UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-9019
Teletek, Inc.
(Exact name of Registrant as specified in its charter)
Nevada 88-0298190
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1771 E. Flamingo Road, Suite 111A, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip code)
(702) 734-0177
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.0001 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]
No [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-
affiliates of the registrant, based upon the closing sales
price of registrant's common stock as reported by the Nasdaq
Stock Market on September 17, 1996, was approximately
$64,616,555.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of September 17,
1996: 14,432,262
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Teletek, Inc. (the "Company"), has been engaged in
various facets of the telecommunications industry since its
inception. Since 1993, the Company, through its operating
subsidiaries, has provided long-distance telecommunications
services, consisting primarily of direct dial international
long-distance telephone transmissions from the United States
for commercial customers. The Company was incorporated in
Colorado on April 2, 1979. On April 9, 1993, the Company
effected a merger with a newly formed wholly-owned
subsidiary for the primary purpose of changing its domicile
to Nevada. The Company's executive offices are located at
1771 E. Flamingo Road, Suite 111A, Las Vegas, Nevada 89119.
Unless the context otherwise requires, the "Company" refers
to Teletek, Inc. and its subsidiaries.
RECENT DEVELOPMENTS
OVERLAND PARK SWITCHING CENTER
In September 1995, the Company purchased subject to a
capital lease DSC Communications DEX 600SC Tandem Switch
switching equipment. The switching equipment was installed
at its newly established offices in Overland Park, Kansas,
and became operational in March 1996. The switching
equipment is a computer controlled digital processor
designed primarily to route and track telephone calls,
including the destination and length of such calls for
billing purposes.
SELECTEL CORPORATION
In August 1996, the Company purchased all of the
capital stock of SelecTel Corporation, a California
corporation ("SelecTel"), in consideration for a $300,000
note bearing interest at 8% per annum and due in two years,
190,000 restricted shares of the Company's common stock
("Common Stock"). SelecTel is a switchless reseller of
long-distance telecommunications services. SelecTel
principally markets such services to hotels and motels and
other similar leisure industry businesses in approximately
14 states. SelecTel does not own or lease any switching
equipment. The Company is in the process of integrating
SelecTel's customers into its transmission network.
PHONE LINE USA
In August 1996, the Company purchased substantially all
of the assets of Xtel, Inc., a Nevada corporation, dba Phone
Line USA ("Phone Line USA"), for approximately $145,000, of
which approximately $120,000 was paid by forgiving
indebtedness of Phone Line USA. In addition, the Company
agreed to employ the President of Phone Line USA for a one-
year period. Phone Line USA markets disposable prepaid
calling cards which enable the holder to make long-
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distance telephone calls. Phone Line USA primarily markets
its prepaid calling cards with international calling
capabilities through approximately 100 vending machines
strategically located in major metropolitan areas of the
United States, such as New York, Los Angeles, San Francisco,
Miami, Honolulu and Seattle. The prepaid calling cards
typically are sold in denominations of $10 and $20.
NARRATIVE DESCRIPTION OF BUSINESS
LONG-DISTANCE INDUSTRY
On January 1, 1984, AT&T Corp.'s ("AT&T") divestiture
of certain of its operating companies went into effect. As
a result of the divestiture decree (the "Divestiture
Decree"), AT&T was forced to divest its 22 Bell Operating
Companies ("BOCs"), which were reorganized under seven
Regional Bell Operating Companies ("RBOCs"). The RBOCs own
and are responsible for operations of the BOCs in each of
their regions. The BOCs, as well as other independent
companies which provide local telephone service, are
characterized as local exchange carriers. The local
exchange carriers are responsible for providing dial tone,
local lines and billing for local service as well as local
access for long-distance traffic.
As an additional part of the Divestiture Decree, the
United States was divided into approximately 200 Local
Access and Transport Areas ("LATAs"). AT&T was given the
right to compete for inter-LATA long-distance business, but
was prohibited from providing intra-LATA long-distance and
local service. The BOCs and other local exchange carriers
were permitted to compete for intra-LATA long-distance and
local service, but were prohibited from entering the inter-
LATA long-distance market in which the Company competes,
although legislation has been introduced in Congress that
would permit the BOCs and other local exchange carriers to
compete in the long-distance market.
