AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON *
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
Third Enterprise Service Group, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
- -------------------------------------------- ----------------------------------------- ------------------------------------------
Florida 6770 Applied For
- -------------------------------------------- ----------------------------------------- ------------------------------------------
<CAPTION>
State or other jurisdiction of PRIMARY STANDARD INDUSTRIAL I.R.S. Employer Identification No.
incorporation or organization CLASSIFICATION CODE NUMBER
- -------------------------------------------- ----------------------------------------- ------------------------------------------
</TABLE>
2503 W. Gardner Ct.,
Tampa, FL 33611
813. 831-9348
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael T. Williams
PRESIDENT
Third Enterprise Service Group, Inc.
2503 W. Gardner Ct.
Tampa, FL 33611
TELEPHONE: 813.831.9348
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this registration statement becomes effective
and after the closing of the merger of the proposed merger described in this
registration statement.
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. *[ ] *registration number,
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. *[ ] *registration number,
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. *[ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================= ==================== ======================== ========================= ====================
Title of each class of Proposed maximum
securities to be Proposed maximum aggregate offering price
registered Amount to be offering price per unit Amount of
registered registration fee
========================= ==================== ======================== ========================= ====================
========================= ==================== ======================== ========================= ====================
<S> <C> <C> <C> <C>
Common Stock, $0.01 per
share par value 4,918,561 N/A $500,000 (2) $200 (3)
========================= ==================== ======================== ========================= ====================
</TABLE>
(1) Represents an estimate of the maximum number of shares of common stock
of Registrant which may be issued to former holders of shares of common
stock of Competitive Companies, Inc. pursuant to the merger described
herein
(2) The registration fee has been calculated pursuant to Rule 457(f)(2). As
of September 30, 1999, Competitive Companies, Inc. had a book value of
the shares to be registered is $500,000. In addition, Competitive
Companies, Inc. common stock has a par value of $0.01 per share.
Accordingly, the maximum offering price has been determined to be the
book value of the securities to be registered.
(3) This fee has been calculated pursuant to Section 6(b) of the Securities
Act, as .0264 of one percent of $500,000.
------------------------
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 THAT 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>
COMPETITIVE COMPANIES, INC.
INFORMATION STATEMENT FOR SHAREHOLDERS
Third Enterprise Service Group, INC.
PROSPECTUS
The board of directors of Competitive Companies, Inc. has unanimously
approved a merger between Competitive Companies and Third Enterprise Service
Group, Inc. Third Enterprise Service Group has committed to file to have its
stock quoted on the over-the-counter bulletin board of the Nasdaq Stock Market
Inc., under the symbol "*BBB symbol." Because Third Enterprise Service Group is
a company whose securities will be quoted on the bulletin board, the Competitive
Companies board believes that the merger will:
o Increase the visibility of Competitive Companies' business, which
could be helpful in further developing and commercializing
Competitive Companies' products.
o Facilitate Competitive Companies' ability to raise capital in the
public markets
o Potentially improve Competitive Companies' shareholders' ability to sell their
shares in the over-the-counter market.
Your board of directors has determined that the merger is fair to you and
in your best interests. In addition, shareholders owning 53.48% of your common
stock have executed a written consent voting to approve the merger. No further
consent of you or any of the shareholders of Competitive Companies is necessary
to approve the merger under the laws of the state of Nevada.
The merger will close as soon as practicable after the SEC declares this
Information Statement/Prospectus effective. When the merger is completed, you
will receive one share of Third Enterprise Service Group common stock for each
share of Competitive Companies common stock that you own.
Third Enterprise Service Group was formed as a vehicle to acquire a private
company desiring to become an SEC reporting company in order thereafter to
secure a listing on the over the counter bulletin board.
The total number of shares of common stock that Third Enterprise Service
Group will issue to all of the Competitive Companies shareholders in the merger
is 4,793,561. We estimate that this number will represent approximately 97.5% of
the outstanding Third Enterprise Service Group common stock after the merger.
Following the merger, the surviving company will continue to file reports with
the SEC as a result of its filing of a form 8-A electing to be a reporting
company subject to the requirements of the 1934 act.
The proposed merger is a very complex transaction with a number of risks and
uncertainties associated with it. This document provides you with detailed
information about the proposed merger. We strongly urge you to read and consider
carefully this document in its entirety, especially the matters referred to
under "risk factors" beginning on *insert page #.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved the Third Enterprise Service Group
common stock to be issued in the merger or determined if this information
statement/prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this information statement/prospectus is *date of proxy, and it
is first being mailed to Competitive Companies shareholders on or about *date
mailed.
Other Information for Competitive Companies Stockholders:
o The prospectus incorporates important business and financial
information that is not included in or delivered with the
document. This information is available without charge to security
holders upon written or oral request to: Competitive Companies,
Inc., Attn: Larry Halstead, 3751 Merced Drive, Suite A, Riverside,
California, (909) 687-6100.
o Do not send in your Competitive Companies stock certificates now.
If the merger is completed, we will send you written instructions
for exchanging your share articles.
o The merger has been structured as a tax-free reorganization. The
tax basis in your Competitive Companies common stock will
carryover and become the tax basis in your new shares of Third
Enterprise Service Group common stock.
o Like Competitive Companies, Third Enterprise Service Group has
never paid any dividends.
o If you have any questions about the merger, please call Larry
Halstead, at Competitive Companies, at (909) 687-6100.
Dealer prospectus delivery obligation
Until *** , all dealers that effect transactions in these securities,
whether or not participating in this offering, are required to deliver a
prospectus.
<PAGE>
SUMMARY
This summary highlights selected information from this information
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you.
In the merger, Competitive Companies' shareholders will merger shares with
Third Enterprise Service Group, and Third Enterprise Service Group will be the
surviving company of Competitive Companies.
The merger agreement is attached as annex A to this document. We encourage
you to read the merger agreement, as it is the legal document that governs the
merger.
The companies.
Third Enterprise Service Group
2503 W. Gardner Ct.
Tampa, FL 33611
We were organized under the laws of the state of Florida in April 1999.
Since inception, our primary activity has been directed to organizational
efforts. We were formed as a vehicle to acquire a private company desiring to
become an SEC reporting company in order thereafter to secure a listing on the
over the counter bulletin board.
Competitive Companies, Inc.
3751 Merced Drive, Suite A
Riverside, CA 92503
Competitive Companies was incorporated in Nevada in 1998. Competitive
Companies sells telecommunications products and services.
Competitive Companies' reasons for the merger
o Increase the visibility of Competitive Companies' business, which
could be helpful in further developing and commercializing
Competitive Companies' products.
o Facilitate Competitive Companies' ability to raise capital in the
public markets.
o Potentially improve Competitive Companies' shareholders' ability to sell their
shares in the over-the-counter market.
Comparison of the percentage of outstanding shares entitled to vote held by
directors, executive officers and their affiliates and the vote required for
approval of the merger.
100 percent of Third Enterprise Service Group's shares are held by its
directors, executive officers and their affiliates. A majority vote of the
issued and outstanding shares is required to approve the merger. Shareholders
owning 100% of our common stock have executed a written consent voting to
approve the merger. No further consent of you or any of the shareholders of
Third Enterprise Service Group is necessary to approve the merger under the laws
of the state of Florida.
53.48 percent of Competitive Companies' shares are held by its directors,
executive officers and their affiliates. A majority vote of the issued and
outstanding shares is required to approve the merger. Shareholders owning 53.48%
of your common stock have executed a written consent voting to approve the
merger. No further consent of you or any of the shareholders of Competitive
Companies is necessary to approve the merger under the laws of the state of
Nevada.
No regulatory approval required.
Neither Third Enterprise Service Group nor Competitive Companies is aware
of any governmental regulatory approvals required to be obtained with respect to
the closing of the merger, except for the filing of the articles of merger with
the offices of the secretary of state of the state of Nevada, the filing with
the Commission of the registration statement on Form S-4 registering the shares
and this information statement/prospectus, and compliance with all applicable
state securities laws regarding the offering and issuance of the shares.
Dissenters' rights
Dissenters' rights of appraisal exist. See page * for further information.
Federal income tax consequences.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
Competitive Companies and Third Enterprise Service Group have structured the
merger so that neither Competitive Companies nor its shareholders should
recognize gain or loss for federal income tax purposes as a result of the
merger.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information of Competitive
Companies and Third Enterprise Service Group has been derived from their
respective historical financial statements, and should be read in conjunction
with such financial statements and the notes , which are included in this
information statement/prospectus.
Competitive Companies SELECTED HISTORICAL FINANCIAL INFORMATION - TBPBA
The following selected financial data for the nine months ended September
30, 1999 and 1998, and the two years ended December 31, 1998 and 1997 is derived
from the Consolidated Financial Statements of the Company, of which only
December 1998 is audited. The data should be read in conjunction with the
Consolidated Financial Statements and other financial information included
elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, December 31,
------------------------------ ----------------------------------
------------- --- ---------------
1999 1998 1998 1997
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Income Statement Data: ($ in 000's)
Revenues
Costs of revenues
Gross profits
Salaries and employee benefits
Occupancy and expense
General and administrative expenses
Other income (expense):
Interest income
Interest expense
Other income, net
Total other income (expense)
Income before taxes
Income tax expense
Net income (loss)
Common Share Data:
Net income per share
Book value
Weighted average common shares
outstanding (in 000s)
Period end shares outstanding (in 000s)
Balance Sheet Data:
Total assets
Working capital
Long-term obligations
Shareholders' equity
Performance Data:
Return (loss) on total assets
Return (loss) on shareholders' equity
Capital Ratios:
Quick ratio
Efficiency ratio
Debt to equity ratio
</TABLE>
Third Enterprise Service Group SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial data for the nine months ended September
30, 1999 is derived from the Financial Statements of Third Enterprise Service
Group. Third Enterprise Service Group was organized in April 1999 with all
activity directed toward organizational efforts:
September 30, 1999
-----------------------------
-----------------------------
Total assets $ 0
Total liabilities 0
Equity 0
Period Ended
September 30, 1999
-----------------------------
-----------------------------
Sales 0
Net loss $ 88
Net loss per share $ 0.00
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF Competitive Companies AND
Third Enterprise Service Group - TBPBA
The merger of Competitive Companies with Third Enterprise Service Group
will not result in any changes to the financial statements as presented for
Competitive Companies. Third Enterprise Service Group is a public shell and the
combination is treated as a transfer of shares for cash since the combination is
not a business combination. Pro forma information is not presented since the
combination is not a business combination.
COMPARATIVE PER SHARE DATA - TBPBA
<TABLE>
<CAPTION>
September 30, December 31, December 31, 1997
1999 1998
------------------ ---------------- ------------------
------------------ ---------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Numerator - basic and diluted
earnings per share
Net loss before and after merger $ $ $
================== ================ ==================
================== ================ ==================
Denominator - Basic earnings per share
Common stock outstanding before merger
================== ================ ==================
Common stock outstanding after merger
================== ================ ==================
================== ================ ==================
Basic and diluted earnings per share before
Merger*
================== ================ ==================
Basic and diluted earnings per share
after merger* $ $ $
================== ================ ==================
</TABLE>
* Convertible notes, convertible preferred stock, options and warrants are
considered anti-dilutive and not included in the above calculations
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our company. In addition, you should keep in mind that
the risks described below are not the only risks that we face. The risks
described below are all the risks that we currently believe are material risks
of this offering. However, additional risks not presently known to us, or risks
that we currently believe are immaterial, may also impair our business
operations. Moreover, you should refer to the other information contained in
this prospectus for a better understanding of our business.
Our business, financial condition, or results of operations could be adversely
affected by any of the following risks. If we are adversely affected by such
risks, then the trading price of our common stock could decline, and you could
lose all or part of your investment.
This proxy statement/prospectus contains forward-looking statements that involve
risks and uncertainties. Competitive Companies' actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences, include, but are not limited to, those discussed in the
following section and in Competitive Companies' Management's Discussion and
Analysis of Financial Condition and Results of Operations and Competitive
Companies Business.
THE MERGER AGREEMENT CONTAINS A NUMBER OF CONDITIONS THAT MUST BE SATISFIED IN
ORDER FOR THE MERGER TO TAKE PLACE. IF THESE CONDITIONS AREN'T SATISFIED, THE
MERGER WILL NOT CLOSE AND COMPETITIVE COMPANIES WILL HAVE SUFFERED A DELAY IN
REACHING ITS OBJECTIVE OF BECOMING A LISTED, TRADING COMPANY ON THE BULLETIN
BOARD.
The conditions include:
o The shareholders of Competitive Companies must approve the merger,
which condition has been satisfied;
o The holders of no more than 10% of the outstanding shares of common
stock of Competitive Companies shall have exercising dissenters'rights;
o The Securities and Exchange Commission must declare this registration
statement effective;
o Third Enterprise Service Group must have filed an application to
have its stock quoted on the bulletin board; and
o Competitive Companies and its counsel must have satisfactorily
completed their due diligence review of Third Enterprise Service
Group.
Competitive Companies is not to complete the merger if the other conditions
are not satisfied. Please understand that there is no guarantee that any of
these conditions will be satisfied, or that the merger will occur in the time
frame contemplated, or occur at all.
SHAREHOLDERS OF COMPETITIVE COMPANIES WILL INCUR IMMEDIATE DILUTION OF
PERCENTAGE OF OWNERSHIP IN THE AMOUNT OF 2.5% AS A RESULT OF THE MERGER.
Dilution refers to a decrease in the percentage ownership interest of a
company that a share of stock represents. In connection with the merger, the
shareholders of Competitive Companies will receive one share of Third Enterprise
Service Group common stock in merger for each share of Competitive Companies
common stock they own. Because of the 125,000 shares in the surviving company
after the merger are being retained by our stockholders, the Competitive
Companies' shareholders' percentage ownership interest in Third Enterprise
Service Group will be less than their ownership interest in Competitive
Companies prior to the merger.
Because we have experienced losses, including a loss of $ insert for the year
ended December 31, 1998 and expect our expenses to increase, we may not be able
to achieve profitability.
Since our inception, we have incurred losses. As of end of last fiscal
year, we had an accumulated deficit of $ insert. We expect to continue to incur
losses until we are able to significantly increase revenues from sales of our
telecommunications products and services. Our operating expenses are expected to
continue to increase significantly in connection with our proposed expanded
activities, especially in the areas of telecommunication services for
multi-dwelling unit complexes since they require significant initial investment
in on-site switching equipment. To a large extent these expenses are fixed. We
cannot be certain that we will be able to accurately predict our revenues,
particularly in light of the general uncertainty and intense competition for the
sale of telecommunications products and services and our limited operating
history. Accordingly, our future profitability will depend on our ability to
increase our revenues while controlling costs. We cannot assure you that we will
ever become or remain profitable.
We have a customer who purchases more than 10% of our services.
The loss of this customer would negatively impact our operations results.
We rely on contracts with third-parties to provide services for resale. Changes
in these contracts could adversely impact our operations. Our ability to obtain
telephone or Internet service for resale may be adversely impacted by a number
of factors, including the following:
o Third-parties may increase the price of the telephone service or Internet
service they provide.
o Many third-party telephone or Internet service providers may compete with
us for customers and may decide not to provide us with discounted prices
for the telephone and Internet services.
o We anticipate that our contracts with third-party providers will be usually
short-term and may be canceled if we do not fulfill our obligations.
o our competitors and many third-party local and long distance telephone and
Internet service providers may provide telecommunications products and
services that are similar or the same as our telecommunications products
and services and may do so at a lower cost.
OUR MANAGEMENT HAS SIGNIFICANT CONTROL OVER STOCKHOLDER MATTERS, WHICH MAY
IMPACT THE ABILITY OF MINORITY STOCKHOLDERS TO INFLUENCE OUR ACTIVITIES.
Our officers and directors and their families control the outcome of all
matters submitted to a vote of the holders of common stock, including the
election of directors, amendments to our certificate of incorporation and
approval of significant corporate transactions. These persons will beneficially
own, in the aggregate, approximately 60% of our outstanding common stock. This
consolidation of voting power could also have the effect of delaying, deterring
or preventing a change in control of Competitive Companies that might be
beneficial to other stockholders.
IF WE DO NOT EFFECTIVELY MANAGE RAPID EXPANSION OF OUR BUSINESS, OUR FINANCIAL
CONDITION WILL SUFFER
If we are successful in the implementation of our business plan, we will be
rapidly expanding our operations and providing bundled telecommunications
services on a widespread basis. This rapid expansion may place a significant
strain on our management, financial and other resources. If we fail to manage
our growth effectively, we may not be able to expand our customer base and
service offerings as we have planned and our financial condition will be
adversely impacted.
WE ARE DEPENDENT ON EFFECTIVE BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
AND WE MAY HAVE DIFFICULTIES IN DEVELOPING THESE SYSTEMS
Sophisticated back office information and processing systems are vital to
our growth and our ability to monitor costs, bill customers, initiate, implement
and track customer orders and achieve operating efficiencies. Although we have
developed a sophisticated billing and customer service system (Hartline), we
cannot assure you that this system will be successful in accommodating
additional business because:
- we may fail to adequately identify all of our information and processing
needs;
- our processing or information systems may fail or be inadequate;
- we may be unable to effectively integrate such products or services; and
- we may fail to upgrade systems as necessary.
WE MAY BE ADVERSELY IMPACTED BY YEAR 2000 ISSUES, MANY OF WHICH ARE BEYOND OUR
CONTROL
The "year 2000" issue generally describes the various problems that may
result from the improper processing of dates and date-sensitive transactions by
computers and other equipment as a result of computer hardware and software
using two digits to identify the year in a date. The failure to process dates
could result in network and system failures or miscalculations causing
disruptions in operations including, among other things, a temporary inability
to process transactions, send invoices or engage in other routine business
activities. A failure of our customers or vendors, including other
telecommunications operators, to cause their software and systems to be year
2000 compliant could have a material adverse effect on us and on our ability to
meet our obligations. Although we have installed and tested year 2000 compliant
software and equipment upgrades, until the year 2000 occurs, we will not know
for sure that all systems will then function adequately. In addition, we are
dependent upon third-party suppliers, including other telecommunications
operators, for the delivery of interconnection and other services and on
third-party customers for the purchase of our services. In many cases, our
services and operations require electronic interfacing with the systems and
networks of third-party telecommunication operators such as the incumbent local
exchange carriers.
UNDER CERTAIN CIRCUMSTANCES WE MAY NEED ADDITIONAL CAPITAL TO EXPAND OUR
BUSINESS AND INCREASE REVENUE
We may need additional capital to fund capital expenditures, working
capital, debt service and cash flow deficits during the period in which we are
expanding and developing our business and deploying our networks, services and
systems. We estimate, based on our current business plan, that approximately $
insert of capital will be necessary to fund the deployment and operation of our
networks in our initial markets to the point at which operating cash flow from a
market will be sufficient to fund such market's operating and capital
expenditures. This amount includes capital expenditures, working capital and
cash flow deficits, but excludes debt service. We have raised approximately $1.2
million of capital to date. The actual amount and timing of our future capital
requirements may differ materially from our estimates as a result of financial,
business and other factors many of which are beyond our control, as well as
prevailing economic conditions.
IF WE DO NOT INTERCONNECT WITH THE INCUMBENT LOCAL EXCHANGE CARRIERS (OUR
PRIMARY COMPETITORS), OUR BUSINESS WILL BE ADVERSELY AFFECTED
Incumbent local exchange carriers are established providers of local
telephone services to all or virtually all telephone subscribers within their
respective service areas. Many new carriers, including Competitive Companies,
have experienced difficulties in working with the incumbent local exchange
carriers with respect to initiating, interconnecting, and implementing the
systems used by these new carriers to order and receive unbundled network
elements and wholesale services and locating the new carriers' equipment in the
offices of the incumbent local exchange carriers. As a new carrier, we must
coordinate with incumbent local exchange carriers so that we can provide local
service to customers on a timely and competitive basis. The Telecommunications
Act created incentives for regional Bell operating companies to cooperate with
new carriers and permit access to their facilities by denying such companies the
ability to provide in-region long distance services until they have satisfied
statutory conditions designed to open their local markets to competition. The
regional Bell operating companies in our markets are not yet permitted by the
FCC to offer long distance services. These companies may not be accommodating to
us once they are permitted to offer long distance service. If we cannot obtain
the cooperation of a regional Bell operating company in a region, whether or not
it has been authorized to offer long distance service, our ability to offer
local services in such region on a timely and cost-effective basis will be
adversely affected.
IF WE DO NOT MAINTAIN PEERING ARRANGEMENTS WITH INTERNET SERVICE PROVIDERS, THE
PROFITABILITY OF OUR INTERNET ACCESS SERVICES WILL SUFFER
In the past, major Internet service providers routinely exchanged traffic
with other Internet service providers that met technical criteria on a peering
basis, meaning that each Internet service provider accepted traffic routed to
Internet addresses on their system from their "peers" on a reciprocal basis,
without payment of compensation. However, since 1997 UUNET Technologies, Inc.,
the largest Internet service provider, has been greatly restricting the use of
peering arrangements with other providers and has been imposing charges for
accepting traffic from providers other than its peers. Other major Internet
service providers have adopted similar policies. We presently have peering
arrangements through our wholesale Internet service provider, but cannot assure
you that we will be able to maintain "peer" status with any of the major
nationwide Internet service providers in the future, or that we will in the
future be able to terminate traffic on Internet service providers' networks at
favorable prices. The profitability of our Internet access services, and related
services such as Web site hosting, could be adversely affected if we are unable
to continue to maintain "peering" arrangements with Internet service providers.
OUR OFFERING AND MAINTAINING OF LONG DISTANCE SERVICES IS AFFECTED BY OUR
ABILITY TO ESTABLISH EFFECTIVE RESALE AGREEMENTS
As part of our "one-stop shopping" offering of bundled telecommunications
services to our customers, we offer long distance services. We have relied and
will continue to rely on other carriers to provide transmission and termination
services for all of our long distance traffic. We will continue to enter into
resale agreements with long distance carriers to provide us with transmission
services. Such agreements typically provide for the resale of long distance
services on a per-minute basis and may contain minimum volume commitments.
Negotiation of these agreements involves estimates of future supply and demand
for transmission capacity as well as estimates of the calling pattern and
traffic levels of our future customers. If we fail to meet our minimum volume
commitments, we may be obligated to pay underutilization charges and if we
underestimate our need for transmission capacity, we may be required to obtain
capacity through more expensive means.
OUR PRINCIPAL COMPETITORS FOR LOCAL SERVICES, THE INCUMBENT LOCAL EXCHANGE
CARRIERS, AND POTENTIAL ADDITIONAL COMPETITORS, HAVE ADVANTAGES THAT MAY
ADVERSELY AFFECT OUR ABILITY TO COMPETE WITH THEM
The telecommunications industry is highly competitive. Many of our current
and potential competitors in the local market have financial, technical,
marketing, personnel and other resources, including brand name recognition,
substantially greater than ours, as well as other competitive advantages over
us. In each of the markets targeted by us, we will compete principally with the
incumbent local exchange carrier serving that area and they enjoy advantages
that may adversely affect our ability to compete with them. Incumbent local
exchange carriers also have long-standing relationships with federal and state
regulatory authorities. FCC and state administrative decisions and initiatives
provide the incumbent local exchange carriers with pricing flexibility for
their:
- private lines, which are private, dedicated telecommunications
connections between customers;
- special access services, which are dedicated lines from a customer to a
long distance company provided by the local phone company; and
- switched access services, which refers to the call connection provided by
the local phone company's switch between a customer's phone and the long
distance company's switch.
In addition, with respect to competitive access services, such as special
access services as opposed to switched access services, the FCC is considering
allowing incumbent local exchange carriers increased pricing flexibility and
deregulation for such access services either automatically or after certain
competitive levels are reached. If the incumbent local exchange carriers are
allowed by regulators to offer discounts to large customers through contract
tariffs, engage in aggressive volume and term discount pricing practices for
their customers, and/or seek to charge competitors excessive fees for
interconnection to their networks, competitors such as us could be materially
adversely affected. If future regulatory decisions afford the incumbent local
exchange carriers increased pricing flexibility or other regulatory relief, such
decisions could also have a material adverse effect on competitors such as us.
We also face, and expect to continue to face, competition in the local
market from other current and potential market entrants, including long distance
carriers seeking to enter, reenter or expand entry into the local exchange
marketplace such as AT&T, MCI WorldCom and Sprint, and from other competitive
local exchange carriers, resellers, competitive access providers, cable
television companies, electric utilities, microwave carriers, wireless telephone
system operators and private networks built by large end users. In addition, the
development of new technologies could give rise to significant new competitors
in the local market.
SIGNIFICANT COMPETITION IN PROVIDING LONG DISTANCE AND INTERNET SERVICES COULD
REDUCE THE DEMAND FOR AND PROFITABILITY OF OUR SERVICES
We also face significant competition in providing long distance and
Internet services. Many of these competitors have greater financial,
technological, marketing, personnel and other resources than those available to
us.
The long distance telecommunications market has numerous entities competing
for the same customers and a high average turnover rate, as customers frequently
change long distance providers in response to the offering of lower rates or
promotional incentives. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline. We face
competition from large carriers such as AT&T, MCI WorldCom and Sprint and many
smaller long distance carriers. Other competitors are likely to include regional
Bell operating companies providing long distance services outside of their local
service area and, with the removal of regulatory barriers, long distance
services within such local service areas, other competitive local exchange
carriers, microwave and satellite carriers and private networks owned by large
end users. We may also increasingly face competition from companies offering
local and long distance data and voice services over the Internet. Such
companies could enjoy a significant cost advantage because they do not currently
pay many of the charges or fees that we have to pay. In addition, in June 1998,
Sprint announced its intention to offer voice, data and video services over its
nationwide asynchronous transfer mode network, which Sprint anticipates will
significantly reduce its cost to provide such services. Sprint plans to bill its
customers based upon the amount of traffic carried, irrespective of the time
required to send the traffic or the traffic's destination.
The Internet services market is highly competitive and we expect that
competition will continue to intensify. Our competitors in this market include
Internet service providers, other telecommunications companies, online services
providers and Internet software providers.
OUR NEED TO COMPLY WITH EXTENSIVE GOVERNMENT REGULATION CAN INCREASE OUR COSTS
AND SLOW OUR GROWTH
Our networks and the provision of telecommunications services are subject
to significant regulation at the federal, state and local levels. Delays in
receiving required regulatory approvals or the enactment of new adverse
regulation or regulatory requirements may slow our growth and have a material
adverse effect upon us.
The FCC exercises jurisdiction over us with respect to interstate and
international services. We must obtain, and have obtained through our
subsidiary, Competitive Communications, Inc., prior FCC authorization for
resale, of international long distance services. Additionally, we file publicly
available documents detailing our services, equipment and pricing, also known as
"tariffs," with the FCC for both international and domestic long-distance
services.
State regulatory commissions exercise jurisdiction over us because we
provide intrastate services. We are required to obtain regulatory authorization
and/or file tariffs at state agencies in most of the states in which we operate.
If and when we seek to build our own network segments, local authorities
regulate our access to municipal rights-of-way. Constructing a network is also
subject to numerous local regulations such as building codes and licensing. Such
regulations vary on a city by city and county by county basis.
Regulators at both the federal and state level require us to pay various
fees and assessments, file periodic reports, and comply with various rules
regarding the contents of our bills, protection of subscriber privacy, and
similar matters on an on-going basis.
We cannot assure you that the FCC or state commissions will grant required
authority or refrain from taking action against us if we are found to have
provided services without obtaining the necessary authorizations, or to have
violated other requirements of their rules and orders. Regulators or others
could challenge our compliance with applicable rules and orders. Such challenges
could cause us to incur substantial legal and administrative expenses.
DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY INVOLVES UNCERTAINTIES, AND THE
RESOLUTION OF THESE UNCERTAINTIES COULD ADVERSELY AFFECT OUR BUSINESS
The Telecommunications Act provides for a significant deregulation of the
domestic telecommunications industry, including the local exchange, long
distance and cable television industries. The Telecommunications Act remains
subject to judicial review and additional FCC rulemaking, and thus it is
difficult to predict what effect the legislation will have on us and our
operations. There are currently many regulatory actions underway and being
contemplated by federal and state authorities regarding interconnection pricing
and other issues that could result in significant changes to the business
conditions in the telecommunications industry. We cannot assure you that these
changes will not have a material adverse effect upon us.
THE REGULATION OF INTERCONNECTION WITH INCUMBENT LOCAL EXCHANGE CARRIERS
INVOLVES UNCERTAINTIES, AND THE RESOLUTION OF THESE UNCERTAINTIES COULD
ADVERSELY AFFECT OUR BUSINESS
Although the incumbent local exchange carriers are required under the
Telecommunications Act to unbundle and make available elements of their network
and permit us to purchase only the origination and termination services that we
need, thereby decreasing our operating expenses, such unbundling may not be done
as quickly as we require and may be priced higher than we expect. This is
important because we rely on the facilities of these other carriers to connect
to our high capacity digital switches so that we can provide services to our
customers. Our ability to obtain these interconnection agreements on favorable
terms, and the time and expense involved in negotiating them, can be adversely
affected by legal developments.
A recent Supreme Court decision vacated a FCC rule determining which
network elements the incumbent local exchange carriers must provide to
competitors on an unbundled basis. We expect that the FCC will conduct a
rulemaking to adopt new standards for unbundling of network elements in
conformance with this decision. The implementation of these and other FCC rules
may lead to further litigation. This may complicate our interconnection
negotiations, and may adversely affect our existing agreements and operations.
THE REGULATION OF ACCESS CHARGES INVOLVES UNCERTAINTIES, AND THE RESOLUTION OF
THESE UNCERTAINTIES COULD ADVERSELY AFFECT OUR BUSINESS
To the extent we provide long-distance, often referred to as
"interexchange," telecommunications service, we are required to pay access
charges to other local exchange carriers when we use the facilities of those
companies to originate or terminate interexchange calls. As a competitive local
exchange carrier, we will also provide access services to other long distance
service providers. The interstate access charges of incumbent local exchange
carriers are subject to extensive regulation by the FCC, while those of
competitive local exchange carriers are subject to a lesser degree of FCC
regulation, but remain subject to the requirement that all charges be just,
reasonable, and not unreasonably discriminatory. Disputes have arisen regarding
the regulation of access charges and these may be resolved adversely to us.
The FCC has made major changes in the interstate access charge structure.
The manner in which the FCC implements and monitors these increased pricing
flexibility changes could have a material adverse effect on our ability to
compete in providing interstate access services.
Some interexchange carriers, including AT&T, have also asked the FCC to
take regulatory action to prevent competitive local exchange carriers from
charging allegedly "excessive" access charges. Although no complaints have been
filed against us, we will be providing access service to interexchange carriers
and we could be subject in the future to allegations that our charges for this
service are unjust and unreasonable. In that event, we would have to provide the
FCC with an explanation of how we set our rates and justify them as reasonable.
We can give no assurance that the FCC will accept our rates as reasonable. If
our rates are reduced by regulatory order, this could have a material adverse
effect on our profitability.
IF WE DO NOT CONTINUALLY ADAPT TO TECHNOLOGICAL CHANGE, WE COULD LOSE CUSTOMERS
AND MARKET SHARE
The telecommunications industry is subject to rapid and significant changes
in technology, and we rely on outside vendors for the development of and access
to new technology. The effect of technological changes on our business cannot be
predicted. We believe our future success will depend, in part, on our ability to
anticipate or adapt to such changes and to offer, on a timely basis, services
that meet customer demands. We cannot assure you that we will obtain access to
new technology on a timely basis or on satisfactory terms. Any failure by us to
obtain new technology could cause us to lose customers and market share.
FUTURE SALES OF OUR STOCK BY EXISTING STOCKHOLDERS MAY ADVERSELY AFFECT OUR
STOCK PRICE
After this offering, we will have approximately 4,918,561 shares of common
stock outstanding. While certain of these shares are "restricted securities"
under the federal securities laws, such shares are or will be eligible for sale
subject to restrictions as to timing, manner, volume, notice and the
availability of current public information regarding us. Sales of substantial
amounts of stock in the public market, or the perception that sales could occur,
could depress the prevailing market price for our stock. Sales may also make it
more difficult for us to sell equity securities or equity-related securities in
the future at a time and price that we deem appropriate.
OUR FORWARD-LOOKING STATEMENTS MAY MATERIALLY DIFFER FROM ACTUAL EVENTS OR
RESULTS
This prospectus contains "forward-looking statements," which you generally
can identify by our use of forward-looking words such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative or other variations of
such terms or comparable terminology, or by discussion of strategy that involve
risks and uncertainties. We often use these types of statements when discussing
our plans and strategies, our anticipation of revenues from designated markets,
and statements regarding the development of our businesses, the markets for our
services and products, our anticipated capital expenditures, operations support
systems, changes in regulatory requirements and other statements contained in
this prospectus regarding matters that are not historical facts.
We caution you that these forward-looking statements are only predictions
and estimates regarding future events and circumstances. We cannot assure you
that we will achieve the future results reflected in these statements. The risks
we face that could cause us not to achieve these results include, but are not
limited to our ability to do the following in a timely manner, at reasonable
costs and on satisfactory terms and conditions:
- successfully market our services to current and new customers;
- interconnect with and develop cooperative working relationships with
incumbent local exchange carriers;
- modify current billing, customer service, and back office systems to
efficiently accommodate future requirements;
- successfully and efficiently transfer new customers to our networks and
access new geographic markets;
- identify, finance and complete suitable acquisitions;
- obtain necessary financing;
- install new switching facilities and other network equipment; and
- obtain leased fiber optic line capacity, rights-of-way, building access
rights and any required governmental authorizations, franchises and permits.
Regulatory, legislative and judicial developments could also cause actual
results to differ materially from the future results reflected in such
forward-looking statements. You should consider all of our subsequent written
and oral forward-looking statements only in light of such cautionary statements.
You should not place undue reliance on these forward-looking statements and you
should understand that they speak only as of the dates we make them.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK. IF WE DON'T GET OUR STOCK
LISTED FOR TRADING AFTER THE MERGER, WE WILL NOT HAVE SATISFIED THE PRIMARY
OBJECTIVE OF THE MERGER TRANSACTION.
Prior to this offering, you could not buy or sell our common stock
publicly. We may not be able to secure a market maker to file an application to
have our stock listed for trading. Even if we do, an active public market for
our common stock may not develop or be sustained after the offering.
We expect the price of our common stock to be volatile. You may not be able to
sell your stock for more than you paid for it.
The market price of the common stock may fluctuate significantly in response to
a number of factors, some of which are beyond our control, including:
o quarterly variations in operating results;
o changes in financial estimates by securities analysts;
o changes in market valuation of telecommunications companies;
o announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o loss of a major customer;
o failure to complete competitive local exchange carrier certification
in selected market states;
o additions or departures of key personnel;
o any shortfall in revenue or net income or any increase in losses
from levels expected by analysts;
o future sales of common stock; and
o stock market price and volume fluctuations, which are particularly
common among highly volatile securities of telecommunications companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could have a material adverse effect on our business,
operating results and financial condition.
WE WILL BE SUBJECT TO PENNY STOCK RULES THAT MAY MAKE IT MORE DIFFICULT FOR YOU
TO SELL YOUR SHARES.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Commission. Penny
stocks generally are equity securities with a price of less than $5.00. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock, the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As our shares immediately following the closing of the merger
and listing of our stock be subject to such penny stock rules, our shareholders
will in all likelihood find it more difficult to sell their securities.
MERGER APPROVALS
Approval of the merger
On October 8, 1999, Michael T. Williams as the sole member of our board of
directors approved the merger proposal. The majority of our stockholders
approved the merger proposal on the same date.
On December 15, 1999, your board of directors unanimously approved the
merger proposal. The majority of your stockholders approved the merger proposal
on the same date.
MERGER TRANSACTIONS
The merger agreement provides that each outstanding share of Competitive
Companies common stock, other than dissenting shares, as defined later in this
document, will be exchanged for one share of Third Enterprise Service Group
common stock. Immediately after the closing of the merger, the former holders of
Competitive Companies common stock will hold in the aggregate 4,793,561 shares
of Third Enterprise Service Group common stock, or approximately 97.5% of the
shares of Third Enterprise Service Group common stock to be outstanding
immediately after the closing of the merger, calculated assuming the issuance of
all but 125,000 shares of Third Enterprise Service Group common stock to the
Competitive Companies' shareholders in the merger.
The agreement provides that at the closing of the merger, Third Enterprise
Service Group will:
o Reincorporate in Nevada
o Change its name to Competitive Companies
o Adopt Competitive Companies articles and bylaws
o Elect, effective upon the effectiveness of the merger, a new board
of directors to consist of David Kline II, Larry Halstead, Michael
Godfree, Jerry Woods, and *_____
The agreement provides that Competitive Companies' shareholders who vote
against the merger are entitled to dissenters' rights with respect to the
proposed receipt of shares of Third Enterprise Service Group common stock as set
forth in Nevada law. The agreement also provides for the payment to us of a
Merger Fee in the amount of 125,000 to specify.
None of the shares of Third Enterprise Service Group common stock
outstanding prior to the closing of the merger will be converted or otherwise
modified in the merger and all of such shares not otherwise returned to us as
provided in the merger agreement will be outstanding capital stock of Third
Enterprise Service Group after the closing of the merger.
The merger will be consummated promptly after this information
statement/prospectus is declared effective by the SEC and upon the satisfaction
or waiver of all of the conditions to the closing of the merger. The merger will
become effective on the date and time a properly executed articles of merger are
filed with the offices of the secretary of state of Nevada. Thereafter,
Competitive Companies will be merged with Third Enterprise Service Group, with
the result that Competitive Companies will cease to exist and Third Enterprise
Service Group will be the surviving corporation in the merger.
Effect on outstanding Competitive Companies' options.
At the closing of the merger, Third Enterprise Service Group will assume
all Competitive Companies' options outstanding immediately prior to the closing
of the merger. In accordance with their terms, each Competitive Companies'
options will become the right to acquire, on the same terms and conditions as
were applicable to such Competitive Companies' options outstanding as of the
closing of the merger, that number of shares of Third Enterprise Service Group's
common stock to which the holder of such Competitive Companies' options would
have been entitled to receive in the merger had such Competitive Companies'
options been exercised in full prior to the closing of the merger. Following the
merger, an aggregate of *** shares of Third Enterprise Service Group's common
stock will be issuable upon the exercise of Competitive Companies' options.
Competitive Companies does not have any outstanding debts that would be
classified as convertible debt and affect this merger.
Fractional shares.
As of the date of this information statement/prospectus, there were no
fractional shares of Competitive Companies' common stock outstanding. Because
each outstanding share of Competitive Companies' common stock will be entitled
to receive one shares of Third Enterprise Service Group's common stock under the
terms of the merger agreement, there will be no fractional shares issued in the
merger.
Bulletin board listing
Third Enterprise Service Group will be subject to the reporting
requirements of the securities exchange act of 1934 after the merger as a result
of its filing of a form 8-A electing to be a reporting company subject to the
requirements of the 1934 act.
Upon closing of the merger, Third Enterprise Service Group will seek to
become listed on the over the counter bulletin board under the symbol "*symbol".
If and when listed, the Competitive Companies' shareholders will hold shares of
a publicly-traded Nevada corporation subject to compliance with the reporting
requirements of the exchange act. Because the state of incorporation, articles
and bylaws of Third Enterprise Service Group will be the same as those of
Competitive Companies prior to the merger, the rights of shareholders of
Competitive Companies will not change as a result of the merger.
Background of the merger
Third Enterprise Service Group. As discussed under Third Enterprise Service
Group Business, Third Enterprise Service Group was formed primarily to serve as
a vehicle to acquire a private company desiring to become an SEC reporting
company in order thereafter to secure a listing on the over the counter bulletin
board.
Contacts between the Parties
In November, 1998, Mr. Michael Godfree, Director of Competitive Companies,
entered into discussions with Mr. Michael T. Williams, Third Enterprise Service
Group's President. After some additional discussions between the parties,
Competitive Companies indicated that it would be interested in discussing a
possible business combination with one of Mr. Williams' acquisition companies he
was contemplating forming, such as Third Business. Thereafter, there were
numerous telephone conversations between the companies relating to various
aspects of the potential merger, including in-depth discussions concerning the
steps that needed to be taken to close the merger.
Following these discussions, representatives of Third Enterprise Service
Group and Competitive Companies negotiated the basic structure, terms and
conditions of the merger. After having reached resolution on all open issues, a
merger agreement was drafted and Competitive Companies convened a special
meeting of its board of directors at which the agreement of merger and the other
transactions required by the merger agreement were discussed and reviewed.
Thereafter, the board of directors of Competitive Companies unanimously adopted
and approved the agreement of merger and the transactions required by the merger
agreement.
On August 10, 1999, Michael T. Williams, as the sole director of Third
Enterprise Service Group, approved the agreement of merger and the transactions
required by the merger agreement. On August 11, 1999, the agreement of merger
was executed and delivered by each of the parties.
Neither of the respective boards of Directors of Third Enterprise Service
Group or Competitive Companies requested or received, or will receive, an
opinion of an independent investment banker as to whether the merger is fair,
from a financial point of view, to Third Enterprise Service Group and its
stockholders or to Competitive Companies and its shareholders.
Reasons for the merger
Third Enterprise Service Group' reasons for the merger.
In considering the merger, the Third Enterprise Service Group board took
note of the fact that a merger with Competitive Companies would meet all of its
business objective and thus determined that the merger proposal was fair to, and
in the best interests of, Third Enterprise Service Group and the Third
Enterprise Service Group's stockholders.
Competitive Companies' reasons for the merger.
o Increase the visibility of Competitive Companies' business, which
could be helpful in further developing and commercializing
Competitive Companies' products.
o Facilitate Competitive Companies' ability to raise capital in the
public markets.
o Potentially improve Competitive Companies' shareholders' ability
to sell their shares in the over-the-counter market.
