asked prices reported by the National
Quotation Bureau, Inc. or the OTC Bulletin Board on the last trading
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the Current Market Value shall be an amount, not less than
book value, determined in such reasonable manner as may be prescribed
by the Board of Directors of the Company, such determination to be
final and binding on the Holder.
(d) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
assignable and exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or at the office of its
stock transfer agent, if any, for other Warrants of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable hereunder. Any such assignment shall be
made by surrender of this Warrant to the Company or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay transfer taxes, if any; whereupon the
Company shall, without charge, execute and deliver a new Warrant in the name
of the assignee named in such instrument of assignment and this Warrant
promptly shall be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
including a surety bond,
2
<PAGE>
and upon surrender and cancellation of this Warrant, if mutilated, the
Company will execute and deliver a new Warrant of like tenor and date. Any
such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this
Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS.
(1) STOCK SPLITS AND STOCK DIVIDENDS. In case the Company
shall at any time issue Common Stock by way of dividend or other
distribution on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the case
of such subdivision or increased in the case of such combination (on
the date that such subdivision or combination shall become effective).
(2) NO ADJUSTMENT FOR SMALL AMOUNTS. The Company shall not be
required to give effect to any adjustment in the Exercise Price unless
and until the net effect of one or more adjustments, determined as
above provided, shall have required a change of the Exercise Price by
at least one cent, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least two cents, such change in the Exercise Price shall
thereupon be given effect.
(3) NUMBER OF SHARES ADJUSTED. Upon any adjustment of the
Exercise Price, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock issuable
upon exercise of this Warrant by the Exercise Price in effect
immediately prior to effectiveness of the new Exercise Price and
dividing the product so obtained by the new Exercise Price.
(4) COMMON STOCK DEFINED. Whenever reference is made in this
Section (f) to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean the Common Stock of the Company of the class
authorized as of the date hereof and any other class of stock ranking
on a parity with such Common Stock. However, subject to the provisions
of Section (i) hereof, shares issuable upon exercise hereof shall
include only shares of the class designated as Common Stock of the
Company as of the date hereof.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f) hereof, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office, and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment and
the calculation thereof. Each such officer's certificate shall be made available
at all reasonable times for inspection by the Holder and the Company shall,
forthwith after each such adjustment, mail a copy of such certificate to the
Holder.
(h) NOTICES TO HOLDERS. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock, or (ii) if the Company
3
<PAGE>
shall offer to the holders of Common Stock for subscription or purchase by
them any shares of stock of any class or any other rights, or (iii) if any
capital reorganization of the Company, reclassification of the capital stock
of the Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to
the Holder, at least 30 days prior to the date specified in (x) or (y) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the
purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any,
is to be fixed, as of which the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company (other than a change in par value, or
from par value to no par value, or as a result of an issuance of Common Stock
by way of dividend or other distribution or of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the class issuable upon exercise of this Warrant)
or in case of any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety, the Company
shall cause effective provision to be made so that the holder shall have the
right thereafter, by exercising this Warrant, to purchase the kind and amount
of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance as if the holder had exercised this Warrant prior
to such transaction. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. A copy of such provision shall be
furnished to the holder(s) of Warrants within ten days after execution of the
appropriate agreement pertaining to same and, in any event, prior to any
consolidation, merger, sale or conveyance subject to the provisions of this
Section (i). The foregoing provisions of this Section (i) shall similarly
apply to successive reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(j) DISSOLUTION. If, at any time prior to the expiration of this
Warrant and prior to the exercise thereof, any dissolution, liquidation or
winding up of the Company shall be proposed, the Company shall cause at least
30 days' notice to be mailed by certified mail to the registered holder of
this Warrant Certificate at his address as it appears on the books of the
Company. Such notice shall specify the date as of which holders of record of
Common Stock shall participate in any distribution or shall be entitled to
exchange their Common Stock for securities or other property, deliverable
upon such dissolution, liquidation or winding up, as the case may be; to the
end that, during such period of 30 days, the holders of this Warrant may
exercise this Warrant and purchase Common Stock (or other stock substituted
therefor as hereinbefore provided) and be entitled in respect of shares so
purchased to all of the rights of the other holders of Common Stock of the
Company. In case of a dissolution, liquidation or winding up of the Company,
all purchase rights under this Warrant shall terminate at the close of
business on the date as of which holders of record of the Common Stock shall
be entitled to participate in a distribution of the assets of the Company in
connection with such dissolution, liquidation or winding up (provided that in
no event shall said date be less than 30 days after completion of service by
certified mail of notice as aforesaid). Any Warrant not exercised prior to
such time shall be void and no rights shall exist thereunder. In any such
case of termination of purchase rights, a statement thereof shall be included
in the notice provided for herein.
4
<PAGE>
(k) SPIN-OFFS. In the event the Company spins-off a subsidiary or
stock held in another corporation as an investment by distributing to the
shareholders of the Company, as a dividend or otherwise, the stock of the
subsidiary or other corporation, the Company shall reserve, for the life of
the Warrant, shares of the subsidiary or other corporation to be delivered to
the holders of the Warrants upon exercise to the same extent as if they were
owners of record of the Warrant Stock on the record date for payment of the
shares of the subsidiary or other corporation.
(l) NOTICE. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing and
delivered personally (including by telex, facsimile, telegram or other
acknowledged receipt) or three business days following deposit in the United
States mails, sent by registered or certified mail, return receipt requested,
addressed as follows:
Holder: John H. Sununu
24 Samoset Drive
Salem, New Hampshire 03079
Company: Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: President
With a copy (which shall not constitute
notice) to:
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Floor
Englewood, Colorado 80111
Attn: General Counsel
Any person may change the address for the giving of notice by notice duly
given effective five (5) business days thereafter.
(m) AMENDMENTS AND WAIVERS. Any term, condition or provision of this
Warrant may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holders.
(n) ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
among the parties thereto and supersedes any and all prior agreements whether
written or oral regarding the subject matter hereof.
(o) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
(1) This Warrant or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be offered or
sold except in conformity with the Securities Act of 1933, as amended,
and then only against receipt of an agreement of such person to whom
such offer of sale is made to comply with the provisions of this
Section (o) with respect to any resale or other disposition of such
securities.
(2) The Company may cause the following legend to be set forth
on each certificate representing Warrant Stock or any other security
issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to
the public pursuant
5
<PAGE>
to Section (l) hereof, unless counsel for the Company is of the
opinion as to any such certificate that such legend is unnecessary:
The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement
made under the Securities Act of 1933 (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.
(3) Notwithstanding anything herein contained to the contrary,
this Warrant shall not be exercisable unless and until the Company is
satisfied that exercise hereof would not result in loss of a claimed
securities registration exemption in connection with any other actual
or proposed transaction the effect of which would be materially adverse
to the Company.
(p) APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Colorado.
TELECOM WIRELESS CORPORATION
By: /s/ James C. Roberts
------------------------
Authorized Officer
[SEAL] Date: 10/17/99
6
<PAGE>
PURCHASE FORM
Dated
----------------
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ______ shares of Common Stock and hereby
makes payment of $______ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF UNITS
Name
--------------------------------------------------------
(please typewrite or print in block letters)
Address
-----------------------------------------------------
Signature
---------------------------------------------------
Social Security or Employer I.D. No.
------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________ hereby sells, assigns
and transfers unto
Name
-----------------------------------------------------------------
(please typewrite or print in block letters)
Address
--------------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent
of _________ Shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ____________________, attorney, to
transfer the same on the books of the Company with full power of substitution
in the premises.
