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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
(UNDER SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934)
Q COMM INTERNATIONAL, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
UTAH 88-4058493
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER)
1145 SOUTH 1680 WEST, OREM UTAH 84058-4930
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(Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number: (801) 226-4222
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Securities to be registered under Section 12 (b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None N/A
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Securities to be Registered under Section 12 (g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Shares N/A
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Q COMM INTERNATIONAL, INC. FORM 10-SB
Q COMM INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I - INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business..............................................4
Q Comm Prior to the Merger...........................................4
Product Development..................................................5
Product Information..................................................5
Plans for Growth.............................................................6
Growth Through Direct Sales......................................6
Growth Through Acquisition.......................................6
Drive Multiple Revenue Streams...................................7
Competition..........................................................7
Item 2. Management's Discussion and Analysis or Plan of Operation...........10
Item 3. Description of Property.............................................15
Item 4. Security Ownership of Certain Beneficial Owners and Management......15
Item 5. Directors, Executive Officers, Promoters and Control Persons........17
Item 6. Executive Compensation .............................................18
Employment Agreements...............................................19
Stock Option Agreements.............................................20
Item 7. Certain Relationships and Related Transactions......................21
PART II.....................................................................22
Item 8. Legal Proceedings...................................................23
Item 9. Market For Common Equity and Related Stockholder Matters............23
Item 10. Recent Sales of Unregistered Securities ...........................24
Item 11. Description of Securities..........................................25
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Item 12. Indemnification of Directors and Officers..........................26
PART F/S....................................................................27
Item 13. Financial Statements...............................................27
Item 14. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure...............................................28
PART III....................................................................29
Item 15. Financial Statements and Exhibits..................................30
Other Exhibits..............................................................31
Signatures .................................................................33
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PART I
Item 1. Description of Business
On August 3, 1998, Teleconnect, Inc., a Utah corporation, Teleshare 900,
Inc., a Utah corporation, and Q Comm International, Inc., a Nevada corporation,
merged into QCMERCO, Inc., a newly created Utah corporation, and a wholly-owned
subsidiary of Four Rivers Development, Inc., a Utah corporation. Effective on
the merger date, QCMERCO changed its corporate name to Q Comm, Inc. and Four
Rivers Development, Inc., changed its name to Q Comm International, Inc. ("Q
Comm" or the "Company"). Q Comm which is headquartered in Orem, Utah, is a
regional telecommunications service provider specializing in prepaid phone
cards, prepaid wireless and prepaid local dial tone phone services to end users
throughout the United States. The Company's securities are quoted on the
Over-the-Counter Bulletin Board ("OTCBB") under the symbol QCCM.
Q Comm targets high transaction, small to mid-size retailers utilizing a
sales force of approximately 2,500 resellers throughout the continental United
States. The Company's activities to date have been limited primarily to
providing telecommunications products and services. The Company's revenues
originate from signing up master agents (distributors of the products), sales of
prepaid calling cards, Interactive Voice Response ("IVR") services, sales of
prepaid wireless service and sales of prepaid local dial tone service. Q Comm's
core business is prepaid phone cards. However, it believes the Company's future
business will be primarily in the prepaid wireless market.
Q Comm will sell prepaid wireless through approximately 2,500 master
agents, retail agents and thousands of retail locations. The Company will
continue to sell prepaid phone cards through the same resellers. The Company
will discontinue providing 900 number IVR service.
International opportunities are also emerging for the Company in the
telecommunications arena. Overseas deregulation of telecommunications provides Q
Comm with an unprecedented opening for joint venture opportunities to develop
and market telecommunication systems.
The key to the Company's future success is with its retail agents and
retail locations which are currently active in providing prepaid phone cards and
prepaid wireless service. The Company expects that its total number of retail
locations will reach 7,800 by the end of the year 2001.
Q Comm is headquartered in Utah and has its corporate offices and
principal place of business located at 1145 South 1680 West, Orem Utah
84058-4930. The Company's telephone number is 801- 226-4222.
Q Comm Prior to the Merger
Teleconnect Inc., ("TCI") was formed in January 1993, to engage in the
business of selling telecommunications services through independent sales agents
who paid TCI for the right to be a TCI agent.
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Teleshare 900 ("T900") was formed in August 1992 to offer 900 number
services as an IVR service bureau. T900 charges a fee for providing information
and training on establishing a 900 number, and continues to act as the IVR
service bureau that monitors the number, keeps information on the number up to
date and disburses to the owner revenue generated by the 900 number. T900 has
corporate policies that do not allow any participation in psychic services or
sexually oriented services.
Four Rivers Development, Inc. was incorporated on February 7, 1986 in the
state of Utah. Four Rivers Development, Inc. was a (shell) company and did not
engage in any business activity prior to its name was changed on August 3, 1998
to Q Comm International, Inc.
Q Comm International, Inc., was incorporated on December 5, 1997 in
the state of Nevada. Q Comm International, Inc. was formed to combined
with Teleconnect, Inc. and Teleshare 900, Inc. which were merged into
QCMERCO, Inc. a Utah Corporation and wholly owned subsidiary of Four
Rivers Development, Inc. Prior to August 3, 1998, Q Comm International,
Inc. had not engaged in any business activity.
Q Comm International, Inc., a Nevada corporation was a public (shell)
Company.
Product Development
Q Comm has not developed any products or made any expenditures related to
research and development over the past 3 years. This is mainly due to the fact
that it resells services produced and provided by other companies. Q Comm
recently began reselling a prepaid telecommunications services point-of-sale
activation terminal from LDC Direct that it has private labeled as "Qxpress".
While the Company does not expect any product development costs associated with
Qxpress, a material investment of approximately $400 will be required to
purchase each unit. Q Comm plans to purchase about 4,300 terminals by the end of
year 2000. There are no patents, trademarks, trade names, or service marks held
by Q Comm.
Product Information
Q Card: Q Comm provides a Q Card which is a money-saving rechargeable
phone card. Q Cards can be "charged" with any amount of time, and because the
cards can be recharged an unlimited number of times, there is never a need to
purchase another.
Q Custom Cards: Q Comm offers a Custom Phone Card designed for businesses.
The Custom Phone Card provides an affinity program and brand promotion for
businesses. The card is also designed to enhance businesses marketing and
increase their sales. Q Comm allows businesses selling the cards to customize it
by placing any type of graphic and/or text on the front of the card.
Q Discount Cards: Q Comm offers prepaid Discount Phone Cards available in
$5, $10 and $20 increments. The card is offered through a point-of-purchase
display. Each card is perforated to quickly and easily separate from its hanger.
The display is made to hang at or near a counter in a retail store. Since these
cards are not rechargeable, once time has been used, the customer will dispose
of the card and return to a retail location to purchase a new one.
Qxpress System: The Qxpress prepaid system provides on-demand prepaid
telecom services. With the Qxpress turnkey system-installed and serviced by Q
Comm, retailers can print and activate prepaid phone cards in addition to
prepaid wireless services at the point of purchase on demand.
The cards issued by Qxpress can be customized with the company's name and
phone number. In addition, each card includes a small "billboard" that can be
customized each month to advertise a special promotion at certain retail
locations.
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Q Tone: Q Comm offers Q Tone, which provides the convenience of local
phone service to consumers regardless of their credit history, housing status or
background. For a set fee per month and a one time activation fee consumers are
provided with unlimited local dial tone service without deposits, credit checks
or hassle. This service is provided to individuals who have no phone service, or
lost their service for failing to pay their phone bill.
Q Wireless: Q Comm, seeking to provide an economical solution to the
millions of consumers who are denied billable wireless phone services, offers
prepaid wireless phone services. The Company provides a state-of-the-art
cellular phone pre-loaded with 10 minutes of time, which also comes with a
battery and charger.
Plans for Growth
The Company is aggressively pursuing a strategy of high growth in the
prepaid telecom industry through direct sales deployment and acquisitions of
regional and rural prepaid telecom companies. The Company has not as of yet
identified any potential companies for acquisition purposes.
Growth Through Direct Sales
Q Comm will market its prepaid telecom services to high traffic, high
transaction retail establishments which include independent grocery stores,
check cashing outlets, gift shops, tourist stores, gas or service stations,
private postal services, RV parks, college campus stores, airports, hotels and
resorts, and liquor stores. The Company will accomplish this through a
regionally organized direct sales force. Q Comm intends to roll out regionally
as it builds a nationwide services footprint. Each region will consist of 5-8
sales representatives led by one sales manager. Q Comm's direct sales efforts
will initially focus on the under-served, least competitive areas of the
country, which at this time are retail chains of 1 to 30 stores located in
Midwestern markets of 500,000 people or less.
The Company believes that there is a significant competitive advantage to
being the first to offer a total prepaid management system, like Qxpress, to
many retailers in small to medium-sized markets throughout the U.S. Whenever a
new account is established, the agreement affords Q Comm a multi-year exclusive
contract. During the term of the contract it will be able to establish retailer
loyalty by providing superior, in-person, customer support; excellent,
retailer-oriented solutions and product quality; as well as incentives for
renewing contracts prior to expiration.
Growth Through Acquisition
As one of only a few public prepaid telecom companies in the U.S., the
Company is positioned to begin acquiring regional prepaid companies. Companies
that Q Comm intends to initially target for acquisition will offer prepaid
telecom services to more than 100 retail locations, will overlap its current
wireless coverage areas and will have positive cash flow. In order to sustain
this growth and fund the Company's aggressive acquisition strategy, Q Comm
intends to raise $3-5 million in the first quarter of year 2000 through an
equity offering and possibly register a second offering later in year 2000.
The Company's goal in growth-by-acquisition includes building the size of
its core operations
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to increase brand recognition, strengthening its technology, opening new revenue
streams, creating economies of scale, extending distribution networks, and
lowering aggregate sales and market expenses.
Drive Multiple Revenue Streams
The Company intends to leverage its brand, technology, operating
infrastructure, and customer and distribution bases to develop additional
revenue opportunities. Q Comm believes significant incremental revenue
opportunities exist through increasing and enhancing its prepaid telecom product
selection as well as non-telecom prepaid items such as gasoline stations or car
washes through the Qxpress system. The Qxpress system has built-in flexibility
that allows any item that is sold to be pre-sold or prepaid. As the Company
funnels additional products through Qxpress systems located in thousands of
retail locations across the country, Q Comm believes new product introductions
will rapidly boost sales and increase the Company's valuation. In addition Q
Comm should become an attractive, potential acquisition to an increased number
of companies in various industries.
Provide Value to Prepaid Telecom Retailers and Consumers
Q Comm will continue to build customer trust and loyalty by maintaining
its focus as a premium prepaid telecom provider who meets and exceeds customer
demands in all product offerings. By providing retailers and consumers with
flexible, custom, on-demand product solutions, Q Comm brand loyalty should be
enhanced.
Capitalize on Q Comm's Current Distribution Channels
Over the past seven years, the Company has developed extensive experience
in the telecom industry as well as a national distribution channel consisting of
approximately 2,500 value-added resellers. Q Comm believes it will be able to
achieve significant sales as new products and services, such as prepaid wireless
and the new Qxpress total management system, are introduced by its distributors
to retailers and consumers throughout the country.
Maintain Technology Focus and Expertise
By capitalizing on the flexibility of its management system, Qxpress, the
Company is able to enhance its service offerings, meet increased demand, and
take advantage of the efficiencies of automated, real-time product creation that
their technology and streamlined prepaid point-of-sale system permit. Q Comm
intends to continue to leverage the leading technologies and create cutting-edge
solutions to enhance the overall retailer and customer experience.
Competition
Q Comm is currently marketing telecommunication services. The U.S. prepaid
telecommunications industry is highly competitive and significantly influenced
by the marketing and pricing practices of the major industry participants. Many
of its competitors are significantly larger and have substantially greater
resources. Q Comm also competes with other national and regional
telecommunications resellers, which employ various means to attract new
subscribers, including television and other advertising campaigns, telemarketing
programs, network marketing, cash payments
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and other incentives.
Q Comm also competes in a market that is new, competitive, highly
fragmented and rapidly changing. In acquiring new customers, it competes on the
basis of product quality, convenience, price, company stability and brand
awareness. To acquire new retailers, there are additional factors such as retail
solutions, commissions and support. Q Comm competes with thousands of companies
for the attention of consumers and retailers. These competitors can be
categorized as illustrated in the following table:
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Category Focus Example Competitors
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Small, regional companies Small, rural retailers Prepaid Solutions, Telecom
Caribe
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Medium to large companies Medium to large retail chains Topp Telecom, Destia, VoCall
Businesses in major RDST.com, Alltel Corp.
metropolitan areas
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Mainstream, large companies Large retail chains AT&T, MCI-World
and corporations Com, Sprint
in major metropolitan areas
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</TABLE>
The Company's major competitors include some of the following:
AT&T
AT&T is offering prepaid wireless phone service with no roaming or long
distance charges. The plan initially costs $129 and comes with an Ericsson LX
700 digital phone loaded with 15 minutes of air time, a 15-minute refill card,
and a mail-in coupon for another free 60 minutes. AT&T recently purchased
SmartTalk, Inc. SmartTalk, Inc. is a manufacturer, marketer and distributor of
prepaid telecommunication products and related services. SmartTalk has
agreements in place that make its products accessible in over 100,000 mass
merchandisers, consumer electronic retailers, home office superstores,
supermarkets, university bookstores, convenience stores, and other locations
throughout North America and Europe.
Alltel Corp.
ALLTEL Corporation has more than 80 years experience with telephone
services for the home, and business. ALLTELL is a recognized leader in
enterprise networks and wireless communications. ALLTEL Corporation is a
customer focused information technology company that provides wireline and
wireless communications and information services, including local, long
distance, network access and Internet services, wide area paging and others.
Their maximum prepaid wireless balance is $500. ALLTEL prepaid wireless service
doesn't require debit cards, PIN numbers, authorization codes or special phones;
any analog wireless phone can be used.
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VoCall Communications Corp.
VoCall Communications Corp. is a rapidly growing, facilities-based
provider of global telecommunications products and services. The American-based
firm specializes in pre-paid telecommunications services such as prepaid calling
card, cellular, paging and Internet telephony services. Founded in 1990, VoCall
is one of Americas fastest-growing private companies. From 1994 to 1998, the
company's revenues grew over 6,100%, leading Telecom Business magazine to name
VoCall one of America's Top 250 telecommunication companies. Through its recent
alliances with Lucent Technologies/Ascend Communications and Winstar, VoCall
will offer an array of post-paid services such as Internet access, domestic and
international long distance , CLEC services and wireless. VoCall is widely
considered America's premier, prepaid calling card provider.
Topp Telecom
Topp Telecom is a leading provider of low cost prepaid wireless
communications with over 10,000 retail outlets. Topp Telecom is the only company
in the United States that can provide the consumer with a local cellular phone
number in every city that has cellular coverage in the U.S., Alaska, Hawaii,
Puerto Rico and the U.S. Virgin Islands. Topp Telecom is the prepaid wireless
solution for Radio Shack, the largest retailer of cellular products in the U.S.
Topp is also the choice of Motorola and Nokia, which have licensed their
proprietary technology to go into selected prepaid handsets.
Destia Communications
Destia Communications, Inc. is a global network provider of
telecommunications and data communications services. Destia offers residential
and commercial users a range of products, including international and domestic
long-distance, calling cards, prepaid card services and wholesale transmission
services. Destia, along with its subsidiaries Telco (UK) and Econophone
(Switzerland, Belgium, Germany, Austria), is one of the fastest growing
facilities-based providers of long distance services. Destia offers a virtual
phone card that can be instantly delivered over the Internet. The card allows
users to make long distance calls from anywhere in the U.S. to almost anywhere
in the world.
Ardis Telecom and Technologies, Inc. (RDST.com)
Ardis Telecom and Technologies, Inc. through its operating subsidiary,
RDST, Inc. participates in the rapidly growing prepaid telecommunications
services industry. RDST is currently creating and marketing prepaid phone cards
for domestic and international long distance calling. Having initially operated
as a reseller of services RDST is now a facilities based provider, operating its
own telecommunications switching equipment and enhanced services platform.
MCI-World Com
Operating in more than 65 countries, MCI-WorldCom is a provider of fully
integrated local, long distance, international and Internet services. The
company serves million of U.S. business and residential customers over a 45,000
mile, all-fiber high capacity nationwide network.
Sprint
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Sprint was the first long distance carrier to introduce prepaid calling
cards in the U.S. market in 1993. In May, 1998, Sprint placed its 200 millionth
card in the market, making Sprint the first prepaid card provider to reach this
milestone. The Sprint prepaid phone is sold in nearly 35,000 retail outlets in
the U.S., Guam and the Caribbean.
Q Comm's ability to compete effectively will depend on, among other
factors, its continued ability to form strategic alliances and joint ventures
with third party telecommunications service providers and to provide high
quality services at competitive prices. There can be no assurances that the
Company will be able to compete successfully in the telecommunications
marketplace. Any inability by Q Comm to compete successfully would have a
material adverse effect on its business, operating results and financial
condition.
The prepaid telecom market is new, rapidly evolving and intensely
competitive. Specifically, prepaid services is a rapidly growing segment of the
telecommunications industry with relatively low barriers of entry. The Company
believes that additional competitors, including internet-based service
providers, will be attracted to the prepaid telecom marketplace. Competition is
likely to intensify as this market matures. As competitive conditions intensify,
competitors may;
o enter into strategic or commercial relationships with larger, more
established and well-financed companies;
o secure services and products from suppliers on more favorable terms;
o devote greater resources to marketing and promotional campaigns;
o secure exclusive deals with buyers that impede Q Comm's sales; and
o devote substantially more resources to system development.
In addition, new technologies and the expansion of existing technologies
may increase competitive pressures. As a result of increased competition, the
Company may experience reduced operating margins, as well as loss of market
share and brand recognition. The Company may not be able to compete successfully
against current and future competitors. These competitive pressures could have a
material adverse effect on Q Comm's revenue growth and earnings.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
The following is a discussion of certain factors affecting Q Comm's
results of operations, liquidity and capital resources. You should read the
following discussion and analysis in conjunction with the Company's consolidated
financial statements and related notes that are included herein.
The following discussion regarding Q Comm and its business and operations
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
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from those referred to in such forward-looking statements.
Results of Operations
Q Comm recognizes revenues under the categories of Telecommunications, Renewal
Fees, Qxpress System and Other Sales.
Q Comm generates revenues from Telecommunications, Renewal Fees, Qxpress
system and Other Sales which includes Internet Web sites(1) and Miscellaneous
Income.
The Company's "Telecommunications" category includes sales of Master Agent
Resellers Licenses and revenues from phone card minutes. The Company's "Renewal
Fee" category includes the fees Q Comm Master Agents pay annually to remain
active resellers with Q Comm. The "Qxpress System" category includes revenues
generated through the sale of all Q Comm products including prepaid phone cards,
prepaid wireless and prepaid local dial tone through Qxpress point-of-sale
activation terminals (POSA) located in retail stores across the country. The
"Other Sales" category includes revenues from the sale of Internet Web sites and
miscellaneous income.
Q Comm incurred net losses of $1,329,763 for the year ended December 31,
1998. In 1998 the Company's primary source of revenue was telecommunications
which included the sale of its Master Agent reseller program. Master Agents paid
$2,995 to have the rights to resell Q Comm's products and receive the Company's
support. Some of the Master Agents financed their $2,995 fee through Q Comm's
internal financing department after they make an initial deposit of $500
dollars. These financing contracts that were owned by the Company were turned
over to a billing and collecting agency who was paid a percentage of the
collected monthly payment. The billing and collecting company collected less
than 30% of the balances of these financing contracts which resulted in the
Company writing off a large amount of the accounts receivable as bad debt
($589,493 of the $1,329,763 loss for 1998).
In 1998, Q Comm also faced a shift in the prepaid phone card market. In
1996, 1997 and 1998, the Company had focused its marketing efforts on selling
zero balance prepaid cards. These cards have no minutes on them as they are
given to consumers and must be "charged up" with a credit card to put usable
minutes on them. Once they are charged they can be recharged as long as the user
wishes, thus creating on going revenue for the Company. However, in 1998
consumers started shifting their preferences to buying prepaid phone cards at
retail locations, such as convenience stores and gas stations. As a result, the
Company suffered declining sales in 1998 and 1999.
Q Comm incurred net losses of $1,020,838 for the 11 months ended November
30, 1999. Q Comm believes the main causes for its losses in 1999 were due to
discontinued sales of the Company's zero balance phone card, costs associated
with the implementation of its new Qxpress units and funding of Qxpress units
placed in retail locations. The Company in September, 1999, ceased establishing
new relationships with any new master agents. Early in 1999, Q Comm initiated a
strategy to sell prepaid telecom services through retail channels. To address
this new opportunity, the Company hired a President with direct sales experience
to organize and manage a direct sales force as well as top-level telecom
resellers to place its Qxpress point-of-sale activation (POSA) terminal in high
transaction, high traffic retail environments such as convenience stores around
the country. In order to increase the appeal and rapid adoption of Qxpress
units, the Company absorbs the cost of the terminal at about $400 each and
requires the retailer to meet minimum revenue
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(1) Internet Web sites were introduced on a trial basis in 1999. Management's
decision was to dis-continued the product.
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requirements. Under this format, the Company place approximately 173
Qxpress units in retail locations by the eleven months ended November 30, 1999.
Q Comm believes the main causes for its losses in 1999 will come from
discontinued sales of the Company's zero balance phone card, ramp up of sales of
its new Qxpress units and funding of Qxpress units placed in retail locations.
Comparison of Eleven Months Ended November 30, 1999 to the Eleven Months Ended
November 30, 1998
Revenues. The Company's sales decreased 59.61% in 1999 with sales of $1,106,750
as compared with $2,740,262 for the period in 1998. the largest fall off in
revenues was from its Telecommunications category where the decrease was
approximately 59% from the previous year or $1,004,738 for 1999 as opposed to
$2,437,908 for 1998. These decreases as explained above come as a result of the
prepaid phone card market shifting to retail locations while the Company focused
on a segment that was not retail oriented. Q Comm also experienced a decrease of
57% in Renewal Fees where in 1998 Renewal Fees accounted for $125,339 in revenue
and in 1999 Renewal Fees were approximately $53,399. This decrease was due to
the Company's shift in marketing. In 1999, Q Comm started marketing its prepaid
phone cards directly to retail stores and retail agents. Most of the Company's
previous agents did not service the retail market and thus are not renewing
their agents agreements. The Company realized approximately $413,813 in revenue
in revenue from Internet Web site sales. In order to focus on
telecommunications, the Company discontinued the sale of Internet Web sites in
May, 1999. Q Comm also realized $16,190 in revenue from the sale of prepaid
telecom services through Qxpress units through November 30, 1999.
Gross profit. The Company's projected gross profit is defined as revenues less
costs of sales, before including operating expenses, interest income, or gain on
extinguishment of debt. Q Comm's gross profits through Novemer 30, 1999 was
$337,287.
Operating expenses. The Company's operating expenses decreased 53.06% in 1999
through year to date comparisons of November 30, 1998 and November 30, 1999,
respectively. Losses from operations decreased 49% for the comparable period.
The decrease in losses were due primarily to restructuring the Company's focus
on marketing its services to retail stores. This resulted in reducing personnel
and marketing expenses. Q Comm intends to significantly increase its spending on
items such as sales and marketing, Qxpress terminal purchases, technology,
operating infrastructure, and acquisitions of competing companies. If these
expenses do not generate increased revenues, the Company's earnings may be
materially and adversely affected, anticipated net losses may be greater than
expected and Q Comm may not be able to increase revenues sufficiently to achieve
profitability. The Company's estimates of the periods of time in which it
expects to continue to operte at a net loss, experience negative cash flow and
not generate taxable income are forward-looking statements that involve risks
and uncertainties. Actual results could vary materially as a result of a number
of factors. The Company's operating costs are based upon estimated payroll,
costs that have been incurred in 1999 and projected costs through 2002.
Net Earnings (Loss). The Company had a net loss of $1,020,838 for the eleven
months ended November 30, 1999. Due to extensive infrastructure costs to support
the aggressive internal growth, as well as the costs of planned acquisitions,
profitability may not be achieved until late 2000. The Company expects to incur
substantial operating losses and continued negative cash flow from operations
for the foreseeable future as part of its strategy to achieve market share and
profitability.
Other Expenses
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A) Convertible Debenture. The Company received $650,000 from GEM
Investments, LTD upon the issuance of a Convertible Debenture. GEM Investments
LTD entered into a subsequent agreement with GEM Global Yield Fund Limited ("GEM
Global") whereby GEM Global is entitled to repayment on the Debenture of
$650,000 on or before the maturity date of May 12, 2004 in addition to receiving
interest at the rate of 2% per annum until payment in full of the principal
amount together with all accrued and unpaid interests. GEM also has conversion
rights of 2,000,000 escrowed shares of the Company's Common Stock. GEM Global
may elect at any time to convert the Debenture in whole or in part, into shares
of the Company's Common Stock. See RECENT SALE OF UNREGISTRED SECURITIES and See
Exhibit 10(c) for Terms and Conditions. The interest on the beneficial
conversion feature accounted for $350,000 of the Company's net loss.
B) Warrants. During the eleven months ended November 30, 1999, GEM
Investments LTD received warrants to purchase 125,000 shares of common stock at
an exercise price of $0.01 per share. The fair value of the underlying Common
Stock at the date of issuance was $1.25 per share, resulting in a discount
recorded on the Convertible Debenture and a charge to additional paid-in-capital
of $155,000. The discount to be amortized over the life of the debt.
Proforma Assumptions. Pro forma financial statements are based on several
assumptions. The Company intends to establish its Qxpress prepaid management
system in 4,300 retail locations by year-end 2000. Q Comm estimates that the
average convenience store sales of prepaid phone cards alone range from
$400-$500 per month. For all of its prepaid services including prepaid phone
cards, prepaid wireless, and prepaid local dial tone, the Company bases its
projections on an average of only $400 per month per location. Meeting the
Company's Proforma projections will account for less than one percent of market
share in the prepaid telecommunications industry. The revenues and expenses of
future acquisitions are not included in proforma statements.
Due to extensive infrastructure costs to support the aggressive internal
growth, as well as the costs of planned acquisitions, profitability may not be
achieved until late 2000.
Expense. During 1999, the Company settled with a prior landlord certain
disputed charges relating to a building lease during th year ended December 31,
1998. As a result of the settlement, the Company recorded a note payable to the
landlord in the amount of $42,866. Payments on the note are to commence in
October, 1999 with an initial payment of $5,685 and additional monthly payments
of $3,083, expiring in November 2000. The note requires no interest payments as
long as the Company remains current on the principal payments.
Liquidity and Capital Resources. As of November 30, 1999, the Company had
approximately $40,523 in cash on hand. Currently Q Comm's primary source of
cash is investment capital. The Company estimates becoming cash-flow positive
through the sale of its products by year-end 2000.
12
<PAGE>
Proforma Assumptions. Pro forma financial statements are based on several
assumptions. The Company intends to establish its Qxpress prepaid management
system in 4,300 retail locations by year 2000. Q Comm estimates that the average
convenience store sales of prepaid phone cards alone range from $400-$500 per
month. For all of its prepaid services including prepaid phone cards, prepaid
wireless, and prepaid local dial tone, the Company bases its projections on an
average of only $400 per month per location. Meeting the Company's proforma
projections will account for less than one percent of market share in the
prepaid telecommunications industry. The revenues and expenses of future
acquisitions are not included in proforma statements.
Due to extensive infrastructure costs to support the aggressive internal
growth, as well as the costs of planned acquisitions, profitability may not be
achieved until late 2000.
Other. During 1999, the Company settled with a prior landlord certain disputed
charges relating to a building lease during the year ended December 31, 1998. As
a result of the settlement, the Company recorded a note payable to the landlord
in the amount of $42,866. Payments on the note are to commence in October, 1999
with an initial payment of $5,685 and additional monthly payments of $3,083,
expiring in November 2000. The note requires no interest payments as long as the
Company remains current on the principal payments.
Liquidity and Capital Resources. As of November 30, 1999, the Company had
approximately $40,523 in cash on hand. Currently Q Comm's primary source of
cash is investment capital. The Company estimates becoming cash-flow positive
through the sale of its products by year-end 2000.
Trends and Uncertainties
Demand for Q Comm services will be dependent on, among other things,
general economic conditions, though non-cyclical in nature.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. It was widely
anticipated that on the occasion of the arrival of the year 2000 the entry of
"00" was expected to be read as 1900 rather than 2000. In order to distinguish
the 21st century from the 20th century the date code fields needed to accept
four digit year entries as opposed to the present two digits. In addressing the
Year 2000 issue, the Company identified three key areas critical to successful
Year 2000 compliance: products, financial and information systems and
third-party relationships.
Q Comm has successfully completed testing of current products and services
offered to the business and general consumer market and do not believe there is
significant risk of noncompliance. There can be no assurance that certain
previous releases of products and services will prove to be year 2000 compliant.
The Company has completed its initial evaluation, analysis and testing of
its core internal systems and do not currently expect any significant issues to
be identified during further review.
The Company has completed its initial review of the readiness of
third-party business partners,
13
<PAGE>
including significant vendors, suppliers and customers. Even where assurances
are received from third party vendors and suppliers there remains a risk that
failure of systems and products of other companies on which Q Comm relies could
have a material adverse effect on the Company.
The Company will develop and will implement contingency plans if it
appears that it or any of its key vendors, suppliers and customers will not be
Year 2000 compliant. Such noncompliance is expected to have a material adverse
impact on the Company's operations. Since no material non-compliance has been
detected, no contingency plans have been developed.
Based on the work completed to date, the Company has not incurred material
costs and do not expect to incur future material costs to address the Year 2000
problem for its systems and products. At this time, Q Comm cannot reasonably
estimate the potential impact on its financial position, results of operations
and cash flows if internal systems are found to be non-compliant or if key
suppliers, customers and other business partners do not become Year 2000
complaint on a timely basis. Because many companies may need to upgrade or
replace computer systems and software to comply with Year 2000 requirements, the
Company believes that the purchasing patterns of business customers and
potential business customers may be affected by the Year 2000 issues as
companies expend significant resources to upgrade their current hardware and
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase the business products offered by the Company
which could have a material adverse effect on its business, results of
operations and cash flow. Likewise, current customers and potential customers on
the consumer side may be affected by their purchasing choices because of Year
2000 issues. Such Year 2000 concerns may result in consumers withholding making
purchases of products and services offered by Q Comm towards the end on 1999 and
well into the year 2000 which could have a material adverse effect on the
Company's business, results of operations and cash flow.
Item 3. Description of Property
Q Comm maintains offices at 1145 South 1680 West, Orem, Utah. At this
location the Company leases approximately 6,100 square feet of combined office
and warehouse space from Highland Ranch, Inc. Q Comm is one of six tenants in a
recently constructed cinder block building. The building itself is located in
the Orem Center Business Park and the Company occupies Unit # 5A. Q Comm's lease
is for one term of 1 1/2 years commencing on March 15, 1999 and terminates on
August 31, 2000. The Company has an option to renew its lease for three (3) one
year terms with no less than ninety (90) days written notice given prior to the
expiration of the proceeding term. About 2,500 square feet of Q Comm's warehouse
space is available to convert to office space. The Company believes its
currently leased space allows it enough space to accommodate future expansion
plans for at lease one year. The Company's total annual lease obligation is
$29,294.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth, as of January 20, 2000, the number of
shares of Common Stock of the Company beneficially owned by all persons known to
be holders of more than five percent of the Company's Common Stock and by all
executive officers and directors of the Company individually and as a group.
14
<PAGE>
(a) Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Title of Name and address Amount and Nature Percentage of
Class of beneficial owners of beneficial ownership class
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2% - GEM Global Yield Fund $650,000.00 100%
Convertible[1] c/o Loughran & Co. With a conversion rate of $1.00
Debenture 38 Hertford Street per share, or 65% of the average
London W1Y7TG bid price for the five days prior
to conversion, which ever is less
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[1] Resulting from the Convertible Debenture and Common Stock purchase
agreement originally by and between Q Comm International, Inc. and GEM
Investments, LTD dated, and subsequent agreement between GEM Investments, LTD
and GEM Global Yield Fund Limited ("GEM Global") dated on September 15, 1999
whereby GEM Investments, LTD sold to GEM Global all of the Debentures registered
to GEM Investments, LTD along with conversion rights to 2,000,000 escrowed
shares. GEM Global is entitled to repayment on the Debenture of $650,000 on or
before the maturity date of May 12, 2004 (the "Maturity Date") in addition to
receiving interest at the rate of 2% per annum until payment in full of the
principal amount together with all accrued and unpaid interest. GEM Global may
elect at any time to convert the Debenture, in whole or in part, into shares of
the Company's Common Stock. If GEM Global makes such election the formula for
determining the rate of conversion shall be $1.00 per share, or 65% of the
average bid price for the five days prior to conversion, which ever is less. The
Company agrees that, if at any time the conversion price of the Debentures is
such that the number of Escrow Shares is less than 200% of the number of shares
of Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) days written notice of such circumstance to the Company
by the Purchaser and/or Escrow Agent, it will issue additional share
certificates, in the name of each of the Purchasers, and deliver same to the
Escrow Agent, such that the new number of Escrow Shares is equal to 200% of the
Full Conversions shares. The Escrow Agreement shall terminate upon the earlier
of (i) the conversion of the full amount of the Debentures; or (ii) the Maturity
Date of the Debentures. Upon termination of the Escrow Agreement, the Escrow
Agent shall return any unconverted Escrow Shares to the Company. On the Maturity
Date, the Debenture and all interest due shall convert automatically into shares
of Common Stock at the conversion price.
(b) Security Ownership of Management
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
Title of Name and address Amount and Nature Percentage of
Class of beneficial owners of beneficial ownership shares Outstanding
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Paul C. Hickey - CEO[1] 3,555,345 shares 41%
Stock 1638 N.1030 W.
Orem, Utah 84057
Options on Stephen C.Flaherty - President[1] 520,000 Common Stock purchase 0.1%
Common Stock 3645 North Little Rock Drive options of which 70,000
Provo, Utah 84604 have vested and none have
been exercised
Common K.C. Holmes - Director[1] 123,333 shares 0.1%
Stock 736 E. Stokes Avenue
Draper, Utah 84020
Common Katie Benioni - Secretary[1] 14,000 shares 0.0%
Stock 279 E. 1090 North
Orem, Utah 84057
Common Brent Bingham[1] 10,000 shares 0.0%
Stock 516 W. 300 S.,
Orem, Utah 84058
Total All Officers & Directors 3,772,678 shares 44%
as a group beneficially own
- - ------------------------------------------------------------------------------------------------------
</TABLE>
[1] The listed beneficial owners have no rights to acquire any shares
within 60 days of the date of this Form 10-SB from options, warrants, rights,
conversion privileges or similar obligations.
(c) Change in Control
15
<PAGE>
There are no arrangements, including any pledge by any person of
securities of Q Comm or any of its parents, the operation of which may at a
subsequent date result in a change in control of the registrant.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following Table sets forth certain information regarding the executive
officers and directors of Q Comm as of January 20,2000.
- - --------------------------------------------------------------------------------
Name Age Title Five Years Business Experience
- - ---- --- ----- ------------------------------
Paul C. Hickey 39 CEO, Chairman* Paul C. Hickey is CEO and
Of the Board Chairman of the Board of
Directors of Q Comm. He
finalized Q Comm's acquisition
of Teleshare900 and Teleconnect
on August 3, 1998, companies he
founded in 1992 and 1993
respectively. Through these
acquisitions, Mr. Hickey
successfully merged and focused
the assets, personnel and
experience that generated seven
years of success in the telecom
industry. As founder of
Teleshare and Teleconnect, Mr.
Hickey built one of the nation's
most successful IVR service
bureaus, implemented a
nationwide telecom training
program, and became a leader in
recruiting telecom value-added
resellers. Prior to his work at
Teleshare and Teleconnect, Mr.
Hickey served as a national
seminar speaker on direct
marketing for American Business
Seminars during 1991 and 1992.
Prior to 1991, he served two
years as the general manager of
the Ridge Athletic Club and two
years as department manager for
Yurika Foods. He has a Bachelor
of Science degree from Brigham
Young University with a
concentration in marketing, a
co-concentration in
International business, and
minors in accounting and
economics.
Stephen C. Flaherty 52 President Stephen C. Flaherty joined Q
Comm as their President in
April, 1999. Prior to joining Q
Comm, Mr. Flaherty's past
successes include executive
marketing and sales positions at
large corporations and small,
start-up businesses. He began
his career at Bell and Howell
where he was promoted seven
times in 14 years. In his last
position with Bell and Howell,
Mr. Flaherty was called on to
launch a new division in Ohio as
the Director of Sales and
Marketing. Having established a
track record of building
successful sales teams, he was
recruited by GE Capital and
became the Vice President of
Sales and Marketing for Dealer
Systems. While in this position,
Mr. Flaherty had the opportunity
to work with Jack Welch, CEO of
GE, where Mr. Flaherty developed
an expertise in applying the
strategies and techniques for
building shareholder value. This
insight, his success record and
natural enthusiasm made him an
attractive
16
<PAGE>
acquisition for companies in
need of a turn around. From 1991
to 1998, Mr. Flaherty helped
turn around various small to
medium-sized businesses in need
of his skills and experience.
Serving as CEO, President, and
in other executive positions, he
helped successfully turn around
First Image, a technical
document publisher; MERX, a
medical services company and
GBS, the second largest
consulting partner of JD
Edwards.
Brent T. Bingham 33 Director* Mr. Bingham presently serves as
a Director of Q Comm. Mr.
Bingham has served in this
capacity since February, 1999.
Mr. Bingham currently serves as
President of Eclipse Marketing,
Inc., (marketing services) a
position he has held since
December, 1992; President of
Eclipse Marketing One, LLC
(marketing home security
systems) since August, 1997 to
Present; and President of
Bingham Quality Services (Pest
Control Sales and Service) from
October,1997 to present.
K.C. Holmes 32 Director* Mr. Holmes presently serves as a
Director of Q Comm. Mr. Holmes
has served in this capacity
since December of 1998. Mr.
Holmes currently serves as CEO
of Murdock Group Career
Satisfaction, Corp. (Career
Training.) He has served in this
position since August, 1996; Mr.
Holmes is Chairman of the Board
of Directors of Open Seas, Inc.
(import wholesale of hardware);
Mr. Holmes served as an Account
Manager for Provider Solutions
(Oracle Reseller) from 1995 to
1996; from 1991 to 1995 Mr.
Holmes was a developer for
Dynix-Library Service.
Katie Benioni 31 Secretary Ms. Benioni currently serves as
Secretary to Q Comm. From 1994
to 1997 Ms. Benioni was an
Account Manager for Teleshare
900, Inc. and Teleconnect, Inc.
From 1997 to present Ms. Benioni
is the owner of Total Financial
Solutions (Bookkeeper for
various small businesses)
- - --------------------------------------------------------------------------------
* Each Director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
The directors of Q Comm hold no other directorship in any other reporting
company. In addition to Paul C. Hickey, the Companies CEO, Q Comm's significant
employees include Stephen C. Flaherty, President, John T. Hickey, Director of
Marketing and Bruce R. Siskonen, the Company's National Sales Manager. There are
no family relationships among the directors or persons nominated or chosen by
the Company to become a director. Paul C. Hickey, CEO and Chairman of the Board
and John T. Hickey, National Sales Manager are brothers.
Item 6. Executive Compensation
Summary Compensation Table
- - --------------------------------------------------------------------------------
Annual Compensation Long-Term
------------------- Compensation
------------
17
<PAGE>
Awards
------
Securities
Name and Underlying
Principal Position Year Salary Bonus Options
------------------ ---- ------ ----- ----------
Paul C. Hickey 1997 $13,553 $0
CEO
Katie Benioni 1997 $13,149 $0
Secretary/Accounting
Paul C. Hickey 1998 $5,320 $0
CEO
Katie Benioni 1998 $14,103 $0
Secretary/Accounting
Paul C. Hickey 1999 $2,000 $0 $50,000.00
CEO* **
Stephen C. Flaherty 1999 $56,538 $0
President**
Katie Benioni 1999 $12,080 $0
Secretary/Accounting**
- - --------------------------------------------------------------------------------
*The Company has not adopted any program for bonuses, incentive compensation,
profit sharing, pension, retirement, contracts or arrangements or deferred
compensation plan except for Paul C. Hickey (CEO) who has a $50,000 deferred
compensation salary in place for 1999.
** Under proposed remuneration Paul C. Hickey (CEO) will receive a salary of
$120,000 for the year 2000 and 2001 of which in year 2000 $68,000 is deferred.
Stephen C. Flaherty (President) will receive a salary of $120,000 for the years
2000 and 2001. Katie Benioni (Secretary) will receive a salary of $12,000 for
the year 2000.
Employment Agreements
Stephen C. Flaherty was hired as President of Q Comm and provided a one plus
year contract which expires on December 31, 2000. The Agreement will be renewed
for successive one year terms. Under this agreement Mr. Flaherty will receive
the following compensation:
o Base salary of $120,000 for the year 2000 and for each successive one year
term of the agreement.
o Q Comm has given Mr. Flaherty the right to exercise options to purchase
shares of Common Stock as part of his compensation package.
Under this Agreement Mr. Flaherty will be entitled to participate in all
of the Company's benefit plans, including, but not limited to, any stock option,
medical, dental, life insurance, retirement, pension, profit sharing, or other
plan as may be in effect from time to time on the same
18
<PAGE>
basis as provided generally to all other employees.
Bruce R. Siskonen was hired by Q Comm on June 30, 1999 as National Sales Manager
and is being paid a salary of $72,000 per year. In addition, Mr. Siskonen will
be entitled to participate in all of the Company's benefit plans, including, but
not limited to, any stock option, medical, dental, life insurance, retirement,
pension, profit sharing, or other plan as may be in effect from time to time on
the same basis as provided generally to all other employees.
Stock Option Agreements
Stephen C. Flaherty, President is entitled to purchase under a Stock Option
Agreement adopted by Q Comm 520,000 shares ("Option shares") of the Company's
Common Stock, par value $0.001 at a purchase price of $1.50 per share. The right
to purchase the Option shares may be exercised in whole or in part. The Options
shall vest subject to the terms and conditions set forth in the Stock Option
Agreement over a five year period to a maximum of 520,000 shares expiring on
April 30, 2004.
John T. Hickey, Director of Marketing is entitled to purchase under a Stock
Option Agreement adopted by Q Comm 200,000 shares ("Option shares") of the
Company's Common Stock, par value $0.001 at a purchase price of $1.50 per share.
The right to purchase the Option shares may be exercised in whole or in part.
The options shall vest subject to the terms and conditions set forth in the
Stock Option Agreement over a five year period to a maximum of 200,000 shares
expiring on April 30, 2004.
Bruce R. Siskonen, National Sales Manager is entitled to purchase under a Stock
Option Agreement adopted by Q Comm 100,000 shares ("Option shares") of the
Company's Common Stock, par value $0.001 at a purchase price of $2.25 per share.
The right to purchase the Option shares may be exercised in whole or in part.
The options shall vest subject to the terms and conditions set forth in the
Stock Option Agreement over a five year period to a maximum of 100,000 shares
expiring on April 30, 2004.
The following table contains certain information concerning the options
granted to the Named Executive Officers during the fiscal year ended December
31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options Granted
Underlying to Employees in Exercise or
Name Options Granted Fiscal Year Base Price Expiration Date
================================================================================================
<S> <C> <C> <C> <C>
Stephen C. Flaherty 520,000 63.4% $1.50 April 30, 2004
- - ------------------------------------------------------------------------------------------------
John T. Hickey 200,000 24.4% $1.50 April 30, 2004
- - ------------------------------------------------------------------------------------------------
Bruce R. Siskonen 100,000 12.2% $2.25 April 30, 2004
- - ------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth certain information concerning the exercise
of stock options
19
<PAGE>
during the fiscal year ended December 31, 1999 by each Named Officer and the
value at December 31, 1999 of unexercised options held by the Named Executive
Officers.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-End Options at FY-End
Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable*
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen C. Flaherty 0 - 70,000/450,000 $17,500/$112,500
- - --------------------------------------------------------------------------------------------------------------
John T. Hickey 0 - 35,000/165,000 $8,750/$41,250
- - --------------------------------------------------------------------------------------------------------------
Bruce R. Siskonen 0 - 14,000/86,000 $0.00/$0.00
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
o Based on the closing sale price of Common Stock reported by the Nasdaq
Stock Market OTC Bulletin Board as of December 31, 1999, which was $1.75
per share, less exercise price payable to optionee.
Item 7. Certain Relationships and Related Transactions
The Company leases equipment and furniture from a company owned by the
Company's CEO, under an operating lease which expires on March 31, 2001. Monthly
payments are approximately $2,700 under the operating lease agreement. The
Company is liable to carry property insurance and assume the responsibility of
maintaining the leased equipment and furniture.
20
<PAGE>
PART II
21
<PAGE>
Item 8. Legal Proceedings
The Company is not a party to or involved in any material litigation, nor
is it aware, to the best of its knowledge, of any pending or contemplated
proceedings against it by any third party or any government authorities.
Item 9. Market For Common Equity and Related Stockholder Matters
Q Comm's Common Stock is currently traded on the Over-the-Counter Bulletin
Board ("OTCBB") under the symbol "QCCM." The Company is presently not required
to file reports with the SEC pursuant to the Exchange Act. However, under the
OTC Eligibility Rule, effective January 4, 1999, companies whose securities are
quoted on the OTCBB will be required to file periodic reports with the SEC to
continue quoting their securities (the "Eligibility Rule"). In order to comply
with the Eligibility Rule, most companies will register their securities under
the Exchange Act on Form 10 or (Form 10-SB if a small business issuer, as is the
case with Q Comm). The Eligibility Rule currently provides that an issuer reach
"no comment" status prior to its scheduled phase-in date in order to avoid being
delisted. Q Comm's scheduled phase-in date is March 23, 2000. No assurances can
be given that the application made will be approved in time to sustain an active
public trading market.
The following table sets forth the range of the high and low closing bid
prices per share of Q Comm's Common Stock during each of the calendar quarters
identified below. These bid prices were obtained from the Standard & Poor's
Comstock, and do not necessarily reflect actual transactions, retail markups,
markdowns or commissions. Based on the very limited public float and trading in
Q Comm's Common Stock, Q Comm believes that such data is anecdotal and may bear
no relation to the true value of Q Comm's Common Stock or the range of prices
that would prevail in a liquid market.
The high and low bid sales prices for the equity for each full quarterly
period within the two most recent fiscal years and any subsequent interim period
for which financial statements are included are as follows:
- - --------------------------------------------------------------------------------
Year Quarter High Bid Low Bid Year Quarter High Bid Low Bid
1998 1st N/A* N/A* 1999 1st 2 1/4 1 1/2
1998 2nd N/A* N/A* 1999 2nd 2 5/8 1 1/4
1998 3rd N/A* N/A* 1999 3rd 3 1 1/2
1998 4th 2 3/8 1 1/2 1999 4th 1 7/8 0 3/4
- - --------------------------------------------------------------------------------
* Q Comm securities were not listed on the Over-the-Counter Bulletin Board until
the third quarter of 1998.
22
<PAGE>
Item 10. Recent Sales of Unregistered Securities
During 1998, the Company initiated a private placement memorandum under
Regulation D Rule 504 in which the Company offered 1,135,000 of common shares at
$0.75 per share on a best efforts basis. During 1999, the Company received
approximately $108,250 on the sale of 144,326 shares. The proceeds to Q Comm
from the Regulation D offering will be used exclusively for sales and marketing
activities related to expanding Q Comm's core prepaid phone card business and
the expansion of its prepaid wireless phone service. There was no underwriter
used in connection with this offering.
In 1999, the Company also received $650,000 from GEM Investments LTD, a
private capital investment firm located in New Jersey upon the issuance of a
convertible debenture. The debenture is convertible into Common Stock of the
Company through May 12, 2004 and accrues interest at the rate of 2 percent per
annum. GEM Investments, LTD entered into subsequent agreement with GEM Global
Yield Fund Limited ("GEM Global") on September 15, 1999, whereby GEM
Investments, LTD sold to GEM Global all of the Debentures registered to GEM
Investments, LTD along with conversion rights to 2,000,000 escrowed shares. GEM
Global is entitled to repayment on the Debenture of $650,000 on or before the
maturity date of May 12, 2004 (the "Maturity Date") in addition to receiving
interest at the rate of 2% per annum until payment in full of the principal
amount together with all accrued and unpaid interests. GEM Global may elect at
any time to convert the Debenture in whole or in part, into shares of the
Company's Common Stock. If GEM Global makes such election the formula for
determining the rate of conversion shall be $1.00 per share, or 65% of the
average bid price for the five days prior to conversion, which ever is less. The
Company agrees that, if at any time the conversion price of the Debentures is
such that the number of Escrow Shares is less than 200% of the number of shares
of Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) days written notice of such circumstance to the Company
by the Purchaser and/or Escrow Agent, it will issue additional share
certificates, in the name of each of the Purchaser, and deliver same to the
Escrow Agent, such that the new numbers of Escrow Shares is equal to 200% of the
Full Conversion shares. The Escrow Agreement shall terminate upon the earlier of
(i) the conversion of the full amount of the Debentures; or (ii) the Maturity
Date of the Debentures. Upon termination of the Escrow Agreement, the Escrow
Agent shall return any unconverted Escrow Shares to the Company. On the maturity
date, the Debenture and all interests due shall convert automatically into
shares of Common Stock at the conversion price. In conjunction with the issuance
of the debenture, the investor also received Warrants to purchase 125,000 shares
of Common Stock at an exercise price of $0.01 per share. The Warrants were
exercised by GEM Investments LTD on May 13, 1999.
During 1999, the Company initiated a private placement memorandum under
Regulation D Rule 504 in which the Company offered shares of Common Stock at
$0.66125 per share on a best efforts basis. The Company received on October 26,
1999, approximately $172,000 on the sale of 260,113 shares and on November 18,
1999, received approximately $37,500 on the sale of 56,711 shares, reflecting
aggregate proceeds of $209,500. The proceeds to Q Comm from the Regulation D
offering will be used exclusively for sales and marketing activities related to
expanding Q Comm's core prepaid phone card business and the expansion of its
prepaid wireless phone service. There was no underwriter used in connection with
this offering.
On December 24, 1999, the Company executed a Warrant Purchase Agreement
with Balallan Limited ("Balallan") in consideration of a Fifty Thousand Dollars
($50,000) loan (the "Loan"). In partial consideration of the Loan the Company
issued to Balallan a Warrant entitling it to purchase up to twenty thousand
(20,000) shares of Common Stock of the Company at an exercise price of $0.66 per
share.
23
<PAGE>
Item 11. Description of Securities
The authorized capital stock of Q Comm consists of 50,000,000, shares of
Common Stock, par value $0.001 of which 8,639,675 are issued and outstanding on
January 20, 2000. All outstanding shares of Common Stock are fully paid and
non-assessable. Each holder of record of Common Stock is entitled to one vote
for each share held on all matters properly submitted to the shareholders for
their vote. Cumulative voting is not authorized by the Articles of
Incorporation.
Holders of Q Comm Common Stock are entitled to dividends in the discretion
of the Board of Directors and payment thereof will depend upon, among other
things, the Company's earnings, its capital requirements and its overall
financial condition. Q Comm has not paid any cash dividends on its Common Stock
since inception and intends to follow a policy of retaining any earnings to
finance the development and growth of its business. Accordingly, it does not
anticipate the payment of cash dividends in the foreseeable future.
Market For Common Shares
There is currently a limited trading market for the Company's Common
Stock. The Company's Common Stock trades on the Over the Counter Bulletin Bound
under the symbol QCCM.
Share Eligible for Future Sale
The Company presently has outstanding 8,639,675 shares of Common Stock. Of
these shares, 5,619,851 shares of outstanding Common Stock were issued and sold
by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act of 1933 (the "Act"). Such shares may be
sold only pursuant to an effective registration statement filed by the Company
or an applicable exemption, including the exemption contained in Rule 144
promulgated under the Act.
In general, under Rule 144 as currently in effect, a shareholder,
including an affiliate of the Company may sell shares of Common Stock after at
least one year has elapsed since such shares were acquired from the Company or
an affiliate of the Company. The number of shares of Common Stock which may be
sold within any three-month period is limited to the greater of one percent of
the then outstanding Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of such sale was filed under Rule 144. Certain other requirements of Rule 144
concerning availability of public information, manner of sale and notice of sale
must also be satisfied. In addition, a shareholder who is not an affiliate of
the Company (and who has not been an affiliate of the Company for 90 days prior
to the sale) and who has beneficially owned shares acquired from the Company or
an affiliate of the Company for over two years may resell the shares of Common
Stock without compliance with the foregoing requirements under Rule 144.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices.
24
<PAGE>
Item 12. Indemnification of Directors and Officers
No officer or director shall be personally liable for any obligations
arising out of any acts or conduct of said officer or director performed on or
behalf of the Company. The Company shall and does hereby indemnify and hold
harmless each person and his heirs and administrators who shall serve at any
time hereafter as a director or officer of the Company from and against any and
all claims, judgments and liabilities to which such persons shall become subject
by reason of his having heretofore or hereafter been a director or officer of
the Company, or by reason of any action alleged to have been heretofore or
hereafter taken or omitted, or to have been taken by him as such director or
officer, and shall reimburse each such person for all legal and other expenses
reasonably incurred by him in connection with any such claims or liability;
including power to defend such person from all suits provided for under the
provisions of the Utah Business Corporation Act; provided, however, that no such
person shall be indemnified against, or be reimbursed for, any expense incurred
in connection with any claim or liability arising out of his own negligence or
willful misconduct. The rights accruing to any person under the foregoing
provisions of this Section shall not exclude any other right to which he may
lawfully be entitled, nor shall anything herein contained restrict the right of
the Company to indemnify or reimburse such person in any proper case, even
though not specifically herein provided for. The Company, its directors,
officers, employees and agents shall be fully protected in taking any action or
making any payment or in refusing so to do in reliance upon the advice of
counsel.
Other Indemnification The indemnification herein provided shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer or employee and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
Insurance The Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer or employee of the Company, or is or
was serving at the request of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any capacity, or arising out of his status as such, whether
or not the Company would have the power to indemnify him against liability under
the provisions of this section on Indemnification or of Section 16-10-4 of the
Utah Business Corporation Act.
Settlement by Company The right of any person to be indemnified shall be
subject to the right of the Company by its Board of Directors, in lieu of such
indemnity, to settle any such claim, action, suit or proceeding at the expense
of the Company by the payment of the amount of such settlement and the costs and
expenses incurred in connection therewith.
Indemnification of officers or persons controlling Q Comm for liabilities
arising under the Securities Act of 1933, is held to be against public policy by
the Securities and Exchange Commission and is therefore unenforceable.
25
<PAGE>
PART F/S
Item 13. Financial Statements
See attached unaudited condensed, consolidated financial statements of Q
Comm and related financial notes which are included in this registration
statement.
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORTS
Report of Grant Thornton LLP, independent certified public accountants
on the December 31, 1998 financial statements F-2
Report of Squire & Co., independent certified public accountants
on the December 31, 1997 financial statements F-3
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of November 30, 1999 (unaudited) and
December 31, 1998 F-4
Statements of Operations for the Eleven Months Ended
November 30, 1999 (unaudited) and 1998 (unaudited) and
Years Ended December 31, 1998 and 1997 F-5
Statement of Stockholders' Deficit for the Years Ended
December 31, 1997 and 1998 and Eleven Months Ended
November 30, 1999 (unaudited) F-6
Statements of Cash Flows for the Eleven Months Ended November 30, 1999
(unaudited) and 1998 (unaudited) and
Years Ended December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders of
QComm International, Inc.
We have audited the accompanying consolidated balance sheet of QComm
International, Inc. and Subsidiary (the Company) as of December 31, 1998, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of QComm
International, Inc. and Subsidiary as of December 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Salt Lake City, Utah
September 30, 1999
F-2
<PAGE>
Squire & Co. Opinion
F-3
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30, December 31,
1999 1998
---------------- ---------------
(unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 40,523 $ 1,019
Trade accounts receivable, less allowance for
doubtful accounts of $22,915 in 1999
and $39,048 in 1998 (Note G) 84,437 40,377
Current maturities of notes receivable (Note D) 40,682 69,251
Related party receivable (Note F) 13,379 8,379
---------------- ---------------
Total current assets 179,021 119,026
NOTES RECEIVABLE, less current maturities (Note D) - 89,810
PROPERTY AND EQUIPMENT, AT COST (Notes E and G) 57,161 2,267
OTHER ASSETS 3,000 1,009
---------------- ---------------
$ 239,182 $ 212,112
================ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligation (Note I) $ 33,911 $ 11,882
Accounts payable 363,042 755,300
Lines of credit (Note G) 162,065 182,588
Accrued liabilities (Note H) 277,067 114,920
Related party obligation (Note F) 163,561 145,687
---------------- ---------------
Total current liabilities 999,646 1,210,377
LONG-TERM OBLIGATION, less current maturities (Note I) - 30,984
CONVERTIBLE DEBENTURE, net of discount (Note N) 510,500 -
COMMITMENTS AND CONTINGENCIES (Note O) - -
STOCKHOLDERS' DEFICIT (Notes C, L, M and N)
Common stock, $0.001 par value; authorized 50,000,000
shares; issued and outstanding 6,553,748 shares in 1999
and 5,724,059 shares in 1998 6,554 5,724
Stock subscription receivable (Note K) - 104,823
Additional paid-in capital 1,247,984 364,868
Accumulated deficit (2,525,502) (1,504,664)
---------------- ---------------
Total stockholders' deficit (1,270,964) (1,029,249)
---------------- ---------------
$ 239,182 $ 212,112
================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Eleven months ended
November 30, Year ended December 31,
----------------------------------- ----------------------------------
1999 1998 1998 1997
---------------- ---------------- ---------------- ----------------
(unaudited) (unaudited)
Revenues
<S> <C> <C> <C> <C>
Telecommunications $ 1,004,738 $ 2,437,908 $ 2,839,848 $ 4,163,580
Renewal fees 53,399 125,339 136,127 454,784
Other sales 48,613 177,015 189,487 143,820
---------------- ---------------- ---------------- ----------------
Net revenues 1,106,750 2,740,262 3,165,462 4,762,184
Cost of revenues 769,463 1,894,975 2,057,970 2,681,875
---------------- ---------------- ---------------- ----------------
Gross profit 337,287 845,287 1,107,492 2,080,309
Operating expenses 1,138,549 2,425,327 2,793,926 2,020,278
---------------- ---------------- ---------------- ----------------
Earnings (loss) from
operations (801,262) (1,580,040) (1,686,434) 60,031
Other income (expense)
Beneficial conversion
feature (Note N) (350,000) - - -
Removal of a liability (Note J) - 257,005 257,005 -
Disputed charges settlement - - - (188,000)
Interest (Note N) (65,210) (27,681) (53,589) (35,319)
Other, net 37,926 38,880 28,168 165,951
---------------- ---------------- ---------------- ----------------
(377,284) 268,204 231,584 (57,368)
Earnings (loss) before
extraordinary item
and income taxes (1,178,546) (1,311,836) (1,454,850) 2,663
Extraordinary item - gain on extinguishment
of debt (Note K) 157,708 90,608 125,087 -
---------------- ---------------- ---------------- ----------------
Earnings (loss) before
income taxes (1,020,838) (1,221,228) (1,329,763) 2,663
Income taxes (Note Q) - - - -
---------------- ---------------- ---------------- ----------------
NET EARNINGS (LOSS) $ (1,020,838) $ (1,221,228) $ (1,329,763) $ 2,663
================ ================ ================ ================
Earnings (loss) per common share (Note P)
Basic and diluted
Before extraordinary item $ (0.20) $ (0.24) $ (0.26) $ -
Extraordinary item 0.03 0.02 0.02 -
---------------- ---------------- ---------------- ----------------
Net earnings (loss) $ (0.17) $ (0.22) $ (0.24) $ -
================ ================ ================ ================
Weighted-average number of common shares
outstanding - basic and diluted 5,928,074 5,548,345 5,573,043 5,493,559
================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years ended December 31, 1997 and 1998 and eleven months ended
November 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Common stock Stock Additional
----------------------------- subscription paid-in Accumulated
Shares Amount receivable capital deficit Total
--------------- ----------- -------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997,
as restated 5,493,559 $ 5,494 $ - $ 52,368 $ (177,564) $ (119,702)
Net earnings - - - - 2,663 2,663
--------------- ----------- -------------- ------------- --------------- -------------
Balance at
December 31, 1997 5,493,559 5,494 - 52,368 (174,901) (117,039)
Stock subscription issued
in exchange for debt
(Note K) - - 104,823 - - 104,823
Issuance of common
stock for services 34,000 34 - 23,266 - 23,300
Issuance of common
stock for cash 196,500 196 - 286,042 - 286,238
Issuance of warrants for services
(Note M) - - - 3,192 - 3,192
Net loss - - - - (1,329,763) (1,329,763)
--------------- ----------- -------------- ------------- --------------- -------------
Balance at
December 31, 1998 5,724,059 5,724 104,823 364,868 (1,504,664) (1,029,249)
Issuance of warrants
(Note M) (unaudited) - - - 155,000 - 155,000
Issuance of common stock for cash
(unaudited) 595,143 595 - 254,828 - 255,423
Stock subscription
(unaudited) (Note K) 209,646 210 (104,823) 104,613 - -
Issuance of common stock for
services (unaudited) 24,900 25 - 18,675 - 18,700
Beneficial conversion feature
(unaudited) (Note N) - - - 350,000 - 350,000
Net loss (unaudited) - - - - (1,020,838) (1,020,838)
--------------- ----------- -------------- ------------- --------------- -------------
Balance at November 30, 1999
(unaudited) 6,553,748 $ 6,554 $ - $ 1,247,984 $ (2,525,502) $ (1,270,964)
=============== =========== ============== ============= =============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eleven months ended
November 30, Year ended December 31,
----------------------------------- ----------------------------------
1999 1998 1998 1997
---------------- ---------------- ---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net earnings (loss) $ (1,020,838) $ (1,221,228) $ (1,329,763) $ 2,663
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Gain on extinguishment of debt (157,708) (90,608) (125,087) -
Depreciation 3,585 567 567 4,019
Provision for losses on receivables 109,087 794,128 794,128 346,067
Removal of a liability - (257,005) (257,005) -
Settlement of a liability - 42,866 42,866 -
Stock issued for services 18,700 23,300 23,300 -
Warrants issued for services - 3,192 3,192 -
Amortization of discount on debenture
15,500 - - -
Beneficial conversion feature 350,000 - - -
Changes in assets and liabilities
Trade accounts receivable (44,060) (33,402) (47,728) 3,482
Notes receivable 9,292 (187,746) (78,215) (737,660)
Other assets (1,991) 4,715 8,317 (2,958)
Accounts payable (234,550) 288,172 441,025 50,960
Accrued liabilities 162,147 190,266 88,096 216,237
Related party 12,874 158,009 154,953 12,546
---------------- ---------------- ---------------- ----------------
Total adjustments 242,876 936,454 1,048,409 (107,307)
---------------- ---------------- ---------------- ----------------
Net cash used in
operating activities (777,962) (284,774) (281,354) (104,644)
---------------- ---------------- ---------------- ----------------
Net cash flows from investing activities -
Purchase of property and equipment (58,479) (2,834) (2,834) -
---------------- ---------------- ---------------- ----------------
Cash flows from financing activities
Net change in lines of credit (20,523) 102 (2,397) 83,985
Proceeds from issuance of common stock 255,423 286,140 286,238 -
Payments on long-term obligations (8,955) - - -
Proceeds from issuance of convertible
debenture and warrants 650,000 - - -
---------------- ---------------- ---------------- ----------------
Net cash provided by
financing activities 875,945 286,242 283,841 83,985
---------------- ---------------- ---------------- ----------------
Net increase (decrease)
in cash 39,504 (1,366) (347) (20,659)
Cash at beginning of period 1,019 1,366 1,366 22,025
---------------- ---------------- ---------------- ----------------
Cash at end of period $ 40,523 $ - $ 1,019 $ 1,366
================ ================ ================ ================
</TABLE>
(Continued)
F-7
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Eleven months ended
November 30, Year ended December 31,
----------------------------------- ----------------------------------
1999 1998 1998 1997
---------------- ---------------- ---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 19,382 $ 18,472 $ 22,562 $ 35,319
Income taxes - - - -
</TABLE>
Noncash investing and financing activities
1999 (unaudited)
The Company issued 24,900 shares of common stock to vendors for services
received. The fair value of the services was approximately $18,700.