Interests of certain persons in the merger
Upon the closing of the merger, the current directors and executive
officers of Competitive Companies will become the directors and executive
officers of the surviving corporation.
Material Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the merger that are generally applicable to holders of
Competitive Companies' common stock. This discussion is based on currently
existing provisions of the Internal Revenue code of 1986, existing and proposed
Treasury Regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to the Competitive
Companies shareholders, as described herein.
Competitive Companies' shareholders should be aware that this discussion
does not deal with all federal income tax considerations that may be relevant to
particular shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, banks or insurance companies, are
subject to the alternative minimum tax provisions of the code, are foreign
persons, are tax-exempt entities, are taxpayers holding stock as part of a
conversion, straddle, hedge or other risk reduction transaction, or who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior to, concurrently
with or after the merger as a result of its filing of a form 8-A electing to be
a reporting company subject to the requirements of the 1934 act, whether or not
such transactions are in connection with the merger. Accordingly, all
shareholders are urged to consult their own tax advisors as to the specific
consequences of the merger to them, including the applicable federal, state,
local and foreign tax consequences of the merger in their particular
circumstances.
Neither Third Enterprise Service Group nor Competitive Companies has
requested, or will request, a ruling from the Internal Revenue Service, IRS,
with regard to any of the federal income tax consequences of the merger. It is
the opinion of Williams Law Group, P.A., counsel to Third Enterprise Service
Group, that the merger will constitute a reorganization under Section 368(a) of
the code. The tax opinion is based on certain assumptions, as well as
representations received from Competitive Companies, Third Enterprise Service
Group and certain shareholders of Competitive Companies and will be subject to
the limitations discussed below. Of particular importance are the assumptions
and representations relating to the continuity of interest requirement discussed
below. Moreover, the tax opinions will not be binding on the IRS nor preclude
the IRS from adopting a contrary position. The tax description set forth below
has been prepared and reviewed by Williams Law Group, and in their opinion, to
the extent such descriptions relates to statements of law, it is correct in all
material respects.
Subject to the limitations and qualifications referred to herein, and as a
result of the merger's qualifying as a reorganization, the following federal
income tax consequences should, under currently applicable law, result:
No gain or loss will be recognized for federal income tax purposes by
the holders of Competitive Companies common stock upon the receipt of
Third Enterprise Service Group common stock solely in merger for such
Competitive Companies common stock in the merger, except to the extent
that cash is received by the exercise of dissenters' rights.
The aggregate tax basis of the Third Enterprise Service Group common
stock so received by Competitive Companies shareholders in the merger
will be the same as the aggregate tax basis of the Competitive
Companies common stock surrendered in merger therefore.
The holding period of the Third Enterprise Service Group common stock
so received by each Competitive Companies shareholder in the merger
will include the period for which the Competitive Companies common
stock surrendered in merger therefore was considered to be held,
provided that the Competitive Companies common stock so surrendered is
held as a capital asset at the closing of the merger of the merger.
A holder of Competitive Companies common stock who exercises dissenters'
rights with respect to a share of Competitive Companies common stock and
receives a cash payment for such share generally should recognize capital gain
or loss, if such share was held as a capital asset at the closing of the merger,
measured by the difference between the shareholder's basis in such share and the
amount of cash received, provided that such payment is not essentially
equivalent to a dividend within the meaning of Section 302 of the code nor has
the effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the code after giving effect to the constructive ownership rules of
the code. A sale of shares under an exercise of dissenters' rights generally
will not be so treated if, as a result of such exercise, the shareholder
exercising dissenters' rights owns no shares of capital stock of the Third
Enterprise Service Group, either actually or constructively within the meaning
of Section 318 of the code, immediately after the merger.
Neither Third Enterprise Service Group nor Competitive Companies will
recognize gain solely as a result of the merger.
Characterizing the merger as a reorganization is dependent on certain
requirements. One key requirement is that there is a continuity of interest with
respect to the business of Competitive Companies. In order for the continuity of
interest requirement to be met, shareholders of Competitive Companies must not,
under a plan or intent existing at or prior to the closing of the merger of the
merger, dispose of so much of their Competitive Companies common stock in
anticipation of the merger, plus the Third Enterprise Service Group common stock
received in the merger that the Competitive Companies shareholders, as a group,
would no longer have a significant equity interest in the Competitive Companies
business being conducted by the us after the merger.
Competitive Companies shareholders will generally be regarded as having a
significant equity interest as long as the Third Enterprise Service Group common
stock received in the merger, in the aggregate, represents a substantial portion
of the entire consideration received by the Competitive Companies shareholders
in the merger. This requirement is frequently referred to as the continuity of
interest requirement. If the continuity of interest requirement is not
satisfied, the merger would not be treated as a reorganization. The law is
unclear as to what constitutes a significant equity interest or a substantial
portion. The IRS ruling guidelines require eighty percent continuity, although
such guidelines do not purport to represent the applicable substantive law.
Accordingly, certain Competitive Companies shareholders will be asked to execute
and deliver to Competitive Companies a continuity of interest certificates prior
to the closing of the merger. The continuity of interest certificates obtained
from such shareholders contemplate that the eighty percent standard will be
applied. If such requirement is not satisfied, the merger will not be treated as
a reorganization.
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
o Competitive Companies would recognize a corporate level gain or
loss on the deemed sale of all of its assets equal to the
difference between
the sum of the fair market value, as of the closing of the
merger, of the Third Enterprise Service Group common stock
issued in the amount of the liabilities of Competitive
Companies assumed by Third Enterprise Service Group in the
Competitive Companies' basis in such assets
o Competitive Companies shareholders would recognize gain or loss
with respect to each share of Competitive Companies common stock
surrendered equal to the difference between the shareholder's
basis in such share and the fair market value, as of the closing
of the merger, of the Third Enterprise Service Group common stock
received in merger therefore.
In such event, a shareholder's aggregate basis in the Third Enterprise Service
Group common stock so received would equal its fair market value and the
shareholder's holding period for such stock would begin the day after the merger
as a result of its filing of a form 8-A electing to be a reporting company
subject to the requirements of the 1934 act is consummated.
Even if the merger qualifies as a reorganization, a recipient of Third
Enterprise Service Group common stock would recognize income to the extent that,
for example, any such shares were determined to have been received in merger for
services, to satisfy obligations or in consideration for anything other than the
Competitive Companies common stock surrendered. Generally, such income is
taxable as ordinary income upon receipt. In addition, to the extent that
Competitive Companies shareholders were treated as receiving, directly or
indirectly, consideration other than Third Enterprise Service Group common stock
in merger for such shareholder's common stock gain or loss would have to be
recognized.
This discussion does not address the tax consequences of the merger to
holders of Competitive Companies options, who, as a result of the merger, will
receive Third Enterprise Service Group options. Holders of such securities
should consult their tax advisors with respect to such tax consequences.
Termination.
At any time prior to the Effective Date, the merger agreement may be terminated,
and the merger abandoned under certain circumstances, including:
o By mutual consent of Third Enterprise Service Group and
Competitive Companies.
o By either party if any of the other party's representations and
warranties contained in the merger agreement shall be or shall
have become inaccurate, or if any of the other party's covenants
contained in the merger agreement shall have been breached.
o By either party if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or
otherwise prohibiting the merger.
o By Competitive Companies if the special meeting shall have been
held and the merger agreement shall not have been adopted and
approved at such meeting by the required vote.
o By Competitive Companies if Competitive Companies reasonably
determines that the timely satisfaction of any condition to its
obligations to consummate the merger has become impossible or
unlikely.
Dissenters' Rights
The following summary of dissenters' rights under Nevada law is qualified in its
entirety by reference to section 92, Nevada Statutes.
Competitive Companies stockholders who oppose the proposed merger will have
the right to receive payment for the value of their shares as set forth in
sections 92a.300 through 92a.500 of the Nevada law. Such dissenters' rights will
be available only to stockholders of Competitive Companies who (i) before the
vote to authorize the merger, notify Competitive Companies in writing of their
intention to demand payment for their shares of Competitive Companies Common
Stock and (ii) refrain from voting in favor of the merger. Voting against the
merger will not constitute notifying Competitive Companies of the intention to
demand payment if the merger is closed.
A stockholder must exercise dissenters' rights for all of the shares that he
or she owns of record. A stockholder who holds shares beneficially, and not of
record, may assert dissenter's rights for the beneficially owned shares only by
submitting a written consent of the stockholder of record along with the written
notice of dissent. A stockholder exercising dissenter's rights with respect to
shares that he or she owns beneficially may not exercise dissenter's rights for
fewer than all the shares held by the owner of record.
Since the vote to authorize the merger will take place by written consent,
Competitive Companies will be required to notify by mail those stockholders who,
by virtue of a timely notice of their intention to demand payment and having
refrained from voting in favor of the merger, are entitled to payment for their
shares. Dissenters notices must be sent no later than ten days after
consummation of the merger. The notice must (i) state where demand for payment
must be sent, (ii) state when certificates must be deposited, (iii) state the
restrictions on transfer of shares that are not evidenced by a certificate once
demand has been made, (iv) supply a form on which to demand payment, (v) set a
date by which demand must be received, and (vi) include a copy of the relevant
portions of the Nevada law.
Unless a stockholder acquired his or her shares after Competitive Companies
sends the dissenters notices, Competitive Companies must calculate the fair
market value of the shares plus interest, and within 30 days of the date
Competitive Companies receives the demand, pay this amount to any stockholder
that properly exercised dissenters' rights and deposited certificates with
Competitive Companies. If Competitive Companies does not pay within 30 days, a
stockholder may enforce in court Competitive Companies' obligation to pay. The
payment must be accompanied by (i) Competitive Companies' interim balance sheet,
(ii) a statement of the fair market value of the shares, (iii) an explanation of
how the interest was calculated, (iv) a statement of dissenters' right to demand
payment, and (v) a copy of the relevant portions of the Nevada Law.
Within 30 days of when Competitive Companies pays a dissenting stockholder for
his or her shares, the stockholder has the right to challenge Competitive
Companies' calculation of the fair market value of the shares and interest due,
and must state the amount that he or she believes to represent the true fair
market value and interest of the shares. If Competitive Companies and the
stockholder are not able to settle on an amount, Competitive Companies may
petition a court within 60 days of making payment to the dissenting stockholder.
If Competitive Companies does not either settle with the stockholder or petition
a court for a determination within 60 days, Competitive Companies is obligated
to pay the stockholder the amount demanded that exceeds Competitive Companies'
calculation of fair market value plus interest. All dissenters are entitled to
judgment for the amount by which the fair market value of their shares is found
to exceed the amount previously remitted, with interest.
It is a condition to Competitive Companies ' obligations to consummate the
merger that the holders of no more than 10% of the outstanding shares of
Competitive Companies' common stock are entitled to dissenters' rights. If
demands for payment are made with respect to more than 10%, of the outstanding
shares of Competitive Companies' common Stock, and, as a consequence more than
10% of the shareholders of Competitive Companies become entitled to exercise
dissenters' rights, then Competitive Companies will not be obligated to
consummate the merger.
Accounting Treatment
For accounting purposes, the merger will be treated as a reverse
acquisition with Competitive Companies being treated as the acquiree for
financial reporting purposes.
Merger Procedures
Unless otherwise designated by a Competitive Companies shareholder on the
transmittal letter, certificates representing shares of Third Enterprise Service
Group common stock issued to Competitive Companies shareholders will be issued
and delivered to the tendering Competitive Companies shareholder at the address
on record with Competitive Companies. In the event of a transfer of ownership of
shares of Competitive Companies common Stock represented by certificates that
are not registered in the transfer records of Competitive Companies, the shares
may be issued to a transferee if such certificates are delivered to the Transfer
Agent, accompanied by all documents required to evidence such transfer and by
evidence satisfactory to the Transfer Agent that any applicable stock transfer
taxes have been paid. If any certificates shall have been lost, stolen, mislaid
or destroyed, upon receipt of:
o An affidavit of that fact from the holder claiming such certificates to be
lost, mislaid or destroyed; o Such bond, security or indemnity as the surviving
corporation and the merger agent may reasonably require; o Any other documents
necessary to evidence and effect the bona fide merger, the merger agent shall
issue to holder the shares
into which the shares represented by such lost, stolen, mislaid or
destroyed certificates have been converted.
Neither Third Enterprise Service Group, Competitive Companies, nor the Transfer
Agent is liable to a holder of Competitive Companies' common stock for any
amounts paid or property delivered in good faith to a public official under any
applicable abandoned property law. Adoption of the merger agreement by the
Competitive Companies' shareholders constitutes ratification of the appointment
of the Transfer Agent.
After the closing of the merger, holders of certificates will have no
rights with respect to the shares of Competitive Companies common stock
represented thereby other than the right to surrender such certificates and
receive in merger the shares of Third Enterprise Service Group common stock to
which such holders are entitled.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
We are both a shared tenant service ("STS") provider and a competitive
local exchange carrier ("CLEC"), seeking to be a premier provider of
telecommunications services to multi-dwelling unit ("MDU") complexes,
residential, and business users in major and secondary metropolitan areas across
the United States. We offer an integrated set of cable television
(multi-dwelling unit customers only), telecommunications products and services
including local exchange, local access, domestic and international long
distance, pre-paid local and long distance, calling cards, data and a full suite
of Internet services. Our principal competitors are incumbent local exchange
carriers ("ILECs"), such as the regional Bell operating companies and GTE
Corporation operating units.
We are developing our networks throughout the United States using what it
refers to as a "limited build" approach. In contrast to the traditional network
build-out strategy under which carriers install their own telecommunications
switch in each market and then construct their own fiber optic networks to reach
customers, Competitive Companies installs our own switch in most multi-dwelling
unit complexes under contract with the apartment complex owner, but then leases
other elements of the network from the ILECs. The smart build strategy
specifically involves:
- leasing existing ILEC copper wire connections throughout a local market
area, also called the "local loop," which connect customers to the central
offices or "hubs" of an ILEC network, and
- installing, or physically locating, transmission equipment in
multi-dwelling unit locations and these central offices to route customer
traffic through them to our own switches.
Locating equipment at multi-dwelling unit locations and at ILEC facilities,
also known as "collocation," is central to the success of the limited build
strategy. Using this concept, Competitive Companies has the ability to lease, on
a monthly or long-term basis, local loop and other network elements owned by the
ILEC. This enables us to reach a wide range of customers without having to build
network connections to each one of them.
Management believes that the limited build approach offers a number of
competitive advantages over the traditional build-out strategy by allowing
Competitive Companies to:
- accelerate market entry by nine to eighteen months through eliminating or
at least deferring the need for city franchises, rights-of-way and building
access;
- reduce initial capital expenditures in each market, allowing Competitive
Companies to focus our initial capital resources on the critical areas of less
expensive multi-dwelling unit switches, sales, marketing, and operations support
systems, instead of on constructing extensive fiber optic networks to each
customer;
- improve return on capital by generating revenue with a smaller capital
investment;
- defer capital expenditures for network assets to the time when revenue
generated by customer demand is available to finance such expenditures; and
- address attractive service areas selectively throughout target markets and
not just in those areas where Competitive Companies owns network transmission
facilities.
We believe that our limited build approach allows us to reduce our up-front
capital expenditures to approximately 25% of the total capital expenditures
required to develop such a network as compared with initial capital expenditures
of approximately 50% under traditional build out models. The level of "up-front"
capital required to be spent by us to develop a network will vary depending on a
number of factors. These factors include: the size and geography of the market,
the cost of development of our network in each market, the degree of penetration
of the market, the extent of price and service competition for
telecommunications services, regulatory and technological developments and our
ability to negotiate favorable prices for purchases of equipment.
Once traffic volume justifies further investment, we may lease unused fiber
to which Competitive Companies adds our own electronic transmission equipment or
construct our own fiber network. This unused fiber is known as "dark fiber"
because no light is transmitted through it while it is unused. We believe that
dark fiber is readily available in most major markets.
Our wholly owned subsidiary, Competitive Communications, Inc., initially
installed our first multi-dwelling unit switch in 1992 while operating as
Western Telephone & Television and has since deployed additional switches at
multi-dwelling unit complexes in California, Mississippi, and Alabama. We have
had significant success in selling our services to customers, with penetration
over 80% at each complex. The table below provides selected key operational
data:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------- ---------------------
<S> <C> <C>
Multi-dwelling unit complexes........................... 10 8
Multi-dwelling unit passings1 serviced....................... 2,985 2,279
Number of switches deployed.................................. 8 7
Telephone lines sold.................................................. 2,391 1,707
Cable television customers........................................ 774 783
Total Employees..................................................... 13 10
</TABLE>
1A passing is an apartment unit in a multi-dwelling unit complex.
Competitive Companies does not contract for installation of a switch in a
multi-dwelling unit complex until it has raised the capital that it projects to
be necessary to purchase the switch and operate that switch to the point at
which operating cash flow from the installation is sufficient to fund the
installation's operating costs and capital expenditures.
Competitive Companies wholly owned subsidiary, Competitive Communications,
Inc., commenced operations in February 1996. During the period from February
1996 to November 1998 Competitive Companies purchased one telephone switch that
services two adjacent multi-dwelling unit complexes. During this period,
Competitive Companies devoted substantial effort to developing business plans,
initiating applications for governmental authorizations, hiring management and
other key personnel, working on acquiring wholesale Internet services for
resale, negotiating better long distance and local carrier rates with suppliers,
modifying operating support systems to accommodate new markets, features, and
services, acquiring equipment, consolidating corporate facilities, and
negotiating interconnection agreements.
Competitive Communications' predecessor, Western Telephone and Television,
first provided services using company owned switch and transmission equipment in
1988 to customers in California. During the next eight years using direct
purchases and partnerships it initiated facilities based multi-dwelling unit
services under shared tenant services provisions in San Ramon, Freemont, San
Jose, Hayward, Stockton, and Fair Oaks, California; and in Birmingham, Alabama;
and Gulfport, Mississippi. Until the Telcom Act of 1996, we could only provide
limited competitive services to our multi-dwelling unit customers. In the new
regulatory environment created by the passage of the act management believes we
will be able to increase revenues without substantially changing the way we do
business. For example, interconnection agreements between Competitive
Communications and incumbent local exchange carriers ("ILECs") will allow us to
bill for services which were previously provided free of charge, such as:
- - Billing services for long distance carriers
- - Terminating incoming calls
- - Providing information for other carriers to use in reference to
operator and calling card services
In addition to the added income provided by the act, management believes we
will also benefit from significantly reduced expenses. Some examples of these
savings are:
- - A reduction in the cost of connection to the national network by as much as
85% - A reduction in the cost to complete calls by as much as 40% - Reduction or
elimination of specialized services' expenses such as E-911 and directory
listings.
Management believes there are also operational advantages resulting from
certification and interconnection. In the past, convincing residents on retrofit
apartment properties to convert to our services was difficult, because it
required a telephone number change. Number portability provided by the act
eliminates this barrier. Management believes our use of this product will result
in:
- - Accelerated penetration levels on retrofit properties
- - The ability to keep customers after they move off the property. For
example, if 4,000 units have a turn over ratio of 50%, and we keep only
20% of those vacating residents, in four years those 4,000 units will
produce an additional 2,000 customers.
- - The expansion of our network to include hotels, hospitals, and other
large volume business near its core residential properties.
- - The ability to provide local long distance, Internet and calling card
services any where in the country.
The act provided new opportunities for us to become a competitive local
exchange carrier. Additionally, the growth of the Internet has also provided us
with an opportunity to provide bundled services to both our multi-dwelling unit
customers as well as residential and business customers. In February 1996,
Western Telephone and Television was incorporated as Competitive
Communications, Inc. in order to position the company for growth primarily in
providing bundled telecommunications services including local and long distance
calling, calling cards, and Internet services to residential and business
customers; and, along with cable television, to multi-dwelling unit customers.
The company has developed a business plan structured with one Public Utilities
Commission-regulated company (Competitive Communications, Inc.), and one
unregulated shared tenant services company (CCI Residential Services, a
corporation to be formed in January 2000). Management believes this will
provide the company with competitive advantages. As a competitive local
exchange carrier, the regulated company is required to file tariffs and is
burdened by government regulation. However, as a competitive local exchange
carrier the regulated company receives significant rate discounts from the
local exchange carrier and can take advantage of other special features
including number portability which are only available to competitive local
exchange carriers from the incumbent local exchange carriers. Number
portability allows a customer to take his telephone number with him if he moves
within the area servicing the prefix. Number portability will allow us to
retain customers as they move from the multi-dwelling units where we provide
their services to other areas within a city. Management believes this will
significantly increase the number of customers without incurring additional
marketing expenses. The regulated company will also sell local and long
distance services to residential and business customers and to its sister
company (CCI Residential Services) for resale to multi-dwelling unit customers.
CCI Residential Services, when formed in January 2000, will have transferred to
it the shared tenant services program and all of the multi-dwelling units
currently being services by Competitive Communications. Under shared tenant
services, CCI Residential Services will continue to provide the apartment
customers with local and long distance telephone and cable television services
(at complexes where the company has negotiate cable service agreement). These
services along with Internet services will be purchased from Competitive
Communications as the competitive local exchange carrier. This two company
structure allows the company to reduce its telecommunication supplier costs,
operate with reduced government regulatory requirements, increase services
available to current and future customers, retain some of the customers when
they move out of the serviced complexes, and provide an opportunity in the
residential and business markets.
In October 1996 Competitive Communications entered into an Interconnection
Agreement with BellSouth Telecommunications, Inc. for interconnection services
from BellSouth for the states of Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina, and Tennessee. On December 17,
1997, Competitive Communications was granted a Certificate of Public Convenience
and Necessity to provide facilities and resale local and exchange
telecommunications services as a competitive local exchange carrier in
Mississippi. In April 1999, Competitive Companies announced that it had acquired
two additional multi-dwelling unit properties in San Ramon, California. This
added property and the funding raised under the private placement provided us
with the resources to concentrate on and further develop and expand our
California market. On September 16, 1999, Competitive Communications entered
into an agreement with Advanced Family Safe Technologies, Inc. for the
provisioning of direct Internet dial-up access with the option for Iceptur
content control and related services for our customers. On December 9, 1999, we
commenced accepting Internet dial-up customers.
In October 1999, we requested of the California Public Utilities Commission
to become a competitive local exchange carrier in California. In the event the
approval of our request was delayed, in November 1999, we entered into an agency
agreement with Coyote Metro, LLC. This allowed us to continue to develop our
pre-paid, residential, and business telephone service for California. Management
believes the pre-paid local and long distance services program will be released
for sale on January 3, 2000. The residential and business local and long
distance services will commence subsequent to the pre-paid program. On December
16, 1999, we were approved by the California Public Utilities Commission as a
facilities and resale based competitive local exchange carrier. We have filed
our tariffs and are awaiting approval.
Competitive Companies can earn significantly high margins if we purchase and own
100% of the multi-dwelling unit contract, instead of entering into minority
share partnerships. For this reason we will focus on acquiring contracts without
partnerships. In 2000 we plan to initially increase the number of multi-dwelling
unit passings by purchasing properties from current partnerships and competitors
that have already decided to concentrate on the business segment of their
markets. We have already raised the necessary capital to begin these purchases.
With the closing of this offering and of the credit facility, we plan to
accelerate the purchase of these properties and install switches at newly
contracted multi-dwelling units.
Cautionary Statement
This registration statement on Form S-4 contains "forward-looking
statements", as defined by the Private Securities Litigation Reform Act of 1995,
in order to provide investors with prospective information about the Company.
For this purpose, any statements which are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors which could cause the Company's actual results and events to differ
materially from those indicated by the forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Certain
Factors That May Affect Future Results".
RESULTS OF OPERATIONS
During 1998, we generated $*** of revenue. The majority, $***, was local
telephone service to multi-dwelling unit subscribers consisting of:
- the monthly recurring charge for basic service;
- usage based charges for local calls;
- charges for services, such as call waiting and call forwarding;
- to a lesser extent, non-recurring charges, such as charges for additional
lines for an existing customer; and
- to a lesser extent, non-recurring charges, such as charges for additional
lines for an existing customer.
Since we operate under shared tenant services provisions for the multi-dwelling
unit subscribers, we can bundle our local and long distance services. Customers
who chose our local calling service are also required to subscribe to our
competitively priced long distance services. If the customer does not want our
long distance services as part of the bundled service, at his request we connect
his service to the incumbent local exchange carrier who allows him to choose his
long distance carrier. As of September 30, 1999, approximately 90% of all
multi-dwelling unit subscribers selected our bundled service over the incumbent
local exchange carrier and another long distance service provider.
Long distance revenues during 1998 amounted to $***. All other sources of
revenue accounted for approximately $*** during 1998.
During 1999, we anticipate an insignificant amount of revenue from business
telephone customers and Internet customers, since these programs were only
released in December 1999. Service for residential customers, pre-paid local and
long distance will be commenced in first quarter 2000.
The revenue yield, or revenue generated per line per month, was
approximately $57.79 from January 1999 through November 1999. The revenue yield
per cable television customer for the same period was approximately $29.38.
During 2000 we expect to add a significant number of Internet subscribers at the
multi-dwelling unit locations. However, we do not anticipate this will affect
our switch capacity. Furthermore, since we have negotiated 800 toll free service
for our subscribers we will not incur additional line costs and our subscribers
can call toll free using the same number from anywhere in the United States.
The revenue yield may increase during 2000 as a result of the additional
services we plan to offer our subscribers. These services for our multi-dwelling
unit subscriber include Internet dial-up service, high speed Internet access,
number portability, caller identification, on-line payment for our services, a
computer leasing program, and advertising revenue from advertisers on our web
sites. Our plans to add business customers for local, long distance, and
Internet service may also increase the revenue yield during 2000.
Although our primary focus is on multi-dwelling unit subscribers where we
negotiate long term (10-15 years) contracts with the property owners, these
properties require significant up-front capital funding to purchase and install
on-site switches for telephone service and headend equipment for cable
television. In order to increase our customer base more rapidly with
significantly less up-front funding, in 1999 we added Internet, and resale
business and residential services to our market mix. We plan to use the
increased revenue from these added markets to help fund the acquisition of
additional, higher margin multi-dwelling unit installations.
During 1999, Competitive Companies did not have sales of or revenue from
installation of business customer premise equipment. We did not have revenue
from system integration activities, wireless, or data services. We do not plan
to sell customer premise equipment or wireless services in the foreseeable
future.
Acquisitions during 2000 may increase revenues and revenue yield. We have
had discussions, and will continue to have discussions in the foreseeable
future, concerning potential acquisitions of current partnership interests and
multi-dwelling unit telephone and cable systems owned by other
telecommunications services providers.
For our resale business and residential customers, the systems that have
historically been used to switch business and residential customers from their
existing carrier to other carriers and to begin providing them service generally
require multiple entries of customer information through computer systems
("electronic bonding") or by fax with the incumbent local exchange carrier.
Electronic bonding is a method in which manual processing and faxing of
information is replaced with electronic processing where our computer systems
and those of other carriers communicate directly. Normally training by the
incumbent local exchange carrier is required prior to our being able to accept
business and residential customer transfers using electronic bonding. Until our
personnel have received this training, we have an agreement for Coyote Metro,
LLC, to provide this service to us as part of our agency agreement with them. We
have also identified another source which provides electronic bonding for very
reasonable fees on a nation-wide basis to competitive local exchange carriers.
For our multi-dwelling unit customers, we have our own in-house computer system
and software which electronically bonds to our switches located at the
properties. We can remotely connect and disconnect telephone or television
service and features for on-property subscribers.
The costs to lease local loop lines and high capacity digital lines from
the incumbent local exchange carriers vary by incumbent local exchange carrier
and are regulated by state authorities under the Telecommunications Act of 1996.
We believe that in many instances there are multiple carriers in addition to the
incumbent local exchange carrier from which we can lease high capacity lines,
and that we can generally lease those lines at lower prices than are charged by
the incumbent local exchange carrier. We expect that service to most of our
business and residential subscribers will be through local resale and will not
involve leased lines or the costs associated with them.
In constructing our initial switching and transmission equipment and cable
headends for a new multi-dwelling complex, we capitalize only the non-recurring
charges associated with our initial equipment purchase, installation and
construction. Costs related to operations are expensed monthly as they occur.
Typically, on a new multi-dwelling unit complex, we experience an initial
negative cash flow for an average of 4-6 months until we have achieved
sufficient penetration to cover fixed monthly expenses. This normally occurs
between 45-55% penetration of passings.
As we expand and install switches that are co-located with the incumbent
local exchange carrier and provide facilities based business and residential
telephone services, we expect "reciprocal compensation" costs to be a increasing
portion of our cost of services. We must enter into an interconnection agreement
with the incumbent local exchange carrier in each market to make widespread
calling available to our non-multi-dwelling unit customers. These agreements
typically set the cost per minute to be charged by each party for the calls that
are exchanged between the two carriers' networks. Generally, a carrier must
compensate another carrier when a local call by the first carrier's customer
terminates on the second carrier's network. These reciprocal compensation costs
will grow for Competitive Companies as our customers' outbound call volume
grows. We expect, however, to generate increased revenue from the incumbent
local exchange carriers as inbound calling volume to our customers increases. If
our customers' outbound call volume is equivalent to their inbound call volume,
our interconnection costs paid to the incumbent local exchange carriers will be
substantially offset by the interconnection revenues we receive from them.
The cost of securing long distance service capacity will increase as our
customers long distance calling volume increases. We expect that these costs
will be a significant portion of our cost of long distance services. We have
entered into two resale agreement with long distance carriers to provide us with
the ability to provide our customers with long distance service. We expect to
enter into resale agreements for long distance service with other carriers in
the future. Such agreements typically provide for the resale of long distance
services on a per-minute basis and may contain minimum and maximum volume
commitments. The current resale agreements currently have minimum volume
commitments that we have always met. If we agree to minimum volume commitments
and fail to meet them, we may be obligated to pay underutilization charges.
Neither of these agreements, have a maximum volume of use commitment.
Competitive Companies expects to leases high capacity digital lines for our
Internet service. The costs of these lines will increase as we opens new
markets.
Selling, general and administrative expenses through September 30, 1999,
was $*** compared to $*** for all of 1998. These expenses included: selling,
general and administrative expenses include salaries and related personnel
costs, facilities costs, legal and consulting fees, and expenses related to our
private placement offering. The number of employees increased from 10 as of
December 31, 1998 to 13 as of September 30, 1999.
We have not employed any account executives, major account managers or
sales engineers in the past. We expect to hire very few of these in the future.
We intend to use primarily agents to sell our business and residential services.
We plan to increase media advertising as we bring to market our pre-paid local
and long distance program and our Internet service. As we continues to grow in
terms of number of customers and call volume, we expect that ongoing expenses
for customer care and billing will increase.
The magnitude of our net loss for 1998 is principally due to ***
Depreciation expense for 1998 was $***. This was primarily due to
depreciation of switching and headend equipment at multi-dwelling unit
installations. This included both purchased equipment and depreciable portions
of leased equipment.
Interest expense for the year ended December 31, 1998, was $***. Interest
expense recorded during 1998 reflects ***
Our net ***loss/profit*** for 1998, after ***, was $*** and was $*** for
the nine month period ending September 30, 1999. After deducting
***, the net ***loss/profit*** applicable to common stock was $*** for the year
ended December 31, 1998.
Many securities analysts use the measure of earnings before deducting
interest, taxes, depreciation and amortization, also commonly referred to as
"EBITDA," as a way of evaluating telecommunications companies and other
companies that have inherently high initial capital investment requirements.
Telecommunications companies initial capital investments are high due to the
expenses incurred in developing their network of switches, securing
nterconnection agreements, and meeting regulatory requirements. We had EBITDA
***loss/profit*** of $*** and $*** for the year ended December 31, 1998 and for
the period ending September 30, 1999, respectively. In calculating EBITDA, We
also excludes the non-cash charges to operations for management ownership
allocation charge and deferred stock compensation expense totaling $*** and ***
for the year ended December 31, 1998 and for the period ending September 30,
1999, respectively.
We do not expect to continue to experience increasing operating losses and
negative EBITDA as a result of our development activities and as we expands our
operations. We expect to achieve positive EBITDA in the first quarter of 2000
***Have we already achieved?***
LIQUIDITY AND CAPITAL RESOURCES
Our financing plan is predicated on the pre-funding of each multi-dwelling
unit switch installation to positive free cash flow. By using this approach,
Competitive Companies avoids being in the position of seeking additional capital
to fund the multi-dwelling unit installation after we have already made
significant capital investment in it. We believe that by raising all required
capital prior to making any installation commitments, we can raise capital on
more favorable terms and conditions.
In developing our network, we plan to install switches networks in 110
multi-dwelling units in the western and southwestern United States to provide
local and long distance telephone service, calling cards, Internet services, and
cable television. Although we can cost justify installing switches in
multi-dwelling units with as few as 100 passings (apartments), the average
multi-dwelling unit we select will be approximately 400 passings. We will
simultaneously develop our business and residential markets in the local areas
around these switches in order to take advantage of the excess
telecommunications carrying capacities of our switches.
Over the next five years (2000 through 2004), we estimate that we will need
approximately $600 million to $700 million to install these switches, construct
our network, and provide services to additional business and residential
customers. Of this, we estimate $545 million to $645 million will be provided
through lease financing, cost control, and re-invested earnings. We intend to
secure the remaining approximately $55 million through capital investment over
the next three years. We have raised approximately $1.2 million in total capital
through a private placement since our inception. We believe that the proceeds
from this offering and the lease programs expected to be available, together
with existing cash, will be sufficient to fund our operating and capital
requirements.
We may decide to seek additional capital in the future to expand our
business and sources of additional financing may include vendor financing and/or
the private or public sale of our equity or debt securities. We cannot assure
you, however, that such financing will be available at all or on terms
acceptable to us, or that our estimate of additional funds required is accurate.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of, among other things:
- the cost of the development of our networks in each of our markets;
- a change in or inaccuracy of our development plans or projections that
leads to an alteration in the schedule or targets of our roll-out plan;
- the extent of price and service competition for telecommunications
services in our markets;
- the demand for our services;
- regulatory and technological developments, including additional market
developments and new opportunities, in our industry;
- an inability to secure lease funding; and
- the consummation of acquisitions.
Our cost of installing our switches, developing our networks and operating
our business, as well as our revenues, will depend on a variety of factors,
including:
- our ability to meet our roll-out schedules;
- our ability to negotiate favorable prices for purchases of equipment;
- our ability to develop, acquire and integrate the necessary operations
support systems and other back office systems;
- the number of customers and the services for which they subscribe;
- the nature and penetration of new services that we may offer; and
- the impact of changes in technology and telecommunication regulations.
As such, actual costs and revenues may vary from expected amounts, possibly
to a material degree, and such variations are likely to affect our future
capital requirements.
Competitive Companies made capital expenditures of $*** and $*** during
1998 and the first three quarters of 1999, respectively, for property, plant,
equipment, software and hardware necessary in conducting its business. We also
used capital during 1999 to fund our operations.
On September 30, 1999, we had switching equipment located in 8
multi-dwelling units with a total of 3,980 passings (apartments). We anticipate
that we will install 110 more switches during 2000, bringing the cumulative
total passings to approximately 47,980. Under our current business plans, we
plans to make approximately $20.6 million in capital expenditures in 2000,
primarily for the purchases and installation of switching and transmission
equipment.
As of September 30, 1999, we had approximately $*** of cash.
Our earnings through the third quarter ended September 30, 1999, and for
the period from inception on ***, 1998, through December 31, 1998, were
insufficient to cover fixed charges by approximately $*** and $***,
respectively.
Our earnings would have been insufficient to cover fixed charges by
approximately $*** and $***, through the third quarter ended September 30, 1999,
and for the period from inception on ***, 1998 through December 31, 1998,
respectively.
YEAR 2000 READINESS DISCLOSURE
Our State of Readiness
We have defined Year 2000 compliance as follows:
Information technology time and date data processes, including, but not
limited to, calculating, comparing and sequencing data from, into and between
the 20th and 21st centuries contained in our software and services offered
through the us, will function accurately, continuously and without degradation
in performance and without requiring intervention or modification in any manner
that will or could adversely affect the performance of such products or the
delivery of such software and services as applicable at any time.
Our internal systems include both information technology systems and
non-information technology systems. We have initiated an assessment of our
proprietary information technology systems, and have completed remediation and
testing of all information technology systems. With respect to information
technology systems provided by third-party vendors, we have sought assurances
from such vendors that their technology is Year 2000 compliant. All of our
material information technology system vendors have replied to inquiry letters
sent by us stating that they are Year 2000 compliant.
We have evaluated our non-information technology systems for Year 2000
compliance. We have not, to date, discovered any material Year 2000 issues with
respect to our non-information technology systems.
We have contacted our switch suppliers whose products are used at our
multi-dwelling unit properties, and have purchased Year 2000 compliant software
and hardware modifications. To date, we have installed and tested all of our
switches with these modifications. All switches have functioned properly during
the test and continue to function properly.
Our customers are individual Internet users, and, therefore, we do not have
any individual customers who are material to an evaluation of Year 2000
compliance issues.
The Costs to Address Year 2000 Issues
The costs to make software and hardware Year 2000 compliant
upgrades has been approximately $13,450. Although we expect to incur
additional expenses, we do not expected these expenses to be material.
Nonetheless, we may experience material unexpected costs caused by
undetected errors or defects in the technology used in our systems or
because of the failure of a material supplier to be Year 2000
compliant.
Risks Associated With Year 2000 Issues
Notwithstanding our Year 2000 compliance efforts, the failure of a
material system or vendor used in our software and service, or the
Internet generally, to be Year 2000 compliant could harm the operation
of our telecommunications services or prevent us from generating
revenues or sales through our telecommunications services, or have
other unforeseen, adverse consequences to the company.
Finally, we are also subject to external Year 2000-related failures or
disruptions that might generally affect industry and commerce, such as utility
or transportation company Year 2000 compliance failures and related service
interruptions. Moreover, participating vendors in our services might experience
substantial slow-downs in business if consumers avoid products and services such
as air travel both before and after January 1, 2000, arising from concerns about
reliability and safety because of the Year 2000 issue. All of these factors
could have a material adverse effect on our business, financial condition and
results of operations.
Contingency Plans
We are engaged in an ongoing Year 2000 assessment and the development of
contingency plans. The results of our Year 2000 simulation testing and the
responses received from third-party vendors and service providers have been
taken into account in determining the nature and extent of any contingency
plans. We have identified our worst-case scenario as the interruption of our
business resulting from Year 2000 failure of the vendors to provide services. We
have completed our worst-case scenario contingency plan. This plan includes
re-routing telecommunications services through back-up providers, having
corporate staff personnel on standby to test communication channels and handle
any problems which can be addressed through the system network, having
technicians on standby to travel to any switch locations which may experience
interruption in service.
COMPETITIVE COMPANIES BUSINESS
We seek to be a premier provider of telecommunications services to residents of
multiple dwelling unit buildings, most commonly called apartment complexes, and
other users, including business and residential, in major metropolitan areas
across the United States. We offer an integrated set of telecommunications
products and services including local exchange, local access, domestic and
international long distance, enhanced voice, data and Internet services. We
generally price these services at a discount of 5% to 10% below the prices
charged by the incumbent local exchange carriers. As a competitive local
exchange carrier in each of our markets we compete primarily with the incumbent
local exchange carriers (ILECs), such as PacBell, BellSouth and Southwestern
Bell, which have historically had a monopoly in providing local, wireline phone
service.
Our business was founded in 1985 by a management team led by David Kline, Sr.,
the former President, Chief Operating Officer and co-founder of Superior
Communications, Inc.
We believe that the Telecommunications Act, by opening the local exchange
market to competition, has created an attractive opportunity for new
facilities-based competitive local exchange carriers like us. Most importantly,
the Telecommunications Act stated that these carriers, known as CLECs, should be
able to lease the various elements of the ILECs' networks, which are necessary
for the cost-effective provision of service. This aspect of the
Telecommunications Act, which is referred to as "unbundling" the ILEC networks,
has enabled us to deploy digital switches with local and long distance
capability, and will allow us to lease deployed wire and fiber optic lines from
the ILECs, other CLECs, and other telecommunications companies to connect our
switch with the ILEC, other CLECs and the Internet backbone. Once traffic volume
growth justifies further capital investment, we may lease dark fiber or
construct our own fiber network.
We have developed procedures, together with a billing and back office
systems called Hartline that we believes will provide us with a significant
competitive advantage in terms of reducing costs, processing large volumes of
order and providing customer service. The Hartline systems enable us to enter,
schedule and track a customer's order from the point of sale to the installation
and testing of service. It also includes: trouble management, inventory,
billing, collection and customer service.
In each state where we operate as a competitive local exchange carrier, we
will electronically bond to the ILEC either directly or through third party
services that are currently available at very competitive rates. Electronic
bonding is the on-line and real-time connection of our operations support
systems with those of the ILECs. This will allow us to create service requests
on-line, leading to faster installations of residential and business customer
orders through a reduction in errors associated with multiple manual inputs.
(Multi-dwelling unit customers are services completely by our proprietary
Hartline system which does not require electronic bonding with other carriers.)
For our business and residential customer, we expect electronic bonding to
improve productivity by decreasing the period between the time of sale and the
time a customer's line is installed in our network. In addition, we expect that
the simplified process will reduce selling, general and administrative costs.
There is an estimated 60 million MDU passings in the United States. 20
million of these MDUs have over 100 passings. The MDU market is a $20 billion
annual emerging telecommunications market, and is anticipated to be for decades
to come. Our business plan covers most of the largest metropolitan areas in the
U.S. Initially, we will concentrate on the western, southwestern, and southern
United States. The order in which we development of our market will depend on
where we acquire the most lucrative contracts with multi-dwelling unit owners.