Signature: John H. Sununu
-------------------------
Dated: 10/17/99
-----------------------------
7
<PAGE>
TELECOM WIRELESS CORPORATION
AMENDED AND RESTATED
1999 STOCK OPTION AND RESTRICTED STOCK PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE I ESTABLISHMENT AND PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE III ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . . . . . . . . . .4
3.1 Eligibility and Participation . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE IV ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.1 Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE V STOCK SUBJECT TO THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . .6
5.1 Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.2 Unused Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.3 Adjustment in Capitalization. . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE VI DURATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.1 Duration of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE VII TERMS OF STOCK OPTIONS AND RESTRICTED STOCK. . . . . . . . . . . . . . .7
7.1 Grant of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.2 No Tandem Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.3 Option Agreement; Terms and Conditions to Apply Unless Otherwise
Specified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.4 Option Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.5 Term of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.6 Exercise of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.7 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.8 Restricted Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII WRITTEN NOTICE ISSUANCE OF STOCK CERTIFICATES, SHAREHOLDER
PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.1 Written Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.2 Issuance of Stock Certificates. . . . . . . . . . . . . . . . . . . . . . 12
8.3 Privileges of a Shareholder . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IX TERMINATION OF EMPLOYMENT OR SERVICES . . . . . . . . . . . . . . . . . 13
9.1 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ii
<PAGE>
9.2 Termination other than for Cause or Due to Death. . . . . . . . . . . . . 13
9.3 Termination for Cause . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE X RIGHTS OF OPTIONEES. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.1 Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.2 Non-transferability. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XI OPTIONEE- EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE . . . . . . . . . . . 14
11.1 Optionee-Employee's Transfer or Leave of Absence . . . . . . . . . . . . 14
ARTICLE XII AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN . . . . . . . . . 15
12.1 Amendment, Modification, and Termination of the Plan . . . . . . . . . . 15
ARTICLE XIII ACQUISITION, MERGER OR LIQUIDATION. . . . . . . . . . . . . . . . . . 15
13.1 Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.2 Merger or Consolidation. . . . . . . . . . . . . . . . . . . . . . . . . 16
13.3 Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE XIV SECURITIES REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . 17
14.1 Securities Registration. . . . . . . . . . . . . . . . . . . . . . . . . 17
14.2 Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XV TAX WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
15.1 Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XVI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XVII REQUIREMENTS OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . 18
17.1 Requirements of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
17.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XVIII EFFECTIVE DATE OF PLAN . . . . . . . . . . . . . . . . . . . . . . . 18
18.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XIX COMPLIANCE WITH CODE . . . . . . . . . . . . . . . . . . . . . . . . . 19
19.1 Compliance with Code . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XX NO OBLIGATION TO EXERCISE OPTION. . . . . . . . . . . . . . . . . . . . 19
20.1 No Obligation to Exercise. . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XXI STOCKHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . 19
21.1 Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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TELECOM WIRELESS CORPORATION
AMENDED AND RESTATED
1999 STOCK OPTION AND RESTRICTED STOCK PLAN
This Amended and Restated 1999 Stock Option and Restricted Stock Plan
correctly sets forth the provisions of the 1999 Stock Option and Restricted
Stock Plan, as amended, and supersedes the original 1999 Stock Option Plan
and all amendments thereto.
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT
Telecom Wireless Corporation, a Utah corporation ("Company"), hereby
establishes a stock option and restricted stock plan for key directors,
employees, independent contractors and consultants providing material
services to the Company and its present and future subsidiaries which shall
be known as the "1999 STOCK OPTION AND RESTRICTED STOCK PLAN" (the "Plan").
It is intended that certain of the options issued to employees pursuant to
the Plan may constitute incentive stock options within the meaning of Section
422 of the Internal Revenue Code and that other options issued pursuant to
the Plan shall constitute non-qualified options. The Board of Directors
shall determine which options are to be incentive stock options and which are
to be non-qualified options and shall enter into option agreements with
recipients accordingly.
1.2 PURPOSE
The purpose of this Plan is to enhance shareholder investment by
attracting, retaining and motivating key employees, directors and consultants
of the Company, and to encourage stock ownership by such persons by providing
them with a means to acquire a proprietary interest in the Company's success.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS
Whenever used herein, the following terms shall have the respective
meanings set forth below, unless the context clearly requires otherwise, and
when said meaning is intended, the term shall be capitalized.
(a) "BOARD" means the Board of Directors of the Company.
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(b) "CODE" means the Internal Revenue Code, as amended.
(c) "COMMITTEE" shall mean the Committee provided by Article
IV hereof, which may be created at the discretion of the Board.
(d) "COMPANY" means Telecom Wireless Corporation, a Utah
corporation.
(e) "CONSULTANT" means any person or entity, including a
Parent Corporation or a Subsidiary Corporation, who provides services (other
than as an Employee) to the Company, a Parent Corporation or a Subsidiary
Corporation, and shall include independent contractors, Non-Employee Officers
and Non-Employee Directors, as defined subsequently.
(f) "DATE OF EXERCISE" means the date the Company receives
notice, by an Optionee, of the exercise of an Option pursuant to Section 8.1
of this Plan. Such notice shall indicate the number of shares of Stock the
Optionee intends to exercise.
(g) "EMPLOYEE" means any person, including an officer or
director of the Company or a Subsidiary Corporation, who is employed by the
Company or a Subsidiary Corporation.
(h) "FAIR MARKET VALUE" means the fair market value of Stock
upon which an option is granted under this Plan, determined as follows:
(i) So long as the Stock is listed or traded on the
OTC Bulletin Board, the Nasdaq Stock Market or a national securities
exchange, the Fair Market Value shall be the average of the last reported
sale prices of that Stock for the 20 trading days prior to the date of grant
of this option, provided that if no sale is made on any such trading day, the
last reported sale price shall be the average of the closing bid and asked
prices for such day; or
(ii) Otherwise, Fair Market Value shall be an amount,
not less than book value, determined by the Board, such determination to be
final and binding on the Holder.
(i) "INCENTIVE STOCK OPTION" means an Option granted under
this Plan which is intended to qualify, as an "incentive stock option" within
the meaning of Section 422 of the Code.
(j) "NON-EMPLOYEE DIRECTOR" means a member of the Board who
is not an employee of the Company at the time an Option is granted hereunder.
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(k) "NON-EMPLOYEE OFFICER" means an officer of the Company
who is not an employee of the Company at the time an Option is granted
hereunder.
(l) "NON-QUALIFIED OPTION" means an Option granted under
this Plan which is not intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Non-qualified Options may be
granted at such times and subject to such restrictions as the Board shall
determine without conforming to the statutory rules of Section 422 of the
Code applicable to incentive stock options.
(m) "OPTION" means the right, granted under this Plan, to
purchase Stock of the Company at the option price for a specified period of
time. For purposes of this Plan, an Option may be either an Incentive Stock
Option or a Non-qualified Option.
(n) "OPTIONEE" means an Employee or Consultant holding an
Option under the Plan.
(o) "PARENT CORPORATION" shall have the meaning set forth in
Section 424(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(p) "RECIPIENT" means an Employee or Consultant awarded
Restricted Stock under the Plan.
(q) "RESTRICTED PERIOD" means the period during which
Restricted Stock is subject to restrictions or conditions pursuant to Section
7.8 hereof.
(r) "RESTRICTED STOCK" means shares of Stock, awarded
pursuant to Section 7.8 hereof, that may be subject to restrictions and to a
risk of forfeiture.
(s) "SUBSIDIARY CORPORATION" shall have the meaning set
forth in Section 424(f) of the Code with the Company being treated as the
employer corporation for purposes of this definition.