The Divestiture Decree also required the local exchange
carriers to provide all interexchange carriers, such as the
Company, with access to the local telephone exchange
facilities that are "equal in type, quality and price" to
that provided to AT&T. In addition, the local exchange
carriers were required to conduct a subscription process
allowing consumers to select their long-distance carrier.
This development, known as "equal access," enabled consumers
to complete calls using their selected long-distance carrier
by simply dialing "1" plus the area code and number. Prior
to equal access, consumers using an interexchange carrier
other than AT&T had to dial a local number, then an access
code, then the area code and number of the call destination
to complete a call. With equal access, all inter-LATA calls
are routed automatically to the consumer's long-distance
carrier of choice, while all intra-LATA traffic is carried
by the local exchange carriers. The Divestiture Decree and
the implementation of equal access constitute the
fundamental regulatory developments that allow interexchange
carriers other than AT&T, such as the Company, to enter and
compete in the long-distance telecommunications market.
All interexchange carriers, including AT&T and the
Company, pay charges to the local exchange carriers for
access to local telephone lines at both the originating and
terminating ends of all long-distance calls, unless the
Company is able to install a dedicated line providing direct
access from the customer to one of the Company's switch
centers. As is the case with most
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interexchange carriers, access charges represent the single
largest component of the Company's cost of revenues.
Since the Divestiture Decree, the long-distance
industry has experienced rapid technological development.
Prior significant technological change was the advent of
digital transmission technology, which represented an
improvement over analog technology. Because the BOCs and
many local exchange carriers converted rapidly to digital
switches, digital technology was necessary for interexchange
carriers to connect to the local exchange carriers for equal
access. Accompanying the movement toward digital switching
was the rapid development and implementation of fiber optic
circuitry, which also requires digital technology. While
AT&T had once been the only source of high quality
transmission facilities, several other companies, including
MCI Communications Corp. ("MCI") and Sprint Corp.
("Sprint"), entered the business of building transmission
facilities using primarily fiber optic circuits.
The construction of these additional transmission
facilities created two distinct groups in the long-distance
industry: facilities based carriers (entities which own
their own transmission network) and non-facilities based
carriers, such as the Company. The surge in construction of
new long-haul facilities has created excess transmission
capacity for long-distance calls. This excess capacity and
the resultant decline in transmission rates have both raised
the break-even traffic volume for facilities based carriers
and increased the difficulty of obtaining that volume
through their internal customer bases. Accordingly,
facilities based carriers have become both wholesalers and
retailers, selling their transmission capacity to both non-
facilities based carriers and consumers. Non-facilities
based carriers, such as the Company, have benefited from the
wider availability and the lower cost of transmission
services, as it has become possible for them to lease
circuits on attractive terms, particularly as their volume
of business increases to significant levels.
The Divestiture Decree prompted several hundred new
entrants into the long-distance industry, including the
Company. The industry, however, has experienced rapid
consolidation, primarily due to the technological changes
described above. Facilities based carriers, many of which
were initially unprofitable due to their sizable capital
outlays, began acquiring other carriers to increase traffic
for their networks in an effort to cover fixed costs.
Similarly, larger non-facilities based carriers began buying
smaller carriers to build their traffic, improve their
networking, and increase their leverage in leasing
transmission facilities from facilities based carriers.
As a result of the changes brought about by the
Divestiture Decree, interexchange carriers, including the
Company, generally provide long-distance telephone services
at a lower cost than the comparable services offered by
AT&T, MCI and Sprint. The Company's success will depend on
its ability to provide comparable or better services at
prices equal to or lower than its competitors in the future.
LONG-DISTANCE SERVICES
The Company, through a wholly owned subsidiary, Hi-Rim
Communications, Inc., a Nevada corporation ("Hi-Rim"),
provides its customers with 24-hour long-distance telephone
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services to all points in the United States and to any
foreign country. The Company's primary focus is to provide
direct dial international long-distance telephone
transmission from the United States for commercial
customers. Revenues from international long-distance
telephone services accounted for approximately 90%, 50% and
0% of the Company's consolidated revenues for the fiscal
years ended June 30, 1996, 1995 and 1994, respectively.