Of the MDUs with over 100 passings, we estimate that fewer than 1,000,000 are
using combined private telephone and television systems. Each month we receive
requests from owners of multi-dwelling units from all over the United States
that meet the installation criteria for our switches and service. Signing these
contracts is contingent on having sufficient capital to provide for the cost of
installing the switching equipment and covering initial negative cash flow until
the subscriber base is high enough to cover operating costs. Business and
residential access lines, will be added in the areas near these switches and
services either through our own facilities based switches or through resale
interconnection agreements with the ILECs. As of September 30, 1999, we have
installed switches in multi-dwelling unit complexes in three states including
California, Mississippi, and Alabama.
BUSINESS STRATEGY
To accomplish our goal of becoming a premier provider of bundled
telecommunications services to MDUs, business and residential customers, we have
developed a customer-focused business strategy designed to achieve significant
market penetration and deliver superior customer care while maximizing operating
margins. The key components of this strategy include the following:
Leverage Proven Management Team. Our veteran management team has extensive
experience and past successes in the telecommunications industry. We believe
that our ability to combine and draw upon the collective talent and expertise of
senior management gives us a competitive advantage in the effective and
efficient execution of network deployment, sales, provisioning, service
installation, billing and collection, and customer service functions.
David Kline II and other key Competitive Companies executives have
significant experience in the critical functions of network operations, sales
and marketing, back office and operations support systems, finance and
regulatory affairs.
Operate As Both A Regulated And Unregulated Carrier. Unlike many of our
competitors, we operate with both a regulated and non-regulated company.
Competitive Communications, Inc. (CCI) being regulated and CCI Residential
Services, Inc. being unregulated.
Under the Telecommunications Act of 1996, our regulated competitive local
exchange carrier or "CLEC" company, Competitive Communications, can receive
significantly discounted prices from the existing or incumbent local exchange
carrier (ILEC), thereby reducing our costs compared to the prices we would have
to pay without having CLEC status. As a regulated CLEC, CCI purchases and
deploys class 4 telephone switching equipment and leases transmission capacity
from competitive access providers (CAPS), other CLECs and incumbent local
exchange carriers (ILECs) then provides telecommunications services to business
and residential customers and to CCI Residential Services. In this manner, CCI
can provide CCI Residential Services with certain features (like number
portability) which are not currently available to non-CLEC companies. By owning
our switches, we are able to better configure our network to provide
cost-effective solutions for our customers' telecommunications needs. By leasing
transmission capacity, we can:
- reduce up-front capital expenditures
- avoid risks of "stranded" investment in under-utilized cable/fiber
networks
- enter markets and generate revenue and positive cash flow
more rapidly
- negotiate reduced rates since there are normally several
cable/fiber suppliers in each market area.
Our other company, CCI Residential Services, is a non-regulated Shared
Tenant Service company, and as such, can sign individual agreements with
property owners allowing for payments to the property owner of a portion of the
revenue Competitive Residential receives from the MDU residents on the owner's
property.
Target Customers with Integrated Service Offerings. As a CLEC, CCI focuses
principally on providing business and residential customers with
telecommunications services, and on providing Competitive Residential Services
with local telephone services. Both CCI and CCI Residential Services (CCIRS)
will focus principally on providing their respective end user customers with
bundled local, long distance, calling card. Internet, and cable television
(CCIRS only) services. We offer "one-stop shopping" by giving our customers the
ability to purchase a comprehensive package of communications services from a
single supplier. We also offer convenient integrated billing and a single point
of contact for sales and service. We offer the following services in most of our
markets:
CCI (as a regulated CLEC):
- - local and long distance pre-pay and post-pay services to business and
non-MDU residential customers,
- - calling cards to business and non-MDU residential customers,
- - Internet services to business and non-MDU residential customers,
- - Internet content control software,
- - local area network interconnection, and
- - resale of ILEC services.
CCIRS (as a non-regulated shared tenant service provider):
- - local and long distance services to MDU customers,
- - calling cards to MDU customers,
- - Internet services to MDU customers,
- - Internet content control software, and
- - Cable/satellite television services to MDU customers.
In addition, we expect to offer the following services beginning in 2000:
- - frame relay, a high speed data service used to transmit data between
computers and designed to operate at higher speeds, and
- - Integrated Services Digital Network ("ISDN"), an internationally agreed
upon standard which, through special equipment, allows two-way,
simultaneous voice and data transmission in digital formats over the
same transmission line.
- - Digital Subscriber Lines ("DSL"), which allow high speed digital
connection for carrying voice and data traffic over copper lines,
- - carry long distance traffic for other carriers using the excess
capacity of our switches,
- - web page design, and
- - web server hosting.
These comprehensive services are generally not available from the ILECs, or
available only at high prices. By offering a comprehensive package of
communications services together with traditional local and long distance
services, we believe that we can accelerate our ability to establish new
customer accounts and reduce the number of customers who discontinue our
services and switch to other telecommunications providers.
We focus primarily on capturing a significant portion of these customers'
local exchange, intraLATA toll, which are the calls that fall within a local
service area, and data traffic. Although we will principally target MDU's in
markets where we believe we can achieve significant market penetration by
providing superior customer care at competitive prices, we augment our core
business strategy by offering rebates to MDU's owners who sign exclusive
contracts with us.
Utilize "Limited Build" Strategy to Maximize Speed to Market and Minimize
Investment Risk. We will continue to pursue what we refer to as a "limited
build" strategy. Under this strategy, we
- - purchase and install class 5 switches in MDUs where we have contracts
with the owner of the MDU ;
- - locate our hub equipment (class 4 switches) in or near the central
office facilities of incumbent local exchange carriers; and
- - lease unbundled network elements from the incumbent local exchange
carriers or resell services until growth justifies our ownership of
additional network assets.
Once traffic volume justifies further investment, we may then lease dark
fiber or construct our own fiber network.
We believe that this limited build strategy offers a number of economic
benefits. First, the strategy allows us to enter into a new market in a six- to
nine-month time frame, less than half the 18-24 months generally required under
the traditional "build first, sell later" approach required before the
Telecommunications Act established a framework for CLECs to acquire unbundled
network elements. We believe that this limited build strategy has the additional
advantage of reducing initial capital requirements in each market, allowing us
to focus our initial capital resources on the critical areas of sales, marketing
and operations support systems, instead of on constructing extensive fiber optic
networks to each customer.
We are currently implementing this limited build strategy in the three
states where we are now operating: California, Mississippi, and Alabama. We
presently have class 5 switches at all MDU locations. We lease high capacity
circuits to connect the central office facilities of incumbent local exchange
carriers with our MDU switches. In California, we are moving to the next stage
of our limited build strategy, and have begun marketing our Internet services
and pre-paid residential program using agency agreements with an Internet
service provider and another CLEC. We recently received our CLEC certification
in California. We anticipate our tariffs will be approved in January 2000. At
that time we will market our services directly to addition business and
residential customers. As the number of our Internet subscribers increase, it
will become cost effective to install our own Internet servers in 2000.
Achieve Broad Coverage of Attractive Areas within Each Targeted Market. As
a result of the substantial up-front capital requirements necessary to construct
metropolitan area fiber networks, CLECs have traditionally limited their initial
networks to highly concentrated downtown areas, which limits their ability to
provide service to customers in other attractive, but geographically dispersed,
markets. When we initially penetrate a market, we do so by signing a contract
with an MDU owner. This is done after completing an analysis of the property to
include size, class, occupancy turn-over rate, percent of occupancy, and credit
profile of tenants; rates charged by ILEC; tenant satisfaction with current
telecommunication providers; cable/satellite agreements; potential for passing
other carriers traffic; and using FCC and demografic data to determine
concentration of potential business and residential customers in the serviced
area. We use this analysis, together with estimates of the costs and potential
benefits of addressing particular service areas to:
- identify attractive markets;
- determine the optimal concentration of areas to be served; and
- develop our schedule for deploying and expanding our network.
This will enable us to address the most attractive service areas throughout
each of our target markets, such as suburban apartment complexes, without having
to construct our own fiber network to the customer premises in each of these
areas.
Maximize Operating Margins by Emphasizing Facilities-Based Services. We
believe that by using our own facilities (class 5 switches at the MDUs and class
4 hub switches co-located with the ILEC) to provide local exchange, local
access, and long distance service, we should generate significantly higher gross
margins than we could obtain by reselling services provided entirely on another
carrier's facilities. As a result, we focus our marketing activities on areas
where we can serve customers through a direct connection using unbundled loops
or high capacity circuits connected to our facilities. We generally resell ILEC
services only to provide initial service until installation of the class 4
switch becomes cost effective and subsequently to provide comprehensive
geographical service coverage to customers with multiple sites where the
customer is physically connected to our switches and which can be addressed by
our facilities-based services. We will also resell ILEC services to a few
off-switch sites, which can be addressed only by reselling these services.
Build Market Share by Focusing on Agent Program Sales. We have developed
and are presently implementing an agent program to sell to business and
residential customers. By using this approach, we hope to rapidly increase our
market share, particularly among small and medium-sized businesses. We believe
that ILECs have generally neglected to target small and medium-sized business
customers. Our sales management team is experience in managing a large number of
agents in the telecommunications and data networking industries.
Additionally, we believe that we can attract and retain highly qualified sales
agents by offering them the opportunity to:
- - participate in the potential economic returns made available through a
results-oriented commission package and stock options;
- - market a comprehensive set of products and services and customer care
options; and
- - work with an experienced, success-proven, and customer service oriented
company.
Expand the use the Hartline Billing and Automated Back Office Systems. For
our MDU customers, our processes are presently automated. For our non-MDU
customers, we intend to automate most of the processes involved in switching a
customer to our networks. Our goal is to accelerate the time between customer
order and service installation, reduce overhead costs and provide exceptional
customer service. To achieve this goal, we are continuing to develop and enhance
the Harline System to support the growth of our operations into the non-MDU
markets. We will initially use our agency agreements and third party providers
to electronically bond with the incumbent local exchange carriers. Upon our
becoming a CLEC in each state, our staff personnel will attend the required
training so that we can provide our own electronic bonding to the applicable
ILECs. The Hartline system will be modified as needed by our experienced
information technology professionals to accommodate any required changes need to
interface with the specific ILECs system. With electronic bonding, we should be
able to provide better customer care since we can more readily pinpoint any
problems with a customer's order.
Maintain Exceptional Customer Service. We may be the only telecommunications
service provider not using automated attendants and voice mail in lieu of real
people to answer our customer service lines. We plan to maintain this human
touch for quality customer service, communications and problem solving for all
of our MDU, business, and residential customers.
MARKET OPPORTUNITY
U.S. Census Bureau data indicates that the United States communications
services market, including cable television, but excluding Internet access and
content, in 1997 totaled approximately $256 billion in annual revenue. As
depicted on the chart below, wireline telecommunications services, other than
Internet access and content, purchased by residential users accounted for about
56%, or approximately $143 billion, of the total U.S. market in 1997:
We focus our primary sales efforts on MDUs with over 100 units. We believe that
this market is significant, in that: (i) there are over 60 million MDU doors (a
single apartment unit, dormitory room, or condominium unit) with each door
represents one customer of an MDU; and (ii) of these doors, over 20 million are
in properties with over 100 units.
Traditional voice traffic accounted for the vast majority of residential
communications revenue in 1997, with local exchange and exchange access
accounting for over half of the total non-residential wireline
telecommunications market, excluding Internet access and content. Due to its
rapid growth, estimates of data and Internet services revenue are not as well
established as those relating to traditional voice traffic communications.
However, We believe that a significant market opportunity exists for providers
of both residential and non-residential Internet services.
We believe that the rapid opening of the local market to competition,
accelerated growth rates in local traffic related to increases in Internet
access, the desire for multiple suppliers by large businesses, and the desire
for "one-stop shopping" by consumers, presents an opportunity for new entrants
to achieve product differentiation and significant penetration into this very
large, established market. Success in this environment will, in the opinion of
management, depend primarily on speed-to-market, marketing creativity, superior
customer service, and a CLEC's ability to provide competitively priced services
rapidly and accurately and to issue concise, accurate integrated billing
statements.
OUR TELECOMMUNICATIONS SERVICES
We tailor our service offerings to meet the specific needs of the MDU's,
business, or residential customers in our target markets. Management believes
that our close contact with customers developed through our customer service
approach will enable us to tailor our service offerings to meet customers' needs
and to creatively package our services to provide "one-stop shopping" solutions
for those customers.
Local Exchange Services. We offer local telephone services, including local
dial tone as well as other features such as:
- - call forwarding;
- - call waiting;
- - dial back;
- - caller ID;
- - speed dialing;
- - calling cards;
- - three way calling;
- - E-911; and
- - voice mail.
By offering dial tone service, We also receives originating and terminating
access charges for interexchange calls placed or received by our subscribers.
Class 5 Switches/Shared Tenant Services. In MDU's, a feature-enhanced class
5 switches are among the most cost efficient means of providing telephone
services. A class 4 switching system can be located within an MDU or office
building. In addition to the local exchange features mentioned above these
switches can also provide: wake-up call service, and music on hold. Under shared
tenant services provisions, we are also able to offer our MDU customers a choice
of long distance rates comparable to the major long distance providers's
programs.
Integrated Services Digital Network and High Speed Data Services. Beginning
in 2000, we expect to offer high speed data transmission services, such as:
- - wide area network interconnection, which are remote computer
communications systems that allow file sharing among geographically
distributed workgroups; wide area networks typically use links provided
by local telephone companies; and
- - broadband Internet access, also known as "wideband," which allows large
quantities of data to be transmitted simultaneously.
These services may be provided via frame relay and dedicated point-to-point
connections. In order to provide these services, We intend to use leased high
capacity connections, such as multiple DS-1, DS-3, T1 or T3 connections, to
medium- and large-sized business customers. We may also employ DSL and/or ISDN
connections over unbundled copper wire connections to smaller business users
whose telecommunications requirements may not justify such high capacity
connections or which are located in areas where T1 connections are not
available.
Interexchange/Long Distance Services. We offer a full range of:
- domestic long distance services, such as:
-- interLATA, which are calls that pass from one "Local Access and
Transport Area" or "LATA" to another, and such calls must be carried across the
LATA boundary by a long-distance carrier,
-- intraLATA, which is a call that falls within the local service area of
a single local telephone company, and
- international long distance services.
These services include "1+" outbound calling, inbound toll free service,
and such services as calling cards, operator assistance, and conference calling.
Enhanced Internet Services. We presently offer dial-up Internet access
services via conventional modem connections, and content control software that
can be used to filter out selected materials, i.e., pornographic and hate
oriented. In 2000, we expect to offer dedicated, high speed Internet access
services, including: ISDN, T1, and DSL. Dedicated access services are
telecommunications lines dedicated or reserved for use by particular customers.
Web Site Design and Hosting Services. We plan to offer web site design
services and Web site hosting on our own computer servers to provide customers
with a complete, easy to use key solution that gives them a presence on the
World Wide Web.
SALES AND CUSTOMER SUPPORT
We offer an integrated package of local exchange, local access, domestic
and international long distance, enhanced voice, data, and a full suite of
Internet services to MDU resident, non-MDU residents and business customers.
Our MDU market is addressed through the direct marketing efforts of our
sales and marketing team. Since contracting with an MDU is normally the first
step in penetrating a new geographical market, this approach provides us with
the opportunity to full analyze both the MDU and the local market (including
both residential and business) for future potential prior to commitment.
Unlike large corporate, government, or other institutional users, most
small to medium size businesses have no in-house telecommunications manager.
Based on management's previous experience, we believe that a bundled package
providing "one-stop shopping" solution offered through our professional sales
agent program and coupled with our exceptional customer service will have a
competitive advantage in capturing this type of customer's total
telecommunications traffic, and eventually produce a significant portion of our
revenue.
Sales and marketing approaches in the telecommunications market are
market-segment specific, and we believe the following are the most effective
approaches with respect to our three primary targeted market segments:
- - MDU customers---Competitive Companies uses direct sales, trade journal
advertising, referrals, and exhibitor trade shows.
- - Small/medium/large businesses customers---Competitive Companies uses
both direct sales and professional sales agents that have established business
relationships with the prospective customer. In the future, will also use local
media advertising.
- - Residential customers---Competitive Companies uses primarily direct
sales including radio advertising, direct marketing and radio to ethnic groups,
and MDU customers moving from one of our shared tenant services locations.
We will also directly market wholesale Internet services to other
competitive local exchange carriers and long distance providers.
INFORMATION SYSTEMS
We are continually enhancing our proprietary Hartline Billing and Back
Office System and procedures for operations support and other functions that we
believe provides a significant competitive advantage in terms of cost,
processing large order volumes, and customer service. The system is required to
enter, schedule, provision, and track a customer's order from the point of sale
to the installation and testing of service and also include or interface with
trouble management, inventory, billing, collection and customer service systems.
Our Hartline system presently provides all the operational requirements to
service our MDU customers and we anticipate that we will be able to enhance and
modify this system to accommodate future changes in providing telecommunications
and bundled services to this market segment.
Order Management. Our sales team and agents will use our two in-house
developed web sites to enter customer orders on-site and over the Internet. The
sales team, agents and customer will also be able monitor the status of the
order as it rogresses through the service initiation process.
Provisioning Management. The existing systems currently employed by most
ILECs, CLECs and long distance carriers, which were developed prior to the
passage of the Telecommunications Act, generally require multiple entries of
customer information to accomplish order management, provisioning, switch
administration and billing. Upon certification as a CLEC in each state and prior
to our becoming electronically bonded to the ILECs existing systems, our
personnel must be trained by the respective ILEC for data entry into their
system. Until our personnel are trained and each interface with our system is
tested, we will use our current agency agreement with another CLEC and available
third party providers for this provisioning. This method will allow us to
rapidly penetrate a new market while simultaneously training our personnel and
making any necessary changes to our system to accommodate electronic bonding
with the ILEC.
External Interface. Several external interfaces are required to initiate
service for a customer. While some of these are automated via gateways from the
order management software, the most important interface, those to the ILEC, have
generally been accomplished via fax or e-mail. In an effort to make this process
more efficient, the ILECs have implemented electronic bonding between the
operations support system of a facilities-based CLEC and an ILEC. There is no
standard for the ILECs, instead each ILEC has their own system. This requires
the CLECs to modify their own system to interface with each ILEC as the CLEC
initially enters the ILECs territory. Third party services are presently
available that will provide the ILEC interfaces required to initiate service for
our customers.
Network Element Administration. Our Hartline system software provides for
administrating each element of the our network. Our order management system and
the network element manager are integral parts of this system.This feature of
the Hartline system ensures data integrity and eliminate redundant data entry.
Customer Billing. Using the Hartline system, we provide our own in-house
billing for all of our customers.
Billing Records. Local and intraLATA billing records are generated by our
switches to record customer calling activity. InterLATA billing records are
generated by the long distance carrier with whom we have a resale agreement, to
record customer calling activity. These records will be automatically processed
by the billing services provider in order to calculate and produce bills in a
customer-specified billing format.
NETWORK DEPLOYMENT
As of September 30, 1999, we were operational in California, Mississippi,
and Alabama with 8 MDU class 5 switches installed servicing 10 MDUs.
The following table sets forth the current buildout schedule. We expect to
concentrate our installations in Alabama, Arizona, California, Colorado,
Florida, Mississippi, New Mexico, and Texas. The order and timing of deployment
may vary and will depend on a number of factors, including MDU contracts
acquired, management, the regulatory environment, our results of operations, and
the existence of specific market opportunities, such as acquisitions. We may
also elect not to deploy networks in each such market.
MARKET SIZE AND 2000 BUILDOUT SCHEDULE
<TABLE>
<CAPTION>
ESTIMATED CUSTOMERS
MDU MDU RESIDENTIAL
TELEPHONE TV INTERNET & PRE-PAID BUSINESS
(1) (2) (3)
<S> <C> <C> <C> <C> <C>
January........................... 1200 480 100 100 10
February.......................... 1800 720 400 400 10
March............................. 2400 960 500 500 20
April............................. 2400 960 600 600 30
May............................... 2700 1080 700 700 30
June.............................. 2700 1080 800 800 30
July.............................. 3000 1200 900 900 40
August........................... 3000 1200 1000 1000 40
September....................... 3300 1320 1400(4) 1100 40
October.......................... 3300 1320 1600(4) 1200 50
November....................... 3600 1440 1700(4) 1300 50
December....................... 3600 1440 1800(4) 1400 50
---- ---- ---- ---- --
Total....................... 33000 13200 11500(4) 10000 400
===== ===== ===== ===== ===
</TABLE>
(1) Based on penetration of 75% of multi-dwelling units. Penetration as of
September 30, 1999, is in excess of 80%.
(2) Based on penetration of 30% of multi-dwelling units. Penetration as of
September 30, 1999, is in excess of 90% for MDUs under contract for
cable/satellite television service. The 30% penetration is adjusted to reflect
the total anticipated penetration of all MDUs whether they receive cable
television services from us or not.
(3) The residential telephone service is based primarily on pre-paid programs
directed to ethnic markets in California.
(4) Estimates for the months of September, October, November, and December
include 300, 400, 400, and 400 DSL subscribers, respectively.
In the majority of our targeted markets, we will initially deploy class 5
switches at MDUs. When class 5 switches have been deployed at multiple MDUs in
an area, we will collocate our class 4 switch and transmission equipment in or
near the ILEC central offices. Over time, We plan to expand our networks
throughout the metropolitan areas to address the majority of the business and
residential markets in each area.
NETWORK ARCHITECTURE
An important element of our limited build strategy is the installation of
class 5 digital switches at the multi-dwelling unit sites we anticipate having
under contract. Switches are readily available from various manufacturers such
as Hitachi, Cortelco, and DTI which provide the features required for an MDU
customer. As more class 5 switches are brought on line, we will be able to
initiate our hub concept of having a class 4 switch (example: Lucent Series
5ESS(R)-2000 digital switch) and related equipment at a central location in each
market. As of September 30, 1999, we had deployed 8 switches to serve 10 MDUs.
Four of these MDUs are in a California area which can be supported by one hub
switch. One of these switches is a class 4 switch that can be used as a hub
switch. Since we have recently received our California CLEC certification and
anticipate receiving our approved tariffs, we expect to implement our hub switch
concept in the first or second quarter of 2000.
Initially, we intend to lease local network trunking facilities from the
ILEC and/or one or more CLECs in order to connect our switches to major ILEC
central offices serving the central business district and outlying areas of
business concentrations in each market. The switch will also be connected to
ILEC tandem switches and certain interexchange carrier points-of-presence, the
equivalent of a local phone company's central office. To access the largest
number of customers possible without having to lay fiber to each of their
premises, we will also locate access equipment such as integrated digital loop
carriers and related equipment in each of the ILEC central offices to which we
connect.
As each residential and business customer is signed up, service will be
initially provided under CLEC resale of ILEC services. As the customer base in a
given area grows, service will be provided by leasing unbundled loops from the
ILEC to connect our integrated digital loop carriers located in the serving
central office to the customer premise equipment. For large business, or for
numerous customers located in large buildings, it may be more cost-effective for
us to install class 5 switches or perhaps a wireless local loop leased from one
of the emerging wireless CLECs, to connect the customer(s) to the our network.
In either case, we will locate our integrated digital loop carriers or other
equipment in the customer's building.
Although we will initially lease our local network transmission facilities,
we plan to replace leased capacity with our own fiber optic facilities as and
when we experience sufficient traffic volume growth between our switch and
specific ILEC central offices or as other factors make these arrangements more
attractive.
IMPLEMENTATION OF SERVICES
Shared tenant services. To offer shares tenant services to multi-dwelling
unit customers, CCI Residential Services must sign a contract with the apartment
owner. These are multi-year contracts ranging from 10 to 20 years. They provide
for the owner to share in a percentage of the revenue we receive from servicing
his complex. The percentage receive may vary for 0% to 11%, based on the total
revenue received, the types of services provided, the term of the contract and
other negotiated factors. If the complex is being built, we must plan for, have
approved, and install underground cabling. If the complex is already built, we
must survey the cabling needs and negotiate the use of the cable with the owner.
We must also secure state approval to conduct business in the state, establish
service from CCI if CCI is already a CLEC in the state or negotiate rates with
the ILEC until CCI is certified.
CLEC services. To offer CLEC services in a market, we generally must secure
certification from the state regulator and typically must file tariffs or price
lists for the services that it will offer. The certification process varies from
state to state; however, the fundamental requirements are largely the same.
State regulators require new entrants to demonstrate that they have secured
adequate financial resources to establish and maintain good customer service.
New entrants must also show that they possess the knowledge and ability required
to establish and operate a telecommunications network. We have made such
demonstrations in California and Mississippi, where we have obtained
certificates to provide local exchange and intrastate toll services. We intend
to file similar applications in the near future in Alabama and other states as
we contract for MDU installations.
Before providing local service, a new entrant must negotiate and execute an
interconnection agreement with the ILEC. While such agreements can be voluminous
and may take months to negotiate, most of the key interconnection issues have
now been thoroughly addressed and commissions in most states have ruled on
arbitrations between the ILECs and new entrants. However, interconnection rates
and conditions may be subject to change as the result of future commission
actions or other changes in the regulatory environment. Under a recent United
States Supreme Court ruling, new entrants may adopt either all or portions of an
interconnection agreement already entered into by the ILEC and another carrier.
Such an approach will be selectively adopted by us to enable us to enter markets
quickly while at the same time preserving our right to replace the adopted
agreement with a customized interconnection agreement that can be negotiated
once service has already been established.
While such interconnection agreements include key terms and prices for
interconnection, a significant joint implementation effort must be made with the
ILEC in order to establish operationally efficient and reliable traffic
interchange arrangements. Such interchange arrangements must include those
between the new entrant's network and the facilities of other service providers
as well as public service agencies.
We have entered into an interconnection agreement with BellSouth which
became effective October 1, 1996, and covers nine states including: Alabama,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, and Tennessee. We are presently applying for interconnection with
PacBell and GTE in California. We have been granted CLEC status in California
and Mississippi. Since we have a class 4 switch in California, we need only to
have our tariffs approved and the interconnection agreements completed to
commence operating as a CLEC. In Mississippi we must upgrade our class 5 switch
to a class 4 switch and have our tariffs approved in order to commence operating
as a CLEC. During the first quarter of 2000, we intend to complete action to
operate as a CLEC in California, and during the second quarter we intend to
complete action to operate as a CLEC in Mississippi as well as other states in
which we contract to install MDU systems.
After the initial implementation activities are completed in a market, we
follow an on-going capacity management plan to ensure that adequate quantities
of network facilities, such as interconnection trunks are in place, and a
contingency plan must be devised to address spikes in demand caused by events
such as a larger-than-expected customer sale in a relatively small geographic
area.
REGULATION
Our telecommunications services business is subject to federal, state and
local regulation.
Federal Regulation
The FCC regulates interstate and international telecommunications services,
including the use of local telephone facilities to originate and terminate
interstate and international calls. We provide such services on a common carrier
basis. The FCC imposes certain regulations on common carriers such as the ILECs
that have some degree of market power. The FCC imposes less regulation on common
carriers without market power including, to date, CLECs like us. The FCC
requires common carriers to receive an authorization to construct and operate
telecommunications facilities, and to provide or resell telecommunications
services, between the United States and international points.
Under the Telecommunications Act, any entity, including cable television
companies and electric and gas utilities, may enter any telecommunications
market, subject to reasonable state regulation of safety, quality and consumer
protection. Because implementation of the Telecommunications Act is subject to
numerous federal and state policy rulemaking proceedings and judicial review
there is still uncertainty as to what impact such legislation will have on
Competitive Companies.
The Telecommunications Act is intended to increase competition. The act
opens the local services market by requiring ILECs to permit interconnection to
their networks and establishing ILEC obligations with respect to:
Reciprocal Compensation. Requires all local exchange carriers to
complete calls originated by competing local exchange carriers under reciprocal
arrangements at prices based on tariffs or negotiated prices.
Resale. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or conditions. In
addition, ILECs are required to offer wholesale versions of all retail services
to other telecommunications carriers for resale at discounted rates, based on
the costs avoided by the ILEC in the wholesale offering.
Interconnection. Requires all ILECs and CLECs to permit their
competitors to interconnect with their facilities. Requires all ILECs to permit
interconnection at any technically feasible point within their networks, on
nondiscriminatory terms, at prices based on cost, which may include a reasonable
profit. At the option of the carrier seeking interconnection, collocation of the
requesting carrier's equipment in the ILECs' premises must be offered, except
where an ILEC can demonstrate space limitations or other technical impediments
to collocation.
Unbundled Access. Requires all ILECs to provide nondiscriminatory
access to unbundled network elements including, network facilities, equipment,
features, functions, and capabilities, at any technically feasible point within
their networks, on nondiscriminatory terms, at prices based on cost, which may
include a reasonable profit.
Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.
Dialing Parity. Requires all ILECs and CLECs to provide "1+" equal
access to competing providers of telephone exchange service and toll service,
and to provide nondiscriminatory access to telephone numbers, operator services,
directory assistance, and directory listing, with no unreasonable dialing
delays.
Access to Rights-of-Way. Requires all ILECs and CLECs to permit
competing carriers access to poles, ducts, conduits and rights-of-way at
regulated prices.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where an
agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.
In August 1996, the FCC released a decision establishing rules implementing
the ILEC interconnection obligations described above. On July 18, 1997, the
Eighth Circuit vacated certain portions of this decision and narrowly
interpreted the FCC's power to prescribe and enforce rules implementing the
Telecommunications Act. On January 25, 1999, the United States Supreme Court
reversed the Eighth Circuit decision and reaffirmed the FCC's broad authority to
issue rules implementing the Telecommunications Act, although it did vacate a
rule determining which network elements the incumbent local exchange carriers
must provide to competitors on an unbundled basis. We, however, will only lease
the basic unbundled network elements from the ILEC and therefore we do not
expect reconsideration of the unbundling rules to have an adverse effect on our
limited build strategy.
Nevertheless, the FCC likely will conduct additional rulemaking proceedings
to conform to the Supreme Court's interpretation of the law, and these
proceedings may result in further judicial review. While these court proceedings
were pending, we entered into an interconnection agreement with BellSouth. This
agreement remain in effect, although in some cases one or both parties may be
entitled to demand renegotiation of particular provisions based on intervening
changes in the law. However, it is uncertain whether we will be able to obtain
renewal of these agreements on favorable terms when they expire.
The Telecommunications Act codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that replace prior
antitrust restrictions that prohibited the regional Bell operating companies
from providing long distance services and engaging in telecommunications
equipment manufacturing. The Telecommunications Act permitted the regional Bell
operating companies to enter the out-of-region long distance market immediately
upon its enactment. Further, provisions of the Telecommunications Act permit a
regional Bell operating company to enter the long distance market in its
in-region states if it satisfies several procedural and substantive
requirements, including:
- - obtaining FCC approval upon a showing that the regional Bell operating
company has entered into interconnection agreements or, under some
circumstances, has offered to enter into such agreements in those
states in which it seeks long distance relief;
- - the interconnection agreements satisfy a 14-point "checklist" of
competitive requirements; and
- - the FCC is satisfied that the regional Bell operating company's entry
into long distance markets is in the public interest.
To date, several petitions by regional Bell operating companies for such
entry have been denied by the FCC, and none have been granted. However, it is
likely that additional petitions will be filed in 2000 and it is possible that
regional Bell operating companies may receive approval to offer long distance
services in one or more states. This may have an unfavorable effect on our
business. We are legally able to offer our customers both long distance and
local exchange services, which the regional Bell operating companies currently
may not do. This ability to offer "one-stop shopping" gives us a marketing
advantage that we would no longer enjoy. See "Competition".
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new subsidies for telecommunications and information services
provided to qualifying schools and libraries with an annual cap of $2.25 billion
and for services provided to rural health care providers with an annual cap of
$400 million. The FCC also expanded the federal subsidies for local exchange
telephone services provided to low-income consumers. Providers of interstate
telecommunications service, such as Competitive Companies must pay for a portion
of these programs. Our share of these federal subsidy funds will be based on our
share of certain defined telecommunications end user revenues. Currently, the
FCC is assessing such payments on the basis of a provider's revenue for the
previous year. The FCC announced that effective July 1, 1999, it revised its
rules for subsidizing service provided to consumers in high cost areas, which
may result in further substantial increases in the overall cost of the subsidy
program. Several parties have appealed the May 8, 1999 order. Such appeals have
been consolidated and transferred to the United States Court of Appeals for the
Fifth Circuit where they are currently pending.
For the first half of 2000, we expect to incur a contribution liability
equal to approximately 1.5% of our 1999 CLEC operating revenues. With respect to
subsequent periods, however, we are currently unable to quantify the amount of
subsidy payments that we will be required to make or the effect that these
required payments will have on our financial condition.
Under authority granted by the FCC, we will resell the international
telecommunications services of other common carriers between the United States
and international points. In connection with such authority, our subsidiary,
Competitive Communications, Inc., has filed tariffs with the FCC stating the
rates, terms and conditions for its international services.
With respect to its domestic service offerings, Competitive Communications,
Inc. has filed tariffs with the FCC stating the rates, terms and conditions for
its interstate services. Our tariffs are generally not subject to pre-effective
review by the FCC, and can be amended on one day's notice. Our interstate
services are provided in competition with interexchange carriers and, with
respect to access services, the ILECs. With limited exceptions, the current
policy of the FCC for most interstate access services dictates that ILECs charge
all customers the same price for the same service. Thus, the ILECs generally
cannot lower prices to those customers likely to contract for their services
without also lowering charges for the same service to all customers in the same
geographic area, including those whose telecommunications requirements would not
justify the use of such lower prices. The FCC may, however, alleviate this
constraint on the ILECs and permit them to offer special rate packages to very
large customers, as it has done in a few cases, or permit other forms of rate
flexibility. The FCC has adopted some proposals that significantly lessen the
regulation of ILECs that are subject to competition in their service areas and
provide such ILECs with additional flexibility in pricing their interstate
switched and special access on a central office specific basis; and, as
discussed in the following paragraph, is considering expanding such flexibility.
In two orders released on December 24, 1996, and May 16, 1997, the FCC made
major changes in the interstate access charge structure. In the December 24th
order, the FCC removed restrictions on ILECs' ability to lower access prices and
relaxed the regulation of new switched access services in those markets where
there are other providers of access services. If this increased pricing
flexibility is not effectively monitored by federal regulators, it could have a
material adverse effect on our ability to compete in providing interstate access
services. The May 16th order substantially increased the costs that ILECs
subject to the FCC's price cap rules recover through monthly, non-traffic
sensitive access charges and substantially decreased the costs that these
carriers recover through traffic sensitive access charges. In the May 16th
order, the FCC also announced its plan to bring interstate access rate levels
more in line with cost. The plan will include rules that may grant these
carriers increased pricing flexibility upon demonstrations of increased
competition or potential competition in relevant markets. The manner in which
the FCC implements this approach to lowering access charge levels could have a
material effect on our ability to compete in providing interstate access
services. Several parties appealed the May 16th order. On August 19, 1998, the
May 16th order was affirmed by the Eighth Circuit U.S. Court of Appeals. The FCC
is now considering public comments on pricing flexibility proposals submitted by
two regional Bell operating companies and on changing the productivity factor
(currently 6.5%), which is applied annually to reduce ILECs' price cap indices.
ILECs around the country have been contesting whether the obligation to pay
reciprocal compensation to competitive local exchange carriers should apply to
local telephone calls from an ILEC's customers to Internet service providers
served by competitive local exchange carriers. The ILECs claim that this traffic
is interstate in nature and therefore should be exempt from compensation
arrangements applicable to local, intrastate calls. Competitive local exchange
carriers have contended that the interconnection agreements provide no exception
for local calls to Internet service providers and reciprocal compensation is
therefore applicable. Currently, over 25 state commissions and several federal
and state courts have ruled that reciprocal compensation arrangements do apply
to calls to Internet service providers, and no jurisdiction has ruled to the
contrary. Certain of these rulings are subject to appeal. Additional disputes
over the appropriate treatment of Internet service provider traffic are pending
in other states.
On February 26, 1999, the FCC released a Declaratory Ruling determining
that Internet service provider traffic is interstate for jurisdictional
purposes, but that its current rules neither require nor prohibit the payment of
reciprocal compensation for such calls. In the absence of a federal rule, the
FCC determined that state commissions have authority to interpret and enforce
the reciprocal compensation provisions of existing interconnection agreements,
and to determine the appropriate treatment of Internet service provider traffic
in arbitrating new agreements. The FCC also requested comment on alternative
federal rules to govern compensation for such calls in the future. In response
to the FCC ruling, some regional Bell operating companies have asked state
commissions to reopen previous decisions requiring the payment of reciprocal
compensation on Internet service provider calls. This is the case with
BellSouth. In 1999 we modified our agreement with BellSouth to eliminate the
payment of reciprocal compensation on Internet service provider calls.
We anticipates that Internet service providers will be among our target
customers, and adverse decisions in other state proceedings could limit our
ability to service this group of customers profitably. We will limit the switch
capacity used for Internet service provider lines to 20%. In addition, given the
uncertainty as to whether reciprocal compensation should be payable in
connection with calls to Internet service providers, we recognizes such revenue
only when realization of it is certain, which in most cases will be upon receipt
of cash.
State Regulation
The Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to their
networks and to provide unbundled access to network facilities, as well as a
number of other pro-competitive measures. Because the implementation of the
Telecommunications Act is subject to numerous state rulemaking proceedings on
these issues, it is currently difficult to predict how quickly full competition
for local services, including local dial tone, will be introduced.
State regulatory agencies have regulatory jurisdiction when our facilities
and services are used to provide intrastate services. A portion of our current
traffic may be classified as intrastate and therefore subject to state
regulation. We expect to offer more intrastate services, including intrastate
switched services, as our business and product lines expand and state
regulations are modified to allow increased local services competition. For
other than shared tenant services, in order to provide intrastate services, we
generally must obtain a certificate of public convenience and necessity from the
state regulatory agency and comply with state requirements for
telecommunications utilities, including state tariffing requirements.
State agencies, like the FCC, require us to file periodic reports, pay
various fees and assessments, and comply with rules governing quality of
service, consumer protection, and similar issues. Although the specific
requirements vary from state to state, they tend to be more detailed than the
FCC's regulation because of the strong public interest in the quality of basic
local exchange service. We intend to comply with all applicable state
regulations, and as a general matter do not expect that these requirements of
industry-wide applicability will have a material adverse effect on our business.
However, no assurance can be given that the imposition of new regulatory burdens
in a particular state will not affect the profitability of our services in that
state.
Local Regulation
Our networks are subject to numerous local regulations such as building
codes and licensing. Such regulations vary on a city by city and county by
county basis. If we decide in the future to install our own fiber optic
transmission facilities, we will need to obtain rights-of-way over private and
publicly owned land. There can be no assurance that such rights-of-way will be
available to us on economically reasonable or advantageous terms.
COMPETITION
The telecommunications industry is highly competitive. We believe that the
principal competitive factors affecting our business will be pricing levels and
clear pricing policies, customer service, accurate billing and, to a lesser
extent, variety of services. Our ability to compete effectively will depend upon
our continued ability to maintain high quality, market-driven services at prices
generally equal to or below those charged by our competitors. To maintain our
competitive posture, we believe that we must be in a position to reduce our
prices in order to meet reductions in rates, if any, by others. Any such
reductions could adversely affect Competitive Communications. Many of our
current and potential competitors have financial, personnel and other resources,
including brand name recognition, substantially greater than ours, as well as
other competitive advantages over us.
In each of the markets we target, we will compete principally with the ILEC
serving that area, such as PacBell, BellSouth, Southwestern Bell, or US WEST. We
believe the regional Bell operating companies' primary agenda is to be able to
offer long distance service in their service territories. The independent
telephone companies have already achieved this goal with good early returns.
Many experts expect the regional Bell operating companies to be successful in
entering the long distance market in a few states sometime in 2000. We believe
the regional Bell operating companies expect to offset share losses in their
local markets by capturing a significant percentage of the in-region long
distance market, especially in the residential segment where the regional Bell
operating companies' strong regional brand names and extensive advertising
campaigns may be very successful.
As a recent entrant in the integrated telecommunications services industry,
we have not achieved and do not expect to achieve a significant market share for
any of our services. In particular, the ILECs have long-standing relationships
with their customers, have financial, technical and marketing resources
substantially greater than ours, have the potential to subsidize competitive
services with revenues from a variety of businesses and currently benefit from
certain existing regulations that favor the ILECs over us in certain respects.
While recent regulatory initiatives, which allow CLECs such as our subsidiary,
Competitive Communications, to interconnect with ILEC facilities, provide
increased business opportunities for us, such interconnection opportunities have
been and likely will continue to be accompanied by increased pricing flexibility
for and relaxation of regulatory oversight of the ILECs.
ILECs have long-standing relationships with regulatory authorities at the
federal and state levels. While recent FCC administrative decisions and
initiatives provide increased business opportunities to telecommunications
providers such as Competitive Companies, they also provide the ILECs with
increased pricing flexibility for their private line and special access and
switched access services. In addition, with respect to competitive access
services as opposed to switched access services, the FCC recently proposed a
rule that would provide for increased ILEC pricing flexibility and deregulation
for such access services either automatically or after certain competitive
levels are reached. If the ILECs are allowed by regulators to offer discounts to
large customers through contract tariffs, engage in aggressive volume and term
discount pricing practices for their customers, and/or seek to charge
competitors excessive fees for interconnection to their networks, the income of
competitors to the ILECs, including Competitive Companies, could be materially
adversely affected. If future regulatory decisions afford the ILECs increased
access services pricing flexibility or other regulatory relief, such decisions
could also have a material adverse effect on competitors to the ILEC, including
Competitive Companies.