Extraordinary gains, net of fees, were realized on the forgiveness of accounts
payable to vendors in the amount of $157,708 (Note K).
The Company issued 209,646 shares of common stock to satisfy an outstanding
stock subscription in the amount of $104,823 (Note F).
The Company recorded interest expense relating to the amortization of a discount
on a convertible debenture in the amount of $15,500 (Note N).
The Company recorded interest expense relating to the beneficial conversion
feature of a convertible debenture in the amount of $350,000 (Note N).
1998
The Company issued 34,000 shares of common stock to an employee and a legal
consultant for services received. The fair value of the services was
approximately $23,300.
Extraordinary gains, net of fees, were realized on the forgiveness of accounts
payable to vendors in the amount of $ 90,608 and $125,087 for the eleven months
ended November 30, 1998 and year ended December 31, 1998, respectively (Note K).
The Company issued to a former officer a stock subscription to purchase 209,646
shares of common stock at $0.50 per share in exchange for debt of $104,823 (Note
F).
The Company issued a warrant to purchase 49,445 shares of common stock at $1.00
per share for services received. The fair value of the services was $3,192 (Note
M).
The Company removed a liability in the amount of $257,005 (Note J).
The Company incurred a note payable in the amount of $42,866 in the settlement
of disputed lease charges (Note I).
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements
follows. Insofar as the notes refer to the eleven months ended November
30, 1999 and 1998, they are not audited. In the opinion of management,
the unaudited interim financial statements for the eleven months ended
November 30, 1999 and 1998 include all adjustments, consisting of normal
recurring accruals, necessary to present fairly the Company's results of
operations and cash flows. Operating results for the interim period as of
November 30, 1999 and for the eleven months ended are not necessarily
indicative of the results that may be expected for the full 1999 year.
1. Organization and business activity
The Company was organized on February 7, 1986 as Four Rivers Development,
Inc. This name was changed on August 3, 1998 to QComm International Inc.
in conjunction with the acquisition of three operating companies (Note
C). The Company is headquartered in Orem, Utah and provides
telecommunication services to end users throughout the United States.
2. Principles of consolidation
The consolidated financial statements include the accounts of QComm
International, Inc. (the Company) and its wholly-owned subsidiary, QComm
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
3. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenditures during the reporting period. Actual results could differ
from those estimates.
4. Cash and cash equivalents
The Company considers all highly liquid debt instruments with original
maturity dates of three months or less when purchased, to be cash
equivalents.
5. Revenue recognition
Revenue is recognized as services are performed. Notes receivable from
customers are generally serviced through independent collection agencies.
Revenue is recognized when the notes are signed and the related service
provided. Ongoing revenue and expenses from telecommunication services
are passed through to customers, with the related portion due to the
Company recognized upon notification from the service provider.
F-9
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. Depreciation and amortization
Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the assets of five years.
7. Fair value of financial instruments
The carrying value of the Company's accounts and notes receivable,
accounts payable, accrued liabilities, long-term obligations and lines of
credit approximate their fair values.
8. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect, when the differences are expected to
reverse. An allowance against deferred tax assets is recorded, when it is
more likely than not that such tax benefits will not be realized.
9. Advertising costs
Advertising and marketing costs are expensed as incurred.
10. Net earnings (loss) per share
Basic earnings (loss) per common share (BEPS) is based on the
weighted-average number of common shares outstanding during each period.
Diluted earnings (loss) per common share are based on shares outstanding
(computed as under BEPS) and dilutive potential common shares. Potential
common shares included in the dilutive earnings (loss) per share
calculation include outstanding stock options and warrants to purchase
common shares.
11. Certain reclassifications
Certain nonmaterial reclassifications have been made to the December 31,
1998 and 1997 financial statements to conform to the November 30, 1999
presentation.
F-10
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE B - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company has
sustained losses from operations of $1,329,763 in 1998 and $1,020,838
during the unaudited eleven months ended November 30, 1999. In addition,
the Company has a stockholders' deficit of $1,270,964 and a working
capital deficit of $820,625 as of November 30, 1999 has used, rather than
provided, cash in its operations.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
meet its financing requirements on a continuing basis, to maintain
present financing, and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
Management's plans to satisfy its operating and debt service requirements
are focused primarily on the raising of equity capital, increasing
contracts relating to new revenue and decreasing certain costs as
follows:
1. Has acquired new significant contracts that are expected to
increase revenues over the next 12 months.
2. Created a new marketing plan which requires less cash to
execute relative to expected long-term revenues.
3. Has developed relationships with several investor groups who
have invested in the Company and who have shown interest in
making future investments as a result of the Company's new
marketing plan.
4. Will prepare a secondary offering of the Company's common
stock expected to occur during early 2000 with the intent to
raise up to approximately $4 million.
5. Has reduced expenses relating to payroll, office lease and
marketing.
NOTE C - RECAPITALIZATION
On August 3, 1998 the Company changed its name from Four Rivers
Development, Inc. to QComm International, Inc. The Company also effected
a 1 for 20 reverse stock split of its common stock, thereby reducing its
shares outstanding from 10,987,724 to 549,387 shares. Also on August 3,
1998, the Company acquired the following three companies:
F-11
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE C - RECAPITALIZATION - CONTINUED
o Teleconnect, Inc. (TCI), a Utah corporation, was acquired through
the issuance of 3,385,481 shares of the Company's common stock to
the shareholders of TCI in exchange for all of the outstanding
common stock of TCI. TCI was originally formed on January 28,
1993.
o Teleshare 900, Inc. (T900), a Utah corporation, was acquired
through the issuance of 994,037 shares of the Company's common
stock to the shareholders of T900 in exchange for all of the
outstanding common stock of T900. T900 was originally formed on
January 28, 1993.
o QComm International, Inc. (QCI), a Nevada corporation, was
acquired through the issuance of 566,154 shares of the Company's
common stock to the shareholders of QCI for all of the outstanding
stock of QCI. QCI was originally formed on December 5, 1997.
The three acquired companies were merged to form QCMERCO, Inc., which was
subsequently renamed QComm, Inc., a wholly owned subsidiary of QComm
International, Inc. The combination of QComm, Inc. and QComm International,
Inc. was recorded as a reverse acquisition. Application of reverse
acquisition accounting results in the following:
o The consolidated financial statements of the combined entity are
issued under the name of the legal parent QComm International,
Inc., but are considered a continuation of the financial
statements of the legal subsidiary QComm, Inc.
o As QComm, Inc. is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements of the continuing entity at
their carrying values.
After the acquisitions there were 5,494,059 shares of common stock
outstanding with approximately 10 percent of those shares being held by
former stockholders of the Company.
The recapitalization has been reflected in the financial statements as if
the transaction had occurred at the beginning of the earliest period
presented.
NOTE D - NOTES RECEIVABLE
Notes receivable are principally from financing agreements with customers
for telecommunications services provided. Interest rates vary from 10 to
21 percent with 6 to 24 month terms. Delinquent notes receivable are
turned over for collection to collection agencies. The agencies charge a
collection fee, ranging from 10 percent to 50 percent on all amounts
collected. Uncollectible accounts are written-off against the allowance
account. Adjustments are charged to bad debt expense. Notes receivable at
November 30, 1999 and December 31, 1998, consist of the following:
F-12
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE D - NOTES RECEIVABLE - CONTINUED
<TABLE>
<CAPTION>
November 30, December 31,
1999 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
Notes serviced by collection agencies $ 71,895 $ 561,318
Notes serviced internally 3,207 54,238
---------------- ----------------
75,102 615,556
Allowance for uncollectible accounts (34,420) (456,495)
---------------- ----------------
Net notes receivable 40,682 159,061
Less current maturities 40,682 69,251
---------------- ----------------
$ - $ 89,810
================ ================
</TABLE>
A summary of the changes in the allowance for uncollectible notes is as
follows:
<TABLE>
<CAPTION>
November 30, December 31,
1999 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
Balance, beginning of period $ 456,495 $ 366,000
Provisions for losses 109,087 679,988
Write-offs (531,162) (589,493)
---------------- ----------------
Balance, end of period $ 34,420 $ 456,495
================ ================
</TABLE>
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
November 30, December 31,
1999 1998 Years
---------------- ---------------- ----------
(unaudited)
<S> <C> <C> <C>
Equipment $ 6,307 $ 2,834 5
LDC terminals 55,006 - 3
---------------- ----------------
61,313 2,834
Less accumulated depreciation 4,152 567
---------------- ----------------
$ 57,161 $ 2,267
================ ================
</TABLE>
F-13
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE F - RELATED PARTY TRANSACTIONS
The Company leases office furniture and equipment from a related party
(Note O). The Company has accrued approximately $94,000, $70,000, $77,000
and $3,000 in lease expenses at November 30, 1999 and 1998 and December
31, 1998 and 1997, respectively.
The Company has a 10 percent note due on demand to a related party in the
amount of approximately $69,500 at November 30, 1999 and December 31,
1998.
During the year ended December 31, 1998, the Company wrote off an
uncollectible account receivable from a related party in the amount of
approximately $55,000.
The Company has a receivable from a related party in the amount of $
13,379 and $8,379 as of November 30, 1999 and December 31, 1998,
respectively. The receivable is due on demand and accrues no interest.
During 1998, the Company agreed to issue 209,646 shares of restricted
common stock to a related party in exchange for debt obligations owed by
the Company in the amount of $104,823 (Note K). The shares were issued
during the period ended November 30, 1999.
NOTE G - LINES OF CREDIT
The Company has a $150,000 line of credit with a bank, secured by
equipment and a personal guarantee of an officer of the Company. The draw
on the line was $127,934 at November 30, 1999 and $147,935 at December
31, 1998. The interest rate is prime plus 2 percent, plus an additional 5
percent default rate due to noncompliance with the line of credit
covenants (15.50 percent at November 30, 1999 and 14.75 at December 31,
1998) with interest payments due monthly, and the principal due on
demand.
The Company also has a $35,000 line of credit with a bank, secured by
equipment, accounts receivable and a personal guarantee of an officer of
the Company. The draw on the credit line was $34,131 at November 30, 1999
and $34,653 at December 31, 1998. The interest rate is prime plus 2
percent (10.50 percent at November 30, 1999 and 9.75 percent at December
31, 1998) with interest payments due monthly, and the principal due on
demand.
The lines of credit agreements contain various restrictive covenants. At
various times during the eleven months ended November 30, 1999 and the
year ended December 31, 1998, the Company was not in compliance with
certain covenants and as a result, the bank has imposed a default
interest rate on one of the lines of credit.
F-14
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE H - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
November 30, December 31,
1999 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
Salaries, wages and payroll taxes $ 53,136 $ 12,801
Credit card chargebacks 159,734 -
Settlement fees - 34,478
Accrued interest 49,306 18,978
Other 14,891 48,663
---------------- ----------------
$ 277,067 $ 114,920
================ ================
</TABLE>
NOTE I - LONG-TERM OBLIGATION
During 1999, the Company settled with a prior landlord certain disputed
charges relating to a building lease during the year ended December 31,
1998. As a result of the settlement, the Company recorded a note payable
to the landlord in the amount of $42,866. Payments on the note commenced
in October 1999 with a payment of $5,685 and require additional monthly
payments of $3,083, expiring in November 2000. The note requires no
interest payments as long as the Company remains current on the principal
payments.
NOTE J - REMOVAL OF A LIABILITY
During 1997, the Company was billed for telecommunications charges from a
service provider. The Company recorded $257,005 as expense and recorded
the amount as a payable. Subsequent to 1997, the Company further
investigated and disputed the charges. Based upon the Company's further
detailed review it does not believe that the amount is properly payable
and has reversed the payable as of December 31, 1998.
NOTE K - EXTINGUISHMENT OF DEBT
The Company has negotiated reductions with certain vendors relating to
amounts due by the Company. As part of this settlement process, the
Company incurred approximately $5,671 and $34,000 in settlement fees
during the eleven months ended November 30, 1999 and year ended December
31, 1998, respectively. The Company has recorded a gain from the
extinguishment of debt in the amounts of $157,708, $90,608 and $125,087
in the consolidated statements of operations for the eleven months ended
November 30, 1999 and 1998 and the year ended December 31, 1998,
respectively.
F-15
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE K - EXTINGUISHMENT OF DEBT - CONTINUED
During 1998, the Company exchanged $104,823 of debt obligations incurred
during the year ended December 31, 1998, for a stock subscription
receivable for 209,646 shares of common stock. During the eleven months
ended November 30, 1999, the Company issued 209,646 shares of common
stock to satisfy the outstanding stock subscription.
NOTE L - COMMON STOCK
During 1998, the Company initiated a private placement memorandum in
which the Company offered shares of common stock at $0.75 per share on a
"Best Efforts" basis. During the eleven months ended November 30, 1999,
the Company has received approximately $108,250 on the sale of 144,326
shares. The common shares may not be transferred or resold except as
permitted under the Securities Act of 1933 and applicable state laws.
During 1999, the Company initiated a private placement memorandum in
which the Company offered shares of common stock at $0.66125 per share on
a "Best Efforts" basis. During the eleven months ended November 30, 1999,
the Company has received approximately $209,500 on the sale of 316,824
shares. The common shares may not be transferred or resold except as
permitted under the Securities Act of 1933 and applicable state laws.
NOTE M - STOCK OPTIONS AND WARRANTS
Stock options
The Company's board of directors has the authority to grant options to
purchase stock to officers and key employees. As of November 30, 1999 an
officer and two employees have been granted options to acquire 820,000
shares of common stock that vest periodically through April 2004. The
options have been granted at prices ranging from $1.50 to $2.25 per
share, which were the market prices of the Company's shares on the dates
granted. The options vest through the expiration date based on certain
performance and nonperformance measures, including amounts of financing
received by the Company, gross revenues, and average fair market value
per share of common stock over a period. The fair value of these options
have been calculated based on management's best estimate of the outcome
of the performance conditions. The options expire upon five years from
the date of grant or upon termination of employment.
The Company has adopted only the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Therefore, the Company continues to account for
stock based compensation under Accounting Principles Board Opinion No.
25, under which no compensation cost has been recognized. Had
compensation cost for the stock based compensation been determined
consistent with SFAS 123, the Company's net loss and loss per share would
have been changed to the following pro forma amounts:
F-16
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE M - STOCK OPTIONS AND WARRANTS - CONTINUED
<TABLE>
<CAPTION>
Eleven months ended
November 30, 1999
-------------------------
(unaudited)
<S> <C> <C>
Net loss As reported $ (1,020,838)
Pro forma (1,084,889)
Loss per share - basic and diluted As reported $ (0.17)
Pro forma (0.18)
</TABLE>
The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following
weighted-average assumptions; expected volatility of 110 percent; average
risk-free interest rate of 5.75 percent; average expected life is equal
to the actual life. The weighted-average fair value of options granted
was $1.20.
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's
employee stock options have characteristics significantly different from
those of traded options including long vesting schedules, and changes in
the subjective input assumptions which can materially affect the fair
value estimate. Management believes the best input assumptions available
were used to value the options and the resulting option values are
reasonable.
Changes in the Company's stock options are as follows:
<TABLE>
<CAPTION>
Weighted-average
Shares Exercise price exercise price
------------- -------------------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1999 - $ - $ -
Granted 820,000 1.50 - 2.25 1.60
Exercised - - -
Canceled or expired - - -
-------------
Outstanding at November 30, 1999 820,000 1.50 - 2.25 1.60
=============
Exercisable at November 30, 1999 80,000 1.50 - 2.25 1.55
=============
</TABLE>
F-17
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE M - STOCK OPTIONS AND WARRANTS - CONTINUED
Additional information about stock options outstanding and exercisable at
November 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------- --------------------------------
Weighted-average
Range of Number remaining Weighted-average Number Weighted-average
exercise prices outstanding contractual life exercise price exercisable exercise price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.50 720,000 4.4 years $1.50 75,000 $1.50
2.25 100,000 4.4 years 2.25 5,000 2.25
------- -------
820,000 80,000
======= ======
</TABLE>
Warrants
The Company's board of directors has the authority to issue or sell
warrants to purchase stock to employees, officers and certain
non-employees. These warrants are considered nonqualified for income tax
purposes. During 1998, the Company issued warrants to purchase 49,445
shares of the Company's common stock at $1.00 per share. The fair value
of the services received in exchange for the warrants is $3,192. The
warrants vested immediately upon grant and expire on May 12, 2002.
Also, during the eleven months ended November 30, 1999, the Company
issued warrants in conjunction with the issuance of a convertible
debenture (Note N) to purchase 125,000 shares of common stock at an
exercise price of $0.001 per share. The warrants vested immediately upon
grant and expire on May 12, 2004.
Changes in the Company's warrants are as follows:
<TABLE>
<CAPTION>
Weighted-average
Exercise exercise
Warrants price price
------------- -------------- ------------------
<S> <C> <C> <C>
Outstanding at January 1, 1998 - $ - $ -
Granted 49,445 1.00 1.00
-------------
Outstanding at December 31, 1998 49,445 1.00 1.00
Granted 125,000 0.001 0.001
-------------
Outstanding at November 30, 1999 174,445 0.001 - 1.00 0.28
=============
Exercisable at November 30, 1999 174,445 0.001 - 1.00 0.28
=============
</TABLE>
F-18
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE N - CONVERTIBLE DEBENTURE
In 1999, the Company received $650,000 from an investor upon the issuance
of a convertible debenture. The debenture is convertible into common
stock of the Company through May 12, 2004 and accrues interest at the
rate of 2 percent per annum. The conversion rate for the debenture is to
be the lesser of $1.00 or 65 percent of the average closing bid price for
the shares of the Company's common stock for the five trading days
immediately preceding the conversion date.
In conjunction with the issuance of the convertible debenture, the
Company also issued warrants to purchase 125,000 shares of the Company's
common stock at an exercise price of $0.001 per share. The fair value of
the warrants, based on the fair market value of the underlying common
stock at the date of issuance was approximately $155,000. This amount has
been recorded as a discount on the related debt and is being amortized as
additional interest expense over the life of the debt. The amount added
to interest expense relating to this amortization during the eleven month
period ended November 30, 1999 was $15,500.
The convertible debenture also has an embedded beneficial conversion
feature. This beneficial conversion feature is a result of the fair
market value of the stock, based on the trading value of the stock, being
greater than the conversion rate on the date the Company received
proceeds. As a result, the Company recorded a charge of $350,000 to
interest expense and additional paid-in-capital during the period ended
November 30, 1999.
NOTE O - COMMITMENTS AND CONTINGENCIES
The Company leases equipment and furniture from a company owned by the
Company's CEO, under an operating lease which expires on March 31, 2001.
Monthly payments are approximately $2,700 under the operating lease
agreement. The Company is liable to carry property insurance and assume
the responsibility of maintaining the leased equipment and furniture.
In addition to the above lease agreement, the Company leases office
facilities under an operating lease which expires August 31, 2000.
Monthly payments are approximately $2,450 under the operating lease
agreement. The Company is liable to carry property insurance.
F-19
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE P - EARNINGS (LOSS) PER COMMON SHARE
The following data show the shares used in computing earnings (loss) per
common share including dilutive potential common stock:
<TABLE>
<CAPTION>
Eleven months ended
November 30, Year ended December 31,
----------------------------------- -----------------------------------
1999 1998 1998 1997
---------------- ---------------- ---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Common shares outstanding during
the entire period 5,724,059 5,493,559 5,493,559 5,493,559
Weighted-average common shares
issued during the period
204,015 54,786 79,484 -
---------------- ---------------- ---------------- ----------------
Weighted-average number of common
shares used in basic EPS 5,928,074 5,548,345 5,573,043 5,493,559
Dilutive effect of stock options
and warrants - - - -
---------------- ---------------- ---------------- ----------------
Weighted-average number of common
shares and dilutive potential
common stock used in diluted
EPS 5,928,074 5,548,345 5,573,043 5,493,559
================ ================ ================ ================
</TABLE>
Shares from the exercise of the outstanding stock options and warrants
were not included in the computation of diluted loss per share because
their inclusion would have been antidilutive for the eleven months ended
November 30, 1999 and 1998 and for the year ended December 31, 1998.
There were no stock options or warrants outstanding at December 31, 1997.
F-20
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE Q - INCOME TAXES
Reconciliation of income taxes (benefit) computed at the federal
statutory rate of 34 percent is as follows:
<TABLE>
<CAPTION>
Eleven months ended
November 30, Year ended December 31,
---------------------------------- ----------------------------------
1999 1998 1998 1997
---------------- ---------------- ---------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Federal income taxes (benefit) at
statutory rate $ (400,706) $ (446,024) $ (494,649) $ 905
Income tax (expense) benefit
attributed to the pre-
merger S-Corporations loss
(income) - 379,836 379,836 (905)
One time adjustment attributed to
pre-merger S-Corporations (1) - (180,310) (180,310) -
State income taxes (benefit)
net of federal tax effect (33,523) (3,207) (6,788) -
Change in valuation allowance 378,328 216,557 257,040 -
All other, net (2,924) (649) (1,786) -
Tax expense allocated to
extraordinary item 58,825 33,797 46,657 -
---------------- ---------------- ---------------- ---------------
Income taxes $ - $ - $ - $ -
================ ================ ================ ===============
</TABLE>
F-21
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997 and
the Eleven months ended November 30, 1999 and 1998
NOTE Q - INCOME TAXES - CONTINUED
Deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Eleven months ended
November 30, Year ended December 31,
---------------------------------- ----------------------------------
1999 1998 1998 1997
---------------- ---------------- ---------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Current deferred tax assets
(liabilities)
Deferred revenue $ (31,495) $ (74,390) $ (74,390) $ (1,178)
Deferred expenses 238,761 273,344 273,344 181,489
---------------- --------------- ---------------- ----------------
207,266 198,954 198,954 180,311
Long-term deferred tax assets
(liabilities)
Benefit of net operating loss
carryforwards 551,619 33,137 73,621 15,534
Less valuation allowance (758,885) (232,091) (272,575) (195,845)
---------------- --------------- ---------------- ----------------
Net deferred tax assets
(liabilities) $ - $ - $ - $ -
================ =============== ================ ================
</TABLE>
As of November 30, 1999, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $1,189,372 expiring in
various years through 2019. Utilization of approximately $25,000 of the
total net operating loss is dependent on the profitable operation of the
subsidiaries in the future under the separate return limitation rules and
limitations on the carryforward of net operating losses after a change in
ownership.
(1) On August 3, 1998, the Company acquired and subsequently merged with
two companies which operated for tax purposes under the provisions of
Subchapter S of the Internal Revenue Code. As of that date, the acquired
companies became taxable entities. Effective with the change, in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," income taxes will be provided for the tax
effects of transactions reported in the financial statements and consist
of taxes currently due plus deferred taxes related primarily to
differences between the basis of assets and liabilities for financial and
income tax reporting. The deferred tax asset represents the future tax
return consequences of these differences, which will be deductible when
the assets are settled. Accordingly, a deferred tax asset at the date of
the change of approximately $180,000 was recorded through a one-time
noncash charge to the deferred tax provision.
F-22
<PAGE>
QCOMM INTERNATIONAL, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DECEMBER 31, 1998
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET 3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' DEFICIT 5
STATEMENT OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
<PAGE>
[Letterhead of Grant Thornton LLP]
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders of
QComm International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of QComm
International, Inc. and Subsidiary (the Company) as of December 31, 1998, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of QComm
International, Inc. and Subsidiary as of December 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Salt Lake City, Utah
September 30, 1999
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,019
Trade accounts receivable, less allowance for
doubtful accounts of $39,048 (Note E) 40,377
Current maturities of notes receivable (Note C) 69,251
Related party receivable (Note D) 8,379
-----------
Total current assets 119,026
NOTES RECEIVABLE, less current maturities (Note C) 89,810
PROPERTY AND EQUIPMENT, AT COST (Note E) 2,267
OTHER ASSETS 1,009
-----------
$ 212,112
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligation (Note F) $ 11,882
Accounts payable 755,300
Lines of credit (Note E) 182,588
Accrued liabilities 114,920
Related party obligation (Note D) 145,687
-----------
Total current liabilities 1,210,377
LONG-TERM OBLIGATION, less current maturities (Note F) 30,984
COMMITMENTS AND CONTINGENCIES (Note J) --
STOCKHOLDERS' DEFICIT (Notes B and I)
Common stock, $0.001 par value; 50,000,000 shares
authorized, 5,724,059 shares issued and outstanding $ 5,724
Stock subscription receivable (Note H) 104,823
Additional paid-in capital 364,868
Accumulated deficit (1,504,664)
-----------
Total stockholders' deficit (1,029,249)
-----------
$ 212,112
===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
Revenues
Telecommunications $ 2,839,848
Renewal fees 136,127
Other sales 189,487
-----------
Net revenues 3,165,462
Cost of sales 2,057,970
-----------
Gross profit 1,107,492
Operating expenses 2,793,926
-----------
Loss from operations (1,686,434)
Other income including interest, net 231,584
-----------
Loss before extraordinary item and income taxes (1,454,850)
Extraordinary item - gain on extinguishment of debt (Note H) 125,087
-----------
Loss before income taxes (1,329,763)
Income taxes (Note L) --
-----------
NET LOSS $(1,329,763)
===========
Loss per common share
Basic and diluted
Before extraordinary item $ (0.55)
Extraordinary item 0.05
-----------
Net loss $ (0.50)
===========
The accompanying notes are an integral part of this statement.
4
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Year ended December 31, 1998
<TABLE>
<CAPTION>
Number Stock Additional
of Common subscription paid-in Accumulated
Shares stock receivable capital deficit Total
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1,1998 10,987,724 $ 73,667 $ -- $ 11,604 $ (202,310) $ (117,039)
Reverse stock split
1 for 20 (10,438,337) -- -- -- -- --
Recapitalization of
company (Note B) 4,944,672 (68,173) -- 175,264 27,409 134,500
Stock subscription issued
in forgiveness of debt
(Note H) -- -- 104,823 -- -- 104,823
Issuance of common stock
for services rendered 34,000 34 -- 23,266 -- 23,300
Issuance of common stock
for cash 196,000 196 -- 151,542 -- 151,738
Issuance of warrants for
services rendered
(Note B) -- -- -- 3,192 -- 3,192
Net loss -- -- -- -- (1,329,763) (1,329,763)
------------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1998 5,724,059 $ 5,724 $ 104,823 $ 364,868 $(1,504,664) $(1,029,249)
============ =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
Increase (decrease) in cash
Cash flows horn operating activities
Net loss $(1,329,763)
Adjustments to reconcile net loss to net cash
used in operating activities
Gain on extinguishment of debt 125,087
Depreciation 567
Provision for losses on receivables 794,128
Removal of liability (Note G) (257,005)
Stock issued for services 23,300
Changes in assets and liabilities
Trade accounts receivable (47,728)
Notes receivable (78,215)
Other assets 8,317
Accounts payable 190,851
Accrued liabilities 88,096
Related party obligations 154,953
-----------
Total adjustments 1,002,351
-----------
Net cash used in
operating activities (327,412)
-----------
Net cash flows from investing activities -
Purchase of property and equipment (2,834)
-----------
Cash flows from financing activities
Net decrease in lines of credit (2,397)
Warrants issued 3,192
Proceeds from issuance of common stock 286,238
Proceeds from issuance of long-term obligations 42,866
-----------
Net cash provided by
financing activities 329,899
-----------
Net decrease in cash (347)
Cash at beginning of year 1,366
-----------
Cash at end of year $ 1,019
===========
(Continued)
6
<PAGE>
QComm International, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 1998
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest $ 22,562
Income taxes --
Noncash investing and financing activities
The Company issued 34,000 shares of common stock to an employee and a legal
consultant for services received. The fair value of the services was
approximately $23,300.
Extraordinary gains, net of fees, were realized on the forgiveness of accounts
payable to vendors in the amount of approximately $125,087 (Note H).
The Company issued to a former officer a stock subscription to purchase 209,646
shares of common stock at $0.50 per share for forgiveness of debt of $104,823.
The Company issued a warrant to purchase 49,445 shares of common stock at $1.00
per share for services received. The fair value of the services was $3,192 (Note
I).
The Company removed a disputed charges payable in the amount of $257,005 (Note
G).
The accompanying notes are an integral part of this statement.
7
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Organization and business activity
The Company was organized on February 7, 1986 as Four Rivers Development,
Inc. This name was changed on August 3, 1998 to QComm International Inc.
in conjunction with the purchase of three operating companies. (Note B).
The Company is headquartered in Orem, Utah but provides telecommunication
services to end users throughout the United States.
2. Principles of consolidation
The consolidated financial statements include the accounts of QComm
International, Inc. (the Company) and its wholly-owned subsidiary, QComm
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
3. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenditures
during the reporting period. Actual results could differ from those
estimates.
4. Cash and cash equivalents
The Company considers all highly liquid debt instruments with original
maturity dates of three months or less when purchased, to be cash
equivalents.
5. Revenue recognition
Revenue is recognized as services are performed. Financing through notes
receivable is serviced through independent collection agencies. Revenue is
recognized when the notes are signed and the related service provided.
Ongoing revenue and expenses from telecommunication services are passed
through to customers, with the related portion due to the Company
recognized upon notification from the service provider.
6. Depreciation and amortization
Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the assets of five years.
8
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. Fair value of financial instruments
The carrying value of the Company's accounts and notes receivable,
accounts payable, accrued liabilities, long-term obligations and lines of
credit approximate their fair values.
8. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect, when the differences are expected to reverse.
An allowance against deferred tax assets is recorded, when it is more
likely than not that such tax benefits will not be realized.
9. Advertising costs
Advertising and marketing costs are expensed as incurred.
10. Net earnings (loss) per share
Basic earnings (loss) per common share (BEPS) is based on the weighted
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share based on shares outstanding (computed as
under BEPS) and dilutive potential common shares. Potential common shares
included in the dilutive earnings (loss) per share calculation include
outstanding warrants to purchase common shares.
NOTE B - RECAPITALIZATION
On August 3, 1998 the Company changed its name from Four Rivers
Development, Inc. to QComm International, Inc. The Company also effected a
1 for 20 reverse stock split of its common stock, thereby reducing its
shares outstanding from 10,987,724 to 549,387 shares. Also on August 3,
1998, the Company acquired the following three companies:
o Teleconnect, Inc. (TCI), a Utah corporation, was acquired
through the issuance of 3,385,481 shares of the Company's
common stock to the shareholders of TCI in exchange for all of
the outstanding common stock of TCI. TCI was originally formed
on January 28, 1993.
o Teleshare 900, Inc. (T900), a Utah corporation, was acquired
through the issuance of 994,037 shares of the Company's common
stock to the shareholders of T900 in exchange for all of the
outstanding common stock of T900. T900 was originally formed
on January 28, 1993.
9
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE B - RECAPITALIZATION - CONTINUED
o QComm International, Inc. (QCI), a Nevada corporation, was
acquired through the issuance of 566,154 shares of the
company's common stock to the shareholders of QCI for all of
the outstanding stock of QCI. QCI was originally formed on
December 5, 1997.
The three acquired companies were merged to form QCMERCO, Inc., which was
subsequently renamed QComm, Inc., a wholly owned subsidiary of QComm
International, Inc. The combination of QComm, Inc. and QComm
International, Inc. was recorded as a recapitalization.
After the acquisitions there were 5,494,059 shares of common stock
outstanding with approximately 10 percent of those shares being held by
former stockholders of the Company.
NOTE C - NOTES RECEIVABLE
Notes receivable are principally from financing agreements with customers
for telecommunications services provided. Interest rates vary from 10 to
21 percent with 6 to 24 month terms. Delinquent notes receivable are
turned over for collection to collection agencies. The agencies charge a
collection fee, ranging from 10 percent to 50 percent on all amounts
collected. Uncollectible accounts are written-off against the allowance
account. Adjustments are charged to bad debt expense. Notes receivable at
December 31, 1998, consist of the following:
Notes serviced by collection agencies $ 561,318
Notes serviced internally 54,238
---------
615,556
Less allowance for uncollectible accounts (456,495)
---------
Net notes receivable 159,061
Less current maturities 69,251
---------
$ 89,810
=========
A summary of the changes in the allowance for bad debts is as follows:
Balance, beginning of year $ 366,000
Provisions for losses 679,988
Write-offs (589,493)
---------
Balance, end of year $ 456,495
=========
10
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE D - RELATED PARTY TRANSACTIONS
The Company leases office furniture and equipment from a related party
(Note J). For the year ended December 31, 1998, the Company has accrued
approximately $77,000 in lease expenses due to the related party.
The Company has a 10 percent note due on demand to a related party in the
amount of approximately $69,500 at December 31, 1998.
During the current year, the Company wrote off an uncollectible account
receivable from a related party in the amount of approximately $55,000.
The Company has a receivable from a related party in the amount of $8,379.
The receivable is due on demand and accrues no interest.
The Company agreed to issue 209,646 shares of restricted common stock to a
related party in payment of debt obligations owed by the Company in the
amount of $104,823. (Note H).
NOTE E - LINES OF CREDIT
The Company has a $150,000 line of credit with a bank, secured by
equipment and a personal guarantee from an officer of the Company. The
draw on the line was $147,935 at December 31, 1998. The interest rate is
prime plus 2 percent, plus an additional 5 percent default rate due to
noncompliance with the line of credit covenants (14.75 percent at December
31, 1998) with interest payments due monthly, and the principal due on
demand
The Company also has a $35,000 line of credit with a bank, secured by
equipment, accounts receivable and a personal guarantee from an officer of
the Company. The draw on the credit line was $34,653 at December 31, 1998.
The interest rate is prime plus 2 percent (9.75 percent at December 31,
1998) with interest payments due monthly, and the principal due on demand.
The lines of credit agreements contain various restrictive covenants. At
various times during the year and as of December 31, 1998, the Company was
not in compliance with certain covenants and as a result, the bank has
imposed a default interest rate on one of the lines of credit.
NOTE F - LONG-TERM OBLIGATION
During 1999, the Company settled with a prior landlord certain disputed
charges relating to a building lease during the year ended December 31,
1998. As a result of the settlement, the Company recorded a note payable
to the landlord in the amount of $42,866. Payments on the note are to
commence in October, 1999 with a payment of $5,685 and additional monthly
payments of $3,083, expiring in November 2000. The note requires no
interest payments as long as the Company remains current on the principal
payments.
11
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE G - DISPUTED CHARGES PAYABLE
During 1997, the Company was billed for telecommunications charges from a
service provider. The Company recorded $257,005 as expense and recorded
the amount as a payable. Subsequent to 1997, the Company further
investigated and disputed the charges. Based upon the Company's further
detailed review it does not believe that the amount is properly payable
and has reversed the payable.
NOTE H - EXTINGUISHMENT OF DEBT
The Company has negotiated reductions with certain vendors relating to
amounts due by the Company. The reductions amount to $125,087. As part of
this settlement process, the Company incurred approximately $34,000 in
settlement fees. The Company has recorded a net gain from extinguishment
of debt in the amount of $125,087 in the consolidated statement of
operations for the period ended December 31, 1998.
The Company has converted $104,823 of debt obligations incurred during the
year ended December 31, 1998, and recorded a stock subscription receivable
for 209,646 shares of common stock as of December 31, 1998.
NOTE I - WARRANTS
The Company's board of directors has the authority to grant stock warrants
to employees, officers and certain non-employees. These warrants are
considered nonqualified for income tax purposes. As of December 31, 1998,
the Company has granted a warrant to purchase 49,445 shares of the
Company's common stock at $1.00 per share. The warrant vests immediately
upon grant and has a weighted-average remaining contractual life of 4.5
years.
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company leases equipment and furniture from a company owned by the
Company's CEO, under an operating lease which expires on March 31, 2001.
Monthly payments are approximately $2,700 under the operating lease
agreement. The Company is liable to carry property insurance and assume
the responsibility of maintaining the leased equipment and furniture.
In addition to the above lease agreement, the Company leases office
facilities under an operating lease which expires August 31, 2000. Monthly
payments are approximately $2,450 under the operating lease agreement. The
Company is liable to carry property insurance.
12
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE J - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company's minimum future rental under these operating leases is as
follows:
Year ending December 31,
------------------------
1999 $ 64,951
2000 53,991
2001 8,016
Thereafter --
---------
$ 126,958
=========
Total rent expense for the year ended December 31, 1998 was approximately
$245,000.
NOTE K - LOSS PER COMMON SHARE
The following data show the shares used in computing loss per common share
including dilutive potential common stock.
Year ended
December 31,
1998
------------
Common shares outstanding during the
entire period 549,386
Weighted-average common shares issued
during the period 2,117,749
------------
Weighted-average number of common
shares used in basic EPS 2,667,135
Dilutive effect of warrants --
------------
Weighted-average number of common
shares and dilutive potential common
stock used in diluted EPS 2,667,135
============
Shares from the exercise of the outstanding warrant issuable were not
included in the computation of diluted loss per share because their
inclusion would have been antidilutive for the year ended December 31,
1998.
13
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE L - INCOME TAXES
The income tax expense (benefit) reconciled to the tax (benefit) computed
at the statutory federal rate of 34 percent is as follows:
Income tax benefit at statutory rate $ (482,927)
Income tax attributed to the pre-merger
S-Corporations income (77,371)
State income tax benefit net of federal tax effect (51,313)
Change in valuation allowance 594,558
Other, net (16,744)
Tax expense allocated to extraordinary item 33,797
----------
Income tax expense $ --
==========
Deferred income tax assets and liabilities are as follows:
Deferred tax assets
Benefit of net operating loss carryforwards $ 404,480
Allowance for doubtful accounts 14,565
Allowance for notes receivable 184,838
----------
603,883
Less valuation allowance (603,883)
----------
Net deferred tax asset (liability) $ --
==========
From January 1 to August 3, 1998 taxable income of $227,563 was generated
by the pre-merger S-Corporations. This income was subsequently
passed-through to the prior S-Corporation shareholders. Taxes relating to
this pre-merger income are the responsibility of the S-Corporation
shareholders. There were no deferred tax assets or income tax benefits
recorded in the financial statements for net deductible temporary
differences or net operating loss carryforwards because the likelihood of
realization of the related tax benefits cannot be established.
Accordingly, a valuation allowance has been recorded to reduce the net
deferred tax asset to zero and consequently, there is no income tax
provision or benefit for the period presented. The increase in the
valuation allowance was $594,558 for the year ended December 31, 1998.
As of December 31, 1998, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $1,084,398 expiring in various
years through 2018. Utilization of approximately $25,000 of the total net
operating loss is dependent on the profitable operation of the
subsidiaries in the future under the separate return limitation rules and
limitations on the carryforward of net operating losses after a change in
ownership.
14
<PAGE>
QComm International, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE M SUBSEQUENT EVENTS
During 1998, the Company initiated a private placement memorandum in which
the Company offered 1,135,000 of common shares at $0.75 per share on a
"Best Efforts" basis. During 1999, the Company has received approximately
$108,250 on the sale of 144,326 shares. The common shares may not be
transferred or resold except as permitted under the Securities Act of 1933
and applicable state laws.
In 1999, the Company has also received $650,000 from an investor upon the
issuance of a convertible debenture. The debenture is convertible into
common stock of the Company through May 12, 2004 and accrues interest at
the rate of 2 percent per annum. The conversion rate for the debenture
shall be the lesser of $1.00 or 65 percent of the average closing bid
price for the shares of the Company's common stock for the five trading
days immediately preceding the conversion date. In conjunction with the
issuance of the debenture, the investor also received warrants to purchase
125,000 shares of common stock at an exercise price of $0.01 per share.
The warrants expire on May 12, 2004.
15
<PAGE>
TELESHARE 900, INC.
FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996, and 1995
<PAGE>
[Letterhead of Squire & Company, PC]
February 23, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Q COMM International, Inc. (Company) (copy
attached), which we understand was filed with the Commission, pursuant to Item
304 of Regulation S-B as part of the Company's Form 10-SB/A dated February 24,
2000. We agree with the statements concerning our Firm in such Form 10-SB/A.
Very truly yours,
/s/ Squire & Co.
- - -----------------
Squire & Co.
<PAGE>
TABLE OF CONTENTS
Page
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Income 3
Statements of Stockholder's Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
[Letterhead of Squire & Company, PC
Certified Public Accountants]
INDEPENDENT AUDITOR'S REPORT
To the Director and Stockholder
of Teleshare 900, Inc.
We have audited the accompanying balance sheets of Teleshare 900, Inc. (a Utah
corporation) as December 31, 1997, 1996, and 1995, and the related statements of
income and stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Teleshare 900, Inc. as of
December 31, 1997, 1996, and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Squire & Co.
March 6, 1998
Squire & Co.
Orem, Utah
<PAGE>
TELESHARE 900, INC.
BALANCE SHEETS
December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 866 $ 21,525 $ 73,829
Accounts receivable -- 6,639 --
Notes receivable, less long-term portion 181,812 343,913 229,747
Other current assets 9,276 -- 20,106
--------- --------- ---------
Total current assets 191,954 372,077 323,682
Other receivables -- 6,319 6,319
Notes receivable, long-term portion -- -- 122,236
Receivable from related parties 9,256 12,830 120,178
Organizational costs -- 4,020 8,039
--------- --------- ---------
Total assets $ 201,210 $ 395,246 $ 580,454
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 12,360 $ 287,222 $ 377,882
Credit line payable 150,000 101,000 --
Accrued liabilities 9,640 33,460 44,532
--------- --------- ---------
Total current liabilities 172,000 421,682 422,414
Sublease rental deposit 1,871 2,136 650
Payable to related parties 60,270 148,657 --
--------- --------- ---------
Total Liabilities 234,141 572,475 423,064
Stockholder's Equity:
Common stock, (no par value, 10,000 shares authorized,
3,000 shares issued and outstanding) 22,679 22,679 22,679
Retained earnings (deficit) (55,610) (199,908) 134,711
--------- --------- ---------
Total stockholders' equity (32,931) (177,229) 157,390
--------- --------- ---------
Total liabilities and stockholders' equity $ 201,210 $ 395,246 $ 580,454
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
TELESHARE 900, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Telecommunications $ 607,336 $ 5,927,458 $ 6,825,206
Renewal fees 179,021 298,219 101,106
Other sales 3,359 154,238 115,395
Refunds (63,054) (362,993) (305,202)
----------- ----------- -----------
Net Revenue 726,662 6,016,922 6,736,505
Operating Expenses:
Workshop expenses -- 369,472 488,411
Marketing -- 1,952,087 2,053,985
Travel 5,893 953,697 469,183
Provider expenses 471,966 638,121 490,220
Other sales costs 4,680 42,227 36,678
Personnel costs 8,003 1,484,584 1,501,627
General and administrative 215,069 999,014 1,318,441
----------- ----------- -----------
Total Operating Expenses 705,611 6,439,202 6,358,545
----------- ----------- -----------
Operating Income (Loss) 21,051 (422,280) 377,960
Other Income (Expense):
Other income 121,023 34,377 8,361
Interest income 17,748 53,820 39,814
Interest expense (15,524) (536) --
----------- ----------- -----------
Total Other Income (Expense) 123,247 87,611 48,175
----------- ----------- -----------
Net Income (Loss) $ 144,298 $ (334,619) $ 426,135
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
TELESHARE 900, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31,1997,1996, and 1995
- - --------------------------------------------------------------------------------
Retained
Common earnings
stock (deficit)
--------- ---------
Balance at December 31, 1994 $ 22,679 $ (88,770)
Net Income for 1995 426,135
Distributions (202,654)
--------- ---------
Balance at December 31, 1995 22,679 134,711
Net Loss for 1996 (334,619)
Distributions --
--------- ---------
Balance at December 31,1996 22,679 (199,908)
Net Income for 1997 144,298
Distributions --
--------- ---------
Balance at December 31, 1997 $ 22,679 $ (55,610)
========= =========
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
TELESHARE 900, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 144,298 $(334,619) $ 426,135
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Amortization expense 4,019 4,019 4,019
Bad debt expense 10,119 56,291 212,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 6,639 (6,639) --
Other current assets (9,276) 20,106 (20,106)
Notes receivable 151,984 (48,221) (563,983)
Other receivables 6,318 -- (819)
Receivable from related parties 3,574 107,348 (99,467)
Increase (decrease) in:
Accounts payable (274,863) (90,660) 302,464
Accrued liabilities (23,819) (11,072) 278
Sublease rental deposit (265) 1,486 650
Payable to related parties (88,387) 148,657 (13,077)
--------- --------- ---------
Total adjustments (213,957) 181,315 (178,041)
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities (69,659) (153,304) 248,094
Cash Flow From Financing Activities:
Borrowings from credit line 49,000 101,000 --
Distributions to shareholders -- -- (191,825)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities 49,000 101,000 (191,825)
--------- --------- ---------
Net Increase (Decrease) in Cash (20,659) (52,304) 56,269
Cash at January 1 21,525 73,829 17,560
--------- --------- ---------
Cash at December 31 $ 866 $ 21,525 $ 73,829
========= ========= =========
</TABLE>
Supplementary Information:
The Company paid no income tax for the years ended December 31, 1997, 1996, and
1995, and paid interest of $15,524 and $536 for the years ended December 31,
1997 and 1996, respectively, and paid no interest for the year ended December
31, 1995.
In 1995 the Company distributed assets, with a net book value of $10,829 to a
shareholder. The assets, and additional assets purchased by the Company for a
related party were leased by the Company. (See Note 4.)
The Company allocates income and expenses to a related corporation. Net amounts
allocated to the related corporation totaled $28,899, $146,216, and $(84,634)
for the years ended December 31, 1997, 1996, and 1995, respectively.
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
TELESHARE 900, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies of
Teleshare 900, Inc. (the Company) followed in the preparation of
these financial statements. The financial statements and notes are
representations of the Company's management, which is responsible
for their integrity and objectivity, and are prepared on the accrual
basis of accounting. The policies conform to generally accepted
accounting principles and have been consistently applied.
Nature of Operations - The Company was incorporated on January 28,
1993 for the purpose of, but not limited to, providing
telecommunication services. The Company elected, and received,
sub-chapter S corporation status from the Internal Revenue Service,
effective from the incorporation date. The Company transferred a
significant portion of operations to a related corporation during
1997.
Revenue Recognition - Income is recognized as services are
performed. Financing through notes receivable are serviced through
independent collection agencies. Revenue and related interest income
is recognized when the notes are signed and the related service
provided. Ongoing revenue and expenses from telecommunication
services are passed through to customers with the related portion
due to the Company recognized upon notification from the service
provider.
Uncollectible Allowance - An uncollectible allowance is established
and bad debt expense is recognized annually. Bad debt expense
totaled $10,119, $56,291, and $212,000 for the years ended December
31, 1997, 1996, and 1995, respectively.
Marketing Costs - Marketing and advertising costs are expended as
incurred. Media refunds from unused advertising contracts paid are
offset against advertising expense when refunds are received.
Income taxes- Since the Company has received sub-chapter S
corporation status, no provision for federal or state income taxes
has been made. All income from the Company will be taxed on the
shareholder's individual tax returns.
Cash and cash equivalents - For the purpose of the statement of cash
flows, cash is defined as demand deposits at banks.
Cash Book Balance Overdrafts - As of December 31, 1996, and 1995 the
Company had checks outstanding in excess of bank balances totaling
$276,982, and $272,022, respectively, which have been classified as
accounts payable.
Concentrations of Credit Risk - Notes receivable are from customers
throughout the United States. The notes have no collateral and the
carrying value is offset by an uncollectible allowance, actual
collectibility could vary from the estimated allowance. Cash book
balances as of December 31, 1997, 1996, and 1995 totaled $866,
$(255,457), and $(198,192) with bank balances of $6,863, $23,570,
and $84,993, respectively. Bank balances not covered by FDIC
insurance at December 31, 1997, 1996, and 1995 amounted to S64,
$2,900, and $44,584, respectively.
Use of Estimates in Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
-6-
<PAGE>
TELESHARE 900, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 2. Other Receivables
Other receivables consist of loans to Company employees. The loans
were unsecured with no interest or repayment terms.
Note 3. Notes Receivable
Notes receivable are principally from financing agreements with
customers for telecommunications services provided. Interest rates
vary from 10% to 21% with six to twenty-four month terms. Delinquent
accounts are transferred to separate collection agency accounts.
Uncollectible accounts are written-off against the allowance
account, which is adjusted annually, with the adjustment being
charged to bad debt expense. Notes receivable at December 31, 1997,
1996, and 1995 consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Notes serviced by collection agencies $ 301,812 $ 379,603 $ 529,578
Notes serviced internally -- 104,310 34,405
Allowance for uncollectible accounts (120,000) (140,000) (212,000)
--------- --------- ---------
Net notes receivable 181,812 343,913 351,983
Less long-term portion -- -- (122,236)
--------- --------- ---------
Notes receivable, less long-term portion $ 181,812 $ 343,913 $ 229,747
</TABLE>
Note 4. Related Party Transactions
The company has the following related party transactions with
stockholders and companies in which the majority stockholder has
whole or majority ownership.
The Company allocates certain income and expenses to a related
corporation. The allocations are based on percentages of income
received or expenses paid for the operations of the related
corporation. The allocations are accumulated in an inter-company
transfer account. The balances are carried forward and continually
offset against ongoing allocations. The net allocations are
reflected in the inter-company amounts due to, or from, the related
corporation listed below.
The Company leases office furniture and equipment from a related
party. The Company purchases assets on behalf of the related party
and then leases the assets for a monthly lease charge based on the
original purchase price of the asset. Lease charges are totaled
monthly and charged to expense. The related party maintains title to
all assets purchased, with the purchase price paid by the Company
being credited against lease charges due to the related party. The
net lease charges are accumulated and offset against the stockholder
loan account annually. Purchases totaling $0, $6,190, and $164,976,
and lease charges of $3,407, $136,004, and $117,962 for the years
ended December 31, 1997, 1996, and 1995, respectively, were netted
to a shareholder loan account.
Future minimum lease payments fluctuate as new assets are purchased
and various assets are retired from use and removed from the lease
payment schedule. The asset list is adjusted with the level of
operations of the Company. The Company incurs no penalty for
adjusting the lease asset list as the level of operations changes.
-7-
<PAGE>
TELESHARE 900, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 4. Related Party Transactions (continued)
The amounts receivable and payable to related parties are unsecured
with no interest or repayment terms.
<TABLE>
<CAPTION>
Receivable from related parties
at December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expenses paid for related parties $ 878 $ 3,451 $ 2,253
Amounts due from related individuals 8,378 9,379 20,671
Shareholder loan balance -- -- 12,620
Inter-company allocations due from related
corporation -- -- 84,634
-------- -------- --------
Total receivable from related parties $ 9,256 $ 12,830 $120,178
Payable to related parties
at December 31,
Expenses paid by related parties $ 12,942 $ -- $ --
Shareholder loan balance 17,429 2,441 --
Inter-company allocations due to related
corporation 29,899 146,216 --
-------- -------- --------
Total payable to related parties $ 60,270 $148,657 $ --
</TABLE>
Note 5. Organizational Costs
The Company amortizes costs incurred for the initial corporate
organization and start-up. The costs are amortized over five years
on the straight-line basis with $4,019 amortization expense included
in general and administrative expenses for the years ended December
31, 1997, 1996, and 1995. Accumulated amortization at December 31,
1997, 1996 and 1995 totaled $20,096, $16,076. and $12,058,
respectively.
Note 6. Line of Credit
During 1996 the Company opened a line of credit with a limit of
$150,000, secured by stock owned by a related party. The draws on
the credit line totaled $150,000 and $101,000 at December 31, 1997
and 1996, respectively. The interest rate is variable with interest
only payments due monthly. The principal balance on this line was
due January 1, 1998, but is under review for extension. Interest of
$14,195 and $536 was paid during the years ended December 31, 1997
and 1996, respectively.
Note 7. Accrued Liabilities
Accrued liabilities consisted of the following amounts at December
31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Payroll and cafeteria plan accruals $ -- $ -- $ 5,414
Unearned revenue -- -- 10,680
Escrow liability accrual 9,640 33,460 28,438
------- ------- -------
Total accrued liabilities $ 9,640 $33,460 $44,532
</TABLE>
-8-
<PAGE>
TELECONNECT, INC.
FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996, and 1995
<PAGE>
TABLE OF CONTENTS
Page
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Income 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
[LETTERHEAD OF SQUIRE & COMPANY, PC]
INDEPENDENT AUDITOR'S REPORT
To the Director and Stockholders
of Teleconnect, Inc.
We have audited the accompanying balance sheets of Teleconnect, Inc. (a Utah
corporation) as of December 31, 1997, 1996, and 1995, and the related statements
of income and stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Teleconnect, Inc. as of
December 31, 1997, 1996, and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Squire & Co.
March 6, 1998
Squire & Co.
Orem, Utah
<PAGE>
TELECONNECT, INC.
BALANCE SHEETS
December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ -- $ 89,713
Accounts receivable 3,157 -- --
Notes receivable, less long-term portion 196,444 4,264 --
--------- --------- ---------
Total current assets 199,601 4,264 89,713
Notes receivable, long-term portion 382,578 21,063 --
Receivable from related parties 103,255 166,327 --
--------- --------- ---------
Total assets $ 685,434 $ 191,654 $ 89,713
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 425,131 $ 99,308 $ --
Credit line payable 34,985 -- --
Note payable, current portion 59,221 -- --
Accrued liabilities 12,317 29,002 3,901
--------- --------- ---------
Total current liabilities 531,654 128,310 3,901
Note payable, less current portion 197,784 -- --
Payable to related parties 35,287 1,000 84,634
--------- --------- ---------
Total Liabilities 764,725 129,310 88,535
Stockholders' Equity:
Common stock (no par value, 10,000 shares
authorized, 3,000 shares issued and
outstanding) 40,000 40,000 40,000
Retained earnings (deficit) (119,291) 22,344 (38,822)
--------- --------- ---------
Total stockholders' equity (79,291) 62,344 1,178
--------- --------- ---------
Total liabilities and stockholders equity $ 685,434 $ 191,654 $ 89,713
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
TELECONNECT, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
- - --------------------------------------------------------------------------------
Revenues:
Telecommunications $3,711,284 $721,791 $474,147
Renewal fees 275,763 87,015 159,890
Other sales 140,461 287 82,580
Refunds (91,986) (6,438) (22,325)
---------- -------- --------
Net Revenue 4,035,522 802,655 694,292
Operating Expenses:
Workshop expense 29,007 -- --
Marketing 885,309 415,803 --
Travel 388,891 71,893 24
Provider expenses 896,129 114,757 267,926
Personnel costs 954,118 63,064 286,657
General and administrative 843,088 78,244 74,670
---------- -------- --------
Total operating expenses 3,996,542 743,761 629,277
---------- -------- --------
Operating Income 38,980 58,894 65,015
Other Income (Expense):
Other income -- 365 --
Interest income 27,180 1,907 3,764
Interest expense (19,795) -- --
Disputed charges settlement (188,000) -- --
---------- -------- --------
Total Other Income (Expense) (180,615) 2,272 3,764
---------- -------- --------
Net Income (Loss) $ (141,635) $ 61,166 $ 68,779
========== ======== ========
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
TELECONNECT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996, and 1995
- - --------------------------------------------------------------------------------
Retained
Common earnings
stock (deficit)
--------- ---------
Balance at December 31, 1994 $ 40,000 $ (22,601)
Net Income for 1995 68,779
Distributions (85,000)
--------- ---------
Balance at December 31, 1995 40,000 (38,822)
Net Income for 1996 61,166
Distributions --
--------- ---------
Balance at December 31, 1996 40,000 22,344
Net Loss for 1997 (141,635)
Distributions --
Balance at December 31, 1997 $ 40,000 $(119,291)
========= =========
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
TELECONNECT, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $(141,635) $ 61,166 $ 68,779
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Bad debt expense 335,948 16,800 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (3,157) -- --
Notes receivable (889,644) (42,127) --
Receivable from related parties 63,072 (146,216) 13,077
Increase (decrease) in:
Accounts payable 325,823 99,308 --
Accrued liabilities (16,684) 25,101 3,901
Note payable 257,005 -- --
Payable to related parties 34,287 (103,745) 84,634
--------- --------- ---------
Total adjustments 106,650 (150,879) 101,612
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities (34,985) (89,713) 170,391
--------- --------- ---------
Cash Flow From Financing Activities:
Borrowings from credit line 34,985 -- --
Distributions to shareholders -- -- (85,000)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities 34,985 -- (85,000)
Net Increase (Decrease) in Cash -- (89,713) 85,391
Cash at January 1 -- 89,713 4,322
--------- --------- ---------
Cash at December 31 $ -- $ -- $ 89,713
========= ========= =========
</TABLE>
Supplementary Information:
The Company paid no income tax for the years ended December 31, 1997, 1996, and
1995, and paid interest of $19,795 for the year ended December 31, 1997 and paid
no interest for the years ended December 31, 1996 and 1995.
The Company allocates income and expenses to a related corporation. Net amounts
allocated to the related corporation totaled $(28,899), $(146,216), and $84,634
for the years ended December 31, 1997, 1996, and 1995, respectively.
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
TELECONNECT, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies of
Teleconnect, Inc. (the Company) followed in the preparation of these
financial statements. The financial statements and notes are
representations of the Company's management, which is responsible
for their integrity and objectivity, and are prepared on the accrual
basis of accounting. The policies conform to generally accepted
accounting principles and have been consistently applied.
Nature of Operations - The Company was incorporated on January 28,
1993 for the purpose of, but not limited to, providing
telecommunication services. The Company elected, and received,
sub-chapter S corporation status from the Internal Revenue Service,
effective from the incorporation date. In 1997 a significant portion
of operations from a related corporation were transferred to the
Company.
Revenue Recognition - Income is recognized as services are
performed. Financing through notes receivable are serviced through
independent collection agencies. Revenue and related interest income
are recognized when the notes are signed and the related service
provided. Ongoing revenue and expenses from telecommunication
services are passed through to customers, with the related portion
due to the Company recognized upon notification from the service
provider.
Uncollectible Allowance - An uncollectible allowance is established
and bad debt expense is recognized annually. Bad debt expense
totaled $335,948, and $56,800 for the years ended December 31,
1997, 1996, respectively, there was no bad debt expense recognized
during the year ended December 31, 1995.
Marketing Costs - Marketing and advertising costs are expended as
incurred. Media refunds from unused advertising contracts paid are
offset against advertising expense when refunds are received.
Income taxes - Since the Company has received sub-chapter S
corporation status, no provision for federal or state income taxes
has been made. All income from the Company will be taxed on the
shareholders' individual tax returns.
Cash and cash equivalents - For the purpose of the statement of cash
flows, cash is defined as demand deposits at banks.
Cash Book Balance Overdrafts - As of December 31, 1997, and 1996 the
Company had checks outstanding in excess of bank balances totaling
$127,856, and $86,138, respectively, which have been classified as
accounts payable.
Concentrations of Credit Risk - Notes receivable are from customers
throughout the United States. The notes have no collateral and the
carrying value is offset by an uncollectible allowance, actual
collectibility could vary from the estimated allowance. Cash book
balances as of December 31, 1997, 1996, and 1995 totaled $(127,856),
$(86,138), and $89,713, with bank balances of $98, $1,881, and
$220,786, respectively. All bank balances were covered by FDIC
insurance at December 31, 1997 and 1996. The amount not covered by
FDIC insurance at December 31, 1995 totaled $120,786.
Use of Estimates in Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
-6-
<PAGE>
TELECONNECT, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 2. Notes Receivable
Notes receivable are principally from financing agreements with
customers for telecommunications services provided. Interest rates
vary from 10% to 21% with six to twenty-four month terms. Delinquent
accounts are transferred to separate collection agency accounts.
Uncollectible accounts are written-off against the allowance
account, which is adjusted annually, with the adjustment being
charged to bad debt expense. Notes receivable at December 31, 1997,
1996, and 1995 consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Notes serviced by collection agencies $ 588,964 $ 42,127 --
Notes serviced internally 236,058 -- --
Allowance for uncollectible accounts (246,000) (16,800) --
--------- --------- --------
Net notes receivable 579,022 25,327 --
Less long-term portion (382,578) (21,063) --
--------- --------- --------
Notes receivable, less long-term portion $ 196,443 $ 4,264 $ --
</TABLE>
Note 3. Related Party Transactions
The company has the following related party transactions with
related corporations, along with transactions with other related
parties summarized in the amounts receivable and payable below. The
amounts receivable and payable are unsecured and have no interest or
repayment terms.
The Company allocates certain income and expenses to a related
corporation. The allocations are based on percentages of income
received or expenses paid for the operations of the related
corporation. The allocations are accumulated in an inter-company
transfer account. The balances are carried forward and continually
offset against ongoing allocations. The net allocations are
reflected in the inter-company amounts due to, or from, the related
corporation listed below.
The Company uses office furniture and equipment owned by a related
party, with original costs of $364,985, free of charge. The Company
anticipates purchasing the furniture and equipment in 1998. No
expenses have been accrued and no liability has been incurred for
the use of the furniture and equipment.
<TABLE>
<CAPTION>
Receivable from related parties
at December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expenses paid for related parties $ 73,335 $ 20,111 $ --
Inter-company allocations due from related
corporation 29,900 146,216 --
-------- -------- --------
Total receivable from related parties $103,255 $166,327 $ --
Payable to related parties
Officer loan balance $ 20,000 -- --
Shareholder loan balance 15,287 1,000 --
Inter-company allocations due to related corporation -- -- 84,634
-------- -------- --------
Total payable to related parties $ 35,287 $ 1,000 $ 84,634
</TABLE>
-7-
<PAGE>
TELECONNECT, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 4. Line of Credit
During 1997 the Company opened a line of credit with a limit of
$35,210, secured by accounts and notes receivable. The draws on the
credit line totaled $34,985 at December 31, 1997. The interest rate
is variable with interest only payments due monthly, with the
principal due on demand. Interest of $1,210 was paid during the year
ended December 31, 1997.
Note 5. Accrued Liabilities
Accrued liabilities consist of the following amounts at December 31:
1997 1996 1995
------- ------- -------
Accrued payroll expense $12,317 $24,761 $ --
Accrued escrow liability -- 4,241 3,901
------- ------- -------
Total accrued liabilities $12,317 $29,002 $ 3,901
Note 6. Disputed Charges Settlement
During 1997 the Company was billed for disputed telecommunication
charges from a service provider. The disputed charges totaled
approximately $376,000. The dispute has been settled, with the
Company and the provider each incurring half of the disputed
charges. Therefore, $188,000 has been reported in "other expense,"
and charged against net income.
As a result of the settlement, the Company has booked a note payable
to the provider for the disputed charges and other expenses incurred
by the Company while the settlement was pending. At December 31,
1997, the balance due of the note was $257,005. Payments will be
made over a period of 36 months, interest accrued at 8%. Payments
are $5,000 per month for the first six months, beginning January
1998, $8,000 for the next six months, and $8,945 for the remaining
24 months. Income from ongoing activity due to the Company from the
service provider will be credited against the monthly payments, with
the Company being responsible to make any payments for the
difference of monthly income and the scheduled monthly payments.
Principal payments due during the next three years are as follows:
1998 $ 59,221
1999 94,952
2000 102,832
--------
Total note payable 257,005
Less current portion (59,221)
--------
Note payable, less current portion $197,784
-8-
<PAGE>
TELESHARE 900, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Note 8. Building Lease
The Company leases office space under an operating lease, expiring
March 15, 1999. The Company has the Option to terminate the lease
early with four months notice. Rent expense was $85,153, $142,314,
and $122,330 for the years ended December 31, 1997, 1996 and 1995,
respectively. A portion of the lease expense was allocated to a
related party and charged to an inter-company transfer account.
Future minimum lease payments total $169,907 for 1998 and $28,544
for 1999. A portion of the office space is being sub-leased, with
the sub-lease payments being reported as other income. Rent income
of $64,090, $30,748, and $8,325 was received for the years ended
December 31, 1997, 1996, and 1995, respectively.