(t) "SIGNIFICANT SHAREHOLDER" means an individual who,
within the meaning of Section 422(b)(6) of the Code, owns stock possessing
more than ten percent of the total combined voting power of all classes of
stock of the Company or of any Parent Corporation or Subsidiary Corporation
of the Company. In determining whether an individual is a Significant
Shareholder, an individual shall be treated as an owning stock owned by
certain relatives of the individual and certain stock owned by corporations
in which the individual is a shareholder, partnerships in which the
individual is a partner, and estates
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or trusts of which the individual is a beneficiary, all as provided in
Section 424(d) of the Code.
(u) "STOCK" means the $.001 par value common stock of the
Company.
2.2 GENDER AND NUMBER
Except when otherwise indicated by the context, any masculine
terminology when used in this Plan also shall include the feminine gender,
and the definition of any term herein in the singular also shall include the
plural.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION
All Employees are eligible to participate in this Plan and receive any
or all of the following: Incentive Stock Options, Non-qualified Options
and/or Restricted Stock under the Plan. All Consultants are eligible to
participate in this Plan and receive Non-qualified Options and Restricted
Stock hereunder. Optionees and Recipients in the Plan shall be selected by
the Board, in its sole discretion, from among those Employees and Consultants
who, in the opinion of the Board, are in a position to contribute materially
to the Company's continued growth and development and to its long-term
financial success.
ARTICLE IV
ADMINISTRATION
4.1 ADMINISTRATION
The Board shall be responsible for administering the Plan.
(a) The Board is authorized to interpret the Plan; to
prescribe, amend, and rescind rules and regulations relating to the Plan; to
provide for conditions and assurances deemed necessary or advisable to
protect the interests of the Company; and to make all other determinations
necessary or advisable for the administration of the Plan. Determinations,
interpretations, or other actions made or taken by the Board, pursuant to the
provisions of this Plan, shall be final and binding and conclusive for all
purposes and upon all persons.
(b) At the discretion of the Board, this Plan may be
administered by a Committee which shall be an executive committee of the
Board, consisting of not less than two members of the Board. The members of
such Committee may be directors who are eligible to receive Options and
Restricted Stock under
4
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this Plan, but Options and Restricted Stock may be granted or awarded to such
persons only by action of the full Board and not by action of the Committee.
At such time as the Company has any class of equity security which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934, the
Committee shall consist solely of two or more Non-Employee Directors as that
term is defined in Rule 16b-3 under that Act. Such Committee shall have full
power and authority, subject to the limitations of the Plan and any
limitations imposed by the Board, to construe, interpret and administer this
Plan and to make determinations which shall be final, conclusive and binding
upon all persons, including, without limitation, the Company, the
shareholders, the directors and any persons having any interests in any
Options and Restricted Stock which may be granted or awarded under this Plan,
and, by resolution or resolution providing for the creation and issuance of
any such Option or Restricted Stock, to fix the terms upon which, the time or
times at or within which, the price or prices at which any such shares may be
purchased from the Company upon the exercise of such Option or the issuance
of such Restricted Stock. Such terms, time or times and price or prices
shall, in every case, be set forth or incorporated by, reference in the
instrument or instruments evidencing such Option or Restricted Stock, and
shall be consistent with the provisions of this Plan.
(c) If the Committee has been appointed, the Board may from
time to time remove members from, or add members to, the Committee. The
Board may terminate the Committee at any time. Vacancies on the Committee,
howsoever caused, shall be filled by the Board. The Committee shall select
one of its members as Chairman, and shall hold meetings at such times and
places as the Chairman may determine. A majority of the Committee at which a
quorum is present, or acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the Committee. A quorum
shall consist of two-thirds (2/3) of the members of the Committee.
(d) Where the Committee has been created by the Board,
references in this Plan to actions to be taken by the Board shall be deemed
to refer to the Committee as well, except where limited by this Plan or by
the Board.
(e) The Board shall have all of the enumerated powers of the
Committee, but shall not be limited to such powers. No member of the Board
or the Committee shall be liable for any action or determination made in good
faith with respect to the Plan, any Option or Restricted Stock granted or
awarded under it.
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ARTICLE V
STOCK SUBJECT TO THE PLAN
5.1 NUMBER
The total number of shares of Stock hereby made available and reserved
for issuance under the Plan upon exercise of Incentive Stock Options shall be
800,000, less the sum of (i) the number of shares issued and reserved for
issuance upon exercise of outstanding Non-qualified Options plus (ii) the
number of outstanding shares of Restricted Stock. The aggregate number of
shares of Stock available under this Plan shall be subject to adjustment as
provided in Section 5.3. The total number of shares of Stock may be
authorized but unissued shares of Stock, or shares acquired by purchase as
directed by the Board from time to time in its discretion, to be used for
issuance as Restricted Stock and upon exercise of Options granted hereunder.
5.2 UNUSED STOCK
If an Option shall expire or terminate for any reason without having
been exercised in full or if an award of Restricted Stock shall be forfeited
or otherwise terminated or cancelled without the shares covered thereby
becoming vested, the unpurchased or forfeited shares of Stock subject thereto
shall (unless the Plan shall have terminated) become available for other
Options and Restricted Stock under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION
In the event of any change in the outstanding shares of Stock by
reason of a stock dividend or split, recapitalization, reclassification, or
other similar corporate change, the aggregate number of shares of Stock set
forth in Section 5.1 shall be appropriately adjusted by the Board, whose
determination shall be conclusive; provided however, that fractional shares
shall be rounded to the nearest whole share. In any such case, the number
and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share
shall be proportionately and appropriately adjusted without any change in the
aggregate Option price to be paid therefor upon exercise of the Option.
ARTICLE VI
DURATION OF THE PLAN
6.1 DURATION OF THE PLAN
Subject to approval of shareholders, the Plan shall be in effect for
ten years from the date of its adoption by the Board. Any Options and
Restricted
6
<PAGE>
Stock outstanding at the end of said period shall remain in effect in accordance
with their terms. The Plan shall terminate before the end of said period if
all Stock subject to it has been issued pursuant to vested awards of
Restricted Stock and purchased pursuant to the exercise of Options granted
under the Plan.
ARTICLE VII
TERMS OF STOCK OPTIONS AND RESTRICTED STOCK
7.1 GRANT OF OPTIONS
Subject to Section 5.1, Options may be granted to Employees or
Consultants at any time and from time to time as determined by the Board;
provided, however, that Consultants may receive only Nonqualified Options and
may not receive Incentive Stock Options. The Board shall have complete
discretion in determining the terms and conditions and number of Options
granted to each Optionee. In making such determinations, the Board may take
into account the nature of services rendered by such Employees or
Consultants, their present and potential contributions to the Company and its
Subsidiary Corporations, and such other factors as the Board in its
discretion shall deem relevant. The Board also shall determine whether an
Option is to be an Incentive Stock Option or a Non-qualified Option.
(a) In the case of Incentive Stock Options, the total Fair
Market Value (determined at the date of grant) of shares of Stock with
respect to which incentive stock options are exercisable for the first time
by the Optionee during any calendar year under all plans of the Company under
which incentive stock options may be granted (and all such plans of any
Parent Corporations and any Subsidiary Corporations of the Company) shall not
exceed $100,000. Hereinafter, this requirement is sometimes referred to as
the "$100,000 Limitation."
(b) Nothing in this Article VII of the Plan shall be deemed
to prevent the grant of Options permitting exercise in excess of the maximums
established by the preceding paragraph where such excess amount is treated as
a Non-qualified Option.