Competitive Access Carriers/Competitive Local Exchange
Carriers/Interexchange Carriers/ Other Market Entrants. We also face, and
expects to continue to face, competition from other current and potential market
entrants, including long distance carriers seeking to enter, reenter or expand
entry into the local exchange market such as AT&T, MCI WorldCom, and Sprint, and
from other CLECs, resellers of local exchange services, competitive access
providers, cable television companies, electric utilities, microwave carriers,
wireless telephone system operators and private networks built by large end
users. In addition, a continuing trend toward consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications industry, as well as the development of new technologies,
could give rise to significant new competitors to us. For example, WorldCom
acquired MFS Communications in December 1996, acquired another CLEC, Brooks
Fiber Properties, Inc. in 1997, and recently merged with MCI. AT&T recently
acquired Teleport Communications Group Inc., a CLEC, and TeleCommunications,
Inc., a cable, telecommunications and high-speed Internet services provider.
Ameritech Corporation agreed to merge with SBC Communications; and Bell Atlantic
agreed to merge with GTE Corporation. These types of consolidations and
strategic alliances could put Competitive Companies at a competitive
disadvantage.
The Telecommunications Act includes provisions which impose certain
regulatory requirements on all local exchange carriers, including competitors
such as Competitive Companies, while granting the FCC expanded authority to
reduce the level of regulation applicable to any or all telecommunications
carriers, including ILECs. The manner in which these provisions of the
Telecommunications Act are implemented and enforced could have a material
adverse effect on our ability to successfully compete against ILECs and other
telecommunications service providers.
The changes in the Telecommunications Act radically altered the market
opportunity for traditional competitive access providers and CLECs. Due to the
fact that most existing competitive access providers/ CLECs initially entered
the market providing dedicated access in the pre-1996 era, these companies had
to build a fiber infrastructure before offering services. Switches were added by
most competitive access providers/CLECs in the last two years to take advantage
of the opening of the local market. With the Telecommunications Act requiring
unbundling of the local exchange carrier networks, competitive access
providers/CLECs will now be able to more rapidly enter the market by installing
switches and leasing trunk and loop capacity until traffic volume justifies
building facilities. New CLECs will not have to replicate existing facilities
and can be more opportunistic in designing and implementing networks.
A number of CLECs have entered or announced their intention to enter into
one or more of the same markets as Competitive Companies. We believe that not
all CLECs however, are pursuing the same target customers as Competitive
Companies. Demographically, business customers are divided into three segments:
small, medium and large. Targeted cities are divided into three segments by
population: Tier 1, Tier 2 and Tier 3. As would be expected, each CLEC may focus
on different combinations of primary and secondary target customers.
We have chosen to focus primarily on MDUs in large "Tier 1" and medium
"Tier 2" markets. To help distinguish ourself from other competitors who have
adopted a similar strategy, Competitive Companies offer potential customers
"one-stop shopping" services through a single point of contact---either the
agent with whom they have worked in the past or one of our marketing staff. In
addition, We are actively pursuing MDU locations throughout all of our target
markets which, in combination with our limited build strategy, is expected to
allow us to access our markets and provide a greater array of services more
quickly than if we were able to use a traditional build approach.
We believe the major interexchange carriers, such as AT&T, MCI WorldCom and
Sprint, have a two pronged strategy:
- - keep the regional Bell operating companies out of in-region long
distance as long as possible, and
- - develop facilities-based and unbundled local service, an approach
already being pursued by MCI WorldCom with the acquisition of MFS Communications
Competition for Provision of Long Distance Services. The long distance
telecommunications industry has numerous entities competing for the same
customers and a high average turnover rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline. We expect
to increasingly face competition from companies offering long distance data and
voice services over the Internet. Such companies could enjoy a significant cost
advantage because they do not currently pay carrier access charges or universal
service fees.
Data/Internet Service Providers. The Internet services market is highly
competitive, and we expect that competition will continue to intensify. Our
competitors in this market will include other Internet service providers, other
telecommunications companies, online services providers and Internet software
providers. Many of these competitors have greater financial, technological and
marketing resources than those available to us.
Competition from International Telecommunications Providers. Under the
recent World Trade Organization agreement on basic telecommunications services,
the United States and 72 other members of the World Trade Organization committed
themselves to opening their respective telecommunications markets and/or foreign
ownership and/or to adopting regulatory measures to protect competitors against
anti-competitive behavior by dominant telecommunications companies, effective in
some cases as early as January 1998. Although we believe that this agreement
could provide Competitive Companies with significant opportunities to compete in
markets that were not previously accessible and to provide more reliable
services at lower costs than we could have provided prior to implementation of
this agreement, it could also provide similar opportunities to our competitors
and facilitate entry by foreign carriers into the U.S. market. There can be no
assurance that the pro-competitive effects of the World Trade Organization
agreement will not have a material adverse effect on our business, financial
condition and results of operations or that members of the World Trade
Organization will implement the terms of this agreement.
EMPLOYEES
As of September 30, 1999, we had 9 full-time and 5 part-time employees. We
believe that our future success will depend on our continued ability to attract
and retain highly skilled and qualified employees. None of our employees are
currently represented by a collective bargaining agreement. We believe that we
enjoys good relationships with our employees.
LEGAL PROCEEDINGS
We are not party to any other pending legal proceedings that we believe
would, individually or in the aggregate, have a material adverse effect on our
financial condition or results of operations.
FACILITIES
We are headquartered in Riverside, California, where we lease approximately
3,100 square feet of offices and warehouse space. We also lease minimal space
(from 100 to 200 square feet) for our telecommunications equipment at each of
the MDUs where we have systems installed.
We believe that our leased facilities are adequate to meet our current
needs. However, as we begin to deploy additional systems and build our networks,
we will need to increase our headquarters office space, add equipment rooms at
newly contracted MDUs, and contract for co-location of switching facilities at
ILECs. We anticipate such facilities are available to meet our development and
expansion needs in existing and projected target markets for the foreseeable
future.
<PAGE>
MANAGEMENT
Our directors, executive officers and certain other significant employees as of
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE SERVED SINCE
<S> <C> <C> <C>
David Kline 62 Chairman, C.E.O. & Dir. 1985
David Kline II 37 President, C.O.O. & Dir. 1985
Larry Halstead 55 Sec./Treas., C.F.O. & Dir. 1996
Michael Godfree 58 V.P., Business Development & Dir. 1997
Jerald Woods 51 V.P. & Director 1997
</TABLE>
Biographies
The following is a brief summary of the business experience of the foregoing:
David Kline is co-founder of the Company and has served as Chairman,
Chief Executive Officer and as a Director since inception. From 1985 to 1996, he
served as Chief Executive Officer of Western Telephone & Television, Riverside,
California. The company was the forerunner of Competitive Communications and
developed the concept of bundling telephone and cable television service for
multi-dwelling units. He has been active in the National Private
Telecommunications Association, serving as Secretary/Treasurer in 1995, and was
a member of the National Advisory Board for Private Cable from 1994 to 1996. In
1990, while working for Western Telephone & Television, he pioneered the concept
of residential telephone services with cable television on large MDUs,
installing the first of its kind in the country. From 1991 to 1993, he was
involved in the California State Wide Task Force for PS-ALI or E-911 service to
the residential re-sale industry. Telephone systems owned and operated by
Western Telephone & Television were the first to provide E-911 service in
California. From 1980 to 1984, he was president of Superior Communications, Inc.
("SCI"), *location, which was one of the first entrants to the interconnection
industry. SCI consulted and installed telephone systems for national companies
coast to coast as well as many local businesses, hospitals, and police
departments. He majored in Accounting at the University of Colorado.
David "DK" Kline II, is the other co-founder of the Company and has
served as President, Chief Operating Officer and Director since inception. From
1992 to 1996, he served as President of Western Telephone & Television,
Riverside, California. The company was the forerunner of Competitive
Communications, Inc., the Company's wholly owned subsidiary, and developed the
concept of bundling telephone and cable television service for multi-dwelling
units. He is a factory certified technician on all the telephone systems, voice
mail systems and cable headends the company uses. DK co-authored and programmed
the Company's proprietary billing system. He has engineered and managed the
installation of every residential telephone and cable system in the Company's
portfolio. He also coordinated the installation of the Tandem switch in the CLEC
co-location environment. DK is knowledgeable in the various interconnections and
services supplied by the ILECs. He negotiates for the Company the transport and
usage fees with both the LEC and the IXC. On system installations, he
coordinates the project with the contractors, property owners and the on-site
lease management.
DK has a Bachelor of Arts in Chemistry from California Lutheran University,
1984.
Larry Halstead has been Secretary/Treasurer, Chief Financial Officer
and Director of the Competitive Communications, Inc. since 1996 and of the
Company since 1998. From 1994 to 1996 he was Executive Consultant Sales and
Marketing for Integrated Cargo Management Systems, Inc., of San Antonio, Texas,
where he was responsible for designing, planning, developing, and marketing a
satellite and cellular based cargo tracking and monitoring system. His
background includes over 30 years in high technology based industries including
computers and telecommunications, strategic business planning and development,
sales and marketing, regulatory filing, logistics, and system build-out. From
1972 through 1994 he worked for I/O Computing, Long Beach, California, as Sales
and Data processing Manager; EECO, Inc. Hotel Systems Division, Santa Ana,
California, as Marketing Service Manager and Planning Manager; for Standard
Logic, Inc., Corona, California, as Marketing Vice President; Compu-Source, El
Toro, California, as Vice President Sales & Marketing and Partner; and The
Wellington Financial Group, San Antonio, Texas, as Regional Director. While at
EECO, Inc. and Standard Logic, Inc. he spearheaded the development of the first
system interface between a hotel "private" telephone switch and a point-of-sale
system with the hotel front desk computer system allowing for automated and
immediate posting of charges to the guest's folio. From 1966 to 1997, Mr.
Halstead held a number of command and other key positions in the U.S. Army and
the Army Reserve, achieving the rank of Colonel upon retirement in 1997. From
1988 to 1991, he was Deputy Chief of Staff for Logistics for a command covering
most of the Western United States. From 1994 to 1997, as the Army's Emergency
Preparedness Liaison Officer for Texas, he coordinated F.E.M.A. and state
emergency requirements with the Texas Adjutant General and the F.E.M.A. Regional
Director. Mr. Halstead received a Bachelor of Science in Biology from the
University of California, Irvine, 1977. He is also a graduate of Air War College
in 1987, and is certified as a Logistician by the U.S. Army.
Michael Godfree has been Vice President, Business Development and
Director of the Company since 1998. He has over fourteen years in the
telecommunications industry. Since 1995 Mr. Godfree has been president and a
major stockholder of APMSAFE.COM (American Privacy Management), a company that
develops and sells out of a patented algorithm, encryption products and public
key infrastructure solutions for privacy problems on the electronic highway.
From 1986 to 1995 he provided telecommunications consulting services to the
telecommunications industry through his company, TSC. While at TSC he provided
consultation in Federal Communications Commission filing and licensing
requirements, and in both wireless and wireline infrastructure development. In
1984 he founded, and from 1984 to 1986, he was president of American National
Cellular which was one of the initial private companies in the United States to
offer individuals equity ownership in cellular phone infrastructure. Mr. Godfree
was educated at Newbattle Abbey College, Dalkeith, Edinburgh, Scotland;
Occidental College, Los Angeles; and the University of Sussex, Brighton,
England, from which he holds a Bachelor of Arts Degree in Law.
Jerald Woods has been Vice President and Director of the Company
since 1998. From 1994 to the present he has also been an officer and director of
American Privacy Management, Inc., a company which has developed an encryption
technology for the Internet. From 1988 to 1994 he was chairman and director for
American Digital Communications, Inc. a public company which was involved in the
build out of 220 and 800 Mega Hertz systems. Mr. Woods has over fourteen years
of telecommunications experience, and has co-founded five public companies. From
1984 to 1989 he hosted and produced "Breakthroughs in Technology", an investment
program specializing in high technology companies, which aired for thirty
minutes, five-days per week on Financial News Network (FNN) prior to FNN being
acquired by CNBC.
Election of Directors
The Company's Bylaws provide that the Board of Directors shall consist of
five members until changed by amendment to the Articles of Incorporation or by
amendment to the applicable section of the Bylaws, adopted by the majority of
the voting power of the corporation.
Executive Compensation
The following table sets forth summary information concerning the
compensation received for services rendered to us during the years ended
December 31, 1998, 1997 and 1996, respectively by the Chief Executive Officer.
No other executive officers received aggregate compensation during our last
fiscal year which exceeded, or would exceed on an annualized basis, $100,000.
Other annual compensation consists of health and life insurance premiums and
automobile lease payments.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and All Other Annual
Principal Position Year Salary (1) Bonus Compensation
- ------------------------------------- --------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
David Kline 1998 $ 66,724 $ - $ 11,506
Chief Executive Officer 1997 $ 54,429 $ - $ 9,258
1996 TBPBA $ - $ -
</TABLE>
(1) Includes other personal items paid on behalf of Mr. Kline.
We have employment agreements with David Kline, David Kline II, and
Larry Halstead. The term is five (5) years commencing April 8, 1996, for Messrs.
Kline and Kline II, and August 31, 1997, for Mr. Halstead unless terminated
prior thereto, subject to automatic extend for an additional two (2) year term.
Mr. David Kline shall be paid $76,600 per year ("Base Salary") prorated from
date first written above until the the Company receives at least $1 million in
investment proceeds hereunder. Thereafter, Mr. Kline shall be paid $156,000 per
year ("Base Salary") prorated commencing on the receipt of at the foregoing
investment proceeds. Mr. David Kline II shall be paid $76,600 per year ("Base
Salary") prorated from date first written above until the Company receives at
least $1 million in investment proceeds hereunder. Thereafter, Mr. Kline II
shall be paid $130,000 per year as base salary prorated commencing on the
receipt of at the foregoing investment proceeds. Mr. Larry Halstead shall be
paid $68,000 per year ("Base Salary") prorated from the date the Company
receives at least $250,000 in investment proceeds hereunder until the Company
receives at least $1 million in investment proceeds. Thereafter, Mr. Halstead
shall be paid $115,000 per year as base salary prorated commencing on the
receipt of at the foregoing investment proceeds. In addition to the Base Salary,
each shall be entitled to a bonus in any fiscal year in which the PT-PC of the
Corporation is $1,000,000 or more. As used herein, PT-PC means earnings before
taxes and charitable contributions. The bonus for each shall be 33.3% share of
the PT-PC Executive Bonus Pool or ExBP. The ExBP shall be equal to 6% of the
PT-PC profit in any given fiscal year. The ExBP shall be paid at the same time
as the 6% PT-PC Non-Executive Bonus Pool, and within ten days after our
accountants have determined PT-PC and the determination has been accepted by the
board of directors.
In addition to the base salary, Messrs. Kline, Kline II, and Halstead
shall be entitled during the employment period to receive such additional
benefits as may be provided for them or to which they may become entitled
because his position, tenure, salary, age, health or other qualifications make
them eligible to participate. Additional benefits means (a) participation in
bonus and incentive compensation plans or pools, stock option, bonus, award or
purchase plans, retirement plans, and other benefit plans, if any; (b) life,
health, medical, dental, accident, and other personal insurance coverage
provided for employees or their dependents; (c) directors' and officers'
liability insurance coverage and charter or bylaw provisions or contracts
providing for indemnification of corporate personnel or elimination or
limitation of their liabilities as such; (d) automobile or compensation therefor
per guidelines approved by the Board of Directors, (e) use of our property and
facilities and other perquisites of employment with Company; (f) paid vacation,
leave or holidays; and (g) any and all other compensation, benefits and
perquisites of employment with us, if any, other than base salary.
We shall pay for all of Messrs. Kline, Kline II, and Halstead's
reasonable moving and personal expenses in connection with any Company required
relocations which occurs after Messrs. Kline, Kline II, and Halstead are hired.
The employment of Messrs. Kline, Kline II, and Halstead with the
Company shall terminate on the date of the occurrence of any of the following
events:
(a) Expiration of the Employment Period hereof;
(b) The death of Messrs. Kline, Kline II, or Halstead, respectively;
(c) Fifteen days after the date on which the Company shall have given
Messrs. Kline or Kline II or Halstead written notice of the termination
of Messrs. Kline or Kline II or Halstead's employment by reason of
permanent physical or mental incapacity that prevents Messrs. Kline or
Kline II or Halstead from performing the essential elements of their
respective position for a period of six consecutive months or more as
determined by a medical professional selected by the Company, in its
sole discretion, and by the Company acting in good faith;
(d) Upon five days' written notice to Messrs. Kline or Kline II or
Halstead for "cause", which shall include only the following:
intentional misconduct or gross negligence by Messrs. Kline or Kline II
or Halstead in the course of employment; the commission or perpetration
by Messrs. Kline or Kline II or Halstead of any fraud against the
Company or any other party in connection with his employment hereunder;
the commission by Messrs. Kline or Kline II or Halstead of such acts or
dishonesty, fraud or misrepresentation or other acts of moral turpitude
as would prevent the effective performance of his duties; knowingly
causing or permitting the Company to violate any law, which violation
shall have a material effect on the Company; or the failure to perform,
breach, or violation by Messrs. Kline or Kline II or Halstead of any of
Messrs. Kline or Kline II or Halstead's material obligations under the
Agreement which continues after fifteen days' written notice has been
given to Messrs. Kline or Kline II or Halstead by the Company
specifying the failure to perform, breach, or violation;
(e) Upon at least sixty days' advance written notice by Messrs. Kline
or Kline II or Halstead; or
(f) Upon at least sixty days' advance written notice by the Company
based solely on concurrence of a minimum of 4/5th of the Board of
Directors.
Upon any termination, (1) Messrs. Kline or Kline II or Halstead (or
Messrs. Kline or Kline II or Halstead's estate in the case of death) shall
immediately be paid all accrued Base Salary which would otherwise be due and
payable and accrued vacation pay, all to the date of termination, (2) benefits
accrued under our, Messrs. Kline or Kline II or Halstead's benefit plans, if
any, will be paid in accordance with such plans, and (3) bonuses shall be paid
at the end of the fiscal year if earned, with the amount prorated by the number
of days during the fiscal year Messrs. Kline or Kline II or Halstead was
employed.
In the event Messrs. Kline or Kline II or Halstead's employment under
the Agreement is terminated pursuant to Section (c) or (f) above: the Company
shall pay Messrs. Kline or Kline II or Halstead an amount equal the Messrs.
Kline or Kline II or Halstead's then base salary multiplied by twenty-four (24)
months and shall continue to provide Messrs. Kline or Kline II or Halstead's
medical insurance for a period of twenty four (24) months following such
termination.
Messrs. Kline or Kline II or Halstead have agreed that during the term
of Messrs. Kline or Kline II or Halstead's employment, Messrs. Kline or Kline II
or Halstead shall not engage, directly or indirectly, or be interested (as
director, officer, partner, consultant, principal, shareholder, or otherwise) in
any firm, corporation, or other entity in the business of developing, producing,
distributing, or selling any product competitive with our products of the
Company in any geographic area in which we engage in such business without our
express written consent.
Compensation of Directors
We have not agreed to pay our directors who are not officers or employees
any stated salary, but by resolution of the board a fixed sum and expense of
attendance, if any, may be allowed for attendance at each regular and special
meeting of the board or its committees. On the date of appointment to the board,
each board member or employee board member shall be granted an option to
purchase at the "fair market value" from the Company an aggregate of 5,000
shares of Class A Common Stock. The option shall vest and become exercisable at
the rate of 20% per year after the expiration of the first year following the
date on which the option is granted and shall be exercisable in full only after
the expiration of five (5) years following the date the option was granted.
Executive Bonus Plan
We adopted the ExBP Plan for Competitive Communications in April 1996. The
plan is intended to enable the Company to recruit, reward, retain and motivate
employees and to attract and retain outside directors, agents and consultants on
a basis competitive with industry practices. Under the plan, 6% of PCP for
executive officers and an additional 6% PCP for non-executive officers will be
paid as cash bonuses no less often than annually.
The ExBP Plan will be administered by the board of directors or the
compensation committee of the board of directors. The committee has sole
authority and discretion under the ExBP Plan to (i) designate eligible
participants and (ii) determine the conditions and limitations applicable to
such awards, if any. The awards may be granted singly or together with other
awards, or as replacement of, in combination with, or as alternatives to, grants
or rights under the ExBP Plan or other employee benefit plans. Awards under the
ExBP Plan may be issued based on past performance, as an incentive for future
efforts or contingent upon the future performance. No amounts have been awarded
under the Plan.
Convertible Preferred Stock
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998, the Company agreed to purchase Competitive Communications, Inc.
from Mr. David Kline II for 1,000,000 shares of the Company's Class A,
Convertible Preferred Stock. Mr. Kline owned a 100% equity interest in
Competitive Communications. Management believes that the quality and pricing of
these assets acquired were comparable to those available from unrelated vendors.
RELATED PARTY TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Related party transactions. No related party transactions occurred during
the last fiscal year or are planned to occur in the future.
We intend that all future transactions with officers, directors or
principal stockholders of Competitive Companies will be approved or ratified by
a majority of the board of directors, including a majority of the disinterested,
independent directors. We intend that such future transactions will be on terms
no less favorable to Competitive Companies than could be obtained from
unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of September 30, 1999 by:
o Each shareholder known by us to own beneficially more than 5% of the common
stock o Each executive officer o Each director and all directors and executive
officers as a group:
<TABLE>
<CAPTION>
------------------------------------------ ----------------------------- ---------------------- ---------------------
Name Number of Shares Percentage Percentage
before merger after merger
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Michael Godfree 275,000 5.7 5.7
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
Larry Halstead 325,000 6.8 6.8
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
David or Judy Kline 1,000,000 20.9 20.9
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
David Kline II 750,000 15.6 15.6
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
Richard Moore 260,500 5.4 5.4
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
Jerald Woods 213,600 4.5 4.5
------------------------------------------ ----------------------------- ---------------------- ---------------------
------------------------------------------ ----------------------------- ---------------------- ---------------------
All directors and named executive 2,563,600 53.48 53.48
officers as a group of 5 persons)
------------------------------------------ ----------------------------- ---------------------- ---------------------
</TABLE>
(1) This table is based upon information derived from our stock records.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, we believe that each of the
shareholders named in this table has sole or shared voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based upon 4,793,561 shares of Common Stock outstanding as of
December 21, 1999.
DESCRIPTION OF COMPETITIVE COMPANIES CAPITAL STOCK
Indemnification of officers and directors. The Company's Articles of
Incorporation state that directors of the corporation shall not be liable to
either the corporation or its stockholders for monetary damages for a breach of
fiduciary duties unless the breach involves: (1) a director's duty of loyalty to
the corporation or its stockholders; (2) acts of omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends as identified in NRS 78.300.
We have no plans to pay cash dividends.
No cumulative voting for directors is provided.
There are no anti-takeover provisions in the Company's incorporating documents
and bylaws.
<TABLE>
<CAPTION>
------------------------------------------------ ----------------------------------------------------
Shares Of Capital Stock Outstanding
Authorized Capital Stock As of December 15, 1999
------------------------------------------------ ----------------------------------------------------
------------------------------------------------ ----------------------------------------------------
<S> <C> <C>
46,000,000 common stock 4,793,561 shares of common stock
------------------------------------------------ ----------------------------------------------------
------------------------------------------------ ----------------------------------------------------
4,000,000 of preferred stock 4,000,000 shares of preferred stock
------------------------------------------------ ----------------------------------------------------
</TABLE>
Our present management and their affiliates collective own approximately 53.48%
of our issued and outstanding shares.
Certain shareholders have a right to acquire shares of stock at no additional
payment if the opening price of our public offering is less than $3.00 per
share.
Preferred Stock.
4,000,000 shares of Class A Convertible Preferred Stock is authorized and
outstanding. They were issued to the following:
<TABLE>
<CAPTION>
Name Number of Shares Date Issued Certificate Number
<S> <C> <C> <C>
David Kline II 1,000,000 April 7, 1998 P-001
David or Judy Klin e 2,000,000 December 9, 1999 P-002
David Kline II 750,000 December 9, 1999 P-003
Larry Halstead 250,000 December 9, 1999 P-004
----------
Total 4,000,000
</TABLE>
The terms of conversion are delineated in the following Certificate of
Rights and Preferences for Class A, Convertible, Preferred Stock:
Competitive Companies, Inc., a Nevada corporation, whose address is 3751 Merced
Drive, Suite A, Riverside, California 92503 ("CoCoInc") hereby designates the
following rights and preferences for its Class A, Convertible, Preferred Stock
("Preferred Stock").
Conversion Factor: 5 shares of Class A, Common Stock for each share of Preferred
Stock.
Future Events:
1. Achieving 100% increase in the combined number of Company owned MDUs
passings and non-MDU customers. (For passings count purposes a passing
is an individual apartment in a multi-dwelling unit (MDU) under
contract with the Company (not in a Company partnership) for telephone,
television or Internet service by the Company or its subsidiaries. The
Company has 1,814 Company MDUs as of the issuance date. For non-MDU
customer count purposes a non-MDU residential or business customer who
has multiple major services, i.e., telephone, Internet, television, is
counted once for each major service to which they subscribe. The
Company currently has 2 telephone business customers.) - 50%
2. Achieving 10,000 customers in the combined number of Company owned MDUs
passings and non-MDU customers. (See 1 above for definition of MDU
passing and non-MDU customer.) - 25%
3. Achieving 20,000 customers in the combined number of Company owned MDUs
passings and non-MDU customers. (See 1 above for definition of MDU
passing and non-MDU customer.) - 25%
Preferred Stock may be assigned by Holder at any time by providing CoCoInc
written notice of the assignment. Any assignment of Preferred Stock to another
person or entity (other than to an entity in which Holder or Holders of
Preferred Stock own and control in the aggregate at least 50% of the entity in
the same percentage they hold the Preferred Stock.) shall upon assignment be
converted to Class A, Common Stock at the Conversion Factor stated above. In the
conversion of Preferred Stock to Common Stock all rights under Preferred Stock
are forfeited.
Preferred Stock may be converted at any time, in whole or in part (up to the
percentage associated with the achievement of the above "Future Event"), for a
period commencing on the date such event was achieved and ending on December 31,
2010. On January 1, 2011, the remaining Preferred Stock (if any) will convert to
Class A, Common Treasury Stock of CoCoInc at the Conversion Factor stated above
and be issued to the Holder of record as of that date. The conversion of
Preferred Stock (other than 1/1/2011) shall be effected by a written notice
signed by Holder or an authorized representative of Holder. The notice must be
delivered to CoCoInc in person or by certified Mail and contain the statement
that the Preferred Stock Holder exercises the convertible feature of the stock.
The notice also must contain the name(s), the number of Class A, Common Shares,
the address, social security number, and signed Form W-9 for each person/entity
receiving the converted Class A, Common Stock.
Upon liquidation of CoCoInc, Preferred Stock has a preference over Common Stock
equal to plus $0.01 over the Common Stock's par value.
CoCoInc represents and warrants that it will keep an amount of Class A, Common
Treasury Stock (free from liens, claims, charges and encumbrances) that will
satisfy the needs of the total outstanding Preferred Stock conversion. The
amount of Treasury stock needed to satisfy the conversion of outstanding
Preferred Stock will account for any splits, stock dividends, recapitalization,
or similar events that effected the Common Stock and is due the Preferred Stock
at conversion. CoCoInc also agrees to indemnify and hold harmless the Preferred
Stock Holder in connection with any claim, loss, damage or expense, including
attorney and trial fees brought about by any breach of the foregoing.
The conversion rate described above is subject to proportional adjustment in the
event of a stock split, stock dividend or similar recapitalization event
effecting such shares. Holders of Preferred Stock Class A are not entitled to
any voting rights (except as may be required by law), preferential dividend
rights or redemption rights.
Options.
The Company currently has 5,295,000 outstanding non-statutory options to the
following:
<TABLE>
<CAPTION>
Name Number of Option Exercise Price Date Issued Number
<S> <C> <C> <C> <C>
David Bower 100,000 $0.001 March 25, 1998 98-E00005
Michael Godfree 375,000 $0.001 March 25, 1998 98-E00004
Larry Halstead 625,000 $0.001 March 25, 1998 98-E00002
James Healey 50,000 $1.00 October 1, 1999 99-N00001
Veronica Hernandez 5,000 $0.001 March 25, 1998 98-E00011
Vladimir Joncich 30,000 $0.001 March 25, 1998 98-E00007
Judy Kline 3,000,000 $0.001 March 25, 1998 98-E00001
David Loving 15,000 $0.001 March 25, 1998 98-E00008
Heidi Newson 5,000 $0.001 March 25, 1998 98-E00010
Russell Preston 200,000 $0.001 June 14, 1999 99-E00001
Russell Preston 300,000 $0.85 June 14, 1999 99-E00002
Thanh Vu 75,000 $0.001 March 25, 1998 98-E00006
Jerald Woods 500,000 $0.001 March 25, 1998 98-E00003
Linda Wright 15,000 $0.001 March 25, 1998 98-E00009
------
Total 5,295,000
</TABLE>
The general terms to exercise the options for all except James Healey are
the same. Exercise dates and amounts which can be exercised vary. No options may
be exercises until two (2) years after initial grant of the individual option.
Options are normally exercisable over a five year period as follows: at the end
of: (1) first year - 0%, (2) second year - 40%; and (3) third through fifth year
- - 20% each year. Mr. Healey is an independent agent for the sale of the
Company's products. The options granted require certain levels of performance
from him in order for him to exercise each level.
No warrants are outstanding.
Registration Rights. Certain shareholders have the right to require us to
register their shares for resale with the SEC. These shareholders include
shareholders who have purchased stock, invested money, or agreed to received and
have received payment in stock for debt.
Transfer agent and registrar
The transfer agent and registrar for our stock is Competitive Companies, Inc.
Attn: Larry Halstead, 3751 Merced Drive, Suite A, Riverside, California 92503.
Legal Proceedings.
We are not a party to or aware of any pending or threatened lawsuits or other
legal actions.
Director and Officer Indemnification
The Nevada General Corporation Law provides that corporations may
relieve Directors of monetary liability for breach of their fiduciary duty as
Directors, provided that such provision shall not eliminate or limit the
liability of a director for:
(i) any breach of the Director's duty of loyalty to the corporation or its
stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
(iii) unlawful payment of a dividend or unlawful stock purchase or
redemption, or
(iv) any transaction from which the director derived an improper
personal benefit.
The Company provides that its Directors are not liable to the Company
or its stockholders for monetary damages for breach of their fiduciary duty as
directors to the fullest extent permitted by Nevada law. The Company's Bylaws
provide that the Company may indemnify directors, officers, employees or agents
to the fullest extent permitted by law and we have agreed to provide such
indemnification to each of its Directors.
The above provisions and written indemnity agreements may have the
effect of reducing the likelihood of derivative litigation against Directors and
may discourage or deter stockholders or management from bringing a lawsuit
against Directors for breach of their fiduciary duty, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. However, the Company believes the foregoing provisions are
necessary to attract and retain qualified persons as Directors.
The Articles provide, if not amend that to the fullest extent permitted by
Nevada law directors and officers of the Company are not personally liable for
monetary damages to the Company for certain breaches of their fiduciary duty as
directors or officers. This provision would have no effect on the availability
of equitable remedies or non-monetary relief, such as an injunction or
rescission for breach of the duty of care. In addition, the provision applies
only to claims against a director or officer arising out of his role as a
director or officer and not in any other capacity. Further, liability of a
director or officer for violations of the federal securities laws are not
limited by this provision. Directors and officers, however, will no longer be
liable for monetary damages arising from decisions involving violations of the
duty of care which could be deemed grossly negligent.
STATUTORY BUSINESS COMBINATION PROVISION
We are subject to the provisions of Section 78.411 et seq. of the Nevada
General Corporation Law. The Business Combination Act provides, with certain
exceptions, that a Nevada corporation may not engage in any of a broad range of
business combinations with a person or affiliate, or associate of such person,
who is an `interested stockholder" for a period of three years from the date
that such person became an interested stockholder, unless the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested stockholder.
The Business Corporation Act further provides that a Nevada corporation may
not engage in such a business combination after the expiration of three years
from the date that such person became an interested stockholder, unless the
business combination is approved by the board of directors of the corporation
before the person became an interested stockholder or by the affirmative vote of
a majority of outstanding votes not beneficially owned by the interested
stockholder at a meeting called not earlier than three years after the
interested stockholder's date of acquiring shares.
Under the Business Combination Act, an "interested stockholder" is defined as
any person that is (i) the owner of 10% or more of the outstanding voting stock
of the corporation or (ii) an affiliate or associate of the corporation and was
the owner of 10% or more of the outstanding voting stock of the corporation at
any time within the three year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
At its option, a corporation may exclude itself from the coverage of the
Business Combination Act by amending its Articles by action of its stockholders,
other than interested stockholders and their affiliates and associates, to
exempt itself from coverage, provided that such charter amendment may not become
effective until 18 months after the date it is adopted and does not apply to any
combination of the corporation with an interested stockholder whose date of
acquiring shares is on or before the effective date of the amendment. We have
not adopted such an amendment to its Articles.
Dividend Policy
We have never paid cash dividends on our Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future
as it may retain future earnings to finance the growth of the business. The
payment of future cash dividends may depend on such factors as earnings levels,
anticipated capital requirements, the operating and financial condition of the
Company and other factors deemed relevant by the Board of Directors.
*In such merger, it is anticipated that the Class A Convertible Preferred
will be exchanged on a one-share for one-share basis with the same rights and
preferences. In addition, the Corporation will issue to all non-management
stockholders currently and acquiring shares in this offering One Share of Class
B Convertible Preferred Stock with each share of Common Stock, entitling
persons owning shares before * the following: the stock shall convert into such
number or fraction there of shares of Common Stock based upon the following: 1
- the fraction [Average of Opening Bid and Ask Price on the OTCBB/$3.00]
divided by {the fraction [Average of Opening Bid and Ask Price on the
OTCBB/$3.00]} . For example, assume average opening bid/ask of $2.00. 1 - 2/3 =
1/3. 1/3 divided by 2/3 = .5 additional share of Common Stock issued upon
conversion.
If the Company does not complete such merger, it will apply directly for
SEC registration, registering and thus making free trading all shares held by
non-Management shareholders, including Shareholders purchasing in this
Offering. The same Class B Preferred Stock would also be issued.
Transfer Agent And Registrar
The transfer agent and registrar for the Common Stock is the Company.
THIRD ENTERPRISE SERVICE GROUP'S BUSINESS
History and Organization
On January 4, 1999, in Release No. 34-40878, the SEC approved the NASD's
proposed amendment to its Rule 6530 to provide that any company that desired to
have its securities listed on the over the counter bulletin board must be
required to make filings pursuant to Section 13 or 15(d) of the 1934 Act and be
current in its reporting requirements before any application for listing would
be considered. Companies that meet this requirement are commonly called SEC
reporting or "public" companies.
The rule did not specify the manner in which a company could become a reporting
company. However, in an "Eligibility Q & A" release, the NASD stated that "in
order to be required to make filings pursuant to Section 13 or 15(d) of the Act,
an issuer must register its class of securities under the Securities Act of 1933
or the Securities Exchange Act of 1934.
There are three primary methods by which a company could comply with the rule:
o A traditional IPO-type offering in which securities of the company
and/or its non-affiliated stockholders are registered for sale or
resale under the 1933 Act.
o A form 10 filing for registering securities under the 1934 Act.
o Being acquired by an acquisition company in a transaction in which the
securities of the surviving company are registered under either Act in
a manner to comply with the rule.
Over the past few years, our president, who has been a practicing securities
attorney for almost 25 years, has discussed these three alternatives with a
large number of companies.
He found that most companies were not interested in a traditional IPO solution
because they perceived this method as less desirable due to potential:
o Time delays
o Significant expense
o Loss of voting control
o Compliance with various federal and state securities laws
He found that no company not already trading was interested in a form 10 filing.
The reason given in almost every case was that the company knew of many other
companies that had become trading using the third alternative, the acquisition
company, even before the new NASD rule was adopted. They wanted to become
trading in what they viewed as the traditional and well-accepted alternative to
an IPO transaction, the acquisition company method.
Management believes that there are numerous acquisition candidates seeking the
benefit of becoming a publicly traded corporation because of:
o General economic conditions
o Rapid technological advances being made in some industries
o Shortages of available capital
Such perceived benefits of being a publicly traded corporation may include:
o Facilitating or improving the terms on which additional equity financing may
be sought
o Providing liquidity for the principals of a business
o Creating a means for providing incentive stock options or similar benefit to
key employees
o Providing liquidity, subject to restrictions of applicable statutes, for all
shareholders
We feel that small businesses such as Competitive Companies are the bedrock of
our economy. We think the above objectives are very worthy. We feel it is
important that these small businesses have the opportunity to become reporting
companies in the manner in which they most desire.
A dilemma for management then presented itself: The process that non-reporting
acquisition candidates look upon the most favorably is the process looked upon
by regulatory agencies in the exact opposite manner. Indeed, companies such as
ours are called blank check companies, and now are highly regulated at the
federal and state level. A further dilemma was created by the fact that, based
upon the probable desire on the part of the owners of acquisition candidates to
assume voting control over the acquisition companies in order to avoid tax
consequences or to have complete authority to manage the business following the
closing of the acquisition, each acquisition company would combine with just one
acquisition candidate. Thus, the need for multiple acquisition companies in
order to implement management's business plan. But setting up multiple
acquisition companies increased the risk that we would be looked upon even less
favorably by regulatory authorities because our management would be involved in
multiple acquisition companies.
We firmly believe that one cannot simply conclude that a business has an
undesirable objective or purpose just because in the past many people used the
process for undesirable and even illegal purposes. Our challenge, then, was
prove that we have a valid, legal and honorable business purpose and to address
regulatory concerns while at the same time developing a successful business that
would provide a safe, honest way to assist small businesses to accomplish the
foregoing important objectives. With that in mind, we set out to devise a
self-imposed Code of Ethics under which we and any other acquisition company
managed by our management, now or in the future, is required to operate. This
Code of Ethics is set forth below.
Code of Ethics
The Code of Ethics contains the following provisions concerning stock matters:
o Unlike the traditional blank check company which seeks to raise funds
through an offering of securities registered under the 1933 Act and
thus becomes subject to the provisions of Rule 419 and Rule 15g-8, only
securities issued in a business combination will be registered under
the 1933 Act and no cash consideration will be paid by the persons
receiving these shares.
o Neither we nor any of the other acquisition companies will offer or
sell any other securities registered under the 1933 Act until after a
business combination is closed
o By written agreement, management and their affiliates will not resell
any of their securities except under Rule 144 and then not until:
o There is complete and accurate publicly available information
concerning the acquisition candidate and the acquisition
because we or the other entities have filed an appropriate
disclosure document including audited financial statements,
such as this registration statement, with the SEC.
o The business combination is closed, which in our case will not
occur until after the SEC declares this registration statement
effective.
o Consistent with our desire to satisfy any regulatory concerns and
assure full review and full disclosure of everything we are doing,
acquisition companies will only issue shares in a merger under a 1933
Act SEC registration statement rather than under exemptions from
registration which might be available. We do this in order that the
Proxy or Information Statement/Prospectus sent to shareholders of an
acquisition candidate be fully reviewed by the SEC staff and that such
Proxy or Information Statement/Prospectus be declared effective by the
SEC and sent to shareholders of the acquisition candidate before any
merger is closed. All of our transactions will be subject to full
review by the SEC.
The Code of Ethics contains the following operations and acquisition policies:
o Until an initial retainer from a client or acquisition candidate is
received, all operating expenses will be paid with money in the
companies' treasuries or provided as a non-repayable capital
contribution by management. This non-repayable capital contribution
will not be repaid by the acquisition companies or the acquisition
candidates.
o The companies may not borrow funds and use the proceeds from any
borrowings to make payments to any officer, director, promoter or
affiliate or associate.
o The companies will not enter into a business combination with any
company which is in any way wholly or partially beneficially owned by
management or their affiliates.
o No cash compensation will be paid management or its affiliates except
as mutually agreed by us and, if the company was formed for ourselves,
the acquisition candidate; or if the company was formed for or retained
by others, by our clients. It will be paid for services rendered or to
redeem management's stock, or both, as mutually agreed. It will be paid
only from funds, if the company was formed for ourselves, provided by
the acquisition candidate; or if the company was formed for or retained
by others, by our clients, not our stockholders - unless such
stockholders are affiliated with the acquisition candidate or the
entity which retained us. The amount will be as determined in arm's
length negotiations in the engagement or acquisition agreement.
o The only other pecuniary benefit to be received by management and their
affiliates is the retention of a to-be-agreed percent of stock by them
after the acquisition closes. These amounts will be determined through
arm's length negotiations in the same manner as cash compensation
described above.
o All cash or other pecuniary received by our management and its
affiliates and by our clients, if retained by others, will be fully
disclosed in any Proxy or Information Statement/Prospectus.
o There is no minimum or maximum amount of cash compensation which can be
paid or dollar-value amount of management's stock which can be
retained. All of this compensation will be separately negotiated in
each transaction.
o Management and their affiliates may have no involvement in and may
render no services to the surviving company after the acquisition is
closed unless specifically requested by the acquisition candidate. No
solicitation of such services will be made by management. No
acquisition candidate will in any way be required to retain management
or their affiliates as a condition of undertaking the transaction.
The Code of Ethics also contains the following provisions to deal with potential
conflicts of interest:
o Acquisition candidates, if the company was formed for our management
and not retained by others; or if the company is being formed for or
retained by others, our clients - not the acquisition companies or our
management or affiliates - will make an arm's-length decision as to by
which available acquisition company they wish to be acquired or retain
in order to become an SEC reporting company. Management will let
clients or acquisition candidates know of all potential acquisition
companies, and the clients or candidates will make their own
independent decision.