Note 9. Other Income
Other income consists of the following for the years ended December
31:
1997 1996 1995
-------- -------- --------
Sublease rent received $ 64,090 $ 30,748 $ 8,325
Database income 49,944 -- --
Processing fees -- 3,458 --
Miscellaneous income 6,989 171 36
-------- -------- --------
Total other income $121,023 $ 34,377 $ 8,361
-9-
<PAGE>
QCOMM, INC.
INTERIM INCOME STATEMENT
-------------------------------
01/01/1999 01/01/1999
THROUGH THROUGH
10/31/1999 10/31/1998
-------------------------------
Revenues
Telecommunications $ 996,261 $ 2,107,608
Renewal fees 81,125 99,668
Qxpress system 5,175 0
Other Sales 416,264 36,962
Net revenues 1,498,825 2,244,238
Cost of sales 938,018 2,052,671
----------- -----------
Gross profit 560,807 191,567
Operating expenses 1,174,326 1,524,047
----------- -----------
Loss from operations (613,519) (1,332,480)
Other income including interest 5,413 84,251
----------- -----------
Loss Before extraordinary items (608,106) (1,248,229)
Gain on extinguishment of debt 143,811 125,087
----------- -----------
----------- -----------
NET LOSS (464,295) (1,123,142)
=========== ===========
<PAGE>
QCOMM, INC.
PROJECTED INCOME STATEMENT
1999 THROUGH 2002
<TABLE>
<CAPTION>
ESTIMATES
-------------------------------------------------------------------------
01/01/1999 01/01/1999 01/01/2000 01/01/2001 01/02/2002
THROUGH THROUGH THROUGH THROUGH THROUGH
10/31/1999 12/31/1999 12/31/2000 12/31/2001 12/31/2002
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Telecommunications $ 996,261 $ 1,195,500 $ 500,000 $ 250,000 $ 250,000 Discontinued some items
Renewal fees 81,125 97,350 90,000 85,000 80,000 Discontinued coaching
Qxpress system 5,175 374,097 17,393,070 42,369,600 56,466,480 See note 1
Other Sales 416,264 417,000 0 0 0
Net revenues 1,498,825 2,083,947 17,983,070 42,704,600 56,796,480
Cost of sales 938,018 1,770,473 15,747,953 37,958,063 50,890,115 See note 2
-------------------------------------------------------------------------
Gross profit 560,807 313,474 2,235,117 4,746,537 5,906,365
Operating expenses 1,174,326 1,068,795 2,022,698 2,012,470 2,122,917
-------------------------------------------------------------------------
Gain (Loss) from
operations (613,519) (755,321) 212,419 2,734,067 3,783,448
Other income including
interest 5,413 5,500 5,500 5,500 5,500
-------------------------------------------------------------------------
Gain (Loss) Before
extraordinary items (608,106) (749,821) 217,919 2,739,567 3,788,948
Gain on extinguishment of debt 143,811 150,000 150,000 0 0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NET GAIN (LOSS) (464,295) (599,821) 367,919 2,739,567 3,788,948
=========================================================================
</TABLE>
Note 1: Sales are based upon an analysis of average retail sales by retailers
of $400/month.
Test market in the Michigan and Indiana areas showed that we could
place the units.
Estimation of units placed: 1999-500 units: 2000 - 4300 units: 2001
-7200 units: 2002 - 9360 units.
Retailers prefer our units over the retail cards due to not having to
carry an inventory, Also there no upfront cost.
Note 2: Cost of goods are based upon:
Depreciation: Cost $300 per unit, 3 year write off.
Commissions: Based upon percentage of sales
Carrier cost: Based upon percentage of sales.
Cell pone cost: $39 each, Sells to retailer $44, 45% total margin.
Terminal transaction fee: Cost of computer tracking sales per unit.
General Notes: Operating costs are based upon estimated payroll, cost that have
been incurred in 1999 and projected through 2002.
In 1999 the decision to eliminate the workshops and coaching
reduced the revenues for Telecommuntions and the renewals of the
business opportunities. However there are master agents that will
continue the phone card business.
Custom cards will continue be part of our business.
Rechargeable and Q discount cards will continue as part of our
business
<PAGE>
QCOMM, INC.
PROJECTED BALANCE SHEET
1999 THROUGH 2002
<TABLE>
<CAPTION>
---------------------------------------------------------
AS OF AS OF AS OF AS OF
12/31/1999 12/31/2000 12/31/2001 01/01/2002
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 531,900 $ 500,000 $ 2,525,900 $ 5,416,900 prior bal + profit - pur of LDC units
Trade Accounts Receivable 60,000 334,500 814,800 1,085,900 = last week of the year, receipts
from ACH
less allow for doubtful accts (40,000) 0 0 0
Notes Receivable 133,400 0 0 0 No longer financing business
opportunity
Related party receivable 13,400 0 0 0 Assume no loans to related parties
---------------------------------------------------------
Total current assets 698,700 834,500 3,340,700 6,502,800
PROPERTY & EQUIPMENT, AT COST 128,600 1,026,900 1,320,200 2,007,000
OTHER ASSETS 60,000 0 0 0 Assuming no other assets
---------------------------------------------------------
TOTAL ASSETS 887,300 1,861,400 4,660,900 8,509,800
=========================================================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Notes payable 36,700 0 0 0 Notes paid off
Accounts payable 578,600 150,000 200,000 250,000 Prior accounts payable paid off,
Pay within terms
Line of Credit 170,000 Pay off line of credits
Accrued Liabilities 45,000 50,000 60,000 70,000 Mainly end of year payroll
Related party obligation 161,000 0 0 0 Pay off all related parties
Other current liabilities 161,000 50,000 50,000 50,000
---------------------------------------------------------
Total current liabilities 1,152,300 250,000 310,000 370,000
STOCKHOLDERS' DEFICIT
---------------------------------------------------------
Common Stock Authorized
@ $.001 per Share 50,000,000 50,000,000 50,000,000 50,000,000
Shares issued and
outstanding 8,700,000 9,900,000 9,900,000 9,900,000 Stock issue, to finance LDC Units
for Qxpress
---------------------------------------------------------
Value @ $.001 per share 8,700 9,900 9,900 9,900
Additional paid-in capital 1,830,700 3,338,000 3,338,000 3,338,000
Accumulated deficit (2,104,400) (1,736,500) 1,003,000 4,791,900
---------------------------------------------------------
Total stockholder's equity (265,000) 1,611,400 4,350,900 8,139,800
---------------------------------------------------------
$ 887,300 $ 1,861,400 $ 4,660,900 $ 8,509,800
=========================================================
</TABLE>
<PAGE>
QCOMM, INC.
OPERATIONS BREAKDOWN
- - --------------------------------------------------------------------------------
MAJOR PRODUCTS 1996 1997 1998 1999
- - --------------------------------------------------------------------------------
TELECOMMUNICATIONS $6,279,818 $4,163,580 $2,839,848 $1,200,000
RENEWALS 385,234 454,784 136,127 98,000
INTERNET WEBSITES 0 0 0 413,813
QXPRESS LDC UNITS 0 0 0 15,000
MISC INCOME 154,525 143,820 189,487 3,000
---------------------------------------------------------
TOTAL SALES 6,819,577 4,762,184 3,165,462 1,729,813
---------------------------------------------------------
NOTE: QCOMM, INC. HAS NO MAJOR CUSTOMERS. PREPAID PHONE CARDS ARE SOLD
THROUGHOUT THE UNITED STATES.
INTERNET WEBSITES WERE INTRODUCED ON A TRIAL BASIS IN 1999. MANAGEMENT
DECISION WAS TO DISCONTINUE THE PRODUCT.
<PAGE>
Item 14. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure
Not Applicable
27
<PAGE>
PART III
28
<PAGE>
Item 15. Financial Statements and Exhibits
29
<PAGE>
Other Exhibits
3.
(a) Articles of Amendment to the Articles of Incorporation of Four Rivers
Development, Inc.
(b) Articles of Incorporation of Four Rivers Development
(c) By-Laws of Q Comm International, Inc.
(d) Articles of Incorporation of QCMERCO, Inc.
(e) Articles of Merger
(f) Plan of Merger
(g) Agreement and Plan of Reorganization
(h) Specimen Copy of Q Comm International, Inc. Stock Certificate
(i) Certificate of Good Standing State of Utah
(j) Business License City of Orem, State of Utah
(k) Lease Agreement by and between Highland Ranch, Inc. and Q Comm
International, Inc. to lease 1145 S.1680 W. Orem, Utah., the Company's
headquarters
(l) Employment Agreement entered into by and between Stephen Flaherty and Q Comm
International, Inc.
(m) Q Comm International, Inc. Stock Option Agreements
10. Material Contracts
(a) LDC Direct Distributor Agreement by and between LDC Direct, Ltd. Co and Q
Comm International, Inc.
(b) Q Comm, Inc. Services Agreement for USP Communications to be a distributor
of the Qxpress Management System
(c) Convertible Debenture and Common Stock Purchase Agreement by and Among Gem
Investments, LTD and Q Comm International, Inc.
(d) Authorized Distributor Agreement-PrePaid entered into by and between
MegaHertz-NKO, Inc. and Q Comm International, Inc.
(e) Service Agreement by and between Tekbilt World Communications d/b/a/ TWC
Direct and Q Comm International, Inc.
30
<PAGE>
(f) Q Comm, Inc. Services Agreement for The Amster-Kirtz Company to be a
distributor of the Qxpress Management System
23. Consents of Experts and Counsel
31
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Q COMM INTERNATIONAL, INC.
--------------------------
(Registrant)
Date: 2/24/00
---------------------------------
By: /s/ Paul C. Hickey
-----------------------------------
Paul C. Hickey
CEO, Chairman of the Board
32
<PAGE>
-----------------------------
RECEIVED
AUG 3 - 1998
Utah Div. Of Corp. Comm. Code
-----------------------------
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
FOUR RIVERS DEVELOPMENT, INC.
ARTICLE I. In accordance with sections 16-10a-1003 and 16-l0a-l006 of the Utah
Revised Business Corporation Act, Four Rivers Development, Inc. ("Corporation"),
does hereby adopt the following amendments (the "Amendments"), to its Articles
of Incorporation:
(a) The articles of incorporation are hereby amended by deleting all of
Article I and inserting the following in lieu thereof:
ARTICLE I: NAME
The name of this Corporation is Q Comm International, Inc.
(b) The articles of incorporation are hereby amended by adding to Article XIII
the following new paragraph:
Directors of the Corporation shall have no personal liability to the
Corporation or its shareholders for monetary damages for any action, or
any failure to take action, as a director, except for liability for: (i)
the amount of a financial benefit received by a director to which he or
she is not entitled; (ii) an intentional infliction of harm on the
Corporation or the shareholders; (iii) a violation of section 16-10a-842
of the Utah Revised Business Corporation Act, and any amended or successor
provision thereto; or, (iv) an intentional violation of criminal law
ARTICLE II. The foregoing Amendments were adopted by the board of directors and
shareholders of the Corporation. The Amendment was adopted by written consent of
the board of directors dated July 1, 1998. The only class of stock of the
Corporation outstanding and entitled to vote on the Amendment is the common
stock, par value $0.001. There are 50,000,000 shares of common stock authorized,
of which 10,987,722 shares are issued and outstanding. The total number of votes
cast in favor of the Amendments by holders of common stock is 5,600,000, which
is sufficient to approve the Amendments.
IN WITNESS WHEREOF, these Articles of Amendment are executed for and on
behalf of the Corporation as its act and deed by the undersigned officer
hereunto duly authorized, who certifies that the facts herein stated are true
this 3rd day of August, 1998.
Four Rivers Development, Inc.
By /s/ Edward Dallin Bagley
-----------------------------------
Edward Dallin Bagley, President
<PAGE>
- - ----------------------- ----------------------
[ILLEGIBLE] [ILLEGIBLE]
- - ----------------------- FEB 07 1986
UTAH STATE
SECURITIES DIVISION
----------------------
ARTICLES OF INCORPORATION
OF
FOUR RIVERS DEVELOPMENT
We, the undersigned, natural persons of the age of twenty-one years
or more, acting as incorporators of a corporation under the Utah Business
Corporation Act, adopt the following Articles of Incorporation for such
Corporation:
ARTICLE I: NAME
The name of this Corporation is Four Rivers Development.
ARTICLE II: DURATION
The period of duration of this Corporation is perpetual.
ARTICLE III: PURPOSES
The nature of the business, and the objects and purposes proposed to
be transacted, promoted and carried on, are to do any or all of the things
herein mentioned, as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz:
A. To engage in the manufacturing, marketing and/or development of
high technology products;
B. To engage in business, related or unrelated, to that described
above and from time to time authorized or approved by the Board of Directors of
this Corporation;
C. To act as partner or joint venturer in any other legal capacity
in any transaction;
D. To have and exercise any and all rights and powers from time to
time granted to a corporation by the laws of the State of Utah.
<PAGE>
E. To enter into any partnership, limited or general, as a limited
or general partner, or both, and to enter into any joint venture or other
arrangement for sharing profits, union of interest, reciprocal concession, or
cooperation, with any corporation, association, partnership, entity, person,
syndicate, or governmental body, domestic or foreign;
F. To own, sell and broker all forms of investments;
G. To do each and every thing necessary, suitable or proper for the
accomplishment of any one or more of the objects herein enumerated, or which
shall at any time appear conducive to, or expedient to promote the interest of
the Corporation, or to enhance the value of its properties as authorized under
the laws of the State of Utah;
The objects and purposes specified herein shall be regarded as
independent objects and purposes and shall not be limited or restricted by
reference to, or inference from the terms of any other clause of these Articles
of Incorporation.
ARTICLE IV: STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is 50,000,000 shares of nonassessable voting common stock
having a $.001 par value per share. Each share of stock shall entitle the holder
thereof to one (1) vote on each matter submitted to vote at a meeting of the
shareholders. At all elections of directors of the Corporation, each director
shall be elected by a majority vote of all shares of capital stock voting.
2
<PAGE>
ARTICLE V: INITIAL CAPITALIZATION
The Corporation will not commence business until at least one
thousand dollars ($1,000) has been received by it as consideration in the form
of cash or property for the issuance of shares.
ARTICLE VI: PRE-EMPTIVE RIGHTS
Shareholders shall have no pre-emptive rights to acquire any
securities of this Corporation.
ARTICLE VII: INTERNAL AFFAIRS
The regulation of the internal affairs of the Corporation shall be
governed by the bylaws of the Corporation.
ARTICLE VIII: REGISTERED OFFICE
The address of this Corporation's initial registered office and the
name of its initial registered agent at such address is:
Name of Agent Address of Registered Office
------------- ----------------------------
Kirk A. Cullimore 1225 E. Ft. Union Blvd.
Midvale, Utah 84047
ARTICLE IX: DIRECTORS
The number of directors constituting the initial Board of Directors
of the Corporation is three and the name and addresses of the persons who are to
serve as directors until their first annual meeting of the shareholders or until
their successors are elected and shall qualify are:
Name Address
---- -------
F. Randy Jack 1435 West 10400 South
South Jordan, Utah 84084
3
<PAGE>
David W. White 6523 Clematis Way
West Jordan, Utah 84084
J. Brent Kartchner 3298 Antler Way
Salt Lake City, Utah 84121
ARTICLE X: INCORPORATORS
The name and address of each Incorporator is:
Name Address [ILLEGIBLE]
---- -------
Reed L. Benson 2224 St. Moritz Circle
Sandy, Utah 84092
Kirk A. Cullimore 2233 St. Moritz Circle
Sandy, Utah 84092
Joanne Douglas 2091 Brent Lane
Salt Lake City, Utah 84121
ARTICLE XI: LIMITED LIABILITY
The capital stock of this Company shall be issued as fully paid, and
the private property of the shareholders shall not be liable for the debts,
obligations, or liabilities of this Corporation. The capital stock of this
Corporation shall not be assessable.
ARTICLE XII: SECTION 1244 STOCK
Shares of stock of this Corporation authorized and issued pursuant
to these Articles within two (2) years from the date of incorporation are for
purposes of the Internal Revenue Code authorized and issued in compliance with
and as prescribed by Section 1244 of the Internal Revenue Code of 1954, as
amended, and shall be known as "Section 1244 Stock".
ARTICLE XIII: INDEMNIFICATION
The Corporation shall indemnify any and all persons who may serve at
any time as a Director or Officer of the
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<PAGE>
Corporation, and their heirs, administrators, successors and assigns against any
and all expenses, including amounts paid upon judgments, counsel fees, and
amounts paid in settlement before or after suit is commenced, actually and
necessarily incurred by such persons in connection with the defense or
settlement of any claim, action, suit or proceeding, in which they, or any of
them are made parties, or which may be asserted against them or any of them by
reason of being, or having been, Directors or Officers of the Corporation,
except in relation to such matters in which such Director or Officer shall be
adjudged to be liable for his own negligence or misconduct in the performance of
his duty. Such indemnification shall be in addition to any other rights to which
those indemnified may be entitled under any law, bylaw, agreement, vote of
stockholders, or otherwise.
DATED this 6th day of February, 1986.
REGISTERED AGENT
/s/ Reed L. Benson
-----------------------------------
Reed L. Benson, Incorporator
/s/ Kirk A. Cullimore /s/ Kirk A. Cullimore
- - ----------------------------------- -----------------------------------
Kirk A. Cullimore Kirk A. Cullimore, Incorporator
/s/ Joanne Douglas
-----------------------------------
Joanne Douglas, Incorporator
5
<PAGE>
STATE OF UTAH )
: ss
COUNTY OF SALT LAKE )
On the 6th day of February, 1986, personally appeared before
me Reed L. Benson, Kirk A. Cullimore, and Joanne Douglas, who, being first duly
sworn, severally declared that they are the persons who signed the foregoing
Articles of Incorporation as incorporators and that the statements therein
contained are true.
/s/ [ILLEGIBLE]
--------------------------------------
NOTARY PUBLIC
My Commission Expires: Residing At:
7-3-88 Salt Lake City, Utah
- - ------------------------------------- --------------------------------------
------------------------
[NOTARY SEAL]
RECEIVED
FEB 07 1986
UTAH STATE
SECURITIES DIVISION
------------------------
6
<PAGE>
------------------------
[SEAL]
STATE OF UTAH
BUSINESS REGULATION
------------------------
CERTIFICATE OF INCORPORATION
OF
FOUR RIVERS DEVELOPMENT
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL CODE. HEREBY CERTIFIES
THAT DUPLICATE COPIES OF ARTICLES OF INCORPORATION FOR THE INCORPORATION OF
FOUR RIVERS DEVELOPMENT
DULY SIGNED AND VERIFIED PURSUANT TO THE PROVISIONS OF THE UTAH BUSINESS
CORPORATION ACT, HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO
LAW
ACCORDINGLY, THE DIVISION OF CORPORATIONS AND COMMERCIAL CODE, HEREBY
ISSUES THIS CERTIFICATE OF INCORPORATION OF
FOUR RIVERS DEVELOPMENT
AND ATTACHES HERETO A DUPLICATE COPY OF THE ARTICLES OF INCORPORATION 119101.
[SEAL] Dated this 7TH day
of FEBRUARY, 1986
/s/ Randall L. Smart
----------------------------------------
DIRECTOR, DIVISION OF CORPORATIONS AND
COMMERCIAL CODE
<PAGE>
BYLAWS
OF
Q COMM INTERNATIONAL, INC.
(formerly Four Rivers Development, Inc.)
ARTICLE I
OFFICE
1.1 Office. The Corporation shall maintain such offices, within or
without the State of Utah, as the Board of Directors may from time to time
designate. The location of the principal office may be changed by the Board of
Directors.
ARTICLE II
SHAREHOLDERS' MEETING
2.1 Annual Meetings. The annual meetings of the shareholders of the
corporation shall be held at such place within or without the State of Utah as
shall be set forth in compliance with these Bylaws. The meeting shall be held on
the third Wednesday of September of each year beginning with the year 1986 at
10:00 a.m. If such is a legal holiday, the meeting shall be on the next business
day. This meeting shall be for the election of directors and for the transaction
of such other business as may properly come before it.
2.2 Special Meetings. Special meetings of the shareholders, other
than those regulated by statute, may be called at any time by the President, or
a majority of the directors, and must be called by the President upon written
request of the holders of not less than 10% of the issued and outstanding shares
entitled to vote at such special meeting. Written notice
<PAGE>
of such meeting state the place, the date and hour of the meeting, the purpose
or purposes for which it is called, and the name of the person by whom or at
whose direction the meeting is called shall be given. The notice shall be given
to each shareholder of record in the same manner as notice of the annual
meeting. No business other than that specified in the notice of meeting shall be
transacted at any such special meeting.
2.3 Notice of Shareholders' Meeting. The Secretary shall give
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,
which shall be delivered not less than ten or more than fifty days before the
day of the meeting, either personally or by mail 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 books of the Corporation, with postage
thereon prepaid.
2.4 Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Utah, as the place
for the holding of such meeting. If no designation
2
<PAGE>
is made, or if a special meeting be otherwise called, the place of meeting shall
be the principal office of the Corporation.
2.5 Record Date. The Board of Directors may fix a date not less than
ten nor more than fifty days prior to any meeting as the record date for the
purpose of determining shareholders entitled to notice of and to vote at, such
meetings of the shareholders. The transfer books may be closed by the Board of
Directors for a stated period not to exceed fifty days for the purpose of
determining shareholders entitled to require payment of any dividend, or in
order to make a determination of shareholders for any other purpose.
2.6 Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At a meeting
resumed after any such adjournment at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notice. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of shareholders in such number that less than a quorum remain.
2.7 Voting. A holder of an outstanding share entitled to vote at a
meeting may vote at such meeting in person or by
3
<PAGE>
proxy. Except as may otherwise be provided in the Articles of Incorporation,
every shareholder shall be entitled to one vote for each share standing in his
name on the record of shareholders. Except as herein or in the Articles of
Incorporation otherwise provided, all corporate action shall be determined by a
majority of the votes cast at a meeting of shareholders by the holders of shares
entitled to vote thereon.
2.8 Proxies. At all meetings of shareholders, a shareholder may vote
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
2.9 Informal Action by Shareholders. Any action required to be taken
at a meeting of the shareholders, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors. The Board of Directors may adopt
such rules and regulations
4
<PAGE>
for the conduct of their meetings and the management of the Corporation as they
deem proper.
3.2 Number, Tenure, and Qualifications. The number of directors for
the initial Board of Directors of the Corporation shall be three. Each director
shall hold office until the next annual meeting of shareholders and until his
successor shall have been elected and qualified. Directors need not be residents
of the State of Utah or shareholders of the Corporation. The number of directors
may be changed by a resolution adopted by the Board of Directors.
3.4 Special Meetings. Special Meetings of the Board of Directors may
be called by order of the Chairman of the Board, the President or by one-third
of the directors. The Secretary shall give notice of the time, place, and
purpose or purposes of each special meeting by mailing the same at least two
days before the meeting or by telephoning or telegraphing the same at least one
day before the meeting to each director.
3.5 Quorum. A majority of the members of the Board of Directors
shall constitute a quorum for the transaction of business, but less than a
quorum may adjourn any meeting from time to time until a quorum shall be
present, whereupon the meeting may be held, as adjourned, without further
notice. At any meeting at which every director shall be present, even though
without any notice, any business may be transacted.
3.6 Manner of Acting. At all meetings of the Board of Directors,
each director shall have one vote. The act of
5
<PAGE>
a majority present at a meeting shall be the act of the Board of Directors,
provided a quorum is present. Any action required to be taken or which may be
taken at a meeting of the directors may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all the
directors. The directors may conduct a meeting by means of a conference
telephone or any similar communications equipment by which all persons
participating in the meeting can hear each other.
3.7 Vacancies. A vacancy in the Board of Directors shall be deemed
to exist in case of death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail at any
meeting of shareholders at which any director is to be elected, to elect the
full authorized number to be elected at that meeting.
3.8 Removals. Directors may be removed at any time, by a vote of the
shareholders holding a majority of the shares issued and outstanding and
entitled to vote. Such vacancy shall be filled by the directors then in office,
though less than a quorum, to hold office until the next annual meeting or until
his successor is duly elected and qualified, except that any directorship to be
filled by reason of removal by the shareholders may be filled by election, by
the shareholders, at the meeting at which the director is removed. No reduction
of the authorized number of directors shall have the effect of removing any
director prior to the expiration of his term of office.
6
<PAGE>
3.9 Resignations. A director may resign at any time by delivering
written notification thereof to the President or Secretary of the Corporation.
Such resignation shall become effective upon its acceptance by the Board of
Directors; provided, however, that if the Board of Directors has not acted
thereon within ten days from the date of its delivery, the resignation shall,
upon the tenth day, be deemed accepted.
3.10 Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the Secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.11 Compensation. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at such meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
7
<PAGE>
3.12 Emergency Power. When, due to a national disaster or death, a
majority of the directors are incapacitated or otherwise unable to attend the
meetings and function as directors, the remaining members of the board of
Directors shall have all the powers necessary to function as a complete Board
and, for the purpose of doing business and filling vacancies, shall constitute a
quorum until such time as all directors can attend or vacancies can be filled
pursuant to these Bylaws.
3.13 Chairman. The Board of Directors may elect from its own number
a Chairman of the Board, who shall preside at all meetings of the Board of
Directors, and shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
ARTICLE IV
OFFICERS
4.1 Number. The officers of the Corporation shall be a President,
one or more Vice Presidents, a Secretary, and a Treasurer, each of whom shall be
elected by a majority of the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. In its discretion, the Board of Directors may leave unfilled
for any such period as it may determine any office except those of President and
Secretary. Any two or more offices may be held by the same person, except the
offices of President and Secretary. Officers may or may not be directors or
shareholders of the Corporation.
8
<PAGE>
4.2 Election and Term of Office. The officers of the Corporation are
to be elected by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
4.3 Resignations. Any officer may resign at any time by delivering a
written resignation either to the President or to the secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
4.4 Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights. Any such removal shall
require a majority vote of the Board of Directors, exclusive of the officer in
question if he is also a director.
4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, or if a new office shall
be created, may be filled by the Board of Directors for the unexpired portion of
the term.
9
<PAGE>
4.6 President. The President shall be the chief executive and
administrative officer of the Corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board, at meetings
of the Board of Directors. He shall exercise such duties as customarily pertain
to the office of President and shall have general and active supervision over
the property, business, and affairs of the Corporation and over its several
officers. He may appoint officers, agents, or employees other than those
appointed by the Board of Directors. He may sign, execute and deliver in the
name of the Corporation powers of attorney, contracts, bonds and other
obligations and shall perform such other duties as may be prescribed from time
to time by the Board of Directors or by the Bylaws.
4.7 Vice President. The Vice Presidents shall have such powers and
perform such duties as may be assigned to them by the Board of Directors or the
President. In the absence or disability of the President, the Vice President
designated by the Board or the President shall perform the duties and exercise
the powers of the President. In the event here is more than one Vice president
and the Board of Directors has not designated which Vice President is to act as
President, then the Vice President may sign and execute contracts and other
obligations pertaining to the regular course of his duties.
4.8 Secretary. The Secretary shall keep the minutes of all meetings
of the shareholders and of the Board of Directors
10
<PAGE>
and to the extent ordered by the Board of Directors or the President, the
minutes of meetings of all committees. He shall cause notice to be given of
meetings of shareholders, of the Board of Directors, and of any committee
appointed by the Board. He shall have custody of the corporate seal and general
charge of the records, documents, and papers of the Corporation not pertaining
to the performance of the duties vested in other officers, which shall at all
reasonable times be open to the examination of any director. He may sign or
execute contracts with the President or Vice President thereunto authorized in
the name of the Corporation and affix the seal of the Corporation thereto. He
shall perform such other duties as may be prescribed from time to time by the
Board of Directors or by the Bylaws. He shall be sworn to the faithful discharge
of his duties. Assistant Secretaries shall assist the Secretary and shall keep
and record such minutes of meetings as shall be directed by the Board of
Directors.
4.9 Treasurer. The Treasurer shall have general custody of the
collection and disbursement of funds of the Corporation. He shall endorse on
behalf of the Corporation for collection checks, notes, and other obligations,
and shall deposit the same to the credit of the Corporation in such bank or
banks or depositories as the Board of Directors may designate. He may sign, with
the President, or such other persons as may be designated for the purpose by the
Board of Directors, all bills of exchange or promissory notes of the
Corporation. He shall enter or cause to be entered regularly in the books of
11
<PAGE>
the Corporation full and accurate accounts of all monies received and paid by
him on account of the Corporation, shall at all reasonable times exhibit his
books and accounts to any director of the Corporation upon application at the
office of the Corporation during business hours; and, whenever required by the
Board of Directors or the President, shall render a statement of his accounts.
He shall perform such other duties as may be prescribed from time to time by the
Board of Directors or by the Bylaws.
4.10 General Manager. The Board of Directors may employ and appoint
a General Manager who may, or may not, be one of the officers or directors of
the Corporation. If employed by the Board of Directors, he shall be the chief
operating officer of the corporation and, subject to the directions of the Board
of Directors, shall have general charge of the business operations of the
Corporation and general supervision over its employees and agents. He shall have
the exclusive management of the business of the Corporation and of all of its
dealings, but at all times subject to the control of the Board of Directors.
Subject to the approval of the Board of Directors or the executive committee, he
shall employ all employees of the Corporation, or delegate such employment to
subordinate officers or such division officers, or such division chiefs, and
shall have authority to discharge any person so employed. He shall make a report
to the President and directors quarterly, or more often if required to do so,
setting forth the result of the operations under his charge, together with
suggestions looking to the improvement and betterment
12
<PAGE>
of the condition of the Corporation, and to perform such duties as the Board of
Directors shall require.
4.11 Other Officers. Other officers shall perform such duties and
have such powers as may be assigned to them by the Board of Directors.
4.12 Salaries. The salaries and other compensation of the officers
of the Corporation shall be fixed from time to time by the Board of Directors
except that the Board of Directors may delegate to any person or group of
persons the power to fix the salaries or other compensation of any subordinate
officers or agents. No officer shall be prevented from receiving any such salary
or compensation by reason of the fact that he is also a director of the
Corporation.
4.13 Surety Bonds. In case the Board of Directors shall so require,
any officer or agent of the Corporation shall execute to the Corporation a bond
in such sums and with surety or sureties as the Board of Directors may direct,
conditioned upon the faithful performance of this duties to the Corporation,
including responsibility for negligence and for the accounting for all property,
monies or securities of the Corporation which may come into his hands.
ARTICLE V
COMMITTEES
5.1 Executive Committee. The Board of Directors may appoint from
among its members an Executive Committee of not less than two nor more than
seven members, one of whom shall
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<PAGE>
be the President, and shall designate one or more of its members as alternates
to serve as a member or members of the Executive Committee in the absence of a
regular member or members. The board of Directors reserves to itself alone the
power to declare dividends, issue stock, recommend to shareholders any action
requiring their approval, change the membership of any committee at any time,
fill vacancies therein, and discharge any committee either with or without cause
at any time. Subject to the foregoing limitations, the Executive Committee shall
possess and exercise all other powers of the Board of Directors during the
intervals between meetings.
5.2 Other Committees. The Board of Directors may also appoint from
among its own members such other committees as the Board may determine, which
shall in each case consist of not less than two directors, and which shall have
such powers and duties as shall from time to time be prescribed by the Board.
The President shall be a member ex officio of each committee appointed by the
Board of Directors. A majority of the members of any committee may fix its rules
of procedure.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 Contracts. The Board of Directors may authorize any officer or
officers, agents or agent, to enter into any contract or execute and deliver any
instrument in the name of an on behalf of the Corporation, and such authority
may be general or confined to specific instances.
14
<PAGE>
6.2 Loans. No loans or advances shall be contracted on behalf of the
Corporation, no negotiable paper or other evidence of its obligation under any
loan or advance shall be issued in its name, and no property of the Corporation
shall be mortgaged, pledged, hypothecated, or transferred as security for the
payment of any loan, advance, indebtedness, or liability of the Corporation
unless and except as authorized by the Board of Directors. Any such
authorization may be general or confined to specific instances.
6.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select, or as may be selected by any officer or agent authorized to do so by the
Board of Directors.
6.4 Checks and Drafts. All notes, drafts, acceptances, checks,
endorsements and evidences of indebtedness of the Corporation shall be signed by
such officer or officers or such agent or agents as the Corporation and in such
manner as the Board of Directors from time to time may determine. Endorsements
for deposit to the credit of the Corporation in any of its duly authorized
depositories shall be made in such manner as the Board of Directors from time to
time may determine.
6.5 Bonds of Debentures. Every bond or debenture issued by the
Corporation shall be evidenced by an appropriate instrument which shall be
signed by the President or Vice President
15
<PAGE>
and by the Treasurer or by the Secretary, and sealed with the seal of the
Corporation. The seal may be facsimile, engraved or printed. Where such bond or
debenture is authenticated with the manual signature of an authorized officer of
the Corporation or other trustee designated by the indenture of trust or other
agreement under which such security is issued, the signature of any of the
Corporation's officers named thereon may be a facsimile. In case any officer who
signed, or whose facsimile signature has been used on any such bond or
debenture, shall case to be an officer of the Corporation for any reason before
the same has been delivered by the Corporation, such bond or debenture may
nevertheless be adopted by the Corporation and issued and delivered as though
the person who signed it or whose facsimile signature has been used thereon had
not ceased to be such officer.
ARTICLE VII
CAPITAL STOCK
7.1 Certificate of Share. The shares of the Corporation shall be
represented by certificates prepared by the Board of Directors and signed by the
President or the Vice President, and by the Secretary, or an Assistant
Secretary, and sealed with the seal of the Corporation or a facsimile. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation itself or one of its employees. All certificates for
shares shall be consecutively
16
<PAGE>
numbered or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefore
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
7.2 Transfer of Shares. Transfer of shares of the Corporation shall
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
7.3 Transfer Agent and Registrar. The Board of Directors shall have
power to appoint one or more transfer agents and registrars for the transfer and
registration of certificates of stock of any class, and may require that stock
certificates
17
<PAGE>
shall be countersigned and registered by one or more of such transfer agents
and registrars.
7.4 Lost or Destroyed Certificates. The Corporation may issue a new
certificate to replace any certificate theretofore issued by it alleged to have
been lost or destroyed. The Board of Directors may require the owner of such a
certificate or his legal representatives to give the Corporation a bond in such
sum and with such sureties as the Board of Directors may direct to indemnify the
Corporation and its transfer agents and registrars, if any, against claims that
may be made on account of the issuance of such new certificates. A new
certificate may be issued without requiring any bond.
7.5 Consideration for Shares. The capital stock of the Corporation
shall be issued for such consideration, but not less than the par value thereof,
as shall be fixed from time to time by the Board of Directors. In the absence of
fraud, the determination of the Board of Directors as to the value of any
property or services received in full or partial payment of shares shall be
conclusive.
7.6 Registered Shareholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder thereof
in fact, and shall not be bound to recognize any equitable or other claim to or
on behalf of the Corporation, any and all of the rights and powers incident to
the ownership of such stock at any such meeting, and shall have power and
authority to execute and deliver proxies and
18
<PAGE>
consents on behalf of the Corporation in connection with the exercise by the
Corporation of the rights and powers incident to the ownership of such stock.
The Board of Directors, from time to time, may confer like powers upon any other
person or persons.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. No officer or director shall be personally
liable for any obligations arising out of any acts or conduct of said officer or
director performed on or behalf of the Corporation. The Corporation shall and
does hereby indemnify and hold harmless each person and his heirs and
administrators who shall serve at any time hereafter as a director or officer of
the Corporation from and against any and all claims, judgments and liabilities
to which such persons shall become subject by reason of his having heretofore or
hereafter been a director of officer of the Corporation, or by reason of any
action alleged to have been heretofore or hereafter taken or omitted, or to have
been taken by him as such director or officer, and shall reimburse each such
person for all legal and other expenses reasonably incurred by him in connection
with any such claim or liability; including power to defend such person from all
suits provided for under the provisions of the Utah Business Corporation Act;
provided, however, that no such person shall be indemnified against, or be
reimbursed for, any expense incurred in connection with any claim or liability
arising out of his
19
<PAGE>
own negligence or willful misconduct. The rights accruing to any person under
the foregoing provisions of this Section shall not exclude any other right to
which he may lawfully be entitled, nor shall anything herein contained restrict
the right of the Corporation to indemnify or reimburse such person in any proper
case, even though not specifically herein provided for. The Corporation, its
directors, officers, employees and agents shall be fully protected in taking any
action or making any payment or in refusing so to do in reliance upon the advice
of counsel.
8.2 Other Indemnification. The indemnification herein provided shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any Bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
8.3 Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer or employee of the
Corporation, or is or was serving at the request of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against liability under the provisions
20
<PAGE>
of this Article VIII or of subsection (o) of Section 16-10-4 of the Utah
Business Corporation Act.
8.4 Settlement by Corporation. The right of any person to be
indemnified shall be subject to the right of the Corporation by its Board of
Directors, in lieu of such indemnity, to settle any such claim, action, suit or
proceeding at the expense of the Corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these Bylaws or under the
provisions of the Articles of Incorporation or under the provisions of the Utah
Business Corporation Act, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance at
any meeting shall constitute a waiver of notice of such meetings, except where
attendance is for the express purpose of objecting to the legality of that
meeting.
ARTICLE X
AMENDMENTS
These Bylaws may be altered, amended, repealed or added to by the
affirmative vote of the holders of a majority of the shares entitled to vote in
the election of any director
21
<PAGE>
at an annual meeting or at a special meeting called for that purpose, provided
that a written notice shall have been sent to each shareholder of record
entitled to vote at such meetings at least ten days before the date of such
annual or special meeting, which notice shall state the alterations, amendments,
additions or changes which are proposed to be made in such Bylaws. Only such
changes shall be made as have been specified in the notice. The Bylaws may also
be altered, amended, repealed, or new Bylaws adopted by a majority of the entire
Board of Directors at any regular or special meeting. Any Bylaws adopted by the
Board may be altered, amended, or repealed by majority of the shareholders
entitled to vote.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed and may be varied
by resolution of the Board of Directors.
ARTICLE XII
DIVIDENDS
The Board of Directors may at any regular or special meeting, as
they deem advisable, declare dividends payable out of the surplus of the
Corporation.
ARTICLE XIII
CORPORATE SEAL
The seal of the Corporation shall be in the form of a circle and
shall bear the name of the Corporation and the year of incorporation.
22
<PAGE>
Adopted by resolution of the Board of Directors the 11 day of February,
1986.
/s/ F. Randy Jack
--------------------------------------
F. Randy Jack
/s/ David J. White
--------------------------------------
David J. White
/s/ J. Brent Kartchner
--------------------------------------
J. Brent Kartchner
23
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
Adoption by Incorporators or First Directors
The undersigned persons appointed in the Articles of Incorporation
as the Incorporator or First Directors of the above named corporation hereby
adopt the same as the Bylaws of said corporation.
Executed this 11 day of February, 1986.
/s/ F. Randy Jack
--------------------------------------
F. Randy Jack
/s/ David J. White
--------------------------------------
David J. White
/s/ J. Brent Kartchner
--------------------------------------
J. Brent Kartchner
Certificate by Secretary
I do hereby certify as follows:
That I am the duly elected, qualified and acting Secretary of the
above named corporation; that the foregoing Bylaws were adopted as the Bylaws of
said corporation on the date set forth above by the persons appointed in the
Articles of Incorporation to act as the Incorporators or First Directors of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal this 11 day of February, 1986.
(seal) /s/ J. Brent Kartchner
--------------------------------------
J. Brent Kartchner
Certificate by Secretary of Adoption by Shareholders' Vote
This is to certify:
24
<PAGE>
That I am the duly elected, qualified and acting Secretary of the
above named corporation and that the above and foregoing Code of Bylaws was
submitted to the shareholders at their first meeting held on the date set forth
in the Bylaws and recorded in the minutes thereof, was ratified by the vote of
shareholders entitled to exercise the majority of the voting power of said
corporation.
IT WITNESS WHEREOF, I have hereunto set my hand this 11 day of February,
1986.
/s/ J. Brent Kartchner
--------------------------------------
J. Brent Kartchner
25
<PAGE>
Q COMM INTERNATIONAL, INC.
(Formerly Four Rivers Development, Inc.)
I hereby certify that the following amendment to the Bylaws of Q Comm
International, Inc. ("Company"), was duly adopted by the shareholders of the
Company at the Special Meeting of shareholders held on August 3, 1998:
Section 2.9 of the Bylaws of the Company are amended to provide that any
action required to be taken at any annual or special meeting of
stockholders of the Company, or any action which may be taken at any
annual or special meeting of such stockholders, 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
stockholders having not less than the minimum number of votes that would
be necessary under the articles of incorporation, bylaws, and Utah Revised
Business Corporation Act to authorize or take the action at a meeting
where all shares entitled to vote were present and voted.
/s/ Edward Dallin Bagley
--------------------------------------
Dated: August 3, 1998 Edward Dallin Bagley, President
<PAGE>
State of Utah
Department of Commerce
Division of Corporations and Commercial Code
I Hereby certify that the foregoing has been filed
and approved on the 13 day of Jul 1998
in the office of this Division and hereby issue
this Certificate thereof.
Examiner /s/ C. Davidson Date 7-13-98
---------------
[SEAL] /s/ Lorena P. Riffo
-------------------
LORENA P. RIFFO
DIVISION DIRECTOR
ARTICLES OF INCORPORATION RECEIVED
JUL 13 1998
OF Utah Div. of Corp.
Comm. Code
QCMERCO, INC.
The undersigned person, being a natural person 18 years of age or more and
acting as sole incorporator for the purpose of forming a body corporate under
the laws of the state of Utah, does hereby sign and deliver to the Division of
Corporations and Commercial Code of the state of Utah these Articles of
Incorporation for the above-named corporation (hereinafter referred to as the
"Corporation"):
ARTICLE I. NAME
The name of the Corporation shall be: QCMERCO, Inc.
ARTICLE II. PURPOSES AND POWERS
The Corporation is organized to engage in any lawful act or activity for
which a corporation may be organized under the Utah Revised Business Corporation
Act and to exercise any and all powers conferred upon corporations by statute,
or existing at law or in equity.
ARTICLE III. AUTHORIZED SHARES
The Corporation shall have authority to issue a total of 100 shares, no
par value, designated as the "Common Stock" of the Corporation.
ARTICLE IV. LIMITATION ON LIABILITY
A director of the Corporation shall have no personal liability to the
Corporation or its shareholders for monetary damages for any action, or any
failure to take action, as a director, except for liability for: (i) the amount
of a financial benefit received by a director to which he or she is not
entitled; (ii) an intentional infliction of harm on the Corporation or the
shareholders; (iii) a violation of section 16-10a-842 of the Utah Revised
Business Corporation Act, and any amended or successor provision thereto; or,
(iv) an intentional violation of criminal law.
ARTICLE V. REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the state of Utah,
and the name of its initial registered agent at such registered office is as
follows:
Mark E. Lehman
8 East Broadway, Suite 620
Salt Lake City, Utah 84111
<PAGE>
ARTICLE VI. INCORPORATOR
The name and address of the sole incorporator of the Corporation is as
follows:
Mark E. Lehman
8 East Broadway, Suite 620
Salt Lake City, Utah 84111
ARTICLE VII. DIRECTORS
The governing board of the Corporation shall be known as directors, and
the number of directors may from time to time be increased or decreased in such
manner as shall be provided by the Bylaws of the Corporation, provided that the
number of directors may not be less than one nor more than nine. The initial
director of the Corporation shall be:
E. Dallin Bagley
2350 Oakhill Dr.
Salt Lake City, UT 84121
IN WITNESS WHEREOF, the undersigned, being the sole incorporator of the
Corporation, executes these Articles of Incorporation and certifies that the
facts herein stated are true this 13th day of July, 1998.
/s/ Mark E. Lehman
------------------------------------
Mark E. Lehman
The appointment of the undersigned as registered agent of the Corporation
is hereby accepted.
/s/ Mark E. Lehman
------------------------------------
Mark E. Lehman
2
<PAGE>
RECEIVED
AUG 3 1998
Utah Div. of Corp.
ARTICLES OF MERGER Comm. Code
THESE ARTICLES OF MERGER are made by and between QCMERCO, INC., a Utah
corporation governed by the Utah Revised Business Corporation Act ("QCMERCO"),
TELECONNECT, INC., a Utah corporation governed by the Utah Revised Business
Corporation Act ("TCI"), TELESHARE 900, INC., a Utah corporation governed by the
Utah Revised Business Corporation Act ("T 900"), and Q COMM INTERNATIONAL, INC.,
a Nevada corporation governed by Chapters 78 and 92A of the Nevada Revised
Statutes ("QCI").
ARTICLE I. PLAN OF MERGER
Pursuant to these Articles of Merger, TCI, T900, and QCI are hereby merged
into QCMERCO, and QCMERCO will be the surviving corporation. The terms and
conditions of the merger are set forth in the Plan of Merger dated July 13, 1998
("Plan of Merger"), a copy of which is attached hereto as Exhibit A and
incorporated herein by this reference.
ARTICLE II. DIRECTOR APPROVAL
The Plan of Merger has been duly adopted and approved by the Boards of
Directors of QCMERCO, TCI, T900, and QCI in accordance with the laws of the
state of Utah.
ARTICLE III. STOCKHOLDER APPROVAL
QCMERCO has authorized 100 shares of common stock, no par value (the
"QCMERCO Common Stock"), of which 100 shares are issued and outstanding and
entitled to vote on the merger. Of the issued and outstanding QCMERCO Common
Stock, 100 shares were voted for approval of the Plan of Merger by written
consent and no shares were voted against approval of the Plan of Merger. The
number of votes cast for approval of the Plan of Merger by each voting group of
the capital stock of QCMERCO was sufficient for approval by the owners of each
such voting group.
TCI has authorized 10,000 shares of common stock, par value $0.001 per
share (the "TCI Common Stock") of which 3,639 shares are issued and outstanding.
Of the issued and outstanding TCI Common Stock, 2,990 shares were voted for
approval of the Plan of Merger by written consent and no shares were voted
against approval of the Plan of Merger. The number of votes cast for approval of
the Plan of Merger by each voting group of the capital stock of TCI was
sufficient for approval by the owners of each such voting group.
T 900 has authorized 10,000 shares of common stock, par value $0.001 per
share (the "T 900 Common Stock") of which 3,326 shares are issued and
outstanding. Of the issued and outstanding T 900 Common Stock, 3,000 shares were
voted for approval of the Plan of Merger by written consent and no shares were
voted against approval of the Plan of Merger. The number of votes cast for
approval of the Plan of Merger by each voting group of the capital stock of T
900 was sufficient for approval by the owners of each such voting group.
<PAGE>
QCI has authorized 25,000,000 shares of common stock, par value $0.001 per
share (the "QCI Common Stock") of which 180,550 shares are issued and
outstanding and entitled to vote on the merger. Of the issued and outstanding
QCI Common Stock, 90,300 shares were voted for approval of the Plan of Merger by
written consent and no shares were voted against approval of the Plan of Merger.
The number of votes cast for approval of the Plan of Merger by each class and
series of the capital stock of QCI was sufficient for approval by the owners of
each such class and series.
ARTICLE IV. AMENDMENTS TO ARTICLES OF INCORPORATION
Pursuant to the Plan of Merger, the Articles of Incorporation of QCMERCO
as the surviving corporation are hereby amended by deleting Article I of the
Articles of Incorporation of QCMERCO and inserting the following in lieu
thereof:
ARTICLE I. NAME
The name of the Corporation shall be: Q Comm, Inc.
IN WITNESS WHEREOF, QCMERCO, Inc., Teleconnect, Inc., Teleshare 900, Inc.,
and Q Comm International, Inc., acting through their respective presidents have
executed these Articles of Merger as of the 3rd day of August, 1998.
QCMERCO, INC.
By /s/ Dal Bagley
---------------------------------
Dal Bagley, President
TELECONNECT, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
TELESHARE 900, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
Q COMM INTERNATIONAL, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
2
<PAGE>
Exhibit "A"
PLAN OF MERGER
This PLAN OF MERGER (the "Plan of Merger"), is made as of the 13th day of
July, 1998, by and between TELECONNECT, INC., a Utah corporation ("TCI"),
TELESHARE 900, INC., a Utah corporation ("T900"), Q COMM INTERNATIONAL, INC., a
Nevada corporation ("QCI"), and QCMERCO, INC., a Utah corporation ("QCMERCO").
QCMERCO is hereinafter sometimes referred to as the "Surviving Corporation," and
together with TCI, T900, and QCI are referred to as the "Constituent
Corporations". TCI, T900, and QCI are collectively referred to as the "Merger
Companies." QCMERCO is a wholly owned subsidiary of FOUR RIVERS DEVELOPMENT,
INC., a Utah corporation ("FRD").
The authorized capital stock of TCI consists of 10,000 shares of common
stock, no par value ("TCI Common Stock"). The authorized capital stock of T900
consists of 10,000 shares of common stock, no par value ("T900 Common Stock").
The authorized capital stock of QCI consists of 25,000,000 shares of common
stock, par value $0.001 ("QCI Common Stock"). The authorized capital stock of
QCMERCO consists of 100 shares of common stock, no par value (the "QCMERCO
Common Stock").
The directors of the Constituent Corporations deem it advisable and to the
advantage of said corporations that the Company merge into QCMERCO upon the
terms and conditions provided herein.
NOW, THEREFORE, the parties hereby adopt the plan of reorganization
encompassed by this Plan of Merger and hereby agree that the Company shall merge
into QCMERCO on the following terms, conditions and other provisions:
1. Terms and Conditions.
1.1 Merger. The Merger Companies shall be merged with and into QCMERCO,
which shall be the surviving corporation effective on the date when this Plan of
Merger is filed as part of the required Articles of Merger with the Division of
Corporations and Commercial Code of the state of Utah and the Nevada Secretary
of State (the "Effective Date").
1.2 Succession. On the Effective Date, QCMERCO shall succeed to all of the
rights, privileges, powers, immunities and franchises and all the property,
real, personal and mixed of the Merger Companies, without the necessity for any
separate transfer. QCMERCO shall thereafter be responsible and liable for all
liabilities and obligations of the Merger Companies, and neither the rights of
creditors nor any liens on the property of the Merger Companies shall be
impaired by the merger.
1.3 Common Stock of the Company and QCMERCO.
(a) Upon the Effective Date, by virtue of the merger and without any
further action on the part of the Constituent Corporations or their
stockholders, each share of TCI
<PAGE>
Common Stock issued and outstanding immediately prior to the Effective Date
shall be changed and converted into and become 930.2808464 shares of FRD Common
Stock, par value $0.001 ("FRD Common Stock"), or a total of approximately
3,385,292 shares for the 3,639 issued and outstanding shares of TCI Common
Stock.
(b) Upon the Effective Date, by virtue of the merger and without any
further action on the part of the Constituent Corporations or their
stockholders, each share of T900 Common Stock issued and outstanding immediately
prior to the Effective Date shall be changed and converted into and become
298.8686109 shares of FRD Common Stock, or a total of approximately 994,037
shares for the 3,326 issued and outstanding shares of T900 Common Stock.
(c) Upon the Effective Date, by virtue of the merger and without any
further action on the part of the Constituent Corporations or their
stockholders, each share of QCI Common Stock issued and outstanding immediately
prior to the Effective Date shall be changed and converted into and become
3.13018 shares of FRD Common Stock, or a total of approximately 565,154 shares
for the 180,550 issued and outstanding shares of QCI Common Stock.
1.4 Stock Certificates. On and after the Effective Date, all of the
outstanding certificates that prior to that time represented shares of Common
Stock of the Merger Companies shall be deemed for all purposes to evidence
ownership of and to represent the shares of FRD Common Stock into which the
shares of the Merger Companies represented by such certificates have been
converted as provided herein and shall be so registered on the books and records
of FRD or its transfer agent. The registered owner of any such outstanding stock
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to FRD or its transfer agent,
have and be entitled to exercise any voting and other rights with respect to and
to receive any dividend and other distributions upon the shares of FRD evidenced
by such outstanding certificate as provided above.
1.5 Fractional Shares. FRD shall not issue any fractional shares or
interests in the FRD Common Stock. If any stockholder of the Merger Companies
would otherwise be entitled to a fractional share as a result of the provisions
of this Plan of Merger, FRD shall round the number of shares of the FRD Common
Stock to be issued to such stockholder up to the nearest whole share.
1.6 Acts, Plans, Policies, Agreements, Etc. All corporate acts, plans,
policies, agreements, arrangements, approvals and authorizations of the Merger
Companies, its stockholders, Board of Directors and committees thereof, officers
and agents which were valid and effective immediately prior to the Effective
Date, shall be taken for all purposes as the acts, plans, policies, agreements,
arrangements, approvals and authorizations of QCMERCO and shall be as effective
and binding thereon as the same were with respect to the Merger Companies.
2. Charter Documents, Directors and Officers
2.1 Articles of Incorporation and By-Laws. The Articles of Incorporation
and Bylaws of QCMERCO as in effect immediately prior to the Effective Date shall
remain the
2
<PAGE>
Articles of Incorporation and Bylaws of QCMERCO after the Effective Date, except
that Article I of the Articles of Incorporation of QCMERCO shall be deleted, and
the following inserted in lieu thereof:
ARTICLE I. NAME
The name of the Corporation shall be: Q Comm International, Inc.
2.2 Directors and Officers. On the Effective Date, the Board of Directors
of QCMERCO will consist of the members of the Board of Directors of TCI
immediately prior to the Merger. The directors will continue to hold office as
directors of TCI for the same term for which they would otherwise serve as
directors of TCI. The individuals serving as executive officers of TCI
immediately prior to the Merger will serve as executive officers of TCI upon the
effectiveness of the Merger.
3. Miscellaneous
3.1 Further Assurances. From time to time, and when required by QCMERCO or
by its successors and assigns, there shall be executed and delivered on behalf
of the Merger Companies such deeds and other instruments, and there shall be
taken or caused to be taken by them such further and other action, as shall be
appropriate and necessary in order to vest or perfect, or to conform of record
or otherwise, in QCMERCO the title to and possession of all the property,
intents, assets, rights, privileges, immunities, powers, franchises and
authority of the Merger Companies and otherwise to carry out the purposes of
this Plan of Merger, and the directors and officers of the Company are fully
authorized in the name and on behalf of the Merger Companies or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
3.2 Amendment. At any time before or after approval by the stockholders of
the Merger Companies and QCMERCO, this Plan of Merger may be amended in any
manner (except that any of the principal terms may not be amended without the
approval of the stockholders of the Merger Companies) as may be determined in
the judgment of the respective Boards of Directors of the Merger Companies and
QCMERCO to be necessary, desirable or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purpose and
intent of this Plan of Merger.
3.3 Abandonment. At any time before the Effective Date, this Plan of
Merger may be terminated and the merger may be abandoned by the Board of
Directors of the Merger Companies or QCMERCO, notwithstanding the approval of
this Plan of Merger by the stockholders of the Merger Companies and QCMERCO, or
the consummation of the merger may be deferred for a reasonable period if, in
the opinion of the Board of Directors of the Merger Companies or QCMERCO, such
action would be in the best interests of the Constituent Corporations.
3
<PAGE>
3.4 Approval. This Plan of Merger has been duly adopted and approved by
each of the Boards of Directors of the Constituent Corporations and recommended
for approval to each of their respective stockholders for approval. This Plan of
Merger shall be submitted to the stockholders of each Constituent Corporation
for approval in the manner required by the Utah Revised Business Corporation Act
and the Nevada Revised Statutes.
3.4 Governing Law. This Plan of Merger shall be governed by and construed
in accordance with the laws of the state of Utah.
IN WITNESS WHEREOF, this agreement has been signed as of the date
first-above written for and on behalf of the corporate parties hereto by the
undersigned thereunto duly authorized.
TELECONNECT, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
TELESHARE 900, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
Q COMM INTERNATIONAL, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
QCMERCO, INC.
By /s/ Dal Bagley
---------------------------------
Dal Bagley, President
FOUR RIVERS DEVELOPMENT, INC.
By /s/ Dal Bagley
---------------------------------
Dal Bagley, President
4
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Between
FOUR RIVERS DEVELOPMENT, INC.,
TELECONNECT, INC.,
TELESHARE 900, INC.
and
Q COMM INTERNATIONAL, INC.
Dated July 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS 1
ARTICLE II. REPRESENTATIONS, COVENANTS, AND WARRANTIES OF TCI
2.01 Organization 4
2.02 Non-contravention 4
2.03 Authorization of Transaction 5
2.04 Subsidiaries 5
2.05 Capitalization 5
2.06 Financial Statements 5
2.07 Absence of Certain Changes or Events 5
2.08 Title and Related Matters 6
2.09 Tax Matters 6
2.10 Litigation and Proceedings 7
2.11 Contracts 7
2.12 Material Contact Defaults 8
2.13 Governmental Authorizations 8
2.14 Compliance with Laws and Regulations 8
2.15 Insurance 8
2.16 Employment Practices 8
2.17 Transactions with Affiliates; Arm's-Length
Transactions; Conflicts of Interest 9
2.18 Absence of Certain Practices 9
2.19 Information 9
2.20 TCI Schedules 9
ARTICLE III. REPRESENTATIONS, COVENANTS, AND WARRANTIES OF T900
3.01 Organization 10
3.02 Non-contravention 10
3.03 Authorization of Transaction 11
3.04 Subsidiaries 11
3.05 Capitalization II
3.06 Financial Statements 11
3.07 Absence of Certain Changes or Events 11
3.08 Title and Related Matters 12
3.09 Tax Matters 13
3.10 Litigation and Proceedings 13
3.11 Contracts 13
3.12 Material Contact Defaults 14
3.13 Governmental Authorizations 14
3.14 Compliance with Laws and Regulations 14
3.15 Insurance 14
3.16 Employment Practices 14
3.17 Transactions with Affiliates; Arm's-Length
Transactions; Conflicts of Interest 15
3.18 Absence of Certain Practices 15
<PAGE>
3.19 Information 15
3.20 T900 Schedules 15
ARTICLE IV. REPRESENTATIONS, COVENANTS, AND WARRANTIES OF QCI
4.01 Organization 16
4.02 Non-contravention 16
4.03 Authorization of Transaction 17
4.04 Subsidiaries 17
4.05 Capitalization 17
4.06 Financial Statements 17
4.07 Absence of Certain Changes or Events 17
4.08 Title and Related Matters 18
4.09 Tax Matters 18
4.10 Litigation and Proceedings 19
4.11 Contracts 19
4.12 Material Contact Defaults 19
4.13 Governmental Authorizations 19
4.14 Compliance with Laws and Regulations 20
4.15 Insurance 20
4.16 Employment Practices 20
4.17 Transactions with Affiliates; Arm's-Length
Transactions; Conflicts of Interest 20
4.18 Absence of Certain Practices 20
4.19 Information 20
4.20 QCI Schedules 20
ARTICLE V. REPRESENTATIONS, COVENANTS, AND WARRANTIES OF FRD
5.01 Organization 21
5.02 Non-contravention 21
5.03 Authorization of Transaction 22
5.04 Subsidiaries 22
5.05 Capitalization 22
5.06 Financial Statements 22
5.07 Absence of Certain Changes or Events 22
5.08 Tax Matters 23
5.09 Litigation and Proceedings 24
5.10 Contracts 24
5.11 Material Contact Defaults 24
5.12 Governmental Authorizations 24
5.13 Continuity of Business Enterprise 24
5.14 Compliance With Laws and Regulations 24
5.15 Employment Practices 25
5.16 Transactions with Affiliates; Arm's-Length
Transactions; Conflicts of Interest 25
5.17 Absence of Certain Practices 25
5.18 Information 25
5.19 FRD Schedules 25
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ARTICLE VI. PLAN OF EXCHANGE
6.01 QSUB Formation 26
6.02 TCI Merger and Exchange of Shares 26
6.03 T900 Merger and Exchange of Shares 26
6.04 QCI Merger and Exchange of Shares 27
6.05 Fractional Shares 27
6.06 Effect of Merger 27
ARTICLE VII. SPECIAL COVENANTS
7.01 Stockholder Approval 27
7.02 Access to Properties and Records 27
7.03 Actions Prior to Closing 28
7.04 Special Covenants and Representations
Regarding the Exchanged FRD Stock 28
7.05 Indemnification 28
7.06 Third Person Consents and Agreements 29
7.07 Management of FRD 29
7.08 Termination 29
ARTICLE VIII. CLOSING
8.01 Closing 30
8.02 Closing Events 30
ARTICLE IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF FRD
9.01 Accuracy of Representation 31
9.02 Stockholder Approval 31
9.03 Officer's Certificates 31
9.04 No Material Adverse Change 31
9.05 Good Standing 31
9.06 Dissenters' Rights 31
9.07 Schedules 31
9.08 Consents/ Agreements 31
9.09 Other Items 31
ARTICLE X. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI, T900 and QCI
10.01 Accuracy of Representation 32
10.02 Stockholder Approval 32
10.03 Officer's Certificates 32
10.04 No Material Adverse Change 32
10.05 Good Standing 32
10.06 Schedules 32
10.07 Other Items 32
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ARTICLE XI. MISCELLANEOUS
11.01 Brokers 32
11.02 Governing Law 32
11.03 Notices 33
11.04 Attorneys' Fees 33
11.05 Third Party Beneficiaries 33
11.06 Entire Agreement 33
11.07 Counterparts 33
11.08 Amendment of Waiver 33
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
the 1st day of July, 1998, by and between FOUR RIVERS DEVELOPMENT, INC., a Utah
corporation, TELECONNECT, INC., a Utah corporation, TELESHARE 900, INC., a Utah
corporation, and Q COMM INTERNATIONAL, INC., a Nevada corporation.
Recitals
This Agreement provides for the merger of a Subsidiary incorporated and
organized by FRD under the laws of the state of Utah with each of TCI, T900, and
QCI, and in connection therewith the conversion of the outstanding common stock
of TCI, T900, and QCI into shares of common voting stock of FRD, par value
$0.001 per share, all for the purpose of accomplishing a "tax-free"
reorganization pursuant to section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended.
Agreement
NOW, THEREFORE, based upon the recitals above and for and in consideration
of the mutual covenants and agreements hereinafter set forth and the mutual
benefits to the Parties to be derived herefrom, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
Adverse Consequences means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs,
reasonable amounts paid in settlement,
liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities
Exchange Act of 1934, as amended.
Agreement means this Agreement and Plan of Reorganization
dated July 1, 1998.
Closing means the acts by the Parties of issuing,
executing, and/or delivering the certificates of
officers, schedules, and other instruments
provided for in Articles VIII, IX, and X of this
Agreement.
Companies means, collectively, TCI, T900, and QCI.
Corporation Act means the Revised Business Corporation Act of the
state of Utah.
Effective Date has the meaning set forth in Section 8.02, below.
<PAGE>
Exchanged FRD Stock means the common stock, par value $0.001, of FRD
to be issued to the Stockholders pursuant to this
Agreement. All references herein to the Exchanged
FRD Stock give effect to the Reverse Split.
FRD is Four Rivers Development, Inc., a Utah
corporation and a Party to this Agreement.
FRD Schedules means the schedules of FRD identified in Section
5.19 of this Agreement.
GAAP means the United States generally accepted
accounting principles as in effect from time to
time.
Knowledge means actual knowledge after reasonable
investigation.
Material means, when used as an adjective in conjunction
with an event, condition, circumstance, effect,
or other item, that there is a substantial
likelihood that a reasonable person would attach
importance to the event, condition, circumstance,
effect, or item in evaluating the Party to which
it relates and the transactions herein
contemplated.
Merger means the merger of each of the Companies with
and into QSUB as the surviving corporation, all
in accordance with this Agreement, the Plan of
Merger, the Corporation Act, and the Nevada
Corporation Law as applicable.
Nevada Corporation Law means Chapter 78 the Nevada Revised Statutes.
Ordinary Course of Business means the ordinary course of business consistent
with past custom and practice (including with
respect to quantity and frequency).
Party means any one or more of FRD, TCI, T900, or QCI,
as the context indicates.
Person means an individual, a partnership, a
corporation, an association, a joint stock
company, a trust, a joint venture, an
unincorporated organization, or a governmental
entity (or any department, agency, or political
subdivision thereof).