(c) The Board is expressly given the authority to issue
amended or replacement Options with respect to shares of Stock subject to an
Option previously granted hereunder. An amended Option amends the terms of
an Option previously granted and thereby supersedes the previous Option. A
replacement Option is similar to a new Option granted hereunder except that
it provides that it shall be forfeited to the extent that a previously
granted Option is exercised, or except that its issuance is conditioned upon
the termination of a previously granted Option.
7
<PAGE>
7.2 NO TANDEM OPTIONS
Where an Option granted under this Plan is intended to be an Incentive
Stock Option, the Option shall not contain terms pursuant to which the
exercise of the Option would affect the Optionee's right to exercise another
Option, or vice versa, such that the Option intended to be an Incentive Stock
Option would be deemed a tandem stock option within the meaning of the
regulations under Section 422 of the Code.
7.3 OPTION AGREEMENT; TERMS AND CONDITIONS TO APPLY UNLESS OTHERWISE
SPECIFIED
As determined by the Board on the date of grant, each Option shall be
evidenced by an Option agreement (the "Option Agreement") that includes the
non-transferability provisions required by Section 10.2 hereof and specifies:
whether the Option is an Incentive Stock Option or a Non-qualified Option,
the Option price; the duration of the Option; the number of shares of Stock
to which the Option applies; any vesting or exercisability restrictions which
the Board may impose; in the case of an Incentive Stock Option, a provision
implementing the $100,000 Limitation, and any other terms or conditions which
the Board may impose. All such terms and conditions shall be determined by
the Board at the time of grant of the Option.
(a) If not otherwise specified by the Board, the following
terms and conditions shall apply to Options granted under the Plan:
(i) TERM. The duration of the Option shall be five
years from the date of grant.
(ii) EXERCISE OF OPTION. Unless an Option is
terminated as provided hereunder, an Optionee may exercise his Option for up
to, but not in excess of, the amounts of shares subject to the Option
specified hereafter, based on the Optionee's number of years of continuous
service with the Company or a Subsidiary Corporation from the date on which
the Option is granted. In the case of an Optionee who is an Employee,
continuous service shall mean continuous employment; in the case of an
Optionee who is a Consultant, continuous service shall mean the continuous
provision of consulting services. In applying said limitations, the amount of
shares, if any, previously purchased by the Optionee under the Option shall
be counted in determining the amount of shares the Optionee can purchase at
any time. The Optionee may exercise his Option in the following amounts:
(A) After one year of such continuous services,
up to but not in excess of twenty percent of the shares originally
subject to the Option;
8
<PAGE>
(B) After two years of such continuous services,
up to but not in excess of forty percent of the shares originally subject
to the Option;
(C) After three years of such continuous
services, up to but not in excess of sixty percent of the shares
originally subject to the Option;
(D) After four years of such continuous services,
up to but not in excess of eighty percent of the shares originally
subject to the Option; and
(E) At the expiration of the fifth year of such
continuous services, the Option may be exercised, in whole or in part,
and at any time and from time to time within its term but it shall not be
exercisable after the expiration of six years from the date on which it
was granted (five years with respect to Significant Shareholders).
(b) The Board shall be free to specify terms and conditions
other than those set forth above, in its discretion.
(c) All Option Agreements shall incorporate the provisions
of this Plan by reference, with certain provisions to apply depending upon
whether the Option Agreement applies to an Incentive Stock Option or to a
Non-qualified Option.
7.4 OPTION PRICE
No Option granted pursuant to this Plan shall have an Option price
that is less than the Fair Market Value of Stock on the date the Option is
granted. Incentive Stock Options granted to Significant Shareholders shall
have an Option price of not less than 110% of the Fair Market Value of Stock
on the date of grant. The Option exercise price shall be subject to
adjustment as provided in Section 5.3 above.
7.5 TERM OF OPTIONS
Each Option shall expire at such time as the Board shall determine
when it is granted, provided however that under no circumstances shall a
Non-qualified Option be exercisable later than the tenth anniversary date of
its grant, nor by its terms, shall an Incentive Stock Option granted to a
Significant Shareholder be exercisable later than the fifth year from the
anniversary date of its grant.
9
<PAGE>
7.6 EXERCISE OF OPTIONS
Options granted under the Plan shall be exercisable at such times and
be subject to such restrictions and conditions as the Board shall in each
instance approve, which need not be the same for all Optionees.
7.7 PAYMENT
Payment for all shares of Stock shall be made at the time that an
Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in
cash, or (ii) if acceptable to the Board, in Stock or in some other form;
provided, however, in the case of an Incentive Stock Option, that said other
form of payment does not prevent the Option from qualifying for treatment as
an "incentive stock option" within the meaning of the Code.
7.8 RESTRICTED STOCK
(a) The Board may from time to time award Restricted Stock to
persons eligible to receive such awards as set forth in Section 3.1 hereof,
subject to such restrictions, conditions and other terms as the Board may
determine. All awards of Restricted Stock shall be evidenced by a written
Stock Grant Agreement (the "Stock Agreement").
(b) At the time an award of Restricted Stock is made, the Board may
establish a period of time (the "Restricted Period") applicable to such
Restricted Stock or may specify that such Restricted Stock shall be fully
vested as of the date of the award. Each award of Restricted Stock may be
subject to a different Restricted Period. The Board may, in its sole
discretion, at the time an award of Restricted Stock is made, prescribe
restrictions in addition to or other than the expiration of the Restricted
Period, including the satisfaction of corporate or individual performance
objectives, which may be applicable to all or any portion of the Restricted
Stock. Such performance objectives shall be established in writing by the
Board prior to the ninetieth day of the year in which the award is made and
while the outcome is substantially uncertain. Performance objectives shall be
based on one or more of the following criteria: the Company's Stock price,
income, assets and liabilities, stockholders equity, market share, sales,
costs of goods, operating expenses, financial ratings by outside agencies,
earnings per share, or return on assets, equity or investments. Performance
objectives may include positive results, maintaining the status quo or
limiting economic losses. The Board also may, in its sole discretion,
shorten or terminate the Restricted Period or waive any other restrictions
applicable to all or a portion of the Restricted Stock, but no such action
shall be valid unless it is in writing. Restricted Stock may not be offered
for sale, sold, transferred, assigned, pledged or otherwise encumbered or
disposed of during the Restricted Period or before
10
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the satisfaction of any other restrictions prescribed by the Board with
respect to such Restricted Stock.
(c) The Company shall issue, in the name of each person to whom
Restricted Stock has been awarded, stock certificates representing the total
number of shares of Restricted Stock awarded to such person, as soon as
reasonably practicable after the award date. Unless an award of Restricted
Stock is fully vested on the award date, the Board shall provide in a Stock
Agreement that either (i) the Secretary of the Company shall hold such
certificates for the benefit of the Recipient until such time as the
Restricted Stock is forfeited to the Company or the applicable restrictions
lapse, or (ii) such certificates shall be delivered to the Recipient bearing
a legend or legends that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
the Plan and the Stock Agreement.
(d) Unless the Board otherwise provides in a Stock Agreement with
respect to Restricted Stock, holders of Restricted Stock shall have the right
to vote such Stock and the right to receive any dividends declared or paid
with respect to such Stock. The Board may provide that any dividends paid on
Restricted Stock must be reinvested in shares of Stock, which may or may not
be subject to the same vesting conditions and restrictions applicable to such
Restricted Stock. All distributions, if any, received by a Recipient with
respect to Restricted Stock as a result of any stock split, stock dividend,
combination of shares, or other similar transaction shall be subject to the
restrictions, if any, applicable to the original award.