Strategy
We are in effect offering nothing more than to prepare and file an SEC
registration statement, a process with which our management has significant
knowledge and experience. We happen to be doing it in an S-4 rather than an S-1,
SB-2 or Form 10 format. The mere choice of this transaction structure, the one
we believe is most desired by acquisition candidates, does not mean that we are
attempting to engage in any type of conduct which led the SEC to impose
stringent regulations on blank check companies. Indeed, we are not. And to avoid
any hint of impropriety, we adopted and will abide by our own self-imposed Code
of Ethics, something we believe no other similar acquisition companies are
currently doing.
We are not trying to raise money from investors only to take all their money and
close no acquisition. We are not attempting to obtain or pay to ourselves or
others fees or other compensation with which the acquisition candidate is not in
full agreement and which is not fully disclosed to all stockholders of the
acquisition candidate. We are not attempting to close a merger in which an
acquisition candidate has treated its shareholders in any manner other than in
strict compliance with state law after making to them the full disclosure which
is contained in this Information Statement/Prospectus. Thus, we have
intentionally chosen to voluntarily subject all our transactions to the full SEC
review accorded all initial 1933 Act filings before any merger closes.
We are not attempting to place ourselves in a position where we or our
affiliates can somehow manipulate a pre or post merger trading market to dump
our shares at a profit and leave the acquisition candidate and its shareholders
in the lurch. Thus, we have voluntarily chosen not to register our shares for
resale, which could be accomplished relatively easily by filing a companion S-1
registration statement, and will report to the SEC on form 144 all transactions
in our shares for a period of two years from issuance.
What we are doing is simply responding to changes in the marketplace. The SEC
and NASD require a company to become a reporting company prior to being listed
on the bulletin board. Many companies today want to obtain this listing. There
are many ways to become a reporting company. We chose to offer the one we felt
acquisition candidates would find most desirable and to do so in a manner which
would satisfy all regulatory concerns.
Employees
We presently have no employees.
Year 2000 Issues
Because we currently have no operations, we do not anticipate incurring
significant expense with regard to Year 2000 issues.
Selected Financial Data
The following information concerning our financial position and operations is as
of and for the period ended September 30, 1999.
Total assets $ 0
Total liabilities 0
Equity 0
Sales 0
Net loss 88
Net loss per share 0.00
Management Discussion And Analysis Or Plan Of Operation
We are a development stage entity, and have neither engaged in any
operations nor generated any revenues to date. We have no assets. our expenses
to date, all funded by a contribution from management, are $88.
Substantially all of our expenses that must be funded by management will
be from our efforts to identify a suitable acquisition candidate and close the
acquisition. Management has orally agreed to fund our cash requirements until
an acquisition is closed. So long as management does so, we will have
sufficient funds to satisfy our cash requirements. This is primarily because we
anticipate incurring no significant expenditures. Before the conclusion of an
acquisition, we anticipate our expenses to be limited to accounting fees, legal
fees, telephone, mailing, filing fees, occupational license fees, and transfer
agent fees.
We do not intend to seek additional financing. At this time we believe that
the funds to be provided by management will be sufficient for funding our
operations until we find an acquisition and therefore do not expect to issue any
additional securities before the closing of a business combination.
We expect no Year 2000 problems, as our business is not dependent upon any
computer. However, the business we acquire could experience interruptions in its
business and significant losses if it or its customers or vendors rely on
computer information systems that are unable to accurately process dates
beginning on January 1, 2000.
Properties.
We are presently using the office of Michael T. Williams, 2503 W. Gardner
Ct., Tampa FL, at no cost as our office. Such arrangement is expected to
continue only until a business combination is closed, although there is
currently no such agreement between us and Mr. Williams. We at present own no
equipment, and do not intend to own any.
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information about our current shareholder. The
person named below has sole voting and investment power with respect to the
shares. The numbers in the table reflect shares of common stock held as of the
date of this proxy/Preliminary Prospectus:
Shares Owned Percentage
Michael T. Williams(1) 1,000,000 100%
2503 W. Gardner Ct.
Tampa FL 33611
All directors and officers 1,000,000 100%
as a group -
1 persons
(1) Owned as Tenants by the Entireties by Michael Williams and Donna Williams,
his wife.
Mr. Williams may be deemed our promoter, as that term is defined under the
securities act of 1933.
Directors and Executive Officers.
The following table and subsequent discussion sets forth information about our
director and executive officer, who will resign upon the closing of the
acquisition transaction. Our director and executive officer was elected to his
position in April, 1999.
Directors and Executive Officers.
The following table and subsequent discussion sets forth information about our
director and executive officer, who will resign upon the closing of the
acquisition transaction. Our director and executive officer was elected to his
position in April, 1999.
Name Age Title
Michael T. Williams 51 President, Treasurer and Director
Michael T. Williams responsibilities will include management of our
operations as well as our administrative and financial activities. Since 1975
Mr. Williams has been in the practice of law, initially with the U.S.
Securities and Exchange Commission until 1980, and since then in private
practice. He was also chief executive officer of Florida Community Cancer
Centers, Dunedin, FL from 1991-1995. Mr. Williams has President of Williams
Financial Consulting Group, Inc. since its inception in 1998. In that capacity,
he has formed in the past and intends to continue to form in the future for
himself and for others numerous acquisition companies similar to ours. All of
these companies with which he is or will be a member of management will operate
under the Code of Ethics set forth above. He received a BA from the University
of Kansas and a JD from the University of Pennsylvania.
Executive Compensation.
Mr. Williams will receive no cash compensation
Certain Relationships and Related Transactions.
Mr. Williams will sell all his stock except 125,000 shares back to us for
the aggregate sum of $1.00 upon closing of the merger.
Legal Proceedings.
We are not a party to or aware of any pending or threatened lawsuits or other
legal actions.
Indemnification of Directors and Officers.
Our director is bound by the general standards for directors provisions in
Florida law. These provisions allow him in making decisions to consider any
factors as he deems relevant, including our long-term prospects and interests
and the social, economic, legal or other effects of any proposed action on the
employees, suppliers or our customers, the community in which the we operate
and the economy. Florida law limits our director's liability.
We have agreed to indemnify our director, meaning that we will pay for
damages they incur for properly acting as director. The SEC believes that this
indemnification may not be given for violations of the securities act of 1933.
Insofar as indemnification for liabilities arising under the securities act
may be permitted to directors, officers or persons controlling the registrant
under the foregoing provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against the public policy and is therefore, unenforceable.
Provisions With Possible Anti-Takeover Effects
Section 607.0902 of Florida law restricts the voting rights of certain
shares of a corporation's stock when those shares are acquired by a party who,
by such acquisition, would control at least one-fifth of all voting rights of
the corporation's issued and outstanding stock. The statute provides that the
acquired shares, the control shares, will, upon such acquisition, cease to have
any voting rights. The acquiring party may, however, petition the corporation to
have voting rights re-assigned to the control shares by way of an acquiring
person's statement submitted to the corporation in compliance with the
requirements of the statute. Upon receipt of such request, the corporation must
submit, for shareholder approval, the acquiring person's request to have voting
rights re-assigned to the control shares. Voting rights may be reassigned to the
control shares by a resolution of a majority of the corporation's shareholders
for each class and series of stock. If such a resolution is approved, and the
voting rights re-assigned to the control shares represent a majority of all
voting rights of the corporation's outstanding voting stock, then, unless the
corporation's articles of incorporation or Bylaws provide otherwise, all
shareholders of the corporation will be able to exercise dissenter's rights in
accordance with Florida law.
A corporation may, by amendment to its articles of incorporation or
bylaws, provide that, if the party acquiring the control shares does not submit
an acquiring person's statement in accordance with the statute, the corporation
may redeem the control shares at any time during the period ending 60 days after
the acquisition of control shares. If the acquiring party files an acquiring
person's statement, the control shares are not subject to redemption by the
corporation unless the shareholders, acting on the acquiring party's request,
deny full voting rights to the control shares.
The statute does not alter the voting rights of any stock of the
corporation acquired in any of the following manners:, i, under the laws of
intestate succession or under a gift or testamentary transfer;, ii, under the
satisfaction of a pledge or other security interest created in good faith and
not for the purpose of circumventing the statute;, iii, under either a share
exchange or share exchange if the corporation is a party to the agreement or
plan of exchange or share exchange;, iv, under any savings, employee stock
ownership or other benefit plan of the corporation or, v, under an acquisition
of shares specifically approved by the board of directors of the corporation.
Nevada's Acquisition of Controlling Interest statute applies only to
Nevada corporations with at least 200 stockholders, including at least 100
stockholders of record who are Nevada residents, and which conduct business
directly or indirectly in Nevada. As of the date of this Prospectus, the Issuer
does not have 100 stockholders of record who are residents of Nevada, although
there can be no assurance that in the future the Acquisition of Controlling
Interest statute will not apply to the us.
The Acquisition of Controlling Interest statute prohibits an acquirer,
under certain circumstances, from voting its shares of a target corporation's
stock after crossing certain ownership threshold percentages, unless the
acquirer obtains approval of the target corporation's disinterested
stockholders. The statute specifies three thresholds: one-fifth or more by less
than one-third, one-third but less than a majority, and a majority or more, of
the outstanding voting power. Once an acquirer crosses one of the above
thresholds, those shares in an offer or acquisition and acquired within 90 days
thereof become control shares and such control shares are deprived of the right
to vote until disinterested stockholders restore the right. The Acquisition of
Controlling Interest statute also provides that in the event control shares are
accorded full voting rights and the acquiring person has acquired a majority or
more of all voting power, all other stockholders who do not vote in favor of
authorizing voting rights to the control shares are entitled to demand payment
for the fair value of their shares in accordance with statutory procedures
established for dissenters' rights.
DESCRIPTION OF THIRD ENTERPRISE SERVICE GROUP'S CAPITAL STOCK
Common Stock
As of September 30, 1999, there were 1,000,000 shares of common stock
outstanding held of record by one stockholder. There will be 125,000 shares of
common stock outstanding after giving effect to the issuance of the shares of
common stock to the public under this prospectus.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
There are no shares of preferred stock outstanding. issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including voting rights of the holders of common
stock. In certain circumstances, an issuance of preferred stock could have the
effect of decreasing the market price of the common stock. As of the closing of
the merger, we currently have no plans to issue any additional shares of
preferred stock.
Dividends
We have never paid any dividends and do not expect to do so after the closing of
the merger and thereafter for the foreseeable future.
Transfer Agent and Registrar
We are the transfer agent and registrar for our common stock.
COMPARISON OF RIGHTS OF THIRD ENTERPRISE SERVICE GROUP STOCKHOLDERS AND
COMPETITIVE COMPANIES SHAREHOLDERS
Because Third Enterprise Service Group will change its state of incorporation,
articles or articles and bylaws to be the same as those of Competitive
Companies, the rights of shareholders of Competitive Companies will not change
as a result of the merger.
AVAILABLE INFORMATION
Competitive Companies is not and, until the effectiveness of the registration
statement (as defined below), Third Enterprise Service Group was not, subject to
the reporting requirements of the Exchange Act and the rules and regulations
promulgated thereunder, and, therefore, do not file reports, proxy statements or
other information with the Commission. Under the rules and regulations of the
Commission, the solicitation of proxies from the shareholders of Competitive
Companies to approve the merger constitutes an offering of Third Enterprise
Service Group common stock to be issued in connection with the merger.
Accordingly, Third Enterprise Service Group has filed with the Commission a
registration statement on Form S-4 under the Securities Act, with respect to
such offering from time to time, the registration statement. This proxy
statement/prospectus constitutes the prospectus of Third Enterprise Service
Group that is filed as part of the Registration Statement in accordance with the
rules and regulations of the Commission. Copies of the registration statement,
including the exhibits to the Registration Statement and other material that is
not included herein, may be inspected, without charge, at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, and may be available at the following Regional Offices of
the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048.
Copies of such materials may be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
EXPERTS
*TBPBA
LEGAL MATTERS
The validity of the shares of Third Enterprise Service Group common stock
being offered by this information statement/prospectus and certain federal
income tax matters related to the exchange are being passed upon for Third
Enterprise Service Group by Williams Law Group, P.A., Tampa, FL. Mr. Williams is
the sole officer and director of and will own 125,000 post-merger of the stock
of Third Enterprise Service Group.
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware
Under Section 145 of the Delaware General Corporation Law, the
Registrant has broad powers to indemnify its Directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act.
Under Section 145 of the Delaware Law, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are or are threatened to be made a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability (i) for breach of the
Directors' duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit. The provisions also does not affect a Directors'
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
Florida
Florida Business Corporation Act. Section 607.0850(1) of the Florida Business
Corporation Act (the "FBCA") provides that a Florida corporation, such as the
Company, shall have the power to indemnify any person who was or is a party to
any proceeding (other than an action by, or in the right of, the corporation),
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including any
appeal thereof, if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall
have the power to indemnify any person, who was or is a party to any proceeding
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
Articles and Bylaws. The Company's Articles of Incorporation and the
Company's Bylaws provide that the Company shall, to the fullest extent permitted
by law, indemnify all directors of the Company, as well as any officers or
employees of the Company to whom the Company has agreed to grant
indemnification.
Nevada
Section 78.037 of the Nevada General Corporation Law, currently provides that
any such provision may not eliminate or limit the liability of a director or
officer for (a) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law; or (b) the payment of dividends in violation of the
Nevada General Corporation Law.
As permitted by Section 78.751 of the Nevada General Corporation Law,
Article VIII of the Company's Bylaws provides for the indemnification by the
Company, including suits brought by or on behalf of the Company, of each
director, officer, employee or agent thereof to the fullest extent permitted by
Nevada law.
At present, there is no pending litigation or proceeding involving a
Director, officer or key employee of the Registrant as to which indemnification
is being sought nor is the Registrant aware of any threatened litigation that
may result in claims for indemnification by any officer or Director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item # Description
- ------------- ----- ------------------------------------------------------------
2.1 * Plan of Merger COCO & MTW entity
3.1a Articles of MTW entity
3.11a By-laws of MTW entity
3.1b * Amended Articles
3.11b * Amended By-laws
4.1 Rights and preferences of Preferred Stock
5.1 Legal Opinion - MTW
8.1 * Tax Opinion - MTW
10.01 * Partnership Agreement - D Greens
10.02 * Partnership Agreement - A Gardens
10.03 * Partnership Agreement - C.Hills
10.04 * Partnership Agreement - Rollingwood
10.05 * Partnership Agreement - Trussville
10.06 * Acquisition agreement - GST
10.07 Employment Agreement - L. Halstead
10.08 Employment Agreement - Senior
10.09 Employment Agreement - DK
10.10 * Agreement with LCI Quest
10.11 * Agreement with Inet
10.12 Sample Option Agreement - employees
10.13 Sample Option Agreement - consultants
10.14a Sample Subscription Agreement - Common Stock
10.15 * Lease Agreement - Office
10.16 * CLEC License approval Letter - MS
10.17 * CLEC License approval Letter - CA
10.18 * Convertible Note - T. Baba & addendum
10.19 * Sample Convertible Note - Others (just one) & addendum
10.20 Sample Note Conversion Addendum
10.21 Master Option Agreement
23.1 * Consent of Accountants - KCH
23.2 * Consent of Accountants - KCH
23.3 Consent of Counsel (See exhibit 5 above)
- - ---------------
*To be filed by amendment.
ITEM 22. UNDERTAKINGS
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 foregoing provisions, 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 the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or 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:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 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 subsequent to the effective date of the
Registration Statement through the date of responding to the request;
(2) 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 the registration statement when it became
effective;
(3) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Tampa, Florida, on December 29, 1999.
Third Enterprise Service Group, INC.
By: /s/ MICHAEL T. WILLIAMS.
------------------------------------
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Michael T. Williams President and Treasurer 12/29/1999
<PAGE>
Third Enterprise Service Group, Inc.
(A Development Stage Enterprise)
TABLE OF CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Financial Statements as of and for the period
April 6, 1999 (date of incorporation) to September 30, 1999:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
[Letterhead of Kingery Crouse & Hohl P.A.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Third Enterprise Service Group, Inc.:
We have audited the accompanying balance sheet of Third Enterprise Service
Group, Inc. (the "Company"), a development stage enterprise, as of September 30,
1999, and the related statements of operations, stockholders' equity and cash
flows for the period April 6, 1999 (date of incorporation) to September 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the significant estimates
made by management, as well as the overall financial statement presentation. We
believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1999, and the results of its operations and its cash flows for the period April
6, 1999 (date of incorporation) to September 30, 1999 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 Notes A and B to the
financial statements, the Company is in the development stage and will require a
significant amount of capital to commence its planned principal operations and
proceed with its business plan. As of the date of these financial statements, an
insignificant amount of capital has been raised, and as such there is no
assurance that the Company will be successful in its efforts to raise the
necessary capital to commence its planned principal operations and/or implement
its business plan. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Kingery Crouse & Hohl P.A.
December 28, 1999
Tampa, FL.
F-2
<PAGE>
Third Enterprise Service Group, Inc.
(A Development Stage Enterprise)
BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<S> <C>
TOTAL ASSETS $ 0
=== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY:
Preferred stock - no par value - 20,000,000
shares authorized; 0 shares issued and outstanding $ 0
Common stock - no par value - 50,000,000 shares
authorized; 1,000,000 shares issued and outstanding 88
Deficit accumulated during the development stage (88)
--- -----------
Total stockholders' equity 0
--- -----------
TOTAL $ 0
=== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
Third Enterprise Service Group, Inc.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
For the period April 6, 1999 (date of incorporation)
to September 30, 1999
<TABLE>
<S> <C>
EXPENSES -
Organizational costs $ 88
-- ----------------
NET LOSS $ 88
== ================
NET LOSS PER SHARE:
Basic $ 0
== ================
Weighted average number of shares - basic 1,000,000
== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
Third Enterprise Service Group, Inc.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS'EQUITY
For the period April 6, 1999 (date of incorporation)
to September 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Preferred Development
Shares Value Shares Value Stage Total
------------- ----------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, April 6, 1999 (date of 0 $ 0 0 $ 0 $ 0 $ 0
incorporation)
Proceeds from the issuance
of common stock 1,000,000 88 88
Net loss for the period,
April 6, 1999
(date of incorporation)
to September 30, 1999 (88) (88)
------------- -------------- ------------ ---------- ------------ ------------
Balances September 30, 1999 1,000,000 $ 88 0 $ 0 $ (88) 0
============= ============== ============ ========== ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
Third Enterprise Service Group, Inc.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
For the period April 6, 1999 (date of incorporation)
to September 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (88)
-- -----------
NET CASH USED IN OPERATING ACTIVITIES (88)
-- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 88
-- -----------
NET CASH PROVIDED BY FINANCIANG ACTIVITIES 88
-- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
-- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0
== ===========
Interest paid $ 0
== ===========
Taxes paid $ 0
== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
Third Enterprise Service Group, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
Third Enterprise Service Group, Inc. (the "Company") was incorporated under the
laws of the state of Florida on April 6, 1999. The Company, which is considered
to be in the development stage as defined in Financial Accounting Standards
Board Statement No. 7, intends to investigate and, if such investigation
warrants, engage in business combinations. The planned principal operations of
the Company have not commenced, therefore accounting policies and procedures
have not yet been established.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company will require a
significant amount of capital to commence its planned principal operations and
proceed with its business plan. Accordingly, the Company's ability to continue
as a going concern is dependent upon its ability to secure an adequate amount of
capital to finance its planned principal operations and/or implement its
business plan. The Company's plans include a merger and a subsequent public
offering of its common stock, however there is no assurance that they will be
successful in their efforts to raise capital. This factor, among others, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.
F-7
<PAGE>
NOTE C - INCOME TAXES
During the period April 6, 1999 (date of incorporation) to September 30, 1999,
the Company recognized losses for both financial and tax reporting purposes.
Accordingly, no deferred taxes have been provided for in the accompanying
statement of operations.
NOTE D - RELATED PARTY TRANSACTIONS
During the period April 6, 1999 (date of incorporation) to September 30, 1999,
the Company's president provided start-up services and a portion of his home for
office space for no consideration. The value of such services and office space
provided are not considered significant and as such no expenses have been
recorded.
NOTE E - COMMITMENTS
The company agreed that Michael T. Williams shall retain 125,000 shares of the
Company's common stock for all services rendered through the closing of an
acquisition or merger.
F-8
<TABLE>
<CAPTION>
- ----------- ------------------------------------------------------------------- -------------
Item # Description Page #
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
<S> <C> <C>
2.1 Plan of Merger COCO & MTW entity TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
3.1a Articles of MTW entity
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
3.11a By-laws of MTW entity
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
3.1b Amended Articles TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
3.11b Amended By-laws TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
4.1 Rights and preferences of Preferred Stock
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
5.1 Legal Opinion - MTW
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
8.1 Tax Opinion - MTW TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.01 Partnership Agreement - D Greens TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.02 Partnership Agreement - A Gardens TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.03 Partnership Agreement - C.Hills TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.04 Partnership Agreement - Rollingwood TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.05 Partnership Agreement - Trussville TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.06 Acquisition agreement - GST TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.07 Employment Agreement - L. Halstead
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.08 Employment Agreement - Senior
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.09 Employment Agreement - DK
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.10 Agreement with LCI Quest TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.11 Agreement with Inet TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.12 Sample Option Agreement - employees
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.13 Sample Option Agreement - consultants
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.14 Sample Subscription Agreement - Common Stock
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.15 Lease Agreement - Office TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.16 CLEC License approval Letter - MS TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.17 CLEC License approval Letter - CA TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.18 Convertible Note - T. Baba & addendum TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.19 Sample Convertible Note - Others (just one) & addendum TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.20 Sample Note Conversion Addendum
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
10.21 Master Option Agreement
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
23.1 Consent of Accountants - KCH TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
23.2 Consent of Accountants - KCH TBPBA
- ----------- ------------------------------------------------------------------- -------------
- ----------- ------------------------------------------------------------------- -------------
23.3 Consent of Counsel Included in 5
- ----------- ------------------------------------------------------------------- -------------
</TABLE>
<PAGE>
Exhibit # 2.1
Plan of Merger COCO & MTW entity
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 3.1a
Articles of MTW entity
<PAGE>
ARTICLES OF INCORPORATION
OF
Third Enterprise Service Group, Inc.
ARTICLE I - NAME AND MAILING ADDRESS
The name of this corporation is Third Enterprise Service Group, Inc. and
the mailing address of this corporation is 2503 W. Gardner Ct. Tampa Fl 33611.
ARTICLE II - DURATION
This corporation shall have perpetual existence.
ARTICLE III - PURPOSE
This corporation is organized to include the transaction of any or all
lawful business for which corporations may be incorporated under Chapter 607,
Florida Statutes (1975) as presently enacted and as it may be amended from time
to time.
ARTICLE IV - CAPITAL STOCK
This corporation is authorized to issue 50,000,000 shares of no par
value common stock, which shall be designated as "Common Shares" and Twenty
Million shares of no par value preferred stock, which shall be designated as
"Preferred Shares."
The Preferred Shares may be issued in such series and with such rights,
privileges, and preferences as determined solely by the Board of Directors.
ARTICLE V - INITIAL REGISTERED OFFICE AND AGENT The
street address of the initial registered office of this corporation
is 2503 W. Gardner Ct. Tampa Fl 33611, and the name of the initial registered
agent of this corporation at that address is Michael T.
Williams.
<PAGE>
-3-
ARTICLE VI - INITIAL BOARD OF DIRECTORS
This corporation shall have One director(s) initially. The number of
directors may be either increased or decreased from time to time by the Bylaws,
but shall never be less than one (1). The name(s) and address(es) of the initial
director(s) of this corporation are:
NAME ADDRESS
Michael T. Williams 2503 W. Gardner Ct. Tampa Fl 33611
ARTICLE VII - INCORPORATOR(S)
The name and address of the person(s) signing these Articles of
Incorporation is (are):
NAME ADDRESS
Michael T. Williams 2503 W. Gardner Ct. Tampa Fl 33611
ARTICLE VIII - INDEMNIFICATION
The corporation shall indemnify any officer or director, or any former
officer or director, to the full extent permitted by law.
ARTICLE IX - AMENDMENT
This corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation, or any amendment thereto, and any
right conferred upon the shareholders is subject to this reservation.
ARTICLE X - AFFILIATED TRANSACTIONS AND CONTROL
SHARE ACQUISITIONS The Corporation expressly elects not to be governed
by Sections 607.0901 and 607.0902 of the Florida
Enterprise Corporations Act, relating to affiliated transactions and control
share acquisitions, respectively.
IN WITNESS WHEREOF, the undersigned incorporator(s) has (have) executed
these Articles of Incorporation this April 4, 1999.
-------------------------------
Michael T. Williams
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND STREET ADDRESS FOR SERVICE OF PROCESS
WITHIN FLORIDA
Pursuant to Florida Statutes Section 48.091, Third Enterprise Service
Group, desiring to organize under the laws of the State of Florida, hereby
designates Michael T. Williams, located at 2503 W. Gardner Ct. Tampa Fl 33611 as
its registered agent to accept service of process within the State of Florida.
ACCEPTANCE OF DESIGNATION
The undersigned hereby accepts the above designation as registered
agent to accept service of process for the above-named corporation, at the place
designated above, and agrees to comply with the provisions of Florida Statutes
Section 48.091(2) relative to maintaining an office for the service of process.
-------------------------------
Michael T. Williams
<PAGE>
Exhibit # 3.11a
By-laws of MTW entity
<PAGE>
BYLAWS
OF
Third Enterprise Service Group, Inc.
ARTICLE I - MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of
this corporation shall be held at the time and place designated by the Board of
Directors of the corporation. The annual meeting of shareholders for any year
shall be held no later than thirteen (13) months after the last preceding annual
meeting of shareholders. Business transacted at the annual meeting shall include
the election of directors of the corporation.
Section 2. Special Meetings. Special meetings of the shareholders shall
be held when directed by the Board of Directors, or when requested in writing by
the holders of not less than ten percent (10%) of all the shares entitled to
vote at the meeting. A meeting requested by shareholders shall be called for a
date not less than ten (10) or more than sixty (60) days after the request is
made, unless the shareholders requesting the meeting designate a later date. The
call for the meeting shall be issued by the Secretary, unless the President,
Board of Directors, or shareholders requesting the meeting designate another
person to do so.
Section 3. Place. Meetings of shareholders may be held within or without
the State of Florida.
Section 4. Notice. Written notice stating the place, day and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the meeting, either personally or by first class
mail, by or at the direction of the President, the Secretary, or the officer or
persons calling the meeting to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. If, however, after the adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given as provided in this section to each shareholder
of record on the new record date entitled to vote at such meeting.
<PAGE>
-13-
Section 6. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholder of any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other purpose, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period but not to exceed, in any case, sixty
(60) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any determination of shareholders,
such date in any case to be not more than sixty (60) days and, in case of a
meeting of shareholders, not less than ten (10) days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting.
Section 7. Voting Record. The officers or agent having charge of the
stock transfer books for shares of the corporation shall make, at least ten (10)
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number and class and series, if any, of shares held by each. The list,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the registered office of the corporation, at the principal place of business of
the corporation or at the office of the transfer agent or register of the
corporation and any shareholder shall be entitled to inspect the list at any
time during usual business hours. The list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder at any time during the meeting.
If the requirements of this section have not been substantially
complied with, the meeting on demand of any shareholder in person or by proxy,
shall be adjourned until the requirements are complied with. If no such demand
is made, failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
<PAGE>
Section 8. Shareholder Quorum and Voting. A majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. When a specified item of business is required to
be voted on by a class or series a majority of the shares of such class or
series shall constitute a quorum for the transaction of such item of business by
that class or series.
If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders unless otherwise provided by law.
After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of
shareholders entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
Section 9. Voting of Shares. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Treasury shares, shares of stock of this corporation owned by another
corporation the majority of the voting stock of which is owned or controlled by
this corporation, and shares of stock of this corporation held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
A shareholder may vote either in person or by proxy executed in writing
by the shareholder or his duly authorized attorney-in-fact.
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 at
that time and for whose election he has a right to vote.
Shares standing in the name of another corporation, domestic or
foreign, may be voted by the officer, agent, or proxy designated by the bylaws
of the corporate shareholder; or, in the absence of any applicable bylaw, by
such person as the Board of Directors of the corporate shareholder may
designate. Proof of such designation may be made by presentation of a certified
coy of the bylaws or other instrument of the corporate shareholder. In the
absence of any such designation, or in case of conflicting designation by the
corporate shareholder, the chairman of the board, president, any vice president,
secretary and treasurer of the corporate shareholder shall be presumed to
possess, in that order, authority to vote such shares.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing gin the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
<PAGE>
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee or his nominee shall be entitled to vote the shares so
transferred.
On and after the date on which written notice of redemption of
redeemable shares has been mailed to the holders thereof and a sum sufficient to
redeem such shares has been deposited with a bank or trust company with
irrevocable instruction and authority to pay the redemption price to the holders
thereof upon surrender of certificates therefor, such shares shall not be
entitled to vote on any matter and shall not be deemed to be outstanding shares.
Section 10. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting or a
shareholders' duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except as otherwise provided by
law.
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of shareholders.
If a proxy for the same shares confers authority upon two (2) or more
persons and does not otherwise provide, a majority of them present at the
meeting, or if only one (1) is present then that one, may exercise all the
powers conferred by the proxy; but if the proxy holders present at the meeting
are equally divided as to the right and manner of voting in any particular case,
the voting of such shares shall be prorated.
If a proxy expressly provides, any proxy holder may appoint in writing
a substitute to act in his place.
<PAGE>
Section 11. Voting Trusts. Any number of shareholders of this
corporation may create a voting trust for the purpose of conferring upon a
trustee or trustees the right to vote or otherwise represent their shares, as
provided by law. Where the counterpart of a voting trust agreement and the copy
of the record of the holders of voting trust certificates has been deposited
with the corporation as provided by law, such documents shall be subject to the
same right of examination by a shareholder of the corporation, in person or by
agent or attorney, as are the books and records of the corporation, and such
counterpart and such copy of such record shall be subject to examination by any
holder or record of voting trust certificates either in person or by agent or
attorney, at any reasonable time for any proper purpose.
Section 12. Shareholders' Agreements. Two (2) or more shareholders, of
this corporation may enter an agreement providing for the exercise of voting
rights in the manner provided in the agreement or relating to any phase of the
affairs of the corporation as provided by law. Nothing therein shall impair the
right of this corporation to treat the shareholders of record as entitled to
vote the shares standing in their names.
Section 13. Action by Shareholders Without a Meeting. Any action
required by law, these bylaws, or the articles of incorporation of this
corporation to be taken at any annual or special meeting of shareholders of the
corporation, or any action which may be taken at any annual or special meeting
of such shareholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. If any class of shares is entitled to vote thereon as a class, such
written consent shall be required of the holders of a majority of the shares of
each class of shares entitled to vote as a class thereon and of the total shares
entitled to vote thereon.
Within ten (10) days after obtaining such authorization by written
consent, notice shall be given to those shareholders who have not consented in
writing. The notice shall fairly summarize the material features of the
authorized action and, if the action be a merger, consolidated or sale or
exchange of assets for which dissenters rights are provided under this act, the
notice shall contain a clear statement of the right of shareholders dissenting
therefrom to be paid the fair value of their shares upon compliance with further
provisions of this act regarding the rights of dissenting shareholders.
ARTICLE II - DIRECTORS
Section 1. Function. All corporate powers shall be exercised by or under
the authority of, and business and affairs of the corporation shall be managed
under the direction of, the Board of Directors.
Section 2. Qualification. Directors need not be residents of this state or
shareholders of this corporation.
<PAGE>
Section 3. Compensation. The Board of Directors shall have authority to fix
the compensation of directors.
Section 4. Duties of Directors. A director shall perform his duties as
a director, including his duties as a member of any committee of the board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
(a) one (1) or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented,
(b) counsel, public accountants or other persons as to matters which
the director reasonably believes to be within such person's professional or
expert competence, or
(c) a committee of the board upon which he does not serve, duly
designated in accordance with a provision of the articles of incorporation or
the bylaws, as to matters within its designated authority, which committee the
director reasonable believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted.
A person who performs his duties in compliance with this section shall
have no liability by reason of being or having been a director of the
corporation.
Section 5. Presumption of Assent. A director of the 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 he
votes against such action or abstains from voting in respect thereto because of
an asserted conflict of interest.
Section 6. Number. The corporation shall have at least one (1)
director. The minimum number of directors may be increased or decreased from
time to time by amendment to these bylaws, but no decrease shall have the effect
of shortening the terms of any incumbent director and no amendment shall
decrease the number of directors below one (1), unless the stockholders have
voted to operate the corporation.
<PAGE>
Section 7. Election and Term. Each person named in the articles of
incorporation as a member of the initial board of directors shall hold office
until the first annual meeting of shareholders, and until his successor shall
have been elected and qualified or until his earlier resignation, removal from
office or death.
At the first annual meeting of shareholders and at each annual meeting
thereafter, the shareholders shall elect directors to hold office until the next
succeeding annual meeting. Each director shall hold office for the term for
which he is elected and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
Section 8. Vacancies. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the shareholders.
Section 9. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors.
Section 10. Quorum and Voting. A majority of the number of directors
fixed by these bylaws shall constitute a quorum for the transaction of business.
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.
Section 11. Director Conflicts of Interest. No contract or other
transaction between this corporation and one (1) or more of its directors or any
other corporation, firm, association or entity in which one (1) or more of the
directors are directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest or because such
director or directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose, if:
(a) The fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
<PAGE>
(c) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
Section 12. Executive and Other Committees. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an executive committee and one (1) or more other
committees each of which, to the extent provided in such resolution shall have
and may exercise all the authority of the Board of Directors, except that no
committee shall have the authority to:
(a) approve or recommend to shareholders actions or proposals
required by law to be approved by shareholders,
(b) designate candidates for the office of director, for purposes
of proxy solicitation or otherwise,
(c) fill vacancies on the Board of Directors or any committee
thereof,
(d) amend the bylaws,
(e) authorize or approve the reacquisition of shares unless pursuant to
a general formula or method specified by the Board of Directors, or
(f) authorize or approve the issuance or sale of, or any contract to
issue or sell, shares or designate the terms of a series of a class of shares,
except that the Board of Directors, having acted regarding general authorization
for the issuance or sale of shares, or any contract therefor, and, in the case
of a series, the designation thereof, may, pursuant to a general formula or
method specified by the Board of Directors, by resolution or by adoption of a
stock option or other plan, authorize a committee to fix the terms of any
contract for the sale of the shares and to fix the terms upon which such shares
may be issued or sold, including, without limitation, the price, the rate or
manner of payment of dividends, provisions for redemption, sinking fund,
conversion, voting or preferential rights, and provisions for other features of
a class of shares, or a series of a class of shares, with full power in such
committee to adopt any final resolution setting forth all the terms thereof and
to authorize the statement of the terms of a series for filing with the
Department of State.
<PAGE>
The Board of Directors, by resolution adopted in accordance with this
section, may designate one (1) or more directors as alternate members of any
such committee, who may act in the place and stead of any member or members at
any meeting of such committee.
Section 13. Place of Meetings. Regular and special meetings by the Board of
Directors may be held within or without the State of Florida.
Section 14. Time, Notice and Call of Meetings. Regular meetings by the
Board of Directors shall be held without notice. Written notice of the time and
place of special meetings of the Board of Directors shall be given to each
director by either personal delivery, telegram or cablegram at least two (2)
days before the meeting or by notice mailed to the director at least five (5)
days before the meeting.
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of 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 of such meeting.
A majority of the directors present, whether or not a quorum exists,
may adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
Meetings of the Board of Directors may be called by the chairman of the
board, by the president of the corporation, or by any two (2) directors.
Members of the Board of Directors may participate in a meeting of such
board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
<PAGE>
Section 15. Action Without a Meeting. Any action required to be taken
at a meeting of the directors of a corporation, or any action which may be taken
at a meeting of the directors or a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so to be taken, signed
by all of the directors, or all the members of the committee, as the case may
be, is filed in the minutes of the proceedings of the board or of the committee.
Such consent shall have the same effect as a unanimous vote.
ARTICLE III - OFFICERS
Section 1. Officers. The officers of this corporation shall consist of
a president, a secretary and a treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers and agents as may
be deemed necessary may be elected or appointed by the Board of Directors from
time to time. Any two (2) or more offices may be held by the same person. The
failure to elect a president, secretary or treasurer shall not affect the
existence of this corporation.
Section 2. Duties. The officers of this corporation shall have the
following duties:
The President shall be the chief executive officer of the corporation,
shall have general and active management of the business and affairs of the
corporation subject to the directions of the Board of Directors, and shall
preside at all meetings of the stockholders and Board of Directors.
The Secretary shall have custody of, and maintain, all of the corporate
records except the financial records; shall record the minutes of all meetings
of the stockholders and Board of Directors, send all notice of meetings out, and
perform such other duties as may be prescribed by the Board of Directors or the
President.
The Treasurer shall have custody of all corporate funds and financial
records, shall keep full and accurate accounts of receipts and disbursements and
render accounts thereof at the annual meetings of stockholders and whenever else
required by the Board of Directors or the President, and shall perform such
other duties as may be prescribed by the Board of Directors or the President.
Section 3. Removal of Officers. Any officer or agent elected or
appointed by the Board of Directors may be removed by the board whenever in its
judgment the best interest of the corporation will be served thereby.
Any officer or agent elected by the shareholders may be removed only by
vote of the shareholders, unless the shareholders shall have authorized the
directors to remove such officer or agent.
Any vacancy, however occurring, in any office may be filled by the
Board of Directors, unless the bylaws shall have expressly reserved such power
to the shareholders.
<PAGE>
Removal of any officer shall be without prejudice to the contract
rights, if any, of the person so removed; however, election or appointment of an
officer or agent shall not of itself create contract rights.
ARTICLE IV - STOCK CERTIFICATES
Section 1. Issuance. Every holder of shares in this corporation shall
be entitled to have a certificate, representing all shares to which he is
entitled. No certificate shall be issued for any share until such share is fully
paid.
Section 2. Form. Certificates representing shares in this corporation
shall be signed by the President or Vice-President and the Secretary or an
Assistant Secretary and may be sealed with the seal of this corporation or a
facsimile thereof. The signatures of the President or Vice-President and the
Secretary or Assistant Secretary may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
corporation itself or an employee of the corporation. In case any officer who
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
date of its issuance.
Every certificate representing shares which are restricted as to the
sale, disposition or other transfer of such shares shall state that such shares
are restricted as to transfer and shall set forth or fairly summarize upon the
certificate, or shall state that the corporation will furnish to any shareholder
upon request and without charge a full statement of, such restrictions.
Each certificate representing shares shall state upon the fact thereof:
the name of the corporation; that the corporation is organized under the laws of
this state; the name of the person or persons to whom issued; the number and
class of shares, and the designation of the series, if any, which such
certificate represents; and the par value of each share represented by such
certificate, or a statement that the shares are without par value.
Section 3. Transfer of Stock. The corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder or record of by his duly authorized attorney, and the signature of
such person has been guaranteed by a commercial bank or trust company or by a
member of the New York or American Stock Exchange.
<PAGE>
Section 4. Lost, Stolen, or Destroyed Certificates. The corporation
shall issue a new stock certificate in the place of any certificate previously
issued if the holder of record of the certificate (a) makes proof in affidavit
form that it has been lost, destroyed or wrongfully taken; (b) requests the
issue of a new certificate before the corporation has notice that the
certificate has been acquired by a purchaser for value in good faith and without
notice of any adverse claim; (c) gives bond in such form as the corporation may
direct, to indemnify the corporation, the transfer agent, and registrar against
any claim that may be made on account of the alleged loss, destruction, or theft
of a certificate; and (d) satisfies any other reasonable requirements imposed by
the corporation.
ARTICLE V - BOOKS AND RECORDS
Section 1. Books and Records. This corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, board of directors and committees of directors.
This corporation shall keep at its registered office or principal place
of business, or at the office of its transfer agent or registrar, a records of
its shareholders, giving the names and addresses of all shareholders, and the
number, class and series, if any, of the shares held by each.
Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
Section 2. Shareholders' Inspection Rights. Any person who shall have
been a holder of record of shares or of voting trust certificates therefor at
least six (6) months immediately preceding his demand or shall be the holder of
record of, or the holder of record of voting trust certificates for, at least
five percent (5%) of the outstanding shares of any class or series of the
corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose its relevant books and records of accounts,
minutes and records of shareholders and to make extracts therefrom.
Section 3. Financial Information. Not later than four (4) months after
the close of each fiscal year, this corporation shall prepare a balance sheet
showing in reasonable detail the financial condition of the corporation as of
the close of its fiscal year, and a profit and loss statement showing the
results of the operations of the corporation during its fiscal year.
Upon the written request of any shareholder or holder of voting trust
certificates for shares of the corporation, the corporation shall mail to such
shareholder or holder of voting trust certificates a copy of the most recent
such balance sheet and profit and loss statement.
The balance sheets and profit and loss statements shall be filed in the
registered office of the corporation in this state, shall be kept for at least
five (5) years, and shall be subject to inspection during business hours by any
shareholder or holder of voting trust certificates, in person or by agent.
<PAGE>
ARTICLE VI - DIVIDENDS
The Board of Directors of this corporation may, from time to time,
declare and the corporation may pay dividends on its shares in cash, property or
its own shares, except when the corporation is insolvent or when the payment
thereof would render the corporation insolvent or when the declaration or
payment thereof would be contrary to any restrictions contained in the articles
of incorporation, subject to the following provisions:
(a) Dividends in cash or property may be declared and paid, except as
otherwise provided in this section, only out of the unreserved and unrestricted
earned surplus of the corporation or out of capital surplus, howsoever arising
but each dividend paid out of capital surplus, and the amount per share paid
from such surplus shall be disclosed to the shareholders receiving the same
concurrently with the distribution.