The Company maintains two switching centers that route
certain of its customers' long-distance calls. One
switching center is located in Las Vegas, Nevada and the
other is located in Overland Park, Kansas. Other customers'
calls are routed through facilities of other carriers,
pursuant to agreements between the Company and such
carriers.
The Company is primarily a non-facilities based
interexchange carrier that routes its customers' calls over
a transmission network consisting primarily of dedicated
long-distance lines secured by the Company from a variety of
other carriers. This enables the Company to avoid the
substantial capital requirements of building and maintaining
its own extensive transmission facilities. The terms of
these lease arrangements vary from month-to-month to longer
term arrangements and the lease costs may be priced on a
usage sensitive basis or at a fixed monthly rate. Because
the amount the Company charges its customers for long-
distance telephone calls is not based on the cost to
transmit such calls, long-distance calls transmitted over
facilities leased on a fixed-cost basis generally are more
profitable to the Company than long-distance calls
transmitted over usage sensitive circuits, assuming a
sufficient volume of calls is routed over the fixed-cost
route. Approximately 95% of the Company's call volume is
transmitted via dedicated lines.
In providing long-distance services, the Company offers
a variety of service options, including "1+" dialing (which
avoids the need to dial a separate access code to access the
Company's long-distance service), inbound "800" service,
"800" travel service, operator services, private line
networks and data transmission services. Under most of its
service options, the Company charges its customers on the
basis of minutes of usage at rates that vary with the
distance, duration and time of day of a call as well as
local access for long-distance traffic. The inbound "800"
service permits customers to be billed for long-distance
calls made to the customer by that customer's clients. The
Company's "800" travel service permits customers to utilize
the Company's network from locations outside of their own
service areas. Private line networks offer specialized point-
to-point services, including transmission of data, on a
fixed-cost basis. The Company also offers its customers
special access options for dedicated long-distance lines.
A subscriber may access the Company's
telecommunications transmission network in different ways.
If a subscriber is located in a given service origination
area that has been converted to equal access and such
subscriber has selected the Company as its primary long-
distance carrier, then access is gained by dialing "1" plus
the area code and number desired. A second method of access
is through dedicated access lines, which are private leased
lines dedicated to one or more customers and which provide a
direct connection between the customer's premises and the
Company's long-distance transmission network. For the
fiscal year ended June 30, 1996, approximately 90% of the
Company's revenues were derived from customers that utilize
dedicated access lines and approximately 10% of such
revenues were derived from customers that utilize the direct
dial method of access.
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The Company's long-distance telecommunications services
are available 24 hours a day, seven days a week. To assist
subscribers with questions regarding services, billing and
other matters, the Company maintains a customer service
department and staff which is accessible to subscribers by
telephone 24 hours a day, 365 days a year.
PREPAID CALLING CARDS
As a result of the purchase of Phone Line USA, the
Company markets disposable prepaid calling cards which
enable the holder to make long-distance telephone calls over
the Company's transmission network up to a specified dollar
amount. The Company primarily markets its prepaid calling
cards with international calling capabilities through
approximately 100 vending machines strategically located in
major metropolitan areas of the United States, such as New
York, Los Angeles, San Francisco, Miami, Honolulu and
Seattle. To a lesser extent, the Company also markets its
prepaid calling cards on a wholesale basis to third party
distributors and companies. Compared to the cost of a long-
distance telephone call using a coin-operated pay phone or a
long-distance calling card, the cost of a long-distance
telephone call using the Company's prepaid calling card is
generally less. The prepaid calling cards typically are
sold in denominations of $10 and $20.