Plan of Merger is the form of the Plan of Merger attached hereto
as Exhibit "A" which provides for the merger of
each of the Companies with and into QSUB, with
QSUB being the surviving corporation.
QCI is Q Comm International, Inc., a Nevada
corporation and a Party to this Agreement.
QCI Merger means the merger of QCI with and into QSUB as
the surviving corporation, all in accordance with
this Agreement, the Plan of Merger, the
Corporation Act and the Nevada Corporation Law.
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QCI Schedules means the schedules of QCI identified in Section
4.20 of this Agreement.
QCI Stockholder means any Person holding any of the shares of the
capital stock of QCI on the date of Closing.
QSUB is Q Comm, Inc., a corporation to be formed under
the laws of the State of Utah as a wholly-owned
subsidiary of FRD for the purpose of merging with
the Companies.
Reverse Split means a 20-to-1 reverse split in the issued and
outstanding common stock of FRD to be submitted
to the stockholders of FRD for Stockholder
Approval prior to the Closing.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Securities Exchange Act means the Securities Exchange Act of 1934, as
amended.
Security Interest means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than:
(a) mechanic's, materialmen's, and similar liens;
(b) liens for taxes not yet due and payable or
for taxes that the taxpayer is contesting in good
faith through appropriate proceedings; (c)
purchase money liens and liens securing rental
payments under capital lease arrangements; and
(d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the
borrowing of money.
Stockholder Approval means the required affirmative vote of the
holders of capital stock of a corporation to
approve the Merger or any other matter
contemplated by this Agreement under the
Corporation Act and the Nevada Corporation Law.
Subsidiary means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a
majority of the common stock or has the power to
vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax means any federal, state, local, or foreign
income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental
(including taxes under Code Section 59A), customs
duties, capital stock, franchise, profits,
withholding, social security (or similar),
unemployment, disability, real property, personal
property, sales, use, transfer, registration,
value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition
thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement
relating to Taxes, including any schedule or
attachment thereto, and including any amendment
thereof.
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T900 is Teleshare 900, Inc., a Utah corporation and a
Party to this Agreement.
T900 Merger means the merger of T900 with and into QSUB as
the surviving corporation, all in accordance with
this Agreement, the Plan of Merger and the
Corporation Act.
T900 Schedules means the schedules of T900 identified in Section
3.20 of this Agreement.
T900 Stockholder means any Person holding any of the shares of the
capital stock of T900 on the date of Closing.
TCI is Teleconnect, Inc., a Utah corporation and a
Party to this Agreement.
TCI Merger means the merger of TCI with and into QSUB as the
surviving corporation, all in accordance with
this Agreement, the Plan of Merger and the
Corporation Act.
TCI Schedules means the schedules of TCI identified in Section
2.20 of this Agreement.
TCI Stockholder means any Person holding any of the shares of the
capital stock of TCI on the date of Closing.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF TCI
As an inducement to, and to obtain the reliance of FRD, TCI represents and
warrants as follows:
Section 2.01 Organization. TCI is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Utah. TCI has the
corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its business
in all material respects as it is now being conducted, including qualification
to do business as a foreign corporation in the states in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except in such jurisdictions, if any, where the
failure to be so qualified would not, either individually or in the aggregate,
have a material adverse effect on the business, properties, or assets of TCI.
Included in the TCI Schedules (as hereinafter defined) are complete and correct
copies of the articles of incorporation, as amended, and bylaws of TCI as in
effect on the date hereof.
Section 2.02 Non-contravention. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement in accordance with the terms hereof will not: violate any
provision of the articles of incorporation, charter, or bylaws of TCI; result in
the breach of, constitute a default under, result in the acceleration of, create
in any Person the right to accelerate, terminate, modify, cancel, or require any
notice under, any material agreement, contract, lease, license, instrument, or
other arrangement to which TCI is a party or by which it is bound or to which
any of its assets is subject; or, violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which TCI is subject.
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Section 2.03 Authorization of Transaction. TCI has full power and
authority, and has taken all action required by law, its articles of
incorporation and bylaws, and otherwise to execute and deliver this Agreement
and to perform its obligations hereunder, subject to obtaining the requisite
Stockholder Approval of the TCI Merger. Without limiting the generality of the
foregoing, the board of directors of TCI has duly authorized the execution,
delivery, and performance of this Agreement by TCI. This Agreement represents
the valid and binding obligation of TCI enforceable in accordance with its
terms, except as limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally.
Section 2.04 Subsidiaries. TCI has no Subsidiaries.
Section 2.05 Capitalization. The authorized capitalization of TCI consists
of 10,000 shares of common stock, no par value, of which 3,639 shares will be
issued and outstanding immediately prior to the Closing. All issued and
outstanding shares are legally issued, fully paid, and non-assessable and not
issued in violation of the pre-emptive or other rights of any Person. There are
no existing options, warrants, calls, or commitments of any character relating
to the authorized and unissued TCI common stock.
Section 2.06 Financial Statements.
(a) The TCI Schedules contain the audited balance sheets of TCI at
December 31, 1997, 1996, and 1995, and the audited statements of income,
stockholders' equity, and cash flows for each year in the three year
period ended December 31, 1997, including the notes thereto and the
opinion of Squire & Company, PC, certified public accountants with respect
thereto.
(b) All such financial statements have been prepared in accordance
with GAAP, which was applied on a consistent basis throughout the periods
covered, present fairly as of their respective dates the financial
condition of TCI and its results of operations, and are consistent with
the books and records of TCI.
(c) TCI did not have as of the date of its most recent balance sheet
any material liabilities or obligations (whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, and due or to become due), including any
liability for Taxes, except for (i) liabilities set forth on its most
recent balance sheet, and (ii) liabilities disclosed in this Agreement or
the TCI Schedules.
(d) All accounts receivable of TCI are reflected properly on its
books and records and, to the Knowledge of TCI, are valid receivables
subject to no material setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts, if any, set
forth on the balance sheet of TCI at December 31, 1997, as adjusted for
the passage of time through the date of this Agreement in accordance with
the past custom and practice of TCI.
Section 2.07 Absence of Certain Changes or Events. Except as described
herein or in the TCI Schedules, since December 31, 1997, the date of the most
recent balance sheet of TCI:
(a) There has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of TCI; or (ii) any
damage, destruction, or loss to TCI (whether or not covered by insurance)
materially and adversely affecting its business, operations, properties,
assets, or financial condition.
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(b) TCI has not (i) amended its articles of incorporation, charter,
or bylaws: (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind whatsoever
to stockholders, or purchased or redeemed, or agreed to purchase or
redeem, any of its capital stock; (iii) waived any rights of value which
in the aggregate are extraordinary or material considering its business;
(iv) made any material change in its method of management, operation, or
accounting; (v) entered into any other material transaction; (vi) made any
accrual or arrangement for payment of bonuses or special compensation of
any kind or any severance or termination pay to any Person; or (vii) made
any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment,
or arrangement made to, for, or with its officers, directors, Affiliates,
or employees, except in the Ordinary Course of Business.
(c) TCI has not (i) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent), except liabilities
incurred in the Ordinary Course of Business; (iii) paid any material
obligation or liability (absolute or contingent) other than current
liabilities reflected in or shown on the December 31, 1997, balance sheet
of TCI, and current liabilities incurred since that date in the Ordinary
Course of Business; (iv) except in the ordinary course of business, sold
or transferred, or agreed to sell or transfer, any of its assets,
properties, or rights (except assets, properties, or rights not used or
useful in its business which, in the aggregate, have a value of less than
$10,000), or canceled, or agreed to cancel, any debts or claims in excess
of reserves reflected on its balance sheet at December 31, 1997 (except
debts or claims which, in the aggregate, are of a value of less than
$10,000); or (v) made or permitted any amendment or termination of any
contract, agreement, or license to which it is a party if such amendment
or termination is material, considering its business.
(d) To the Knowledge of TCI, it has not become subject to any law or
regulation which materially and adversely affects, or in the future may
adversely affect its business as conducted on the date hereof.
Section 2.08 Title and Related Matters. TCI has good and marketable title
to all of its properties, interests in properties, and assets, real and
personal, which are reflected in its December 31, 1997, balance sheet or
acquired after that date (except properties, interests in properties, and assets
sold or otherwise disposed of since such date in the Ordinary Course of Business
or as provided in this Agreement or the TCI Schedules), free and clear of all
Security Interests, except as disclosed in the TCI Schedules. Except as set
forth in the TCI Schedules, TCI owns free and clear of any Security Interests
any and all trademarks, service marks, tradenames, copyrights, procedures,
techniques, marketing plans, business plans, methods of management, intellectual
property, and other information utilized in connection with its business and
necessary to conduct its business in an efficient manner. Except as set forth in
the TCI Schedules, no Person has any right to, and TCI has not received any
notice of, infringement of, or conflict with, asserted rights of others with
respect to any marketing rights, trade secrets, know-how, proprietary
techniques, trademarks, service marks, tradenames, copyrights, or intellectual
property, which, if the subject of an unfavorable decision, ruling, or finding,
would have a materially adverse effect on its business, operations, financial
condition, income, or business, or any material portion of its properties,
assets, or rights.
Section 2.09 Tax Matters.
6
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(a) TCI has filed, or will have filed prior to the Closing, all Tax
Returns that it was required to file as of the date of Closing. All such
Tax Returns were correct and complete in all material respects. All Taxes
owed by TCI (whether or not shown on any Tax Return) have been paid. TCI
is not currently the beneficiary of any extension of time within which to
file any Tax Return, except as disclosed in the TCI Schedules. No claim
has ever been made by an authority in a jurisdiction where TCI does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of TCI
that arose in connection with any failure (or alleged failure) to pay any
Tax.
(b) TCI has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other Person.
(c) No TCI director or officer (or employee responsible for Tax
matters) of TCI reasonably expects any authority to assess against TCI any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax liability of TCI either
(i) claimed or raised by an authority in writing or, (ii) as to which any
of the TCI directors and officers (and employees responsible for Tax
matters) of TCI has knowledge based upon personal contact with any agent
of such authority. The TCI Schedules include a list of all federal, state,
local, and foreign income Tax Returns filed with respect to TCI for
taxable periods ended on or after December 31, 1995, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. TCI has delivered to FRD correct and
complete copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by TCI for
taxable periods ended on or after December 31, 1995.
(d) TCI has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(e) The unpaid Taxes of TCI (i) did not, as of the December 31,
1997, balance sheet of TCI, exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of said
balance sheet, and (ii) do not exceed that reserve as adjusted for the
passage of time through the date of Closing in accordance with the past
custom and practice of TCI in filing its Tax Returns.
Section 2.10 Litigation and Proceedings. Except as set forth in the TCI
Schedules, there are no actions, suits, proceedings, or investigations pending
or, to the Knowledge of TCI, threatened by or against TCI or affecting its
properties, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind.
To the Knowledge of TCI, there is no material default on the part of TCI with
respect to any judgment, order, writ, injunction, decree, award, or ruling of
any court, arbitrator, or governmental agency or instrumentality.
Section 2.11 Contracts.
(a) Except as included or described herein or in the TCI Schedules,
there are no material contracts, agreements, franchises, license
agreements, or other commitments to which TCI is a party or by which its
properties are bound.
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(b) All contracts, agreements, franchises, license agreements, and
other commitments to which TCI is a party or by which its properties are
bound and which are material to its operations are, to the Knowledge of
TCI, valid and enforceable by TCI in all respects, except as limited by
bankruptcy and insolvency laws and by other laws affecting the rights of
creditors generally.
(c) Except as included or described in the TCI Schedules or
reflected in the December 31, 1997, balance sheet, TCI is not a party to
any oral or written: (i) contract for the employment of any officer or
employee which is not terminable on 30 days or less notice; (ii) profit
sharing, bonus, deferred compensation, stock option, severance pay,
pension benefit or retirement plan, agreement, or arrangement; (iii)
agreement, contract, or indenture relating to the borrowing of money; (iv)
guaranty of any obligation, other than one on which it is a primary
obligor, for the borrowing of money or otherwise, excluding endorsements
made for collection and other guaranties of obligations, which, in the
aggregate, do not exceed $20,000; (v) consulting or other similar
contracts with an unexpired term of more than one year or providing for
payments in excess of $5,000 in the aggregate; (vi) collective bargaining
agreement; (vii) agreement with any present or former officer or director;
or (viii) contract, agreement, or other commitment involving payments by
it of more than $10,000 in the aggregate.
Section 2.12 Material Contract Defaults. Except as disclosed in the TCI
Schedules, to its Knowledge, TCI is not in default in any material respect under
the terms of any outstanding contract, agreement, lease, or other commitment
which is material to its business, operations, properties, assets, or business
condition, and there is no event of default or other event which, with notice or
lapse of time or both, would constitute a default in any material respect under
any such contract, agreement, lease, or other commitment in respect of which it
has not taken adequate steps to prevent such a default from occurring.
Section 2.13 Governmental Authorizations. Except as set forth in the TCI
Schedules, TCI has all licenses, franchises, permits, and other governmental
authorizations, whether state or federal that are legally required to enable it
to conduct its business in all material respects as conducted on the date
hereof. Except for compliance with the Securities Act and the Corporation Act,
as hereinafter provided, no authorization, approval, consent, or order of, or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by TCI of this
Agreement and the consummation by TCI of the transactions contemplated hereby.
Section 2.14 Compliance With Laws and Regulations. TCI has complied with
all applicable statutes and regulations of any country, state, provincial,
municipal, or local governmental entity or agency thereof, except to the extent
that noncompliance would not materially and adversely affect its business,
operations, properties, assets, or business condition, and except to the extent
non-compliance would not result in any material liability.
Section 2.15 Insurance. All the insurable properties of TCI are insured in
accordance with industry standards against all risks customarily insured against
by persons operating similar properties in localities where such properties are
located and under valid and enforceable policies by insurers of recognized
responsibility.
Section 2.16 Employment Practices. TCI is not a party to, or in the
process of negotiating, any collective bargaining or labor agreement or union
contract. There is no (i) charge, complaint or suit pending or, to the Knowledge
of TCI, threatened against TCI respecting employment, hiring for employment,
terminating from employment, employment practices, employment discrimination,
terms and conditions of employment, safety, wrongful termination, or wages and
hours, except as set forth in
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the TCI Schedules, (ii) unfair labor practice charge or complaint pending or, to
the Knowledge of TCI, threatened against, or decision or order in effect and
binding on, TCI before or of the National Labor Relations Board, (iii) grievance
or arbitration proceeding arising out of or under collective bargaining
agreements pending or, to the Knowledge of TCI, threatened against TCI, (iv)
strike, labor dispute, slowdown, work stoppage or other interference with work
pending or, to the Knowledge of TCI, threatened against TCI, or (v) to the
Knowledge of TCI, union organizing activities or union representation question
threatened or existing with respect to any groups of employees of TCI.
Section 2.17 Transactions with Affiliates; Arm's-Length Transactions;
Conflicts of Interest. Except as set forth in the TCI Schedules, there are no
material transactions, agreements or understandings, existing or presently
contemplated, between or among TCI and its officers or directors or stockholders
or any of their Affiliates or associates. All transactions by TCI have been
conducted on an arms-length basis. Neither the elected officers of TCI nor the
key employees of TCI, or their respective spouses, have (or had during the past
three fiscal years) any material direct or indirect ownership or profit
participation in outside business enterprises with which TCI had material
purchases, sales. or business dealings.
Section 2.18 Absence of Certain Practices. TCI or any director, officer,
agent, employee, consultant, or other Person acting on its behalf has not given
or agreed to give any gift or similar benefit of more than nominal value to any
customer, supplier, or governmental employee or official or any other Person who
is or may be in a position to help or hinder TCI in connection with any proposed
transaction involving TCI. TCI or any director, officer, agent, employee,
consultant or other Person acting on behalf of TCI has not (i) used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to, or on behalf of, government officials or others; (ii) accepted or received
any unlawful contributions, payments, gifts or expenditures; or (iii) has had
any transaction or payment which was not recorded in its accounting books and
records or disclosed on its financial statements.
Section 2.19 Information. The information concerning TCI set forth in this
Agreement and in the TCI Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they are made, not misleading.
Section 2.20 TCI Schedules. Not less than 10 days prior to the Closing,
TCI shall deliver to FRD the following schedules of exceptions, which are
collectively referred to as the "TCI Schedules" and which consist of separate
schedules dated as of the date of delivery to FRD and instruments and data as of
such date, all certified by the chief executive officer of TCI as complete,
true, and correct:
(a) Schedule 2.01 containing complete and correct copies of the
articles of incorporation, as amended, and bylaws of TCI in effect as of
the date of Closing;
(b) Schedule 2.05 containing a list indicating the name, address,
and number of shares held by each of the TCI Stockholders;
(c) Schedule 2.06 containing the financial statements of TCI
identified in paragraph 2.06(a);
(d) Schedule 2.07 describing certain changes and events;
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(e) Schedule 2.08 describing real and personal property and all
Security Interests;
(f) Schedule 2.09 containing the income Tax Returns of TCI and
related Tax information;
(g) Schedule 2.10 describing litigation and proceedings involving
TCI;
(h) Schedule 2.11 describing material contracts and other
arrangements;
(i) Schedule 2.12 describing material contract defaults;
(j) Schedule 2.13 listing missing government authorizations;
(k) Schedule 2.17 describing transactions with Affiliates; and
(l) Schedule 2.20 setting forth any other information, together with
any copies of documents, required to be disclosed in the TCI Schedules by
Sections 2.01 through 2.19.
TCI shall cause the TCI Schedules and the instruments and data to be delivered
to FRD hereunder to be updated after the date of delivery up to and including
the date of Closing.
ARTICLE III
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF T900
As an inducement to, and to obtain the reliance of FRD, T900 represents
and warrants as follows:
Section 3.01 Organization. T900 is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Utah. T900 has the
corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its business
in all material respects as it is now being conducted, including qualification
to do business as a foreign corporation in the states in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except in such jurisdictions, if any, where the
failure to be so qualified would not, either individually or in the aggregate,
have a material adverse effect on the business, properties, or assets of T900.
Included in the T900 Schedules (as hereinafter defined) are complete and correct
copies of the articles of incorporation, as amended, and bylaws of T900 as in
effect on the date hereof.
Section 3.02 Non-contravention. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement in accordance with the terms hereof will not: violate any
provision of the articles of incorporation, charter, or bylaws of T900; result
in the breach of, constitute a default under, result in the acceleration of,
create in any Person the right to accelerate, terminate, modify, cancel, or
require any notice under, any material agreement, contract, lease, license,
instrument, or other arrangement to which T900 is a party or by which it is
bound or to which any of its assets is subject; or, violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
T900 is subject.
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Section 3.03 Authorization of Transaction. T900 has full power and
authority, and has taken all action required by law, its articles of
incorporation and bylaws, and otherwise to execute and deliver this Agreement
and to perform its obligations hereunder, subject to obtaining the requisite
Stockholder Approval of the T900 Merger. Without limiting the generality of the
foregoing, the board of directors of T900 has duly authorized the execution,
delivery, and performance of this Agreement by T900. This Agreement represents
the valid and binding obligation of T900 enforceable in accordance with its
terms, except as limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally.
Section 3.04 Subsidiaries. T900 has no Subsidiaries.
Section 3.05 Capitalization. The authorized capitalization of T900
consists of 10,000 shares of common stock, no par value, of which 3,326 shares
will be issued and outstanding immediately prior to the Closing. All issued and
outstanding shares are legally issued, fully paid, and non-assessable and not
issued in violation of the pre-emptive or other rights of any Person. There are
no existing options, warrants, calls, or commitments of any character relating
to the authorized and unissued T900 common stock.
Section 3.06 Financial Statements.
(a) The T900 Schedules contain the audited balance sheets of T900 at
December 31, 1997, 1996, and 1995, and the audited statements of income,
stockholders' equity, and cash flows for each year in the three year
period ended December 31, 1997, including the notes thereto and the
opinion of Squire & Company, PC, certified public accountants with respect
thereto.
(b) All such financial statements have been prepared in accordance
with GAAP, which was applied on a consistent basis throughout the periods
covered, present fairly as of their respective dates the financial
condition of T900 and its results of operations, and are consistent with
the books and records of T900.
(c) T900 did not have as of the date of its most recent balance
sheet any material liabilities or obligations (whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, and due or to become due), including any
liability for Taxes, except for (i) liabilities set forth on its most
recent balance sheet, and (ii) liabilities disclosed in this Agreement or
the T900 Schedules.
(d) All accounts receivable of T900 are reflected properly on its
books and records and, to the Knowledge of T900, are valid receivables
subject to no material setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts, if any, set
forth on the balance sheet of T900 at December 31, 1997, as adjusted for
the passage of time through the date of this Agreement in accordance with
the past custom and practice of T900.
Section 3.07 Absence of Certain Changes or Events. Except as described
herein or in the T900 Schedules, since December 31, 1997, the date of the most
recent balance sheet of T900:
(a) There has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of T900; or (ii)
any damage, destruction, or loss to T900 (whether or not covered by
insurance) materially and adversely affecting its business, operations,
properties, assets, or financial condition.
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(b) T900 has not (i) amended its articles of incorporation, charter,
or bylaws; (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind whatsoever
to stockholders, or purchased or redeemed, or agreed to purchase or
redeem, any of its capital stock; (iii) waived any rights of value which
in the aggregate are extraordinary or material considering its business;
(iv) made any material change in its method of management, operation, or
accounting; (v) entered into any other material transaction; (vi) made any
accrual or arrangement for payment of bonuses or special compensation of
any kind or any severance or termination pay to any Person; or (vii) made
any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment,
or arrangement made to, for, or with its officers, directors, Affiliates,
or employees, except in the Ordinary Course of Business.
(c) T900 has not (i) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent), except liabilities
incurred in the Ordinary Course of Business; (iii) paid any material
obligation or liability (absolute or contingent) other than current
liabilities reflected in or shown on the December 31, 1997, balance sheet
of T900, and current liabilities incurred since that date in the Ordinary
Course of Business; (iv) except in the ordinary course of business, sold
or transferred, or agreed to sell or transfer, any of its assets,
properties, or rights (except assets, properties, or rights not used or
useful in its business which, in the aggregate, have a value of less than
$10,000), or canceled, or agreed to cancel, any debts or claims in excess
of reserves reflected on its balance sheet at December 31, 1997 (except
debts or claims which, in the aggregate, are of a value of less than
$10,000); or (v) made or permitted any amendment or termination of any
contract, agreement, or license to which it is a party if such amendment
or termination is material, considering its business.
(d) To the Knowledge of T900, it has not become subject to any law
or regulation which materially and adversely affects, or in the future may
adversely affect its business as conducted on the date hereof.
Section 3.08 Title and Related Matters. T900 has good and marketable title
to all of its properties, interests in properties, and assets, real and
personal, which are reflected in its December 31, 1997, balance sheet or
acquired after that date (except properties, interests in properties, and assets
sold or otherwise disposed of since such date in the Ordinary Course of Business
or as provided in this Agreement or the T900 Schedules), free and clear of all
Security Interests, except as disclosed in the T900 Schedules. Except as set
forth in the T900 Schedules, T900 owns free and clear of any Security Interests
any and all trademarks, service marks, tradenames, copyrights, procedures,
techniques, marketing plans, business plans, methods of management, intellectual
property, and other information utilized in connection with its business and
necessary to conduct its business in an efficient manner. Except as set forth in
the T900 Schedules, no Person has any right to, and T900 has not received any
notice of, infringement of, or conflict with, asserted rights of others with
respect to any marketing rights, trade secrets, know-how, proprietary
techniques, trademarks, service marks, tradenames, copyrights, or intellectual
property, which, if the subject of an unfavorable decision, ruling, or finding,
would have a materially adverse effect on its business, operations, financial
condition, income, or business, or any material portion of its properties,
assets, or rights.
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Section 3.09 Tax Matters.
(a) T900 has filed, or will have filed prior to the Closing, all Tax
Returns that it was required to file as of the date of Closing. All such
Tax Returns were correct and complete in all material respects. All Taxes
owed by T900 (whether or not shown on any Tax Return) have been paid. T900
is not currently the beneficiary of any extension of time within which to
file any Tax Return, except as disclosed in the T900 Schedules. No claim
has ever been made by an authority in a jurisdiction where T900 does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of T900
that arose in connection with any failure (or alleged failure) to pay any
Tax.
(b) T900 has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other Person.
(c) No T900 director or officer (or employee responsible for Tax
matters) of T900 reasonably expects any authority to assess against T900
any additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax liability of T900 either
(i) claimed or raised by an authority in writing or, (ii) as to which any
of the T900 directors and officers (and employees responsible for Tax
matters) of T900 has knowledge based upon personal contact with any agent
of such authority. The T900 Schedules include a list of all federal,
state, local, and foreign income Tax Returns filed with respect to T900
for taxable periods ended on or after December 31, 1995, indicates those
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. T900 has delivered to FRD correct and
complete copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by T900 for
taxable periods ended on or after December 31, 1995.
(d) T900 has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(e) The unpaid Taxes of T900 (i) did not, as of the December 31,
1997, balance sheet of T900, exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of said
balance sheet, and (ii) do not exceed that reserve as adjusted for the
passage of time through the date of Closing in accordance with the past
custom and practice of T900 in filing its Tax Returns.
Section 3.10 Litigation and Proceedings. Except as set forth in the T900
Schedules, there are no actions, suits, proceedings, or investigations pending
or, to the Knowledge of T900, threatened by or against T900 or affecting its
properties, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind.
To the Knowledge of T900, there is no material default on the part of T900 with
respect to any judgment, order, writ, injunction, decree, award, or ruling of
any court, arbitrator, or governmental agency or instrumentality.
Section 3.11 Contracts.
(a) Except as included or described herein or in the T900 Schedules,
there are no material contracts, agreements, franchises, license
agreements, or other commitments to which T900 is a party or by which its
properties are bound.
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(b) All contracts, agreements, franchises, license agreements, and
other commitments to which T900 is a party or by which its properties are
bound and which are material to its operations are, to the Knowledge of
T900, valid and enforceable by T900 in all respects, except as limited by
bankruptcy and insolvency laws and by other laws affecting the rights of
creditors generally.
(c) Except as included or described in the T900 Schedules or
reflected in the December 31, 1997, balance sheet, T900 is not a party to
any oral or written: (i) contract for the employment of any officer or
employee which is not terminable on 30 days or less notice; (ii) profit
sharing, bonus, deferred compensation, stock option, severance pay,
pension benefit or retirement plan, agreement, or arrangement; (iii)
agreement, contract, or indenture relating to the borrowing of money; (iv)
guaranty of any obligation, other than one on which it is a primary
obligor, for the borrowing of money or otherwise, excluding endorsements
made for collection and other guaranties of obligations, which, in the
aggregate, do not exceed $20,000; (v) consulting or other similar
contracts with an unexpired term of more than one year or providing for
payments in excess of $5,000 in the aggregate; (vi) collective bargaining
agreement; (vii) agreement with any present or former officer or director;
or (viii) contract, agreement, or other commitment involving payments by
it of more than $10,000 in the aggregate.
Section 3.12 Material Contract Defaults. Except as disclosed in the T900
Schedules, to its Knowledge, T900 is not in default in any material respect
under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to its business, operations, properties, assets, or
business condition, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which it has not taken adequate steps to prevent such a default from
occurring.
Section 3.13 Governmental Authorizations. Except as set forth in the T900
Schedules, T900 has all licenses, franchises, permits, and other governmental
authorizations, whether state or federal that are legally required to enable it
to conduct its business in all material respects as conducted on the date
hereof. Except for compliance with the Securities Act and the Corporation Act,
as hereinafter provided, no authorization, approval, consent, or order of, or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by T900 of this
Agreement and the consummation by T900 of the transactions contemplated hereby.
Section 3.14 Compliance With Laws and Regulations. T900 has complied with
all applicable statutes and regulations of any country, state, provincial,
municipal, or local governmental entity or agency thereof, except to the extent
that noncompliance would not materially and adversely affect its business,
operations, properties, assets, or business condition, and except to the extent
non-compliance would not result in any material liability.
Section 3.15 Insurance. All the insurable properties of T900 are insured
in accordance with industry standards against all risks customarily insured
against by persons operating similar properties in localities where such
properties are located and under valid and enforceable policies by insurers of
recognized responsibility.
Section 3.16 Employment Practices. T900 is not a party to, or in the
process of negotiating, any collective bargaining or labor agreement or union
contract. There is no (i) charge, complaint or suit pending or, to the Knowledge
of T900, threatened against T900 respecting employment, hiring for employment,
terminating from employment, employment practices, employment discrimination,
terms
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and conditions of employment, safety, wrongful termination, or wages and hours,
except as set forth in the T900 Schedules, (ii) unfair labor practice charge or
complaint pending or, to the Knowledge of T900, threatened against, or decision
or order in effect and binding on, T900 before or of the National Labor
Relations Board, (iii) grievance or arbitration proceeding arising out of or
under collective bargaining agreements pending or, to the Knowledge of T900,
threatened against T900, (iv) strike, labor dispute, slow-down, work stoppage or
other interference with work pending or, to the Knowledge of T900, threatened
against T900, or (v) to the Knowledge of T900, union organizing activities or
union representation question threatened or existing with respect to any groups
of employees of T900.
Section 3.17 Transactions with Affiliates; Arm's-Length Transactions;
Conflicts of Interest. Except as set forth in the T900 Schedules, there are no
material transactions, agreements or understandings, existing or presently
contemplated, between or among T900 and its officers or directors or
stockholders or any of their Affiliates or associates. All transactions by T900
have been conducted on an arm's-length basis. Neither the elected officers of
T900 nor the key employees of T900, or their respective spouses, have (or had
during the past three fiscal years) any material direct or indirect ownership or
profit participation in outside business enterprises with which T900 had
material purchases, sales. or business dealings.
Section 3.18 Absence of Certain Practices. T900 or any director, officer,
agent, employee, consultant, or other Person acting on its behalf has not given
or agreed to give any gift or similar benefit of more than nominal value to any
customer, supplier, or governmental employee or official or any other Person who
is or may be in a position to help or hinder T900 in connection with any
proposed transaction involving T900. T900 or any director, officer, agent,
employee, consultant or other Person acting on behalf of T900 has not (i) used
any corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to, or on behalf of, government officials or others; (ii) accepted or received
any unlawful contributions, payments, gifts or expenditures; or (iii) has had
any transaction or payment which was not recorded in its accounting books and
records or disclosed on its financial statements.
Section 3.19 Information. The information concerning T900 set forth in
this Agreement and in the T900 Schedules is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made, in light
of the circumstances under which they are made, not misleading.
Section 3.20 T900 Schedules. Not less than 10 days prior to the Closing,
T900 shall deliver to FRD the following schedules of exceptions, which are
collectively referred to as the "T900 Schedules" and which consist of separate
schedules dated as of the date of delivery to FRD and instruments and data as of
such date, all certified by the chief executive officer of T900 as complete,
true, and correct:
(a) Schedule 3.01 containing complete and correct copies of the
articles of incorporation, as amended, and bylaws of T900 in effect as of
the date of Closing;
(b) Schedule 3.05 containing a list indicating the name, address,
and number of shares held by each of the T900 Stockholders;
(c) Schedule 3.06 containing the financial statements of TCI
identified in paragraph 3.06(a);
(d) Schedule 3.07 describing certain changes and events;
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(e) Schedule 3.08 describing real and personal property and all
Security Interests;
(f) Schedule 3.09 containing the income Tax Returns of T900 and
related Tax information;
(g) Schedule 3.10 describing litigation and proceedings involving
1900;
(h) Schedule 3.11 describing material contracts and other
arrangements;
(i) Schedule 3.12 describing material contract defaults;
(j) Schedule 3.13 listing missing government authorizations;
(k) Schedule 3.17 describing transactions with Affiliates; and
(l) Schedule 3.20 setting forth any other information, together with
any copies of documents, required to be disclosed in the T900 Schedules by
Sections 3.01 through 3.19.
T900 shall cause the T900 Schedules and the instruments and data to be delivered
to FRD hereunder to be updated after the date of delivery up to and including
the date of Closing.
ARTICLE IV
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF QCI
As an inducement to, and to obtain the reliance of FRD, QCI represents and
warrants as follows:
Section 4.01 Organization. QCI is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Nevada. QCI has
the corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its business
in all material respects as it is now being conducted, including qualification
to do business as a foreign corporation in the states in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except in such jurisdictions, if any, where the
failure to be so qualified would not, either individually or in the aggregate,
have a material adverse effect on the business, properties, or assets of QCI.
Included in the QCI Schedules (as hereinafter defined) are complete and correct
copies of the articles of incorporation, as amended, and bylaws of QCI as in
effect on the date hereof.
Section 4.02 Non-contravention. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement in accordance with the terms hereof will not: violate any
provision of the articles of incorporation, charter, or bylaws of QCI; result in
the breach of, constitute a default under, result in the acceleration of, create
in any Person the right to accelerate, terminate, modify, cancel, or require any
notice under, any material agreement, contract, lease, license, instrument, or
other arrangement to which QCI is a party or by which it is bound or to which
any of its assets is subject; or, violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which QCI is subject.
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Section 4.03 Authorization of Transaction. QCI has full power and
authority, and has taken all action required by law, its articles of
incorporation and bylaws, and otherwise to execute and deliver this Agreement
and to perform its obligations hereunder, subject to obtaining the requisite
Stockholder Approval of the QCI Merger. Without limiting the generality of the
foregoing, the board of directors of QCI has duly authorized the execution,
delivery, and performance of this Agreement by QCI. This Agreement represents
the valid and binding obligation of QCI enforceable in accordance with its
terms, except as limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally.
Section 4.04 Subsidiaries. QCI has no Subsidiaries.
Section 4.05 Capitalization. The authorized capitalization of QCI consists
of 25,000,000 shares of common stock, par value $0.001 per share, of which
11,068,750 shares are currently issued and outstanding. As of the Closing, the
total number of issued and outstanding shares will be 180,550. All issued and
outstanding shares are legally issued, fully paid, and non-assessable and not
issued in violation of the pre-emptive or other rights of any Person. There are
no existing options, warrants, calls, or commitments of any character relating
to the authorized and unissued QCI common stock.
Section 4.06 Financial Statements.
(a) The QCI Schedules contain the unaudited balance sheet of QCI at
April 30, 1998, and the unaudited statement of income for the period from
the date of inception on December 5, 1997 through April 30, 1998.
(b) All such financial statements have been prepared in accordance
with GAAP, which was applied on a consistent basis throughout the periods
covered, present fairly as of their respective dates the financial
condition of QCI and its results of operations, and are consistent with
the books and records of QCI.
(c) QCI did not have as of the date of its most recent balance sheet
any material liabilities or obligations (whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, and due or to become due), including any
liability for Taxes, except for (i) liabilities set forth on its most
recent balance sheet, and (ii) liabilities disclosed in this Agreement or
the QCI Schedules.
Section 4.07 Absence of Certain Changes or Events. Except as described
herein or in the QCI Schedules, since April 30, 1998, the date of the most
recent balance sheet of QCI:
(a) There has not been any material adverse change in the
properties, assets, or condition of QCI.
(b) QCI has not (i) amended its articles of incorporation, charter,
or bylaws; (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind whatsoever
to stockholders, or purchased or redeemed, or agreed to purchase or
redeem, any of its capital stock; (iii) waived any rights of value which
in the aggregate are extraordinary or material considering its business;
(iv) made any material change in its method of accounting; (v) entered
into any other material transaction; (vi) made any accrual or arrangement
for payment of bonuses or special compensation of any kind or any
severance or termination pay to any Person; or (vii) made any increase in
any profit sharing, bonus, deferred compensation,
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insurance, pension, retirement, or other employee benefit plan, payment,
or arrangement made to, for, or with its officers, directors, Affiliates,
or employees.
(c) QCI has not (i) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent); (iii) paid any material
obligation or liability (absolute or contingent) other than current
liabilities reflected in or shown on the April 30, 1998, balance sheet of
QCI, and current liabilities incurred since that date in the Ordinary
Course of Business; (iv) sold or transferred, or agreed to sell or
transfer, any of its assets, properties, or rights, or canceled, or agreed
to cancel, any debts or claims in excess of reserves reflected on its
balance sheet at April 30, 1998 (except debts or claims which, in the
aggregate, are of a value of less than $1,000); or (v) made or permitted
any amendment or termination of any contract or agreement to which it is a
party.
Section 4.08 Title and Related Matters. QCI has good and marketable title
to all of its properties, interests in properties, and assets, real and
personal, which are reflected in its April 30, 1998, balance sheet or acquired
after that date, free and clear of all Security Interests, except as disclosed
in the QCI Schedules. Except as set forth in the QCI Schedules, no Person has
any right to, and QCI has not received any notice of, infringement of, or
conflict with, asserted rights of others with respect to any trademarks, service
marks, tradenames, copyrights, or intellectual property.
Section 4.09 Tax Matters.
(a) QCI has filed, or will have filed prior to the Closing, all Tax
Returns that it was required to file as of the date of Closing. All such
Tax Returns were correct and complete in all material respects. All Taxes
owed by QCI (whether or not shown on any Tax Return) have been paid. QCI
is not currently the beneficiary of any extension of time within which to
file any Tax Return, except as disclosed in the QCI Schedules. No claim
has ever been made by an authority in a jurisdiction where QCI does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of QCI
that arose in connection with any failure (or alleged failure) to pay any
Tax.
(b) QCI has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other Person.
(c) No QCI director or officer (or employee responsible for Tax
matters) of QCI reasonably expects any authority to assess against QCI any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax liability of QCI either
(i) claimed or raised by an authority in writing or, (ii) as to which any
of the QCI directors and officers (and employees responsible for Tax
matters) of QCI has knowledge based upon personal contact with any agent
of such authority. The QCI Schedules include a list of all federal, state,
local, and foreign income Tax Returns filed with respect to QCI for
taxable periods ended on or after December 31, 1997, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. QCI has delivered to FRD correct and
complete copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by QCI for
taxable periods ended on or after December 31, 1997.
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(d) QCI has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(e) The unpaid Taxes of QCI (i) did not, as of the April 30, 1998,
balance sheet of QCI, exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of said balance sheet,
and (ii) do not exceed that reserve as adjusted for the passage of time
through the date of Closing in accordance with the past custom and
practice of QCI in filing its Tax Returns.
Section 4.10 Litigation and Proceedings. Except as set forth in the QCI
Schedules, there are no actions, suits, proceedings, or investigations pending
or, to the Knowledge of QCI, threatened by or against QCI or affecting its
properties, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind.
To the Knowledge of QCI, there is no material default on the part of QCI with
respect to any judgment, order, writ, injunction, decree, award, or ruling of
any court, arbitrator, or governmental agency or instrumentality.
Section 4.11 Contracts.
(a) Except as included or described herein or in the QCI Schedules,
there are no material contracts, agreements, franchises, license
agreements, or other commitments to which QCI is a party or by which its
properties are bound.
(b) Except as included or described in the QCI Schedules or
reflected in the April 30, 1998, balance sheet, QCI is not a party to any
oral or written: (i) contract for the employment of any officer or
employee which is not terminable on 30 days or less notice; (ii) profit
sharing, bonus, deferred compensation, stock option, severance pay,
pension benefit or retirement plan, agreement, or arrangement; (iii)
agreement, contract, or indenture relating to the borrowing of money; (iv)
guaranty of any obligation, other than one on which it is a primary
obligor, for the borrowing of money or otherwise, excluding endorsements
made for collection and other guaranties of obligations, which, in the
aggregate, do not exceed $5,000; (v) consulting or other similar contracts
with an unexpired term of more than one year or providing for payments in
excess of$l,000 in the aggregate; (vi) collective bargaining agreement,
(vii) agreement with any present or former officer or director, or (viii)
contract, agreement, or other commitment involving payments by it of more
than $5,000 in the aggregate.
Section 4.12 Material Contract Defaults. Except as disclosed in the QCI
Schedules, to its Knowledge, QCI is not in default in any material respect under
the terms of any outstanding contract agreement, lease, or other commitment, and
there is no event of default or other event which, with notice or lapse of time
or both, would constitute a default in any material respect under any such
contract, agreement, lease, or other commitment in respect of which it has not
taken adequate steps to prevent such a default from occurring.
Section 4.13 Governmental Authorizations. Except for compliance with the
Securities Act, the Corporation Act, and the Nevada Corporation Law, as
hereinafter provided, no authorization, approval, consent, or order of; or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by QCI of this
Agreement and the consummation by QCI of the transactions contemplated hereby.
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Section 4.14 Compliance With Laws and Regulations. QCI has complied with
all applicable statutes and regulations of any country, state, provincial,
municipal, or local governmental entity or agency thereof, except to the extent
that noncompliance would not materially and adversely affect its properties,
assets, or business condition, and except to the extent non-compliance would not
result in any material liability.
Section 4.15 Insurance. All the insurable properties of QCI are insured in
accordance with industry standards against all risks customarily insured against
by persons operating similar properties in localities where such properties are
located and under valid and enforceable policies by insurers of recognized
responsibility.
Section 4.16 Employment Practices. QCI has no employees and has had no
employees since its inception.
Section 4.17 Transactions with Affiliates; Arm's-Length Transactions;
Conflicts of Interest. Except as set forth in the QCI Schedules, there are no
material transactions, agreements or understandings, existing or presently
contemplated, between or among QCI and its officers or directors or stockholders
or any of their Affiliates or associates. All transactions by QCI have been
conducted on an arms-length basis. Neither the elected officers of QCI nor the
key employees of QCI, or their respective spouses, have (or had during the past
three fiscal years) any material direct or indirect ownership or profit
participation in outside business enterprises with which QCI had material
purchases, sales. or business dealings.
Section 4.18 Absence of Certain Practices. QCI or any director, officer,
agent, employee, consultant, or other Person acting on its behalf has not given
or agreed to give any gift or similar benefit of more than nominal value to any
customer, supplier, or governmental employee or official or any other Person who
is or may be in a position to help or hinder QCI in connection with any proposed
transaction involving QCI. QCI or any director, officer, agent, employee,
consultant or other Person acting on behalf of QCI has not (i) used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to, or on behalf of, government officials or others; (ii) accepted or received
any unlawful contributions, payments, gifts or expenditures; or (iii) has had
any transaction or payment which was not recorded in its accounting books and
records or disclosed on its financial statements.
Section 4.19 Information. The information concerning QCI set forth in this
Agreement and in the QCI Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they are made, not misleading.
Section 4.20 QCI Schedules. Not less than 10 days prior to the Closing,
QCI shall deliver to FRD the following schedules of exceptions, which are
collectively referred to as the "QCI Schedules" and which consist of separate
schedules dated as of the date of delivery to FRD and instruments and data as of
such date, all certified by the chief executive officer of QCI as complete,
true, and correct:
(a) Schedule 4.01 containing complete and correct copies of the
articles of incorporation, as amended, and bylaws of QCI in effect as of
the date of Closing;
(b) Schedule 4.05 containing a list indicating the name, address,
and number of shares held by each of the QCI Stockholders;
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(c) Schedule 4.06 containing the financial statements of QCI
identified in paragraph 4.06(a);
(d) Schedule 4.07 describing certain changes and events;
(e) Schedule 4.08 describing real and personal property and all
Security Interests;
(f) Schedule 4.09 containing the income Tax Returns of QCI and
related Tax information;
(g) Schedule 4.10 describing litigation and proceedings involving
QCI;
(h) Schedule 4.11 describing material contracts and other
arrangements;
(i) Schedule 4.12 describing material contract defaults;
(j) Schedule 4.13 listing missing government authorizations;
(k) Schedule 4.17 describing transactions with Affiliates; and
(l) Schedule 4.20 setting forth any other information, together with
any copies of documents, required to be disclosed in the QCI Schedules by
Sections 4.01 through 4.19.
QCI shall cause the QCI Schedules and the instruments and data to be delivered
to FRD hereunder to be updated after the date of delivery up to and including
the date of Closing.
ARTICLE V
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF FRD
As an inducement to, and to obtain the reliance of; TCI, T900 and QCI, FRD
represents and warrants as follows:
Section 5.01 Organization. FRD is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Utah. FRD has the
corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its business
in all material respects as it is now being conducted, including qualification
to do business as a foreign corporation in the states in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except in such jurisdictions, if any, where the
failure to be so qualified would not, either individually or in the aggregate,
have a material adverse effect on the business, properties, or assets of FRD.
Section 5.02 Non-contravention. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement in accordance with the terms hereof will not: violate any
provision of the articles of incorporation, charter, or bylaws of FRD; result in
the breach of, constitute a default under, result in the acceleration of, create
in any Person the right to accelerate, terminate, modify, cancel, or require any
notice under, any material agreement, contract, lease, license, instrument, or
other arrangement to which FRD is a party or by which it is bound or to which
any of its assets is subject; or, violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree,
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ruling, charge, or other restriction of any government, governmental agency, or
court to which FRD is subject.
Section 5.03 Authorization of Transaction. FRD has full power and
authority, and has taken all action required by law, its articles of
incorporation and bylaws, and otherwise to execute and deliver this Agreement
and to perform its obligations hereunder, subject to obtaining the requisite
Stockholder Approval of the Reverse Split. Without limiting the generality of
the foregoing, the board of directors of FRD has duly authorized the execution,
delivery, and performance of this Agreement by FRD. This Agreement represents
the valid and binding obligation of FRD enforceable in accordance with its
terms, except as limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally.
Section 5.04 Subsidiaries. FRD has no Subsidiaries.
Section 5.05 Capitalization. The authorized capitalization of FRD consists
of 50,000,000 shares of common stock, par value $0.001 per share, of which
10,987,722 shares are currently issued and outstanding (approximately 549,387
shares after giving effect to the Reverse Split). All issued and outstanding
shares are legally issued, fully paid, and non-assessable and not issued in
violation of the preemptive or other rights of any Person. There are no
outstanding or authorized phantom stock, profit participation, or similar rights
with respect to FRD. Except for a warrant to purchase 988,900 shares of FRD
common stock at an exercise price of $0.05 per share (post Reverse Split 49,445
shares at an exercise price of $1.00 per share) issued for professional and
consulting services, there are no existing options, warrants, calls, or
commitments of any character relating to the authorized and unissued FRD common
stock.
Section 5.06 Financial Statements.
(a) The FRD Schedules contain the audited balance sheet of FRD as of
December 31, 1997, and the related audited statements of income,
stockholders' equity, and cash flows for each year in the two year period
ended December 31, 1997, together with the notes to such statements and
the opinion of Pritchett, Siler & Hardy, PC, independent accountants, with
respect thereto.
(b) All such financial statements have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered,
present fairly as of their respective dates the financial condition of FRD
and the results of operations of FRD, are correct and complete, and are
consistent with the books and records of FRD (which books and records are
correct and complete).
(c) FRD did not have as of the date of its most recent balance sheet
any liabilities or obligations (whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and due or to become due), including any liability for
Taxes, except for (i) liabilities set forth on the most recent balance
sheet of FRD, (ii) expenses incurred in connection with the transactions
contemplated by this Agreement, and (iii) liabilities disclosed in this
Agreement or the FRD Schedules.
Section 5.07 Absence of Certain Changes or Events. Except as described
herein or in the FRD Schedules, since the date of the most recent FRD balance
sheet:
(a) There has not been any material adverse change in the financial
condition of FRD.
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(b) FRD has not (i) amended its articles of incorporation, charter, or
bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders,
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering its business; (iv) made any material change in its
method of accounting; (v) entered into any other material transaction; (vi) made
any accrual or arrangement for payment of bonuses or special compensation of any
kind or any severance or termination pay to any Person; or (vii) made any
increase in any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with its officers, directors, Affiliates, or employees.
(c) FRD has not (i) granted or agreed to grant any options, warrants, or
other rights for its stocks, bonds, or other corporate securities calling for
the issuance thereof; or (ii) issued, delivered, or agreed to issue or deliver
any stock, bonds, or other corporate securities including debentures (whether
authorized and unissued or held as treasury stock).
Section 5.08 Tax Matters.
(a) FRD has filed, or will have filed prior to the Closing, all Tax
Returns that it was required to file as of the date of Closing. All such
Tax Returns were correct and complete in all respects. All Taxes owed by
FRD (whether or not shown on any Tax Return) have been paid. FRD is not
currently the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a
jurisdiction where FRD does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security Interests
on any of the assets of FRD that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) FRD has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other Person.
(c) No FRD director or officer (or employee responsible for Tax
matters) of FRD reasonably expects any authority to assess against FRD any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax liability of FRD either
(i) claimed or raised by an authority in writing or, (ii) as to which any
of the directors and officers (and employees responsible for Tax matters)
of FRD has knowledge based upon personal contact with any agent of such
authority. The FRD Schedules include a list of all federal, state, local,
and foreign income Tax Returns filed with respect to FRD for taxable
periods ended on or after December 31, 1995, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are
the subject of audit. FRD has delivered to TCI correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by FRD for taxable periods
ended on or after December 31, 1995.
(d) FRD has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(e) The unpaid Taxes of FRD (i) did not, as of the most recent
balance sheet of FRD, exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of said balance sheet,
and
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(ii) do not exceed that reserve as adjusted for the passage of time
through the date of Closing in accordance with the past custom and
practice of FRD in filing its Tax Returns.
Section 5.09 Litigation and Proceedings. Except as set forth in the FRD
Schedules, there are no actions, suits, proceedings, or investigations pending
or, to the Knowledge of FRD. threatened by or against it or affecting its
properties, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind.
FRD has no Knowledge of any material default on its part with respect to any
judgment, order, writ, injunction, decree, award, or ruling of any court,
arbitrator, or governmental agency or instrumentality.
Section 5.10 Contracts.
(a) Except as included or described in the FRD Schedules, there are
no material contracts, agreements, or other commitments to which FRD is a
party or by which its properties are bound.
(b) Except as included or described in the FRD Schedules or
reflected in the most recent FRD balance sheet, FRD is not a party to any
oral or written: (i) contract for the employment of any officer or
employee; (ii) profit sharing, bonus, deferred compensation, stock option,
severance pay, pension benefit, or retirement plan, agreement, or
arrangement covered by Title IV of the Employee Retirement Income Security
Act, as amended; (iii) agreement, contract, or indenture relating to the
borrowing of money; (iv) guaranty of any obligation; (v) consulting or
other similar contracts; (vi) collective bargaining agreement; (vii)
agreement with any present or former officer or director; or (viii)
contract, agreement, or other commitment involving payments by it of more
than $1,000 in the aggregate.
Section 5.11 Material Contract Defaults. FRD is not in default in any
material respect under the terms of any outstanding contract, agreement, lease,
or other commitment, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which it has not taken adequate steps to prevent such a default from
occurring.
Section 5.12 Governmental Authorizations. Except for compliance with the
Securities Act, the Corporation Act, and Nevada Corporation Law, as hereinafter
provided, no authorization, approval, consent, or order of, or registration,
declaration, or filing with, any court or other governmental body is required in
connection with the execution and delivery by FRD of this Agreement and the
consummation by FRD of the transactions contemplated hereby..
Section 5.13 Continuity of Business Enterprise. It is the present
intention of FRD to continue at least one significant historic business of each
of TCI, T900, and QCI, or to use at least a significant portion of their
respective historic business assets in a business within the meaning of Treasury
Regulation Section 1.368-1(d).
Section 5.14 Compliance With Laws and Regulations. FRD has complied with
all applicable statutes and regulations of any country, state, provincial,
municipal, or local governmental entity or agency thereof, except to the extent
that noncompliance would not materially and adversely affect its properties,
assets, or business condition, and except to the extent non-compliance would not
result in any material liability.
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Section 5.15 Employment Practices. FRD has no employees and has had no
employees during the three year period ended December 31, 1997.
Section 5.16 Transactions with Affiliates; Arm's-Length Transactions;
Conflicts of Interest. Except as set forth in the FRD Schedules, there are no
material transactions, agreements or understandings, existing or presently
contemplated, between or among FRD and its officers or directors or stockholders
or any of their Affiliates or associates. All transactions by FRD have been
conducted on an arm's-length basis. Neither the elected officers of FRD nor the
key employees of FRD, or their respective spouses, have (or had during the past
three fiscal years) any material direct or indirect ownership or profit
participation in outside business enterprises with which FRD had material
purchases, sales or business dealings.
Section 5.17 Absence of Certain Practices. FRD or any director, officer,
agent, employee, consultant, or other Person acting on its behalf has not given
or agreed to give any gift or similar benefit of more than nominal value to any
customer, supplier, or governmental employee or official or any other Person who
is or may be in a position to help or hinder FRD in connection with any proposed
transaction involving FRD. FRD or any director, officer, agent, employee,
consultant or other Person acting on behalf of FRD has not (i) used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to, or on behalf of, government officials or others; (ii) accepted or received
any unlawful contributions, payments, gifts or expenditures; or (iii) has had
any transaction or payment which was not recorded in its accounting books and
records or disclosed on its financial statements.
Section 5.18 Information. The information concerning FRD set forth in this
Agreement and in the FRD Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they are made, not misleading.
Section 5.19 FRD Schedules. Not less than 10 days prior to the Closing,
FRD shall deliver to TCI the following schedules, which are collectively
referred to as the "FRD Schedules" and which consist of separate schedules dated
as of the date of delivery to TCI and instruments and data as of such date, all
certified by the chief executive officer of FRD as complete, true, and correct:
(a) Schedule 5.01 containing complete and correct copies of the
articles of incorporation, as amended, and bylaws of FRD in effect as of
the date of Closing;
(b) Schedule 5.05 containing a list indicating the name, address,
and number of shares held by each of the FRD Stockholders;
(c) Schedule 5.06 containing the financial statements of FRD
identified in paragraph 5.06(a);
(d) Schedule 5.07 describing certain changes and events;
(e) Schedule 5.08 containing the income Tax Returns of FRD and
related Tax information;
(f) Schedule 5.09 describing litigation and proceedings involving
FRD;
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(g) Schedule 5.10 describing material contracts and other
arrangements;
(h) Schedule 5.11 describing material contract defaults;
(i) Schedule 5.12 listing missing government authorizations;
(j) Schedule 5.16 describing transactions with Affiliates; and
(l) Schedule 5.19 setting forth any other information, together with
any copies of documents, required to be disclosed in the FRD Schedules by
Sections 5.01 through 5.18.
FRD shall cause the FRD Schedules and the instruments and data to be delivered
to TCI hereunder to be updated after the date of delivery up to and including
the date of Closing.
ARTICLE VI
PLAN OF REORGANIZATION
Section 6.01 QSUB Formation. FRD agrees to organize, or cause to be
organized, QSUB as a Utah corporation and its wholly-owned Subsidiary, all for
the purpose and to the extent deemed necessary by FRD and its counsel to permit
QSUB to execute an acceptance of the terms of this Agreement pertaining to the
Companies Merger and each Plan of Merger pertaining thereto. At such time as
QSUB has been organized and is, in the opinion of FRD and its counsel, permitted
by law to execute an acceptance of this Agreement and each Plan of Merger, the
board of directors of QSUB shall adopt resolutions authorizing the execution and
delivery of such acceptance and each Plan of Merger, and approving the
transactions contemplated thereby. On adoption of such resolutions and in
consideration of the execution and delivery of this Agreement by the Companies,
QSUB shall execute and deliver to each of the Companies duplicate copies of the
acceptance of this Agreement and their respective Plan of Merger.
Section 6.02 TCI Merger and Exchange of Shares. Pursuant to this
Agreement, each share of TCI common stock outstanding on the Effective Date
shall be converted into 930.2808464 shares of Exchanged FRD Stock, or a total of
approximately 3,385,292 shares for the 3,639 issued and outstanding shares of
common stock of TCI on the date of Closing. After the Effective Date each TCI
Stockholder shall, on surrender to FRD of the certificate or certificates
representing the TCI common stock, be entitled to receive a certificate or
certificates evidencing shares of the Exchanged FRD Stock as provided herein. On
the Effective Date all previously issued shares of common stock of TCI shall be
canceled, and all rights in respect thereof shall cease. The shares of Exchanged
FRD Stock issued pursuant to this Section 6.02 and the TCI Merger shall be, when
issued, legally issued, fully paid, and non-assessable.
Section 6.03 T900 Merger and Exchange of Shares. Pursuant to this
Agreement, each share of T900 common stock outstanding on the Effective Date
shall be converted into 298.8686109 shares of Exchanged FRD Stock, or a total of
approximately 994,037 shares for the 3,326 issued and outstanding shares of
common stock of T900 on the date of Closing. After the Effective Date each T900
Stockholder shall, on surrender to FRD of the certificate or certificates
representing the T900 common stock, be entitled to receive a certificate or
certificates evidencing shares of the Exchanged FRD Stock as provided herein. On
the Effective Date all previously issued shares of common stock of T900 shall be
canceled, and all rights in respect thereof shall cease. The shares of Exchanged
FRD Stock issued pursuant to this Section 6.03 and the T900 Merger shall be,
when issued, legally issued, fully paid, and non-assessable.
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Section 6.04 QCI Merger and Exchange of Shares. Pursuant to this
Agreement, each share of QCI common stock outstanding on the Effective Date
shall be converted into 3.13018 shares of Exchanged FRD Stock, or a total of
approximately 565,154 shares for the 180,550 issued and outstanding shares of
common stock of QCI on the date of Closing. After the Effective Date each QCI
Stockholder shall, on surrender to FRD of the certificate or certificates
representing the QCI common stock, be entitled to receive a certificate or
certificates evidencing shares of the Exchanged FRD Stock as provided herein. On
the Effective Date all previously issued shares of common stock of QCI shall be
canceled, and all rights in respect thereof shall cease. The shares of Exchanged
FRD Stock issued pursuant to this Section 6.04 and the QCI Merger shall be, when
issued, legally issued, fully paid, and non-assessable.
Section 6.05 Fractional Shares. FRD shall not issue any fractional shares
or interests in the Exchanged FRD Stock. If any TCI Stockholder, T900
Stockholder, or QCI Stockholder would otherwise be entitled to a fractional
share as a result of the provisions of Sections 6.02, 6.03, or 6.04,
respectively, FRD shall round the number of shares of the Exchanged FRD Stock to
be issued to such stockholder up to the nearest whole share.
Section 6.06 Effect of Merger. The Companies Merger shall become effective
at the time articles of merger for each such Merger are filed with the Division
of Corporations and Commercial Code of the state of Utah and, only in the case
of QCI, with the Secretary of State of the state of Nevada, which is also the
Effective Date, and shall have the effect set forth in the Corporation Act and
the Nevada Corporation Law, as applicable. As the surviving corporation in each
Merger, QSUB may take any action subsequent to the Effective Date in the name
and on behalf of any of QSUB, TCI, T900, or QCI in order to carry out and
effectuate the transactions contemplated by this Agreement.
(a) The articles of incorporation of QSUB in effect immediately
prior to the Effective Date will become the articles of incorporation
after the Effective Date, without any modification or amendment as a
result of the Merger.
(c) The Bylaws of QSUB in effect immediately prior to the Effective
Date will remain the Bylaws after the Effective Date, without any
modification or amendment as a result of the Merger.
ARTICLE VII
SPECIAL COVENANTS
Section 7.01 Stockholder Approval. Promptly following the execution of
this Agreement, each of TCI and T900 shall take all steps required to obtain
Stockholder Approval of this Agreement and the TCI Merger and T900 Merger,
respectively, in accordance with the Corporation Act. Promptly following the
execution of this Agreement, QCI shall take all steps required to obtain
Stockholder Approval of this Agreement and the QCI Merger in accordance with the
Nevada Corporation Law. Promptly following the execution of this Agreement, FRD
shall take all steps required to obtain Stockholder Approval of the Reverse
Split and such other corporate changes as the Parties may agrees in accordance
with the Corporation Act. Prior to the Closing, FRD shall execute written
consents in its capacity as the sole stockholder of QSUB approving this
Agreement and the Companies Merger contemplated hereby.
Section 7.02 Access to Properties and Records. The Parties will each
afford to the officers and authorized representatives of the other Parties full
access to its properties, books, and records in order that each may have full
opportunity to make such reasonable investigation as it shall desire to make of
the
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affairs of the others, and each will furnish the others with such additional
financial and operating data and other information as to its business and
properties as the others shall from time to time reasonably request.
Section 7.03 Actions Prior to Closing.
(a) From and after the date of this Agreement until the date of
Closing and except as permitted or contemplated by this Agreement, the
Parties hereto will each: (i) carry on its business in substantially the
same manner as it has heretofore; (ii) maintain and keep its properties in
states of good repair and condition as at present, except for depreciation
due to ordinary wear and tear and damage due to casualty; (iii) maintain
in full force and effect insurance comparable in amount and in scope of
coverage to that now maintained by it; (iv) perform in all material
respects all of its obligation under material contracts, leases, and
instruments relating to or affecting its assets, properties, and business;
(v) use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain its
relationship with its material suppliers and customers; and (vi) fully
comply with and perform in all material respects all obligations and
duties imposed on it by all federal and state laws and all rules,
regulations, and orders imposed by federal or state governmental
authorities.
(b) From and after the date of this Agreement until the date of
Closing Date, none of the Parties hereto will, except as provided herein:
(i) make any change in its articles of incorporation or bylaws; (ii) take
any action described in Section 2.07, in the case of QCI, Section 3.07 in
the case of T900, Section 4.07, in the case of QCI, or section 5.07, in
the case of FRD (all except as permitted therein or as disclosed in the
applicable Party's schedules); or (iii) enter into or amend any contract,
agreement, or other instrument of any of the types described in such
Party's schedules, except that a Party may enter into or amend any
contract, agreement, or other instrument in the Ordinary Course of
Business.
Section 7.04 Special Covenants and Representations Regarding the Exchanged
FRD Stock. The consummation of this Agreement and the transactions herein
contemplated, including the issuance of the Exchanged FRD Stock to the TCI
Stockholders, T900 Stockholders, and QCI Stockholders as contemplated hereby,
constitutes the offer and sale of securities under the Securities Act and
applicable state securities statutes. Such transactions shall be consummated in
reliance on exemptions from the registration and prospectus delivery
requirements of such statutes which depend, inter alia, upon the circumstances
under which such stockholders acquire such securities. In connection with
reliance upon exemptions from the registration and prospectus delivery
requirements for such transactions, each of TCI, T900, and QCI shall cause to be
delivered to their respective stockholders prior to the Effective Date
disclosures in form and substance satisfactory to FRD regarding the terms of the
Merger, the Parties, and restrictions under the Securities Act and state law.
Section 7.05 Indemnification.
(a) TCI hereby agrees to indemnify the other Parties and each of
their respective officers and directors as of the date of this Agreement
against any loss, liability, claim, damage, or expense (including, but not
limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing, or defending against any litigation, commenced
or threatened, or any claim whatsoever), to which it or they may become
subject arising out of or based on any inaccuracy appearing in or
misrepresentation made under Article II of this Agreement. The
indemnification provided for in this paragraph (a) of Section 5.05 shall
survive the Closing and consummation of the transactions contemplated
hereby and termination of this Agreement.
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(b) T900 hereby agrees to indemnify the other Parties and each of
their respective officers and directors as of the date of this Agreement
against any loss, liability, claim, damage, or expense (including, but not
limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing, or defending against any litigation, commenced
or threatened, or any claim whatsoever), to which it or they may become
subject arising out of or based on any inaccuracy appearing in or
misrepresentation made under Article III of this Agreement. The
indemnification provided for in this paragraph (b) of Section 7.05 shall
survive the Closing and consummation of the transactions contemplated
hereby and termination of this Agreement.
(c) QCI hereby agrees to indemnify the other Parties and each of
their respective officers and directors as of the date of this Agreement
against any loss, liability, claim, damage, or expense (including, but not
limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing, or defending against any litigation, commenced
or threatened, or any claim whatsoever), to which it or they may become
subject arising out of or based on any inaccuracy appearing in or
misrepresentation made under Article IV of this Agreement. The
indemnification provided for in this paragraph (c) of Section 7.05 shall
survive the Closing and consummation of the transactions contemplated
hereby and termination of this Agreement.