(b) Dividends may be declared and paid in the corporation's own
treasury shares.
(c) Dividends may be declared and paid in the corporation's own
authorized but unissued shares out of any unreserved and unrestricted surplus of
the corporation upon the following conditions:
(1) If a dividend is payable in shares having a par value,
such shares shall be issued at not less than the par value thereof and there
shall be transferred to stated capital at the time such dividend is paid an
amount of surplus equal to the aggregate par value of the shares to be issued as
a dividend.
(2) If a dividend is payable in shares without a par value,
such shares shall be issued at such stated value as shall be fixed by the Board
of Directors by resolution adopted at the time such dividend is declared, and
there shall be transferred to stated capital at the time such dividend is paid
an amount of surplus equal to the aggregate stated value so fixed in respect of
such shares; and the amount per share so transferred to stated capital shall be
disclosed to the shareholders receiving such dividend concurrently with the
payment thereof.
(d) No dividend payable in shares of any class shall be paid to the
holders of shares of any other class unless the articles of incorporation so
provide or such payment is authorized by the affirmative vote or the written
consent of the holders of at least a majority of the outstanding shares of the
class in which the payment is to be made.
(e) A split-up or division of the issued shares of any class into a
greater number of shares of the same class without increasing the stated capital
of the corporation shall not be construed to be a share dividend within the
meaning of this section.
<PAGE>
ARTICLE VII - CORPORATE 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 as
it appears on page 1 of these bylaws.
ARTICLE VIII - AMENDMENTS
These bylaws may be repealed or amended, and new bylaws may be adopted,
by the Board of Directors.
End of bylaws adopted by the Board of Directors.
<PAGE>
Exhibit # 3.1b
Amended Articles
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 3.11b
Amended By-laws
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 4.1
Rights and Preferences of Preferred Stock
<PAGE>
COMPETITIVE COMPANIES, INC.
Certificate of Rights and Preferences for
Class A, Convertible, Preferred Stock
4,000,000 Shares
Competitive Companies, Inc., a Nevada corporation, whose address is 3751 Merced
Drive, Suite A, Riverside, California 92503 ("CoCoInc") hereby designates the
following rights and preferences for its Class A, Convertible, Preferred Stock
("Preferred Stock").
Conversion Factor: 5 shares of Class A, Common Stock for each share of Preferred
Stock.
Future Events:
1. SEC registration statement filed and effective - 50%
2. Achieving 10,000 customers (for customer count purposes a customer who
has multiple major services, i.e., telephone, Internet, TV is counted
once for each major service to which they subscribe) - 25%
3. Achieving 20,000 customers (see 2 above for definition of customer)-25%
Preferred Stock may be assigned by Holder at any time by providing CoCoInc
written notice of the assignment. Any assignment of Preferred Stock to another
person or entity (other than to an entity in which Holder or Holders of
Preferred Stock own and control in the aggregate at least 50% of the entity in
the same percentage they hold the Preferred Stock) shall upon assignment be
converted to Class A, Common Stock at the Conversion Factor stated above. In the
conversion of Preferred Stock to Common Stock all rights under Preferred Stock
are forfeited.
Preferred Stock may be converted at any time, in whole or in part (up to the
percentage associated with the achievement of the above "Future Event"), for a
period commencing on the date of such event was achieved and ending on December
31, 2010. On January 1, 2011, the remaining Preferred Stock shares (if any) will
convert to Class A, Common Treasury Stock of CoCoInc at the Conversion Factor
stated above and be issued to the Holder of record as of that date. The
conversion of Preferred Stock (other than 1/1/2011) shall be effected by a
written notice signed by Holder or an authorized representative of Holder. The
notice must be delivered to CoCoInc in person or by certified mail and contain
the statement that the Preferred Stock Holder exercises the convertible feature
of the stock. The notice also must contain the name(s), the number of Class A,
Common shares, the address, social security number, and signed Form W-9 for each
person/entity receiving the converted Class A, Common Stock.
Upon liquidation of CoCoInc, Preferred Stock has a preference over Common Stock
equal to plus $0.01 over the Class A, Common Stock's par value.
CoCoInc represents and warrants that it will keep an amount of Class A, Common
Treasury Stock (free from liens, claims, charges and encumbrances) that will
satisfy the needs of the total outstanding Preferred Stock conversion. The
amount of Treasury stock needed to satisfy the conversion of outstanding
Preferred Stock will account for any splits, stock dividends, recapitalization,
or similar events that effected the Common Stock and is due the Preferred Stock
at conversion. CoCoInc also agrees to indemnify and hold harmless the Preferred
Stock Holder in connection with any claim, loss, damage or expense, including
attorney and trial fees brought about by any breach of the foregoing.
<PAGE>
Exhibit # 5.1
Legal Opinion - MTW
<PAGE>
WILLIAMS LAW GROUP, P.A.
2503 West Gardner Court
Tampa, FL 33611
December 7, 1999
Third Enterprise Service Group, Inc.
Via Telefax
Re: Registration Statement on Form S-4
Gentlemen:
I have acted as your counsel in the preparation on a Registration Statement
on Form S-4 (the "Registration Statement") filed by you with the Securities and
Exchange Commission covering shares of Common Stock of Third Enterprise Service
Group, Inc.
(the "Stock").
In so acting, I have examined and relied upon such records, documents and
other instruments as in our judgment are necessary or appropriate in order to
express the opinion hereinafter set forth and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us
certified or photostatic copies.
Based on the foregoing, I am of the opinion that:
The Stock, when issued and delivered in the manner and/or the terms
described in the Registration Statement (after it is declared effective), will
duly and validly issued, fully paid and nonassessable;
I hereby consent to the reference to my name in the Registration Statement
under the caption "Legal Matters" and to the use of this opinion as an exhibit
to the Registration Statement. In giving this consent, I do not hereby admit
that I come within the category of a person whose consent is required under
Section7 of the Act, or the general rules and regulations thereunder.
Very truly yours,
Michael T. Williams
<PAGE>
Exhibit # 8.1
Tax Opinion - MTW
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.01
Partnership Agreement - D Greens
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.02
Partnership Agreement - A Gardens
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.03
Partnership Agreement - C Hills
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.04
Partnership Agreement - Rollingwood
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.05
Trussville
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.06
Acquisition Agreement - GST
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.07
Employment Agreement - L. Halstead
<PAGE>
COMPETITIVE COMMUNICATIONS INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective the 31st day of August 1997 between COMPETITIVE COMMUNICATIONS INC., a
California corporation, having its principal place of business at 11713 Sterling
Avenue, Suite F, Riverside, California (hereinafter "Employer"), and Larry
Halstead whose address is 9859 IH 10 West, #325, San Antonio, Texas 78230,
(hereinafter "Employee").
1. Term.
The Term of Employee's employment hereunder shall be for a five (5)
year period, unless terminated prior thereto in accordance with section 4
hereof, commencing on the date hereof (the "Initial Term"). This Agreement shall
automatically extend for an additional two (2) year term (the "Extension Term"),
provided that neither the Employer nor Employee has elected to terminate this
Agreement effective the end of the Initial Term by giving three (3) months'
prior written notice one to the other. The entire duration of Employee's
employment by Employer is herein called the "Employment Period".
2. Position and Duties.
2.1 Position and Duties. Employee agrees to serve as Chief Financial
Officer and to perform the duties set forth in Appendix A attached hereto and
such other duties as the Chief Executive Officer/Chairman of the Board of the
Board of Directors of Employer shall from time to time direct.
2.2 Faithful Performance. Employee agrees to serve Employer faithfully
and to the best of his ability, and to devote his attention and efforts to the
business and affairs of Employer. Employee confirms that he is under no
contractual commitments inconsistent with the obligations set forth in this
Agreement, and that while employed hereunder he will not render or perform
services for any other corporation, firm, entity or person inconsistent with
this Agreement without the prior written consent of Employer.
2.3 Rules and Regulations. Employee shall at all times strictly adhere
to and obey all of the reasonable rules, regulations, corporate policies,
directions, and restrictions now in effect or as may be subsequently modified or
adopted by Employer governing the conduct of executive employees.
3. Compensation.
3.1 Base Salary. For all services to be rendered by Employee under this
Agreement, Employer agrees to pay or cause to be paid to Employee:
(a) $68,000 per year ("Base Salary") prorated commencing on the receipt of
at least $250,000 in funding investment by Employer, and
(b) $115,000 per year ("Base Salary") prorated commencing on the receipt of
at least $1,000,000 in funding investment by Employer.
Base Salary shall be payable at the discretion of the Employer either
weekly at 1/52nd of Base or bi-monthly at 1/26th of Base in two equal monthly
payments due on the first and fifteenth day of each month. Nothing in this
provision shall operate to prevent increases in Employee's Base Salary from time
to time as determined by Employer's Board of Directors.
3.2 Bonus. In addition to the Base Salary, Employee shall be entitled
to a bonus in any fiscal year in which the pre-tax and pre-contribution ("PTPC")
operating profit of Employer is $1,000,000 or more. The bonus shall be 1 equal
share of the Executive Bonus Pool ("ExBP"). The ExBP shall be equal to 6% of the
PTPC profit in any given fiscal year. The ExBP shall be paid at the same time as
the 6% PTPC Non-executive Employee Bonus Pool and within ten (10) days after the
Employer's accountants have completed the net pre-tax audit and has been
accepted by the Board of Directors.
3.3 Additional Benefits. In addition to the Base Salary, Employee shall
be entitled during the Employment Period to receive such Additional Benefits as
may be provided for him or to which he may become entitled because his position,
tenure, salary, age, health or other qualifications make him eligible to
participate. For purposes hereof, "Additional Benefits" means (a) participation
in bonus and incentive compensation plans or pools, stock option, bonus, award
or purchase plans, retirement plans, and other employee benefit plans of
Employer, if any; (b) life, health, medical, dental, accident, and other
personal insurance coverage provided by Employer for employees or their
dependents; (c) directors' and officers' liability insurance coverage provided
by Employer and charter or bylaw provisions or contracts providing for
indemnification of corporate personnel or elimination or limitation of their
liabilities as such; (d) an Employer provided automobile per guidelines approved
by the Board of Directors, (e) use of Employer's property and facilities and
other perquisites of employment with Employer; (f) paid vacation, leave or
holidays; and (f) any and all other compensation, benefits and perquisites of
employment with Employer, if any, other than Base Salary.
3.4 Expenses. Employer will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by him in his
performance under this Agreement, subject to the presentation of appropriate
vouchers in accordance with applicable laws and Employer's expense reimbursement
policies and procedures in effect and applicable to management employees.
3.5 Location and Relocation Expenses. Employer shall pay for all of
Employee's moving and personal expenses in connection with any Employer required
relocations which occurs after Employee is hired.
4. Termination.
4.1 Termination. The employment of Employee with Employer shall
terminate on the date of the occurrence of any of the following events:
(a) Expiration of the Employment Period hereof;
(b) The death of Employee;
(c) Fifteen (15) days after the date on which Employer shall have given
Employee written notice of the termination of Employee's employment by
reason of permanent physical or mental incapacity that prevents
Employee from performing the essential elements of Employee's position
for a period of six consecutive months or more as determined by a
medical professional selected by Employer, in its sole discretion, and
by Employer acting in good faith;
(d) Upon five (5) days' written notice to Employee for "cause", which
shall include only the following: intentional misconduct or gross
negligence by Employee in the course of employment; the commission or
perpetration by Employee of any fraud against Employer or any other
party in connection with his employment hereunder; the commission by
Employee of such acts or dishonesty, fraud or misrepresentation or
other acts of moral turpitude as would prevent the effective
performance of his duties; knowingly causing or permitting Employer to
violate any law, which violation shall have a material effect on
Employer; or the failure to perform, breach, or violation by Employee
of any of Employee's material obligations under this Agreement which
continues after fifteen (15) days' written notice has been given to
Employee by Employer specifying the failure to perform, breach, or
violation;
(e) Upon at least sixty (60) days' advance written notice by Employee;
or
(f) Upon at least sixty (60) days' advance written notice by Employer based
solely on concurrence of a minimum of 4/5th of the Board of Directors.
4.2 Payments of Base Salary, Incentive Bonus, and Additional Benefits.
(a) Upon any termination, (1) Employee (or Employee's estate in the
case of death) shall immediately be paid all accrued Base Salary which
would otherwise be due and payable and accrued vacation pay, all to the
date of termination, (2) benefits accrued under Employer's Employee
benefit plans, if any, will be paid in accordance with such plans, and
(3) bonuses shall be paid at the end of the fiscal year if earned ,
with the amount prorated by the number of days during the fiscal year
Employee was employed. Upon termination, Employee shall not be entitled
to any other payments or benefits except upon the conditions and as set
forth in Section 4.2 (b) of this Agreement.
(b) In the event Employee's employment under this Agreement is
terminated pursuant to Section 4.1(c) or 4.1(f): Employer shall pay
Employee an amount equal the Employee's then Base Salary multiplied by
twenty-four (24) months.
(c) In the event of termination of Employee's employment pursuant to
Section 4.1(c) or 4.1(f), Employer agrees to continue to provide
Employee's medical insurance for a period of twenty four (24) months
following such termination.
4.3 Effect of Termination. Notwithstanding any termination in this
Agreement, the covenants and Agreements contained in Sections 4.4, 5, 6, 7, and
8 shall be construed as independent of any other agreements between the parties
and shall survive the termination of the employment of the Employee. The
existence of any claim or cause of action of Employee against Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of such covenants.
4.4 Return of Employer's Property. If Employee is terminated either by
expiration of this Agreement, pursuant to Section 4.1, or otherwise, Employee
shall immediately deliver to Employer all originals and copies of notes,
memoranda, writings, lists, files, reports, customer lists, personnel files, and
information, correspondence, tapes, discs, cards, logs, machines, technical
data, credit cards, keys to the premises, or any other tangible product or
documents (individually and collectively known as "Company Proprietary Items")
which Employee produced, received or otherwise had access to while employed.
5. Confidentiality.
Employee during employment may have access to or become acquainted with
various confidential information and trade secrets, including, but not limited
to, formulas, technical data, patents, devices, secret inventions, personnel
information, customer lists, processes, and compilations of information,
records, reports, correspondence, tapes, discs, tangible property and
specifications (collectively and inclusively, "Confidential Information"), which
are owned by or licensed to Employer. Employee shall not disclose any of the
aforesaid Confidential Information, directly or indirectly, or use it in any way
either during the Employment Period or at any time thereafter, except as
required in the course of his Employment by Employer. All Confidential
Information of Employer, whether prepared by Employee or otherwise coming into
his possession, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer in any circumstances whatsoever without
the prior written consent of Employer.
6. Restrictive Covenant.
Non-Competition. Employee hereby agrees that during the term of
Employee's employment with Employer, Employee shall not engage, directly or
indirectly, or be interested (as director, officer employee, partner,
consultant, principal, shareholder, or otherwise) in any firm, corporation, or
other entity in the business of developing, producing, distributing, or selling
any product competitive with the products of Employer in any geographic area in
which Employer engages in such business without the express written consent of
Employer. Ownership by Employee of less than one percent (1%) of the outstanding
voting stock of any competing publicly held corporation shall not constitute a
violation of this Section 6.
7. Injunctive Relief.
Employee agrees that it would be difficult to compensate Employer fully
for damages suffered by Employer through any violation of the provisions of this
Agreement by the Employee including without limitation the provisions of
Sections 5 and 6 above, and Employee agrees that there is not adequate remedy at
law for such violation. Accordingly, Employee specifically agrees that Employer
shall be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision shall not in any way
whatsoever diminish the right of Employer to claim and recover damages in
addition to injunctive relief.
8. Inventions.
8.1 Inventions. Employee agrees to promptly disclose and assign to
Employer, exclusively, all of his rights and interest in any inventions,
discoveries, improvements, designs, practices, processes, formulae, techniques,
know-how and methods (hereinafter collectively referred to as " Inventions"),
that are in any way related to the services provided by Employee during the term
of his employment with Employer or to the services provided under this
Agreement, or to any other work or project of Employer that Employee may either
become aware of or be assigned to work on by Employer, which he, individually or
jointly, shall make, originate, conceive of or reduce to practice during the
term of his employment with Employer or the term of his relationship with
Employer under this Agreement whether made on or off of the premises of
Employer; and he shall, during and after the term of his employment and the term
of this Agreement, assist Employer to obtain, for its own benefit, patents on
such Inventions to remain the property of Employer whether or not patented.
8.2 Trailer Period. Employee expressly agrees that any Inventions which
are disclosed or offered to third parties, published or implemented by Employee
or declared in a patent application filed by Employee or by any entity
associated with Employee within one (1) year following termination of Employee's
employment shall be deemed to be originated or made during Employee's employment
with Employer and subject to Section 8.1 hereof, unless Employee can prove by a
preponderance of the evidence to the contrary.
9. Miscellaneous.
9.1 Choice of Laws, Jurisdiction, Venue. This Agreement is being
delivered in the State of California and shall be construed in accordance with
and governed by the laws of such state, without regard to principles of
conflicts of laws. Venue for all proceedings in any way relating to this
Agreement, including without limitation, proceedings conducted under Section 9.5
hereof, shall lie in Riverside County, California.
9.2 Other Agreements. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have not made agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein. No
amendment or modification of this Agreement shall be deemed effective unless
made in writing signed by the parties hereto.
9.3 Successors. This Agreement shall extend to and be binding upon
Employee, his legal representatives, heirs and distributees, and upon Employer,
its successors and assigns; provided, however, that Employee may not delegate
any of Employee's duties under this Agreement. For the purposes of this
Agreement, unless the context otherwise requires, references to Employer shall
include Employer's subsidiaries and affiliated persons.
9.4 No Waiver. Forbearance or failure to pursue any legal remedy or
right upon default or breach hereof shall not constitute waiver of such right,
nor shall any such forbearance, failure or actual waiver imply or constitute
waiver of any subsequent default or breach. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any estoppel
to enforce any provision of this Agreement, except by a statement in writing
signed by the party against whom enforcement of the waiver or estoppel is
sought.
9.5 Arbitration. All disputes arising under or relating to this
Agreement or its breach other than actions for injunctive relief shall be
submitted to binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association. Any award of the arbitrator(s) shall be final
and binding on the parties hereto and judgment on such award may be entered in
any court of competent jurisdiction.
9.6 Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reimbursement of reasonable
attorneys' fees and costs.
9.7 Notices. Any notice with respect to this Agreement shall be deemed
to have been duly served on the party entitled to notice if that notice has been
served at the address provided in this Agreement or such other address as may be
provided from time to time and shall be deemed duly given or made if delivered
or deposited in the United States mail as first class mail, postage prepaid.
9.8 Headings. Headings used in this Agreement are used for convenience
only and do not constitute substantive matters to be considered in constructing
the terms of this Agreement.
9.9 Severability. In case any one or more of the provisions of this
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, any other provisions in this Agreement shall be construed as if
such invalid, illegal, or unenforceable provisions had never been contained
herein. Such provisions shall be given effect to the maximum extent permitted by
law.
9.10 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.11 Amendments. This Agreement may not be altered, modified or amended
except pursuant to a written instrument executed by all parties hereto.
9.12 Construction of Agreement. The parties hereto acknowledge and
agree that neither this Agreement nor any of the other documents executed in
connection herewith shall be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of
this Agreement and the documents executed in connection herewith.
9.13 No Third Party Beneficiaries. Except as otherwise expressly set
forth in this Agreement, no person or entity not a party to this Agreement shall
have rights under this Agreement as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement
effective as of the day and year above first written.
"EMPLOYEE" COMPETITIVE COMMUNICATIONS INC.
By:_______________________ By:_________________________
Larry Halstead David Kline
Chief Executive Officer
<PAGE>
APPENDIX A
DUTIES OF CHIEF FINANCIAL OFFICER
Reporting to the Chairman and Chief Executive Officer, directs,
administers and coordinates the activities of personnel assigned to him in
accordance with policies, goals and objectives established by the Chairman and
Chief Executive Officer and the Board of Directors. Keeps and maintains, or
causes to be kept and maintained in accordance with generally accepted
accounting principles, adequate and correct accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, earnings (or
surplus) and shares. Deposits all moneys and other valuables in the name and to
the credit of the corporation with such depositories as may be designated by the
Board of Directors. Disburses the funds of the corporation as may be ordered by
the Board of Directors. Renders to the President and Directors, whenever they
request it, an account of all of the transactions and the financial conditions
of the corporation.
Assists the Chairman and Chief Executive Officer and President in the
development of corporate policies and goals that cover company operations,
personnel, financial performance and growth. May perform duties of the President
on his absence and of Chairman and Chief Executive Officer in his absence and
the absence of the President.
Directs the activities of personnel assigned to him to include: the Chief
Administrative Officer and Chief Marketing Officer. Guides and directs the
members of management in the promotion, and sale of the corporation's products
and services throughout the world.
Directs his portion of corporate operations to achieve budgeted profit
results and other financial criteria and preserve the capital funds invested in
the enterprise.
Serves as an equal voting member of the Board of Directors. Executes
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
corporation. He shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the By-Laws.
At the discretion of the Board of Directors, may also serves as
corporate Secretary. As Secretary he shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, at the time and place
of holding, whether regular or special, and if special, how authorized, the
notice thereof given, the names of those present at Shareholders' meetings and
the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the Shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the Shareholders and of the Board of Directors required by the
By-Laws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the By-Laws.
<PAGE>
Exhibit # 10.08
Employment Agreement - David Kline, Sr.
<PAGE>
COMPETITIVE COMMUNICATIONS INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective the 8th day of April 1996 between COMPETITIVE COMMUNICATIONS INC., a
California corporation, having its principal place of business at 11713 Sterling
Avenue, Suite F, Riverside, California (hereinafter "Employer"), and David
Kline, Sr., whose address is 1973 Willow Drive, Running Springs, California,
92382, (hereinafter "Employee").
1. Term.
The Term of Employee's employment hereunder shall be for a five (5)
year period, unless terminated prior thereto in accordance with section 4
hereof, commencing on the date hereof (the "Initial Term"). This Agreement shall
automatically extend for an additional two (2) year term (the "Extension Term"),
provided that neither the Employer nor Employee has elected to terminate this
Agreement effective the end of the Initial Term by giving three (3) months'
prior written notice one to the other. The entire duration of Employee's
employment by Employer is herein called the "Employment Period".
2. Position and Duties.
2.1 Position and Duties. Employee agrees to serve as Chief Executive
Officer and to perform the duties set forth in Appendix A attached hereto and
such other duties as the Board of Directors of Employer shall from time to time
direct. In addition, Employee agrees to serve as the Chairman of the Board and
to perform the duties set forth in Appendix A.
2.2 Faithful Performance. Employee agrees to serve Employer faithfully
and to the best of his ability, and to devote his attention and efforts to the
business and affairs of Employer. Employee confirms that he is under no
contractual commitments inconsistent with the obligations set forth in this
Agreement, and that while employed hereunder he will not render or perform
services for any other corporation, firm, entity or person inconsistent with
this Agreement without the prior written consent of Employer.
2.3 Rules and Regulations. Employee shall at all times strictly adhere
to and obey all of the reasonable rules, regulations, corporate policies,
directions, and restrictions now in effect or as may be subsequently modified or
adopted by Employer governing the conduct of executive employees.
3. Compensation.
3.1 Base Salary. For all services to be rendered by Employee under this
Agreement, Employer agrees to pay or cause to be paid to Employee:
(a) $76,600 per year ("Base Salary") prorated from date first written
above until the Employer receives at least $1,000,000 in funding investment.
During such period, all amounts not paid, shall be accrued and paid within
fourteen (14) days of receipt of such funding by Employer;
(b) $156,000 per year ("Base Salary") prorated commencing on the receipt of
at least $1,000,000 in funding investment by Employer.
Base Salary shall be payable at the discretion of the Employer either
weekly at 1/52nd of Base or bi-monthly at 1/26th of Base in two equal monthly
payments due on the first and fifteenth day of each month. Nothing in this
provision shall operate to prevent increases in Employee's Base Salary from time
to time as determined by Employer's Board of Directors.
3.2 Bonus. In addition to the Base Salary, Employee shall be entitled
to a bonus in any fiscal year in which the pre-tax and pre-contribution ("PTPC")
operating profit of Employer is $1,000,000 or more. The bonus shall be 1 equal
share of the Executive Bonus Pool ("ExBP"). The ExBP shall be equal to 6% of the
PTPC profit in any given fiscal year. The ExBP shall be paid at the same time as
the 6% PTPC Non-executive Employee Bonus Pool and within ten (10) days after the
Employer's accountants have completed the net pre-tax audit and has been
accepted by the Board of Directors.
3.3 Additional Benefits. In addition to the Base Salary, Employee shall
be entitled during the Employment Period to receive such Additional Benefits as
may be provided for him or to which he may become entitled because his position,
tenure, salary, age, health or other qualifications make him eligible to
participate. For purposes hereof, "Additional Benefits" means (a) participation
in bonus and incentive compensation plans or pools, stock option, bonus, award
or purchase plans, retirement plans, and other employee benefit plans of
Employer, if any; (b) life, health, medical, dental, accident, and other
personal insurance coverage provided by Employer for employees or their
dependents; (c) directors' and officers' liability insurance coverage provided
by Employer and charter or bylaw provisions or contracts providing for
indemnification of corporate personnel or elimination or limitation of their
liabilities as such; (d) an Employer provided automobile or compensation
therefor per guidelines approved by the Board of Directors, (e) use of
Employer's property and facilities and other perquisites of employment with
Employer; (f) paid vacation, leave or holidays; and (f) any and all other
compensation, benefits and perquisites of employment with Employer, if any,
other than Base Salary.
3.4 Expenses. Employer will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by him in his
performance under this Agreement, subject to the presentation of appropriate
vouchers in accordance with applicable laws and Employer's expense reimbursement
policies and procedures in effect and applicable to management employees.
3.5 Location and Relocation Expenses. Employer shall pay for all of
Employee's moving and personal expenses in connection with any Employer required
relocations which occurs after Employee is hired.
4. Termination.
4.1 Termination. The employment of Employee with Employer shall
terminate on the date of the occurrence of any of the following events:
(a) Expiration of the Employment Period hereof;
(b) The death of Employee;
(c) Fifteen (15) days after the date on which Employer shall have given
Employee written notice of the termination of Employee's employment by
reason of permanent physical or mental incapacity that prevents
Employee from performing the essential elements of Employee's position
for a period of six consecutive months or more as determined by a
medical professional selected by Employer, in its sole discretion, and
by Employer acting in good faith;
(d) Upon five (5) days' written notice to Employee for "cause", which
shall include only the following: intentional misconduct or gross
negligence by Employee in the course of employment; the commission or
perpetration by Employee of any fraud against Employer or any other
party in connection with his employment hereunder; the commission by
Employee of such acts or dishonesty, fraud or misrepresentation or
other acts of moral turpitude as would prevent the effective
performance of his duties; knowingly causing or permitting Employer to
violate any law, which violation shall have a material effect on
Employer; or the failure to perform, breach, or violation by Employee
of any of Employee's material obligations under this Agreement which
continues after fifteen (15) days' written notice has been given to
Employee by Employer specifying the failure to perform, breach, or
violation;
(e) Upon at least sixty (60) days' advance written notice by Employee;
or
(f) Upon at least sixty (60) days' advance written notice by Employer based
solely on concurrence of a minimum of 4/5th of the Board of Directors.
4.2 Payments of Base Salary, Incentive Bonus, and Additional Benefits.
(a) Upon any termination, (1) Employee (or Employee's estate in the
case of death) shall immediately be paid all accrued Base Salary which
would otherwise be due and payable and accrued vacation pay, all to the
date of termination, (2) benefits accrued under Employer's Employee
benefit plans, if any, will be paid in accordance with such plans, and
(3) bonuses shall be paid at the end of the fiscal year if earned, with
the amount prorated by the number of days during the fiscal year
Employee was employed. Upon termination, Employee shall not be entitled
to any other payments or benefits except upon the conditions and as set
forth in Section 4.2 (b) of this Agreement.
(b) In the event Employee's employment under this Agreement is
terminated pursuant to Section 4.1(c) or 4.1(f): Employer shall pay
Employee an amount equal the Employee's then Base Salary multiplied by
twenty-four (24) months.
(c) In the event of termination of Employee's employment pursuant to
Section 4.1(c) or 4.1(f), Employer agrees to continue to provide
Employee's medical insurance for a period of twenty four (24) months
following such termination.
4.3 Effect of Termination. Notwithstanding any termination in this
Agreement, the covenants and Agreements contained in Sections 4.4, 5, 6, 7, and
8 shall be construed as independent of any other agreements between the parties
and shall survive the termination of the employment of the Employee. The
existence of any claim or cause of action of Employee against Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of such covenants.
4.4 Return of Employer's Property. If Employee is terminated either by
expiration of this Agreement, pursuant to Section 4.1, or otherwise, Employee
shall immediately deliver to Employer all originals and copies of notes,
memoranda, writings, lists, files, reports, customer lists, personnel files, and
information, correspondence, tapes, discs, cards, logs, machines, technical
data, credit cards, keys to the premises, or any other tangible product or
documents (individually and collectively known as "Company Proprietary Items")
which Employee produced, received or otherwise had access to while employed.
5. Confidentiality.
Employee during employment may have access to or become acquainted with
various confidential information and trade secrets, including, but not limited
to, formulas, technical data, patents, devices, secret inventions, personnel
information, customer lists, processes, and compilations of information,
records, reports, correspondence, tapes, discs, tangible property and
specifications (collectively and inclusively, "Confidential Information"), which
are owned by or licensed to Employer. Employee shall not disclose any of the
aforesaid Confidential Information, directly or indirectly, or use it in any way
either during the Employment Period or at any time thereafter, except as
required in the course of his Employment by Employer. All Confidential
Information of Employer, whether prepared by Employee or otherwise coming into
his possession, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer in any circumstances whatsoever without
the prior written consent of Employer.
6. Restrictive Covenant.
Non-Competition. Employee hereby agrees that during the term of
Employee's employment with Employer, Employee shall not engage, directly or
indirectly, or be interested (as director, officer employee, partner,
consultant, principal, shareholder, or otherwise) in any firm, corporation, or
other entity in the business of developing, producing, distributing, or selling
any product competitive with the products of Employer in any geographic area in
which Employer engages in such business without the express written consent of
Employer. Ownership by Employee of less than one percent (1%) of the outstanding
voting stock of any competing publicly held corporation shall not constitute a
violation of this Section 6.
7. Injunctive Relief.
Employee agrees that it would be difficult to compensate Employer fully
for damages suffered by Employer through any violation of the provisions of this
Agreement by the Employee including without limitation the provisions of
Sections 5 and 6 above, and Employee agrees that there is not adequate remedy at
law for such violation. Accordingly, Employee specifically agrees that Employer
shall be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision shall not in any way
whatsoever diminish the right of Employer to claim and recover damages in
addition to injunctive relief.
8. Inventions.
8.1 Inventions. Employee agrees to promptly disclose and assign to
Employer, exclusively, all of his rights and interest in any inventions,
discoveries, improvements, designs, practices, processes, formulae, techniques,
know-how and methods (hereinafter collectively referred to as " Inventions"),
that are in any way related to the services provided by Employee during the term
of his employment with Employer or to the services provided under this
Agreement, or to any other work or project of Employer that Employee may either
become aware of or be assigned to work on by Employer, which he, individually or
jointly, shall make, originate, conceive of or reduce to practice during the
term of his employment with Employer or the term of his relationship with
Employer under this Agreement whether made on or off of the premises of
Employer; and he shall, during and after the term of his employment and the term
of this Agreement, assist Employer to obtain, for its own benefit, patents on
such Inventions to remain the property of Employer whether or not patented.
8.2 Trailer Period. Employee expressly agrees that any Inventions which
are disclosed or offered to third parties, published or implemented by Employee
or declared in a patent application filed by Employee or by any entity
associated with Employee within one (1) year following termination of Employee's
employment shall be deemed to be originated or made during Employee's employment
with Employer and subject to Section 8.1 hereof, unless Employee can prove by a
preponderance of the evidence to the contrary.
9. Miscellaneous.
9.1 Choice of Laws, Jurisdiction, Venue. This Agreement is being
delivered in the State of California and shall be construed in accordance with
and governed by the laws of such state, without regard to principles of
conflicts of laws. Venue for all proceedings in any way relating to this
Agreement, including without limitation, proceedings conducted under Section 9.5
hereof, shall lie in Riverside County, California.
9.2 Other Agreements. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have not made agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein. No
amendment or modification of this Agreement shall be deemed effective unless
made in writing signed by the parties hereto.
9.3 Successors. This Agreement shall extend to and be binding upon
Employee, his legal representatives, heirs and distributees, and upon Employer,
its successors and assigns; provided, however, that Employee may not delegate
any of Employee's duties under this Agreement. For the purposes of this
Agreement, unless the context otherwise requires, references to Employer shall
include Employer's subsidiaries and affiliated persons.
9.4 No Waiver. Forbearance or failure to pursue any legal remedy or
right upon default or breach hereof shall not constitute waiver of such right,
nor shall any such forbearance, failure or actual waiver imply or constitute
waiver of any subsequent default or breach. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any estoppel
to enforce any provision of this Agreement, except by a statement in writing
signed by the party against whom enforcement of the waiver or estoppel is
sought.
9.5 Arbitration. All disputes arising under or relating to this
Agreement or its breach other than actions for injunctive relief shall be
submitted to binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association. Any award of the arbitrator(s) shall be final
and binding on the parties hereto and judgment on such award may be entered in
any court of competent jurisdiction.
9.6 Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reimbursement of reasonable
attorneys' fees and costs.
9.7 Notices. Any notice with respect to this Agreement shall be deemed
to have been duly served on the party entitled to notice if that notice has been
served at the address provided in this Agreement or such other address as may be
provided from time to time and shall be deemed duly given or made if delivered
or deposited in the United States mail as first class mail, postage prepaid.
9.8 Headings. Headings used in this Agreement are used for convenience
only and do not constitute substantive matters to be considered in constructing
the terms of this Agreement.
9.9 Severability. In case any one or more of the provisions of this
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, any other provisions in this Agreement shall be construed as if
such invalid, illegal, or unenforceable provisions had never been contained
herein. Such provisions shall be given effect to the maximum extent permitted by
law.
9.10 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.11 Amendments. This Agreement may not be altered, modified or amended
except pursuant to a written instrument executed by all parties hereto.
9.12 Construction of Agreement. The parties hereto acknowledge and
agree that neither this Agreement nor any of the other documents executed in
connection herewith shall be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of
this Agreement and the documents executed in connection herewith.
9.13 No Third Party Beneficiaries. Except as otherwise expressly set
forth in this Agreement, no person or entity not a party to this Agreement shall
have rights under this Agreement as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement
effective as of the day and year above first written.
"EMPLOYEE" COMPETITIVE COMMUNICATIONS INC.
By:_______________________ By:_________________________
David Kline, Sr. David Kline II
President
APPENDIX A
DUTIES OF CHAIRMAN OF THE BOARD/CHIEF EXECUTIVE OFFICER
Presides over all meetings of the Board of Directors and directs and
coordinates the activities of the Board of Directors in establishing corporate
policies, goals, and objectives that cover company operations, personnel,
financial performance and growth, legal matters, and corporate disposition.
Serves as an equal voting member of the Board of Directors.
In the President's and Chief Financial Officer's absence, executes
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
corporation.
Directs the activities of the President and Chief Financial Officer.
Reporting to the Board of Directors, directs the activities of the
President and Chief Financial Officer, in directing, administering and
coordinating the activities of the Corporation in accordance with policies,
goals and objectives established by the Board of Directors.
Oversees and directs the President and Chief Financial Officer to
achieve budgeted profit results and other financial criteria and preserve the
capital funds invested in the enterprise.
He shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or the By-Laws.
<PAGE>
Exhibit # 10.09
Employment Agreement - David Kline, Jr.
<PAGE>
COMPETITIVE COMMUNICATIONS INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective the 8th day of April 1996 between COMPETITIVE COMMUNICATIONS INC., a
California corporation, having its principal place of business at 11713 Sterling
Avenue, Suite F, Riverside, California (hereinafter "Employer"), and David Kline
II whose address is 23820 Aetna, Woodland Hills, California 91367, (hereinafter
"Employee").
1. Term.
The Term of Employee's employment hereunder shall be for a five (5)
year period, unless terminated prior thereto in accordance with section 4
hereof, commencing on the date hereof (the "Initial Term"). This Agreement shall
automatically extend for an additional two (2) year term (the "Extension Term"),
provided that neither the Employer nor Employee has elected to terminate this
Agreement effective the end of the Initial Term by giving three (3) months'
prior written notice one to the other. The entire duration of Employee's
employment by Employer is herein called the "Employment Period".
2. Position and Duties.
2.1 Position and Duties. Employee agrees to serve as President and
Chief Operating Officer and to perform the duties set forth in Appendix A
attached hereto and such other duties as the Chief Executive Officer/Chairman of
the Board of the Board of Directors of Employer shall from time to time direct.
2.2 Faithful Performance. Employee agrees to serve Employer faithfully
and to the best of his ability, and to devote his attention and efforts to the
business and affairs of Employer. Employee confirms that he is under no
contractual commitments inconsistent with the obligations set forth in this
Agreement, and that while employed hereunder he will not render or perform
services for any other corporation, firm, entity or person inconsistent with
this Agreement without the prior written consent of Employer.
2.3 Rules and Regulations. Employee shall at all times strictly adhere
to and obey all of the reasonable rules, regulations, corporate policies,
directions, and restrictions now in effect or as may be subsequently modified or
adopted by Employer governing the conduct of executive employees.
3. Compensation.
3.1 Base Salary. For all services to be rendered by Employee under this
Agreement, Employer agrees to pay or cause to be paid to Employee:
(a) $76,600 per year ("Base Salary") prorated from date first written
above until the Employer receives at least $1,000,000 in funding investment.
During such period, all amounts not paid, shall be accrued and paid within
fourteen (14) days of receipt of such funding by Employer;
(b) $130,000 per year ("Base Salary") prorated commencing on the receipt of
at least $1,000,000 in funding investment by Employer.
Base Salary shall be payable at the discretion of the Employer either
weekly at 1/52nd of Base or bi-monthly at 1/26th of Base in two equal monthly
payments due on the first and fifteenth day of each month. Nothing in this
provision shall operate to prevent increases in Employee's Base Salary from time
to time as determined by Employer's Board of Directors.
3.2 Bonus. In addition to the Base Salary, Employee shall be entitled
to a bonus in any fiscal year in which the pre-tax and pre-contribution ("PTPC")
operating profit of Employer is $1,000,000 or more. The bonus shall be 1 equal
share of the Executive Bonus Pool ("ExBP"). The ExBP shall be equal to 6% of the
PTPC profit in any given fiscal year. The ExBP shall be paid at the same time as
the 6% PTPC Non-executive Employee Bonus Pool and within ten (10) days after the
Employer's accountants have completed the net pre-tax audit and has been
accepted by the Board of Directors.
3.3 Additional Benefits. In addition to the Base Salary, Employee shall
be entitled during the Employment Period to receive such Additional Benefits as
may be provided for him or to which he may become entitled because his position,
tenure, salary, age, health or other qualifications make him eligible to
participate. For purposes hereof, "Additional Benefits" means (a) participation
in bonus and incentive compensation plans or pools, stock option, bonus, award
or purchase plans, retirement plans, and other employee benefit plans of
Employer, if any; (b) life, health, medical, dental, accident, and other
personal insurance coverage provided by Employer for employees or their
dependents; (c) directors' and officers' liability insurance coverage provided
by Employer and charter or bylaw provisions or contracts providing for
indemnification of corporate personnel or elimination or limitation of their
liabilities as such; (d) an Employer provided automobile per guidelines approved
by the Board of Directors, (e) use of Employer's property and facilities and
other perquisites of employment with Employer; (f) paid vacation, leave or
holidays; and (f) any and all other compensation, benefits and perquisites of
employment with Employer, if any, other than Base Salary.
3.4 Expenses. Employer will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by him in his
performance under this Agreement, subject to the presentation of appropriate
vouchers in accordance with applicable laws and Employer's expense reimbursement
policies and procedures in effect and applicable to management employees.
3.5 Location and Relocation Expenses. Employer shall pay for all of
Employee's moving and personal expenses in connection with any Employer required
relocations which occurs after Employee is hired.
4. Termination.
4.1 Termination. The employment of Employee with Employer shall
terminate on the date of the occurrence of any of the following events:
(a) Expiration of the Employment Period hereof;
(b) The death of Employee;
(c) Fifteen (15) days after the date on which Employer shall have given
Employee written notice of the termination of Employee's employment by
reason of permanent physical or mental incapacity that prevents
Employee from performing the essential elements of Employee's position
for a period of six consecutive months or more as determined by a
medical professional selected by Employer, in its sole discretion, and
by Employer acting in good faith;
(d) Upon five (5) days' written notice to Employee for "cause", which
shall include only the following: intentional misconduct or gross
negligence by Employee in the course of employment; the commission or
perpetration by Employee of any fraud against Employer or any other
party in connection with his employment hereunder; the commission by
Employee of such acts or dishonesty, fraud or misrepresentation or
other acts of moral turpitude as would prevent the effective
performance of his duties; knowingly causing or permitting Employer to
violate any law, which violation shall have a material effect on
Employer; or the failure to perform, breach, or violation by Employee
of any of Employee's material obligations under this Agreement which
continues after fifteen (15) days' written notice has been given to
Employee by Employer specifying the failure to perform, breach, or
violation;
(e) Upon at least sixty (60) days' advance written notice by Employee;
or
(f) Upon at least sixty (60) days' advance written notice by Employer based
solely on concurrence of a minimum of 4/5th of the Board of Directors.