TRANSMISSION NETWORK
The Company's transmission network provides the
connections from the subscriber to the call destination. A
call may be completed by using either (a) a fixed-cost, long-
haul circuit, connecting the call at a switch center to the
destination city where the call is terminated by a local
exchange carrier which directs it to the called party, or
(b) when all fixed-cost circuits connected to the called
city are in use or if the called area is not served by
existing fixed-cost circuits, switched access services from
other carriers. Switched access services are usage
sensitive and may cost more or less than that of a fixed-
cost circuit, depending on the volume of calls to a
particular destination.
Switched access circuits are "usage sensitive" because
the rates paid for them may vary with the day, time,
frequency and duration of telephone calls transmitted
through such circuits. In contrast, the rates paid by the
Company to lease dedicated line facilities are fixed and
therefore do not vary with usage or time of day. As a
result, the Company's fixed-cost circuits are less expensive
to use for routes over which the Company carries high
volumes of long-distance traffic. Because the amount the
Company charges for long-distance telephone calls is not
based on the cost to transmit such calls, long-distance
calls transmitted over high-volume, fixed-cost routes
generally are more profitable to the Company than long-
distance calls transmitted over usage sensitive circuits,
assuming a sufficient volume of calls is routed over the
fixed-cost route. Consequently, to the extent possible, the
Company attempts to connect calls through transmission
facilities which are not usage sensitive. Profitability of
the Company's operations depends largely on utilizing
transmission circuits on a cost effective basis.
Accordingly, the Company's strategy is to reduce overall
transmission costs by entering into long-term agreements
with other carriers to lease bulk transmission facilities or
other dedicated lines at fixed monthly rates and to route as
many of its customers' calls as is possible over such lines.
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Except for certain pricing agreements, the dedicated
lines used by the Company are generally leased on a month-to-
month basis. While these month-to-month arrangements may be
terminated upon notice by the Company, they generally may
not be terminated under current law by the carrier unless
the Company fails to comply with the terms of the lease or
unless the service is terminated for the Company and all
other long-distance telephone carriers. Generally, rates
charged under these leases may be increased or decreased by
the carriers upon notice after filing with the Federal
Communications Commission (the "FCC") for interstate
circuits, or applicable state public utilities commissions
for intrastate circuits, provided the rates charged apply
equally to all users of the services.
Subject to the foregoing, the Company's strategy is to
continue to lease bulk and/or flat rate circuit capacity and
to resell that capacity at usage sensitive rates to its
subscribers. The Company continuously reviews traffic study
programs to analyze its volume of traffic in light of its
then-existing circuit capacity. All circuits which the
Company utilizes, with the exception of local switched
access circuits to a switch center, are generally offered by
several common carriers, and any decision concerning which
types of circuits to be used is typically based on
individual route cost as well as the transmission quality of
the circuits provided. The continued availability to the
Company of transmission facilities leased at bulk rates is
fundamental to the economic viability of its business. No
assurance can be given that the such transmission facilities
will continue to be available to the Company at favorable
rates or terms.
CALL SWITCHING EQUIPMENT
The Company owns certain computerized network digital
switching equipment that routes certain of its customers'
long-distance calls. Other customers' calls are routed
through facilities of other carriers, pursuant to agreements
between the Company and such carriers. A switch is a
computer controlled digital processor designed primarily to
route and track telephone calls. Switching equipment
operates like an electronic "toll both," routing each call
to its destination and tracking the length of the call for
billing purposes. A secondary function of a switch is to
determine and effect the least expensive route for each call
among a variety of routing options. Currently, the Company
maintains two digital switching centers, one located in Las
Vegas, Nevada and one located in Overland Park, Kansas. The
following table provides certain information concerning the
Company's switching centers:
<TABLE>
<CAPTION>
PORTS PERCENTAGE
AVAILABLE UTILIZED AT UTILIZED AT
LOCATION MAKE PORTS JUNE 30, 1996 JUNE 30, 1996
<S> <C> <C> <C> <C>
4055 S. Spencer Street, Suite 119
Las Vegas, Nevada DEX 600SC 5,000 4,000 80
8900 W. 110th Street, Suite 100
Overland Park, Kansas DEX 600SC 2,300 1,400 61
</TABLE>
All telephone calls made on the Company's network are
directed to call destination points by computerized
switching equipment installed at the Company's switching
centers. The Company's subscribers can access this call
switching equipment through equal access, which only
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requires dialing "1," plus the area code and telephone
number. Once a customer accesses the switching equipment,
the equipment "answers" the telephone call, verifies the
caller's billing status, routes the call to the dialed
destination and monitors the call's duration for billing
purposes. The Company has programmed its switching
equipment to select the most cost-effective transmission
circuit then available to the Company to complete a call as
dialed, utilizing current SS7 technology. In addition to
networking, the Company's switching equipment verifies
customers' preassigned authorization codes, records billing
data and monitors system quality and performance. To
satisfy increasing or anticipated usage of its long-distance
network, the Company has added and will continue to add
circuit capacity at existing switching centers by increasing
the number of ports on existing switches. Each of the
Company's switching equipment can be expanded to a maximum
of 40,000 ports.