(e) Upon the termination of the employment or other service
relationship of a Recipient of Restricted Stock with the Company or
Subsidiary, in either case other than by reason of death, any Restricted
Stock held by such Recipient that has not vested, or with respect to which
all applicable restrictions and conditions have not lapsed, shall immediately
be deemed forfeited, unless the Board, in its discretion, determines
otherwise. Upon forfeiture of Restricted Stock, such Recipient shall have no
further rights with respect to such award, including but not limited to any
right to vote Restricted Stock or any right to receive dividends with respect
to shares of Restricted Stock. Whether a leave of absence or leave on
military or government service shall constitute a termination of employment
for such purposes shall be determined by the Board, which determination shall
be final and conclusive. For purposes of Restricted Stock awards, a
termination of employment or service shall not be deemed to occur if the
Recipient is immediately thereafter employed or engaged as a Consultant with
the Company or a Subsidiary.
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(f) If a Recipient of Restricted Stock dies while employed by or
providing services as a Consultant to the Company or a Subsidiary, except as
provided in the applicable Stock Agreement, all Restricted Stock awarded to
such Recipient shall fully vest on the date of death, and the shares of Stock
represented thereby shall be deliverable in accordance with the terms of the
Plan to the executors, administrators, legatees or distributees of the
Recipient's estate.
(g) Upon the expiration or termination of the Restricted Period (or
upon the date of the award, if the Restricted Stock is fully vested when
awarded) and the satisfaction of any other conditions prescribed by the
Board, the restrictions applicable to shares of Restricted Stock shall lapse,
and, if provided in the Stock Agreement, upon payment by the grantee to the
Company, in cash or by check, of the aggregate par value of the shares of
Stock represented by such Restricted Stock, as soon as practicable After
receipt of payment, a stock certificate for such shares shall be delivered,
free of all such restrictions, to the Recipient or such Recipient's
beneficiary or estate, as the case may be.
ARTICLE VIII
WRITTEN NOTICE OF EXERCISE, ISSUANCE
OF STOCK CERTIFICATES, SHAREHOLDER PRIVILEGES
8.1 WRITTEN NOTICE OF EXERCISE
An Optionee wishing to exercise an Option shall give written notice to
the Company, in the form and manner prescribed by the Board. Full payment
for the shares exercised pursuant to the Option must accompany the written
notice.
8.2 ISSUANCE OF STOCK CERTIFICATES
As soon as practicable after the receipt of written notice and
payment, the Company shall deliver to the Optionee or to a permitted nominee
of the Optionee a certificate or certificates for the requisite number of
shares of Stock.
8.3 PRIVILEGES OF A SHAREHOLDER
An Optionee or any other person entitled to exercise an Option under
this Plan shall not have stockholder privileges with respect to any Stock
covered by the Option until the date of issuance of a stock certificate for
such stock.
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ARTICLE IX
TERMINATION OF EMPLOYMENT OR SERVICES
9.1 DEATH
If an Optionee's employment in the case of an Employee, or provision
of services as a Consultant in the case of a Consultant, terminates by reason
of death, the Option may thereafter be exercised at any time prior to the
expiration date of the Option or within 12 months after the date of such
death, whichever period is the shorter, by the person or persons entitled to
do so under the Optionee's will or, if the Optionee shall fail to make a
testamentary disposition of an Option or shall die intestate, the Optionee's
legal representative or representatives. The Option shall be exercisable
only to the extent that such Option was exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH
In the event of an Optionee's termination of employment in the case of
an Employee, or termination of the provision of services as a Consultant in
the case of a Consultant, other than by reason of death, the Optionee may
exercise such portion of his Option as was exercisable by him at the date of
such termination (the "Termination Date") at any time within three months of
the Termination Date: provided, however, that where the Optionee is an
Employee, and is terminated due to disability within the meaning of Code
Section 422, he may exercise such portion of his Option as was exercisable by
him on his Termination Date within one year of his Termination Date. In any
event, the Option cannot be exercised after the expiration of the term of the
Option. Options not exercised within the applicable period specified above
shall terminate.
(a) In the case of an Employee, a change of duties or
position within the Company or an assignment of employment in a Subsidiary
Corporation or Parent Corporation of the Company, if any, or from such a
Corporation to the Company, shall not be considered a termination of
employment for purposes of this Plan.
(b) The Option Agreements may contain such provisions as the
Board shall approve with reference to the effect of approved leaves of
absence upon termination of employment.
9.3 TERMINATION FOR CAUSE
In the event of an Optionee's termination of employment in the case of
an Employee, or termination of the provision of services as a Consultant in
the case of a Consultant, which termination is by the Company or a Subsidiary
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Corporation for cause, any Option or Options held by him under the Plan, to
the extent not exercised before such termination, shall terminate upon notice
of termination for cause.
ARTICLE X
RIGHTS OF OPTIONEES
10.1 SERVICE
Nothing in this Plan shall interfere with or limit in any way the
right of the Company or a Subsidiary Corporation to terminate any Employee's
employment, or any Consultant's services, at any time, nor confer upon any
Employee any right to continue in the employ of the Company or a Subsidiary
Corporation, or upon any Consultant any right to continue to provide services
to the Company or a Subsidiary Corporation.
10.2 NON-TRANSFERABILITY
All Options granted under this Plan shall be nontransferable by the
Optionee, other than by will or the laws of descent and distribution, and
shall be exercisable during the Optionee's lifetime only by the Optionee.
ARTICLE XI
OPTIONEE- EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE-EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE
For purposes of this Plan:
(a) A transfer of an Optionee who is an Employee from the
Company to a Subsidiary Corporation or Parent Corporation, or from one
such Corporation to another, or
(b) A leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company or a Subsidiary Corporation, and
(ii) if the Optionee holds an Incentive Stock Option, which qualifies
under the applicable regulations under the Code which apply in the case
of incentive stock options,
shall not be deemed a termination of employment. However, under no
circumstances may an Optionee exercise an Option during any leave of absence,
unless authorized by the Board.
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ARTICLE XII
AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN
(a) The Board may at any time terminate, and from time to
time may amend or modify the Plan, provided, however, that no such action of
the Board, without approval of the shareholders, may:
(i) increase the total amount of Stock which may be
purchased through Options and Restricted Stock granted or awarded under the
Plan, except as provided in Article V,
(ii) change the class of Employees or Consultants
eligible to receive Options and Restricted Stock;
(b) No amendment, modification, or termination of the Plan
shall in any manner adverse affect any outstanding Option or Restricted Stock
under the Plan without the consent of the Optionee holding the Option or the
grantee holding such Restricted Stock.
ARTICLE XIII
ACQUISITION, MERGER OR LIQUIDATION
13.1 ACQUISITION
(a) In the event that an Acquisition occurs with respect to
the Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of Acquisition, whether
or not such Options are then exercisable, in return for payment to the
Optionees of an amount equal to a reasonable estimate of an amount
(hereinafter the "Spread") equal to the difference between the net amount per
share payable in the Acquisition or as a result of the Acquisition, less the
exercise price of the Option. In estimating the Spread, appropriate
adjustments to give effect to the existence of the Options shall be made,
such as deeming the Options to have been exercised, with the Company
receiving the exercise price payable thereunder, and treating the shares
receivable upon exercise of the Options as being outstanding in determining
the net amount per share.
(b) For purposes of this section, an "Acquisition" shall
mean any transaction in which substantially all of the Company's assets are
acquired or in which a controlling amount of the Company's outstanding shares
are acquired, in each case by a single person or entity or an affiliated
group of persons and entities. For purposes of this section, a controlling
amount shall mean more than 50% of the issued and outstanding shares of stock
of the
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Company. The Company shall have such an option regardless of how the
Acquisition is effectuated, whether by direct purchase, through a merger or
similar corporate transaction, or otherwise. In cases where the acquisition
consists of the acquisition of assets of the Company, the net amount per
share shall be calculated on the basis of the net amount receivable with
respect to shares upon a distribution and liquidation by the Company after
giving effect to expenses and charges, including but not limited to taxes,
payable by the Company before the liquidation can be completed.