(d) FRD hereby agrees to indemnify the other Parties and each of
their respective officers and directors as of the date of this Agreement
against any loss, liability, claim, damage, or expense (including, but not
limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing, or defending against any litigation, commenced
or threatened, or any claim whatsoever), to which it or they may become
subject arising out of or based on any inaccuracy appearing in or
misrepresentation made under Article V of this Agreement. The
indemnification provided for in this paragraph (d) of Section 7.05 shall
survive the Closing and consummation of the transactions contemplated
hereby and termination of this Agreement.
Section 7.06 Third Person Consents and Agreements. The Parties agree to
cooperate with each other in order to obtain any required third Person consents
to this Agreement and the transactions herein contemplated.
Section 7.07 Management of FRD. Following the merger, the board of
directors of FRD will consist of Paul Hickey, Andrew Wells, and Brit McConkie.
Section 7.08 Termination.
(a) This Agreement may be terminated by the board of directors of
any Party at any time prior to the Effective Date if:
(i) there shall be any actual or threatened action or
proceeding before any court or any governmental body which shall
seek to restrain, prohibit, or invalidate the transactions
contemplated by this Agreement and which, in the judgment of such
board of directors, made in good faith and based on the advice of
its legal counsel, makes it inadvisable to proceed with the mergers
and reorganization contemplated by this Agreement;
ii) any of the transactions contemplated hereby are
disapproved by any regulatory authority whose approval is required
to consummate such transactions or in the judgment of such board of
directors, made in good faith and based on the advice of
29
<PAGE>
counsel, there is substantial likelihood that any such approval will
not be obtained or will be obtained only on a condition or
conditions which would be unduly burdensome, making it inadvisable
to proceed with the mergers and reorganization;
(iii) there shall have been any change after the date of the
latest balance sheet in the assets, properties, business, or
financial condition of any Party, which could have a materially
adverse affect on the value of the business of any Party, except any
changes disclosed in the Schedules of any Party; or
(iv) the Parties shall fail to obtain the consents or waivers
required of any third Person to consummate the transactions
contemplated by this Agreement.
In the event of termination pursuant to this paragraph (a) of
Section 7.08, no obligation, right, or liability of a Party to any other
Party shall arise hereunder.
(b) This Agreement may be terminated at any time prior to the
Effective Date by action of the board of directors of FRD if any of TCI,
T900, or QCI shall fail to comply in any material respect with any of its
covenants or agreements contained in this Agreement or if any of the
representations or warranties of any of TCI, T900, or QCI contained herein
shall be inaccurate in any material respect. If this Agreement is
terminated pursuant to this paragraph (b) of Section 7.08, this Agreement
shall be of no further force or effect, and FRD shall have no obligation
or liability to any of TCI, T900, or QCI hereunder.
(c) This Agreement may be terminated at any time prior to the
Effective Date by action of the board of directors of any of TCI, T900, or
QCI if FRD shall fail to comply in any material respect with any of its
covenants or agreements contained in this Agreement or if any of the
representations or warranties of FRD contained herein shall be inaccurate
in any material respect. If this Agreement is terminated pursuant to this
paragraph (c) of Section 7.08, this Agreement shall be of no further force
or effect, and no obligation or liability of any of TCI, T900, or QCI to
FRD shall arise hereunder.
ARTICLE VIII
CLOSING
Section 8.01 Closing. The Closing of the transactions contemplated by this
Agreement shall take place at the offices of Lehman, Jensen & Donahue, L.C., 8
East 300 South, Suite 620, Salt Lake City, Utah 84111 on July 23, 1998, or at
such other place and on such other date as may be agreed to by the Parties.
Section 8.02 Closing Events. At the Closing, each of the respective
Parties hereto shall execute, acknowledge, and deliver (or shall cause to be
executed, acknowledged, and delivered) any and all certificates, financial
statements, schedules, agreements, resolutions, rulings, or other instruments
required by this Agreement to be so delivered at or prior to the Closing,
together with such other items as may be reasonably requested by the Parties
hereto in order to effectuate or evidence the transactions contemplated hereby.
The date on which all certificates and other documents required to effect the
transactions contemplated by this Agreement are filed with the states of Utah
and Nevada is the "Effective Date."
30
<PAGE>
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF FRD
The obligations of FRD under this Agreement are subject to the
satisfaction, at or before the date of Closing, of the following conditions:
Section 9.01 Accuracy of Representations. The representations and
warranties made by each of TCI, T900, and QCI in this Agreement were true when
made and shall be true as of the date of Closing with the same force and effect
as if such representations and warranties were made at and as of the date of
Closing (except for changes therein permitted by this Agreement), and each of
TCI, T900, and QCI shall have performed or complied with all covenants and
conditions required by this Agreement to be performed or complied with by them
prior to or at the Closing. FRD shall be furnished with a certificate, signed by
a duly authorized officer of each of TCI, T900, and QCI and dated the date of
Closing, to the foregoing effect.
Section 9.02 Stockholder Approval. The TCI Stockholders shall have
approved this Agreement and the TCI Merger and the transactions contemplated
hereby. The T900 Stockholders shall have approved this Agreement and the T900
Merger and the transactions contemplated hereby. The QCI Stockholders shall have
approved this Agreement and the QCI Merger and the transactions contemplated
hereby.
Section 9.03 Officer's Certificates. FRD shall have been furnished with
certificates dated the date of Closing and signed by a duly authorized officer
of TCI, T900, and QCI to the effect that no litigation, proceeding,
investigation, or inquiry is pending which might result in an action to enjoin
or prevent the consummation of the transactions contemplated by this Agreement.
Section 9.04 No Material Adverse Change. Prior to the Closing, there shall
not have occurred any material adverse change in the financial condition,
business, or operations of any of TCI, T900, or QCI.
Section 9.05 Good Standing. FRD shall have received certificates of good
standing from the jurisdictions of formation of each of TCI, T900, and QCI, and
any other jurisdiction in which any of TCI, T900, or QCI is qualified to do
business dated as of a date within ten days prior to the Closing certifying that
they are in good standing as corporations in such states.
Section 9.06 Dissenters' Rights. The consummation of the transactions
contemplated by this Agreement is subject to and conditioned on no holders of
the issued and outstanding stock of TCI or T900 exercising and perfecting any
dissenter or similar rights they may have with respect to the TCI Merger and
T900 Merger.
Section 9.07 Schedules. The TCI Schedules, T900 Schedules, and QCI
Schedules shall be satisfactory to FRD.
Section 9.08 Consents/ Agreements. TCI, T900, and QCI shall have obtained
any third Person consents and agreements pursuant to Section 7.06.
Section 9.09 Other Items. FRD shall have received such further documents,
certificates, or instruments relating to the transactions contemplated hereby as
FRD may reasonably request.
31
<PAGE>
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI, T900 AND QCI
The obligations of each of TCI, T900, and QCI under this Agreement are
subject to the satisfaction, at or before the date of Closing, of the following
conditions:
Section 10.01 Accuracy of Representations. The representations and
warranties made by FRD in this Agreement were true when made and shall be true
as of the Closing with the same force and effect as if such representations and
warranties were made at and as of the date of Closing (except for changes
therein permitted by this Agreement), and FRD shall have performed and complied
with all covenants and conditions required by this Agreement to be performed or
complied with by FRD prior to or at the Closing. Each of the Companies shall
have been furnished with a certificate, signed by a duly authorized officer of
FRD and dated the date of Closing to the foregoing effect.
Section 10.02 Stockholder Approval. The FRD Stockholders shall have
approved the Reverse Split.
Section 10.03 Officer's Certificate. Each of the Companies shall have been
furnished with a certificate dated the date of Closing and signed by a duly
authorized officer of FRD to the effect that no litigation, proceeding,
investigation, or inquiry is pending which might result in an action to enjoin
or prevent the consummation of the transactions contemplated by this Agreement.
Section 10.04 No Material Adverse Change. Prior to the Closing, there
shall not have occurred any material adverse change in the financial condition,
business, or operations of FRD.
Section 10.05 Good Standing. Each of the Companies shall have received a
certificate of good standing from the state of Utah with respect to FRD dated as
of a date within ten days prior to the Closing Date certifying that FRD is in
good standing as a corporation in the state of Utah.
Section 10.06 Schedules. The FRD Schedules shall be satisfactory to each
of the Companies.
Section 10.07 Other Items. Each of the Companies shall have received such
further documents, certificates, or instruments relating to the transactions
contemplated hereby as they may reasonably request.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. The Parties agree that there were no finders or
brokers involved in bringing the Parties together or who were instrumental in
the negotiation, execution, or consummation of this Agreement. The Parties each
agree to indemnify the others against any claim by any Person other than those
described above for any commission, brokerage, or finders' fee arising from the
transactions contemplated hereby based on any alleged agreement or understanding
between the indemnifying Party and such Person, whether express or implied from
the actions of the indemnifying Party.
Section 11.02 Governing Law. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
Utah.
32
<PAGE>
Section 11.03 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if personally delivered to it or
sent by registered mail or certified mail, postage prepaid, or by prepaid
telegram addressed as follows:
If to FRD, to: Four Rivers Development, Inc.
Attn: Dal Bagley, President
2350 Oakhill Drive
Salt Lake City, UT 84121
If to TCI, T900, or QCI, to: Teleconnect, Inc.
Attn: Paul Hickey, President
1875 S. State Street, Suite 2900
Orem, UT 84097
or such other addresses as shall be furnished in writing by any Party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered, mailed, or
telegraphed.
Section 11.04 Attorneys' Fees. In the event that any Party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the non-prevailing Party or Parties shall reimburse
the prevailing Party or Parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 11.05 Third Party Beneficiaries. This Agreement is solely between
FRD, TCI, T900, and QCI, and except as specifically provided no director,
officer, stockholder, employee, agent, independent contractor, or any other
Person shall be deemed to be a third party beneficiary of this Agreement.
Section 11.06 Entire Agreement. This Agreement, including the exhibits and
schedules hereto, represents the entire agreement between the Parties relating
to the subject matter hereof. This Agreement alone fully and completely
expresses the agreement of the Parties. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein.
Section 11.07 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 11.08 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any Party of the performance of any obligation by the other Parties shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Effective Date this
Agreement may be amended by a writing signed by all Parties hereto with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance hereof may be extended by a
writing signed by the Party or Parties for whose benefit the provision is
intended.
33
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their officers hereunto duly authorized, as of the date first
above-written.
FOUR RIVERS DEVELOPMENT, INC.
By /s/ Dal Bagley
---------------------------------
Dal Bagley, President
TELECONNECT, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
TELESHARE 900, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
Q COMM INTERNATIONAL, INC.
By /s/ Andrew Wells
---------------------------------
Andrew Wells, President
34
<PAGE>
[GRAPHIC [GRAPHIC
OMITTED] OMITTED]
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
- - ------ ------
NUMBER Q COMM INTERNATIONAL, INC. SHARES
- - ------ ------
AUTHORIZED STOCK 50,000,000 SHARES
$.001 PAR VALUE
SEE REVERSE FOR CERTAIN DEFINITIONS
------------------
CUSIP 74727M 10 8
------------------
SPECIMEN
This Certifies That is the
Registered holder of Q Comm International, Inc. Shares
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
Dated:
/s/ [ILLEGIBLE] [SEAL] /s/ [ILLEGIBLE]
C.E.O.
Countersigned & Registered COUNTERSIGNED AND
Alpha Tech Stock Transfer BY REGISTERED
929 Spiers Lane
Draper, UT 84020 AUTHORIZED
(801) 571-5118 SIGNATURE
<PAGE>
05/19/99 --- UTAH DIVISION OF CORPORATIONS & COMMERCIAL CODE --- 11:56:00
**CORPORATION INFORMATION - SCREEN 1**
CO FILE # 119101 Q COMM INTERNATIONAL, INC.
STATUS: GOOD STANDING
NAME IN HOME STATE:
PRINCIPAL ADDRESS: 1135 S 1680 W
OREM UT INCORPORATED/QUALIFIED: 02/07/1986
840584930 LAST ANNUAL REPORT: 05/07/99
REG. AGENT: PAUL HICKEY ANNUAL REPORT FILED BY COUPON: NO
1135 S 1680 W HOME STATE: UT
OREM UT
840584930
PRESIDENT: VICE PRESIDENT: SECRETARY:
STEPHEN C FLAHERTY KATIE BENIONI
1135 S 1680 W 1135 S 1680 W
OREM UT OREM UT
840584930 840584930
TREASURER:
SIC: 6289 SECURITY & COMMODITY SERVICES, NEC
ADDITIONAL OFFICERS: NO
2=SCREEN#2; R=REMARKS; M=MERGERS; N=NAME CHANGES; "HELP"=EXIT
- - --------------------------------------------------------------------------------
1 Sess-1 168.179.156.7 1 24/80
<PAGE>
CITY OF OREM
56 North State Street
0rem, Utah 84057
[LOGO] OREM
Issued: 03/31/99 Expires: 12/31/99
License Number: 1996-13602 Licensee: TELECONNECT, INC.
Business Name: QCOMM
Address: 1135 S 1680 WEST Location: 1135 S 1680 WEST
OREM UT 84058
Business License COMMERCIAL BUS.
POST IN A CONSPICUOUS PLACE - NON-TRANSFERABLE EST. 12/04/96
<PAGE>
Set ____ of 3 originals
LEASE AGREEMENT
This is a legal and binding contract. Before signing, read the entire document,
including the general printed provisions and attachments. If you have any
questions before signing, consult your attorney and/or accountant.
THIS LEASE AGREEMENT (hereinafter the "Lease") is made and entered into as
of the 22nd day of November, 1999, by and between Highland Ranch, Inc. whose
address is 532 E. 800 N. Orem, UT 84058 ("hereinafter "Landlord") and Qcomm
International, Inc., whose address is 1145 S. 1680 W. Orem, UT 84058
(hereinafter "Tenant").
W I T N E S S E T H:
In consideration of the rents, covenants and agreements hereinafter set
forth, Landlord and Tenant mutually agree as follows:
ARTICLE I: PREMISES
Landlord hereby leases and demises to Tenant and Tenant hereby leases from
Landlord that certain real property located in Utah County, State of Utah and
more particularly described as 1145 South 1680 West, Orem, UT 84058 (6,546 sq
ft) (hereinafter the "Property"), together with all buildings and other
improvements now or hereafter located thereon and affixed thereto (hereinafter
collectively "Improvements"), and any and all privileges, easements, and
appurtenances belonging thereto or granted herein. The Property and the
Improvements are hereinafter collectively referred to as the "Premises".
ARTICLE II: TERM COMMENCEMENT
2.1 Term of Lease. This Lease shall be for a term of 2 year(s) commencing
on January 1, 2000, (hereinafter the "Commencement Date") and ending at 12:00
p.m. on December 31, 2001, unless sooner terminated pursuant to the terms,
covenants and conditions of this Lease or pursuant to law.
Option to renew
2.2 Delivery of Possession. Tenant acknowledges that Landlord is currently
completing construction of the Premises. In the event that Landlord is not able
to deliver possession of the Premises to Tenant on the Commencement Date because
construction of the Premises has not yet been completed, Landlord shall not be
liable to Tenant and Tenant may not terminate this Lease or any of Tenant's
rights or obligations hereunder; provided, however, that in the event Landlord
is unable to deliver possession of the Premises to Tenant on or before the date
which is sixty (60) days after the Commencement Date, Tenant's sole remedy shall
be to terminate this Lease and all of Landlord's and Tenant's respective rights
and obligations hereunder by written notice from Tenant to Landlord. Such notice
must be given, if at all, on or before the date which is seventy-five (75) days
after the Commencement Date. Notwithstanding anything to the contrary in this
Lease, Tenant shall not be obligated to pay rent to Landlord for any fractional
months or months during which Landlord is unable to deliver possession of the
Premises to Tenant pursuant to the provisions of this Section 2.2.
2.3 Lease Year. The term "Lease Year" as used in this Lease shall mean a
period of twelve (12) consecutive calendar months during the term of this Lease.
The first Lease Year shall begin on the Commencement Date if the Commencement
Date occurs on the first day of a calendar month; if not, the first Lease Year
shall begin on the first day of the calendar month next following the
Commencement Date. Each succeeding Lease Year shall begin at the expiration of
the immediately preceding Lease Year.
ARTICLE III: RENT
3.1 Payment of Monthly Base Rent. As Monthly Base Rent for the Premises,
Tenant shall pay to Landlord, in advance on or before the first day of each
calendar month during the term of this Lease, an amount equal to the "Monthly
Base Rent" as defined in Section 3.2.
3.2 Monthly Base Rent. The "Monthly Base Rent" payable during each Lease
Year shall be determined in accordance with the following:
(a.) Refer To Exhibit B
ARTICLE IV: LATE CHARGES AND INTEREST
If Tenant fails to pay any Monthly Base Rent when such Monthly Base Rent
is due and payable in accordance with Article III of this Lease or if Tenant
fails to pay any additional amounts or charges of any character which are
payable under this Lease, Landlord, at Landlord's election, may assess and
collect a late fee charge equal to five percent (5%) of each payment of rent not
received within five (5) days from the date such rent payment is due.
Furthermore, and in addition to any late charges payable pursuant to the
provisions of this Article, to the extent that any payment of Monthly Base Rent
or any other amount payable to Landlord by Tenant pursuant to any provision of
this Lease is more than thirty (30) days past due, Tenant shall pay Landlord
interest at the rate of eighteen percent (18%) per annum on all such past due
amounts.
LEASE AGREEMENT
LandLord:
Tenant:
____ Landlord _____Tenant Page 1 of 8
<PAGE>
ARTICLE V: SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
with Landlord the sum of Two Thousand Seven hundred Thirty-Eight Dollars
($2,738.00) (hereinafter the "Security Deposit"). The Security Deposit shall be
held by Landlord for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term of this Lease. If Tenant defaults with respect to any provision
of this Lease, including but not limited to the provisions relating to the
payment of Monthly Base Rent, and any costs, expenses, and charges payable under
the provisions of this Lease, Landlord may, but shall not be obligated to use,
apply or retain all or a part of the Security Deposit for the payment of any
amount which Landlord may spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. If any portion of the Security Deposit is so used or applied,
Tenant shall, within ten (10) days after written demand, deposit with Landlord
an amount sufficient to restore the Security Deposit to its original amount; and
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep the Security Deposit separate from Landlord's
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant shall fully and faithfully perform every provision of this
Lease to be performed by Tenant, the Security Deposit or any balance thereof
shall be returned to Tenant or, at Landlord's option, to the last permitted
assignee of Tenant's interest under this Lease within thirty (30) days of the
expiration of the term of this Lease and after Tenant or Tenant's permitted
assignee has vacated the Premises or within fifteen (15) days of receipt of
Tenant's new mailing address, whichever is later. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer the Security Deposit
to Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of the Security Deposit or any accounting
therefore.
ARTICLE VI: QUIET ENJOYMENT
Landlord hereby covenants to Tenant that, subject to Tenant's compliance
with the terms and provisions of this Lease, Tenant shall peaceably and quietly
hold and enjoy the full possession and use of the Premises during the term of
this Lease.
ARTICLE VII: TAXES, ASSESSMENTS AND OTHER CHARGES
7.1 Taxes and Assessments. Tenant shall pay to Landlord all real estate
taxes, assessments (general and special), and other charges which may be levied,
assessed or charged against the Premises, accruing or becoming due and payable
during the term of this Lease and any extension thereof at least ten (10) days
before such taxes, assessments, or other charges become delinquent. The charges
shall be as follows (these are estimates only and are subject to annual
increases): $230.00 for Real Estate Taxes, $25.00 for Building Insurance, and
$40.00 for Common Area Charges (CAM) due at the first of every month.
7.2 Right to Contest Taxes. Tenant, at its sole cost, shall have the right
to contest, in accordance with the provisions of the laws relating to such
contests, any real estate taxes, assessments, or other charges against the
premises and the failure of Tenant to pay such taxes, assessments, or charges
shall not constitute a default by Tenant so long as Tenant complies with the
provisions of this Section 7.2. Prior to initiating any contest or proceeding,
Tenant shall give Landlord written notice of such contest, or proceeding and
shall either deposit with Landlord, or furnish good and sufficient undertaking
and sureties designating Landlord as the beneficiary thereof, in such amount as
Landlord deems to be sufficient, considering the amount of such taxes, charges,
assessments, any potential penalties and interest thereon, and any potential
expenses that might be incurred by Landlord with respect thereto. Landlord shall
not be required to join in any proceeding or contest brought by Tenant unless
the provisions of any law require that the proceeding or contest be brought by
or in the name of Landlord or any owner of the Premises. In that case, Landlord
shall join in the proceeding or contest or permit such proceeding or contest to
be brought in its name as long as Landlord is not required to bear any cost.
Tenant, on final determination of the proceeding or contest, shall immediately
pay or discharge any decision or judgment rendered, together with all costs,
charges, interest and penalties incidental to the decision or judgment.
ARTICLE VIII: UTILITIES
Tenant shall be solely responsible for, and pay when due, all charges for
water, gas, heat, light, power, telephone, and other utilities or services used
by or supplied to Tenant or to the Premises, together with any taxes thereon,
during the term of this Lease.
ARTICLE IX: INSURANCE
9.1 Tenant's Insurance Coverage. Tenant shall, at all times during the
term of this Lease, and at Tenant's own cost and expense, procure and continue
in force the following insurance coverage:
(a) Comprehensive liability insurance with limits of not less than
$500,000.00 per person and $500,000.00 per occurrence insuring against any
and all liability of the insured with respect to the Premises or arising
out of the maintenance, use or occupancy thereof, and property damage
liability insurance with a limit of not less than $500,000.00 per accident
or occurrence.
Landlord shall
(b) Insurance covering any buildings and all improvements on the
Premises, including Tenant's leasehold improvements and personal property
in or upon the Premises in an amount not less than one hundred percent
(100%) of full replacement cost, providing protection against any peril
generally included within the classification "Fire and Extended Coverage",
together with insurance against sprinkler damage, vandalism and malicious
mischief and a standard inflation guard endorsement. Tenant hereby assigns
Landlord any and all proceeds payable with respect to such policies except
to the extent such proceeds are payable with respect to any property that
would remain the property of Tenant upon the termination of this Lease;
provided, however, that to the extent required pursuant to the provisions
of Article XIV, such proceeds shall be applied to the repair and
restoration of the Premises.
9.2 Insurance Policies. The minimum limits of insurance policies as set
forth in Section 9.1 shall in no event limit the liability of Tenant hereunder.
The insurance policies shall name Landlord as an additional insured and shall be
with companies having a rate of not less than an "A" company rating and a
Financial Rating of Class VI in "Best's Insurance Reports." Tenant shall furnish
from the insurance companies or cause the insurance companies to furnish to
Landlord certificate of coverage. No such policy shall be cancelable or subject
to reduction of coverage or other
LEASE AGREEMENT
LandLord:
Tenant:
____ Landlord _____Tenant Page 2 of 8
<PAGE>
modification or cancellation except after thirty (30) days prior written notice
to Landlord by the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of any coverage which Landlord
may carry. Tenant shall at least twenty (20) days prior to the expiration of
such policies furnish Landlord with renewals or binders. If Tenant does not
procure and maintain such insurance, Landlord may, but is not obligated to,
procure such insurance on Tenant's behalf and all sums paid by Landlord shall
bear interest at the rate of eighteen percent (18%) and shall be immediately due
and payable. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Tenant provided such blanket policies
expressly afford coverage to the Premises and to Landlord as required by this
Lease.
9.3 Waiver of Subrogation. To the extent permitted under the insurance
policies obtained by Landlord, if any, and Tenant, Landlord and Tenant each
hereby waive any and all right of recovery against the other or against the
officers, employees, agents and representatives of the other, on account of loss
or damage occasioned to such waiving party or its property or the property of
others under its control to the extent that such loss or damage is insured
against under any fire and extended coverage insurance policy which either may
have in force at the time of such loss or damage.
ARTICLE X: USE OF PREMISES
10.1 Use. The Premises shall be used and occupied by Tenant solely for
general office and warehouse purposes and for no other purpose without the prior
written consent of Landlord, which consent may be withheld by Landlord in
Landlord's sole discretion.
10.2 Suitability. Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation or warranty with respect to the Premises
or the Improvements or with respect to the suitability of either for the conduct
of Tenant's business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the Premises except as specifically provided in
this Lease. The continued possession of the Premises by Tenant shall
conclusively establish that the Premises and the Improvements are at the date of
possession in satisfactory condition. Landlord shall not be responsible for any
latent defects or deficiencies in the construction of the Premises or the
Improvements or any improvements or fixtures therein.
10.3 Prohibited Uses.
(a) Tenant shall not do or permit anything to be done in or about
the Premises, nor bring or keep anything therein which will cause a
cancellation of any insurance policy covering the Premises, nor shall
Tenant sell or permit to be kept, used or sold in or about the Premises
any articles which may be prohibited by a standard form policy of fire
insurance unless Tenant provides additional insurance coverage extending
protection to cover all risks associated with these articles.
(b) Tenant shall not use the Premises or permit anything to be done
in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation or requirement of
duly constituted public authorities now in force or which may hereafter be
enacted, promulgated or created. Tenant shall, at Tenant's sole cost and
expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating
to or affecting the use or occupancy of the Premises, including structural
changes that relate to or affect the use
(c) Tenant shall comply with all requirements of any recorded
restrictive covenants or bylaws of any association affecting the Premises.
Tenant acknowledges receipt of a copy of the Declaration of Covenants,
Conditions and Restrictions and a copy of the Bylaws of the Condominium
Owners' Association affecting the Premises.
(d) Tenant shall not permit smoking on the Premises at any time.
ARTICLE XI: MAINTENANCE AND REPAIRS
11.1 Tenant Maintenance and Repairs. During the Term of the Lease, Tenant,
at Tenant's expense, shall keep the Premises in good order and condition and
shall maintain and shall make any and all repairs and replacements to the
interior surfaces of the Premises (including, but not limited to, floor
coverings, window coverings, and wall coverings), all windows and glass which
are part of the Premises, all light fixtures, and all doors to the Premises.
Tenant is required to have plastic chair mats underneath the desks in order to
protect floor coverings. Tenant shall be liable for floor covering replacement
if the mats are not used. Tenant shall, at all times, and at Tenant's expense,
keep the Premises in a neat, clean, and sanitary condition and shall comply with
all valid federal, state, county and city laws and ordinances and all rules and
regulations of any duly constituted authority, present or future, affecting or
respecting the use or occupancy of the Premises by Tenant. Tenant, at Tenant's
expense, shall also repair any structural damage to the Premises caused by
Tenant, or Tenant's employees, agents, contractors, invitees, licensees,
customers, or clients.
11.2 Landlord Maintenance and Repairs. Subject to the provisions of
Article XIV below, Landlord shall, during the Term of this Lease, maintain and
make necessary structural repairs to the Premises not included as Tenant's
responsibility pursuant to the provisions of Section 11.1, 14.3, and repairs to
heating, ventilation or air conditioning equipment servicing the Premises;
provided, however, that damage to such equipment caused by Tenant shall be
repaired at Tenant's expense. Tenant shall promptly notify Landlord in writing
of any condition requiring maintenance or repair and Tenant shall also
immediately notify Landlord by telephone in the case of an emergency. Landlord
shall make the repairs required under this section within a reasonable time
after receiving written notice by Tenant. Nothing in this section shall be
construed to excuse Tenant from any obligations under this Lease, including
without limitation, the payment of any rent.
ARTICLE XII: HAZARDOUS SUBSTANCES
12.1 Environmental Compliance. Tenant (a) shall at all times comply with,
or cause to be complied with, any "Environmental Law" (hereinafter defined)
governing the Premises or the use thereof by Tenant or any of Tenant's
employees, agents, contractors, invitees, licensees, customers, or clients, (b)
shall not use, store, generate, treat, transport, or dispose of, or permit any
of Tenant's employees, agents, contractors, invitees, licensees, customers, or
clients to use, store, generate, treat, transport, or dispose of, any "Hazardous
Substance" (hereinafter defined) on the Premises
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without first obtaining Lessor's written approval, (c) shall promptly and
completely respond to, and clean up, in accordance with applicable laws and
regulations, any Release (as hereinafter defined) occurring on the Premises as a
direct result of actions of Tenant or Tenant's employees or authorized agents;
and (d) shall pay all costs incurred as a result of any failure by Tenant to
comply with any Environmental Law, which failure results in a Release or other
change in the environmental state, condition, and quality of the Premises
necessitating action under applicable Environmental Laws, including with
limitation the costs of any Environmental Cleanup Work (hereinafter defined) and
the preparation of any closure or other required plans (all of the foregoing
obligations of Tenant under this Section 12.1 are hereinafter collectively
"Tenant's Environmental Obligations"). Landlord hereby releases and indemnities
Tenant from and against any and all claims, damages, or liabilities (including,
without limitation, attorneys' fees and reasonable investigative and discovery
costs) resulting from the environmental condition or quality of the Premises
prior to the Commencement date or from actions of Landlord or its agents or
employees. The provisions of this Article XII shall survive the expiration or
other termination of this Lease.
12.2 Definitions. As used in this Lease (a) "Hazardous Substance" shall
mean (1) any "hazardous waste", "hazardous substance", and any other hazardous,
radioactive, reactive, flammable, infectious, solid wastes, toxic or dangerous
substances or materials, or related materials, as defined in, regulated by, or
which form the basis of liability now or hereafter under any Environmental Law;
(2) asbestos, (3) polychlorinated biphenyls (PCBs); (4) petroleum products or
materials; (5) underground storage tanks, whether empty or filled or partially
filled with any substance; (6) flammable explosives, (7) any substance the
presence of which on the Premises is or becomes prohibited by Environmental Law;
(8) urea formaldehyde foam insulation; and (9) any substance which under
Environmental Law requires special handling or notification in its use,
collection, storage, treatment or disposal; (b) "Environmental Cleanup Work"
shall mean an obligation to perform work, cleanup, removal, repair, remediation,
construction, alteration, demolition, renovation or installation in or in
connection with the Premises in order to comply with any Environmental Law; (c)
"Environmental Law" shall mean any federal, state or local law, regulation,
ordinance or order, whether currently existing or hereafter enacted, concerning
the environmental state, condition or quality of the Premises or use,
generation, transport, treatment, removal, or recovery of Hazardous Substances,
including building materials, and including, but not limited to, the following:
(1) the Solid Waste Disposal Act as amended by the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), as amended, and all
regulations promulgated thereunder; (2) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601, et
seq.), as amended, and all regulations promulgated thereunder; (3) the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801, et seq.), as amended, and
all regulations promulgated thereunder; (4) the Toxic Substances Control Act (15
U.S.C. Section 2601, et seq.), as amended, and all regulations promulgated
thereunder; (5) the Clean Air Act (42 U.S.C. Section 7401, et seq.), as amended,
and all regulations promulgated thereunder; (6) the Federal Water Pollution
Control Act (33 U.S.C. Section 1251, et seq.), as amended, and all regulations
promulgated thereunder; and (7) the Occupational Safety and Health Act (29
U.S.C. Section 651, et seq.), as amended, and all regulations promulgated
thereunder; and (d) "Release" means any actual or threatened spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, presence, dumping, migration on or from the Premises or adjacent
property, or disposing of Hazardous Substances into the environment.
ARTICLE XIII: FIXTURES AND ALTERATIONS
13.1 Alterations. Tenant shall not make any physical alteration in the
Premises or any of the fixtures located therein or install or cause to be
installed any trade fixtures, exterior signs, floor coverings, interior or
exterior lighting, plumbing fixtures, shades or awnings or make any changes to
the Improvements front without first obtaining the written consent of Landlord,
which consent shall not be unreasonably withheld. Tenant shall present to
Landlord plans and specifications for the installation of any improvements or
fixtures at the time approval is sought from Landlord. Any physical change and
all rearrangements which are made by Tenant with the approval of Landlord shall
be made at Tenant's expense. Such alterations, decorations, additions and
improvements shall not be removed from the Premises during the term of this
Lease without the prior written consent of Landlord. Upon expiration of this
Lease all such alterations, decorations, additions and improvements shall at
once become the Property of Landlord.
13.2 Conditions and Limitations. Landlord may impose as a condition to
granting any consent required by Section 13.1, such requirements, restrictions
and limitations as Landlord may deem necessary in Landlord's sole discretion,
including without limitation, the manner in which the work is done, the
contractors by whom it is performed, and the time during which the work is
accomplished.
13.3 Contractors and Materialmen. If any fixtures, alterations or
improvements are allowed by Landlord, Tenant shall promptly pay all contracts
and materialmen, so as to eliminate the possibility of a lien attaching to the
Improvements or the Land, and should any such lien be made or filed by reason of
any fault of Tenant, Tenant shall bond against or discharge the same within ten
(10) days after written request by Landlord. Landlord shall have the right, but
not the obligation, to pay and discharge any such lien that attaches to the
Premises and Tenant shall reimburse Landlord for any such sums paid together
with interest at the rate of eighteen percent (18%) within thirty (30) days
after written demand by Landlord.
ARTICLE XIV: DAMAGE OR DESTRUCTION
14.1 Landlord to Repair Improvements. Subject to the provisions of
Sections 11.1; 14.2 and 14.3, if during the term of this Lease any of the
Improvements are damaged or destroyed by fire or other casualty, Landlord shall
repair or restore the Improvements. The work of repair or restoration, which
shall be completed with due diligence, shall be commenced within a reasonable
time after the damage or loss occurs. To the extent that such damage or
destruction interferes with Tenant's ability to use the Premises, as determined
by Landlord, rent shall be abated after the damage or destruction of the
Improvements until the repair or restoration of the Improvements has been
completed.
14.2 Landlord's Option to Terminate Lease. Notwithstanding anything to the
contrary in this Article XIV, in the event that any of the Improvements are
damaged or destroyed by fire or other casualty, Landlord shall have the right to
terminate this Lease, which termination shall be deemed to be effective as of
the date of such casualty, upon the occurrence of any of the following events:
(a) Insurance proceeds payable with respect to such damage or
destruction are not sufficient to pay for the repair and/or restoration of
the Improvements;
(b) Repair and restoration of the Improvements cannot be completed
within sixty (60) days after the occurrence of the casualty causing such
damage or destruction;
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(c) More than thirty percent (30%) of the Improvements have been
damaged or destroyed by such casualty.
Landlord's option to terminate the Lease pursuant to the provisions of this
Section 14.2 must be exercised within thirty (30) days of the date of the
casualty causing such damage or destruction by written notice from Landlord to
Tenant. In the event that Landlord elects to terminate the Lease pursuant to
this Section 14.2, Tenant shall immediately surrender possession of the Premises
to Landlord and shall assign to landlord (or if the same has already been
received by Tenant, pay to Landlord) all of Tenant's right, title, and interest
in and to the insurance proceeds payable with respect to the Premises.
14.3 Tenant's Option to Terminate Lease. If no default by Tenant under
this Lease has occurred and is then continuing and if no event has occurred and
is then continuing which, with the giving of notice or lapse of time, or both,
would become such a default, Tenant shall, if the Improvements are damaged or
destroyed by fire or other casualty and repair or restoration of the
Improvements cannot be completed within sixty (60) days following the occurrence
of the casualty causing such damage or destruction, have the option of
terminating this Lease by written notice to Landlord, which termination shall be
deemed to be effective as of the date of the casualty. Tenant's option to
terminate the Lease pursuant to the provisions of this Section 14.3 must be
exercised within thirty (30) days of the date of the casualty causing such
damage or destruction. In the event that Tenant elects to terminate this Lease
pursuant to this Section 14.3, Tenant shall immediately surrender possession of
the Premises to Landlord and shall assign to landlord (or if the same has
already been received by Tenant, pay to Landlord) all of Tenant's right, title,
and interest in and to the insurance proceeds payable with respect to the
Premises.
ARTICLE XV: CONDEMNATION
If all or any part of the Premises is taken or appropriated for public or
quasi-public use by right of eminent domain with or without litigation or
transferred by agreement in connection with such public or quasi-public use,
Landlord and Tenant shall each have the right within thirty (30) days of receipt
of notice of taking, to terminate this Lease as of the date possession is taken
by the condemning authority; provided, however, that before Tenant may terminate
this Lease by reason of taking or appropriation, such taking or appropriation
shall be of such an extent and nature as to substantially handicap, impede or
impair Tenant's use of the Premises. No award for any partial or entire taking
shall be apportioned, and Tenant hereby assigns to Landlord any award which may
be made in such taking or condemnation, together with any and all rights of
Tenant now or hereafter arising in or to the award or any portion thereof;
provided, however, that nothing contained herein shall be deemed to give
Landlord any interest in or to require Tenant to assign to Landlord any award
made to Tenant for the taking of personal property and fixtures belonging to
Tenant, for the interruption of or damage to Tenant's business and for Tenant's
unamortized cost of leasehold improvements. In the event of a partial taking
which does not result in a termination of this Lease, rent shall be abated in
the proportion which the part of the Premises so made unusable bears to the
rented area of the Premises immediately prior to the taking. No temporary taking
of the Premises or Tenant's right therein or under this Lease shall terminate
this Lease or give Tenant any right to any abatement of rent thereunder; and any
award made to Tenant by reason of any such temporary taking shall belong
entirely to Tenant, and Landlord shall not be entitled to any portion thereof.
ARTICLE XVI: ASSIGNMENT AND SUBLETTING
16.1 Landlord's Consent Required. Tenant shall not assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest therein,
either voluntarily or involuntarily by operation of law or otherwise, and Tenant
shall not sublet the Premises or any part thereof, without the prior written
consent of Landlord and any attempt to do so without such consent being first
had and obtained shall be void and shall constitute a breach of this Lease, such
consent shall not be unreasonably withheld.
16.2 No Release of Tenant. No consent by Landlord to any assignment or
subletting by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether occurring before or after such consent,
assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment or subletting. The acceptance of
rent by Landlord from any other person or legal entity shall not be deemed to be
a waiver by Landlord of any provision of this Lease or to be a consent to any
assignment, subletting or other transfer. Consent to one assignment, subletting
or other transfer shall not be deemed to constitute consent to any subsequent
assignment, subletting or other transfer.
16.3 Increased Expenses. Tenant shall pay Landlord the amounts of any
increase in costs or expenses incident to the occupancy of the Premises by such
assignee or subtenant, including but not limited to, reasonable attorney's fees
incurred in connection with giving such consent.
ARTICLE XVII: SUBORDINATION, ATTORNMENT AND ESTOPPEL CERTIFICATES
17.1 Subordination. This Lease at Landlord's option shall be subject and
subordinate to the lien of any mortgages or deeds of trust in any amount or
amounts whatsoever now or hereafter placed on or against the Premises, the
Improvements, or on or against Landlord's interest or estate therein, without
the necessity of the execution and delivery of any further instruments on the
part of Tenant to effectuate such subordination. Notwithstanding anything to the
contrary in this Article XVII, this Lease shall remain in full force and effect
for the full term hereof, including any extensions, so long as Tenant is not in
default hereunder.
17.2 Subordination Agreements. Tenant shall execute and deliver upon
demand without charge therefore, such further instruments evidencing such
subordination of this Lease to the lien of any such mortgages or deeds of trust
as may be required by Landlord.
17.3 Attornment. In the event of any foreclosure or the exercise of the
power of sale under any mortgage or deed of trust made by Landlord covering the
Premises or the Building, Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided said purchaser expressly agrees in writing to be bound by the
terms of this Lease.
17.4 Estoppel Certificates. Tenant shall, from time to time and within ten
(10) days from receipt of prior written notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing (a) certifying that
this Lease is unmodified and in full force and effect or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect and the date to which the rent and other charges are
paid in advance, if any, (b) certifying that the Lease and any modifications of
this Lease constitute the entire agreement between
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Landlord and Tenant with respect to the Premises and, except as set forth in
this Lease and any modification of this Lease, Tenant does not claim any right,
title, or interest in or to the Premises or any part thereof, (c) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults, if any are claimed, and (d)
certifying such other matters with respect to the Lease and/or the Premises as
Landlord may reasonably request.
17.5 Failure to Deliver Certificate. If Tenant fails to deliver such
statement within the time period referred to in Section 17.4 above, it shall be
deemed conclusive upon Tenant that the (a) this Lease is unmodified and in full
force and effect, (b) this Lease constitutes the entire agreement between
Landlord and Tenant with respect to the Premises and, except as set forth in
this Lease, Tenant does not claim any right, title, or interest in or to the
Premises, or any part thereof, (c) there are no uncured defaults in Landlord's
performance of Landlord's obligations under this Lease, and (d) not more than
one month's Monthly Base Rent has been paid in advance.
17.6 Transfer of Landlord's Interest. In the event of a sale or conveyance
by Landlord of Landlord's interest in the Premises other than a transfer for
security purposes only, Landlord shall be relieved from and after the date
specified in any such notice of transfer of all obligations and liabilities to
Tenant which accrue after such sale or conveyance on the part of Landlord,
provided that any funds in the possession of Landlord at the time of transfer in
which Tenant has an interest shall be delivered to the successor Landlord. This
Lease shall not be affected by any such sale or transfer and Tenant shall attorn
to the purchaser or other transferee provided that all of Landlord's obligations
accruing hereunder from and after such sale or transfer are assumed in writing
by such purchaser or transferee.
ARTICLE XVIII: DEFAULT AND REMEDIES
18.1 Default. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the Monthly Base Rent, or any other
monetary sums required to be paid under this Lease, where such failure
continues for five (5) days after written notice thereof by Landlord to
Tenant;
(b) Any material false statement made by Tenant to Landlord or its
agents in any document delivered to Landlord in connection with the
negotiation of this Lease.
(c) The abandonment or vacation of the Premises by Tenant;
(d) A failure by Tenant to observe and perform any other term,
covenant or condition of this Lease to be observed or performed, by
Tenant, where such failure continues for thirty (30) days after written
notice thereof by Landlord to Tenant; provided, however, that if the
nature of the default is such that the default cannot reasonably be cured
within the thirty (30) day period, Tenant shall not be deemed to be in
default if Tenant shall within the thirty (30) day period commence action
to cure the default and thereafter diligently prosecute the same to
completion;
(e) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant
of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or the
attachment, execution, or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged within thirty (30) days.
18.2 Nonexclusive Remedies. In the event of any such material default or
breach by Tenant, Landlord shall have, in addition to any other remedies
provided in this Lease, the following nonexclusive remedies:
(a) At Landlord's option and without waiving any default by Tenant,
Landlord shall have the right to continue this Lease in full force and
effect and to collect all Monthly Base Rent, and any other amounts to be
paid by Tenant under this Lease as and when due. During any period that
Tenant is in default, Landlord shall have the right, pursuant to legal
proceedings or pursuant to any notice provided for by law, to enter and
take possession of the Premises, without terminating this Lease, for the
purpose of reletting the Premises or any part thereof and making any
alterations and repairs that may be necessary or desirable in connection
with such reletting. Any such reletting or relettings may be for such term
or terms (including periods that exceed the balance of the term of this
Lease), and upon such other terms, covenants and conditions as Landlord
may in Landlord's sole discretion deem advisable. Upon each and any such
reletting, the rent or rents received by Landlord from such reletting
shall be applied as follows: (1) to the payment of any indebtedness (other
than rent) due hereunder from Tenant to Landlord; (2) to the payment of
costs and expenses of such reletting, including brokerage fees, reasonable
attorney's fees, court costs, and costs of any alterations or repairs; (3)
to the payment of any Monthly Base Rent and any other amounts due and
unpaid hereunder; and (4) the residue, if any, shall be held by Landlord
and applied in payment of future Monthly Base Rent and any other amounts
as they become due and payable hereunder. If the rent or rents received
during any month and applied as provided above shall be insufficient to
cover all such amounts including the Monthly Base Rent and any other
amounts to be paid by Tenant pursuant to this Lease for such month, Tenant
shall pay to Landlord any deficiency; such deficiencies shall be
calculated and paid monthly. No entry or taking possession of the Premises
by Landlord shall be construed as an election by Landlord to terminate
this Lease, unless Landlord gives written notice of such election to
Tenant or unless such termination shall be decreed by a court of competent
jurisdiction, Notwithstanding any reletting by Landlord without
termination, Landlord may at any time thereafter terminate this Lease for
such previous default by giving written notice thereof to Tenant.
(b) Terminate Tenant's right to possession by notice to Tenant, in
which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord
shall be entitled to recover from Tenant all damages incurred by Landlord
by reason of Tenant's default, including without limitation the following:
(1) all unpaid rent which has been earned at the time of such termination
plus (2) the amount by which the unpaid rent which would have been earned
after termination until the time of award exceeds the amount of such
rental loss that is proved could have been reasonably avoided; plus (3)
any other amount necessary to
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compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform Tenant's obligations under this Lease, or in addition
to or in lieu of the foregoing such damages as may be permitted from time
to time under applicable State law. Upon any such re-entry Landlord shall
have the right to make any reasonable repairs, alterations or
modifications to the Premises, which Landlord in Landlord's sole
discretion deems reasonable and necessary.
ARTICLE XIX: ENTRY BY LANDLORD
Landlord shall, during the term of this Lease, have the right to enter the
Premises at reasonable times and upon reasonable notice to Tenant, to inspect or
to show to prospective tenants or purchasers, or to make necessary repairs. For
purposes of this section, twenty-four (24) hours is deemed to be reasonable
notice. In the event of an emergency, however, Landlord shall not be required to
give Tenant such notice, provided that Landlord furnishes Tenant with the reason
for the emergency entry within three days of such entry.
ARTICLE XX: INDEMNITY
Tenant shall indemnify and hold Landlord harmless from any and all claims
of liability for any injury or damage to any person or property whatsoever
occurring in, on or about the Premises or any part thereof during the term of
this Lease. Tenant shall further indemnify and hold Landlord harmless from and
against any and all claims arising from any breach or default in the performance
of any obligation on Tenant's part to be performed under the terms of this
Lease, or arising from any act or negligence of Tenant, or any of Tenant's
agents, contractors, employees, licensees or invitees and from and against all
costs, reasonable attorney's fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon. Tenant
shall not, however, be liable for damage or injury occasioned by the negligence
or intentional acts of Landlord and Landlord's designated agents or employees.
Tenant's obligations under this Article XX shall survive the expiration or other
termination of this Lease.
ARTICLE XXI: SURRENDER
21.1 Surrender. Upon the expiration or other termination of this Lease,
Tenant shall quit and surrender to Landlord the Premises, together with the
Improvements and all other property affixed to the Premises, excluding Tenant's
fixtures, in good order and condition, ordinary wear and tear excepted. Tenant
shall, prior to the expiration or other termination of this Lease remove all
personal property belonging to Tenant and failing to do so, Landlord may cause
all of said personal property to be removed at the cost and expense of Tenant.
Tenant's obligation to observe and perform this covenant shall survive the
expiration or other termination of this Lease. In the alternative, Landlord may,
at Landlord's option, treat any and all items not removed by Tenant on or before
the date of expiration or of the termination of this Lease as having been
relinquished by Tenant and such items shall become the property of Landlord with
the same force and effect as if Tenant had never owned or otherwise had any
interest in such items.
21.2 Hazardous Substances. No spill, deposit, emission, leakage or other
release of Hazardous Substance in the soils, ground waters or waters shall be
deemed to result in either (a) wear and tear that would be normal for the term
of the Lease; or (b) a casualty to the Premises. Tenant shall be responsible to
promptly and completely cleanup any Release occurring on the Premises during the
term of the Lease which directly results form the actions of Tenant or its
employees or authorized agents. Tenant shall surrender the Premises free of any
contamination or other damage caused by such a Release during the term of the
Lease. Tenant's obligation to cleanup the Premises pursuant to the provisions of
this Article XXI shall survive the expiration or other termination of this
Lease.
ARTICLE XXII: OPTION TO PURCHASE
22.1 Grant of Option. This section does not apply to this Lease.
ARTICLE XXIII: MISCELLANEOUS
23.1 Signs. Tenant, at its own cost, may place and maintain a sign
advertising Tenant's business in the window of the Premises so long as the sign
complies with the rules and regulations of the Condominium Owners' Association
for the Premises.
23.2 Parking Spaces. Tenant shall be entitled to the use of 20 unreserved
parking spaces appurtenant to the Premises for the benefit of Tenant, its
employees, agents, and invitees for the Term of the Lease.
23.3 Entire Agreement. This instrument along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this Lease and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. All prior or contemporaneous oral agreements between and
among Landlord and Tenant and their agents or representatives relative to the
leasing of the Premises are merged in or revoked by this Lease.
23.4 Severability. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
23.5 Costs of Suit. If Tenant or Landlord shall bring any action for any
relief against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party a reasonable sum for
attorney's fees whether or not such action is prosecuted to judgment.
23.6 Time and Remedies. Time is of the essence of this Lease and every
provision hereof. All rights and remedies of the parties shall be cumulative and
nonexclusive of any other remedy at law or in equity.
23.7 Binding Effect, Successors and Choice of Law. All time provisions of
this Lease are to be construed as both covenants and conditions as though the
words importing such covenants and conditions were used in each separate Section
of this Lease. Subject to any provisions
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Tenant:
____ Landlord _____Tenant Page 7 of 8
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restricting assignment or subletting by Tenant as set forth in Article XVI, all
of the terms hereof shall bind and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns. This
Lease shall be governed by the laws of the State of Utah.
23.8 Waiver. No term, covenant or condition of this Lease shall be deemed
waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any term, covenant or condition shall
not be deemed to be a waiver of any preceding or succeeding breach of the same
or any other term, covenant or condition. Acceptance by Landlord of any
performance by Tenant after the time the same shall have become due shall not
constitute a waiver by Landlord of the breach or default of any term, covenant
or condition unless otherwise expressly agreed to by Landlord in writing.
23.9 Holding Over. If Tenant remains in possession of all or any part of
the Premises after the expiration of the term of this Lease, with or without the
express or implied consent of Landlord, such tenancy shall be from month to
month only, and not a renewal hereof or an extension for any further term, and
in such case, rent and other sums due hereunder shall be payable at one hundred
fifty percent (150%) of the Monthly Base Rent in effect immediately prior to
such holdover period.
23.10 Recording. No copy of this Lease will be recorded on behalf of
either party, but in lieu thereof, Landlord and Tenant agree that each will,
upon the request of the other, execute, in recordable form, a "short form" of
the Lease, which "short form" shall contain a description of the Premises, the
term of the Lease, the parties to the Lease. The "short form" of the Lease shall
not modify the terms of the Lease or be used in interpreting the Lease and in
the event of any inconsistency between this Lease and the "short form" of the
Lease, the terms and conditions of this Lease shall control.
23.11 Reasonable Consent. Except as limited elsewhere in this Lease,
wherever in this Lease Landlord or Tenant is required to give consent or
approval to any action on the part of the other, such consent or approval shall
not be unreasonably withheld. In the event of failure to give any such consent,
the other party shall be entitled to specific performance at law and shall have
such other remedies as are reserved to such party under this Lease.
23.12 Notice. Any notice required to be given under this Lease shall be
given in writing and shall be delivered in person or by registered or certified
mail, postage prepaid, and addressed to the addresses for Landlord and Tenant
set forth above. Such notice shall be deemed delivered when personally delivered
or upon deposit of the notice in the United States mail in the manner provided
above.
23.13 No Partnership. Landlord does not, as a result of entering into this
Lease, in any way or for any purpose become a partner of Tenant in the conduct
of Tenant's business, or otherwise, or joint venturer or a member of a joint
enterprise with Tenant.
23.14 Exhibits. This lease agreement has two exhibits attached and made a
part thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
LANDLORD:
By:_________________________________
Its:________________________________
TENANT:
By:_________________________________
Its:________________________________
LEASE AGREEMENT
LandLord:
Tenant:
____ Landlord _____Tenant Page 8 of 8
<PAGE>
File ab2+2
Exhibit B
Q-COMM INTERNATIONAL
1145 S. 1680 W. Orem, UT 84058
1st Floor Office: 1,546 sq ft
2nd Floor Office: 1,546 sq ft
Warehouse: 3,454 sq ft
===========
Total: 6,546 sq ft
Base Rental Schedule
Base Term
Square Price/ Annual No. Monthly
Year Footage Sq Foot Rental Months Rental
0 N/A N/A N/A N/A N/A
1 6,546 $5.02 $32,860.92 12.0 $2,738.41
2 6,546 $5.17 $33,846.75 12.0 $2,820.56
Sub Totals/Averages: $5.10 $66,707.67 24.0 $2,779.49
Option Term
Square Price/ Annual No. Monthly
Year Footage Sq Foot Rental Months Rental
3 6,546 $5.33 $34,862.15 12.0 $2,905.18
4 6,546 $5.49 $35,908.01 12.0 $2,992.33
Sub Totals/Averages: $5.41 $70,770.16 24.0 $2,948.76
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into by
and between Q COMM INTERNATIONAL, INC., a Nevada corporation (the "Company" or
"Employer"), and STEPHEN C. FLAHERTY ("Employee").
Recitals
A. Employer is a company engaged in the business of providing management
services;
B. Employee has been engaged in and has a great deal of experience and
reputation in the above-designated business;
C. The Company desires to provide for the employment of Employee, to
clearly set forth the relationship between the parties, and to restrict Employee
from using certain confidential information and from competing with the Employer
in the future.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals which are
incorporated as a part of this Agreement, and of the mutual covenants contained
herein and the mutual benefits to be derived hereunder, the parties agree as
follows:
1. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth, all as of the
date provided in paragraph 32, below (the "Effective Date").
2. Duties. Employer hereby employs Employee on a full-time basis to serve
as president of the Company, and Employee agrees to serve in such office and, at
the pleasure of the board of directors, in such additional and/or other offices
or positions consistent with his stature and responsibilities hereunder, with
Employer as shall, from time to time, be determined by Employer's board of
directors, without compensation except as set forth herein.
3. Reasonable Best Efforts. Employee agrees that he will at all times
faithfully, industriously, and to the reasonable best of his ability,
experience, and talents, perform all of the duties that may be required of and
from him pursuant to the express and explicit terms hereof.
4. Vacations. Employee shall be entitled each year to a paid vacation of
at least two weeks. Vacation shall be taken by Employee at times and with
starting and ending dates determined by Employee taking into account the
reasonable needs of Employer. Vacation or portions of vacations not used in one
employment year shall carry over to the succeeding employment year, but shall
thereafter expire if not used within such succeeding year.
<PAGE>
5. Term. The term of this Agreement shall be for the period commencing, on
the Effective Date and continuing through December 31, 2000. This Agreement
shall be renewed for successive one-year terms, upon the agreement of the
Employer and Employee to renew this Agreement. For all purposes of this
Agreement, including for purposes of applying the renewal provisions of this
Section to any term subsequent to the term then being extended, the Expiration
Date shall mean December 31, 2000, for the initial term hereof, or December 31
at the end of any one-year renewal term, as the case may be.
6. Base Salary. Employer shall pay to Employee a base salary of $98,000
per annum for the period ending December 31, 1999, and $120,000 for each
successive one-year term of this Agreement. Base salary is payable biweekly in
accordance with the payroll procedures established by Employer for all its
employees. Such salary shall be subject to an annual review and may be
increased, but not decreased, by the Company's board of directors. The salary to
Employee and all other compensation and benefits hereunder shall be subject to
withholding and other applicable taxes.
7. Stock Option. As an inducement to the Employee, and in consideration of
the agreement of Employee to accept employment with Employer, on the Effective
Date of this Agreement Employer shall issue and deliver to Employee an option to
purchase shares of the Employer's common stock in the form attached hereto as
Exhibit "A".
8. Employment Benefits. Employer shall provide life, long-term disability,
and health and medical insurance for Employee in a form and program to be chosen
by Employer for its full-time employees. Employee shall be entitled to
participate in all of Employer's benefit plans, including but not limited to,
any stock option, medical, dental, life insurance, retirement, pension, profit
sharing, or other plan as in effect from time to time on the same basis as
provided generally to all other employees.
9. Working Facilities. Employer will provide to Employee at Employer's
principal executive offices suitable executive offices and facilities
appropriate for his position and suitable for the performance of his
responsibilities.
10. Expenses. Employer shall bear the cost of all expenses reasonably
incurred by the Employee in performing his duties under this Agreement. The
expenses for which Employer will reimburse Employee include, but are not limited
to, expenses for travel, lodging, meals, beverages, entertainment, and similar
items. The Employee shall provide to Employer a monthly accounting of such
expenses, all on a basis consistent with a reasonable policy established by
Employer for its executive officers. Any amount owing on the monthly accounting
will be paid by the Employer or reimbursed by the Employee, as the case may be,
within 30 days following the end of the month. Employee agrees to submit such
documentation as may be necessary to substantiate the deductibility of the
foregoing expenses for income tax purposes, which are permitted under the
Internal Revenue Code. Employee agrees to keep such records as are required
under the Internal Revenue Code and the Regulations thereunder to enable
substantiation of each of the said expenditures or reimbursements. In the event
a dispute should arise regarding any matter set forth in this paragraph 10, the
determination with respect thereto
<PAGE>
shall be made by Employer's certified public accountants, which determination
shall be final and binding on all parties hereto.
11. Non-Solicitation. During the period of this Agreement, and for an
additional period after termination or expiration of this Agreement equal to one
year, Employee agrees that he will not, directly or indirectly, solicit any
employee of Employer or any subsidiary of Employer (the "Employer Group") who
was employed by the Employer Group at any time within six months prior to the
date of termination or expiration of this Agreement. During the period of this
Agreement, and for an additional period after termination or expiration of this
Agreement equal to one year, Employee agrees that he will not, directly or
indirectly, solicit in connection with any business that is the same as or
similar to the business of the Employer Group any person, firm, or business that
was a customer or client of the Employer Group at any time during the two year
period prior to the date of termination or expiration of this Agreement or any
person, firm, or business that was solicited by any of the Employer Group to be
a customer or client of the Employer Group at any time during the six-month
period prior to the date of termination or expiration of this Agreement. The
obligation not to solicit as described above is not limited by territory. If in
any judicial proceeding a court shall refuse to enforce any of the covenants
included in this paragraph, then the unenforceable covenants shall be deemed
eliminated from these provisions for the purpose of those proceedings and solely
for the geographical area covered by the jurisdiction of the court presiding
over the proceedings to the extent necessary to permit the remainder covenants
to be enforced. The foregoing covenants shall survive the termination of this
Agreement.
12. Non-Disclosure of Information. In further consideration of employment
and the continuation of employment by Employer, Employee agrees as follows:
(a) During the period of this Agreement and after termination or
expiration of this Agreement for any reason, Employee will not, directly or
indirectly:
(i) use for his own benefit or give to any person not authorized by
Employer to receive or use such information, except for the sole benefit
of Employer, any data, information, marketing or installation plans,
procedures, results, methods, ideas, processes, or research and
development, which are proprietary to Employer;
(ii) use for his own benefit or give to any person not authorized by
Employer to receive it, any plans or specifications, customer lists, data,
study, table, report, written technical information, or the like owned by
Employer, or any copy thereof; or
(iii) use for his own benefit or give to any persons not authorized
by Employer to receive it any information that is not generally known to
anyone other than Employer, or that is designated by Employer as
"Limited", "Private", or "Confidential", or similarly designated.
(b) Employee will not, except when authorized by Employer or required for
the performance of his duties hereunder, remove any of Employer's physical
property from
<PAGE>
Employer's premises. He will return to Employer, immediately upon termination
of employment, all of Employer's physical property in his possession or control.
14. Termination. Either party may terminate this Agreement at any time for
any reason on not less than 30 days' prior written notice to the other party. In
connection with any such termination, the Employee shall receive all base salary
and benefits due him through the date of the termination. In the event
termination occurs other than on expiration of the term of this Agreement under
paragraph 5, above, or by the Company for "Cause" (as hereinafter defined), or
this Agreement is terminated by the Employee for "Good Reason" (as hereinafter
defined), the Employee's option with respect to the "Termination Options Shares"
shall vest as provided in paragraph 2 of the option attached hereto as Exhibit
"A". For purposes hereof, "Cause" shall mean any of (a) a conviction of Employee
in any criminal proceeding other than traffic violations and other minor
offenses, (b) Employee being found by a court of competent jurisdiction in a
civil action to have engaged in any conduct constituting fraud, conversion of
property, or theft, or (c) any breach by Employee of the terms of this Agreement
that is not cured within 30 days after Employee receives written notice
detailing the breach. For purposes hereof, "Good Reason" shall mean any of (x) a
substantial reduction in the duties, title, or responsibilities of the Employee
hereunder without the Employee's written consent, (y) a reduction in the base
salary or benefits due Employee hereunder without the Employee's written
consent, or (z) moving Employee's primary place of employment outside the Orem,
Utah metropolitan area without the Employee's written consent.
15. Death During Employment. If the Employee dies during the term of the
employment, Employer shall pay to the estate of Employee an amount equal to all
base salary earned as of the date of death.
16. Nontransferability. Neither Employee, his spouse, his designated
contingent beneficiary, nor their estates shall have any right to anticipate,
encumber, or dispose of any payment due under this Agreement. Such payments and
other rights are expressly declared non-assignable and nontransferable except as
specifically provided herein.
17. Indemnification. Employer shall indemnify Employee and hold him
harmless from liability for, and shall advance to him on a current basis any
expenses incurred in connection with, acts, omissions, or decisions made by him
while performing services for Employer to the greatest extent permitted by
applicable law. Employer shall also use its best efforts to obtain and maintain
during the term of this Agreement coverage for Employee in his capacity as an
officer and director of Employer of any of its subsidiaries or affiliates under
any insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer, in amounts acceptable to
Employee, against such liability.
18. Assignment. This Agreement may not be assigned (other than by will or
by operation of law), by either party without the prior written consent of the
other party. Subject to this limitation, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives, and permitted assigns.
<PAGE>
25. Arbitration. In the event of dispute or controversy between the
parties as to the performance hereof, this Agreement shall be and remain in full
force and effect and all terms hereof shall continue to be complied with by both
parties, it shall be submitted to two arbitrators, one to be appointed by each,
and if those arbitrators do not agree, they shall select a third disinterested
and competent person to act with them, and the decision of the three, or a
majority of them, shall be final and conclusive. If either party does not
appoint an arbitrator as aforesaid within 90 days after receipt of notice to the
other that it desires arbitration, which notice shall state the name and address
of the arbitrator appointed by such other, and does not within such period
furnish to such other party the name and address of the second arbitrator, then
the arbitrator first named shall appoint a disinterested and competent
arbitrator for the party thus defaulting, and the two arbitrators so appointed
shall select a third to act with them as aforesaid and with like effect. Cost of
arbitration shall be borne by the parties equally. Judgment upon the reward
rendered may be entered in any court having jurisdiction thereof.
26. Enforcement. Employee acknowledges that any remedy at law for breach
of paragraphs 11 and 12 would be inadequate, acknowledges that Employer would be
irreparably damaged by an actual or threatened breach thereof, and agrees that
Employer shall be entitled to an injunction restraining Employee from any actual
or threatened breach of paragraphs 11 and 12 as well as any further appropriate
equitable relief without any bond or other security being required. In addition
to the foregoing, each of the parties hereto shall be entitled to any remedies
available at law or in equity with respect to the breach of the terms of this
Agreement by the other party.
27. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the state of Utah.
28. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
29. Waiver. No failure by an party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any other covenant, agreement, term, or condition.
30. Non-Disclosure. Employer shall not reveal the terms of this Agreement
to any party, except as may be required by law or upon the reasonable request of
any bank, investment-banking firm, or present or proposed lender of Employer.
31. No Conflict. Each of Employer and Employee hereby represents that this
Agreement does not, and as of the Effective Date will not, conflict with any
other agreement to which it is a party.
32. Effective Date. This Agreement shall be effective ("Effective Date"),
and the term hereof shall commence upon May 3, 1999.
<PAGE>
19. Entire Agreement. This Agreement, including the option arrangements
referred to herein, is and shall be considered to be the only agreement or
understanding between the parties hereto with respect to the employment of
Employee by Employer. All negotiations, commitments, and understandings
acceptable to both parties have been incorporated herein. No letter, telegram,
or communication passing between the parties hereto shall be deemed a part of
this Agreement; nor shall it have the effect of modifying or adding to this
Agreement unless it is distinctly stated in such letter, telegram, or
communication that it is to constitute a part of this Agreement and is to be
attached as a rider to this Agreement and is signed by the parties to this
Agreement.