RATES AND CHARGES
The Company generally charges customers on the basis of
minutes or partial minutes of usage at rates that vary with
the distance, duration and time of day of the call. The
rates charged are not affected by the cost to the Company of
the particular transmission facilities selected by the
Company's network switching centers for transmission of the
call. Discounts are available to customers that generate
higher volumes of monthly usage.
The Company endeavors to charge rates that are lower
than those charged by the major long-distance carriers and
competitive with those charged by other long-distance
carriers. The rates offered by the Company may be adjusted
in the future as other interexchange carriers continue to
adjust their rates.
Once a customer has submitted the proper paperwork and
is approved by the Company's credit department, all
pertinent information, i.e., telephone numbers, calling card
data, address, contact person, billing address, etc. is
entered into the billing system and the Company's computer
network. The billing system then generates the appropriate
electronic instructions which connect the customer to the
Company's network.
Each customer of the Company, other than prepaid
calling card customers, receives a detailed periodic call
report and invoice for services from the Company setting
forth the date, number called, duration of call and time and
charges for each call. The report period varies among
customers and covers a period as short as a week for some
customers. The Company has an in-house, real-time billing
system which allows it greater control, decreased collection
periods and increased profitability. The Company's billing
system also has the capacity to process and store the
relevant information on up to four million prepaid calling
cards. Processing by the billing system includes:
(a) checking for duplicate call records; (b) confirming that
calls to and from numbers that are not in the Company's
system are flagged for further research; (c) verifying that
the origination and termination of calls are from valid
telephone numbers and circuits; and (d) verifying that valid
rates exist for each call. Calls which fail any initial
processing checks are placed in a rejected call file for
additional analysis.
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MARKETING
The Company's retail marketing efforts have been and
continue to be directed principally at small- to medium-
sized business customers. The Company derives substantially
all of its revenues from the sale of international long-
distance telecommunications services to commercial
subscribers. Commercial customers typically use higher
volumes of telecommunications services than residential
customers and concentrate that usage on weekdays during
business hours when rates are highest. Consequently,
commercial customers, on average, generate higher revenues
per account than residential customers.
The Company has marketed its long-distance telephone
services to major accounts through solicitations by its in-
house sales personnel. The majority of the Company's
marketing efforts to small businesses are through
specialized marketing companies. These specialized
marketing companies are not restricted to specific
territories and their sales efforts are not directed, as to
the location, by the Company.
As a result of the purchase of Phone Line USA, the
Company markets prepaid calling cards through approximately
100 vending machines strategically located in major
metropolitan areas of the United States, such as New York,
Los Angeles, San Francisco, Miami, Honolulu and Seattle. To
a lesser extent, the Company also markets its prepaid
calling cards through independent third-party distributors
and companies. The Company has entered into agreements with
the third-party distributors and companies to provide for
the marketing of the Company's prepaid calling cards on a
nonexclusive basis. These agreements generally permit the
distributor to customize the card with its own logo or
theme. The cards are being marketed primarily to
individuals who do not have access to long-distance
telephone service at home, foreign travelers who wish to
avoid the inconvenience of making long-distance telephone
calls to their country of origin through a coin-operated pay
phone, and college students, among others who seek the
benefits of a telephone calling card at economical rates.