(c) Where the Company does not exercise its option under
this Section 13.1 the remaining provisions of this Article XIII shall apply,
to the extent applicable.
13.2 MERGER OR CONSOLIDATION
Subject to any required action by the shareholders, if the Company
shall be the surviving corporation in any merger or consolidation, any Option
granted hereunder shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to the Option would have been
entitled in such merger or consolidation and any securities received by a
Recipient of Restricted Stock in such merger or consolidation shall be
subject to the same restrictions and conditions, if any, that applied to such
Restricted Stock immediately before such transaction.
13.3 OTHER TRANSACTIONS
A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving corporation shall
cause every Option outstanding hereunder to terminate as of the effective
date of such dissolution, liquidation, merger or consolidation. However, the
Optionee either (i) shall be offered a firm commitment whereby the resulting
or surviving corporation in a merger or consolidation will tender to the
Optionee an option (the "Substitute Option") to purchase its shares on terms
and conditions both as to number of shares and otherwise, which will
substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, or (ii) shall have the right
immediately prior to such dissolution, liquidation, merger, or consolidation
to exercise any unexercised Options whether or not then exercisable, subject
to the provisions of this Plan. The Board shall have absolute and
uncontrolled discretion to determine whether the Optionee has been offered a
firm commitment and whether the tendered Substitute Option will substantially
preserve to the Optionee the rights and benefits of the Option outstanding
hereunder. In any event, any Substitute Option for an Incentive Stock Option
shall comply with the requirements of Code Section 424(a).
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ARTICLE XIV
SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION
In the event that the Company shall deem it necessary or desirable to
register under the Securities Act of 1933, as amended, or any other
applicable statute, any Options, any Restricted Stock or any Stock with
respect to which an Option may be or shall have been granted or exercised, or
to qualify any such Options or Stock under the Securities Act of 1933, as
amended, or any other statute, then the Optionee or grantee of Restricted
Stock shall cooperate with the Company and take such action as is necessary
to permit registration or qualification of such Options, Stock or Restricted
Stock.
14.2 REPRESENTATIONS
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option or acquiring Restricted Stock
under the Plan may be required by the Company, as a condition to the issuance
of the shares of Restricted Stock or pursuant to exercise of the Option, to
make a representation in writing (i) that he is acquiring such shares for his
own account for investment and not with a view to, or for sale in connection
with, the distribution of any part thereof, (ii) that before any transfer in
connection with the resale of such shares, he will obtain the written opinion
of counsel for the Company, or other counsel acceptable to the Company, that
such shares may be transferred. The Company may also require that the
certificates representing such shares contain legends reflecting the
foregoing.
ARTICLE XV
TAX WITHHOLDING
15.1 TAX WITHHOLDING
Whenever shares of Stock are to be issued as Restricted Stock or in
satisfaction of Options exercised under this Plan, and whenever shares of
Restricted Stock become fully or partially vested, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
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<PAGE>
ARTICLE XVI
INDEMNIFICATION
16.1 INDEMNIFICATION
To the extent permitted by law, each person who is or shall have been
a member of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by him in connection with or resulting from any
claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the
Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of
judgment in any such action, suit, or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under
the Company's articles of incorporation or bylaws, as a matter of law, or
otherwise, or any power that the Company or any Subsidiary Corporation may
have to indemnify, them or hold them harmless.
ARTICLE XVII
REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW
The granting of Options, the issuance of shares of Restricted Stock
and the issuance of shares of Stock upon the exercise of an Option shall be
subject to all applicable laws, rules, and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required.
17.2 GOVERNING LAW
The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Colorado.
ARTICLE XVIII
EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE
The Plan shall be effective on May 4, 1999.
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ARTICLE XIX
COMPLIANCE WITH CODE
19.1 COMPLIANCE WITH CODE
Incentive Stock Options granted hereunder are intended to qualify as
"incentive stock options" under Code Section 422. If any provision of this
Plan is susceptible to more than one interpretation, such interpretation
shall be given thereto as is consistent with Incentive Stock Options granted
under this Plan being treated as incentive stock options under the Code.
ARTICLE XX
NO OBLIGATION TO EXERCISE OPTION
20.1 NO OBLIGATION TO EXERCISE
The granting of an Option shall impose no obligation upon the holder
thereof to exercise such Option.
ARTICLE XXI
STOCKHOLDER APPROVAL
21.1 STOCKHOLDER APPROVAL
This Plan shall be submitted for approval and ratification by a vote
of the holders of a majority of the shares of Common Stock of the Company no
later than May 4, 2000, provided, however, that failure to timely obtain such
shareholder approval shall result in all Options granted hereunder being
deemed to be Non-qualified Options and shall not affect the validity of any
Option issued under this Plan.
THIS 1999 STOCK OPTION AND RESTRICTED STOCK PLAN was adopted by the
Board of Directors of Telecom Wireless Corporation as of May 4, 1999, to be
effective on that date.
TELECOM WIRELESS CORPORATION
By: /s/Calvin D. Smiley
----------------------------------
Calvin D. Smiley, President
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<PAGE>
18 August 1998
PUT/CALL AGREEMENT
This Agreement is entered into between Josh Mailman, having offices at Sirius
Business Corporation located at 150 East 58th Street, New York, NY 10155 and
Telecom Wireless Corporation (OTC BB: NOYR) located at 5299 DTC Boulevard,
Englewood, Colorado 80111, hereinafter referred to as NOYR. This Agreement is
related to the acquisition of shares of International Datacasting Corporation
(MSE:IDA) located at 2680 Queensview Drive, Ottawa, Ontario, Canada K2B 8H6,
hereinafter referred to as IDC.
Whereas Josh Mailman is a shareholder of IDC currently holding a total of
600,000 shares and has a separate agreement with IDC to purchase 2,000,000
treasury shares of IDC and an option to purchase an additional 2,000,000
treasury shares; and
Whereas NOYR wishes to acquire shares of IDC and is in the process of
negotiating a separate agreement with IDC and its major shareholders in order
to acquire these shares.
The parties to this Agreement do hereby agree as follows:
1. NOYR agrees to purchase from Josh Mailman a total of 2,600,000 IDC
shares no later than 16 September 1999, at a price of $1.00 (CDN) per
share in cash or, at the sole discretion of Josh Mailman, the
equivalent value in NOYR shares.
2. NOYR agrees to purchase from Josh Mailman the second total of
2,000,000 shares, within 30 days after they have been purchased by
Josh Mailman, under the same terms as paragraph 1 of this Agreement.
3. Josh Mailman agrees to sell their complete holding of IDC shares to
NOYR upon 5 days notice from NOYR under the same terms as paragraph 1
of this Agreement, the total of such holdings to be determined as
those that are owned by Josh Mailman as of the date of notice from
NOYR.
4. The parties agree that, for the purposes of this Agreement only, any
NOYR shares provided to Josh Mailman in lieu of cash shall be valued
at $10.00 USD per share or, at the sole discretion of Josh Mailman, at
a price equal to 70% of market price on the date of transaction.