20. Modification of Contract. This Agreement cannot be modified by tender,
acceptance or endorsement of any instrument of payment, including check. Any
words contained in an instrument of payment modifying this contract, including a
waiver or release of any claims, or a statement referring to paying in full is
void. This Agreement can only be modified in a separate writing, other than an
instrument of payment, signed by the parties.
21. Counterpart and Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. All headings in this
Agreement are inserted for convenience of reference and shall not affect its
meaning or interpretation.
22. Cooperation. The parties shall deal with each other in good faith,
good faith meaning honesty in fact and the observance of all commercial
standards of fair dealing and usages of trade which are regularly observed
within the industry. In this regard, Employer shall not engage in any course of
conduct which is oppressive to Employee and intended by Employer to force
Employee's resignation.
23. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
24. Notices. Any notice, request, instruction, report or other document to
be given to the parties shall be in writing and delivered personally or sent by
certified mail, postage prepaid,
if to Employee: Stephen C. Flaherty
3645 North Little Rock Drive
Provo, UT 84604
if to Employer: Q Comm International, Inc.
Attn: Paul Hickey
1135 South 1680 West
Orem, UT 84058-4930
or at such other address as any party shall specify to the other party in
writing.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement at Salt Lake
City, Utah, the 3rd day of May, 1999.
EMPLOYER:
Q COMM INTERNATIONAL, INC.
By /s/ Paul Hickey
-----------------------------------------------
Duly Authorized Officer -- Paul Hickey -- CEO
EMPLOYEE
/s/ Stephen C. Flaherty
-------------------------------------------------
Stephen C. Flaherty
<PAGE>
Q COMM INTERNATIONAL, INC.
Option for the Purchase of 520,000
Shares of Common Stock
Par Value $0.001
STOCK OPTION AGREEMENT
THE HOLDER OF THIS OPTION, BY ACCEPTANCE HEREOF, BOTH WITH RESPECT TO THE OPTION
AND COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION, AGREES AND ACKNOWLEDGES
THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE
STATUTES.
This is to certify that, for value received, STEPHEN C. FLAHERTY (the
"Optionee") is entitled to purchase from Q COMM INTERNATIONAL, INC. (the
"Company"), on the terms and conditions hereinafter set forth, all or any part
of 520,000 shares ("Option Shares") of the Company's common stock, par value
$0.001 (the "Common Stock"), at the purchase price of $1.50 per share ("Option
Price"). Upon exercise of this option in whole or in part, a certificate for the
Option Shares so purchased shall be issued and delivered to the Optionee. If
less than the total option is exercised, a new option of similar tenor shall be
issued for the unexercised portion of the options represented by this Agreement.
This option is granted subject to the following further terms and
conditions:
1. This option shall vest with respect to a maximum of 520,000 Option
Shares (the "Performance Option Shares"), subject to continued employment by the
Company or its subsidiary, Q Comm, Inc., and become exercisable as stated below
and the option shall expire on April 30, 2004:
(a) 25,000 Performance Option Shares on each of May 3, and November 3,
1999, and May 3 and November 3, 2000;
(b) 20,000 Performance Option Shares on January 1, 2000, if the Company
secures financing in equity or debt by December 31, 1999 for at
least $500,000; or 30,000 Performance Option Shares on January 1,
2000, if the financing is at least $1,000,000; or 40,000 Performance
Option Shares on January 1, 2000, if the financing is at least
$1,500,000.
(c) 25,000 Performance Option Shares on March 31, 2001, if the Company's
gross revenue from operations for the year ending December 31, 2000,
as shown on the Company's audited financial statements (the "2000
Revenue Measure") is at least
<PAGE>
$6,000,000; or 65,000 Performance Option Shares on March 31, 2001,
if the 2000 Revenue Measure is at least $8,000,000; or 105,000
Performance Option Shares on March 31, 2001, if the 2000 Revenue
Measure is at least $10,000,000; or 120,000 Performance Option
Shares on March 31, 2001, if the 2000 Revenue Measure is at least
$12,000,000; or 135,000 Performance Option Shares on March 31, 2001,
if the 2000 Revenue Measure is at least $14,000,000 and
(d) 50,000 Performance Option Shares on May 29, 2000, if the average
Fair Market Value per share of Common Stock (as defined under
paragraph 3(e), below) over the four week period ending May 26, 2000
(the "Price Measure") is at least $3.00 per share and the average
weekly trading volume during said period is at least 20,000 shares;
or 75,000 Performance Option Shares on May 29, 2000, if the Price
Measure is at least $4.00 per share and the average weekly trading
volume during the four week period ending May 26, 2000, is at least
20,000 shares; or 100,000 Performance Option Shares on May 29, 2000,
if the Price Measure is at least $5.00 per share and the average
weekly trading volume during the four week period ending May 26,
2000, is at least 20,000 shares; or 125,000 Performance Option
Shares on May 29, 2000, if the Price Measure is at least $6.00 per
share and the average weekly trading volume during the four week
period ending May 26, 2000, is at least 20,000 shares.
In the event the Employment Agreement between the Company and Optionee dated May
3, 1999 (the "Employment Agreement"), is terminated by the Company for Cause as
defined in paragraph 14 of the Employment Agreement or is terminated by the
Optionee without Good Reason as defined in paragraph 14 of the Employment
Agreement, the right to exercise this option with respect to any of the
Performance Option Shares shall expire and terminate concurrently with the
termination of employment.
In the event the Employment Agreement is terminated by the Company without Cause
as defined in paragraph 14 of the Employment Agreement or is terminated by the
Optionee with Good Reason as defined in paragraph 14 of the Employment
Agreement, the right to exercise this option with respect to any of the
Performance Option Shares that are subject to vesting on the occurrence of
future events following the date of termination shall immediately vest and be
exercisable in accordance with the terms hereof.
In the event there is a Change in Control of the Company (as hereinafter
defined), the right to purchase all Performance Option Shares vested as of the
date of the Change in Control shall expire 120 days following the date of the
Change in Control, and all Performance Option Shares subject to vesting on the
occurrence of future events following the date of the Change in Control shall
immediately vest and expire 120 days following the date of the Change in
Control. For purposes of this Agreement, a "Change in Control" means the
occurrence of any one or more of the following:
(i) Any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"),
(other than the Company, a majority-owned subsidiary of the Company,
an affiliate of the Company within the meaning of the Exchange Act,
or a Company employee benefit plan, including any trustee of such
plan acting as trustee), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (or a successor to the
Company) representing 50% or more of the combined voting power of
the then outstanding securities of the Company or such successor;
2
<PAGE>
(ii) At any time that the Company has shares registered under the
Exchange Act at least 50% of the directors of the Company constitute
persons who were not at the time of their first election to the
board of directors of the Company, candidates proposed by a majority
of such board of directors in office prior to the time of such first
election; or
(iii) (A) the dissolution of the Company or liquidation of more than 50%
in value of the Company or a sale of assets involving 50% or more in
value of the assets of the Company, (B) any merger or reorganization
of the Company whether or not another entity is the survivor,
pursuant to which the holders, as a group, of all of the shares of
the Company outstanding prior to the transaction hold, as a group,
less than 50% of the combined voting power of the Company or any
successor company outstanding after the transaction, (C) a
transaction or related set of transactions (including without
limitation a merger or tender offer together with a related purchase
of shares by the tender offeror in the market) pursuant to which the
holders, as a group, of all of the shares of the Company outstanding
prior to the transaction hold, as a group, less than 50% of the
combined voting power of the Company or any successor company
outstanding after the transaction, or (D) any other event which the
board of directors of the Company determines, in its discretion,
would materially alter the structure of the Company or its
ownership.
2. If the Employment Agreement is terminated by the Company without Cause
as defined in paragraph 14 of the Employment Agreement or is terminated by the
Optionee with Good Reason as defined in paragraph 14 of the Employment
Agreement, this option shall vest with respect to that number of Option Shares
(up to a maximum of 120,000 Option Shares) equal in number to the dollar amount
of the base salary of Optionee specified in paragraph 6 of the Employment
Agreement as of the date of termination of the Employment Agreement (the
"Termination Option Shares") and become exercisable as stated below at any time
on or before April 30, 2004.
3. In order to exercise this option with respect to all or any part of the
Option Shares for which this option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(a) Deliver to the Corporate Secretary of the Corporation an executed
notice of exercise in substantially the form of attached to this
Agreement (the "Exercise Notice") in which there is specified the
number of Option Shares which are to be purchased under the
exercised option.
(b) Pay the aggregate Option Price for the purchased shares through one
or more of the following alternatives:
(i) full payment in cash or by check made payable to the
Corporation's order;
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is defined below);
(iii) full payment through a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to
the Company's earnings for
3
<PAGE>
financial reporting purposes and valued at Fair Market Value
on the Exercise Date and cash or check payable to the
Company's order;
(vi) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
concurrent irrevocable written instructions (i) to a brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
Option Price payable for the purchased shares plus all
applicable Federal, state and local income and employment
taxes required to be withheld in connection with such purchase
and (ii) to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in order to
complete the sale transaction; or
(v) full payment through conversion of the option to purchase
Option Shares into the number of fully paid and nonassessable
Option Shares calculated pursuant to the following formula:
X = Y(A-B)
------
A
where: X = the number of Option Shares to be issued to
the Optionee;
Y = the number of Option Shares for which the
conversion right is being exercised;
A = the Fair Market Value per share as of the date of
exercise of such conversion right; and
B = the Option Price with respect to such Option
Shares.
(c) Furnish to the Corporation appropriate documentation that the person
or persons exercising the option (if other than Optionee) have the
right to exercise this option.
(d) For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Exercise Notice shall have been delivered to
the Company. Except to the extent the sale and remittance procedure
specified above is utilized in connection with the option exercise,
payment of the Option Price for the purchased shares must accompany
such Exercise Notice.
(e) For all valuation purposes under this Agreement, the Fair Market
Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national securities exchange but is traded on
the Nasdaq National Market, the Fair Market Value shall be the
mean between the highest "bid" and lowest "offered" quotations
of a share of Common Stock on such date (or if none, on the
most recent date on which there were bid and offered
quotations of a share of
4
<PAGE>
Common Stock), as reported by the Nasdaq National Market or
any successor system.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per share on
the date in question on the securities exchange, as such price
is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the Fair Market
Value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(iii) If the Common Stock is not listed on such date on any national
securities exchange nor included in the Nasdaq National
Market, but is traded in the over-the-counter market, the
highest "bid" quotation of a share of Common Stock on such
date (or if none, on the most recent date on which there were
bid quotations of a share of Common Stock), as reported on the
Nasdaq Smallcap Market or the NASD OTC Bulletin Board, as
applicable.
(f) Upon such exercise, the Company shall issue and cause to be
delivered with all reasonable dispatch (and in any event within
three business days of such exercise) to or upon the written order
of the Optionee at its address, and in the name of the Optionee, a
certificate or certificates for the number of full Option Shares
issuable upon the exercise together with such other property
(including cash) and securities as may then be deliverable upon such
exercise. Such certificate or certificates shall be deemed to have
been issued and the Optionee shall be deemed to have become a holder
of record of such Option Shares as of the Exercise Date.
4. The Optionee acknowledges that the shares subject to this option have
not and will not be registered as of the date of exercise of this option under
the Securities Act or the securities laws of any state. The Optionee
acknowledges that this option and the shares issuable on exercise of the option,
when and if issued, are and will be "restricted securities" as defined in Rule
144 promulgated by the Securities and Exchange Commission and must be held
indefinitely unless subsequently registered under the Securities Act and any
other applicable state registration requirements. The Company is under no
obligation to register the securities under the Securities Act or under
applicable state statutes. In the absence of such a registration or an available
exemption from registration, sale of the Option Shares may be practicably
impossible. The Optionee shall confirm to the Company the representations set
forth above in connection with the exercise of all or any portion of this
option.
5. The number of Option Shares purchasable upon the exercise of this
option and the Option Price per share shall be subject to adjustment from time
to time subject to the following terms. If the outstanding shares of Common
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, the Company or its successors and assigns shall make an appropriate and
proportionate adjustment in the number or kind of shares, and the per-share
Option Price thereof, which may be issued to the Optionee under this Agreement
upon exercise of the options granted under this Agreement. The purchase rights
represented by this option shall not be exercisable with respect to a fraction
of a share of Common Stock. Any fractional shares of Common Stock arising from
the dilution or other adjustment in the number of shares subject to this option
shall rounded up to the nearest whole share.
5
<PAGE>
6. The Company covenants and agrees that all Option Shares which may be
delivered upon the exercise of this option will, upon delivery, be free from all
taxes, liens, and charges with respect to the purchase thereof; provided, that
the Company shall have no obligation with respect to any income tax liability of
the Optionee and the Company may, in its discretion, withhold such amount or
require the Optionee to make such provision of funds or other consideration as
the Company deems necessary to satisfy any income tax withholding obligation
under federal or state law.
7. The Company agrees at all times to reserve or hold available a
sufficient number of shares of Common Stock to cover the number of Option Shares
issuable upon the exercise of this and all other options of like tenor then
outstanding.
8. This option shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this option or the interest represented hereby or the Option
Shares purchasable hereunder until or unless, and except to the extent that,
this option shall be exercised..
9. The Company may deem and treat the registered owner of this option as
the absolute owner hereof for all purposes and shall not be affected by any
notice to the contrary.
10. In the event that any provision of this Agreement is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.
11. This Agreement shall be governed by and construed in accordance with
the internal laws of the state of Utah, without regard to the principles of
conflicts of law thereof.
12. Except as otherwise provided herein, this Agreement shall be binding
on and inure to the benefit of the Company and the person to whom an option is
granted hereunder, and such person's heirs, executors, administrators, legatees,
personal representatives, assignees, and transferees.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed by
the signature of its duly authorized officer, effective this 3rd day of May,
1999.
Q COMM INTERNATIONAL, INC.
By /s/ Paul Hickey
------------------------------------
Duly Authorized Officer
The undersigned Optionee hereby acknowledges receipt of a copy of the
foregoing option and agrees to the terms and conditions set forth in the option.
/s/ Stephen C. Flaherty
--------------------------------------
Stephen C. Flaherty
<PAGE>
Exercise Notice
(to be signed only upon exercise of Option)
TO: Q Comm International, Inc.
The Optionee, holder of the attached option, hereby irrevocable elects to
exercise the purchase rights represented by the option for, and to purchase
hereunder, ____________________________________ shares of common stock of Q Comm
International, Inc., and herewith makes payment therefor, and requests that the
certificate(s) for such shares be delivered to the Optionee at:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
If purchase is to be effected by conversion of the option to Common Stock,
the Optionee hereby converts option rights with respect to
______________________________________ Option Shares represented by the option.
If acquired without registration under the Securities Act of 1933, as
amended ("Securities Act"), the Optionee represents that the Common Stock is
being acquired without a view to, or for, resale in connection with any
distribution thereof without registration or other compliance under the
Securities Act and applicable state statutes, and that the Optionee has no
direct or indirect participation in any such undertaking or in the underwriting
of such an undertaking. The Optionee understands that the Common Stock has not
been registered, but is being acquired by reason of a specific exemption under
the Securities Act as well as under certain state statutes for transactions by
an issuer not involving any public offering and that any disposition of the
Common Stock may, under certain circumstances, be inconsistent with these
exemptions. The Optionee acknowledges that the Common Stock must be held and may
not be sold, transferred, or otherwise disposed of for value unless subsequently
registered under the Securities Act or an exemption from such registration is
available. The Company is under no obligation to register the Common Stock under
the Securities Act, except as provided in the Agreement for the option. The
certificates representing the Common Stock will bear a legend restricting
transfer, except in compliance with applicable federal and state securities
statutes.
The Optionee agrees and acknowledges that this purported exercise of the
option is conditioned on, and subject to, any compliance with requirements of
applicable federal and state securities laws deemed necessary by the Company.
DATED this ________ day of______________________, _________
____________________________________________
Signature
8
<PAGE>
Q COMM INTERNATIONAL, INC.
Option for the Purchase of 200,000
Shares of Common Stock
Par Value $0.001
STOCK OPTION AGREEMENT
THE HOLDER OF THIS OPTION, BY ACCEPTANCE HEREOF, BOTH WITH RESPECT TO THE OPTION
AND COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION, AGREES AND ACKNOWLEDGES
THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE
STATUTES.
This is to certify that, for value received, JOHN T. HICKEY (the
"Optionee") is entitled to purchase from Q COMM INTERNATIONAL, INC. (the
"Company"), on the terms and conditions hereinafter set forth, all or any part
of 200,000 shares ("Option Shares") of the Company's common stock, par value
$0.001 (the "Common Stock"), at the purchase price of $1.50 per share ("Option
Price"). Upon exercise of this option in whole or in part, a certificate for the
Option Shares so purchased shall be issued and delivered to the Optionee. If
less than the total option is exercised, a new option of similar tenor shall be
issued for the unexercised portion of the options represented by this Agreement.
This option is granted subject to the following further terms and
conditions:
1. This option shall vest with respect to a maximum of 200,000 Option
Shares (the "Performance Option Shares"), subject to continued employment by the
Company or its subsidiary, Q Comm, Inc., and become exercisable as stated below
and the option shall expire on April 30, 2004:
(a) 12,500 Performance Option Shares on each of May 3, and November 3,
1999, and May 3 and November 3, 2000;
(b) 10,000 Performance Option Shares on January 1, 2000, if the Company
secures financing in equity or debt by December 31, 1999 for at
least $500,000; or 20,000 Performance Option Shares on March 31,
2000, if the financing is at least $1,000,000; or 30,000 Performance
Option Shares on March 31, 2000, if the financing is at least
$1,500,000.
(c) 10,000 Performance Option Shares on March 31, 2001, if the Company's
gross revenue from operations for the year ending December 31, 2000,
as shown on the Company's audited financial statements (the "2000
Revenue Measure") is at least
<PAGE>
$6,000,000; or 20,000 Performance Option Shares on March 31, 2001,
if the 2000 Revenue Measure is at least $8,000,000; or 30,000
Performance Option Shares on March 31, 2001, if the 2000 Revenue
Measure is at least $10,000,000; or 40,000 Performance Option Shares
on March 31, 2001, if the 2000 Revenue Measure is at least
$12,000,000; or 50,000 Performance Option Shares on March 31, 2001,
if the 2000 Revenue Measure is at least $14,000,000 and
(d) 25,000 Performance Option Shares on May 29, 2000, if the average
Fair Market Value per share of Common Stock (as defined under
paragraph 3(e), below) over the four week period ending May 26, 2000
(the "Price Measure") is at least $3.00 per share and the average
weekly trading volume during said period is at least 20,000 shares;
or 37,500 Performance Option Shares on May 29, 2000, if the Price
Measure is at least $4.00 per share and the average weekly trading
volume during the four week period ending May 26, 2000, is at least
20,000 shares; or 50,000 Performance Option Shares on May 29, 2000,
if the Price Measure is at least $5.00 per share and the average
weekly trading volume during the four week period ending May 26,
2000, is at least 20,000 shares; or 70,000 Performance Option Shares
on May 29, 2000, if the Price Measure is at least $6.00 per share
and the average weekly trading volume during the four week period
ending May 26, 2000, is at least 20,000 shares.
In the event the Employment Agreement between the Company and Optionee dated May
3, 1999 (the "Employment Agreement"), is terminated by the Company for Cause as
defined in paragraph 14 of the Employment Agreement or is terminated by the
Optionee without Good Reason as defined in paragraph 14 of the Employment
Agreement, the right to exercise this option with respect to any of the
Performance Option Shares shall expire and terminate concurrently with the
termination of employment.
In the event the Employment Agreement is terminated by the Company without Cause
as defined in paragraph 14 of the Employment Agreement or is terminated by the
Optionee with Good Reason as defined in paragraph 14 of the Employment
Agreement, the right to exercise this option with respect to any of the
Performance Option Shares that are subject to vesting on the occurrence of
future events following the date of termination shall immediately vest and be
exercisable in accordance with the terms hereof.
In the event there is a Change in Control of the Company (as hereinafter
defined), the right to purchase all Performance Option Shares vested as of the
date of the Change in Control shall expire 120 days following the date of the
Change in Control, and all Performance Option Shares subject to vesting on the
occurrence of future events following the date of the Change in Control shall
immediately vest and expire 120 days following the date of the Change in
Control. For purposes of this Agreement, a "Change in Control" means the
occurrence of any one or more of the following:
(i) Any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"),
(other than the Company, a majority-owned subsidiary of the Company,
an affiliate of the Company within the meaning of the Exchange Act,
or a Company employee benefit plan, including any trustee of such
plan acting as trustee), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (or a successor to the
Company) representing 50% or more of the combined voting power of
the then outstanding securities of the Company or such successor;
2
<PAGE>
(ii) At any time that the Company has shares registered under the
Exchange Act at least 50% of the directors of the Company constitute
persons who were not at the time of their first election to the
board of directors of the Company, candidates proposed by a majority
of such board of directors in office prior to the time of such first
election; or
(iii) (A) the dissolution of the Company or liquidation of more than 50%
in value of the Company or a sale of assets involving 50% or more in
value of the assets of the Company, (B) any merger or reorganization
of the Company whether or not another entity is the survivor,
pursuant to which the holders, as a group, of all of the shares of
the Company outstanding prior to the transaction hold, as a group,
less than 50% of the combined voting power of the Company or any
successor company outstanding after the transaction, (C) a
transaction or related set of transactions (including without
limitation a merger or tender offer together with a related purchase
of shares by the tender offeror in the market) pursuant to which the
holders, as a group, of all of the shares of the Company outstanding
prior to the transaction hold, as a group, less than 50% of the
combined voting power of the Company or any successor company
outstanding after the transaction, or (D) any other event which the
board of directors of the Company determines, in its discretion,
would materially alter the structure of the Company or its
ownership.
2. In order to exercise this option with respect to all or any part of the
Option Shares for which this option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(a) Deliver to the Corporate Secretary of the Corporation an executed
notice of exercise in substantially the form of attached to this
Agreement (the "Exercise Notice") in which there is specified the
number of Option Shares which are to be purchased under the
exercised option.
(b) Pay the aggregate Option Price for the purchased shares through one
or more of the following alternatives:
(i) full payment in cash or by check made payable to the
Corporation's order;
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is defined below);
(iii) full payment through a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to
the Company's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date and cash or
check payable to the Company's order;
(vi) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
concurrent irrevocable written instructions (i) to a brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Company, out of the sale proceeds available on
the
3
<PAGE>
settlement date, sufficient funds to cover the aggregate
Option Price payable for the purchased shares plus all
applicable Federal, state and local income and employment
taxes required to be withheld in connection with such purchase
and (ii) to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in order to
complete the sale transaction; or
(v) full payment through conversion of the option to purchase
Option Shares into the number of fully paid and nonassessable
Option Shares calculated pursuant to the following formula:
X = Y(A-B)
------
A
where: X = the number of Option Shares to be issued to
the Optionee;
Y = the number of Option Shares for which the
conversion right is being exercised;
A = the Fair Market Value per share as of the date of
exercise of such conversion right; and
B = the Option Price with respect to such Option
Shares.
(c) Furnish to the Corporation appropriate documentation that the person
or persons exercising the option (if other than Optionee) have the
right to exercise this option.
(d) For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Exercise Notice shall have been delivered to
the Company. Except to the extent the sale and remittance procedure
specified above is utilized in connection with the option exercise,
payment of the Option Price for the purchased shares must accompany
such Exercise Notice.
(e) For all valuation purposes under this Agreement, the Fair Market
Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national securities exchange but is traded on
the Nasdaq National Market, the Fair Market Value shall be the
mean between the highest "bid" and lowest "offered" quotations
of a share of Common Stock on such date (or if none, on the
most recent date on which there were bid and offered
quotations of a share of Common Stock), as reported by the
Nasdaq National Market or any successor system.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per share on
the date in question on the securities exchange, as such price
is officially quoted in the composite tape of transactions on
such exchange. If
4
<PAGE>
there is no reported sale of Common Stock on such exchange on
the date in question, then the Fair Market Value shall be the
closing selling price on the exchange on the last preceding
date for which such quotation exists.
(iii) If the Common Stock is not listed on such date on any national
securities exchange nor included in the Nasdaq National
Market, but is traded in the over-the-counter market, the
highest "bid" quotation of a share of Common Stock on such
date (or if none, on the most recent date on which there were
bid quotations of a share of Common Stock), as reported on the
Nasdaq Smallcap Market or the NASD OTC Bulletin Board, as
applicable.
(f) Upon such exercise, the Company shall issue and cause to be
delivered with all reasonable dispatch (and in any event within
three business days of such exercise) to or upon the written order
of the Optionee at its address, and in the name of the Optionee, a
certificate or certificates for the number of full Option Shares
issuable upon the exercise together with such other property
(including cash) and securities as may then be deliverable upon such
exercise. Such certificate or certificates shall be deemed to have
been issued and the Optionee shall be deemed to have become a holder
of record of such Option Shares as of the Exercise Date.
4. The Optionee acknowledges that the shares subject to this option have
not and will not be registered as of the date of exercise of this option under
the Securities Act or the securities laws of any state. The Optionee
acknowledges that this option and the shares issuable on exercise of the option,
when and if issued, are and will be "restricted securities" as defined in Rule
144 promulgated by the Securities and Exchange Commission and must be held
indefinitely unless subsequently registered under the Securities Act and any
other applicable state registration requirements. The Company is under no
obligation to register the securities under the Securities Act or under
applicable state statutes. In the absence of such a registration or an available
exemption from registration, sale of the Option Shares may be practicably
impossible. The Optionee shall confirm to the Company the representations set
forth above in connection with the exercise of all or any portion of this
option.
5. The number of Option Shares purchasable upon the exercise of this
option and the Option Price per share shall be subject to adjustment from time
to time subject to the following terms. If the outstanding shares of Common
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, the Company or its successors and assigns shall make an appropriate and
proportionate adjustment in the number or kind of shares, and the per-share
Option Price thereof, which may be issued to the Optionee under this Agreement
upon exercise of the options granted under this Agreement. The purchase rights
represented by this option shall not be exercisable with respect to a fraction
of a share of Common Stock. Any fractional shares of Common Stock arising from
the dilution or other adjustment in the number of shares subject to this option
shall rounded up to the nearest whole share.
6. The Company covenants and agrees that all Option Shares which may be
delivered upon the exercise of this option will, upon delivery, be free from all
taxes, liens, and charges with respect to the purchase thereof; provided, that
the Company shall have no obligation with respect to any income tax liability of
the Optionee and the Company may, in its discretion, withhold such amount or
require the Optionee to make such provision of funds or other consideration as
the Company deems necessary to satisfy any income tax withholding obligation
under federal or state law.
5
<PAGE>
7. The Company agrees at all times to reserve or hold available a
sufficient number of shares of Common Stock to cover the number of Option Shares
issuable upon the exercise of this and all other options of like tenor then
outstanding.
8. This option shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this option or the interest represented hereby or the Option
Shares purchasable hereunder until or unless, and except to the extent that,
this option shall be exercised.
9. The Company may deem and treat the registered owner of this option as
the absolute owner hereof for all purposes and shall not be affected by any
notice to the contrary.
10. In the event that any provision of this Agreement is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.
11. This Agreement shall be governed by and construed in accordance with
the internal laws of the state of Utah, without regard to the principles of
conflicts of law thereof.
12. Except as otherwise provided herein, this Agreement shall be binding
on and inure to the benefit of the Company and the person to whom an option is
granted hereunder, and such person's heirs, executors, administrators, legatees,
personal representatives, assignees, and transferees.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed by
the signature of its duly authorized officer, effective this 3rd day of May,
1999.
Q COMM INTERNATIONAL, INC.
By /s/ [ILLEGIBLE]
---------------------------
Duly Authorized Officer
The undersigned Optionee hereby acknowledges receipt of a copy of the
foregoing option and acknowledges and agrees to the terms and conditions set
forth in the option.
/s/ John T. Hickey
-----------------------------
John T. Hickey
7
<PAGE>
Q COMM INTERNATIONAL, INC.
Option for the Purchase of 100,000
Shares of Common Stock
Par Value $0.001
STOCK OPTION AGREEMENT
THE HOLDER OF THIS OPTION, BY ACCEPTANCE HEREOF, BOTH WITH RESPECT TO THE OPTION
AND COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION, AGREES AND ACKNOWLEDGES
THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE
STATUTES.
This is to certify that, for value received, BRUCE R. SISKONEN (the
"Optionee") is entitled to purchase from Q COMM INTERNATIONAL, INC. (the
"Company"), on the terms and conditions hereinafter set forth, all or any part
of 100,000 shares ("Option Shares") of the Company's common stock, par value
$0.001 (the "Common Stock"), at the purchase price of $2.25 per share ("Option
Price"). Upon exercise of this option in whole or in part, a certificate for the
Option Shares so purchased shall be issued and delivered to the Optionee. If
less than the total option is exercised, a new option of similar tenor shall be
issued for the unexercised portion of the options represented by this Agreement.
This option is granted subject to the following further terms and
conditions:
1.This option shall vest with respect to a maximum of 100,000 Option
Shares (the "Performance Option Shares"), subject to continued employment by the
Company or its subsidiary, Q Comm, Inc., and become exercisable as stated below
and the option shall expire on April 30, 2004:
(a) 5,000 Performance Option Shares on each of July 12,1999, and January
12, 2000, and July 12, 2000, and January 12, 2001;
(b) 4,000 Performance Option Shares on January 1, 2000, if the Company
secures financing in equity or debt by December 31, 1999 for at
least $500,000; or 6,000 Performance Option Shares on January 1,
2000, if the financing is at least $1,000,000; or 10,000 Performance
Option Shares on January 1, 2000, if the financing is at least
$1,500,000.
(c) 5,000 Performance Option Shares on March 31, 2001, if the Company's
gross revenue from operations for the year ending December 31, 2000,
as shown on the Company's audited financial statements (the "2000
Revenue Measure") is at least $6,000,000; or 15,000 Performance
Option Shares on March 31, 2001, if the 2000 Revenue Measure is at
<PAGE>
least $8,000,000; or 25,000 Performance Option Shares on March 31,
2001, if the 2000 Revenue Measure is at least $10,000,000; or 30,000
Performance Option Shares on March 31, 2001, if the 2000 Revenue
Measure is at least $12,000,000; or 35,000 Performance Option Shares
on March 31, 2001, if the 2000 Revenue Measure is at least
$14,000,000 and
(d) 10,000 Performance Option Shares on May 29, 2000, if the average
Fair Market Value per share of Common Stock (as defined under
paragraph 3(e), below) over the four week period ending May 26, 2000
(the "Price Measure") is at least $3.00 per share and the average
weekly trading volume during said period is at least 20,000 shares;
or 15,000 Performance Option Shares on May 29, 2000, if the Price
Measure is at least $4.00 per share and the average weekly trading
volume during the four week period ending May 26, 2000, is at least
20,000 shares; or 25,000 Performance Option Shares on May 29, 2000,
if the Price Measure is at least $5.00 per share and the average
weekly trading volume during the four week period ending May 26,
2000, is at least 20,000 shares; or 35,000 Performance Option Shares
on May 29, 2000, if the Price Measure is at least $6.00 per share
and the average weekly trading volume during the four week period
ending May 26, 2000, is at least 20,000 shares.
In the event the Employment Agreement between the Company and Optionee dated
July 12, 1999 (the "Employment Agreement"), is terminated by the Company for
Cause as defined in paragraph 14 of the Employment Agreement or is terminated by
the Optionee without Good Reason as defined in paragraph 14 of the Employment
Agreement, the right to exercise this option with respect to any of the
Performance Option Shares shall expire and terminate concurrently with the
termination of employment.
In the event the Employment Agreement is terminated by the Company without Cause
as defined in paragraph 14 of the Employment Agreement or is terminated by the
Optionee with Good Reason as defined in paragraph 14 of the Employment
Agreement, the right to exercise this option with respect to any of the
Performance Option Shares that are subject to vesting on the occurrence of
future events following the date of termination shall immediately vest and be
exercisable in accordance with the terms hereof.
In the event there is a Change in Control of the Company (as hereinafter
defined), the right to purchase all Performance Option Shares vested as of the
date of the Change in Control shall expire 120 days following the date of the
Change in Control, and all Performance Option Shares subject to vesting on the
occurrence of future events following the date of the Change in Control shall
immediately vest and expire 120 days following the date of the Change in
Control. For purposes of this Agreement, a "Change in Control" means the
occurrence of any one or more of the following:
(i) Any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"),
(other than the Company, a majority-owned subsidiary of the Company,
an affiliate of the Company within the meaning of the Exchange Act,
or a Company employee benefit plan, including any trustee of such
plan acting as trustee), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (or a successor to the
Company) representing 50% or more of the combined voting power of
the then outstanding securities of the Company or such successor;
(ii) At any time that the Company has shares registered under the
Exchange Act at least 50% of the directors of the Company constitute
persons who were not at the time of their first
2
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election to the board of directors of the Company, candidates
proposed by a majority of such board of directors in office prior to
the time of such first election; or
(iii) (A) the dissolution of the Company or liquidation of more than 50%
in value of the Company or a sale of assets involving 50% or more in
value of the assets of the Company, (B) any merger or reorganization
of the Company whether or not another entity is the survivor,
pursuant to which the holders, as a group, of all of the shares of
the Company outstanding prior to the transaction hold, as a group,
less than 50% of the combined voting power of the Company or any
successor company outstanding after the transaction, (C) a
transaction or related set of transactions (including without
limitation a merger or tender offer together with a related purchase
of shares by the tender offeror in the market) pursuant to which the
holders, as a group, of all of the shares of the Company outstanding
prior to the transaction hold, as a group, less than 50% of the
combined voting power of the Company or any successor company
outstanding after the transaction, or (D) any other event which the
board of directors of the Company determines, in its discretion,
would materially alter the structure of the Company or its
ownership.
2. In order to exercise this option with respect to all or any part of the
Option Shares for which this option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(a) Deliver to the Corporate Secretary of the Corporation an executed
notice of exercise in substantially the form of attached to this
Agreement (the "Exercise Notice") in which there is specified the
number of Option Shares which are to be purchased under the
exercised option.
(b) Pay the aggregate Option Price for the purchased shares through one
or more of the following alternatives:
(i) full payment in cash or by check made payable to the
Corporation's order;
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is defined below);
(iii) full payment through a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to
the Company's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date and cash or
check payable to the Company's order;
(vi) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
concurrent irrevocable written instructions (i) to a brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
Option Price payable for the purchased shares plus all
applicable Federal, state and local income and
3
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employment taxes required to be withheld in connection with
such purchase and (ii) to the Company to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction; or
(v) full payment through conversion of the option to purchase
Option Shares into the number of fully paid and nonassessable
Option Shares calculated pursuant to the following formula:
X = Y(A-B)
------
A
where: X = the number of Option Shares to be issued to
the Optionee;
Y = the number of Option Shares for which the
conversion right is being exercised;
A = the Fair Market Value per share as of the date of
exercise of such conversion right; and
B = the Option Price with respect to such Option
Shares.
(c) Furnish to the Corporation appropriate documentation that the person
or persons exercising the option (if other than Optionee) have the
right to exercise this option.
(d) For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Exercise Notice shall have been delivered to
the Company. Except to the extent the sale and remittance procedure
specified above is utilized in connection with the option exercise,
payment of the Option Price for the purchased shares must accompany
such Exercise Notice.
(e) For all valuation purposes under this Agreement, the Fair Market
Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national securities exchange but is traded on
the Nasdaq National Market, the Fair Market Value shall be the
mean between the highest "bid" and lowest "offered" quotations
of a share of Common Stock on such date (or if none, on the
most recent date on which there were bid and offered
quotations of a share of Common Stock), as reported by the
Nasdaq National Market or any successor system.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per share on
the date in question on the securities exchange, as such price
is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on
such exchange on the date in
4
<PAGE>
question, then the Fair Market Value shall be the closing
selling price on the exchange on the last preceding date for
which such quotation exists.
(iii) If the Common Stock is not listed on such date on any national
securities exchange nor included in the Nasdaq National
Market, but is traded in the over-the-counter market, the
highest "bid" quotation of a share of Common Stock on such
date (or if none, on the most recent date on which there were
bid quotations of a share of Common Stock), as reported on the
Nasdaq Smallcap Market or the NASD OTC Bulletin Board, as
applicable.
(f) Upon such exercise, the Company shall issue and cause to be
delivered with all reasonable dispatch (and in any event within
three business days of such exercise) to or upon the written order
of the Optionee at its address, and in the name of the Optionee, a
certificate or certificates for the number of full Option Shares
issuable upon the exercise together with such other property
(including cash) and securities as may then be deliverable upon such
exercise. Such certificate or certificates shall be deemed to have
been issued and the Optionee shall be deemed to have become a holder
of record of such Option Shares as of the Exercise Date.
4. The Optionee acknowledges that the shares subject to this option have
not and will not be registered as of the date of exercise of this option under
the Securities Act or the securities laws of any state. The Optionee
acknowledges that this option and the shares issuable on exercise of the option,
when and if issued, are and will be "restricted securities" as defined in Rule
144 promulgated by the Securities and Exchange Commission and must be held
indefinitely unless subsequently registered under the Securities Act and any
other applicable state registration requirements. The Company is under no
obligation to register the securities under the Securities Act or under
applicable state statutes. In the absence of such a registration or an available
exemption from registration, sale of the Option Shares may be practicably
impossible. The Optionee shall confirm to the Company the representations set
forth above in connection with the exercise of all or any portion of this
option.
5. The number of Option Shares purchasable upon the exercise of this
option and the Option Price per share shall be subject to adjustment from time
to time subject to the following terms. If the outstanding shares of Common
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, the Company or its successors and assigns shall make an appropriate and
proportionate adjustment in the number or kind of shares, and the per-share
Option Price thereof, which may be issued to the Optionee under this Agreement
upon exercise of the options granted under this Agreement. The purchase rights
represented by this option shall not be exercisable with respect to a fraction
of a share of Common Stock. Any fractional shares of Common Stock arising from
the dilution or other adjustment in the number of shares subject to this option
shall rounded up to the nearest whole share.
6. The Company covenants and agrees that all Option Shares which may be
delivered upon the exercise of this option will, upon delivery, be free from all
taxes, liens, and charges with respect to the purchase thereof; provided, that
the Company shall have no obligation with respect to any income tax liability of
the Optionee and the Company may, in its discretion, withhold such amount or
require the Optionee to make such provision of funds or other consideration as
the Company deems necessary to satisfy any income tax withholding obligation
under federal or state law.
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<PAGE>
7. The Company agrees at all times to reserve or hold available a
sufficient number of shares of Common Stock to cover the number of Option Shares
issuable upon the exercise of this and all other options of like tenor then
outstanding.
8. This option shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this option or the interest represented hereby or the Option
Shares purchasable hereunder until or unless, and except to the extent that,
this option shall be exercised.
9. The Company may deem and treat the registered owner of this option as
the absolute owner hereof for all purposes and shall not be affected by any
notice to the contrary.
10. In the event that any provision of this Agreement is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.
11. This Agreement shall be governed by and construed in accordance with
the internal laws of the state of Utah, without regard to the principles of
conflicts of law thereof.
12. Except as otherwise provided herein, this Agreement shall be binding
on and inure to the benefit of the Company and the person to whom an option is
granted hereunder, and such person's heirs, executors, administrators, legatees,
personal representatives, assignees, and transferees.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed by
the signature of its duly authorized officer, effective this 3rd day of May,
1999.
Q COMM INTERNATIONAL, INC.
By /s/ [ILLEGIBLE]
---------------------------
Duly Authorized Officer
The undersigned Optionee hereby acknowledges receipt of a copy of the
foregoing option and acknowledges and agrees to the terms and conditions set
forth in the option.
/s/ Bruce R. Siskonen
------------------------------
Bruce R. Siskonen
<PAGE>
Exercise Notice
(to be signed only upon exercise of Option)
TO: Q Comm International, Inc.
The Optionee, holder of the attached option, hereby irrevocable elects to
exercise the purchase rights represented by the option for, and to purchase
thereunder, shares of common stock of Q Comm International, Inc., and herewith
makes payment therefor, and requests that the certificate(s) for such shares be
delivered to the Optionee at:
____________________________________________________
____________________________________________________
____________________________________________________
If purchase is to be effected by conversion of the option to Common Stock,
the Optionee hereby converts option rights with respect to
__________________________ Option Shares represented by the option.
If acquired without registration under the Securities Act of 1933, as
amended ("Securities Act"), the Optionee represents that the Common Stock is
being acquired without a view to, or for, resale in connection with any
distribution thereof without registration or other compliance under the
Securities Act and applicable state statutes, and that the Optionee has no
direct or indirect participation in any such undertaking or in the underwriting
of such an undertaking. The Optionee understands that the Common Stock has not
been registered, but is being acquired by reason of a specific exemption under
the Securities Act as well as under certain state statutes for transactions by
an issuer not involving any public offering and that any disposition of the
Common Stock may, under certain circumstances, be inconsistent with these
exemptions. The Optionee acknowledges that the Common Stock must be held and may
not be sold, transferred, or otherwise disposed of for value unless subsequently
registered under the Securities Act or an exemption from such registration
available. The Company is under no obligation to register the Common Stock under
the Securities Act, except as provided in the Agreement for the option. The
certificates representing the Common Stock will bear a legend restricting
transfer, except in compliance with applicable federal and state securities
statutes.
The Optionee agree and acknowledges that this purported exercise of the
option is conditioned on, and subject to , any compliance with requirements of
applicable federal and state securities laws deemd necessary by the Company.
DATED this _________ day of __________________________________.
___________________________
Signature
<PAGE>
Confidential
LDC DIRECT DISTRIBUTION AGREEMENT
THIS LDC DIRECT DISTRIBUTOR AGREEMENT is made and entered into this 6 day
of July, 1999 by and between LDC Direct, Ltd. Co. ("LDC") having is principal
place of business at One Buckhead Plaza, 3060 Peachtree Road, Suite 1815,
Atlanta, Georgia 30305, and Q Comm, Inc. with its principal place of business at
[Illegible] ("Distributor").
In consideration of the mutual promises and covenants set forth herein.
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Capitalized words and phrases used in this Agreement shall have the
following meaning:
1.1 Affiliate. Means a person, association, partnership, corporation or
joint-stock company, trust or other business entity ("Person") is an affiliate
of any other person that (i) directly or indirectly owns more than fifty percent
(50%) of the voting power of all classes of voting stock of any such Person that
is a corporation or (ii) owns more than fifty percent (50%) of the beneficial
interests in income and capital of an entity other than a corporation.
1.2 Account. Means any Retail Dealer who agrees with and is accepted by
Distributor to sell or otherwise provide products and/or services ("Products")
using LDC's POS System.
1.3 Blank System Cards. Means wallet-size cards (3 3/8" x 2 l/8")
consisting of thermally sensitive stock on at least one side.
1.4 Charges. Means the charges payable by Distributor to LDC as more
specifically set forth in LDC's most recently published price list attached
hereto as Exhibit A and as updated from time to time by LDC with 60 days advance
written notice by LDC to Distributor.
1.5 Data Element. Means any unique combination of words, numerals, codes,
personal identification numbers (PIN's) or graphics transmitted by LDC's
Processing Services from the POS System's Server to any one or group of specific
POS System Equipment terminals and which, separately or in combination,
represent the prepaid purchase of one specific Distributor's Product.
1.6 Location. Means, with respect to each Account, each retail location at
which System Equipment is installed and activated for the purpose of issuing
Distributor's Products using LDC's POS System.
1.7 Marks. Means the LDC Direct(TM) mark and any other trademarks, trade
names, insignia, symbols, decorative designs, or the like which LDC or its
Affiliates which LDC hereafter, in its sole discretion, grants Distributor
written authorization to use.
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Confidential
1.8 POS System. Means LDC's proprietary (patent pending) point-of-sale
activation, distribution and reporting system pursuant to which a Distributor's
Account, through the use of the System Equipment and the Processing Services
provided by LDC to Distributor, can dispense Distributor's Products at the
point-of-sale.
1.9 Products. Means such services, which may include but are not limited
to, prepaid phone card, prepaid cellular, prepaid transit, prepaid courier,
and/or customer loyalty programs distributed by the LDC System to Retail Dealers
from Distributor.
1.10 Processing Services. Means the provision by LDC of certain Data
Element management, dispensing and reporting services to or on behalf of
Distributor as more particularly set forth in Section 4.2 hereof in connection
with the sale of products by Accounts using LDC's POS System.
1.11 Retail Dealer. Means any potential seller of Distributor's Products
through the use of LDC's POS System who directly or through Affiliates owns a
retail distribution business such as gas stations, convenience stores, truck
stops, or other retail stores.
1.12 Service Provider. Means either Distributor or one or more providers
of third party services with whom Distributor contracts to provide the Data
Elements necessary for Distributor's Products to be issued through the POS
System.
1.13 System Equipment. Means the LDC POS terminals and any other
peripheral equipment provided by LDC for use in conjunction with the POS System.
1.14 System Supplies. Means the optional components that the Distributor
may order from LDC for use with the POS System at the additional charges as
published in the most recent LDC price list.
1.15 Territory. Means the fifty (50) states of the United States of
America.
1.16 Variable Data Elements. Means parts of the Data Element which vary
from one sales transaction to another, such as, PIN's, control numbers, code
numbers, tracking numbers, serial numbers, etc.
ARTICLE II
NONEXCLUSIVE APPOINTMENT OF DISTRIBUTOR
2.1 Distributor Appointment. LDC hereby appoints Distributor, and
Distributor hereby accepts the appointment, as a nonexclusive authorized
Distributor of LDC's POS System to Retail Dealers for the sale of Distributor's
Products in the Territory through the use of the POS System, subject to all of
the terms and conditions hereof. Distributor acknowledges and agrees that the
distribution rights granted hereunder are limited solely to the POS System and
shall not apply to any other products or services subsequently released by LDC
unless mutually agreed by the parties in writing.
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Confidential
2.2 Nonexclusive. Distributor acknowledges and agrees that LDC has the
right to and may appoint other nonexclusive authorized Distributors or agents to
sell or to market to Retail Dealers or other potential users of LDC's POS System
in any area, including areas where Distributor may be marketing the POS System
to Retail Dealers, and that LDC has the right to itself or through Affiliates to
market to Retail Dealers or other potential users of LDC's POS System in any
area, including areas where Distributor may be marketing the POS System to
Retail Dealers.
2.3 Authorized Distributor. During the term of this Agreement, Distributor
may represent itself as an authorized Distributor of LDC's POS System; provided
that nothing herein shall be deemed to constitute Distributor as a Distributor
of any of the System Equipment independent of LDC's Processing Services and the
POS System as a whole.
ARTICLE III
GENERAL OBLIGATIONS AND REPRESENTATIONS
Distributor acknowledges and agrees that Distributor has read and
understands the obligations imposed by this Agreement as Distributor.
Distributor acknowledges that it has conducted an independent investigation of
the POS System and the Products that it will promote pursuant hereto.
Distributor recognizes that entity into the prepaid services business and the
marketing of the POS System as a Distributor of LDC involves business risks and
that Distributor's success in such business will depend primarily upon its
abilities and efforts. LDC expressly disclaims the making of, and Distributor
acknowledges that it has not received or relied upon, any guaranty, express or
implied, as to the amount of compensation or other revenue that it may earn as a
result of its relationship with LDC.
ARTICLE IV
SYSTEM EQUIPMENT AND SERVICES
4.1 Ordering and Delivery of System Equipment. LDC will provide
Distributor with System Equipment and Processing Services in order to enable
Distributor or Distributor's Accounts to sell and distribute prepaid Products as
follows:
A. Distributor may purchase the System Equipment and Processing
Services from LDC at the rates and terms shown on the most current price list
published by LDC. LDC may periodically modify their published price list for
System Equipment and Transaction Fees upon sixty (60) days prior written notice
to Distributors. All orders by Distributor require a written purchase order or
similar documentation and are subject to acceptance and acknowledgment by LDC.
LDC's prices are exclusive of all applicable taxes. Distributor shall pay all
taxes associated with the sale and delivery of all System Equipment, except for
taxes based on LDC's income, including collection costs, penalties and interest,
if any, associated with such taxes. If claiming a tax exemption, Distributor
must provide LDC with valid tax exemption certificates;
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Confidential
B. After addition of any new Location, LDC will ship LDC's then
standard package of System Equipment and any requested System Supplies to
Distributor, or, at Distributor's request and at an additional charge for drop
shipments as shown in LDC's most recently published price schedule, directly to
the uninstalled Location of Distributor's Account, together with any
installation and set-up instructions necessary to enable Distributor or
Distributor's Account to install and activate the System Equipment in order to
permit the use the POS System. Distributor shall pay all shipping and handling
charges at LDC's then-current rates;
C. Distributor or Distributor's Account has a period of thirty (30)
days after receipt of the System Equipment within which to notify LDC in writing
of any defects or discrepancies in the shipment;
D. All System Equipment delivered to the Location will be
pre-programmed with LDC's proprietary software (the "Software") necessary to
activate the System Equipment and use the POS System and will contain a
pre-programmed toll-free number which will enable the System Equipment to
automatically call LDC's host computer (the "Server"); and
E. Upon request, LDC will supply Distributor or Distributor's
Account with supplies of Distributor's Products previously delivered to LDC by
Distributor, and any other supplies required for use with LDC's POS System which
LDC then provides at LDC's then current prices for such supplies.
4.2 Processing and Support Services To Be Provided By LDC. To enable each
Distributor Account to use the POS System, LDC will also provide the following
support services:
A. LDC will provide a toll-free operations support line available
seven (7) days per week, twenty-four (24) hours per day for assistance to
Distributor with POS System failure and other support needs of the Distributor
related to the operation of the System Equipment.
B. LDC will provide a toll-free customer service number for product
set-up and initial activation of System Equipment from Monday through Friday,
9:00 AM to 4:00 PM, Eastern Time.
C. LDC will maintain a Server computer and related equipment with
sufficient capacity and redundancy to handle the system-level data exchange
necessary for the POS System to originate and refresh the Data Elements in the
System Equipment at each Location and for the POS System to track sales and
related transaction data at each Location.
D. LDC will, through its Server, manage and dispense to Distributor
Accounts Data Elements provided by Distributor to LDC as set forth below. As
Part of LDC's Data Element management services, LDC and Distributor will
establish a mutually agreeable method consistent with then-current operation of
the POS System without modification to replenish the Variable Data Elements in
each Distributor's Account in a timely fashion and in such a manner as to assure
Distributor Accounts uninterrupted operation of the POS System and the
replenishment of such Variable Data Elements will be the responsibility of
Distributor.
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Confidential
E. At the time of sale at a Location, the appropriate Data Element,
including any Variable Data Elements, will be printed by the System Equipment in
a format pre-designed by Distributor. LDC's standard policy on format designs
and minimum quantities shall apply.
F. LDC will make certain standard types of retail reports, as most
currently published by LDC, available to Distributor by electronic interchange
or on a monthly disk at no charge for such reports; and
G. LDC will provide Distributor access to Distributor's data files
resident on LDC's Server via the Internet using Distributor's authentication
codes that will allow Distributor to view electronically the most recent safes
information related to Distributor Account sales (updated at least two times per
week) as part of the standard Transaction Fee, or more frequently at an
additional charge as currently published by LDC.
4.3 Covenants of Distributor. Distributor agrees that Distributor will:
A. Provide LDC with Data Elements and Variable Data Elements in
accordance with LDC's POS System requirements as from time to time modified by
LDC to Distributor.
B. Provide LDC with the Variable Data Elements on a timely basis in
order to assure that the necessary quantity of Variable Data Elements is
maintained in the Server so as to order to assure the uninterrupted flow of
Variable Data Elements through the POS System to Distributor's Accounts.
C. Establish, maintain and make available to LDC upon request a
correct and current database file using software provided by LDC for each
Distributor Account that uses the P0S System in order to assure proper operation
of the POS System reporting.
D. Supply the necessary quantity of Blank System Cards to
Distributors Accounts in order to assure the uninterrupted flow of Products and
Data Elements through the POS System at each Distributor Account's Location,
unless otherwise agreed to in writing between LDC and Distributor. In all cases,
the Distributor's Blank System Cards supplied from time to time by Distributor
to Distributor's Accounts must comply with specifications from time to time
established by LDC in order to assure that such Distributor's Products work
properly with the System Equipment to assure proper operation of the POS System.
Distributor shall provide LDC with twenty (20) Blank System Cards to test and
approve prior to Distributor sending such cards to Distributor Accounts. Blank
System Cards shall be provided to Distributors Accounts by and at the cost of
Distributor. LDC will upon request provide Distributor with information on
current suppliers of Blank System Cards.
E. Assure that all Products sold by Distributor Accounts utilizing
the System Equipment are processed through the POS System.
F. Maintain appropriate technical points of contact responsible for
management of Product pin numbers and support activities.
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Confidential
G. Not tamper with the System Equipment or Software, nor reverse
engineer or decompile or attempt to reverse engineer or decompile any system
Equipment or Software, nor allow any of its agents, employees or Accounts to do
so.
4.4 Covenants Applicable to Distributor and Distributor's Accounts.
Distributor agrees that Distributor will, and will cause all Distributor
Accounts using the POS System through Distributor to, install and use LDC's POS
System as specified in this Agreement and any written user manuals, instruction
sheets or operating procedures from time to time established by LDC and provided
to Distributor (collectively, the "System Documentation").
ARTICLE V
DOCUMENTATION AND TRAINING
5.1 Documentation and Training Provided by LDC. LDC will make available
periodic one-half day training sessions in Atlanta, Georgia, or such other
location as specified by LDC, for attendance by Distributor and Distributor's
employees at Distributor's expense. At such training sessions, LDC will provide
instructions and materials regarding the installation of System Equipment at
Distributor Account Locations, processing of requests for purchase of System
Equipment and Processing Services by Distributor from LDC and communication of
billing information between LDC and Distributor. Application forms, instruction
manuals and user documentation will also be provided by LDC. Such forms, manuals
and documentation will also be maintained and periodically updated by LDC to
support all changes in procedures. LDC may from time to time develop software,
videotapes, presentation scripts and other materials to demonstrate the features
and functions of the POS System and LDC may provide such materials to
Distributor from time to time for use by Distributor in training or in sales and
marketing of the POS System under this Agreement.
5.2 Distributor Training Program. In meeting Distributor's obligations
under this Agreement, Distributor shall train its employees, salespersons and
other personnel in the operation of LDC's POS System and System Equipment. No
Distributor employee, salesperson or other personnel are to commence the sale or
installation of LDC's POS System until such training is complete.
ARTICLE VI
ADMINISTRATIVE PROCEDURES
6.1 Administration. LDC may periodically prescribe various procedures to
be followed by Distributor and its salespersons in ordering System Equipment and
in the processing of information to register new Distributor Account Locations.
Distributor agrees to comply with all such procedures prescribed by LDC.
Distributor will use only those forms (hardcopy or electronic) from time to time
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Confidential
required by LDC for enrolling Retail Dealers to use the POS System, and
Distributor will submit copies of all such forms or applications signed by
Distributor and by Retail Dealer to LDC within five (5) working days of
execution thereof. Distributor shall be responsible for Retail Dealer
maintaining all standard operational procedures required at the Retailer's
point-of-sale locations, i.e., making sure that the System Equipment's power
cord is properly plugged into the wall socket and that the telephone connections
are properly secured.
6.2 Sales or Promotional Literature. LDC may from time to time provide
Distributor with sales or promotional literature that may be used by Distributor
in the marketing of the POS System to Retail Dealers under this Agreement.
Distributor agrees that all sales or promotional literature used by Distributor
in the marketing of the POS System to Retail Dealers under this Agreement and
not provided by LDC must be approved in advance by LDC in writing, and
Distributor agrees not to use or distribute any such sales or promotional
materials that have not been provided or approved by LDC.
ARTICLE VII
LDC CHARGES
7.1 Payment of Charges by Distributor to LDC. In exchange for the right to
provide LDC's System Equipment to Retail Accounts and the provision of System
Supplies hereunder, Distributor agrees to pay to LDC: (a) within fifteen (15)
days after the date of any invoice for any such System Equipment and System
Supplies ordered by Distributor; or (b) any prepayment (the "Prepayment") of any
such amounts for System Equipment as may be required by LDC.
7.2 Billing and Payment For Transaction Fees Except as otherwise provided
herein, including any attachments hereto, each month LDC will send Distributor,
at Distributor's principle business address (or such other billing address as
Distributor may notify LDC in writing), a bill for all Charges for Transaction
Fees then due and payable to LDC. All payments for such Charges are due and
payable by Distributor to LDC 30 days from the date of the invoice.
7.3 Late Charges and Service Suspension. The amount of any Charges not
paid when due will accrue interest at a monthly rate of 1.5% from the original
date of the statement until paid. In addition, in the event that the payment of
any Charges is more than fifteen (15) days late, LDC will have the right at any
time thereafter to suspend Distributor's resale of the POS System and the
provision of LDC's services hereunder until all such past due Charges and
interest are paid in full. No such service suspension will relieve Distributor
of its obligations under this Agreement including, without limitation, its
obligation to pay Charges. The failure to pay Charges which continues for a
period of thirty (30) days or more after the due date will constitute a material
breach of this Agreement.
7.4 Taxes. Distributor will be solely responsible for the collection and
payment to the appropriate tax authority for all excise, sales or other taxes
applicable to the retail sale of Distributor's products at Distributor's
Locations using the POS System, and LDC will have no liability or responsibility
for any such taxes.
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ARTICLE VIII
LDC's MARKS
8.1 Right to Use Marks; Value of Marks. LDC hereby grants to Distributor
the right to use the Marks solely in connection with Distributor's duties under
this Agreement. Distributor acknowledges that its right to use the Marks is
derived solely from this Agreement and is limited to the right to identify
Distributor as a Distributor of LDC for the solicitation of Retail Dealers to
sell Distributor's Products through the use of LDC's POS. Distributor agrees to
comply with all rules and regulations pertaining to such Marks prescribed by LDC
from time to time during the term of this Agreement. Any unauthorized use of the
Marks by Distributor, or any use not in compliance herewith, shall constitute an
infringement of the rights of LDC and its Affiliates in and to the Marks.
8.2 Use of Marks by Distributor. Distributor shall use the Marks with such
words qualifying or identifying the Distributor relationship of LDC and
Distributor as LDC from time to time reasonably prescribes. Distributor shall
not use the Marks as part of any corporate or trade name or with any prefix,
suffix or other modifying words, terms, designs or symbols, or in any modified
form, nor may Distributor use the Marks in connection with the sale of any
product or service other than the POS System or in any other manner not
expressly authorized by this Agreement or separately in writing by LDC.
Distributor agrees to display the Marks on stationery and other forms in the
manner prescribed by LDC, to give such notices of registration as LDC specifies
and to obtain such fictitious or assumed name registrations as may be required
under applicable law. Misuse of the Marks by Distributor may result in
termination of this Agreement.
8.3 Modification of Marks. If it becomes advisable at any time in LDC's
sole discretion for Distributor to modify or discontinue use of any Marks or
substitute one or more additional trade or service marks to identify its
relationship with LDC or any System Equipment, Distributor agrees to comply
therewith within a reasonable time after notice thereof by LDC.
8.4 Protection of Rights in the Marks. Distributor acknowledges the
ownership of LDC and its Affiliates in the Marks and agrees that it will not
during the term of this Agreement, or thereafter, attack the title or any rights
of LDC or its Affiliates in and to the Marks.
ARTICLE IX
RULES AND PROCEDURES
Distributor agrees to comply, as applicable, with all governmental rules,
and procedures applicable to the conduct of Distributor's business hereunder,
all of which shall constitute provisions of this Agreement as if fully set forth
herein. All references herein to this Agreement shall include all such rules and
procedures.
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ARTICLE X
COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES
10.1 Compliance with LDC Criteria, Laws and Regulations. Distributor shall
secure and maintain in force all licenses and permits required by Distributor
and its employees in the performance of its obligations under this Agreement and
shall conduct its business in full compliance with all laws, ordinances and
regulations applicable to Distributor's business. Distributor shall notify LDC
in writing within five (5) days of the commencement of any material action, suit
or proceeding, and of the issuance of any order, writ, injunction, award or
decree of any court, agency or other governmental instrumentality, involving
Distributor or any business conducted by Distributor.
10.2 Standards of Conduct. Distributor shall adhere to the highest
standard of honesty, integrity, fair dealing and ethical conduct in all dealings
while distributing the POS System hereunder. Distributor agrees to refrain from
any business or advertising practice which may be injurious to the business of
LDC and the goodwill associated with the Marks.
ARTICLE VIIII
RELATIONSHIP OF LDC AND DISTRIBUTOR
11.1 Independent Contractor Relationship. LDC and Distributor acknowledge
and agree that Distributor is an independent contractor and that the
relationship arising from this Agreement does not constitute or create a general
agency, joint venture, partnership, employment relationship or franchise between
Distributor and LDC. In all dealings with third parties, Distributor shall
conspicuously identify itself as a Distributor of LDC and otherwise as an
independent business. Distributor's sole authority under this Agreement is to
distribute the POS System to Retail Dealers, and LDC has not authorized or
empowered Distributor to execute contracts on behalf of, or to bind LDC or its
Affiliates, in any way.
11.2 No Authority to Bind LDC. LDC shall not be obligated by or have any
liability under any agreements or representations made by Distributor that are
not expressly authorized by LDC in writing, nor shall LDC be obligated for any
damages to any person or property directly or indirectly arising out of the
business conducted by Distributor pursuant hereto, whether caused by
Distributor's negligent or willful action or failure to act.
11.3 No Proprietary Rights to Distributor. Distributor acknowledges that
nothing herein gives it any right, title or interest in the POS System, LDC's
Software or the Marks except for Distributor's limited express rights pursuant
to Article II of this Agreement. Distributor further acknowledges and agrees
that LDC maintains exclusive ownership of the POS System, LDC's Software (both
object code and source code) and the Marks, including, without limitation, any
and all worldwide copyrights, patents, trademarks, service marks, trade names,
trade secret, proprietary and confidential information rights and other property
rights associated with the POS System, LDC's Software and the Marks.
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ARTICLE IXI
DISTRIBUTOR'S PERSONNEL NOT LDC'S EMPLOYEES
The parties agree that personnel employed by Distributor to perform
services under this Agreement are not LDC employees or agents and Distributor
assumes full responsibility for their acts. Personnel employed by Distributor
and subcontractors of Distributor shall be informed that they are not entitled
to the provisions of any of LDC's employee benefits. With respect to such
personnel, Distributor shall have sole responsibility for supervision, daily
direction and control. Distributor shall be responsible for worker's
compensation, disability benefits, unemployment insurance and withholding and
remitting income and social security taxes for said personnel, including
contributions from them as required by law.
ARTICLE XI
NO TRANSFER OR ASSIGNMENT
Neither this Agreement nor any rights or obligations hereunder may be
transferred or assigned by Distributor, directly, indirectly or by operation of
law, without the prior written approval of LDC, which may be given or withheld
in LDC's discretion. Any assignment or transfer without approval of LDC shall
constitute a breach hereof and convey no rights or interests herein.
ARTICLE XIV
TERM OF DISTRIBUTOR RELATIONSHIP
The term of this Agreement shall commence on the date of execution by LDC
as set forth below and shall continue until terminated by one of the parties
hereto as set forth in Article XV. This Agreement shall be effective only after
its execution by authorized officers of Distributor and LDC.
ARTICLE XII
TERMINATION OF AGREEMENT
15.1 Termination for Cause. In addition to other rights of termination set
forth in this Agreement, LDC shall have the right to terminate this Agreement
for cause effective upon delivery of notice of termination to Distributor, if
Distributor (or one or more of its owners or Affiliates):
A. engages in fraud, misrepresentation, dishonesty, non-payment of
monies owed LDC pursuant to Section 7.3 hereof, or is convicted of or pleads no
contest to a felony or other crime or offense that is likely to adversely affect
the reputation of LDC or its Affiliate companies or the goodwill of the Marks;
B. makes or attempts an unauthorized transfer or assignment of this
Agreement;
C. fails to comply with any material provision of this Agreement,
and such failure is not corrected within thirty (30) days after written notice
of such failure to comply is delivered
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to Distributor; or fails on two or more separate occasions within any period of
six (6) consecutive months to comply with any material provision of this
Agreement, whether or not such failures to comply are corrected after notice
thereof is delivered to Distributor.