4.2 Payments of Base Salary, Incentive Bonus, and Additional Benefits.
(a) Upon any termination, (1) Employee (or Employee's estate in the
case of death) shall immediately be paid all accrued Base Salary which
would otherwise be due and payable and accrued vacation pay, all to the
date of termination, (2) benefits accrued under Employer's Employee
benefit plans, if any, will be paid in accordance with such plans, and
(3) bonuses shall be paid at the end of the fiscal year if earned ,
with the amount prorated by the number of days during the fiscal year
Employee was employed. Upon termination, Employee shall not be entitled
to any other payments or benefits except upon the conditions and as set
forth in Section 4.2 (b) of this Agreement.
(b) In the event Employee's employment under this Agreement is
terminated pursuant to Section 4.1(c) or 4.1(f): Employer shall pay
Employee an amount equal the Employee's then Base Salary multiplied by
twenty-four (24) months.
(c) In the event of termination of Employee's employment pursuant to
Section 4.1(c) or 4.1(f), Employer agrees to continue to provide
Employee's medical insurance for a period of twenty four (24) months
following such termination.
4.3 Effect of Termination. Notwithstanding any termination in this
Agreement, the covenants and Agreements contained in Sections 4.4, 5, 6, 7, and
8 shall be construed as independent of any other agreements between the parties
and shall survive the termination of the employment of the Employee. The
existence of any claim or cause of action of Employee against Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of such covenants.
4.4 Return of Employer's Property. If Employee is terminated either by
expiration of this Agreement, pursuant to Section 4.1, or otherwise, Employee
shall immediately deliver to Employer all originals and copies of notes,
memoranda, writings, lists, files, reports, customer lists, personnel files, and
information, correspondence, tapes, discs, cards, logs, machines, technical
data, credit cards, keys to the premises, or any other tangible product or
documents (individually and collectively known as "Company Proprietary Items")
which Employee produced, received or otherwise had access to while employed.
5. Confidentiality.
Employee during employment may have access to or become acquainted with
various confidential information and trade secrets, including, but not limited
to, formulas, technical data, patents, devices, secret inventions, personnel
information, customer lists, processes, and compilations of information,
records, reports, correspondence, tapes, discs, tangible property and
specifications (collectively and inclusively, "Confidential Information"), which
are owned by or licensed to Employer. Employee shall not disclose any of the
aforesaid Confidential Information, directly or indirectly, or use it in any way
either during the Employment Period or at any time thereafter, except as
required in the course of his Employment by Employer. All Confidential
Information of Employer, whether prepared by Employee or otherwise coming into
his possession, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer in any circumstances whatsoever without
the prior written consent of Employer.
6. Restrictive Covenant.
Non-Competition. Employee hereby agrees that during the term of
Employee's employment with Employer, Employee shall not engage, directly or
indirectly, or be interested (as director, officer employee, partner,
consultant, principal, shareholder, or otherwise) in any firm, corporation, or
other entity in the business of developing, producing, distributing, or selling
any product competitive with the products of Employer in any geographic area in
which Employer engages in such business without the express written consent of
Employer. Ownership by Employee of less than one percent (1%) of the outstanding
voting stock of any competing publicly held corporation shall not constitute a
violation of this Section 6.
7. Injunctive Relief.
Employee agrees that it would be difficult to compensate Employer fully
for damages suffered by Employer through any violation of the provisions of this
Agreement by the Employee including without limitation the provisions of
Sections 5 and 6 above, and Employee agrees that there is not adequate remedy at
law for such violation. Accordingly, Employee specifically agrees that Employer
shall be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision shall not in any way
whatsoever diminish the right of Employer to claim and recover damages in
addition to injunctive relief.
8. Inventions.
8.1 Inventions. Employee agrees to promptly disclose and assign to
Employer, exclusively, all of his rights and interest in any inventions,
discoveries, improvements, designs, practices, processes, formulae, techniques,
know-how and methods (hereinafter collectively referred to as " Inventions"),
that are in any way related to the services provided by Employee during the term
of his employment with Employer or to the services provided under this
Agreement, or to any other work or project of Employer that Employee may either
become aware of or be assigned to work on by Employer, which he, individually or
jointly, shall make, originate, conceive of or reduce to practice during the
term of his employment with Employer or the term of his relationship with
Employer under this Agreement whether made on or off of the premises of
Employer; and he shall, during and after the term of his employment and the term
of this Agreement, assist Employer to obtain, for its own benefit, patents on
such Inventions to remain the property of Employer whether or not patented.
8.2 Trailer Period. Employee expressly agrees that any Inventions which
are disclosed or offered to third parties, published or implemented by Employee
or declared in a patent application filed by Employee or by any entity
associated with Employee within one (1) year following termination of Employee's
employment shall be deemed to be originated or made during Employee's employment
with Employer and subject to Section 8.1 hereof, unless Employee can prove by a
preponderance of the evidence to the contrary.
9. Miscellaneous.
9.1 Choice of Laws, Jurisdiction, Venue. This Agreement is being
delivered in the State of California and shall be construed in accordance with
and governed by the laws of such state, without regard to principles of
conflicts of laws. Venue for all proceedings in any way relating to this
Agreement, including without limitation, proceedings conducted under Section 9.5
hereof, shall lie in Riverside County, California.
9.2 Other Agreements. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have not made agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein. No
amendment or modification of this Agreement shall be deemed effective unless
made in writing signed by the parties hereto.
9.3 Successors. This Agreement shall extend to and be binding upon
Employee, his legal representatives, heirs and distributees, and upon Employer,
its successors and assigns; provided, however, that Employee may not delegate
any of Employee's duties under this Agreement. For the purposes of this
Agreement, unless the context otherwise requires, references to Employer shall
include Employer's subsidiaries and affiliated persons.
9.4 No Waiver. Forbearance or failure to pursue any legal remedy or
right upon default or breach hereof shall not constitute waiver of such right,
nor shall any such forbearance, failure or actual waiver imply or constitute
waiver of any subsequent default or breach. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any estoppel
to enforce any provision of this Agreement, except by a statement in writing
signed by the party against whom enforcement of the waiver or estoppel is
sought.
9.5 Arbitration. All disputes arising under or relating to this
Agreement or its breach other than actions for injunctive relief shall be
submitted to binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association. Any award of the arbitrator(s) shall be final
and binding on the parties hereto and judgment on such award may be entered in
any court of competent jurisdiction.
9.6 Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reimbursement of reasonable
attorneys' fees and costs.
9.7 Notices. Any notice with respect to this Agreement shall be deemed
to have been duly served on the party entitled to notice if that notice has been
served at the address provided in this Agreement or such other address as may be
provided from time to time and shall be deemed duly given or made if delivered
or deposited in the United States mail as first class mail, postage prepaid.
9.8 Headings. Headings used in this Agreement are used for convenience
only and do not constitute substantive matters to be considered in constructing
the terms of this Agreement.
9.9 Severability. In case any one or more of the provisions of this
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, any other provisions in this Agreement shall be construed as if
such invalid, illegal, or unenforceable provisions had never been contained
herein. Such provisions shall be given effect to the maximum extent permitted by
law.
9.10 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.11 Amendments. This Agreement may not be altered, modified or amended
except pursuant to a written instrument executed by all parties hereto.
9.12 Construction of Agreement. The parties hereto acknowledge and
agree that neither this Agreement nor any of the other documents executed in
connection herewith shall be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of
this Agreement and the documents executed in connection herewith.
9.13 No Third Party Beneficiaries. Except as otherwise expressly set
forth in this Agreement, no person or entity not a party to this Agreement shall
have rights under this Agreement as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement
effective as of the day and year above first written.
"EMPLOYEE" COMPETITIVE COMMUNICATIONS INC.
By:_______________________ By:_________________________
David Kline II David Kline
Chief Executive Officer
APPENDIX A
DUTIES OF PRESIDENT AND CHIEF OPERATING OFFICER
Reporting to the Chairman and Chief Executive Officer, the President
shall be the Chief Operating Officer of the corporation and have direct
management and supervision, direction and control of the business and Officers
and personnel of the corporation assigned to him in accordance with policies,
goals and objectives established by the Chairman and Chief Executive Officer and
the Board of Directors. He shall preside at all meetings of the Shareholders and
in the absence of the Chairman of the Board/Chief Executive Officer, or if there
be none, at all meetings of the Board of Directors. He shall be ex officio a
member of all the standing committees, including the Executive Committee, if
any, and shall have the general powers and duties of management usually vested
in the office of President of a corporation, and shall have such other powers
and duties as may be prescribed by the Board of Directors or the By-Laws.
Assists the Chairman and Chief Executive Officer in the development of
corporate policies and goals that cover company operations, personnel, financial
performance and growth. May perform duties of the Chairman and Chief Executive
Officer in his absence.
Directs the activities of Vice President(s) and personnel assigned to him
to include: Chief Technical Manager, and Facility Operations Manager.
Guides and directs the members of management in the development and
production of the corporation's products and services throughout the world.
Directs corporate operations to achieve budgeted profit results and
other financial criteria and preserve the capital funds invested in the
enterprise.
Serves as an equal voting member of the Board of Directors. Executes
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
corporation.
<PAGE>
Exhibit # 10.10
Agreement with LCI Quest
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.11
Agreement with Inet
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.12
Sample Option Agreement - employees
<PAGE>
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan (attached as
Exhibit "B") shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[NAME]
[STREET ADDRESS]
[CITY, STATE ZIP]
You have been granted an option to purchase Class A Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement as follows:
Grant Number 98-Ennnnn
Date of Grant n/nn/nn
Vesting Commencement Date See Vesting Schedule below
Exercise Price per Share See Vesting Schedule below
Total Number of Shares Granted nnn,nnn
Type of Option Incentive Stock Option
Term/Expiration Date See Vesting Schedule below
A. Vesting Schedule. This Option may be exercised in accordance with the
following terms which are based on the Optionee's following performance as an
Agent for the Company:
<TABLE>
<CAPTION>
NUMBER OF FIRST
EXERCISE SHARES WHICH EXERCISE EXPIRATION
OPTION PRICE CAN BE PURCHASED DATE DATE
<S> <C> <C> <C> <C>
A $n.nn [40%] [2 years] [10 years from grant date]*
B $n.nn [20%] [3 years] [10 years from grant date]*
C $n.nn [20%] [4 years] [10 years from grant date]*
D $n.nn [20%] [5 years-1 day] [10 years from grant date]*
</TABLE>
* 5 years for 10%+ stockholders
B. Termination Period. Those Options which reach the above defined
Levels and have not reached their respective Expiration Date, may be exercised
for ninety (90) days after Optionee ceases to be an Employee of the Company; or
upon the death or Disability of the Optionee, for one hundred eighty (180) days
after Optionee ceases to be an Employee of the Company. In no event shall these
Options be exercised later than the applicable Expiration Date as provided
above.
II. AGREEMENT
A. Grant of Option. The Plan Administrator of the Company hereby grants to the
Optionee named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price(s) per Share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan (attached as Exhibit "B"), which is incorporated herein by
reference. Subject to Section 7 of the Plan, in the event of a conflict between
the terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
1. Right to Exercise. This Option is exercisable during its term in accordance
with the Vesting Schedule set forth in the Notice of Grant and the applicable
provisions of the Plan and this Stock Agreement.
2. Method of Exercise. This Option is exercisable by delivery of an exercise
notice, in the form attached as Exhibit "A" (the "Exercise Notice"), which shall
state the election to exercise the Option, the number of Shares in respect to
which Option is being exercised (the "Exercised Shares"), and such other
representations and agreements as may be required by the Company pursuant to the
provisions of the Plan. The Exercise Notice shall be completed by the Optionee
and delivered to the Secretary of the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon the receipt by the
Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of
this Option unless such issuance and exercise
complies with Applicable Laws. Assuming such compliance, for income tax purposes
the Exercised Shares shall be considered transferred to the Optionee on the date
the Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a Fair Market Value on the date
of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee.
5. Term of Option. This Option may be exercised only within the term(s) set out
in the Notice of Grant, and may be exercised during such term(s) only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OF
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(1) Nonstatutory Stock Option. The Optionee may incur regular federal income tax
liability upon exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Exercised Shares on the date of
exercise over their aggregate Exercise Price. If the Optionee is an Employee or
a former Employee, the Company will be required to withhold from his or her
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the same time of
exercise.
(2) Incentive Stock Option. If this Option qualifies as an ISO, the Optionee
will have no regular federal income tax liability upon its exercise, although
the excess, if any, of the Fair Market Value of the Exercise Shares on the date
of exercise over the aggregate Exercise Price will be treated as an adjustment
to alternative minimum taxable income for federal tax purposes and may subject
the Optionee to alternative minimum tax in the year of exercise. In the event
that the Optionee ceases to be an Employee but remains a Service Provider, any
Incentive Stock Option of the Optionee that remains unexercised shall cease to
qualify as an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option in the date three (3) months and one (1) day following
such change of status.
(b) Disposition of Shares.
(1) NSO. If the Optionee holds NSO Shares for at least one year, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. (2) ISO. If the Optionee holds ISO Shares for
at least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (a) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (b) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional gain
will be taxed as capital gain, short-term or long-term depending on the period
that the ISO Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to an ISO on or before
the later of (i) two years after the grant date, or (ii) one year after the
exercise date, the Optionee shall immediately notify the Company in writing of
such disposition. The Optionee agrees that he or she may be subject to income
tax withholding by the Company on the compensation income recognized from such
early disposition of ISO Shares by payment in cash or out of the current
earnings paid to the Optionee.
7. Entire Agreement Governing Law. The Plan is incorporated herein by reference.
The Plan and this Option Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER OR EMPLOYEE, AS THE CASE MAY BE, AT THE WILL OF
THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR
PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVIE PROVIDER OR EMPLOYEE FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER OR
EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address and telephone numbers indicated below.
OPTIONEE: COMPETITIVE COMPANIES, INC.
------------------------------ ------------------------------
Signature Signature
______________________________ Larry A. Halstead
Print Name Corporate Secretary & Plan Administrator
11731 Sterling Avenue, Suite F
______________________________ Riverside, CA 92503
Address (909) 687-6100
------------------------------
City State Zip
(------)-----------------------
Telephone Number
<PAGE>
EXHIBIT A
EXERCISE NOTICE
TO: COMPETITIVE COMPANIES, INC.
Attn: Stock Plan Administrator
11731 Sterling Avenue, Suite F
Riverside, CA 92503
FROM: ______________________________
------------------------------
------------------------------
As of ___________________ (Date) and in accordance with the terms of Stock
Option Grant Number
________ I hereby elect to exercise such Option to the extent delineated below:
1. OPTION NUMBER: __________
2. NUMBER OF SHARES BEING EXERCISED: __________
3. EXERCISE PRICE PER SHARE (PER OPTION NUMBER): $__________
4. AGGREGATE PRICE OF SHARES (#2 X #3, above) $__________
5. PAYMENT METHOD:
_____ Cash Amount: $__________
_____ Check Amount: $__________
_____ Other per Plan (describe below): $__________
_____ Surrender of Other Shares (Fair Market Value):
$----------
(Executed Certificate(s) #____,____,____ attached)
TOTAL (must equal #4 total above):
$----------
Other Plan Payment Method:_____________________________________________________
- -------------------------------------------------------------------------------
Amount of Payment Enclosed: $__________________
Signed:____________________________ Date:_____________________
Enclosure(s)-
- --------------------------
- --------------------------
<PAGE>
Exhibit # 10.13
Sample Option Agreement - consultants
<PAGE>
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan (attached as
Exhibit "B") shall have the same defined meanings in this Option Agreement.
III. NOTICE OF STOCK OPTION GRANT
James Healey
2435 Coates Street
Dubuque, IA 52003
You have been granted an option to purchase Class A Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement as follows:
Grant Number 99-N00001
Date of Grant 10/1/99
Vesting Commencement Date See Vesting Schedule below
Exercise Price per Share See Vesting Schedule below
Total Number of Shares Granted 50,000
Type of Option Nonstatutory Stock Option
Term/Expiration Date See Vesting Schedule below
A. Vesting Schedule. This Option may be exercised in accordance with the
following terms which are based on the Optionee's following performance as an
Agent for the Company:
<TABLE>
<CAPTION>
UPON COMPANY'S MONTHLY NUMBER OF
BILLING TO AGENT'S CUSTOMERS EXERCISE SHARES WHICH EXPIRATION
OPTION FIRST REACHING THIS LEVEL PRICE CAN BE PURCHASED DATE
- ------ ------------------------- ----- ---------------- ----
<S> <C> <C> <C> <C>
A $100,000 $1.00 10,000 10/1/04
B $200,000 $2.00 10,000 10/1/05
C $300,000 $3.00 10,000 10/1/06
D $400,000 $4.00 10,000 10/1/07
E $500,000 $5.00 10,000 10/1/08
</TABLE>
B. Termination Period. Those Options which reach the above defined
Levels and have not reached their respective Expiration Date, may be exercised
for ninety (90) days after Optionee ceases to be an Agent (Service Provider) for
the Company; or upon the death or Disability of the Optionee, for one hundred
eighty (180) days after Optionee ceases to be an Agent (Service Provider) for
the Company. In no event shall these Options be exercised later than the
applicable Expiration Date as provided above.
IV. AGREEMENT
C. Grant of Option. The Plan Administrator of the Company hereby grants to the
Optionee named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price(s) per Share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan (attached as Exhibit "B"), which is incorporated herein by
reference. Subject to Section 7 of the Plan, in the event of a conflict between
the terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
D. Exercise of Option.
9. Right to Exercise. This Option is exercisable during its term in accordance
with the Vesting Schedule set forth in the Notice of Grant and the applicable
provisions of the Plan and this Stock Agreement.
10. Method of Exercise. This Option is exercisable by delivery of an exercise
notice, in the form attached as Exhibit "A" (the "Exercise Notice"), which shall
state the election to exercise the Option, the number of Shares in respect to
which Option is being exercised (the "Exercised Shares"), and such other
representations and agreements as may be required by the Company pursuant to the
provisions of the Plan. The Exercise Notice shall be completed by the Optionee
and delivered to the Secretary of the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon the receipt by the
Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of
this Option unless such issuance and exercise
complies with Applicable Laws. Assuming such compliance, for income tax purposes
the Exercised Shares shall be considered transferred to the Optionee on the date
the Option is exercised with respect to such Exercised Shares.
11. Method of Payment. Payment of the aggregate Exercise Price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(e) cash;
(f) check;
(g) consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan; or
(h) surrender of other Shares which (i) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a Fair Market Value on the date
of surrender equal to the aggregate Exercise Price of the Exercised Shares.
12. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee.
13. Term of Option. This Option may be exercised only within the term(s) set out
in the Notice of Grant, and may be exercised during such term(s) only in
accordance with the Plan and the terms of this Option Agreement.
14. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OF
DISPOSING OF THE SHARES.
(d) Exercising the Option.
(3) Nonstatutory Stock Option. The Optionee may incur regular federal income tax
liability upon exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Exercised Shares on the date of
exercise over their aggregate Exercise Price. If the Optionee is an Employee or
a former Employee, the Company will be required to withhold from his or her
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the same time of
exercise.
(4) Incentive Stock Option. If this Option qualifies as an ISO, the Optionee
will have no regular federal income tax liability upon its exercise, although
the excess, if any, of the Fair Market Value of the Exercise Shares on the date
of exercise over the aggregate Exercise Price will be treated as an adjustment
to alternative minimum taxable income for federal tax purposes and may subject
the Optionee to alternative minimum tax in the year of exercise. In the event
that the Optionee ceases to be an Employee but remains a Service Provider, any
Incentive Stock Option of the Optionee that remains unexercised shall cease to
qualify as an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option in the date three (3) months and one (1) day following
such change of status.
(e) Disposition of Shares.
(3) NSO. If the Optionee holds NSO Shares for at least one year, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. (4) ISO. If the Optionee holds ISO Shares for
at least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (a) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (b) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional gain
will be taxed as capital gain, short-term or long-term depending on the period
that the ISO Shares were held.
(f) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to an ISO on or before
the later of (i) two years after the grant date, or (ii) one year after the
exercise date, the Optionee shall immediately notify the Company in writing of
such disposition. The Optionee agrees that he or she may be subject to income
tax withholding by the Company on the compensation income recognized from such
early disposition of ISO Shares by payment in cash or out of the current
earnings paid to the Optionee.
15. Entire Agreement Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
16. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER OR EMPLOYEE, AS THE CASE MAY BE, AT THE WILL OF
THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR
PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVIE PROVIDER OR EMPLOYEE FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER OR
EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address and telephone numbers indicated below.
OPTIONEE: COMPETITIVE COMPANIES, INC.
------------------------------ ------------------------------
Signature Signature
______________________________ Larry A. Halstead
Print Name Corporate Secretary & Plan Administrator
3751 Merced Drive, Suite A
______________________________ Riverside, CA 92503
Address (909) 687-6100
------------------------------
City State Zip
(------)-----------------------
Telephone Number
<PAGE>
EXHIBIT A
EXERCISE NOTICE
TO: COMPETITIVE COMPANIES, INC.
Attn: Stock Plan Administrator
3751 Merced Drive, Suite A
Riverside, CA 92503
FROM: ______________________________
------------------------------
------------------------------
As of ___________________ (Date) and in accordance with the terms of Stock
Option Grant Number
________ I hereby elect to exercise such Option to the extent delineated below:
6. OPTION NUMBER: __________
7. NUMBER OF SHARES BEING EXERCISED: __________
8. EXERCISE PRICE PER SHARE (PER OPTION NUMBER): $__________
9. AGGREGATE PRICE OF SHARES (#2 X #3, above) $__________
10. PAYMENT METHOD:
_____ Cash Amount: $__________
_____ Check Amount: $__________
_____ Other per Plan (describe below): $__________
_____ Surrender of Other Shares (Fair Market Value):
$----------
(Executed Certificate(s) #____,____,____ attached)
TOTAL (must equal #4 total above):
$----------
Other Plan Payment Method:_____________________________________________________
- -------------------------------------------------------------------------------
Amount of Payment Enclosed: $__________________
Signed:____________________________ Date:_____________________
Enclosure(s)-
- --------------------------
- --------------------------
<PAGE>
Exhibit # 10.14
Subscription Agreement - Common Stock
<PAGE>
EXHIBIT C
SUBSCRIPTION AGREEMENT
(IRREVOCABLE)
<PAGE>
SUBSCRIPTION AGREEMENT
(IRREVOCABLE)
Competitive Companies, Inc.
Attn: Chief Executive Officer
1. General. Pursuant to the terms of the offer made by Competitive
Companies, Inc. (the "Company") contained in the Company's Confidential Private
Offering Memorandum dated August 1, 1998, (said Memorandum, including the
exhibits and attachments thereto, being hereinafter called the "Memorandum"),
the undersigned hereby tenders this subscription and applies for the purchase of
the number of shares (the "Shares") set forth on the signature page of this
Agreement, of the Company's common stock, par value $.001 per share (the "Common
Stock"), at a purchase price of $1.00 per Share with a minimum purchase of
20,000 Shares ($20,000). (Fractional Shares may be purchased at the discretion
of the Company.)
Terms not defined herein are defined in the Memorandum.
2. Representations and Warranties. In order to induce the Company to
accept this subscription, the undersigned hereby represents and warrants to, and
covenants with, the Company (and others) as follows:
(i) The undersigned has received and carefully reviewed the
Memorandum, and except for the Memorandum, the undersigned has not been
furnished with any other materials or literature relating to the offer and sale
of the Securities, and the undersigned agrees this subscription is irrevocable
with the purchase price being non-refundable except as otherwise expressly
stated in the Memorandum;
(ii) The undersigned has had a reasonable opportunity to ask
questions of and receive answers from the Company concerning the Company and the
offering to which the Memorandum relates, and all such questions, if any, have
been answered to the full satisfaction of the undersigned;
(iii) The undersigned has such knowledge and expertise in
financial and business matters such that the undersigned is capable of
evaluating the merits and risks involved in an investment in the Shares;
(iv) The Confidential Purchaser Questionnaire being delivered
by the undersigned to the Company simultaneously herewith is true, complete and
correct in all material respects; and the undersigned understands that the
Company has determined that the exemption from the registration provisions of
the Securities Act of 1933, as amended (the "Act"), which is based upon
non-public offerings are applicable to the offer and sale of the Shares, based,
in part, upon the representations, warranties and agreements made by the
undersigned herein and in the Confidential Purchaser Questionnaire referred to
above;
(v) Except as set forth in the Memorandum, no representations
or warranties have been made to the undersigned by the Company or any agent,
employee or affiliate of the Company and in entering into this transaction the
undersigned is not relying upon any information, other than that contained in
the Memorandum and the results of independent investigation by the undersigned;
(vi) The undersigned understands that (a) the Shares have not
been registered under the Act or the securities laws of any state, based upon an
exemption from such registration requirements for non-public offerings pursuant
to Regulation D under the Act; (b) the Shares may be "restricted securities" as
said term is defined in Rule 144 of the Rules and Regulations promulgated under
the Act; (c) the Shares may not be sold or otherwise transferred unless they
have been first registered under the Act and all applicable state securities
laws, or unless exemptions from such registration provisions are available with
respect to said resale or transfer; (d) other than as set forth in the
Memorandum, the Company is under no obligation to register the Shares under the
Act or any state securities laws, or to take action to make any exemption from
any such registration provisions available; (e) the certificates for the Shares
may bear a legend to the effect that the transfer of the securities represented
thereby is subject to the provisions hereof; and (f) stop transfer instructions
may be placed on the Shares;
<PAGE>
(vii) The undersigned is acquiring the Shares solely for the
account of the undersigned, for investment purposes only, and not with a view
towards the resale or distribution thereof;
(viii) The undersigned will not sell or otherwise transfer any
of the Shares, or any interest therein, unless and until (a) said Shares shall
have first been registered under the Act and all applicable state securities
laws; or (b) the undersigned shall have first delivered to the Company a written
opinion of counsel (which counsel and opinion in form and substance shall be
reasonably satisfactory to the Company), to the effect that the proposed sale or
transfer is exempt from the registration provisions of the Act and all
applicable state securities laws;
(ix) The undersigned has full power and authority to execute
and deliver this Subscription Agreement and to perform the obligations of the
undersigned hereunder; and this Subscription Agreement is a legally binding
obligation of the undersigned in accordance with its terms;
(x) The undersigned is, if applicable, an "accredited
investor", as such term is defined in Regulation D of the Rules and Regulations
promulgated under the Act and as set forth in the Confidential Purchaser
Questionnaire;
(xi) The undersigned understands and acknowledges that no
Selling Agent makes any representations or warranties as to the accuracy or
completeness of the information contained in the Memorandum; and
(xii) The undersigned has carefully reviewed the jurisdictional
notices listed below and agrees to abide by any restrictions contained therein
applicable to the undersigned.
Any foreign subscriber shall be deemed to agree by making the
subscription hereunder to be fully responsible and liable to undertake all steps
necessary for the Offering and the Company to be fully registered in the
jurisdiction/country of the subscriber.
<PAGE>
JURISDICTIONAL NOTICES
For Residents of All States
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE
BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Legend
THE PRESENCE OF A LEGEND FOR ANY GIVEN STATE REFLECTS ONLY THAT A
LEGEND MAY BE REQUIRED BY THAT STATE AND SHOULD NOT BE CONSTRUED TO MEAN AN
OFFER OR SALE MAY BE MADE IN ANY PARTICULAR STATE. THIS MEMORANDUM MAY BE
SUPPLEMENTED BY ADDITIONAL STATE LEGENDS WITHOUT NOTICE. IF YOU ARE UNCERTAIN AS
TO WHETHER OR NOT OFFERS OR SALES MAY BE LAWFULLY MADE IN ANY GIVEN STATE, YOU
ARE ADVISED TO SPEAK WITH YOUR OWN LEGAL COUNSEL.
Rescission
ONE OR MORE STATES MAY REQUIRE AN INVESTOR BE PROVIDED WITH A STATUTORY
RIGHT TO RESCISSION, AS IN THE CASE OF FLORIDA. IT IS THE DETERMINATION OF THE
COMPANY TO, NEVERTHELESS, ALSO VOLUNTARILY TO OFFER A RIGHT OF RESCISSION TO
EACH INVESTOR. THEREFORE, ANY INVESTOR MAY WITHDRAW HIS SUBSCRIPTION AGREEMENT
AND RECEIVE A FULL REFUND OF ALL MONIES PAID , WITHIN THREE BUSINESS DAYS AFTER
THE DATE CONSIDERATION FOR SUCH SECURITY IS DELIVERED TO THE ESCROW AGENT
IDENTIFIED HEREIN. ANY INVESTOR THAT PURCHASES SECURITIES IS ENTITLED TO
EXERCISE THE FOREGOING RESCISSION RIGHT BY TELEGRAM OR LETTER NOTICE TO
COMPETITIVE COMPANIES, INC., 11731 STERLING AVENUE, SUITE F, RIVERSIDE,
CALIFORNIA 92503. ANY TELEGRAM OR LETTER SHOULD BE SENT OR POSTMARKED PRIOR TO
THE END OF THE THIRD BUSINESS DAY. A LETTER SHOULD BE MAILED BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, TO ENSURE ITS RECEIPT AND TO EVIDENCE THE TIME OF
MAILING. TO THE EXTENT ANY OTHER RESCISSION RIGHT APPLIES UNDER LAW, AS IN THE
CASE OF FLORIDA RESIDENTS, SUCH RESCISSION RIGHT SHALL CONTROL TO THE EXTENT OF
ANY CONFLICT WITH THIS PARAGRAPH.
NASSAA Uniform Legend
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY FEDERAL OR STATE SECURITIES COMMISSIONS OR REGULATORY
AUTHORITIES. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
Blue Sky Notices
IT IS ANTICIPATED THAT THE SECURITIES DESCRIBED HEREIN MAY BE OFFERED
FOR SALE IN SEVERAL STATES. THE SECURITIES BLUE SKY LAWS OF SOME OF THOSE STATES
REQUIRE THAT CERTAIN CONDITIONS AND RESTRICTIONS RELATING TO THE OFFERING BE
DISCLOSED.
California Residents
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN QUALIFIED WITH THE
CALIFORNIA DEPARTMENT OF CORPORATIONS NOR HAS THE CALIFORNIA DEPARTMENT OF
CORPORATIONS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE CALIFORNIA
COMMISSIONER OF CORPORATIONS DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE
SECURITIES.
Colorado Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE COLORADO SECURITIES ACT OF 1981, BY REASON OF SPECIFIC
EXEMPTIONS THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING.
THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY
PERSON OR ENTITY UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
Connecticut Residents
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD PURSUANT TO THE
EXEMPTION SET OUT IN SECTION 36490(B)(9) OF THE CONNECTICUT UNIFORM SECURITIES
ACT. THE SHARES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF
CONNECTICUT. THE SHARES CANNOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION
WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
CONNECTICUT BANKING COMMISSIONER NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
Florida Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA SECURITIES
ACT IN RELIANCE UPON EXEMPTION PROVISIONS CONTAINED THEREIN. SECTION 517.061(11)
OF THE FLORIDA SECURITIES ACT (THE "FLORIDA ACT") THAT ANY PURCHASER OF
SECURITIES IN FLORIDA WHICH ARE EXEMPTED FROM REGISTRATION UNDER SECTION
517.061(11) OF THE FLORIDA ACT MAY WITHDRAW HIS SUBSCRIPTION AGREEMENT AND
RECEIVE A FULL REFUND OF ALL MONIES PAID, WITHIN THREE BUSINESS DAYS AFTER THE
LATER OF (1) THE DATE HE TENDERS CONSIDERATION FOR SUCH SECURITIES AND (2) THE
DATE THIS STATUTORY RIGHT OF RESCISSION IS COMMUNICATED TO HIM. ANY RESIDENT WHO
PURCHASES SECURITIES IS ENTITLED TO EXERCISE THE FOREGOING STATUTORY RESCISSION
RIGHT BY TELEGRAM OR LETTER NOTICE TO COMPETITIVE COMPANIES, INC., 11731
STERLING AVENUE, SUITE F, RIVERSIDE, CALIFORNIA 92503. ANY TELEGRAM OR LETTER
SHOULD BE SENT OR POSTMARKED PRIOR TO THE END OF THE THIRD BUSINESS DAY. A
LETTER SHOULD BE MAILED BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE
ITS RECEIPT AND TO EVIDENCE THE TIME OF MAILING.
Illinois Residents
THESE SECURlTIES HAVE NOT BEEN REGISTERED UNDER SECTION 5 OF THE
ILLINOIS SECURITIES ACT OF 1953. THE SECURITIES MAY NOT BE RESOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Michigan Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE MICHIGAN SECURITIES
ACT AND ARE OFFERED AND SOLD PURSUANT TO AN EXEMPTION THEREFROM. THE SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH
ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
Missouri Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER 'THE SECURITIES ACT OF
1933, AS AMENDED, OR THE MISSOURI UNIFORM SECURITIES ACT, BY REASON OF SPECIFIC
EXEMPTIONS THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING.
THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY
PERSON OR ENTITY UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
Nebraska Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES ACT OF NEBRASKA, BY REASON OF SPECIFIC
EXEMPTIONS THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING.
THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY
PERSON OR ENTITY UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
Nevada Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE NEVADA SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS
THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING. THESE
SECURITIES CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY PERSON
OR ENTITY UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
New Jersey Residents
THESE SECURITIES ARE OFFERED IN RELIANCE ON AN EXEMPTION FROM
REGISTRATION UNDER THE NEW JERSEY UNIFORM SECURITIES LAW AND HAVE NOT BEEN
REGISTERED UNDER SAID LAW. THEY MAY NOT BE RE-OFFERED FOR SALE, TRANSFERRED OR
RESOLD WITHOUT COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SAID LAW OR AN
EXEMPTION THEREFROM. THE BUREAU OF SECURITIES OF NEW JERSEY HAS NOT PASSED UPON
THE ACCURACY OR COMPLETENESS OF THIS MEMORANDUM AND DOES NOT RECOMMEND OR
ENDORSE THE PURCHASE OF THE SHARES.
New Mexico Residents
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES BUREAU OF THE NEW MEXICO DEPARTMENT OF REGULATION AND LICENSING, NOR
HAS THE SECURITIES BUREAU PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
New York Residents
THIS MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY THE NEW YORK
ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL HAS NOT
PASSED ON NOR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL. ALL DOCUMENTS, RECORDS AND BOOKS PERTAINING TO THIS
INVESTMENT WILL BE MADE AVAILABLE FOR INSPECTION BY EACH NEW YORK INVESTOR AND
HIS OR HER ATTORNEY OR HIS OR HER ACCOUNTANT OR HIS OR HER PURCHASER
REPRESENTATIVE, AND THE BOOKS AND RECORDS OF THE ISSUER WILL BE AVAILABLE, UPON
REASONABLE NOTICE, FOR INSPECTION BY INVESTOR AT REASONABLE HOURS AT ITS
PRINCIPAL PLACE OF BUSINESS.
Pennsylvania Residents
EACH SUBSCRIBER WHO IS A PENNSYLVANIA RESIDENT HAS THE RIGHT TO CANCEL
AND WITHDRAW HIS SUBSCRIPTION AND HIS PURCHASE OF SHARES THEREUNDER, UPON
WRITTEN NOTICE TO THE COMPANY GIVEN WITHIN TWO BUSINESS DAYS FOLLOWING THE
RECEIPT BY THE COMPANY OF HIS EXECUTED SUBSCRIPTION AGREEMENT. ANY NOTICE OF
CANCELLATION OR WITHDRAWAL SHOULD BE MADE BY TELEGRAM OR CERTIFIED OR REGISTERED
MAIL AND WILL BE EFFECTIVE UPON DELIVERY TO WESTERN UNION OR DEPOSIT IN THE
UNITED STATES MAIL, POSTAGE OR OTHER TRANSMITTAL FEES PREPAID. UPON SUCH
CANCELLATION OR WITHDRAWAL, THE SUBSCRIBER WILL HAVE NO OBLIGATION OR DUTY UNDER
THE SUBSCRIPTION AGREEMENT TO THE COMPANY OR ANY OTHER PERSON AND WILL BE
ENTITLED TO THE FULL RETURN OF ANY AMOUNT PAID BY HIM, WITHOUT INTEREST.
NEITHER THE PENNSYLVANIA SECURITIES COMMISSION NOR ANY OTHER AGENCY PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. REPRESENTATION TO THE CONTRARY IS
UNLAWFUL. SUBSCRIBERS MAY NOT SELL THEIR SHARES FOR ONE YEAR FROM THE DATE OF
PURCHASE IF SUCH A SALE WOULD VIOLATE SECTION 203(D) OF THE PENNSYLVANIA
SECURITIES ACT.
Utah Residents
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UTAH SECURITIES ACT
AND ARE OFFERED AND SOLD PURSUANT TO AN EXEMPTION THEREFROM. THE SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH
ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
The undersigned has executed this Subscription Agreement this
day of , 199
<PAGE>
SIGNATURE PAGE
Organization Signature: Individual Signature:
BY:
Signature(s)
Print Name & Title of Person Print Name(s)
Signing
Print Name(s)
Number of Shares Subscribed for:
(All Subscribers should please print information
below exactly as they wish it to appear in the
records of the Company.)
Social Security Number of Individual or
Other Taxpayer I.D. Number
Address:
Number and Street
City State Zip Code
Please check the box to indicate the form of ownership (if applicable):
TENANTS-IN-COMMON JOINT TENANTS WITH RIGHT OF
(Both parties must sign above) SURVIVORSHIP
(Both parties must sign above)
TENANTS BY THE ENTIRETIES
(Both parties must sign above)
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Competitive Companies, Inc.
The foregoing subscription is hereby accepted this day of , 199 , for
Shares.
Competitive Companies, Inc.,
BY:
ITS: Chief Executive Officer
<PAGE>
85
<PAGE>
129
EXHIBIT D
CONFIDENTIAL PURCHASER QUESTIONNAIRE
(INDIVIDUAL)
<PAGE>
Competitive Companies Inc. ("COMPANY")
CONFIDENTIAL PURCHASER QUESTIONNAIRE FOR INDIVIDUALS
Purpose of this Questionnaire
Subject to adjustment, the Company is offering up to 950,000 Shares of
the common stock, par value $.001 per share (the "Common Stock"), of Competitive
Companies, Inc., pursuant to a Confidential Private Offering Memorandum of the
Company dated August 1, 1998, at a purchase price of $1.00 per Share (minimum
purchase 20,000 Shares---$20,000) without registration under the Securities Act
of 1933, as amended (the "Act"), or the securities laws of any state, in
reliance on the private offering exemptions contained in Sections 3(b), 4(2)
and/or 4(6) of the Act and/or in Regulation D of the General Rules and
Regulations under the Act and in reliance on similar exemptions under applicable
state laws. The Company must determine that an individual meets certain
suitability requirements before selling (or, in some states, offering) Shares to
such individual. This Questionnaire does not constitute an offer to sell or a
solicitation of an offer to buy Shares or any other security.
1. Name and Address. Please provide the following personal information:
Name
Age
Residence
Address:
(including Zip Code)
Business
Address
(including Zip Code)
Telephone: Res.: ( )
Bus.: ( )
Preferred Mailing Address: Residence Business
2. Accredited Investor Status. Please answer Question 2 by marking the
appropriate item below. As indicated below, Question 3 need only be answered if
all of the answers to Question 2 are "No".
(i) Did your individual annual income during each of the last
two years exceed $200,000 and do you expect your annual income during the
current year to exceed $200,000, or did your joint annual income (together with
your spouse) during each of the last two years exceed $300,000 and do you expect
your joint annual income during the current year to exceed $300,000?
Yes No
(ii) If the answer to the preceding question was no, does your
individual or joint (together with your spouse) net worth exceed $300,000?
Yes No
(iii) If your answer to Question 2(i) and 2(ii) was no, are you
an executive officer or director of the Company?
Yes No
3. Citizenship. If you are not a citizen of the United States of America, please
indicate your citizenship:
4. Investor Suitability Information.
Occupation or
Profession:
Nature of
Business:
Name of
Employer:
Address:
(Street)
(City) (State) (Zip Code)
Current Position or Title:
Period Employed:
Do you have sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks associated with
investing in the Company?
-----
Yes No
Please briefly describe the basis of your knowledge and experience:
5. By signing this Questionnaire, I hereby confirm the following statements:
(a) I am aware that the offering of Securities comprising the Shares may
involve "restricted securities", as said term is defined in Rule 144 of the
Rules and Regulations promulgated under the Act, and that they, or any interest
therein may not be sold or otherwise transferred unless they have first been
registered under the Act and all applicable state securities laws, or unless an
exemption from such registration provisions is available with respect to any
such resale or transfer.
(b) I acknowledge that any delivery to me of offering materials relating
to the Shares prior to the determination by the Company of my suitability as an
investor shall not constitute an offer of the Shares until such determination of
suitability shall be made, and I agree that I shall promptly return the offering
materials to the Company upon request.
(c) My answers to the foregoing questions are true and complete to the
best of my information and belief, and I will promptly notify the Company of any
changes in the information I have provided.