5. The effective date of this Agreement shall be 16 August 1999.
Signed and agreed to by:
/s/ Josh Mailman /s/ James C. Roberts
- --------------------------------- -------------------------------------
Josh Mailman Dr. James Roberts, Chairman
and CEO Telecom Wireless Corporation
CONFIDENTIAL INFORMATION
<PAGE>
AMENDMENT
TO
PUT/CALL AGREEMENT
THIS AGREEMENT is an amendment (the "Amendment") dated as of
October ___, 1999 to that certain Put/Call Agreement, dated August 16, 1999
(the "Agreement"), between Josh Mailman and Telecom Wireless Corporation.
Capitalized terms, unless otherwise defined herein, shall have the same
meanings as given to them in the Agreement. Except as amended and
supplemented hereby, the Agreement is hereby ratified, confirmed and
reaffirmed in all respects.
WHEREAS, the parties hereto desire to amend certain terms of
the Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein, it is hereby agreed that the Agreement shall be
amended as follows:
a. Paragraph 1 shall be deleted and replaced in its
entirety by the following:
"At any time from the effective date of this Agreement until
February 1, 2000, Josh Mailman has the right to cause NOYR to purchase and
NOYR agrees to purchase from Josh Mailman a total of 2,600,000 shares of
common stock of IDC at a price of $1.00 (CAD) per share in cash or, at the
sole discretion of Josh Mailman, the equivalent value in NOYR shares or in
the form of a note, the terms of which shall be mutually determined by NOYR
and Josh Mailman."
b. Paragraph 4 shall be deleted and replaced in its
entirety by the following:
"The parties agree that, for the purposes of paragraph 1
herein, any NOYR shares provided to Josh Mailman in lieu of cash shall he
valued at the lesser of $5.00 USD per share or 70% of the market price on the
date of the transaction."
This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have duly
executed this Amendment to be effective as of the date first written above.
TELECOM WIRELESS CORPORATION
By: /s/ Calvin D. Smiley
-----------------------------------
Authorized Signatory
-----------------------------------
Name: Calvin D. Smiley
---------------------------------
Title: President
---------------------------------
---------------------------------------
Joshua Mailman
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<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUED OR ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") OR REGISTERED OR QUALIFIED UNDER ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE EXERCISED AND THESE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION FILED IN
ACCORDANCE WITH THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
Void after 3:30 P.M., Denver Time, on April 12, 2002
Warrant to Purchase
61,611 Shares
of Common Stock
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
TELECOM WIRELESS CORPORATION
This Is to Certify That, FOR VALUE RECEIVED,
CALVIN D. SMILEY
or registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from TELECOM WIRELESS CORPORATION, a Utah
corporation ("Company"), at any time not later than 3:30 P.M., Denver Time,
on April 12, 2002 (the "Expiration Date") 61,611 shares of common stock,
having $.001 par value per share, of the Company ("Common Stock") at an
exercise price, subject to adjustment as set forth below, of $5.275 per
share. In addition, the number of shares of Common Stock to be received upon
the exercise of this Warrant and the price to be paid for a share of Common
Stock are subject to adjustment from time to time as hereinafter set forth.
The shares of the Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Stock" and the exercise price of a share of Common Stock in effect at any
time and as adjusted from time to time is hereinafter sometimes referred to
as the "Exercise Price."
(a) EXERCISE OF WARRANT. Subject to the provisions of Section (o)
hereof, this Warrant may be exercised in whole or in part at any time or from
time to time not later than 3:30 P.M., Denver Time, on the Expiration Date,
or if the Expiration Date is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not
be such a day, by presentation and surrender hereof to the Company with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares specified in such form, together with
all federal and state taxes applicable upon such exercise. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the holder to purchase the balance of the shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office or
agency of the Company, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such securities shall
<PAGE>
not then be actually delivered to the Holder. The Exercise Price shall be
paid (i) in cash, (ii) by certified check or cashier's check, (iii) by
previously acquired shares of Common Stock having a Current Market Value
equal to the Exercise Price, (iv) by previously acquired shares of Common
Stock having a Current Market Value less than the Exercise Price, plus cash
or a certified or cashier's check for the balance of the Exercise Price, or
(v) at the Holder's option, by exchange of this Warrant for the aggregate
number of shares of Warrant Stock issuable upon exercise of this Warrant,
less that number of shares of Warrant Stock as have a then Current Market
Value equal to the aggregate Exercise Price of this Warrant and the Holder
shall pay no cash or other consideration in connection with such exercise
other than surrender to the Company of this Warrant.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of such fractional share, determined
as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or
listed on the Nasdaq Stock Market, the Current Market Value shall be
the last reported sale price of the Common Stock on the composite tape
of such exchange or on Nasdaq on the last trading day prior to the date
of exercise of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on the composite tape
of such exchange or on Nasdaq; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the Current Market Value shall be the mean
of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc. or the OTC Bulletin Board on the last trading
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the Current Market Value shall be an amount, not less than
book value, determined in such reasonable manner as may be prescribed
by the Board of Directors of the Company, such determination to be
final and binding on the Holder.
(d) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. Subject to Section (o)
herein, this Warrant is assignable and exchangeable, without expense, at the
option of the Holder, upon presentation and surrender hereof to the Company or
at the office of its stock transfer agent, if any, for other Warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Any
such assignment shall be made by surrender of this Warrant to the Company or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax; whereupon the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant promptly
shall be canceled. This Warrant may be divided or combined with other Warrants
which carry the same rights upon presentation hereof at the office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants issued in substitution for or replacement of this Warrant,
or into which this Warrant may be divided or exchanged. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
2
<PAGE>
mutilation of this Warrant, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification including a surety bond, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS.
(1) STOCK SPLITS AND STOCK DIVIDENDS. In case the Company
shall at any time issue Common Stock or Convertible Securities by way
of dividend or other distribution on any stock of the Company or
subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall be proportionately decreased in the case of such
issuance (on the day following the date fixed for determining
shareholders entitled to receive such dividend or other distribution)
or decreased in the case of such subdivision or increased in the case
of such combination (on the date that such subdivision or combination
shall become effective).
(2) NO ADJUSTMENT FOR SMALL AMOUNTS. Anything in this Section
(f) to the contrary notwithstanding, the Company shall not be required
to give effect to any adjustment in the Exercise Price unless and until
the net effect of one or more adjustments, determined as above
provided, shall have required a change of the Exercise Price by at
least one cent, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least two cents, such change in the Exercise Price shall
thereupon be given effect.
(3) NUMBER OF SHARES ADJUSTED. Upon any adjustment of the
Exercise Price, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock issuable
upon exercise of this Warrant by the Exercise Price in effect
immediately prior to effectiveness of the new Exercise Price and
dividing the product so obtained by the new Exercise Price.
(4) COMMON STOCK DEFINED. Whenever reference is made in this
Section (f) to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean the Common Stock of the Company of the class
authorized as of the date hereof and any other class of stock ranking
on a parity with such Common Stock. However, subject to the provisions
of Section (i) hereof, shares issuable upon exercise hereof shall
include only shares of the class designated as Common Stock of the
Company as of the date hereof.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f) hereof, the Company
shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its stock transfer agent, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided and setting forth in reasonable detail the facts requiring
such adjustment and the calculation thereof. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder
and the Company shall, forthwith after each such adjustment, mail a copy of
such certificate to the Holder.