15.2 Termination by Either Party. Either party shall have the right to
terminate this Agreement effective upon written notice to the other if:
A. the other party makes an assignment for the benefit of
creditors;
B. a court order under the U.S. Bankruptcy Code is entered
against the other party;
C. a trustee or receiver of a substantial part of the other
party's assets is appointed by a Court; or
D. one party gives one-hundred eighty (180) days advanced written
notice of termination to the other party.
ARTICLE XIIII
EFFECT OF TERMINATION OR EXPIRATION
16.1 Provided this Agreement is not terminated by LDC pursuant to either
Sections 15.1.A or B, if requested by Distributor, LDC will continue to provide
to Distributor Accounts in existence on the date of termination Processing
Services from the date of termination of this Agreement for six (6) months after
the termination date (the "Extended Services"); provided, however, the provision
of the Extended Services shall be subject to prompt payment of Processing Fees
and governed by the terms of this Agreement. Further, the parties may agree in
writing to extend the term of the Extended Services.
16.2 Upon expiration or termination of this Agreement for any reason,
Distributor shall pay LDC for all Processing Services and any additional
services performed in accordance with the term of this Agreement through the
date of such expiration or termination and/or the Extended Services Period
without set off, in addition to any other amounts owed or determined to be owed
to LDC.
16.3 Upon expiration of this Agreement or termination of this Agreement,
Distributor will have no further right to distribute or use the POS System
except as provided in Section 16.1.
16.4 Distributor agrees that upon the expiration or termination of this
Agreement for any reason, Distributor and its Affiliates will: (a) cease using
the Marks and not thereafter use any actual or similar Marks; and will not
utilize for any purpose any actual or similar trade name, trade or service mark
or other commercial symbol or in any manner, identify itself or any business as
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associated with LDC or an Affiliate of LDC; (b) return to LDC any demonstration
terminals in Distributor's possession and all advertising and marketing
materials, forms, Marks or otherwise identifying or relating to LDC's POS System
business; and (c) comply with the provisions of this Agreement which survive
termination hereof.
ARTICLE XIVI
EXCLUSIVE WARRANTIES AND LIABILITY LIMITATIONS
17.1 System Equipment. LDC warrants that each LDC POS terminal will be
free from defects in workmanship and materials for one (1) year after the date
of first use of the LDC POS terminal by the Account to whom the terminal is
delivered. LDC makes no warranty as to third party equipment or products
included with the System Equipment and LDC's sole obligation with respect to
such third party equipment or products will be to pass through the
manufacturers' warranties and indemnities with respect thereto where applicable.
Should any of the System Equipment fail within this warranty period, LDC's sole
obligation will be to repair or replace, at its discretion, the defective System
Equipment. Replacement System Equipment may be refurbished or contain
refurbished materials. LDC will ship replacement System Equipment to Distributor
and/or Distributor Accounts upon request at Distributor's expense within two (2)
days from LDC's determination of a terminal failure. This warranty does not
apply if the System Equipment fails or is damaged after delivery due to
shipment, handling, storage, has been damaged by accident, abuse or misuse, has
been used or maintained in a manner not conforming to applicable System
Equipment manual instructions, has been modified in any way, or has had any
serial number removed or defaced. Repair by anyone other than LDC or an approved
agent will void this warranty.
17.2 Software. LDC warrants for a period of one (1) year after date of
first use of the System Equipment that the Software included therein shall be
free from material defects in material and workmanship, and shall conform in all
material respects to the specifications contained in any System Documentation
relating to such Software for up to 6 products, 2 languages per product and 200
pins (the "Specifications"). The foregoing warranty will be void if there are
any modifications or changes made to the Software that are not made by LDC or
any subcontractor thereof. The Software is not warranted to perform in
accordance with the Specifications to the extent that such Software is not being
used in accordance with any user manual or other written System Documentation or
instructions issued by LDC. Should LDC breach the warranty set forth above, LDC
shall promptly correct the reported defect by modifying either the Software or
the applicable user instructions, as the case may be. If, within a reasonable
period of time, LDC is unable to correct any such breach relating to Software in
the manner described above, and should any such defective Software provided by
LDC cause a material portion of the Software providing significant and
substantial functionality to fail in its essential purpose and should LDC be
unable to cure such defect as provided above, Distributor may return all such
System Equipment containing such defective Software and then shall be entitled
to terminate Distributors obligation to pay Charges with respect to any such
System Equipment containing such defective Software under this Agreement.
17.3 WARRANTY DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH ABOVE IN THIS
ARTICLE XVII, THIS AGREEMENT EXCLUDES AND LDC HEREBY
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SPECIFICALLY DISCLAIMS ANY AND ALL REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE SYSTEM EQUIPMENT OR SOFTWARE PROVIDED HEREUNDER,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
THOSE ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
17.4 Limitation on Direct Damages. In no event will LDC's total aggregate
liability to Distributor for direct damages from any and all claims of any kind
arising out of or relating to this Agreement, whether based on contract, tort
(including, without limitation, strict liability or negligence), warranty, or
any other ground exceed, during any calendar year or portion thereof during the
term of this Agreement, fifty percent (50%) of the aggregate amount of Charges
previously paid by Distributor to LDC under this Agreement in the previous
consecutive twelve (12) month period immediately prior to the date on which such
claim or claims are made.
17.5 EXCLUSION OF CONSEQUENTIAL DAMAGES. IN NO EVENT UNDER THIS AGREEMENT
OR OTHERWISE WILL LDC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES WHICH MAY ARISE OUT OF THE INSTALLATION OR
OPERATION OF THE POS SYSTEM OR SYSTEM EQUIPMENT OR THE PERFORMANCE OR
NONPERFORMANCE OF ANY OF LDC'S OBLIGATIONS UNDER THIS AGREEMENT EVEN IF LDC HAS
BEEN ADVISED OF, KNEW OF OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH
DAMAGES.
ARTICLE XVI
CONFIDENTIALITY.
18.1 Trade Secrets and Confidential Information. LDC, its affiliates and
subcontractors (hereinafter, for purposes of this Article XVIII, individually
and collectively referred to as "LDC"), and Distributor, its affiliates and
agents (hereinafter, for purposes of this Article XVIII, individually and
collectively referred to as "Distributor") each acknowledge that the other party
possesses or will have access to and will continue to possess and have access to
information which has commercial value in its business and is not in the public
domain. "Trade Secrets" means information without regard to form related to the
services or business of the disclosing party which (a) derives economic value,
actual or potential, from not being generally known to or readily ascertainable
by other persons who can obtain economic value from its disclosure or use, and
(b) is the subject of efforts by the disclosing party that are reasonable under
the circumstances to maintain its secrecy, including without limitation (1)
marking any information reduced to tangible form clearly and conspicuously with
a legend identifying its confidential or proprietary nature, (2) identifying any
oral presentation or communication as confidential or secret immediately before,
during or after such oral presentation or communication, or (3) otherwise
treating such information as confidential or secret. Trade Secrets include, but
are not limited to, computer programs and software, source codes, object codes,
technical and non-technical data, formulas, patterns, compilations, devices,
drawings, processes, methods, techniques, designs, programs, financial plans,
product plans, and lists of actual or potential customers and suppliers which
are not commonly known by or available to the public. "Confidential Information"
means any and all proprietary business information of the
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disclosing party treated as secret by the disclosing party, even though such
information may not constitute a Trade Secret, including, without limitation,
any and all proprietary information of such party of which the receiving party
becomes aware as a result of its access to and presence at the other party's
facilities. "Company Information" means collectively the Confidential
Information and Trade Secrets of the disclosing party.
18.2 Obligations.
A. Distributor and LDC shall each refrain from disclosing, will hold as
confidential and will use the same level of care to prevent disclosure to third
parties, the Company Information of the other party as it employs to avoid
disclosure, publication or dissemination of its own information of a similar
nature but in no event less than a reasonable standard of care.
B. Neither Distributor nor LDC shall use the Company Information of the
other party, except as specifically permitted in this Agreement.
C. In no event shall Distributor itself or through inducement of another
attempt to or otherwise engage in any activity that would constitute or result
in a reverse engineering of LDC's technology encompassed in the POS System,
including hardware that constitutes part of the system Equipment or Software.
D. Without limiting the generality of the foregoing, neither party will
publicly disclose the terms of this Agreement without the prior written consent
of the other. Furthermore, neither LDC nor Distributor will make any use of
Company Information of the other party except as contemplated by this Agreement;
acquire any right in or assert any lien against the disclosing party's Company
Information except as contemplated by this Agreement; or refuse to promptly
return, provide a copy of or destroy such Company Information upon the request
of the disclosing party. Notwithstanding any of the foregoing, LDC and
Distributor shall be permitted to make such disclosures of this Agreement as may
be required by law.
18.3 Exclusions. Notwithstanding the foregoing, this Article XVIII
will not apply to any information which LDC or Distributor can demonstrate was:
(a) at the time of disclosure, in the public domain; (b) after disclosure,
published or otherwise became part of the public domain through no fault of the
receiving party; (c) without a breach of duty owed to the disclosing party, is
in the possession of the receiving party at the time of disclosure; (d) received
after disclosure from a third party who was under no duty of confidentiality and
had a lawful right to disclose such information; or (e) independently developed
by the receiving party without reference to Company information of the
disclosing party. Further, either party may disclose the other party's Company
Information to the extent required by law, order of court, or government
regulation and, in such event, the disclosing party shall, as soon as is
reasonably possible after learning of such a requirement of disclosure, and a
reasonable time prior to making such disclosure, give the other party notice of
such requirement of disclosure.
18.4 Limitations.
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A. During the Term of the Agreement, the covenants of confidentiality
set forth herein shall: (a) apply after the date of this Agreement to any
Company Information disclosed to the receiving party before or after the date of
this Agreement; and (b) continue and must be maintained from the date of this
Agreement through the termination of this Agreement.
B. Subsequent to the Agreement's termination, irrespective of the method
of such termination: (a) with respect to Trade Secrets, the parties shall
maintain the confidentiality of such Trade Secret information for so long as
such retains the status of a Trade Secret under applicable law, irrespective of
the Term of this Agreement; and (b) with respect to Confidential Information,
the parties shall maintain the confidentiality of such Confidential Information
for a period equal to the shorter of three (3) years after termination of this
Agreement, or until such Confidential Information no longer qualifies as
confidential under applicable law. Notwithstanding anything herein to the
contrary, if a party is in possession of Confidential Information that
constitutes patient medical records, then such person shall keep such
Confidential Information in confidence and not destroy such Confidential
Information for the the Period required by applicable law.
ARTICLE XIX
INDEMNIFICATION
19.1 Indemnification of LDC. Distributor agrees to indemnify, defend and
hold LDC harmless against any liability, loss, damage or expense (including
reasonable attorney's fees) for any claims or demands arising out of the conduct
of business by Distributor that are the result of Distributor's gross negligence
or willful act or failure to act, including, but not limited to, any claims or
demands (a) by Distributor's agents, employees or any other persons, for bodily
injury, damage to property or other damages caused by the acts or omissions of
the Distributor or its subcontractors, or the employees or agents of any of
them, and (b) by Distributor's employees under worker's compensation or similar
laws; (c) for failure of Distributor to timely and/or properly pay all federal,
state and local income, withholding or other taxes applicable to Distributor or
the performance by Distributor of its rights or obligations hereunder; or (d)
any product liability or other tort claims for any Products sold through the POS
System not sold to Distributor by LDC.
19.2 Indemnification of Distributor. Subject to the limitations of Article
XVII, LDC agrees to indemnify, defend and hold Distributor harmless against any
liability, loss, damage or expense (including reasonable attorney's fees) for
any claims or demands arising out of the conduct of business by LDC that are a
result of LDC's gross negligence or willful acct or failure to act, including
but not limited to, any claims or demands by LDC's agents, employees or any
other persons, for bodily injury, damage to property or other damages caused by
the acts or omissions of LDC or its subcontractors or the employees or agents of
any of them.
19.3 Procedures with Respect to Indemnification. All indemnities created
in this Agreement shall include indemnification of LDC's and Distributor's
Affiliates, directors, officers, employees, agents, successors and assigns and
the heirs, legal representatives, and assigns thereof. The indemnification shall
be for all claims arising out of the specific event referred to in this
Agreement which is covered by the indemnification, including costs reasonably
incurred in the defense of any claim, including without limitation accountant's,
attorneys', and expert witness fees,
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-----------------------------
If to LDC: LDC Direct, Ltd. Co.
3060 Peachtree Road, Suite 1815
Atlanta, GA 30305
Attention: President
20.7 Entire Agreement. This Agreement, including the preambles and
exhibits, if any, sets forth the entire Agreement between the parties as to the
subject matter hereof and merges all prior discussions between them, and neither
of the parties shall be bound by any conditions, definitions, understandings, or
representations with respect to such subject matter other than as expressly
provided herein, or as duly set forth subsequent to the effective date hereof in
writing and signed by the duly authorized representatives of both parties.
20.8 Severability. In the event any one or more provisions of this
Agreement are found by a court of competent jurisdiction to be illegal or
unenforceable, such provisions shall be severed from this Agreement and all
other provisions of this Agreement shall continue in full force and effect.
20.9 No Waiver. The provisions of this Agreement may not be waived except
in writing and signed by both parties. No waiver of any provision hereof shall
be deemed a continuing waiver, nor shall any delay or failure to exercise any
right or remedy be deemed a waiver thereof.
IN WITNESS WHEREOF the parties hereto have executed, sealed and delivered
this Agreement in one or more counterparts on the day and year first above
written.
"LDC": "DISTRIBUTOR":
LDC DIRECT, LTD. CO. Q Comm, Inc.
---------------------------
BY: BY: /s/ Paul Hickey
-------------------------- -----------------------
NAME: NAME: Paul Hickey
------------------------ ---------------------
TITLE: TITLE: C.E.O.
----------------------- --------------------
DATE: DATE: 7/6/99
------------------------ ---------------------
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EXHIBIT A
TO
LDC DIRECT
DISTRIBUTOR AGREEMENT
SCHEDULE OF CHARGES
POS Terminal:
- - --------------------------------------------------------------------------------
Number Of Units Per Unit Price
--------------- --------------
- - --------------------------------------------------------------------------------
1-3 $540
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4-25 $520
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26-50 $480
- - --------------------------------------------------------------------------------
51-100 $420
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101-200 $370
- - --------------------------------------------------------------------------------
201-300 $340
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301-400 $320
- - --------------------------------------------------------------------------------
401-500 $305
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Over 1000 $295
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The above pricing applies to purchase orders for terminals received as of the
date of this Agreement.
POS Terminal Stand:
$10 each
POS Card / Display Stand:
$15 each
Charges for Processing Services:
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A per transaction fee for Processing Services based on the following chart
will apply to each transaction utilizing all or any part of the POS System:
- - --------------------------------------------------------------------------------
Product Pricing
- - --------------------------------------------------------------------------------
Prepaid Products $.10 per transaction plus .5% of the
retail value of the transaction
- - --------------------------------------------------------------------------------
Notwithstanding the foregoing, LDC shall have the right to charge a minimum fee
for Processing Services of $5.00 per month for each installed terminal. Listed
Charges for Transaction Fees only pertain to products listed and Charges for
Transaction Fees for other products shall be determined by LDC prior to
commencing Transaction Services for any Retail Dealer with respect to any such
additional products. All Charges are subject to revision by LDC as set forth in
Section 4.1.A of the Agreement.
Charges for Implementation Services:
LDC will make available technical assistance for set-up, installation and
programming at the rate of $100.00 per hour.
Charges for Retail Dealer Help Desk Services:
Program in development. Will be offered to all distributors and agents on
same standard plan.
Extended Warranty
Program in development. Will be offered to all distributors and agents on
same standard plan.
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Q Comm, Inc. Services Agreement
For
USP Communications - Qxpress Management System
This Agreement (the "Agreement") is entered into this 15 day of September,
1999 (the "Execution Date") between Q Comm, Inc. ("Q Comm") with offices at 1135
South 1680 West Orem, UT 84058-4930 and USP Communications with offices at 3808
South West Temple Salt Lake City, UT 84115
WITNESSETH:
WHEREAS, Q Comm offers a comprehensive prepaid management system through
Qxpress and the Q Comm telecommunications network ("Qxpress Services");
WHEREAS, Distributor desires to purchase Qxpress services, including
activated calling cards, in the form of personal identification numbers
(collectively the "PINs") as will be generated on-demand by the Qxpress System.
WHEREAS, Distributor desires to contract for the Qxpress system and Q Comm
desires to provide the same to Distributor, subject to the terms, conditions and
specifications set forth in this Agreement; and
WHEREAS, the parties acknowledge that this Agreement is binding and
enforceable and agree to abide by the promises and covenants contained herein.
NOW, THEREFORE, in consideration of the premises, covenants and mutual
promises hereinafter set forth and intending to be legally bound thereby, the
parties agree to the following terms, conditions and specifications:
I. SERVICES PROVIDED:
Q Comm will provide the Qxpress System in accordance with the terms
specified in Schedule "A"
Q Comm agrees to sell to Distributor and Distributor agrees to purchase
Qxpress PINs in accordance with the terms and conditions set forth herein.
Qxpress provides access to prepaid calling and enhanced card services, including
network provisioning for interstate, international and, where permitted by
applicable regulations, intrastate transmission, as well as switching facilities
needed to originate, transmit, and terminate Card traffic.
II. TERM:
The term of this agreement is two (2) years. This agreement may only be
terminated if the terms of this agreement are not being met. If terminated by
the Distributor, a forty-five (45) day prior written notice to the other party
is required. If terminated by Q Comm, USP
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Communications will have one hundred twenty (120) days in which to return the
Qxpress units. Distributor shall, upon termination of this Agreement, arrange
for the return of all Qxpress terminals at the expense to the Distributor. All
Qxpress units must be returned within twenty-five (25) days of the date of
termination. If the units are not received within that time frame the
Distributor agrees to pay $410.00 per unit payable upon demand.. Distributor
shall indemnify and hold Q Comm harmless from any and all claims, actions,
losses and damages arising from the attempted use by third parties or end-users.
The terms and conditions of this Agreement shall remain in full force and effect
after the termination date for all PINs purchased by Distributor and activated
by Qxpress before the termination date.
III. COSTS:
Distributor agrees to all fees and commissions in accordance with
schedules "A" and "B".
IV. DEPOSIT:
No Deposit is required at this time.
V. DOMESTIC & INTERNATIONAL RATES:
See Schedule "D"
VI. RATE CHANGES:
A. The Service rates shall be subject to all applicable carrier tariffs. Q
Comm shall have the right to change the Service rates at any time for any reason
in Q Comm's sole discretion with five (5) days prior written notification of the
change to Distributor. Distributor acknowledges that a rate change will modify
the minute availability on the Distributor's prepaid calling card.
VII. ORDERS:
All orders are required from the Distributor for Q Comm to ship and
activate the Qxpress System. All orders shall be subject to Q Comm's approval,
as well as Q Comm's "SERVICES AND RENTAL AGREEMENT", a copy of which is
attached hereto as Schedule "B".
VIII. ACTIVATION:
A. Distributor and or its contracted location shall pay for all activated
calling cards by an ACH program which will debit the designated merchant account
every Monday for the previous weeks sales.
2
<PAGE>
IX. OBLIGATIONS OF Q Comm:
A. Q Comm shall provide Qxpress terminals to Distributor subject to this
agreement and the "SERVICES AND RENTAL AGREEMENT".
B. Q Comm may use multiple carriers to provide the long distance network.
C. Q Comm shall approve in writing all point of purchase materials and
prepaid calling card language and artwork used by Distributor.
D. Q Comm shall be solely responsible for developing and implementing the
terms and conditions for use of Qxpress.
X. OBLIGATIONS OF DISTRIBUTOR:
A. Distributor accepts the "SERVICE AGREEMENTS" in effect at the time of
this Agreement. (Schedule "B"). Q Comm's "SERVICE AND RENTAL AGREEMENTS" are
subject to change with five (5) day notice to Distributor.
B. Distributor shall be responsible for all costs for the design,
production, printing and distribution of CUSTOM USP calling cards, as well as
all inserts and packaging.
C. Distributor must obtain Q Comm's written approval of all content and
artwork for any prepaid calling cards, packaging and point-of-purchase materials
as a condition to activation of PINs. Q Comm shall have the right to change,
add, or modify the copy in any way. All modifications by Distributor to
pre-approved content or artwork must also be approved in writing by Q Comm.
D. Q Comm Prepaid Phone Card "Card Terms & Conditions" (schedule "C") must
be clearly disclosed on the back of each prepaid calling card, inserts or
point-of-purchase materials
XI DELIVERY, TITLE, RISK OF LOSS, SECURITY AND FRAUD CONTROL:
A. Distributor, upon taking delivery of the Qxpress System from Q Comm,
shall bear the risk of loss and be solely responsible for all losses, damages,
claims and liabilities caused by:
1. PINs, active cards, and inactive cards which are mishandled,
damaged or stolen;
2. nonpayment by end users;
3. replacement costs;
4. credits to which end users are entitled; and
5. A failure to maintain and ensure the security of the Qxpress
System.
3
<PAGE>
B. Q Comm shall collect all revenues from end users as per the ACH
agreement enclosed in Schedule "B".
C. Distributor shall bear the risk of loss for fraud, theft or misuse
of the Qxpress System by Distributor's employees.
D. The parties agree that, upon activation and authorization of sale by
the Qxpress System, end users shall be responsible for the
following:
1. all lost and/or stolen cards, for which no refunds or credits
will be issued by Q Comm;
2. use of activated Calling Cards generated by Qxpress (including
calls to wrong numbers), regardless of whether such use
occurred by the end user, a person authorized by the end user
to use the Qxpress System, or by a person not authorized by
end user; and
3. improper activation by Distributor of incorrect unit amounts,
improper decrementation by Q Comm or transmission difficulty.
E. Q Comm shall, in its sole discretion, have the right to immediately
deactivate particular Qxpress System, PINs or batches of PINs in the
event Q Comm reasonably believes that same have been improperly or
fraudulently activated.
XII. FORCE MAJEURE:
Q Comm shall not be liable for any delay or nonperformance under the terms
of this Agreement due to causes beyond its control, including but not limited
to, acts of God, acts of civil or military authority, government regulations,
embargoes, epidemic war, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, strikes, power blackouts,
severe weather conditions, failure by Distributor to fulfill any of its
obligations under this Agreement, acts of third parties, or acts or omissions of
common carriers (collectively referred to as "Force Majeure Conditions")
XIII. INDEMNIFICATION AND LIMITATIONS OF LIABILITY
A. Q Comm shall exercise its best efforts to avoid network service
interruption. However, in the event of a network service
interruption or equipment failure, Q Comm's liability hereunder
shall be limited to the retail cost of the PINs subject to the
interruption, provided that such interruption was caused solely by Q
Comm's willful act or omission or its negligence. Q Comm shall not
be liable for
4
<PAGE>
any interruption caused by the negligence or any act or omission of
Distributor, the Card user, carrier, switch provider or any third
party.
B. Except as otherwise stated herein each party will defend, indemnify
and hold harmless the other party, its owners, parents, affiliates,
subsidiaries, agents, directors, officers, shareholders, and
employees from and against any and all losses, costs, claims,
awards, liabilities, damages, and expenses (including reasonable
attorneys fees) brought or claimed by third parties, relating to or
arising out of the negligence or willful misconduct of either party
in the performance of this Agreement.
C. Q COMM MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR OTHER WARRANTY OF QUALITY, EXCEPT AS
EXPRESSLY PROVIDED IN THE TERMS AND CONDITIONS OF THIS AGREEMENT.
IN NO EVENT SHALL Q Comm BE LIABLE TO DISTRIBUTOR OR ANY OTHER
PERSON OR ENTITY FOR INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO LOST REVENUES OR
PROFITS.
XIV. INTELLECTUAL PROPERTY; USE OF MARKS:
A. Distributor acknowledges Q Comm's exclusive ownership of all Q Comm
designated trademarks, service marks and other symbols (the "Marks") relating to
the PINs and agrees not to assume any rights in the Marks.
B. It is understood and agreed by both parties that nothing in this
agreement is intended to grant to Distributor the right to engage in the
business of offering goods or services using Q Comm's trade name, trademark,
service mark, logotype, advertising, or other commercial symbol or related
characteristics.
XV. CONFIDENTIALITY:
Both parties agree that all of the terms and conditions of this Agreement
are confidential. Press releases or other public announcements ("Public
Releases") by either party concerning the existence of this Agreement, terms of
this Agreement, or the services to be provided under this Agreement may not be
disclosed publicly, other than to service vendors for the purpose of
effectuating this Agreement, without the prior written consent of both Q Comm
and Distributor.
5
<PAGE>
XVI. ASSIGNMENT:
Q Comm may at any time assign its rights, obligations or duties, in whole
or in part, or any other interest hereunder without Distributor's approval.
Distributor may not assign its rights, obligations or duties, in whole or in
part, or any other interest hereunder without the prior written consent of Q
Comm.
XVII. INJUNCTIVE RELIEF:
Distributor hereby agrees that the remedy at law for any breach or
threatened breach by it of the covenants in this Agreement may be inadequate and
that Q Comm would suffer irreparable harm; therefore, it is mutually agreed and
stipulated by the parties hereto, that in addition to any other remedies at law
or in equity which Q Comm may have, Q Comm shall be entitled to obtain in a
court of law and/or equity a temporary and/or permanent injunction restraining
Distributor from a further violation or breach of such covenants.
XVIII. ATTORNEY'S FEES:
In the event that an action at law or in equity is brought by Q Comm to
enforce the terms and conditions of this Agreement, or to prevent a breach
thereof, and Q Comm is the prevailing party, Distributor shall be liable for Q
Comm's reasonable attorneys fees and costs in addition to any other relief
awarded to Q Comm pursuant to such action.
XIX. NOTICES:
Notices required to be given under this Agreement shall be effective when
mailed by prepaid certified mail return receipt requested to:
Q Comm International, Inc.
1135 South 1680 West
Orem, UT 84058-4930
Stephen C. Flaherty
USP Communications
3808 South West Temple
Salt Lake City, Utah 84115
Mark Sain
XX. GENERAL:
A. This Agreement constitutes the entire understanding between Q Comm and
Distributor and supersedes any and all prior or contemporaneous oral or written
statements and representations made by either party to the other.
6
<PAGE>
B. Failure on the part of either party to enforce any provision of this
Agreement in any one instance shall not be construed as a general waiver or
relinquishment of the right to enforce such provision.
C. If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected thereby.
D. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts shall have been signed by each party and delivered
to the other party. The undersigned represent and warrant that they are duly
authorized by the parties to enter into and sign this Agreement and by such
signatures do bind the parties to the terms of this Agreement.
E. This Agreement shall be governed by Utah law, without giving effect to
its choice of law provisions.
XXI. NON-DISCLOSURE
A. During the course of this Agreement, Distributor shall become aware of
certain methods, practices, and procedures with which Q Comm conducts its
business, all of which Distributor and Q Comm agree are proprietary information
and as such are trade secrets.
B. Distributor will not at any time, either during this Agreement or
thereafter divulge, furnish, or make available, either directly or indirectly,
to any person, firm, corporation or other entity any proprietary information
used by Q Comm. Distributor agrees that all such matters and information shall
be kept strictly and absolutely confidential.
C. Distributor acknowledges that a breach of any of the provisions of this
Agreement may result in continuing and irreparable damages to Q Comm for which
there may be no adequate remedy at law and that Q Comm in addition to other
relief available to Q Comm shall be entitled to the issuance of an injunction
restraining distributor from committing or continuing and breach of this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties agree that this Agreement sets forth
the complete understanding of the parties and may not be modified except in
writing signed by both parties.
USP Communications
By: /s/ [ILLEGIBLE]
-------------------------
Its: President
------------------------
Date: 9/16/99
-----------------------
Q Comm International, Inc.
By: /s/ Stephen C. Flaherty
-------------------------
Stephen C. Flaherty
President
Date: 9-16-99
-----------------------
8
<PAGE>
SCHEDULE "A"
1. USP will contract with each one of the hotels and or locations to be
installed with Qxpress
2. USP will be responsible should one of their locations not pay for the
product sold and invoiced through an ACH program
3. USP will receive its agreed upon percentage each Friday following the
Monday ACH. This percentage will be 10% of the gross for the term of the
agreement.
4. Q Comm will provide the Qxpress terminal at its expense
5. Q Comm will provide telephone installation and training support for each
location
6. Q Comm will arrange for internet access for activity reporting on the USP
group and or individual locations.
7. Each location must maintain a $350. Monthly minimum or a $19.95 monthly
service fee will be added to their account.
8. Current calling card long distance rates are as follows:
.049 cents per minute domestically
.49 cents connect fee
.49 monthly service fee
One (1) minute rounding
9. Should the Qxpress unit be lost or stolen USP will reimburse Q Comm in thc
amount of $410. Per terminal within fifteen (15) days of the date of loss.
10. Q COMM. Inc. will provide generic blank phone cards at the rate of $.l0
each. A credit of $.10 per sale will be given to the Customer on each
billing to offset the cost of the cards. Private labeled cards can be
provided to the Customer at actual cost.
9
<PAGE>
SCHEDULE "B"
SERVICES AND RENTAL AGREEMENT
This agreement is this 16 day of September, 1999 by and between USP
Communications (hereinafter called Customer) and Q COMM, Inc. Q COMM Inc. is a
wholly owned subsidiary of Q COMM International, Inc. Qxpress Management System
(herein called Qxpress) is a point of sale printing device. Customer wishes to
utilize the Qxpress Device for their phone card, wireless, and any additional
prepaid services as available for sales at their designated location(s). A list
of the locations is attached to this agreement and incorporated herein by
reference.
IN THE EVENT OF A DISPUTE, THIS AGREEMENT IS SUBJECT TO
ARBITRATION AND MEDIATION.
1. Q COMM, Inc. will provide Qxpress at the rental rate of $ 19.95 per month for
a two (2) year term. The monthly rental is paid by the Retailer on a monthly
basis if the monthly minimum of $350.00 in gross calling card revenue is not
met. This billing will be included in the first invoice of the month, and will
include maintenance, insurance, and initial setup and initial training during
this period.
2. Q COMM, Inc. will provide standard Qxpress blank phone cards at the rate of
$.10 each. A credit of $.10 per sale will be given to the Distributor on each
billing to offset the cost of the cards. Private labeled cards can be provided
to the Distributor at actual cost.
3. Compensation: Q COMM, Inc. Will compensate the Distributor 30% of the phone
card revenues per month; 0% for Wireless.
4. The Qxpress is and shall remain the sole property of Q COMM, Inc., and shall
be surrendered on demand.
5. Q COMM, Inc. reserves the right to remove a Qxpress from a location if sales
in that location do not warrant the Qxpress placement
6. Customer shall provide the following:
a) A safe and secure place for the Qxpress to be located.
b) Grounded power outlet.
c) Phone line access.
d) Window or door area for Point of Sale material and possibly areas at
the pump islands for point of sale materials and or banners.
7. Q COMM, Inc. will provide standard point of sale materials at it's own
expense. Any private labeled point of sale material can be provided by Q COMM,
Inc. at Customer's expense. Customer can provide their own point of sale
materials subject to approval by Q COMM, Inc. (Q COMM, Inc. must assure that any
advertising meets FCC or Public Service or Utility Commission Guide lines).
Agreed this 16 day of September, 1999
Business:
Name/DBA: /s/ [ILLEGIBLE]
---------------------------------------
Owner/Officer: (print): [ILLEGIBLE]
-------------------------
Owner/Officer: (signature):
-------------------------
Q COMM, Inc.
Sales Representative: /s/ [ILLEGIBLE]
---------------------------
I.D. Number:
------------------------------------
Q Comm Officer:
---------------------------------
10
<PAGE>
8. Changes in card advertising, logos, or incentives can occur once per quarter
with fifteen days notice of the change with all changes submitted in writing, by
fax, or E-mail.
9. The Qxpress shall remain at the location it is initially located in and shall
not be moved without prior approval from Q COMM, Inc. (a fax or E-mail with
receipt confirmed shall also serve as notice).
10. Payment: Every Monday, an agreed upon account will be debited by Automated
Clearing House (ACH) or Electronic Funds Transfer (EFT) (herein after referred
to as the debit). The debit will be initiated by Q COMM, Inc. If debit is
refused by Customer's bank the Point of Sale device will be turned off until the
debit is honored. Two refused debits will cause the Customer to be placed in a
COD status with a deposit requirement of two weeks of sales deposited in Q COMM,
Inc.'s account.
11. In the event Qxpress malfunctions, the store clerk or manager will call
Qxpress Client Support at (800) 626-9941. If the Qxpress cannot be repaired with
instructions over the phone or by phone updates, then Q COMM, Inc. will send a
replacement unit via overnight delivery.
12. Any disputes between Customer and Q COMM, Inc. that cannot be resolved will
be submitted to arbitration under the rules and regulations of the American
Arbitration Association. Either party may invoke this paragraph after providing
10 days written notice to the other party. All cost of arbitration shall be
divided equally between the parties. Any award may be enforced by a court of
law. Dispute mediation, or arbitration will be handled at the specific court
located in the county of Utah, State of Utah.
13. Entire Agreement: This is our entire agreement and cannot be changed unless
agreed to in writing by both parties.
14. Force Majeure: If any part of this agreement is invalidated by local,
county, state or federal rules or regulations, or a court of law, then the
balance of this agreement will remain valid.
15. Taxes: Q COMM, Inc.'s carriers are responsible for collection and payment of
Federal excise and applicable state taxes unless the local, county or state
laws, rules, and regulations require that the taxes be collected at the time of
sale and reported to the taxing authorities by the Customer. Taxes may be
collected from the card user on a per call or per minute basis. There may be
taxes that Q COMM, Inc. will collect and pass through to the Retailer. Any
additional taxes levied by Federal, State, or local entities will be passed on
to the Retailer. Any taxes collected by the Retailer will be their sole
responsibility to collect and pay. This statement is not advice on the
collection or reporting of taxes and we suggest that each Retailer contact their
CPA, Accountant or taxing authority in their states to the correct taxes or
reporting of same from the sale of any Prepaid Telecommunication Products.
16. Dial Around: The FCC In October 1997 mandated that all 800 or 888 calls from
a pay phone be compensated to the pay phone owner. A surcharge ($.49) may be
added to each all for toll free access from a pay phone. The Customer is not
responsible for collecting and paying these dial around charges.
17. TRANSFER OF RIGHTS OR ASSIGNMENT: This agreement shall be binding on any
successors of the parties. Neither party shall have the right to assign its
interests in this Agreement to any other party, unless the prior written consent
of the other is obtained.
18. WARRANTIES: Neither party makes any warranties with respect to the use of
the Qxpress by either party or by any third party. In no event will Q COMM, Inc.
be liable for direct, indirect, incidental, or consequential damaged, that are
in any way related to the Qxpress or it's carriers.
19. TERMINATION: This Agreement can only be terminated by Q COMM, Inc. by
providing 30 days' written notice. Customer can only terminate with 30 days
advance written notice if the terms of this agreement are not being met.
20. GOVERNING LAWS: This Agreement is governed by the laws, rules and
regulations of the State of Utah.
20. EXCLUSIVITY: Customer agrees that during the term of this agreement Q COMM,
Inc. shall be the sole provider of phone cards and Prepaid Wireless to all their
retail locations during the term of this agreement.
11
<PAGE>
[LOGO] QCOMM
INTERNATIONAL, INC.
AUTHORIZATION AND AGREEMENT FOR AUTOMATED CLEARING HOUSE
(ACH) DEBITS AND CREDITS
Company
I (we) authorize: QCOMM International, Inc. herein after called company, to
initiate credit and or debit entries and adjustments for any credit entries in
error to my (our) checking account indicated below and the depository named
below, herein after called Depositor, and to credit and or debit the same such
account.
Depository name(Bank name)
Address:
City, State and Zip or Postal Code
Phone Number___________________________________Fax Number
Manager Or Customer Service Representative:
Transit Number/ABA Number:
Account Number:
This authority is to remain in full force and effect until Company has received
written notification from me (us).
By:____________________________________________ By: Q COMM Inc.
(Please Print)
Its:___________________________________________ Client Mgr:___________________
(Title)
Signed:________________________________________ H O:
PLEASE ATTACH A VOIDED CHECK OR DEPOSIT SLIP TO THIS FORM. WE NEED THIS TO GET
THE ACTUAL ROUTING AND ACCOUNT NUMBERS.
Any errors and/or disputes must be corrected within two banking days of the
initiating transaction. Thank you for your confidence and trust.
12
<PAGE>
SCHEDULE "C"
CARD TERMS AND CONDITIONS
GENERAL ARTISTIC AND CONTENT GUIDELINES FOR WHOLESALE PIN'S AND CUSTOM PRIVATE
LABEL CARDS
CARDS
All card backs must disclose the following with regulatory requirements:
1. Made in the USA
2. Non-refundable
3. Rates subject to change with out notice
4. The expiration date must appear
5. Network Services provided by US Communications Services, Inc.
6. The specific account access PIN must be printed on the card
7. Toll free access number must be printed on the card
8. The customer service number or instructions on how to reach customer
service must be printed on the card
9. Any applicable surcharges i.e. Payphone surcharge, Domestic surcharge and
International surcharge MUST BE FULLY DISCLOSED on the card back and
packaging back.
10. Any applicable minute rounding increment must be disclosed on the card
back.
13
<PAGE>
SCHEDULE "D"
14
<PAGE>
[LOGO] QCOMM
INTERNATIONAL, INC.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Rate Per Rate Per
Code Country Connect Minute Code Country Connect Minute
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
93 Afghanistan $ 3.52 $ 1.53 56 Chile $ 2.31 $ 0.32
Alaska $ 0.73 $ 0.24 86 China $ 2.65 $ 0.66
355 Albania $ 2.48 $ 0.49 57 Colombia $ 2.55 $ 0.56
213 Algeria $ 2.53 $ 0.54 269 Comoros $ 2.95 $ 0.96
684 American Samoa $ 2.52 $ 0.53 242 Congo $ 2.90 $ 0.91
376 Andorra $ 2.39 $ 0.40 682 Cook Isl. $ 3.36 $ 1.37
244 Angola $ 2.64 $ 0.65 506 Costa Rica $ 2.43 $ 0.44
809 Anguilla $ 2.65 $ 0.66 385 Croatia $ 2.47 $ 48.00
672 Antarctica $ 2.53 $ 0.54 53 Cuba $ 2.91 $ 0.92
809 Antigua $ 2.62 $ 0.63 357 Cyprus $ 2.47 $ 0.48
54 Argentina $ 2.58 $ 0.59 420 Czech Republic $ 2.38 $ 0.39
374 Armenia $ 2.78 $ 0.80 45 Denmark $ 2.18 $ 0.19
297 Aruba $ 2.51 $ 0.52 246 Diego Garcia $ 2.94 $ 0.95
247 Ascension Isl. $ 3.00 $ 1.01 253 Djibouti $ 3.05 $ 1.06
61 Australia $ 2.16 $ 0.17 809 Dominica $ 2.70 $ 0.71
43 Austria $ 2.20 $ 0.21 809 Dominican Republic $ 2.31 $ 0.32
994 Azerbaijan $ 2.65 $ 0.66 593 Ecuador $ 2.49 $ 0.50
809 Bahamas $ 2.30 $ 0.31 20 Egypt $ 2.89 $ 0.90
973 Bahrain $ 2.87 $ 0.88 503 El Salvador $ 2.55 $ 0.56
880 Bangladesh $ 3.09 $ 1.10 240 Equi Guinea $ 3.05 $ 1.06
809 Barbados $ 2.70 $ 0.71 291 Eritrea $ 3.32 $ 1.33
375 Belarus $ 2.55 $ 0.56 372 Estonia $ 2.40 $ 0.41
32 Belgium $ 2.18 $ 0.19 251 Ethiopia $ 3.24 $ 1.25
501 Belize $ 2.80 $ 0.81 298 Faeroe Isl. $ 2.43 $ 0.44
229 Benin $ 2.77 $ 0.78 500 Falkland Isl. $ 2.52 $ 0.53
809 Bermuda $ 2.34 $ 0.35 679 Fiji Isl. $ 3.12 $ 1.13
975 Bhutan $ 2.63 $ 0.64 358 Finland $ 2.19 $ 0.20
591 Bolivia $ 2.76 $ 0.79 596 Fr. Antilles $ 2.54 $ 0.55
387 Bosnia $ 2.52 $ 0.53 594 Fr. Guiana $ 2.55 $ 0.56
267 Botswana $ 2.55 $ 0.56 689 Fr. Polynesia $ 2.71 $ 0.72
55 Brazil $ 2.50 $ 0.51 33 France $ 2.16 $ 0.17
809 British Vir Isl. $ 2.49 $ 0.50 241 Gabon $ 2.98 $ 0.99
673 Brunei $ 2.54 $ 0.55 220 Gambia $ 2.75 $ 0.76
359 Bulgaria $ 2.47 $ 0.48 995 Georgia $ 2.87 $ 0.88
226 Burkina Faso $ 2.84 $ 0.85 49 Germany $ 2.16 $ 0.17
257 Burundi $ 2.79 $ 0.80 233 Ghana $ 2.60 $ 0.61
855 Cambodia $ 3.16 $ 1.17 350 Gibraltar $ 2.55 $ 0.56
237 Cameroon $ 2.97 $ 0.98 30 Greece $ 2.45 $ 0.46
Canada To $ 0.66 $ 0.17 299 Greenland $ 2.65 $ 0.66
238 Cape Verde Isl. $ 2.73 $ 0.74 809 Grenada $ 2.70 $ 0.71
809 Cayman Isl. $ 2.41 $ 0.42 590 Guadeloupe $ 2.57 $ 0.58
236 Central Africa $ 3.15 $ 1.16 671 Guam $ 2.22 $ 0.23
235 Chad Rep $ 3.35 $ 1.36 539 Guantan Bay $ 2.60 $ 0.61
- - -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Rate Per Rate Per
Code Country Connect Minute Code Country Connect Minute
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
502 Guatemala $ 2.41 $ 0.42 373 Moldova $ 2.63 $ 0.64
224 Guinea $ 2.75 $ 0.76 339 Monaco $ 2.27 $ 0.28
245 Guinea Bissau $ 3.09 $ 1.10 976 Mongolia $ 3.20 $ 1.21
592 Guyana $ 2.92 $ 0.93 809 Montserrat $ 2.79 $ 0.80
509 Haiti $ 2.77 $ 0.78 212 Morocco $ 2.60 $ 0.61
Hawaii To $ 0.72 $ 0.23 258 Mozambique $ 2.68 $ 0.69
504 Honduras $ 2.71 $ 0.72 95 Myanmar (Burma) $ 3.21 $ 1.22
852 Hong Kong $ 2.26 $ 0.27 264 Namibia $ 2.54 $ 0.55
36 Hungary $ 2.36 $ 0.37 674 Nauru $ 3.03 $ 1.04
354 Iceland $ 2.36 $ 0.37 977 Nepal $ 3.03 $ 1.04
91 India $ 1.99 $ 0.57 599 Neth Antilles $ 2.42 $ 0.43
62 Indonesia $ 2.55 $ 0.56 31 Netherlands $ 2.17 $ 0.18
98 Iran $ 3.07 $ 1.08 809 Nevis $ 2.67 $ 0.68
964 Iraq $ 3.19 $ 1.20 687 New Caledonia $ 2.87 $ 0.88
959 Ireland $ 2.20 $ 0.21 64 New Zealand $ 2.19 $ 0.20
972 Israel $ 2.27 $ 0.28 505 Nicaragua $ 2.65 $ 0.66
39 Italy $ 2.23 $ 0.24 227 Niger $ 2.86 $ 0.87
225 Ivory Coast $ 3.18 $ 1.19 234 Nigeria $ 3.02 $ 1.03
809 Jamaica $ 2.73 $ 0.74 683 Niue Isl. $ 3.37 $ 1.38
81 Japan $ 2.23 $ 0.24 850 North Korea $ 3.07 $ 1.08
962 Jordan $ 2.88 $ 0.89 47 Norway $ 2.18 $ 0.19
7 Kazakhstan $ 2.82 $ 0.83 968 Oman $ 3.06 $ 1.07
254 Kenya $ 2.85 $ 0.86 92 Pakistan $ 1.99 $ 0.61
686 Kiribati $ 3.12 $ 1.13 680 Palau $ 2.99 $ 1.00
965 Kuwait $ 3.02 $ 1.03 507 Panama $ 2.74 $ 0.75
7 Kyrgyzstan $ 2.86 $ 0.87 675 Papua N Guin $ 2.62 $ 0.63
856 Laos $ 3.05 $ 1.06 595 Paraguay $ 2.88 $ 0.89
371 Latvia $ 2.48 $ 0.49 51 Peru $ 2.65 $ 0.66
961 Lebanon $ 2.85 $ 0.86 63 Philippines $ 1.99 $ 0.27
266 Lesotho $ 2.59 $ 0.60 48 Poland $ 2.42 $ 0.43
231 Liberia $ 2.63 $ 0.64 351 Portugal $ 2.39 $ 0.40
218 Libya $ 2.51 $ 0.52 809 Puerto Rico To $ 2.18 $ 0.19
370 Lithuania $ 2.51 $ 0.52 974 Qatar $ 2.94 $ 0.95
352 Luxembourg $ 2.27 $ 0.28 262 Reunion Isl. $ 2.73 $ 0.74
853 Macao $ 2.56 $ 0.57 40 Romania $ 2.55 $ 0.56
389 Macedonia $ 2.56 $ 0.57 7 Russia $ 2.47 $ 0.48
261 Madagascar $ 3.05 $ 1.06 250 Rwanda $ 3.07 $ 1.08
265 Malawi $ 2.65 $ 0.66 670 Saipan $ 2.62 $ 0.63
60 Malaysia $ 2.37 $ 0.38 San Marino $ 2.55 $ 0.56
960 Maldives $ 2.94 $ 0.95 239 Sao Tome $ 3.28 $ 1.29
223 Mali Republic $ 3.12 $ 1.13 966 Saudi Arabia $ 2.99 $ 1.00
356 Malta $ 2.38 $ 0.39 221 Senegal Republic $ 3.31 $ 1.32
871 Marisat $ 12.00 $ 10.01 248 Seychelles Isl. $ 3.28 $ 1.29
692 Marshall Isl. $ 2.57 $ 0.58 232 Sierra Leone $ 3.01 $ 1.02
222 Mauritania $ 2.82 $ 0.83 65 Singapore $ 2.35 $ 0.36
230 Mauritius $ 2.98 $ 0.99 451 Slovakia $ 2.40 $ 0.41
691 Micronesia $ 2.91 $ 0.92 386 Slovenia $ 2.33 $ 0.34
- - -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Rate Per Rate Per
Code Country Connect Minute Code Country Connect Minute
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
677 Solomon Isl. $ 2.88 $ 0.89 809 US Virgin Isl. To $ 2.20 $ 0.21
252 Somalia $ 3.07 $ 1.08 256 Uganda $ 2.57 $ 0.58
27 South Africa $ 1.99 $ 0.34 380 Ukraine $ 2.55 $ 0.56
82 South Korea $ 2.34 $ 0.35 971 United Arab Emir $ 2.67 $ 0.68
34 Spain $ 2.27 $ 0.28 44 United Kingdom $ 0.49 $ 0.06
94 Sri Lanka $ 3.02 $ 1.03 598 Uruguay $ 2.80 $ 0.81
290 St. Helena $ 2.84 $ 0.85 7 Uzbekistan $ 2.82 $ 0.83
809 St. Kitts $ 2.59 $ 0.60 678 Vanuatu $ 3.05 $ 1.06
809 St. Lucia $ 2.75 $ 0.76 396 Vatican City $ 2.30 $ 0.31
508 St. Pierre/Miq $ 2.46 $ 0.47 58 Venezuela $ 2.50 $ 0.51
809 St. Vincent $ 2.81 $ 0.82 84 Vietnam $ 3.19 $ 1.20
249 Sudan $ 2.59 $ 0.60 681 Wallis/Fut $ 2.53 $ 0.54
597 Suriname $ 3.29 $ 1.30 685 West Samoa $ 2.87 $ 0.88
268 Swaziland $ 2.38 $ 0.39 969 Yemen Peoples $ 3.03 $ 1.04
46 Sweden $ 2.14 $ 0.15 967 Yemen Republic $ 3.03 $ 1.04
41 Switzerland $ 2.18 $ 0.19 381 Yugoslavia $ 2.57 $ 0.58
963 Syria $ 2.87 $ 0.88 243 Zaire $ 2.86 $ 0.87
7 Tadjikstan $ 2.33 $ 0.34 260 Zambia $ 2.89 $ 0.90
886 Taiwan $ 2.70 $ 0.71 Zanzibar $ 5.27 $ 3.28
255 Tanzania $ 2.75 $ 0.76 263 Zimbabwe $ 2.52 $ 0.53
66 Thailand $ 2.64 $ 0.65 52 Mexico
228 Togo $ 3.07 $ 1.08 52 Band l $ 1.99 $ 0.11
676 Tonga $ 3.23 $ 1.24 52 Band 2 $ 1.99 $ 0.11
809 Trinidad $ 2.73 $ 0.74 52 Band 3 $ 1.99 $ 0.11
216 Tunisia $ 2.60 $ 0.61 52 Band 4 $ 1.99 $ 0.11
90 Turkey $ 2.51 $ 0.52 52 Band 5 $ 1.99 $ 0.11
7 Turkmenistan $ 2.84 $ 0.85 52 Band 6 $ 1.99 $ 0.11
809 Turks/Caicos $ 2.63 $ 0.64 52 Band 7 $ 1.99 $ 0.11
688 Tavlalu $ 3.09 $ 1.10 52 Band 8 $ 1.99 $ 0.11
- - -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONVERTIBLE DEBENTURE AND COMMON STOCK PURCHASE AGREEMENT
This Agreement is made September 15, 1999 by and among GEM GLOBAL YIELD
FUND LIMITED, a Nevis company, with its office at c/o Loughran & Co., 38
Hertford Street, London, W1Y 7TG (the "Buyer") and GEM INVESTMENTS, LTD., a
Delaware corporation, with offices at 11 Gloucester Court, Marlton, NJ 08053
("Seller").
WITNESSETH:
WHEREAS, Seller is the owner of $650,000 principal amount of 2%
convertible debentures due May 12, 2004 of Q Comm International, Inc. ("QCOM or
the Company") (the "Debentures");
WHEREAS, Two Million (2,000,000) shares of the common stock, $.001 par
value (the "Common Stock") of the Company (the "Escrow Shares") registered in
the name of the Seller are being held in escrow by Kaplan Gottbetter & Levenson,
LLP as escrow agent (the "Escrow Agent") for the purpose of honoring conversions
by the Seller of the Debentures; and
WHEREAS, Seller is the owner of One Hundred Twenty-Five Thousand (125,000)
shares of the Common Stock, which Seller acquired through the exercise of
warrants to purchase common stock expiring on May 12, 2004.
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from the Seller, the entire amount of the Debentures registered in the name of
the Seller along with conversion rights to 2,000,000 Escrow Shares and all of
the shares of the Common Stock on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, and other good and valuable consideration, the
receipt and sufficiency of which the parties hereto acknowledge, it is agreed as
follows:
Article I
Sale of Debenture
Section 1.1. Sale of Debenture.
(a) Seller agrees to sell to the Buyer and the Buyer agrees to purchase
from the Seller, the entire amount of the Debentures registered in the name of
the Seller along with conversion rights to 2,000,000 Debenture Escrow Shares and
One Hundred Twenty-Five Thousand (125,000) shares of the Common Stock.
/s/ [ILLEGIBLE]
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not reasonably be expected to have, individually or in the aggregate, a material
adverse effect on (a) the results of operations, assets, prospects, or financial
condition of the Seller, or (b) the Buyer's rights under this Agreement, the
Escrow Agreement and the Common Stock (a "Material Adverse Effect").
Section 2.4 Authorization; Enforcement.
Seller has the requisite corporate power and authority to enter into and
to consummate the transactions contemplated hereby and otherwise to carry out
its obligations hereunder and thereunder. The execution and delivery of this
Agreement by the Seller and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Seller. This Agreement has been duly executed and
delivered by the Seller and constitutes the valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 2.5 No Conflicts.
The execution, delivery and performance of this Agreement by the Seller
and the consummation by the Seller of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of its
certificate of incorporation or bylaws or (ii) subject to obtaining the consents
referred to in Section 2.6, conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Seller is a
party, or (iii) to the knowledge of the Seller result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Seller is subject (including
Federal and state securities laws and regulations), or by which any property or
asset of the Seller is bound or affected, except in the case of each of clauses
(ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Seller is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, do not have a Material Adverse Effect.
Section 2.6 Consents and Approvals.
Except as specifically set forth in Schedule 2.6, the Seller is required
to obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Seller of this Agreement, and other than, in all
cases, where the failure to obtain such consent, waiver, authorization or order,
or to give or make such notice or filing,
/s/ [ILLEGIBLE]
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<PAGE>
would not materially impair or delay the ability of the Seller to effect the
Closing and deliver to the Buyer the Common Stock free and clear of all Liens
(collectively, the "Required Approvals").
Section 2.7 Litigation; Proceedings.
Except as specifically disclosed in Schedule 2.7, there is no action,
suit, notice of violation, proceeding or investigation pending or, to the best
knowledge of the Seller, threatened against or affecting the Seller or any of
its respective properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, State, county, local or foreign) which
(i) relates to or challenges the legality, validity or enforceability of this
Agreement or the Common Stock (ii) could, individually or in the aggregate, have
a Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Seller to perform fully on a timely basis
its obligations under this Agreement.
Section 2.8 No Default or Violation.
Seller (i) is not default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is not in violation of any statute,
rule or regulation of any governmental authority which could (individually or in
the aggregate) (x) adversely affect the legality, validity or enforceability of
this Agreement, (y) have a Material Adverse Effect or (z) adversely impair the
Seller's ability or obligation to perform fully on a timely basis its
obligations under this Agreement.
Section 2.9. No Brokers.
Seller, covenants and warrants to Buyer that: (i) no negotiations in
connection herewith were made with or through any person or entity acting as a
broker, (ii) no broker was instrumental in the consummation of this transaction
and (iii) no commitment was made by Seller, as the case may be, with or to any
broker in connection with this sale transaction. Seller agrees to indemnify and
hold the Buyer harmless from and against all obligations for the payment of any
and all brokerage commission or fee which may be claimed by any broker claiming
to have dealt with the Seller or predicated on the act of the Seller on breach
this warranty and covenant.
/s/ [ILLEGIBLE]
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Article III
Buyers' Representations and Warranties
The Buyer hereby warrants and represents the following representations and
warranties made under this Article III:
Section 3.1.
Buyer is a corporation duly and validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Buyer has the requisite
power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The purchase of the Debentures and the shares of Common Stock by the
Buyer hereunder has been duly authorized by all necessary action on the part of
the Buyer. This Agreement has been duly executed and delivered by the Buyer or
on its behalf and constitutes the valid and legally binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
Section 3.2. No Brokers.
Buyer, covenants and warrants to Seller that: (i) no negotiations in
connection herewith were made with or through any person or entity acting as a
broker, (ii) no broker was instrumental in the consummation of this transaction
and (iii) no commitment was made by Buyer, as the case may be, with or to any
broker in connection with this sale transaction. Buyer agrees to indemnify and
hold the Buyer harmless from and against all obligations for the payment of any
and all brokerage commission or fee which may be claimed by any broker claiming
to have dealt with the Buyer or predicated on the act of the Buyer on breach
this warranty and covenant.
Section 3.3. Buyer Status.
Buyer is an "accredited investor" as such term is defined in Rule
501(a)(2) under the Act, in that it is a business trust, not formed for the
specific purpose of acquiring the Debentures or Common Stock offered, with total
assets in excess of $5,000,000. The Buyer is purchasing the Debentures and
Common Stock for its own account.
Section 3.4. Promise to Comply with Purchase Agreement.
Buyer further agrees to be bound by the Convertible Debenture and Warrant
Purchase Agreement by and between GEM Investments, Ltd. and Q Comm
International, Inc.. dated May 13, 1999.
/s/ [ILLEGIBLE]
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Article IV
Conditions Precedent to Closing
Section 4.1. Conditions Precedent to Obligations of the Buyer.
The obligation of the Buyer to purchase the shares of Debentures and the
shares of Common Stock is subject to the satisfaction or waiver by the Buyer, at
or prior to the Closing, of each of the following conditions:
(a) Legal Opinion. The Buyer shall have received the legal opinion,
addressed to it and dated the Closing Date of thc Counsel for the Seller. Such
legal opinion shall address the Seller's authority to enter into this Agreement
and the removal of any restrictions on the transfer and sale of Debentures, the
Escrow Shares and the Common Stock.
(b) Accuracy of the Seller's Representations and Warranties. The
representations and warranties of the Seller contained herein shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except that representations and warranties
that are made as of a specific date need be true in all material respects only
as of such date);
(c) Performance by the Seller. The Seller shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Seller at or prior to the Closing;
(d) No Prohibitions. The purchase of and payment for the Debentures and
Common Stock hereunder (i) shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation and (ii) shall not
subject the Buyer to any penalty, or in its reasonable judgment, other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Buyer of the purchase of the
Debentures and Common Stock (provided, however, that such regulation, law or
onerous condition was not in effect in such form at the date of this Agreement);
(e) Required Approvals. All Required Approvals shall have been obtained;
(f) Delivery of Escrow Shares. The Seller shall have delivered to the
Escrow Agent the certificate(s) representing the Debentures, Escrow Shares and
Common Stock Shares which has been registered in the name of the Buyer and free
of all legends and restrictions; and
Section 4.2. Conditions Precedent to Obligations of the Seller.
The obligation of the Seller to sell the Debentures and Common Stock
hereunder is subject to the satisfaction or waiver by the Seller, at or to the
Closing, of each of the following conditions:
/s/ [ILLEGIBLE]
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(a) Accuracy of the Buyer's Representations and Warranties. The
representations and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except that representations and warranties that are made as
of a specific date need be true in all material respects only as of such date);
(b) Performance by the Buyer. The Buyer shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by it at or prior to the Closing; and
Article V
Closing
Section 5.1. Date and Time of Closing
The Closing will take place at the offices of the Buyer immediately
following the receipt by the Escrow Agent from QCOM's transfer agent of
certificates registered in the name of the Buyer and which do not contain any
restrictions on the sale or transferability of the Debentures, Escrow Shares and
the Common Stock.
Section 5.2 No. Adjustments.
The parties herein agree that all adjustments have been made and that the
Purchase Price reflects same as of the Closing Date.
Section 5.3 All Representations and Warranties Survive Closing.
All representations and warranties contained in this Agreement shall
survive the closing of sale.
Article VI
Miscellaneous Provisions
Section 6.1 Amendment, Waiver and Modification.
The provisions of this Agreement may not be amended, supplemented, waived
or changed orally, but only by a writing signed by the party as to whom
enforcement of any such amendment, supplement, waiver or modification is sought
and making specific references to this Agreement.
/s/ [ILLEGIBLE]
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<PAGE>
Section 6.2. Assignment.
This Agreement and any rights under this Agreement may not be assigned by
Seller or Buyer without the written approval of the party. Any attempt to make
an assignment without written approval shall be null, void and of no legal
effect.
Section 6.3. Notices.
All notices hereunder shall be in writing given to the parties at their
addresses indicated above sent United States mail postpaid as registered or
certified mail with return receipt requested or by national overnight express
courier service; with copies of all notices sent to Adam S. Gottbetter, Esq.,
Kaplan Gottbetter & Levenson, LLP., 630 Third Avenue, New York, NY 10017. Any
notice so given shall be deemed given on the second day after mailing as
evidenced by a stamped U.S. Postal Service receipt or on the next day after
delivery to the overnight courier service.
Section 6.4. Successors, Legal Representative and Assigns.
The terms and conditions of this Agreement shall bind, and inure to the
benefit of, the parties hereto and their respective successors, legal
representatives and permitted assigns.
Section 6.5. Entire Agreement.
This Agreement embodies the entire agreement between the parties with
respect to the transactions contemplated, and supersedes all other prior
agreements and understandings between the parties with reference to the subject
matter herein. There have been no agreements, representations or warranties
other than those set forth in this Agreement. Buyer is purchasing the Debentures
and Common Stock "as is".
Section 6.6. Additional Documents.
All of the parties agree to execute any documents and take any action
necessary or helpful to carry out the terms of this Agreement.
Section 6.7. Counterpart Signatures.
This Agreement may be executed in one or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
/s/ [ILLEGIBLE]
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Section 6.8. Headings.
The headings in the sections of this Agreement have been inserted for
convenience only and shall not constitute a part of this Agreement.
Section 6.9. Governing Law.
This Agreement shall be construed according to the laws of the State of
New York.
[ SIGNATURE PAGE FOLLOWS ]
/s/ [ILLEGIBLE]
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SELLER: BUYER:
GEM INVESTMENTS, LTD. GEM GLOBAL YIELD FUND LIMITED
By: /s/ [ILLEGIBLE] By:
--------------------------------- ---------------------------------
Name: [ILLEGIBLE] Name:
Title: President Title:
/s/ [ILLEGIBLE]
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
SELLER: BUYER:
GEM INVESTMENTS, LTD. GEM GLOBAL YIELD FUND LIMITED
By: By: Pierce Loughran
--------------------------------- ---------------------------------
Name: Name: PIERCE LOUGHRAN
Title: Title: DIRECTOR
/s/ PL
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SCHEDULE 2.6
CONSENT AND APPROVALS
None.
/s/ [ILLEGIBLE]
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SCHEDULE 2.7
LITIGATION; PROCEEDINGS
None.
/s/ [ILLEGIBLE]
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<PAGE>
NKO [LOGO]
MEGAHERTZ - NKO, INC.
AUTHORIZED DISTRIBUTOR AGREEMENT - PrePaid
This Agreement is made and entered into in Jacksonville, Florida between
MegaHertz-NKO Inc., a Delaware corporation authorized to do business in the
State of Florida and the distributor, QCOMM INC, a corporation whose address is:
1135 South 1680 WEST, OREM UT 84058 telephone is 801-226-4222, fax 801-222-9555.
ARTICLE I - DEFINITIONS
As used in this Agreement, the capitalized terms appearing in this Article
I shall be defined as set forth below:
Section 1.1. "Distributor" means the Distributor is authorized to
represent and sell Services on behalf of the Company.
Section 1.2. "Agreement" means this contract, and any attachment or
exhibit hereto, as the same may be amended from time to
time.
Section 1.3. "Company" means MegaHertz-NKO, Inc. of Jacksonville,
Florida and any parent, subsidiary or affiliate thereof.
Section 1.4. "Customer" means any third party which contracts with
the Distributor for the purchase, use or lease of any of
the Products or Services of the Company.
Section 1.5. "Distributor" means QCOMM INC. and any parent, subsidiary
or affiliate thereof.
Section 1.6. "Effective Date" means that the date that this Agreement
shall become effective, which date shall be the date on
which the Company signs and dates this Agreement below.
Section 1.7. "Products" means the Company's products sold or consigned
to the Distributor pursuant to this Agreement, and which
are more fully described in Attachment 1 to this
Agreement.
Section 1.8. "Sales Location" means the location of a sales office
operated by the Distributor under the terms of this
Agreement.
Section 1.9. "Service Activation" means the date upon which the
Customer is capable of transmitting data over the
Company's network.
Section 1.10. "Services" means the Company's services rendered to the
Distributor and/or the Customer by the Company, and which
are more fully described in Attachment 1 to this
Agreement.
Section 1.11. "Territory" means the channels of distribution and
specific customers pursued described in Attachment 2.
Initials SF Date 8/5
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Page 1 of 13
<PAGE>
to the Company, with a combined single limit of not less
than $1,000,000 for bodily injury or death and for
property damage. The Distributor also shall procure and
maintain, in full force and effect, worker s compensation
insurance, within the limits required by applicable
Federal and state statutes. Such policies shall provide
that they shall not be canceled or altered without at
least thirty (30) days prior written notice to the
Company. Within ten (10) days after submitting this
Agreement, the Distributor shall furnish the Company with
a certificate or certificates of such policies, together
with satisfactory evidence that the premiums therefor have
been paid. Maintenance of such insurance and the
performance by the Distributor of its obligations under
this paragraph shall not relieve Distributor of liability
under the indemnity provisions set forth above.