COMPETITION
As a result of the Divestiture Decree, numerous
competitors, have entered the long-distance
telecommunications market, resulting in profound changes in
the competitive aspects of the industry. The Company
competes directly with a number of facilities based common
carriers, including AT&T, MCI and Sprint, all of which have
substantially greater financial, marketing and product
development resources than the Company. In addition, the
Company competes with hundreds of smaller regional and local
non-facilities based carriers and resellers.
In recent years, increased competition among long-
distance carriers has resulted in an overall reduction in
long-distance telephone rates. The impact on net income of
these reductions has been offset somewhat by networking
efficiencies, declining costs in access charges and readily
available transmission facilities, largely due to the
expansion of circuit capacity through the installation of
fiber optic transmission facilities. The advent of fiber
optic technology has resulted in another major impact on the
long-distance market. Initially, long-distance carriers
competed strictly on price. Discounts rates were typical,
because long-distance carriers were attempting to build
market share and because their transmission quality was
generally inferior to that of AT&T.
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The introduction of fiber optic facilities, however,
effectively eliminated AT&T's transmission quality
advantage. Gradually, the industry and consumers begin to
recognize the importance of quality service as well as
price, and the price differential has decreased.
Recognizing that competition is not solely based on price
has led to a greater emphasis on customer service, with many
companies adding product variety, customized billing and
other value-added services.
Unlike the Company's larger facilities based
competitors which own their own transmission facilities, the
Company is vulnerable to changes in rates charged by
facilities based carriers for use of their facilities. The
Company has attempted to minimize its vulnerability to cost
increases through the leasing of fiber-optic and other
digital transmission circuits. While cost or concessions
paid to customers may, in certain cases, be the primary
consideration for a customer's selection of long-distance
telephone service, the Company believes that other factors
are significant, including ease of obtaining access to the
long-distance network, quality of the telephone connection
format and management information presented in the
specialized billing data generated by the carrier, and
enhanced services such as "800" service, repair service and
automated collect calling.
GOVERNMENT REGULATION
GENERAL
The Company competes in an industry that, to a large
degree, continues to be regulated by federal and state
government agencies. At approximately the same time as the
Divestiture Decree in 1984, the FCC announced rules that
were created to foster a self-regulating interstate
telecommunications industry, relying upon competitive forces
to keep rates and services in check.
The FCC has regulatory jurisdiction over interstate and
international telecommunications common carriers, including
the Company. Under Section 214 of the Federal
Communications Act, the FCC must certify a communications
common carrier before it may provide international services.
The Company has obtained Section 214 authorization to
provide international services by means of resale.
At September 20, 1996, the Company had obtained a
certificate of public convenience and necessity or
equivalent documents from 35 states to provide long-
distances services within those states. Regulations within
each of these states, as they pertain to completing direct
dial long-distance calls for the Company's customers within
the state, are virtually static. As the Company expands the
geographic scope of its direct dial long-distance business,
it will be required to obtain additional state regulatory
approvals to provide intrastate long-distance service.
Management believes that the cost of regulatory compliance
does not have a material impact on the Company's results of
operations.
FEDERAL REGULATION
In 1981, the FCC substantially deregulated the
interstate activities of non-dominant inter-exchange
carriers such as the Company. The FCC later extended this
deregulatory policy to resellers of satellite services,
resellers affiliated with independent telephone companies
and
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facilities based carriers (such as MCI and Sprint) which
compete with AT&T. It retained its jurisdiction over
customer complaint procedures and basic statutory common
carrier obligations to provide nondiscriminatory services
and rates. Interstate carriers subject to these
deregulatory actions were no longer subject to certification
by the FCC or to tariff filing requirements under the
Communications Act of 1934, as amended.
These changes in FCC policy have had the effect of
lowering the rates of providers and resellers of long-
distance services. The potential continued deregulation of
the telecommunications industry may have a material adverse
effect on the Company's ability to compete effectively.