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<PAGE>
(h) NOTICES TO HOLDERS. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock, or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to
the Holder, at least 30 days prior to the date specified in (x) or (y) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the
purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any,
is to be fixed, as of which the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company (other than a change in par value, or
from par value to no par value, or as a result of an issuance of Common Stock
by way of dividend or other distribution or of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the class issuable upon exercise of this Warrant)
or in case of any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety, the Company
shall cause effective provision to be made so that the holder shall have the
right thereafter, by exercising this Warrant, to purchase the kind and amount
of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance as if the holder had exercised this Warrant prior
to such transaction. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. A copy of such provision shall be
furnished to the holder(s) of Warrants within ten days after execution of the
appropriate agreement pertaining to same and, in any event, prior to any
consolidation, merger, sale or conveyance subject to the provisions of this
Section (i). The foregoing provisions of this Section (i) shall similarly
apply to successive reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(j) DISSOLUTION. If, at any time prior to the expiration of this
Warrant and prior to the exercise thereof, any dissolution, liquidation or
winding up of the Company shall be proposed, the Company shall cause at least
30 days' notice to be mailed by certified mail to the registered holder of
this Warrant Certificate at his address as it appears on the books of the
Company. Such notice shall specify the date as of which holders of record of
Common Stock shall participate in any distribution or shall be entitled to
exchange their Common Stock for securities or other property, deliverable
upon such dissolution, liquidation or winding up, as the case may be; to the
end that, during such period of 30 days, the holders of this Warrant may
exercise this Warrant and purchase Common Stock (or other stock substituted
therefor as hereinbefore provided) and be entitled in respect of shares so
purchased to all of the rights of the other holders of Common Stock of the
Company. In case of a dissolution, liquidation or winding up of the Company,
all purchase rights under this Warrant shall terminate at the close of
business on the date as of which holders of record of the Common Stock shall
be entitled to participate in a distribution of the assets of the Company in
connection with such dissolution, liquidation or winding up (provided that in
no event shall said date be less than 30 days after completion of service by
certified mail of notice as aforesaid). Any Warrant not exercised prior to
such time
4
<PAGE>
shall be void and no rights shall exist thereunder. In any such case of
termination of purchase rights, a statement thereof shall be included in the
notice provided for herein.
(k) SPIN-OFFS. In the event the Company spins-off a subsidiary or
stock held in another corporation as an investment by distributing to the
shareholders of the Company, as a dividend or otherwise, the stock of the
subsidiary or other corporation, the Company shall reserve, for the life of
the Warrant, shares of the subsidiary or other corporation to be delivered to
the holders of the Warrants upon exercise to the same extent as if they were
owners of record of the Warrant Stock on the record date for payment of the
shares of the subsidiary or other corporation.
(l) NOTICE. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing and
delivered personally (including by telex, telecopier, telegram or other
acknowledged receipt) or three business days following deposit in the United
States mails, sent by registered or certified mail, return receipt requested,
addressed as follows:
Holder: Calvin D. Smiley
821 West 126th Court
Westminster, Colorado 80234
Company: Telecom Wireless Corporation
5299 DTC Blvd., 12th Floor
Englewood, Colorado 80111
Attention: President
With a copy (which shall not constitute
notice) to:
Telecom Wireless Corporation
5299 DTC Blvd., 12th Floor
Englewood, Colorado 80111
Attention: General Counsel
Any person may change the address for the giving of notice by notice duly
given effective five (5) business days thereafter.
(m) AMENDMENTS AND WAIVERS. Any term, condition or provision of this
Warrant may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holders.
(n) ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
among the parties thereto and supersedes any and all prior agreements whether
written or oral regarding the subject matter hereof.
(o) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
(1) This Warrant or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be offered or
sold except in conformity with the Securities Act of 1933, as amended,
and then only against receipt of an agreement of such person to whom
such offer of sale is made to comply with the provisions of this
Section (o) with respect to any resale or other disposition of such
securities.
5
<PAGE>
(2) The Company may cause the following legend to be set forth
on each certificate representing Warrant Stock or any other security
issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to
the public pursuant to Section (l) hereof, unless counsel for the
Company is of the opinion as to any such certificate that such legend
is unnecessary:
The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement made under the
Securities Act of 1933 (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.
(3) Notwithstanding anything herein contained to the contrary,
this Warrant shall not be exercisable unless and until the Company is
satisfied that exercise hereof would not result in loss of a claimed
securities registration exemption in connection with any other actual
or proposed transaction the effect of which would be materially adverse
to the Company.
(p) APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Colorado.
ATTEST: TELECOM WIRELESS CORPORATION
By:
------------------------------------
Lynne K. Roberts, Secretary James C. Roberts, Chief Executive
Officer
[SEAL] Date:
----------------------------------
6
<PAGE>
PURCHASE FORM
Dated
-----------------
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________ shares of Common Stock and
hereby makes payment of $________ in payment of the actual exercise price
thereof.
--------------------
INSTRUCTIONS FOR REGISTRATION OF UNITS
Name
-------------------------------------------------------------
(please typewrite or print in block letters)
Address
----------------------------------------------------------
Signature
--------------------------------------------------------
Social Security or Employer I.D. No.
-----------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto
Name
----------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent
of ________ Shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ____________________________, attorney, to
transfer the same on the books of the Company with full power of substitution
in the premises.
Signature:
---------------------------
Dated:
-------------------------------
7
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF TELECOM WIRELESS CORPORATION
America's Web Station, Inc.
Prentice Technologies, Inc.
Phoenix Communications, Inc. (inactive)
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Telecom Wireless
Corporation on Form SB-2 of our report dated May 26, 1999 on the financial
statements of Sys-Group, Inc. d/b/a/ Prentice Technologies, Inc., appearing
in the Prospectus, which is part of such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Ehrhrardt Keefe Steiner & Hottman PC
Ehrhrardt Keefe Steiner & Hottman PC
Denver, Colorado
November 24, 1999
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Telecom Wireless
Corporation on Form SB-2 of our report dated October 26, 1999 on the
consolidated financial statements of Telecom Wireless Corporation and
Subsidiaries, appearing in the Prospectus, which is part of such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Ehrhrardt Keefe Steiner & Hottman PC
Ehrhrardt Keefe Steiner & Hottman PC
Denver, Colorado
November 24, 1999
<PAGE>
GERSTLE, ROSEN & ASSOCIATES, P.A.
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of our report of Telecom
Wireless Corporation and Subsidiary dated September 22, 1998 appearing in the
Prospectus, which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Gerstle, Rosen & Associates, P.A.
Gerstle, Rosen & Associates, P.A.
Denver, Colorado
November 24, 1999
<PAGE>
GIRARDIN BALDWIN & ASSOCIATES LLP
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Telecom Wireless
Corporation of our report of America's Web Station, Inc. dated July 30, 1999
appearing in the Prospectus, which is part of such Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
GIRARDIN BALDWIN & ASSOCIATES LLP
Certified Public Accountants
Naples, Florida
November 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-END> JUN-30-1999 SEP-30-1999
<CASH> 620,666 695,774
<SECURITIES> 0 0
<RECEIVABLES> 402,225 835,975
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,022,891 1,531,754
<PP&E> 741,264 1,274,939
<DEPRECIATION> 151,467 316,527
<TOTAL-ASSETS> 2,776,893 7,154,595
<CURRENT-LIABILITIES> 758,709 3,678,664
<BONDS> 0 0
0 0
1,368,068 1,392,507
<COMMON> 650,116 1,909,791
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,776,893 7,154,595
<SALES> 0 0
<TOTAL-REVENUES> 522,654 171,000
<CGS> 0 0
<TOTAL-COSTS> 3,967,564 2,968,217
<OTHER-EXPENSES> 41,227 24,434
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,114 64,506
<INCOME-PRETAX> (3,537,251) (2,886,157)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,537,251) (2,886,157)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,537,251) (2,886,157)
<EPS-BASIC> (.94) (.19)
<EPS-DILUTED> (.94) (.19)
</TABLE>