Printed Name
Signature
Date
<PAGE>
EXHIBIT E
CONFIDENTIAL PURCHASER QUESTIONNAIRE
(ORGANIZATION)
<PAGE>
Competitive Companies, Inc. ("COMPANY")
CONFIDENTIAL PURCHASER QUESTIONNAIRE FOR ORGANIZATIONS
Purpose of this Questionnaire
Subject to adjustment, the Company is offering up to 950,000 Shares of
the common stock, par value $.001 per share (the "Common Stock"), of Competitive
Companies, Inc., pursuant to a Confidential Private Offering Memorandum of the
Company dated August 1, 1998, at a purchase price of $1.00 per Share (minimum
purchase 20,000 Shares---$20,000) without registration under the Securities Act
of 1933, as amended (the "Act"), or the securities laws of any state, in
reliance on the private offering exemptions contained in Sections 3(b), 4(2)
and/or 4(6) of the Act and/or in Regulation D of the General Rules and
Regulations under the Act, and in reliance on similar exemptions under
applicable state laws. The Company must determine that an organization meets
certain suitability requirements before selling (or, in some states, offering)
Shares to such entity. This Questionnaire does not constitute an offer to sell
or a solicitation of an offer to buy Shares or any other security.
1. Name and Address. Please print or type the following information about
the organization:
Name of
Organization:
Address of Principal
Office:
(including Zip Code)
Telephone No.: ( )
Fax No.: ( )
Type of Organization (e.g., corporation, trust, limited partnership, general
partnership):
2. Information Regarding Principals. Please provide the name, address, position
or title, age and citizenship of the executive officer, trustee or general
partner authorized to act with respect to investments by the Organization
generally.
Position
Name Address or Title Age Citizenship
3. Business Description. Please describe the business of the Organization.:
4. Authority. Please provide the following information concerning the
Organization's authority to subscribe for the purchase of Shares: Indicate by
check mark whether permission or authorization from any person other than the
person listed in the answer to Question 2 is necessary in order for the
Organization to effect the purchase of the Shares.
Yes No
5. Accredited Investor Status. Please answer Question 5.1 by marking the
appropriate box below. As indicated below, Questions 5.2, 5.3, 5.4 and 5.5, if
applicable, need only be answered if answer to 5.1 is "No".
5.1 Does the organization qualify as (a) any of the types of entities as
defined in Rule 501(a)(1) of Regulation D pursuant to the rules and regulations
of the Securities and Exchange Commission, (b) a private business development
company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940,
or (c) an organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership not
formed for the specific purpose of acquiring the securities offered hereby, with
total assets in excess of $300,000?
Yes No
IF YOU ANSWER "YES" TO QUESTION 5.1, PLEASE PROCEED TO
QUESTION 7 BELOW
5.2 If the Questionnaire is answered on behalf of a corporation, does
each shareholder either (a) have an individual or joint (together with his
spouse) net worth in excess of $300,000, or (b) expect to have an annual income
during this year, and represent that he had an annual income during each of the
last two years, in excess of $200,000 (or joint annual income in excess of
$300,000)?
Yes No
5.3 If the Questionnaire is answered on behalf of a trust, does each
beneficiary of the trust either (a) have an individual or joint (together with
his spouse) net worth in excess of $300,000 or (b) expect to have an annual
income during this year, and represent that he had an annual income during each
of the last two years, in excess of $200,000 (or joint annual income in excess
of $300,000)?
Yes No
5.4 If the Questionnaire is answered on behalf of a trust, does the
trust have total assets in excess of $300,000 and was the trust not formed for
the specific purpose of acquiring the securities offered hereby, whose purchase
is directed by a "sophisticated person" as described in Question 6?
Yes No
5.5 If the Questionnaire is answered on behalf of a partnership, does
each partner (including general and limited partners) either (a) have an
individual or joint (together with his spouse) net worth in excess of $300,000
or (b) expect to have an annual income during this year, and represent that he
had an annual income during each of the last two years, in excess of $200,000
(or joint annual income in excess of $300,000)?
Yes No
<PAGE>
IF YOU ANSWER "YES" TO ANY OF QUESTIONS 5.1, 5.2, 5.3 OR 5.5,
PLEASE PROCEED TO QUESTION 7. HOWEVER, IF YOU
ANSWER "YES" TO QUESTION 5.4, YOU MUST ANSWER ALL OF QUESTION 6.
6. Sophistication of Decision-Maker.
6.1 Please list all the educational institutions you have attended
(including colleges, and specialized training schools) and indicate the dates
attended and the degree(s) (if any) obtained from each.
From - To Institution Degree
6.2 Please provide the following information concerning your business
experience:
Describe, your present or most recent business or occupation. Please
indicate such information as the nature of your employment, the principal
business or your employer, the principal activities under your management or
supervision and the scope (e.g., dollar volume, industry rank, etc.) of such
activities.
7. By signing this Questionnaire, the undersigned hereby confirms the following
statements:
(a) I (We) am (are) aware that the proposed offering of the Shares may
involve "restricted securities", as said term is defined in Rule 144 of the
Rules and Regulations promulgated under the Act, and that they, or any interest
therein may not be sold or otherwise transferred unless they have first been
registered under the Act and all applicable state securities laws, or unless an
exemption from such registration provisions is available with respect to any
such resale or transfer.
(b) I (We) acknowledge on behalf of the Organization named below that
any delivery to such Organization of offering materials relating to the Shares
prior to the determination by the Company of the suitability of the Organization
as an investor shall not constitute an offer of the Shares until such
determination of suitability shall be made, and that the offering materials
shall be returned promptly to the Company upon request.
(c) The foregoing statements are true and accurate to the best of my
(our) information and belief and the Company will be notified promptly of any
changes in the foregoing answers.
Print Name of Organization
By:
Signature of Officer, Trustee or Partner
Date:
<PAGE>
Exhibit # 10.15
Lease Agreement - Office
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.16
CLEC License approval Letter - MS
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.17
CLEC License approval Letter - CA
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.18
Convertible Note - T. Baba & addendum
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.19
Sample Convertible Note - Others & addendum
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 10.20
Sample Note Conversion Addendum
<PAGE>
COMPETITIVE COMMUNICATIONS INC.
A California Corporation
Addendum 1
To A Secured Note
The Secured Note ("Note") dated 8/11/98 for the amount of $10,000.00 between
COMPETITIVE COMMUNICATIONS, INC., now a wholly owned subsidiary of COMPETITIVE
COMPANIES, INC., a Nevada Corporation (hereinafter referred to as "Maker"), and
_____________ (hereinafter referred to as "Holder") is hereby modified as
follows.
Maker hereby offers and Holder hereby accepts to receive for full consideration
and payment for the Note, common stock shares of COMPETITIVE COMPANIES, INC. at
the price of $1.00 per share. This is in lieu of all other consideration
specified in the Note including the 40% discount price off the opening price of
the stock.
In such case that the opening price per share is less than $3.00, Maker will
issue additional shares of common stock to Holder for the difference between the
opening price per share (if less than $3.00) and $3.00. (As an example: If the
current Note is $10,000.00. Maker will upon receipt of this signed Addendum
immediately issue 10,000 shares to Holder. If the opening price is $2.00, Maker
will issue Holder an additional 10,000 shares to bring the total value of shares
(at $1.00 per share value) to $3.00 per share.)
It is further agreed that should COMPETITIVE COMPANIES, INC. fail to file its
application with the SEC to become a publicly trading company prior to January
1, 1999, Holder, at Holder's sole discretion, may nullify this Addendum and
revert to the original terms of the Note by notifying Maker in writing on or
before January 31, 2000. Should there arise any discrepancy between the Note and
this Addendum, this Addendum shall take precedence.
IN WITNESS WHEREOF, the Maker and Holder have executed this Addendum 1 to the
aforementioned Secured Note on the date first written below.
HOLDER MAKER
COMPETITIVE COMPANIES, INC. &
__________________________________ COMPETITIVE COMMUNICATIONS INC.
(Name)
- ---------------------------------- ----------------------------------
(Signature) (Signature)
__________________________________ David Kline
(Print Name)
__________________________________ Chairman & CEO
(Title)
- ----------------------------------
(Date)
<PAGE>
Exhibit # 10.21
Master Option Agreement
<PAGE>
EXHIBIT B
INCENTIVE AND NON-STATUTORY
STOCK OPTION PLAN
SECTION 1. PURPOSE
This Incentive and Non-Statutory Stock Option Plan (the "Plan") is intended as a
performance incentive for officers and employees of Competitive Companies, Inc.,
a Nevada corporation (the "Company") and its Subsidiaries (as hereinafter
defined) and for certain other individuals providing services to or acting as
directors of the Company or its Subsidiaries, to enable the persons to whom
options are granted (an "Optionee" or "Optionees") to acquire or increase a
proprietary interest in the success of the Company. The Company intends that
this purpose will be effected by the granting of incentive stock options
("Incentive Options") as defined in Section 422A(b) of the Internal Revenue Code
of 1986 (the "Code") and other stock options ("Non-statutory Options") under the
Plan. The term "Subsidiaries" means any corporations in which stock possessing
50% or more of the total combined voting power of all classes of stock is owned
directly or indirectly by the Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 OPTIONS TO BE GRANTED. Options granted under the Plan may be either
Incentive Options or Non-statutory Options.
2.2 ADMINISTRATION BY THE BOARD. This Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board shall have full and
final authority to operate, manage and administer the Plan on behalf of the
Company. This authority includes, but is not limited to: (i) the power to grant
options conditionally or unconditionally; (ii) the power to authorize an
increase or decrease in the un-issued shares subject to the plan, (iii) the
power to prescribe the form or forms of the instruments evidencing options
granted under this Plan; (iv) the power to interpret the Plan; (v) the power to
provide regulations for the operation of the incentive features of the Plan, and
otherwise to prescribe regulations for interpretation, management and
administration of the Plan; (vi) the power to delegate responsibility for Plan
operation, management and administration on such terms, consistent with the
Plan, as the Board may establish; (vii) the power to delegate to other persons
the responsibility for performing ministerial acts in furtherance of the Plan's
purpose; and (viii) the power to engage the services of persons or organizations
in furtherance of the Plan's purpose, including but not limited to, banks,
insurance companies, brokerage firms and consultants.
In addition, as to each option, the Board shall have full and final authority in
its discretion: (i) to detemine the number of shares subject to each option;
(ii) to determine the time or times at which options will be granted; (iii) to
determine the option price for the shares subject to each option, which price
shall be subject to the applicable requirements, if any, of Section 5.1(e)
hereof, and (iv) to determine the time or times when each option shall become
exercisable and the duration of the exercise period, which shall not exceed the
limitations specified in Section 5. 1 (a).
2.3 APPOINTMENT AND PROCEEDINGS OF COMMITTEE. The Board may appoint a Stock
Option Committee (the "Committee") which shall consist of at least two members,
at least one of whom shall be a member of the Board. Members of the Committee
shall all be "Non-Employee Directors". A "Non-Employee Director" is defined in
Rule 16b-3(b)(3)(i) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, as promulgated by the Securities and Exchange
Commission, and as such Rule is amended from time to time. The Board may from
time to time appoint members of the Committee in substitution for or in addition
to members previously appointed, and may fill vacancies, however caused, in the
Committee. The Committee shall select one of its members as its chairman and
shall hold its meetings at such times and places as it shall deem advisable. If
the Committee consists of only two members, both members shall be required for a
quorum and all actions of the Committee shall require concurrence by both
members. If the Committee consists of more than two members, then a majority of
its members shall constitute a quorum, and all actions of the Committee shall be
taken by a majority of its members. Any action may be taken by a written and
signed by all of the members, and any action so taken shall be as fully
effective as if it had been taken by a vote of a majority of the members (or
both members if there are only two (2) as Committee members) at a meeting duly
called and held.
2.4 POWERS OF COMMITTEE. Subject to the provisions of this Plan and the
approval of the Board, the Committee shall have the power to make
recommendations to the Board as to whom options should be granted, the number of
shares to be covered by each option, the time or times of option grants, and the
terms and conditions of each option. In addition, the Committee shall have
authority to interpret the Plan, to prescribe, amend and rescind miles and
regulations relating to the Plan, and to exercise the administrative and
ministerial powers of the Board with regard to aspects of the Plan other than
the granting of options. The interpretation and construction by the Committee of
any provisions of the Plan or of any option granted hereunder and the exercise
of any power delegated to it hereunder shall be final, unless otherwise
determined by the Board. 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 or
any option granted hereunder.
SECTION 3. STOCK
3.1 SHARES SUBJECT TO PLANS. The stock subject to the options granted under
the Plan shall be shares of the Company's authorized but un-issued Class A
common stock, par value $0.001 ("Common Stock"). The total number of shares that
may be issued pursuant to options granted under the Plan shall not exceed an
aggregate of 7,500,000 shares of Common Stock.
3.2 LAPSED OR UNEXERCISED OPTIONS. Whenever any outstanding option under
the Plan expires, is cancelled or is otherwise terminated (other than by
exercise), the shares of Common Stock allocable to the unexercised portion of
such option shall be restored to the Plan and be available for the grant of
other options under the Plan except as otherwise provided in Section 5.1(d).
SECTION 4. ELIGIBILITY
4.1 ELIGIBLE OPTIONEES. Incentive Options may be granted only to officers
and other employees of the Company or its Subsidiaries, including members of the
Board who are also employees of the Company or a Subsidiary. Non-statutory
Options may be granted to officers or other employees of the Company or its
Subsidiaries, to members of the Board or the board of directors of any
Subsidiary who are also employees of the Company or such Subsidiary, and to
certain other individuals providing services to the Company or its Subsidiaries.
4.2 LIMITATIONS ON 10% STOCKHOLDERS. No Incentive Option shall be granted to
an individual who, at the time the Incentive Option is granted, owns (including
ownership attributed pursuant to Section 425(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
parent or Subsidiary of the Company (a "greater-than-10% stockholder") unless
such Incentive Option provides that (i) the purchase price per share shall not
be less than 110% of the fair market value of the Common Stock at the time such
Incentive Option is granted, and (ii) that such Incentive Option shall not be
exercisable to any extent after the expiration of five years from the date it is
granted.
4.3 LIMITATION ON EXERCISABLE OPTIONS. The aggregate fair market value
(determined at the time the Incentive Option is granted) of the Common Stock
with respect to which Incentive Options are exercisable for the first time by
any person during any calendar year under the Plan and under any other Incentive
Option plan of the Company (or a parent or subsidiary as defined in Section 425
of the Code) shall not exceed $100,000. Any option granted in excess of the
foregoing limitation shall be specifically designated as being a Non-statutory
Option.
Incentive Options shall only become exercisable after two (2) years continued
employment of the Optionee with the Company or one of its Subsidiaries.
Incentive Options shall be exercisable only to the extent of forty percent (40%)
of the total number of shares subject to the Incentive Option after the
expiration of two (2) years following the date the Incentive Option is granted,
only to the extent of sixty percent (60%) of the total number of optioned shares
after the expiration of three (3) years following the date the Option is
granted, only to the extent of eighty percent (80%) of the total number of
shares subject to the Incentive Option after the expiration of four (4) years
following the date the option is granted, and in full immediately prior to the
expiration of five (5) years following the date the Incentive Option is granted;
such limitations being calculated, in the case of any resulting fraction, to the
nearest lower whole number of shares. Incentive Options must be exercised before
the expiration of ten (10) years following the date of grant. Any Incentive
Option granted not subject to the provision requiring two years of employment
before exercise and the twenty percent (20%) vesting schedule shall be
specifically designated as being a Non-statutory Option. Notwithstanding the
foregoing, the Committee may, in its sole discretion, (i) prescribe longer time
periods and additional requirements with respect to the exercise of an Incentive
Option and (ii) terminate in whole or in part such portion of any Incentive
Option as has not yet become exercisable at the time of termination if it
determines that the Optionee is not performing satisfactorily the duties to
which he was assigned on the date the Incentive Option was granted or exercised
unless the Optionee is at the time of such exercise in the employ of the Company
or of a Subsidiary and shall have been continuously so employed since the grant
of his Incentive Option. Absence or leave approved by the management of the
Company shall not be considered an interruption of employment for any purpose
under the Plan.
SECTION 5. TERMS OF THE OPTION AGREEMENTS
5.1 MANDATORY TERMS. Each option agreement shall contain such provisions as
the Board or the Committee shall from time to time deem appropriate, and shall
include provisions relating to the method of exercise, payment of exercise
price, adjustments on changes in the Company's capitalization and the effect of
a merger, consolidation, liquidation, sale or other disposition of or involving
the Company. Option Agreements shall clearly identify whether the option is an
Incentive Option or a Non-statutory Option and if an Incentive Option,
explicitly state that such Option is only exercisable by the Optionee during his
lifetime. Option agreements need not be identical, but each option agreement by
appropriate language shall include the substance of all of the following
provisions:
(a) EXPIRATION. Notwithstanding any other provision of the Plan or of
any option agreement, each option shall expire on the date specified in the
option agreement, which date shall not be later than the tenth anniversary of
the date on which the option was granted (fifth anniversary in the case of a
greater-than-10% stockholder).
(b) EXERCISE. Each option shall be deemed exercised when (i) the
Company has received written notice of such exercise in accordance with the
terms of the option, (ii) except in the event of loans to exercise options as
set forth in Section 5.1(c) or an alternative to payment as set forth in Section
5.1(d), full payment of the aggregate option price of the shares of Common Stock
as to which the option is exercised has been made, and (iii) arrangements that
are satisfactory to the Board or the Committee in its sole discretion have been
made for the optionee's payment to the Company of the amount that is necessary
for the Company or Subsidiary employing the optionee to withhold in accordance
with applicable federal or state tax withholding requirements. Unless further
limited by the Board or the Committee in any option, the option price of any
shares of Common Stock purchased shall be paid in cash, by certified or official
bank check, by money order, with shares of Common Stock or by a combination of
the above; provided further, however, that the Board or the Committee in its
sole discretion may accept a personal check in full or partial payment of any
shares of Common Stock. If the exercise price is paid in whole or in part with
shares, the value of the shares surrendered shall be their fair market value on
the date the option is exercised as determined in accordance with Section 5.1(f)
hereof. No Optionee shall be deemed to be a holder of any shares of Common Stock
subject to an option unless and until a stock certificate or certificates for
such shares of Common Stock are issued to such person(s) under the terms of the
Plan. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as expressly provided in Section 6 hereof.
(c) LOANS FOR EXERCISE OF OPTIONS. The Company in its sole discretion
may, on an individual basis or pursuant to a general program established in
connection with this Plan, lend money to an Optionee, guarantee a loan to an
Optionee, or otherwise assist an Optionee to obtain the cash necessary to
exercise all or a portion of an option granted hereunder or to pay any tax
liability of the Optionee attributable to such exercise. If the exercise price
is paid in whole or in part with Optionee's promissory note, such note shall (i)
provide for full recourse to the maker, (ii) be collateralized by the pledge of
the shares of Common Stock that the Optionee purchases upon exercise of such
option, (iii) bear interest at the rate the Company pays to its principal
lender, from time to time, and (iv) contain such other terms as the Board or the
Committee in its sole discretion shall reasonably require. No Optionee shall be
deemed to be a holder of any shares of Common Stock subject to an option unless
and until a stock certificate or certificates for such shares of Common Stock
are issued to such person(s) under the terms of the Plan.
(d) ALTERNATIVE TO PAYMENT. As an alternative to payment in full by the
Optionee for the number of shares in respect of which an Incentive Option is
exercised, the Committee may provide alternative settlement methods as follows:
(i) The Committee, in its discretion, may provide in the initial
grant of any Incentive Option, that the Optionee may elect either of the
alternative settlement methods set forth in subsection (ii) below.
(ii) The alternative settlement methods are for the Optionee, upon
exercise of the Incentive Option, to receive from the Company:
(1) cash in an amount equal to the excess of the value of one share over the
option price times the number of shares as to which the option is exercised; or
(2) the number of whole shares having an aggregate value not
greater than the cash amount calculated under Section 5.1(d)(ii)(1). For
purposes of determining an alternative settlement, the value per share shall be
the "fair market value" determined under the methods set forth in Section 5.1(f)
hereof, applied as of the date of the exercise of the Incentive Option, or such
other price as the Committee shall determine to be the fair market value of the
Common Stock on the date of exercise.
An election of any of the alternative settlement methods provided for under
Section 5.1(d)(ii) shall be binding on the Optionee, when made. The Optionee may
elect to what extent the alternative settlement method elected shall be paid in
cash, in Common Stock, or partially in Common Stock, provided that the aggregate
value of the payments shall not be greater than the cash amount calculated under
Section 5.1(d)(ii)(1). No fractional shares of Common Stock shall be issued, and
the Committee shall determine whether cash shall be paid in lieu of such
fractional share interest or whether such fractional share interest shall be
eliminated.
The alternative settlement methods provided above in Section 5.1(d)(ii) shall
not be available unless the cash amount calculated thereunder shall be positive,
i.e. when the value of one share shall exceed the option price per share.
Exercise of an option in any manner, including an exercise involving an election
of an alternative settlement method with respect to an option, shall result in a
decrease in the number of shares of Common Stock which thereafter may be
available under the Plan by the number of shares as to which the Incentive
Option is exercised.
To the extent that the exercise of options by one of the alternative settlement
methods provided for in Section 5.1(d)(ii) results in compensation income to the
Optionee, the Company will withhold from the amount due to the Optionee
utilizing such alternative settlement method, an appropriate amount for federal,
state and local taxes.
(e) EVENTS CAUSING IMMEDIATE EXERCISE. Unless otherwise provided in any
option, each outstanding option shall become immediately fully exercisable.
(i) if there occurs any action (which shall include a series of
transactions occurring within sixty (60) days or occurring pursuant to a plan),
that has the result that stockholders of the Company immediately before such
transaction cease to own at least 51 percent (51%) of the voting stock of the
Company or of any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) if the stockholders of the Company shall approve a plan of
merger, consolidation, reorganization, liquidation or dissolution in which the
Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
(iii) if the stockholders of the Company shall approve a plan for
the sale, lease, exchange or other disposition of all or substantially all the
property and assets of the Company (unless such plan is subsequently abandoned).
The Board or the Committee may in its sole discretion accelerate the date on
which any option may be exercised and may accelerate the vesting of any shares
of Common Stock subject to any option or previously acquired by the exercise of
any option. However, in no event shall any option become fully exercisable if
the exercise created an "excess parachute payment" as that term is defined in
Section 280G of the Code.
(f) PURCHASE PRICE. The purchase price per share of the Common Stock
under each Incentive Option shall be not less than the fair market value of the
Common Stock on the date the option is granted (110% of the fair market value in
the case of a greater-than-10% stockholder). The price at which shares may be
purchased pursuant to Non-statutory Options shall be specified by the Board at
the time the option is granted, and may be less than, equal to or greater than
the fair market value of the shares of Common Stock on the date Non-statutory
Option is granted, but shall not be less than the par value of shares of Common
Stock.
For the purpose of the Plan, the "fair market value" per share of Common Stock
on any date of reference shall be the Closing Price of the Common Stock of the
Company which is referred to in either clause (i), (ii) or (iii) below, on the
business day immediately preceding such date, or if not referred to in either
clause (i), (ii) or (iii) below, "fair market value" per share of Common Stock
shall be such value as shall be determined by the Board or the Committee, unless
the Board or the Committee in its sole discretion shall determine otherwise in a
fair and uniform manner. For this purpose, the Closing Price of the Common Stock
on any business day shall be (i) if the Common Stock is listed or admitted for
trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system the last reported sale price of Common Stock on such exchange or
reporting system, as reported in any newspaper of general circulation, (ii) if
the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the mean between
the closing high bid and low asked quotations for such day of Common Stock on
such system, or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two (2) securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five (5) of the ten (10) preceding days.
(g) TRANSFERABILITY OF OPTIONS. Incentive options granted under the
Plan and the rights and privileges conferred thereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and distribution,
and shall not be subject to execution, attachment or similar process. Upon any
attempt so to transfer, assign, pledge, hypothecate or otherwise dispose of any
Incentive Option under the Plan or any right or privilege conferred hereby,
contrary to the provisions of the Plan, or upon the sale or levy or any
attachment or similar process upon the rights and privileges conferred hereby,
such option shall thereupon terminate and become null and void. Non-statutory
Options shall be transferable to the extent provided in the option agreements
under which they are granted.
(h) TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided in the terms and conditions of the option granted
to an Optionee, options granted hereunder shall terminate on the earlier to
occur of termination for cause or voluntary separation on the part of the
Optionee without the consent of the Company or Subsidiary;
(i) the date of expiration thereof, or
(ii) other than the case of death of the Optionee or disability of
the Optionee within the meaning of Section 22(e)(3) of the Code ("disability"),
(a) except for termination for cause, 90 days after termination of the
employment between the Company and the Optionee in the case of an Incentive
Option, (b) except for termination for cause, 90 days after termination of the
employment or other relationship between the Company and the Optionee, unless
such termination provision is waived by resolution adopted by the Board within
30 days of the termination of such relationship, in the case of a Non-statutory
Option.
An employment relationship between the Company and the Optionee shall be deemed
to exist during any period during which the Optionee is employed by the Company
or by any Subsidiary. Whether authorized leave of absence or absence on military
government service shall constitute termination of the employment relationship
between the Company and the Optionee shall be determined by the Board at the
time thereof except as may otherwise be expressly provided in the terms and
conditions of the option granted to an Optionee, in the event of the death of an
Optionee while in an employment or other relationship with the Company and
before the date of expiration of such option, such option shall terminate one
year following the date of such death. After the death of the Optionee, his
executors, administrators or any person or persons to whom his option may be
transferred by will or by laws of descent and distribution, shall have the
night, at any time prior to such time termination, to exercise the option to the
extent the Optionee was entitled to exercise such option immediately prior to
his death.
Except as may otherwise be expressly provided in the terms and conditions of the
option granted to an Optionee, if an Optionee's employment or other relationship
with the Company terminates because of a disability or retirement on the
Optionee's retirement date, the Optionee's option shall become immediately fully
exercisable and the exercise thereof shall then terminate one year following
such disability or retirement.
(i) RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof,
(ii) the Company shall have issued and delivered the shares of the Optionee, and
(iii) the Optionee's name shall have been entered as a stockholder of record on
the books of the Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such shares of Common Stock.
SECTION 6. ADJUSTMENT OF SHARES OF COMMON STOCK
6.1 INCREASE OR DECREASE OF OUTSTANDING SHARES. If at any time while the
Plan is in effect or unexercised options are outstanding, there shall be any
increase or decrease in the number of issued and outstanding shares of Common
Stock through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
shares of Common Stock, then and in such event (i) appropriate adjustment shall
be made in the maximum number of shares of Common Stock available for grant
under the Plan, so that the same percentage of the Company's issued and
outstanding shares of Common Stock shall continue to be subject to being so
optioned, and (ii) appropriate adjustment shall be made in the number of shares
and the exercise price per share of Common Stock thereof then subject to any
outstanding option, so that the same percentage of the Company's issued and
outstanding shares of Common Stock shall remain subject to purchase at the same
aggregate exercise price.
6.2 CONVERSION OF SHARES. Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of shares of Common Stock then subject to outstanding options
granted under the Plan.
6.3 GENERAL. Without limiting the generality of the foregoing, the existence
of outstanding options granted under the Plan shall not affect in any manner the
right or power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the shares subject to outstanding
options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
SECTION 7. AMENDMENT OF THE PLAN
The Board may amend the Plan at any time, and from time to time, subject to the
limitation that no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations at
an annual or special meeting held within twelve (12) months before or after the
date of adoption of such amendment, in any instance in which such amendment
would: (i) increase the number of shares of Common Stock as to which options may
be granted under the Plan; of (ii) change in substance the provisions of Section
4 hereof relating to eligibility to participate in the Plan.
In the event of a conflict between any option agreement and the Plan, the
terms and conditions of the Plan shall prevail.
Rights and obligations under any option granted before any amendment of the Plan
shall not be altered or impaired by such amendment, except with the consent of
the Optionee.
SECTION 8. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the approval of the Plan by
the stockholders of the Company shall be construed as creating any limitations
on the power of the Board to adopt such other incentive arrangements as it may
deem desirable, including without limitation the granting the stock options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
SECTION 9. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
The obligation of the Company to sell and deliver shares of Common Stock with
respect to options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by government agencies
as may be deemed necessary or appropriate by the Board or the Committee. All
shares sold under the Plan shall bear appropriate legends. The Plan shall be
governed by and construed in accordance with the laws of the State of Nevada.
SECTION 1O. EFFECTIVE DATE OF PLAN
The effective date of the Plan shall be the later date on which it is approved
by the Board or by the stockholders of the Company.
<PAGE>
EXHIBIT B
NON-EMPLOYEE DIRECTORS NON-STATUTORY STOCK OPTION PLAN
SECTION 1. PURPOSE
This Non-Statutory Stock Option Plan (the "Plan") is intended as an incentive
for members of the Board of Directors of COMPETITIVE COMMUNICATIONS, INC. a
Nevada corporation (the "Company"), who are not employed by the Company or its
Subsidiaries (as hereinafter defined), to enable such persons ("Optionee" or
"Optionees") to acquire or increase a proprietary interest in the success of the
Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 OPTIONS TO THE GRANTED. Options granted under the Plan shall be
Non-statutory Options. It is intended that this Plan be considered a "formula
plan" as contemplated by Rule 16b-3, promulgated under the Securities Exchange
Act of 1934, as amended (the "Act"). This Plan may be amended from time to time
by the Board to the extent necessary in order for transactions under the Plan to
be exempt from Section 16(b) of the Act.
2.2 APPOINTMENT AND PROCEEDINGS OF COMMITTEE. The Board of Directors of the
Company (the "Board") may appoint an Option Committee (the "Committee") which
shall consist of at least two members of the Board. The Board may from time to
time appoint members of the Committee in substitution for or in addition to
members previously appointed, and may fill vacancies, however caused, in the
Committee. The Committee shall select one of its members as its chairman and
shall hold its meetings at such times and places as it shall deem advisable. If
the Committee consists of only two members, both members shall be required for a
quorum and all actions of the Committee shall require concurrence by both
members. If the Committee consists of more than two members, then a majority of
its members shall constitute a quorum, and all actions of the Committee shall be
taken by a majority of its members. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall be as
fully effective as if it had been taken by a vote of a majority of the members
(or both members if there are only two Committee Members) at a meeting duly
called and held.
2.3 ADMINISTRATION BY THE COMMITTEE. This Plan shall be administered by the
Committee. The Committee shall have full and final authority to operate, manage
and administer the Plan on behalf of the Company. Subject to the provisions of
this Plan and the approval of the Board, the Committee shall have the power to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, and to exercise the administrative and ministerial powers
of the Board with regard to aspects of the Plan. The interpretation and
construction by the Committee of any provisions of the Plan or of any option
granted hereunder and the exercise of any power delegated to it hereunder shall
be final, unless otherwise determined by the Board. 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 or any option granted hereunder.
SECTION 3. STOCK
3.1 SHARES SUBJECT TO PLANS. The stock subject to the options granted under
the Plan shall be shares of the Company's authorized but un-issued Class A
common stock, par value $0.001 ("Common Stock"). The total number of shares that
may be issued pursuant to options granted under the Plan shall not exceed an
aggregate of 7,500,000 shares of Common Stock.
3.2 LAPSED OR UNEXERCISED OPTIONS. Whenever any outstanding option under the
Plan expires, is in cancelled or is otherwise terminated (other than by
exercise), the shares of Common Stock allocable to the unexercised portion of
such option shall be restored to the Plan and be available for the grant of
other options under the Plan.
SECTION 4. ELIGIBILITY
4.1 INITIAL GRANT OF OPTIONS. On the date of appointment to the Board, each
eligible Optionee shall be granted an option to purchase at the "fair market
value" from the Company an aggregate of 5,000 shares of Common Stock. The option
shall vest and become exercisable at the rate of 20% per year after the
expiration of the first year following the date on which the option is granted
and shall be exercisable in full only after the expiration of five (5) years
following the date the option is granted.
4.2 ANNUAL GRANT OF OPTIONS. On the date of the annual stockholders meeting
of the Company, each eligible Optionee shall be granted an option to purchase at
the "fair market value" from the Company an aggregate of 1,000 shares of Common
Stock. The option shall vest and become exercisable one (1) year from the date
of grant.
4.3 ELIGIBLE OPTIONEES. Options shall be granted to each member of the Board
who, as of the date of grant, (i) is not an employee of the Company or a
Subsidiary, (ii) is appointed, elected, re-elected or otherwise continues to
serve on the Board, and (iii) with respect to annual grants under Section 4.2
above, has served on the Board for at least six (6) months.
SECTION 5. TERMS OF THE OPTION AGREEMENTS
5.1 MANDATORY TERMS. Each option agreement shall contain such provisions as
the Board or the Committee shall from time to time deem appropriate, and shall
include provisions relating to the method of exercise, payment of exercise
price, adjustments on changes in the Company's capitalization and the effect of
a merger, consolidation, liquidation, sale or other disposition of or involving
the Company. Option agreements shall include the following provisions:
5.1.1 EXPIRATION. Notwithstanding any other provision of the Plan or of any
option agreement, each option shall expire on the tenth anniversary of the date
on which the option was granted.
5.1.2 EXERCISE. Each option shall be deemed exercised when (i) the Company
has received written notice of such exercise in accordance with the terms of the
option, and (ii) except in the event of loans to exercise options as set forth
in Section 5.1.3, full payment of the aggregate option price of the shares of
Common Stock as to which the option is exercised has been made. Unless further
limited by the Board or the Committee in any option, the option price of any
shares of Common Stock purchased shall be paid in cash, by certified or official
bank check, by money order, with shares of Common Stock or by a combination of
the above; provided further, however, that the Board or the Committee in its
sole discretion may accept a personal check in full or partial payment of any
shares of Common Stock. If the exercise price is paid in whole or in part with
shares, the value of the shares surrendered shall be their fair market value on
the date the option is exercised as determined in accordance with Section 5.1.5
hereof.
5.1.3 LOANS FOR EXERCISE OF OPTIONS. The Company in its sole discretion may,
on an individual basis or pursuant to a general program established in
connection with this Plan, lend money to an optionee, guarantee a loan to an
optionee, or otherwise assist an optionee to obtain the cash necessary to
exercise all or a portion of an option granted hereunder or to pay any tax
liability of the optionee attributable to such exercise. If the exercise price
is paid in whole or in part with optionee's promissory note, such note shall (i)
provide for full recourse to the maker, (ii) be collateralized by the pledge of
the shares of Common Stock that the optionee purchases upon exercise of such
option, (iii) bear interest at the rate the Company pays to its principal
lender, from time to time, and (iv) contain such other terms as the Board or the
Committee shall reasonably require.
5.1.4 EVENTS CAUSING IMMEDIATE EXERCISE. Unless otherwise provided in any
option, each outstanding option shall become immediately fully exercisable:
5.1.4.1 if there occurs any transaction (which shall include a series
of transactions occurring within sixty (60) days or occurring pursuant to a
plan), that has the result that stockholders of the Company immediately before
such transaction cease to own at least 51 percent (51%) of the voting stock of
the Company or of any entity that results from the participation of the Company
in a reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
5.1.4.2 if the stockholders of the Company shall approve a plan of
merger, consolidation, reorganization, liquidation or dissolution in which the
Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
5.1.4.3 if the stockholders of the Company shall approve a plan for the
sale, lease, exchange or other disposition of all or substantially all the
property and assets of the Company (unless such plan is subsequently abandoned).
The Board or the Committee may accelerate the date on which any option may be
exercised and may accelerate the vesting of any shares of Common Stock subject
to any option, subject to the limitations of Section 16(b) of the Act.
5.1.5 PURCHASE PRICE. The purchase price per share of the Common Stock under
each option shall be not less than the fair market value of the Common Stock on
the date the option is granted.
For the purpose of the Plan, the "fair market value" per share of Common Stock
on any date of reference shall be the Closing Price of the Common Stock of the
Company which is referred to in either clause (i), (ii) or (iii) below, on the
business day immediately preceding such date, or if not referred to in either
clause (i), (ii) or (iii) below, "fair market value" per share of Common Stock
shall be such value as shall be determined by the Board or the Committee, unless
the Board or the Committee in its sole discretion shall determine otherwise in a
fair and uniform manner. For this purpose, the Closing Price of the Common Stock
or on any business day shall be (i) if the Common Stock is listed or admitted
for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock on such exchange or
reporting system, as reported in any newspaper of general circulation, (ii) if
the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the mean between
the closing high bid and low asked quotations for such day of Common Stock on
such system, or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five (5) of the ten (10) preceding days.
5.1.6 TRANSFERABILITY OF OPTIONS. Options granted under the Plan and the
rights and privileges conferred thereby may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by applicable laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Internal Revenue Code
of 1986, as amended, or Title I of the Employee Retirement Income Security Act
or Rules thereunder. Upon any attempt so to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under the Plan or any night or
privilege conferred hereby, contrary to the provisions of the Plan, or upon the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby, such option shall thereupon terminate and become null and
void.
5.1.7 TERMINATION OF SERVICE OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided in the terms and conditions of the option granted
to an Optionee, options granted hereunder shall terminate on the earlier to
occur of:
5.1.7.1 the date of removal from the Board;
5.1.7.2 the date of the expiration of the term thereof (the "Expiration
Date"); or
5.1.7.3 the termination of the Optionee as a member of the Board by
reason of voluntary resignation by the Optionee or the expiration of the
Optionee's elected or appointed term and other than the case of death of the
Optionee or disability of the Optionee within the meaning of Section 22(e)(3) of
the Code ("disability"), the Optionee shall have the fight, within three (3)
months after the date on which Optionee shall have ceased to be a member of the
Board, to exercise the unexercised portion of the options granted to the extent,
if any, that such options were exercisable by the Optionee on the date of such
termination.
In the event of the death of an Optionee while a member of the Board or within
three (3) months after the term of the Optionee as a member of the Board, except
for termination pursuant to Section 5.1.7.1 above, such option shall become
immediately fully exercisable and shall terminate on the earlier of the
Expiration Date thereof or one year following the date of such death. After the
death of the Optionee, his executors, administrators or any person or persons to
whom his option may be transferred by will or by laws of descent and
distribution, shall have the right, at any time during such period, to exercise
the option.
If an Optionee's service on the Board terminates because of a disability, the
Optionee's option shall become immediately fully exercisable and shall terminate
on the earlier of the Expiration Date thereof or one year following the
termination of service on the Board.
5.1.8 RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to be
the owner of any shares of Common Stock subject to any option unless and until
(i) the option shall have been exercised pursuant to the terms thereof, (ii) the
Company shall have issued and delivered the shares to the Optionee, and (iii)
the Optionee's name shall have been entered as a stockholder of record on the
books to the Company. Thereupon the Optionee shall have full voting, dividend
and other ownership rights with respect to such shares of Common Stock. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such shares of Common Stock are issued,
except as expressly provided in Section 6 hereof.
SECTION 6. ADJUSTMENT OF SHARES OF COMMON STOCK
6.1 INCREASE OR DECREASE OF OUTSTANDING SHARES. If at any time while the
Plan is in effect or unexercised options are outstanding, there shall be any
increase or decrease in the number of issued and outstanding shares of Common
Stock through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
shares of Common Stock, then and in such event (i) appropriate adjustment shall
be made in the maximum number of shares of Common Stock available for grant
under the Plan, so that the same percentage of the Company's issued and
outstanding shares of Common Stock shall continue to be subject to being so
optioned, (ii) appropriate adjustment shall be made in the number of shares and
the exercise price per share of Common Stock thereof then subject to any
outstanding option, so that the same percentage of the Company's issued and
outstanding shares of Common Stock shall remain subject to purchase at the same
aggregate exercise price, and (iii) appropriate adjustment shall be made as to
the number of shares of Common Stock to be subject to each future grant under
the Plan, so that the same percentage of the Company's number of shares of
Common Stock available under the Plan shall continue to be subject to each
option granted.
6.2 CONVERSION OF SHARES. Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefore, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of shares of Common Stock then subject to outstanding options
granted under the Plan.
6.3 GENERAL. Without limiting the generality of the foregoing, the existence
of outstanding options granted under the Plan shall not affect in any manner the
night or power of the Company to make, authorize or consummate (1) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the shares subject to outstanding
options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
SECTION 7. AMENDMENT OF THE PLAN
The Board may not amend the Plan more than once every six months. In addition,
no amendment shall be effective unless approved by the stockholders of the
Company in accordance with applicable law and regulations at an annual or
special meeting held within 12 months before or after the date of adoption of
such amendment, in any instance in which such amendment would materially: (i)
increase the benefits of the Plan; (ii) increase the number of shares of Common
Stock as to which options may be granted under the Plan; or (iii) change in
substance the provisions of Section IV hereof relating to eligibility to
participate in the Plan.
In the event of a conflict between any option agreement and the Plan, the
terms and conditions of the Plan shall prevail.
Rights and obligations under any option granted before any amendment of the Plan
shall not be altered or impaired by such amendment, except with the consent of
the Optionee.
SECTION 8. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the approval of the Plan by
the stockholders of the Company shall be construed as creating any limitations
on the power of the Board to adopt such other incentive arrangements as it may
deem desirable, including without limitation the granting the stock options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
SECTION 9. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
The obligation of the Company to sell and deliver shares of Common Stock with
respect to options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by government agencies
as may be deemed necessary or appropriate by the Board or the Committee. If
necessary, all shares sold under the Plan shall bear appropriate legends. The
Plan shall be governed by and construed in accordance with the laws of the State
of Nevada.
SECTION 1O. EFFECTIVE DATE OF PLAN
The effective date of the Plan shall be the later date on which it is approved
by the Board or by the stockholders of the Company.
SECTION 11. TERMINATION DATE OF PLAN
The Plan shall terminate on the ten-year anniversary of the effective date of
the Plan, and no options may be granted under the Plan thereafter.
<PAGE>
Exhibit # 23.1
Consent of Accountants - KCH
<PAGE>
To Be Provided By Amendment
<PAGE>
Exhibit # 23.2
Consent of Accountants - KCH
<PAGE>
To Be Provided By Amendment