ARTICLE III - TERM AND TERMINATION OF THE AGREEMENT
Section 3.1. Term. This Agreement shall commence as of the Effective
Date, and shall remain in effect for an initial period of
one year. The Agreement automatically shall renew on each
anniversary of the Effective Date unless either party
gives sixty (60) days prior, written notice to the other
of its intention to terminate the Agreement at the end of
the term.
Section 3.2. Termination for Cause. Notwithstanding Section 3.1, the
Company may immediately terminate this Agreement for
"cause" upon written notice to the Distributor. For
purposes of this Section, "cause" shall be determined by
the Company and shall include, without limitation, a
breach of this Agreement or any action on the part of the
Distributor or its employees or Distributors that might
discredit the good name and goodwill of the Company.
Unless otherwise expressly agreed to in writing by the
Company, any such termination automatically shall operate,
as of the effective date thereof, as a cancellation of any
further deliveries of Products to the Distributor, and as
a cancellation of all purchase orders of the Distributor
for Products, whether or not any such orders previously
have been accepted by the Company. The termination of this
Agreement shall not release either party form any
obligation which, pursuant to these terms, is to survive
or be performed thereafter except in regards to the
existing hone card pins which will remain active; and all
commissions due will continue to be paid to QComm as
agreed. Neither party shall, by reason of the termination
of this Agreement, or the associated cancellation of any
undelivered orders, in accordance with these terms, be
liable to the other for compensation, reimbursement or for
any damages on account of the loss of profits or
prospective profits on anticipated sales, or on
commitments in connection with the business or goodwill of
either party or otherwise, or for direct, special,
incidental, indirect or consequential damages, nor shall
either party have the right to any equitable remedies by
reason of such termination. However, the Distributor shall
remain obligated to the Company after any such termination
for any unpaid invoices for Products ordered and
delivered.
Section 3.3. Company's Repurchase Right. The Company shall have the
option (but not the obligation), in its sole and absolute
discretion, exercisable upon written notice to the
Distributor mailed within fourteen (14) days following the
mailing of a notice of termination of this Agreement to
repurchase from the Distributor, or from the Distributor's
legal representatives (in the event of the insolvency or
other such situations), all or any part of the
Distributor's inventory of Products existing on the
effective date of such termination for cause, at a price
equal to the Distributor's net purchase price therefor
from the Company, or the Company's price for Products to
its authorized Distributors of the Products at the time of
such repurchase, whichever price is lower. If the Company
elects, in its sole and absolute discretion, to purchase
Products which are not then on the Company's current price
sheet or which are damaged or not in their original
containers, the parties hereto agree to negotiate the
price thereof in good faith. In the event the
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<PAGE>
Company exercises its option to repurchase all or any part
of the Distributor's inventory of the Products, the
Distributor hereby agrees to sell to the Company that
portion of its inventory of Products as the Company elects
to purchase, as of the effective date of termination of
this Agreement, and to immediately deliver the same to the
Company at the Distributor's sole cost and expense, at
such time(s) and to such place(s) as the Company shall
have the right to designate, free and clear of any liens
or encumbrances thereon. The Company shall have the right
to offset against any monies payable to the Distributor
under this paragraph any monies that are due and owing
from the Distributor to the Company as of the date any
such payment is due.
Initial SF Date 8/5
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<PAGE>
ARTICLE IV - OBLIGATION AND RIGHTS OF THE DISTRIBUTOR
Section 4.1. Right to Purchase. As an authorized Distributor of the
Products, the Distributor shall have the non-assignable
and non-transferable right to purchase the Products from
the Company upon such terms and conditions, and at such
prices, as may be established or modified by the Company
from time to time. The pricing and terms of purchase are
contained as Attachment 3 to this Agreement.
Section 4.2. Maintenance of Inventory. The Distributor agrees, while an
authorized Distributor for the Products, to purchase from
the Company, and to maintain in inventory at all times, a
quantity of Products sufficient for and consistent with
the needs of the Distributor's Customers
Section 4.3. Promotion of Products. The Distributor agrees to promote,
display and demonstrate the Products in a manner which is
attractive and consistent with the Product's reputation
for high quality, and which is at least equivalent to the
Distributor's promotion, display and demonstration of
other products sold by the Distributor;
Section 4.4. Purchase Orders. The Company agrees that the
Distributor may submit orders on the Distributor's
purchase order form, if any, provided however that the
terms and conditions provided in this Agreement shall
solely govern the sale, delivery and warranty of the
Products, and that any printed terms of the Distributor's
purchase order, and any other terms in the Distributor's
purchase order which vary from, or are inconsistent with,
contrary to, or in addition to, these terms and conditions
shall be null and void. Any purchase order submitted to
the Company by the Distributor shall be subject to the
Company's confirmation, and upon confirmation by the
Company, shall be firm and non-cancelable, and shall not
be subject to rescheduling by Distributor except upon the
written consent of the Company.
Section 4.5. Shipment Dates. Delivery dates set forth in any
confirmation of purchase order shall be deemed to be
estimated delivery dates only, and the Company shall not
be liable to the Distributor or the Customers for any
losses or damages whatsoever, including, without
limitation, direct, indirect, special, consequential or
incidental damages, that may arise out of the failure by
the Company to deliver, or the prevention of, or delay in,
the delivery of any Product shipment or any part thereof,
due to any cause or reason whatsoever.
The Company shall make reasonable efforts to timely fill
and ship the Distributor's orders for Products. However,
the Company shall not be liable in any respect for any
failure or delay in any delivery due in whole or in part
to such matters as shortage or curtailment of material,
labor, transportation or utility services, or failure or
delay by the Company's suppliers in making deliveries to
it, whether due to labor or production difficulty or other
causes or due to any other cause beyond the Company's
reasonable control or without the Company's fault or
negligence.
Section 4.6. Shipping Risk of Loss. The risk of loss on all shipments
of Products to the Distributor shall pass to the
Distributor at the Company's shipping point. The
Distributor shall be solely responsible to insure the risk
of loss or damage to such Products at the Distributor's
own expense and shall be solely responsible to pursue any
claim against the carriers for negligent delivery of the
Products.
Section 4.7. Payment for Products. The Distributor shall pay each
Company invoice for Products according to its terms,
without any set-off or claim, except in the
Initial SF Date 8/5
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Page 5 of 13
<PAGE>
amounts of any written credit memorandum issued by the
Company to the Distributor prior to the due date of the
outstanding invoice. Payment terms will be set forth on
the Company's invoices and may be changed from time to
time without the approval of, or prior notice to, the
Distributor. Each shipment of the Products to the
Distributor shall constitute a separate sale, obligating
the Distributor to pay therefor, whether any such shipment
be in complete or partial fulfillment of any purchase
order of the Distributor.
Section 4.8. Price Changes. If the Company shall have the right, in the
Company's sole and absolute discretion, during the term of
this Agreement, announce any change, to include increase,
decrease or modification, in the Distributor price for any
Product except existing phone card pins which will remain
at the activated price and rate plan as agreed herein.
Section 4.9. Quantity Limitations. In the event that product demand
exceeds product availability, the Company shall have the
right to limit the quantity of Products to be sold to the
Distributor hereunder in such manner as the Company
believes to be appropriate, in the Company's sole and
absolute discretion.
ARTICLE V - WARRANTIES
Section 5.1. Return of Defective Products. If any Products furnished
the Distributor are defective at the time of delivery, the
Distributor's sole remedy shall be to return the defective
Products to the Company only if a MegaHertz-NKO, Inc.
Return Authorization Form is approved. The foregoing
constitutes the Distributor's and Customers sole remedy
with respect to initially defective Products. The
Distributor shall have no right to reject all, or any part
of, a shipment of Products furnished hereunder because any
or all such Products may be initially defective. The
Distributor shall accept all Products, even if initially
defective, and be compensated solely through the Company's
issuance of a written credit memorandum.
Section 5.2. Printed Warranties. The Company shall deliver to the
Distributor with the Products such printed warranties or
guarantees with respect to the Products as shall be
afforded by the Company to the Customers of the Products.
The Distributor shall not provide or advertise any
warranties or guarantees with respect to the Products
which purport to obligate the Company other than as
provided in the aforesaid printed warranties and
guarantees furnished by the Company for the Products. The
Distributor shall ensure that the foregoing printed
warranties or guarantees are delivered to the Customers of
the Products at the time of purchase by the Customer.
Section 5.3. Disclaimer of Warranties. THE WARRANTIES SET FORTH IN THIS
ARTICLE V ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
WARRANTIES, OTHER THAN WARRANTY OF TITLE, WHETHER ORAL OR
WRITTEN, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF
MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE,
ALL OF WHICH ARE HEREBY WAIVED BY THE DISTRIBUTOR. The
employees and Distributors of the Company are not
authorized to make modifications to such warranties, or
provide additional warranties binding on the Company
unless such modifications or additions are in writing, and
signed by an officer of the Company. Any such unauthorized
statements, whether oral or written, do not constitute
warranties and should not be relied upon by the
Distributor or its Customers. The Company's liability
under its warranties shall be limited solely to the cost
of any necessary repairs or replacement of the Products,
or refund of the Distributor's purchase price for the
Products, and the Company assumes no risk of, and shall
not in any case be liable for, any other damages,
including, without limitation, any special, incidental,
consequential or
Initial SF Date 8/5
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Page 6 of 13
<PAGE>
punitive damages, arising from breach of warranty or
contract, negligence or any other legal theory, including,
without limitation, loss of goodwill, profits or revenue,
loss of use of the Products or any associated equipment,
cost of capital, cost of any substitute equipment,
facilities or services, downtime costs, or claims of any
party dealing with the Distributor for such damages.
ARTICLE VI - SALE OF COMPANY SERVICES
Section 6.1. Appointment as Service Distributor. In accordance with
this Agreement, the Distributor shall be an authorized
Distributor of the Services offered by the Company
contained in Attachment 1, and shall have a non-assignable
and non-transferable right to sell the Services to
Customers upon such terms and conditions, and at such
prices, as may be established or modified by the Company
from time to time..
Section 6.4. Approval of Customers. The Company shall have the sole and
exclusive right to determine suitability of Customers to
use the Services.
ARTICLE VII - INTELLECTUAL PROPERTY
Section 7.1. Trademarks. The Distributor acknowledges that the Company
has retained the full and exclusive rights to, and
ownership in, the trademarks, "MegaHertz-NKO", "FaxJack",
and "FaxJet Service", and any and all other trademarks and
tradenames applicable to the Company and its Products
("Trademarks and Tradenames"). Such rights and ownership
interests of the Company shall at no time be contested by
the Distributor. The Distributor hereby is granted a
non-exclusive right to use the Trademarks and Tradenames
in connection with the conduct of its business under this
Agreement, but only in such connection, and it is agreed
by the Distributor that such right shall terminate when
this Agreement shall terminate, however such termination
might be occasioned. None of the Trademarks or Tradenames
(and service marks), nor any coined words or combination
of words, including the Trademarks or Tradenames, or any
substantial part of any of the same, shall be used in the
corporate, business or tradename of the Distributor
without the prior written approval of the Company. Any
particular use thereof shall be discontinued upon notice
to the Distributor. The Distributor shall promptly report
to the Company any use of the Trademarks and Tradenames
and any and all other trademarks and tradenames applicable
to the Company and its Products, by any person, firm or
corporation, in connection with the distribution of the
Products, Services or otherwise, which comes to the
attention of the Distributor and which the Distributor
believes is unauthorized. The Distributor will comply with
all requests for cooperation in connection with the
investigation of or legal action to prevent unauthorized
uses.
Section 7.2. Removal, Alteration or Placement of Marks. The Distributor
agrees that it shall not remove or alter any Mark or any
other trademark, tradename, service mark, logotype or
other proprietary mark belonging to the Company
(collectively, the "Marks"), which are affixed to the
Products or the packaging therefor. Unless consented to in
writing, in advance by the Company, the Distributor shall
not affix any additional trademarks or trade designations
to any Products or the packaging therefor which bear any
Mark. The Distributor agrees to submit to the Company for
the Company's prior written approval, any advertising or
other printed material employing any Mark, prior to any
use thereof by the Distributor.
Initial SF Date 8/5
----- ----
Page 7 of 13
<PAGE>
Section 7.3. Cost of Printing Marks. The Distributor is authorized, but
not required, to refer to and advertise itself as an
authorized Distributor of the Products in the Territory.
Any use of the name "MegaHertz-NKO" by the Distributor in
connection with its promotion or sale of the Products or
advertising of the same shall be at the Distributor's sole
cost and expense.
Section 7.4. Use of Marks After Termination. Upon termination of its
appointment hereunder for any reason, the Distributor
shall immediately refrain thereafter from any and all use
of the trademarks, tradenames and service mark of the
Company, and shall refrain from the use of any marks
confusingly similar thereto in connection with any
products whatsoever, and shall immediately refrain from
referring to itself as a Distributor of the Products or
Services. The Distributor shall remove from public view
any signs, banners, wall charts, certificates, plaques or
ornamentations stating or suggesting that the Distributor
is authorized by the Company to sell, promote or install
the Products or Services.
ARTICLE VIII - MISCELLANEOUS
Section 8.1. Compliance with Laws. The Distributor agrees that it shall
not participate in the transfer, by any means, of any
commodity or technical data acquired from the Company (i)
in violation of the Export Administration Act ("Act") or
any regulation, order or license issued under the Act, or
(ii) with the knowledge or with reason to know that a
violation of the Act, a regulation, an order or a license
has occurred, is about to occur, or is intended to occur
with respect to any such commodity or technical data.
Section 8.2. Confidential Information. The Distributor agrees to keep
confidential and proprietary information received by the
Distributor in connection with its sale of the Products
and/or Services, including the Company's marketing
strategies and techniques, pricing and discount
structures, and technical data regarding the Products and
Services.
Section 8.3. Assignment Prohibited. This Agreement may not be assigned,
by operation of law or otherwise, by the Distributor
without the Company's prior written consent. The Company
has relied on the personal qualifications and attributes
of the owners and officers of the Distributor as they
existed at the time of this Agreement, to properly
represent the Distributor in the sale of the Products
and/or Services. The Distributor shall immediately notify
the Company in writing of any material change in the
ownership structure or officer representation of the
Company.
Section 8.4. Complete Agreement. This Agreement contains all of the
terms and conditions with respect to the appointment of
the Distributor as an authorized Distributor for the
Products and/or Services and there are no representations,
warranties, covenants, agreements or collateral
understandings, oral or otherwise, express or implied,
affecting this Agreement not expressly set forth herein.
Section 8.5. Written Modifications. None of the terms, conditions or
provisions hereof may be, nor shall they be held, deemed
or construed to have been, changed, waived, varied,
modified or altered by any act or with the knowledge of
either party, their respective Distributors, servants or
employees, and the terms of the Agreement may not be
changed, waived, varied, modified or altered except in
writing signed by an officer or principal of both parties.
Initial SF Date 8/5
----- ----
Page 8 of 13
<PAGE>
Section 8.6. Effect of Delays. No delay on the part of either party in
exercising any of their respective rights hereunder or the
failure to exercise the same, shall operate as a waiver of
such rights except in the specific instance.
Section 8.7. Governing Law. The entire transaction contemplated
hereunder shall be governed by the laws of the State of
Florida without regard to its conflict-of-laws rules. Any
dispute arising under this Agreement shall be resolved
exclusively in the state courts located in Duval County,
Florida or the federal courts located in Jacksonville,
Florida.
Section 8.8. Arbitration. Any controversy or claims arising out of or
related to the Agreement, or the breach thereof, shall be
settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association,
but in any such arbitration (i) the decision of the
arbitrators shall be determined under the laws of the
State of Florida, (ii) the Florida Rules of Civil
Procedure with regard to discovery and the Florida
Evidence Code shall be followed, and (iii) the arbitrators
shall prepare a written decision setting forth their
findings of fact and rulings of law. Judgment upon the
award rendered by the arbitrator or arbitrators may be
entered in any court having jurisdiction thereof.
Section 8.9. Fees and Costs. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or
misrepresentation in connection with any provisions of
this Agreement, the successful or prevailing party shall
be entitled to recover reasonable attorneys' and
paralegals' fees, court costs and all expenses even if not
taxable as court costs (including, without limitation, all
such fees, costs and expenses incident to appeals),
incurred in that action or proceeding, in addition to any
other relief to which such party may be entitled.
Section 8.10. Notices. Any notices, consents or written communications
between the parties shall be hand delivered or mailed
first class, postage prepaid, to the following address:
To Company: MegaHertz-NKO, Inc.
8160 Baymeadows Way West, Suite 220
Jacksonville, Florida 32256
p - 904-730-0050
f - 904-730-0051
To Distributor: QCOMM INC.
-----------------------------------
1135 South 1680 West
-----------------------------------
Orem, UT 84058
-----------------------------------
P: 801-226-4222
-----------------------------------
F: 801-222-9555
-----------------------------------
-----------------------------------
Either party may modify their address for purposes of this Section by
mailing a notice to the other party in accordance with this Section.
COMPANY: MegaHertz-NKO, Inc.
Dated: August 5, 1999
Initial SF Date 8/5
----- ----
Page 9 of 13
<PAGE>
"Effective Date" By:
---------------------------------
Its:
---------------------------------------
DISTRIBUTOR:
Dated: August 5, 1999
By: /s/ Stephen C. [ILLEGIBLE]
----------------------------------------
Its: President
---------------------------------------
Initial SF Date 8/5
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Page 10 of 13
<PAGE>
ATTACHMENT 1 - Prepaid Phone Cards
PRODUCTS/SERVICES:
Prepaid Phone Cards
The sale and distribution of the MegaHertz-NKO Prepaid Phone Cards
REQUIRED:
Federal Employer Identification Number (FEIN): 840584930
---------------------------------
Certificate of Resale: A Copy of your Certificate of Resale must accompany this
contract.
Initial SF Date 8/5
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Page 11 of 13
<PAGE>
ATTACHMENT 2 - TERRITORY
List channels of distribution and specific Customer(s) pursued:
Direct Sales Force
= All High Transaction/High Volume Retailers
Distributor/Resellers
= 2500 + Nationwide/Retailer, Personal, Activity
Initial SF Date 8/5
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Page 12 of 13
<PAGE>
ATTACHMENT 3 - Terms & Conditions & Pricing
Outline terms and conditions here.
Use MegaHertz-NKO, Inc. generic prepaid phone cards Payment - upon activation
See attached pricing program
Zero Balance/Debit Card
= no charge for pins
= NKO pays QCOMM the agreed upon rate commission
= Commission to be paid QCOMM by the 10th of the month following
activations/recharges.
= 40% commission
= 7.9 rate; 6 sec increment; 49(cents) connect with Int'l rates
as per sent/attached.
= Monthly reporting as agreed to by QCOMM Inc & NKO.
Initial SF Date 8/5
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Page 13 of 13
<PAGE>
Service Agreement
For
Q Comm
Retail Program (PINs and blank cards ONLY)
This Agreement (the "Agreement") is entered into this 29 day of April,
1999 (the "Execution Date") between Tekbilt World Communications d/b/a TWC
Direct ("TWC") with offices at 3983 Mann Rd., Huntingdon Valley, PA 19006 and Q
Comm (Distributor) with offices at 1875 S. State Street, Suite 2900 Orem, UT
84097.
WITNESSETH:
WHEREAS, TWC offers a comprehensive prepaid interactive calling service
program through TWC's telecommunications network ("TWC services");
WHEREAS, Distributor desires to purchase TWC services, including
inactivated calling cards, in the form of personal identification numbers either
with or without TWC providing the inactivated prepaid calling cards
(collectively the "PINs") from TWC for distribution;
WHEREAS, Distributor desires to acquire PINs and TWC desires to provide
the same to Distributor, subject to the terms, conditions and specifications
set forth in this Agreement; and
WHEREAS, the parties acknowledge that this Agreement is binding and
enforceable and agree to abide by the promises and covenants contained herein.
NOW, THEREFORE, in consideration of the premises, covenants and mutual
promises hereinafter set forth and intending to be legally bound thereby, the
parties agree to the following terms, conditions and specifications:
I. SERVICES PROVIDED:
TWC agrees to sell to Distributor and Distributor agrees to purchase PINs
in accordance with the terms and conditions set forth herein. The PINs provide
access to prepaid calling and enhanced card services, including network
provisioning for interstate, international and, where permitted by applicable
regulations, intrastate transmission, as well as switching facilities needed to
originate, transmit, and terminate Card traffic (collectively the "Service").
II. TERM:
Either party may terminate this Agreement with fifteen (45) days prior
written notice to the other party. Distributor shall, upon termination of this
Agreement, destroy all calling cards with inactive PINs and provide TWC with
written proof of destruction within five (5) days of the termination date.
Distributor shall indemnify and hold TWC harmless from any and all claims,
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<PAGE>
actions, losses and damages arising from the attempted use by third parties or
end-users of deactivated PINs on calling cards which Distributor failed to
destroy. The terms and conditions of this Agreement shall remain in full force
and effect after the termination date for all PINs purchased by Distributor and
activated by TWC before the termination date.
III. COSTS:
TWC shall charge Distributor the wholesale rate for each PIN (see attached
rate Schedule "A").
IV. DEPOSIT:
Distributor shall pay a deposit of $2,000 to TWC upon its execution of
this Agreement to initiate the Service. All deposit monies will be credited
against future activations.
V. DOMESTIC & INTERNATIONAL RATES:
See Schedule "A"
VI. RATE CHANGES:
A. The Service rates shall be subject to all applicable carrier tariffs.
TWC shall have the right to change the Service rates at any time for any reason
in TWC's sole discretion with thirty (30) days prior written notification of the
change to Distributor. Distributor acknowledges that a rate change will modify
the minute availability on the Distributor's prepaid calling card. In the event
that a rate change is caused by a change in the costs which TWC pays it
providers, PIN usage patterns deviate from TWC projections, changes in taxes,
tariffs, or law, TWC will be entitled to change the Service rates with five (5)
days prior written notification.
B. In accordance with the terms of Section II above, Distributor has the
right to cancel this contract with fifteen (15) days prior written notice to TWC
due to rate changes. TWC, upon cancellation, shall deactivate all PINs for which
payment has not been received from Distributor, who shall then comply with the
requirements of Section II above.
VII. ORDERS:
An order is a request by the Distributor for TWC to activate PINs to be
used either with Distributor's or TWC's prepaid calling cards. All orders shall
be subject to TWC's approval at its sole discretion as well as TWC's "ORDER
TERMS AND CONDITIONS", a copy of which is attached hereto as Schedule "B" and
incorporated herein by reference.
VIII. ACTIVATION OF PINs & PAYMENT TERMS:
A. Activation requests must be submitted by fax to TWC on the TWC
Activation request
2
<PAGE>
form. TWC shall use its best efforts to activate PINs within twenty-four (24)
hours of Distributor's PINs activation request.
B. Minimum activation is 200 PINs of any denomination.
C. Distributor shall pay for all activations by wire transfer or bank
check in advance unless credit terms have been approved by TWC.
IX. OBLIGATIONS OF TWC:
A. TWC shall provide PINs to Distributor. TWC shall ensure that the
prepaid calling card usage value is reduced as the PIN is used, in accordance
with the rates contained in Schedule "A" and, subject to TWC's rights under
Section VI of this Agreement.
B. TWC may use multiple carriers to provide the long distance network.
C. TWC shall approve in writing all point of purchase materials and
prepaid calling card language and artwork used by Distributor.
D. TWC shall be solely responsible for developing and implementing the
terms and conditions for use of the PINs.
X. OBLIGATIONS OF DISTRIBUTOR:
A. Distributor agrees to accept TWC's Order Terms and Conditions in effect
at the time of this Agreement. (Schedule "B"). TWC's Order Terms and Conditions
are subject to change without notice to Distributor.
B. Distributor shall be responsible for all costs for the design,
production, printing and distribution of prepaid calling cards utilizing the
PINs, as well as all inserts and packaging.
C. Distributor must obtain TWC's written approval of all content and
artwork for any prepaid calling cards, packaging and point-of-purchase materials
as a condition to activation of PINs. TWC shall have the right to change, add,
or modify the copy in any way. All modifications by Distributor to pre-approved
content or artwork must also be approved in writing by TWC.
D. TWC Prepaid Phone Card "Card Terms & Conditions" must be clearly
disclosed on the back of each prepaid calling card, inserts or point-of-purchase
materials (see Schedule "C". for specific guidelines) and, are subject to change
without notice to Distributor.
E. Distributor shall deliver to TWC for approval and retention in TWC's
files ten (10) samples of each printed piece which in any way relates to the use
of a TWC PIN. Failure to comply with the above may result in termination of this
Agreement. TWC will be held harmless for any and all losses incurred by
Distributor as a result of termination for noncompliance with this provision.
3
<PAGE>
F. Distributor not shall sell to the end user TWC prepaid phone cards or
PINs designed for promotional purposes, nor will Distributor permit any of its
customers or agents to sell TWC prepaid phone cards or PINs delivered to the end
user for promotional purposes. Promotional products are priced in a manner that
prohibits the payment for them by the end user and any deviation from this
policy will result in immediate deactivation of TWC PINs.
XI. DELIVERY, TITLE, RISK OF LOSS, SECURITY AND FRAUD CONTROL:
A. Distributor, upon taking delivery of PINs from TWC, shall bear the risk
of loss and be solely responsible for all losses, damages, claims and
liabilities caused by:
1. PINs, active cards, and inactive cards which are mishandled,
damaged or stolen;
2. nonpayment by end users;
3. replacement costs;
4. credits to which end users are entitled; and
5. A failure to maintain and ensure the security of the PINs.
B. Distributor shall collect all revenues from end users.
C. Distributor shall bear the risk of loss for fraud, theft or misuse of
the PINs by Distributor's employees.
D. TWC shall bear the risk of loss for fraud, theft or misuse of the PINs
by TWC employees.
E. Distributor shall be responsible for all losses associated with the
PINs after delivery from TWC including but not limited to any liabilities owed
or credits issued to bona fide purchasers and end users.
F. The parties agree that, upon TWC's activation and authorization of sale
of PINs by Distributor, end users shall be responsible for the following:
1. all lost and/or stolen cards, for which no refunds or credits
will be issued by TWC,
2. use of activated PINs (including calls to wrong numbers),
regardless of whether such use occurred by the end user, a person authorized by
the end user to use the PINs, or by a person not authorized by end user to use
the PINs; and
3. improper activation by Distributor of incorrect unit amounts,
improper decrementation by TWC or transmission difficulty.
4
<PAGE>
G. TWC shall, in its sole discretion, have the right to immediately
deactivate particular PINs or batches of PINs in the event TWC reasonably
believes that same have been improperly or fraudulently activated.
H. TWC will not credit Distributor for any unused PINs.
I. In the event that TWC's network does not function for a uninterrupted
period exceeding 8 hours, Distributor is entitled to a credit for unused time on
affected products upon deactivation by TWC of the PINs which Distributor
requests deactivated. Deactivation requests must be within 15 days of the
service interruption.
XII. FORCE MAJEURE:
TWC shall not be liable for any delay or nonperformance under the terms of
this Agreement due to causes beyond its control, including but not limited to,
acts of God, acts of civil or military authority, government regulations,
embargoes, epidemic war, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, strikes, power blackouts,
severe weather conditions, failure by Distributor to fulfill any of its
obligations under this Agreement, acts of third parties, or acts or omissions of
common carriers (collectively referred to as "Force Majeure Conditions")
XIII INDEMINIFICATION AND LIMITATIONS OF LIABILITY
A. TWC shall exercise its best efforts to avoid network service
interruptions. However, in the event of a network service interruption or
equipment failure, TWC's liability hereunder shall be limited to the retail cost
of the PINs subject to the interruption, provided that such interruption was
caused solely by TWC's willful act or omission or its negligence. TWC shall not
be liable for any interruption caused by the negligence or any act or omission
of Distributor, the Card user or any third party.
B. Except as otherwise stated herein each party will defend, indemnify and
hold harmless the other party, its owners, parents, affiliates, subsidiaries,
agents, directors, officers, shareholders, and employees from and against any
and all losses, costs, claims, awards, liabilities, damages, and expenses
(including reasonable attorneys fees) brought or claimed by third parties,
relating to or arising out of the negligence or willful misconduct of either
party in the performance of this Agreement.
C. TWC MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
OR OTHER WARRANTY OF QUALITY, EXCEPT AS EXPRESSLY PROVIDED IN THE TERMS AND
CONDITIONS OF THIS AGREEMENT. IN NO EVENT SHALL TWC BE LIABLE TO DISTRIBUTOR
OR ANY OTHER PERSON OR ENTITY FOR INDIRECT, SPECIAL, CONSEQUENTIAL 0R INCIDENTAL
DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO LOST
5
<PAGE>
REVENUES OR PROFITS.
XIV. INTELLECTUAL PROPERTY; USE OF MARKS:
A. Distributor acknowledges TWC's exclusive ownership of all TWC
designated trademarks, service marks and other symbols (the "Marks") relating to
the PINs and agrees not to assume any rights in the Marks. TWC may grant in
writing to Distributor permission to utilize the Marks in Distributor's
advertising and promotion of the PINs, provided such use conforms to TWC's
standards and guidelines. The Marks may be used by Distributor and/or
Distributor's affiliates to advertise and promote the PINs and not for any other
reason. Distributor may not alter or remove any Marks applied to the PINs
without TWC's prior written approval.
B. Except as expressly provided under the terms and conditions of this
Agreement, nothing herein shall be deemed to grant Distributor any license,
sublicense, copyright interest, proprietary right or other claim against or
interest in TWC's Marks, copyrights, patents or other intellectual property.
C. Except as expressly provided under the terms and conditions of this
Agreement, neither party will use, permit their respective employees,
affiliates, agents and subcontractors to use the trademarks, service marks,
logos, trade names or proprietary designations of the other party, or the other
party's affiliates, whether registered or unregistered, without such other
party's prior written consent. Notwithstanding the foregoing, TWC shall have the
right to use any and all artwork, designs or other materials developed by either
party relating to the PINs for TWC's general promotional purposes.
XV. CONFIDENTIALITY:
Both parties agree that all of the terms and conditions of this Agreement
are confidential. Press releases or other public announcements ("Public
Releases") by either party concerning the existence of this Agreement, terms of
this Agreement, or the services to be provided under this Agreement may not be
disclosed publicly, other than to service vendors for the purpose of
effectuating this Agreement, without the prior written consent of both TWC and
Distributor.
XVI. ASSIGNMENT:
TWC may at any time assign its rights, obligations or duties, in whole or
in part, or any other interest hereunder without Distributor's approval.
Distributor may not assign its rights, obligations or duties, in whole or in
part, or any other interest hereunder without the prior written consent of TWC.
XVII. INJUNCTIVE RELIEF:
Distributor hereby agrees that the remedy at law for any breach or
threatened breach by it of the covenants in this Agreement may be inadequate and
that TWC would suffer irreparable harm;
6
<PAGE>
therefore, it is mutually agreed and stipulated by the parties hereto, that in
addition to any other remedies at law or in equity which TWC may have, TWC shall
be entitled to obtain in a court of law and/or equity a temporary and/or
permanent injunction restraining Distributor from a further violation or breach
of such covenants.
XVIII. ATTORNEY'S FEES:
In the event that an action at law or in equity is brought by TWC to
enforce the terms and conditions of this Agreement, or to prevent a breach
thereof, and TWC is the prevailing party, Distributor shall be liable for TWC's
reasonable attorneys fees and costs in addition to any other relief awarded to
TWO pursuant to such action.
XIX. NOTICES:
Notices required to be given under this Agreement shall be effective when
mailed by prepaid certified mail return receipt requested to:
TWC Direct
3983 Mann Rd.
Huntingdon Valley, PA 19006
Attn: Business Assessment Management, Prepaid Calling Cards
Q Comm
1135 South 1680 West
Orem, UT 84058-4930
X. GENERAL:
A. This Agreement constitutes the entire understanding between TWC and
Distributor and supersedes any and all prior or contemporaneous oral or written
statements and representations made by either party to the other.
B. Failure on the part of either party to enforce any provision of this
Agreement in any one instance shall not be construed as a general waiver or
relinquishment of the right to enforce such provision.
C. If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected thereby.
D. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts shall have been signed by each party and delivered
to the other party. The undersigned represent and warrant that they are duly
authorized by the parties
7
<PAGE>
to enter into and sign this Agreement and by such signatures do bind the parties
to the terms of this Agreement.
E. This Agreement shall be governed by Pennsylvania law, without giving
effect to its choice of [ILLEGIBLE] provisions.
IN WITNESS WHEREOF, the parties agree that this Agreement sets forth
the complete understanding of the parties and may not be modified except in
writing signed by both parties.
DISTRIBUTOR
By: /s/ [ILLEGIBLE]
------------------------------
Its: CEO
-----------------------------
Date: 5/6/99
----------------------------
TWC Direct
By: Date:
---------------------------------- -----------------------------
Carl A. Saling, III
President
8
<PAGE>
Q Comm, Inc. Services Agreement
For
Qxpress Management System
This Agreement (the "Agreement") is entered into this 10th day of
December, 1999 (the "Execution Date") between Q Comm. Inc. ("Q Comm") with
offices at 1135 South 1680 West Orem, UT 84058-4930 and THE AMSTER-KIRTZ
COMPANY.
WITNESSETH:
WHEREAS, Q Comm offers a comprehensive prepaid management system through
Qxpress and the Q Comm telecommunications network ("Qxpress Services");
WHEREAS, Distributor desires to purchase Qxpress services, including
activated calling cards in the form of personal identification numbers
(collectively the "PINs") as will be generated on-demand by the Qxpress System.
WHEREAS, Distributor desires to contract for the Qxpress system and Q Comm
desires to provide the same to Distributor, subject to the terms, conditions and
specifications set forth in this Agreement; and
WHEREAS, the parties acknowledge that this Agreement is binding and
enforceable and agree to abide by the promises and covenants contained herein.
NOW, THEREFORE, in consideration of the premises, covenants and mutual
promises hereinafter set forth and intending to be legally bound thereby, the
parties agree to the following terms, conditions and specifications:
I. SERVICES PROVIDED:
Q Comm will provide the Qxpress System in accordance with the terms
specified in Schedule "A"
Q Comm agrees to sell to Distributor and Distributor agrees to purchase
Qxpress PINs in accordance with the terms and conditions set forth herein.
Qxpress provides access to prepaid calling and enhanced card services, including
network provisioning for interstate, international and, where permitted by
applicable regulations, intrastate transmission, as well as switching facilities
needed to originate, transmit, and terminate Card traffic.
II. TERM:
The term of this agreement is one (1) years. This agreement may only be
terminated if the terms of this agreement are not being met. If terminated by
the Distributor, a forty-five (45) day prior written notice to the other party
is required. If terminated by Q Comm, AMSTER KIRTZ will have sixty (60) days in
which to return the Qxpress units. Distributor shall, upon termination
1
<PAGE>
of this Agreement, arrange for the return of all Qxpress terminals at the
expense to the Distributor. All Qxpress units must be returned within
twenty-five (25) days of the date of termination. If the units are not received
within that time frame the Distributor agrees to pay $410.00 per unit payable
upon demand. Distributor shall indemnify and hold Q Comm harmless from any and
all claims, actions, losses and damages arising from the attempted use by third
parties or end-users. The terms and conditions of this Agreement shall remain in
full force and effect after the termination date for all PINs purchased by
Distributor and activated by Qxpress before the termination date.
III. COSTS:
Distributor agrees to all fees and commissions in accordance with
schedules "A" and "B" which are subject to change with 10 day notice to the
distributor.
IV. DEPOSIT:
No Deposit is required at this time.
V. DOMESTIC & INTERNATIONAL RATES:
See Schedule "D"
VI. RATE CHANGES:
A. The Service rates shall be subject to all applicable carrier tariffs. Q
Comm shall have the right to change the Service rates at any time for any reason
in Q Comm's sole discretion with five (5) days prior written notification of the
change to Distributor. Distributor acknowledges that a rate change will modify
the minute availability on the Distributor's prepaid calling card.
VII. ORDERS:
All orders are required from the Distributor for Q Comm to ship and
activate the Qxpress System. All orders shall be subject to Q Comm's approval,
as well as Q Comm's "SERVICES AND RENTAL AGREEMENT", a copy of which is attached
hereto as Schedule "B".
VIII. ACTIVATION:
A. Distributor and or its contracted location shall pay for all activated
calling cards by an ACH program which will debit the designated merchant account
every Monday for the previous weeks sales.
2
<PAGE>
IX. OBLIGATIONS OF Q Comm:
A. Q Comm shall provide Qxpress terminals to Distributor subject to this
agreement and the "SERVICES AND RENTAL AGREEMENT".
B. Q Comm may use multiple carriers to provide the long distance network.
C. Q Comm shall approve in writing all point of purchase materials and
prepaid calling card language and artwork used by Distributor.
D. Q Comm shall be solely responsible for developing and implementing the
terms and conditions for use of Qxpress.
X. OBLIGATIONS OF DISTRIBUTOR:
A. Distributor accepts the "SERVICE AGREEMENTS" in effect at the time of
this Agreement. (Schedule "B"). Q Comm's "SERVICE AND RENTAL AGREEMENTS" are
subject to change with five (5) day notice to Distributor.
B. Distributor shall be responsible for all costs for the design,
production, printing and distribution of custom calling cards, as well as all
inserts and packaging.
C. Distributor must obtain Q Comm's written approval of all content and
artwork for any prepaid calling cards, packaging and point-of-purchase materials
as a condition to activation of PINs. Q Comm shall have the right to change,
add, or modify the copy in any way. All modifications by Distributor to
pre-approved content or artwork must also be approved in writing by Q Comm.
D. Q Comm Prepaid Phone Card "Card Terms & Conditions" (schedule "C") must
be clearly disclosed on thc back of each prepaid calling card, inserts or
point-of-purchase materials
XL. DELIVERY, TITLE, RISK OF LOSS, SECURITY AND FRAUD CONTROL:
A. Distributor, upon taking delivery of the Qxpress System from Q Comm,
shall bear the risk of loss and be solely responsible for all losses, damages,
claims and liabilities caused by:
1. PINs, active cards, and inactive cards which are mishandled,
damaged or stolen;
These Items to be put in Retailer Contract.
These Items to be put in Retailer Contract.
4. credits to which end users are entitled; and
5. A failure to maintain and ensure the security of the Qxpress
System.
3
<PAGE>
B. Q Comm shall collect all revenues from end users as per the ACH
agreement enclosed in Schedule "B".
C. Distributor shall bear the risk of loss for fraud, theft or misuse
of the Qxpress System by Distributor's employees.
D. The parties agree that, upon activation and authorization of sale by
the Qxpress System, end users shall be responsible for the
following:
1. all lost and/or stolen cards, for which no reminds or credits
will be issued by Q Comm;
2. use of activated Calling Cards generated by Qxpress (including
calls to wrong numbers), regardless of whether such use
occurred by the end user, a person authorized by the end user
to use the Qxpress System, or by a person not authorized by
end user; and
3. improper activation by Distributor of incorrect unit amounts,
improper decrementation by Q Comm or transmission difficulty.
E. Q Comm shall, in its sole discretion, have the right to immediately
deactivate particular Qxpress System, PINs or batches of PINs in the
event Q Comm reasonably believes that same have been improperly or
fraudulently activated.
XII. FORCE MAJEURE:
Q Comm shall not be liable for any delay or nonperformance under the terms
of this Agreement due to causes beyond its control, including but not limited
to, acts of God, acts of civil or military authority, government regulations,
embargoes, epidemic war, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, strikes, power blackouts,
severe weather conditions, failure by Distributor to fulfill any of its
obligations under this Agreement, acts of third parties, or acts or omissions of
common carriers (collectively referred to as "Force Majeure Conditions")
XIII. INDEMNIFICATION AND LIMITATIONS OF LIABILITY
A. Q Comm shall exercise its best efforts to avoid network service
interruption. However, in the event of a network service
interruption or equipment failure, Q Comm's liability hereunder
shall be limited to the retail cost of the PINs subject to the
interruption, provided that such interruption was caused solely by Q
Comm's willful act or omission or its negligence. Q Comm shall not
be liable for
4
<PAGE>
any interruption caused by the negligence or any act or omission of
Distributor, the Card user, carrier, switch provider or any third
party.
B. Except as otherwise stated herein each party will defend, indemnify
and hold harmless the other party, its owners, parents, affiliates,
subsidiaries, agents, directors, officers, shareholders, and
employees from and against any and all losses, costs, claims,
awards, liabilities, damages, and expenses (including reasonable
attorneys fees) brought or claimed by third parties, relating to or
arising out of the negligence or willful misconduct of either party
in the performance of this Agreement
C. Q COMM MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR OTHER WARRANTY OF QUALITY, EXCEPT AS
EXPRESSLY PROVIDED IN THE TERMS AND CONDITIONS OF THIS AGREEMENT. IN
NO EVENT SHALL Q Comm BE LIABLE TO DISTRIBUTOR OR ANY OTHER PERSON
OR ENTITY FOR INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES
OF ANY KIND, INCLUDING BUT NOT LIMITED TO LOST REVENUES OR PROFITS.
XIV. INTELLECTUAL PROPERTY; USE OF MARKS:
A. Distributor acknowledges Q Comm's exclusive ownership of all Q Comm
designated trademarks, service marks and other symbols (the "Marks") relating to
the PINs and agrees not to assume any rights in the Marks.
B. It is understood and agreed by both parties that nothing in this
agreement is intended to grant to Distributor the right to engage in the
business of offering goods or services using Q Comm's trade name, trademark,
service mark, logotype, advertising, or other commercial symbol or related
characteristics.
XV. CONFIDENTIALITY:
Both parties agree that all of the terms and conditions of this Agreement
are confidential. Press releases or other public announcements ("Public
Releases") by either party concerning the existence of this Agreement, terms of
this Agreement, or the services to be provided under this Agreement may not be
disclosed publicly, other than to service vendors for the purpose of
effectuating this Agreement, without the prior written consent of both Q Comm
and Distributor.
5
<PAGE>
XVI. ASSIGNMENT:
Q Comm may at any time assign its rights, obligations or duties, in whole
or in part, or any other interest hereunder without Distributor's approval.
Distributor may not assign its rights, obligations or duties, in whole or in
part, or any other interest hereunder without the prior written consent of Q
Comm.
XVII. INJUNCTIVE RELIEF:
Distributor hereby agrees that the remedy at law for any breach or
threatened breach by it of the covenants in this Agreement may be inadequate and
that Q Comm would suffer irreparable harm; therefore, it is mutually agreed and
stipulated by the parties hereto, that in addition to any other remedies at law
or in equity which Q Comm may have, Q Comm shall be entitled to obtain in a
court of law and/or equity a temporary and/or permanent injunction restraining
Distributor from a further violation or breach of such covenants.
XVIII. ATTORNEY'S FEES:
In the event that an action at law or in equity is brought by Q Comm to
enforce the terms and conditions of this Agreement, or to prevent a breach
thereof, and Q Comm is the prevailing party, Distributor shall be liable for Q
Comm's reasonable attorneys fees and costs in addition to any other relief
awarded to Q Comm pursuant to such action.
XIX. NOTICES:
Notices required to be given under this Agreement shall be effective when
mailed by prepaid certified mail return receipt requested to:
Q Comm International, Inc.
1135 South 1680 West
Orem, UT 84058-4930
Stephen C. Flaherty
Amster Kirtz
James Ulery
2830 Cleveland Ave N.W
Canton, OH 44711
XX. GENERAL:
A. This Agreement constitutes the entire understanding between Q Comm and
Distributor and supersedes any and all prior or contemporaneous oral or written
statements and representations made by either party to the other.
6
<PAGE>
B. Failure on the part of either party to enforce any provision of this
Agreement in any one instance shall not be construed as a general waiver or
relinquishment of the right to enforce such provision.
C. If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected thereby.
D. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts shall have been signed by each party and delivered
to the other party. The undersigned represent and warrant that they are duly
authorized by the parties to enter into and sign this Agreement and by such
signatures do bind the parties to the terms of this Agreement.
E. This Agreement shall be governed by Utah law, without giving effect to
its choice of law provisions.
XXI. NON-DISCLOSURE
A. During the course of this Agreement, Distributor shall become aware of
certain methods, practices, and procedures with which Q Comm conducts its
business, all of which Distributor and Q Comm agree are proprietary information
and as such are trade secrets.
B. Distributor will not at any time, either during this Agreement or
thereafter divulge, furnish, or make available, either directly or indirectly,
to any person, firm, corporation or other entity any proprietary information
used by Q Comm. Distributor agrees that all such matters and information shall
be kept strictly and absolutely confidential.
C. Distributor acknowledges that a breach of any of the provisions of this
Agreement may result in continuing and irreparable damages to Q Comm for which
there may be no adequate remedy at law and that Q Comm in addition to other
relief available to Q Comm shall be entitled to the issuance of an injunction
restraining distributor from committing or continuing and breach of this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties agree that this Agreement sets forth
the complete understanding of the parties and may not be modified except in
writing signed by both parties.
Distributor
By: /s/ [ILLEGIBLE]
----------------------------
Its: Treasurer
---------------------------
Date: 11/3/99
--------------------------
Q Comm International, Inc.
By: /s/ Stephen C. Flaherty
----------------------------
Stephen C. Flaherty
President
Date: 11/4/99
--------------------------
8
<PAGE>
[MAP OMITTED]
<PAGE>
SCHEDULE "A"
1. Distributor will contract each location to be installed with Qxpress.
2. Distributor will assist Q Comm Inc. in recovery effects should one of
their locations not pay for the product sold and invoiced through an ACH
program.
3. Distributor will receive its agreed upon percentages each Friday following
the Monday ACH. See point 8 below.
4. Q Comm Inc. will provide the Qxpress terminal at its expense and it will
remain the property of Q Comm Inc.
5. Q Comm will provide installation and training support for each location.
6. Q Comm Inc. will arrange for internet access by the Distributor for
activity reporting on all locations installed under this agreement.
7. Each location is expected to maintain a $350 monthly sales revenue.
8. The current rate and margin (margin includes retailer %) plans are as
follows:
Long Distance (phone cards) Cellular (Wireless)
--------------------------- -------------------
.059 cents per minute U.S. Activation: (inc. phone, battery plus 20 min.)
.59 cents connect fee .49 per minute
One (1) minute rounding Roaming fees apply outside the calling area
45 points (%) 15 points (%) plus; $16.00 per activation
9. Q Comm Inc. will provide standard blank phone cards at the rate of $.10
each. A credit of $.10 per sale will be given to the Customer on each
billing to offset the cost of the cards. Private labeled cards can be
provided to the Customer at actual cost.
8
<PAGE>
SCHEDULE "B"
SERVICES AND RENTAL AGREEMENT
This agreement is made this _________day of ______________, 1999 by and between
___________________________ (herein after called Customer) and Q COMM, Inc. Q
COMM Inc. is a wholly owned subsituary of Q COMM International, Inc. Qxpress
Management System (herein called Qxpress) is a point of sale printing device.
Customer wishes to utilize the Qxpress Device for their phone card, wireless,
and any additional prepaid services as available for sales at their designated
location(s). A list of the locations is attached to this agreement and
incorporated herein by reference.
IN THE EVENT OF A DISPUTE THIS AGREEMENT IS SUBJECT TO ARBITRATION
AND MEDIATION.
1. Q COMM, Inc. will provide Qxpress at the rental rate of $9.95 per month for
a two (2) year term. The monthly rental is paid by the Retailer on a monthly
basis if the monthly minimum of $350.00 in gross calling card revenue is not
met. This billing will be included in the first invoice of the month, and will
include maintenance, insurance, and initial setup and initial training during
this period.
2. Q COMM, Inc. will provide standard Qxpress blank phone cards at the rate of
$.10 each. A credit of $.10 per sale will be given to the Customer on each
billing to offset the cost of the cards. Private labeled cards can be provided
to the Customer at actual cost.
3. Compensation: Q COMM, Inc. will compensate the Customer __________% of the
phone card revenues per month; _________% for Wireless.
4. The Qxpress is and shall remain the sole property of Q COMM, Inc., and shall
be surrendered on demand.
5. Q COMM, Inc. reserves the right to remove a Qxpress from a location if sales
in that location do not warrant the Qxpress placement.
6. Customer shall provide the following;
a) A safe and secure place for the Qxpress to be located.
b) Grounded power outlet.
C) Phone line access.
d) Window or door area for Point of Sale material and possibly areas at
the pump islands for point of sale materials and or banners.
7. Q COMM, Inc. will provide standard point of sale materials at it's own
expense. Any private labeled point of sale material can be provided by Q COMM,
Inc. at Customer's expense. Customer can provide their own point of sale
materials subject to approval by Q COMM, Inc. (Q COMM, Inc. must assure that any
advertising meets FCC or Public Service or Utility Commission Guide lines).
Agreed this ____________day of_______________________, 1999
Business:
Name/DBA: ______________________________________________________________________
Owner/Officer: (print): ________________________________________________________
Owner/Officer: (signature): ____________________________________________________
Q COMM, Inc.
Sales Representative: __________________________________________________________
I.D. Number: ___________________________________________________________________
Q Comm Officer: ________________________________________________________________
9
<PAGE>
8. Changes in card advertising, logos, or incentives can occur once per quarter
with fifteen days notice of the change with all changes submitted in writing, by
fax, or E-mail.
9. The Qxpress shall remain at the location it is initially located in and shall
not be moved without prior approval from Q COMM, Inc. (a fax or E-mail with
receipt confirmed shall also serve as notice).
10. Payment: Every Monday, an agreed upon account will be debited by Automated
Clearing House (ACH) or Electronic Funds Transfer (EFT) (herein after referred
to as the debit). The debit will be initiated by Q COMM, Inc. If debit is
refused by Customer's bank the Point of Sale device will be turned off until the
debit is honored. Two refused debits will cause the Customer to be placed in a
COD status with a deposit requirement of two weeks of sales deposited in Q COMM,
Inc.'s account
11. In the event Qxpress malfunctions, the store clerk or manager will call
Qxpress Client Support at (800) 626-9941. If the Qxpress cannot be repaired with
instructions over the phone or by phone updates, then Q COMM, Inc. will send a
replacement unit via overnight delivery.
12. Any disputes between Customer and Q COMM, Inc. that cannot be resolved will
be submitted to arbitration under the rules and regulations of the American
Arbitration Association. Either party may invoke this paragraph after providing
10 days written notice to the other party. All cost of arbitration shall be
divided equally between the parties. Any award may be enforced by a court of
law. Dispute mediation, or arbitration will be handled at the specific court
located in the county of Utah, State of Utah.
13. Entire Agreement: This is our entire agreement and cannot be changed unless
agreed to in writing by both parties.
14. Force Majeure: If any part of this agreement is invalidated by local,
county, state or federal rules or regulations, or a court of law, then the
balance of this agreement will remain valid.
15. Taxes: Q COMM, Inc.'s carriers are responsible for collection and payment of
Federal excise and applicable state taxes unless the local, county or state
laws, rules, and regulations require that the taxes be collected at the time of
sale and reported to the taxing authorities by the Customer. Taxes may be
collected from the card user on a per call or per minute basis. There may be
taxes that Q COMM, Inc. will collect and pass through to the Retailer. Any
additional taxes levied by Federal, State, or local entities will be passed on
to the Retailer. Any taxes collected by the Retailer will be their sole
responsibility to collect and pay. This statement is not advice on the
collection or reporting of taxes and we suggest that each Retailer contact their
CPA, Accountant or taxing authority in their states to the correct taxes or
reporting of same from the sale of any Prepaid Telecommunication Products.
16. Dial Around: The FCC in October 1997 mandated that all 800 or 888 calls from
a pay phone be compensated to the pay phone owner. A surcharge ($.49) may be
added to each all for toll free access from a pay phone. The Customer is not
responsible for collecting and paying these dial around charges.
17. TRANSFER OF RIGHTS OR ASSIGNMENT: This agreement shall be binding on any
successors of the parties. Neither party shall have the right to assign its
interests in this Agreement to any other party, unless the prior written consent
of the other is obtained.
18. WARRANTIES: Neither party makes any warranties with respect to the use of
the Qxpress by either party or by any third party. In no event will Q COMM, Inc.
be liable for direct, indirect, incidental, or consequential damaged, that are
in any way related to the Qxpress or it's carriers.
19. TERMINATION: This Agreement can only be terminated by Q COMM, Inc. by
providing 30 days' written notice. Customer can only terminate with 30 days
advance written notice if the terms of this agreement are not being met.
20. GOVERNING LAWS: This Agreement as governed by the laws, rules and
regulations of the State of Utah.
20. EXCLUSIVITY: Customer agrees that during the term of this agreement Q COMM,
Inc. shall be the sole provider of phone cards and Prepaid Wireless to all their
retail locations during the term of this agreement
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<PAGE>
[LOGO] QCOMM
INTERNATIONAL, INC.
AUTHORIZATION AND AGREEMENT FOR AUTOMATED CLEARING HOUSE (ACH) DEBITS
AND CREDITS
Company
I (we) authorize: QCOMM International, Inc. herein after called company, to
initiate credit and or debit entries and adjustments for any credit entries in
error to my (our) checking account indicated below and the depository named
below, herein after called Depositor, and to credit and or debit the same such
account.
Depository name(Bank name)
Address:________________________________
City, State and Zip or Postal Code: ___________________________________
Phone Number __________________________ Fax Number:_________________________
Manager or Customer Service Representative: _____________________________
Transit Number/ABA Number:_______________________________
Account Number:____________________________________
This authority is to remain in fill force and effect until Company has received
written notification from me (us).
By:___________________________________ By: Q COMM Inc.
(Please Print)
Its:__________________________________ Client Mgr:__________________________
(Title)
Signed:_______________________________ HO:__________________________________
PLEASE ATTACH A VOIDED CHECK OR DEPOSIT SLIP TO THIS FORM. WE NEED THIS TO GET
THE ACTUAL ROUTING AND ACCOUNT NUMBERS.
11
<PAGE>
Any errors and/or disputes must be corrected within two banking days of the
initiating transaction. Thank you for your confidence and trust.
SCHEDULE "C"
CARD TERMS AND CONDITIONS
GENERAL ARTISTIC AND CONTENT GUIDELINES FOR WHOLESALE PIN'S AND CUSTOM PRIVATE
LABEL CARDS
CARDS
All card backs must disclose the following with regulatory requirements:
1. Made in the USA
2. Non-refundable
3. Rates subject to change with out notice
4. The expiration date must appear
5. Network Services provided by JD Services, Inc.
6. The specific account access PIN must be printed on the card
7. Toll free access number must be printed on the card
8. The customer service number or instructions on how to reach customer
service must be printed on the card
9. Any applicable surcharges i.e. Payphone surcharge, Domestic surcharge and
International surcharge MUST BE FULLY DISCLOSED on the card back and
packaging back.
10. Any applicable minute rounding increment must be disclosed on the card
back.
12
<PAGE>
SCHEDULE "D"
Rate Schedules
13
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
Rate Per Rate Per
Code Country Connect Minute Code Country Connect Minute
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
93 Afghanistan $ 3.52 $ 1.53 56 Chile $ 2.31 $ 0.32
Alaska $ 0.73 $ 0.24 86 China $ 2.65 $ 0.66
355 Albania $ 2.48 $ 0.49 57 Colombia $ 2.55 $ 0.56
213 Algeria $ 2.53 $ 0.54 269 Comoros $ 2.95 $ 0.96
684 American Samoa $ 2.52 $ 0.53 242 Congo $ 2.90 $ 0.91
376 Andorra $ 2.39 $ 0.40 682 Cook Isl. $ 3.36 $ 1.37
244 Angola $ 2.64 $ 0.65 506 Costa Rica $ 2.43 $ 0.44
809 Anguilla $ 2.65 $ 0.66 385 Croatia $ 2.47 $ 48.00
672 Antarctica $ 2.53 $ 0.54 53 Cuba $ 2.91 $ 0.92
809 Antigua $ 2.62 $ 0.63 357 Cyprus $ 2.47 $ 0.48
54 Argentina $ 2.58 $ 0.59 420 Czech Republic $ 2.38 $ 0.39
374 Armenia $ 2.78 $ 0.80 45 Denmark $ 2.18 $ 0.19
297 Aruba $ 2.51 $ 0.52 246 Diego Garcia $ 2.94 $ 0.96
247 Ascension Isl. $ 3.00 $ 1.01 253 Djibouti $ 3.05 $ 1.06
61 Australia $ 2.16 $ 0.17 809 Dominica $ 2.70 $ 0.71
43 Austria $ 2.20 $ 0.21 809 Dominican Republic $ 2.31 $ 0.32
994 Azerbaijan $ 2.65 $ 0.66 593 Ecuador $ 2.49 $ 0.50
809 Bahamas $ 2.30 $ 0.31 20 Egypt $ 2.89 $ 0.90
973 Bahrain $ 2.87 $ 0.88 503 El Salvador $ 2.55 $ 0.56
880 Bangladesh $ 3.09 $ 1.10 240 Equi Guinea $ 3.05 $ 1.06
809 Barbados $ 2.70 $ 0.71 291 Eritrea $ 3.32 $ 1.33
375 Belarus $ 2.55 $ 0.56 372 Estonia $ 2.40 $ 0.41
32 Belgium $ 2.18 $ 0.19 251 Ethiopia $ 3.24 $ 1.25
501 Belize $ 2.80 $ 0.81 298 Faeroe Isl. $ 2.43 $ 0.44
229 Benin $ 2.77 $ 0.78 500 Falkland Isl. $ 2.52 $ 0.53
809 Bermuda $ 2.34 $ 0.35 679 Fiji Isl. $ 3.12 $ 1.13
975 Bhutan $ 2.63 $ 0.64 358 Finland $ 2.19 $ 0.20
591 Bolivia $ 2.78 $ 0.79 596 Fr. Antilles $ 2.54 $ 0.55
387 Bosnia $ 2.52 $ 0.53 594 Fr. Guiana $ 2.55 $ 0.56
267 Botswana $ 2.55 $ 0.56 689 Fr. Polynesia $ 2.71 $ 0.72
55 Brazil $ 2.50 $ 0.51 33 France $ 2.16 $ 0.17
809 British Vir Isl. $ 2.49 $ 0.50 241 Gabon $ 2.98 $ 0.99
673 Brunei $ 2.54 $ 0.55 220 Gambia $ 2.75 $ 0.76
359 Bulgaria $ 2.47 $ 0.48 995 Georgia $ 2.87 $ 0.88
226 Burkina Faso $ 2.84 $ 0.85 49 Germany $ 2.16 $ 0.17
257 Burundi $ 2.79 $ 0.80 233 Ghana $ 2.60 $ 0.61
855 Cambodia $ 3.16 $ 1.17 350 Gibraltar $ 2.55 $ 0.56
237 Cameroon $ 2.97 $ 0.98 30 Greece $ 2.45 $ 0.46
Canada To $ 0.66 $ 0.17 299 Greenland $ 2.65 $ 0.66
238 Cape Verde Isl. $ 2.73 $ 0.74 809 Grenada $ 2.70 $ 0.71
809 Cayman Isl. $ 2.41 $ 0.42 590 Guadeloupe $ 2.57 $ 0.58
236 Central Africa $ 3.15 $ 1.16 671 Guam $ 2.22 $ 0.23
235 Chad Rep $ 3.35 $ 1.36 539 Guantan Bay $ 2.60 $ 0.61
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
Rate Per Rate Per
Code Country Connect Minute Code Country Connect Minute
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
502 Guatemala $ 2.41 $ 0.42 373 Moldova $ 2.63 $ 0.64
224 Guinea $ 2.75 $ 0.76 339 Monaco $ 2.27 $ 0.28
245 Guinea Bissau $ 3.09 $ 1.10 976 Mongolia $ 3.20 $ 1.21
592 Guyana $ 2.92 $ 0.93 809 Montserrat $ 2.79 $ 0.80
509 Haiti $ 2.77 $ 0.78 212 Morocco $ 2.60 $ 0.61
Hawaii To $ 0.72 $ 0.23 258 Mozambique $ 2.68 $ 0.69
504 Honduras $ 2.71 $ 0.72 95 Myanmar (Burma) $ 3.21 $ 1.22
852 Hong Kong $ 2.26 $ 0.27 264 Namibia $ 2.54 $ 0.55
36 Hungary $ 2.36 $ 0.37 674 Nauru $ 3.03 $ 1.04
354 Iceland $ 2.36 $ 0.37 977 Nepal $ 3.03 $ 1.04
91 India $ 1.99 $ 0.57 599 Neth Antilles $ 2.42 $ 0.43
62 Indonesia $ 2.55 $ 0.56 31 Netherlands $ 2.17 $ 0.18
98 Iran $ 3.07 $ 1.08 809 Nevis $ 2.67 $ 0.68
964 Iraq $ 3.19 $ 1.20 687 New Caledonia $ 2.87 $ 0.88
959 Ireland $ 2.20 $ 0.21 64 New Zealand $ 2.19 $ 0.20
972 Israel $ 2.27 $ 0.28 505 Nicaragua $ 2.65 $ 0.66
39 Italy $ 2.23 $ 0.24 227 Niger $ 2.86 $ 0.87
225 Ivory Coast $ 3.18 $ 1.19 234 Nigeria $ 3.02 $ 1.03
809 Jamaica $ 2.73 $ 0.74 683 Niue Isl. $ 3.37 $ 1.38
81 Japan $ 2.23 $ 0.24 850 North Korea $ 3.07 $ 1.08
962 Jordan $ 2.88 $ 0.89 47 Norway $ 2.18 $ 0.19
7 Kazakhstan $ 2.82 $ 0.83 968 Oman $ 3.06 $ 1.07
254 Kenya $ 2.85 $ 0.86 92 Pakistan $ 1.99 $ 0.61
686 Kiribati $ 3.12 $ 1.13 680 Palau $ 2.99 $ 1.00
965 Kuwait $ 3.02 $ 1.03 507 Panama $ 2.74 $ 0.75
7 Kyrgyzstan $ 2.86 $ 0.87 675 Papua N Guim $ 2.62 S 0.63
856 Laos $ 3.05 $ 1.06 595 Paraguay $ 2.88 $ 0.89
371 Latvia $ 2.48 $ 0.49 51 Peru $ 2.65 $ 0.66
961 Lebanon $ 2.85 $ 0.86 63 Philippines $ 1.99 $ 0.27
266 Lesotho $ 2.59 $ 0.60 48 Poland $ 2.42 $ 0.43
231 Liberia $ 2.63 $ 0.64 351 Portugal $ 2.39 $ 0.40
218 Libya $ 2.51 $ 0.52 809 Puerto Rico To $ 2.18 $ 0.19
370 Lithuania $ 2.51 $ 0.52 974 Qatar $ 2.94 $ 0.95
352 Luxembourg $ 2.27 $ 0.28 262 Reunion Isl. $ 2.73 $ 0.74
853 Macao $ 2.56 $ 0.57 40 Romania $ 2.55 $ 0.56
389 Macedonia $ 2.56 $ 0.57 7 Russia $ 2.47 $ 0.48
261 Madagascar $ 3.05 $ 1.06 250 Rwanda $ 3.07 $ 1.08
265 Malawi $ 2.65 $ 0.66 670 Salpan $ 2.62 $ 0.63
60 Malaysia $ 2.37 $ 0.38 San Marino $ 2.55 $ 0.56
960 Maldives $ 2.94 $ 0.95 239 Sao Tome $ 3.28 $ 1.29
223 Mali Republic $ 3.12 $ 1.13 966 Saudi Arabia $ 2.99 $ 1.00
356 Malta $ 2.38 $ 0.39 221 Senegal Republic $ 3.31 $ 1.32
871 Marisat $ 12.00 $ 10.01 248 Seychelles Isl. $ 3.28 $ 1.29
692 Marshall Isl. $ 2.57 $ 0.58 232 Sierra Leone $ 3.01 $ 1.02
222 Mauritania $ 2.82 $ 0.83 65 Singapore $ 2.35 $ 0.36
230 Mauritius $ 2.98 $ 0.99 451 Slovakia $ 2.40 $ 0.41
691 Micronesia $ 2.91 $ 0.92 386 Slovenia $ 2.33 $ 0.34
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