INTERSTATE ACCESS TRANSPORT PROCEEDING
In an effort to encourage competition in the provision
of interstate access services, the FCC granted increased
pricing flexibility to local exchange carriers for "access
transport" services. Access transport refers to the
connection provided by local exchange carriers between long-
distance carriers' long-distance facilities and the
customers' telephone. These rate structures previously were
designed such that local telephone companies assessed an
equal charge per unit of access to all long-distance
carriers, regardless of the volume of local access that
these long-distance carriers independently generated. Under
the new FCC pricing plan, adopted in the fall of 1993, local
telephone companies were allowed to offer more cost
effective access to those long-distance carriers with very
high access volumes in a particular local market.
Accordingly, long-distance carriers with lesser access
requirements, such as the Company, could experience
increases in their overall average access cost relative to
larger competitors.
The FCC pricing plan implemented in the fall of 1993
was set to expire in November 1995. In principle, the plan
has been extended pending resolution of a comprehensive
telecommunications bill which was enacted into law in early
1996. Under this process, the FCC could grant local
telephone companies further flexibility and could
potentially impose a greater burden upon the operations of
the Company's direct dial long-distance services. The FCC
believes, the proliferation of competitive access providers
and increased long-distance carrier network efficiencies
should offset any inequities caused by volume sensitive
access pricing. The Company is unable to predict the course
and effect of the FCC's actions on this issue at this time.
FCC FORBEARANCE POLICY
In 1983, the FCC exempted "non-dominant" long-distance
carriers from being required to publicly file rates with the
FCC. As a result of the FCC's "forbearance" policy, long-
distance carriers such as the Company were permitted to
enter into individual contracts with customers without
disclosing the rates charged to such customers to their
competitors or its other customers. In November 1992,
however, the U.S. Court of Appeals for the D.C. Circuit
found the FCC's "forbearance" policy to be unlawful, ruling
that the forbearance policy violated federal communications
law governing the FCC. In response to the ruling by the
federal appeals court, MCI and the Justice Department, on
behalf of the FCC, filed separate appeals with the U.S.
Supreme Court requesting that the appeals court ruling be
overturned. In June 1994 the U.S. Supreme Court upheld the
ruling in the case. As a result, all long-distance
carriers, including the
12
<PAGE>
Company, are required to publicly file with the FCC the
rates charged for their long-distance services.
RECENT LEGISLATION
In March 1996, Congress enacted the Telecommunications
Act of 1996 (the "Telecommunications Act") that would
eliminate the ban on the entry of certain local telephone
companies into long-distance telecommunications services and
long-distance companies into local telecommunication
services. The entry of these local telephone companies into
long-distance telecommunications services could result in
new competition and there is a possibility that the local
telephone companies will be able to use local access to gain
a competitive advantage over other long-distance providers
such as the Company. As a result of this legislation, the
Company has filed for authority to provide local service in
11 states.
On August 7, 1996, the FCC, pursuant to Section 254(g)
of the Telecommunications Act, adopted the following rules:
(a) The rates charged by providers of
interexchange telecommunications
services to subscribers in rural and
high-cost areas shall be no higher than
the rates charged by each such provider
to its subscribers in urban areas.
(b) A provider of interstate interexchange
telecommunications services shall
provide such services in each state at
rates no higher than the rates charged
to its subscribers in any other state.
The FCC also determined that states may not adopt intrastate
rates which are inconsistent with the foregoing rules.
Therefore, as to intrastate rates which are subject to state
regulation, a subscriber in a rural and high-cost areas of
the state may not be charged higher rates than a subscriber
in an urban area of that state. The rules apply to all
providers of interexchange telecommunications services,
including resellers. The effective date is 30 days after
the date of the first publication of the rules in the
Federal Register. The Company believes that its current
rate schedules comply with the rules.
STATE REGULATION
In those states prohibiting intrastate resale, the
Company may not engage in intrastate operations. In those
states where intrastate resale is permitted (at least on an
inter-LATA basis), the Company may be required to obtain
state certification prior to commencing operations. At
September 20, 1996, the Company had received authorization to
provide telecommunications services to its customers in
approximately 35 states, and is applying for authorization
to provide telecommunications services to customers in other
states. In addition, the Company is required to maintain on
file at the state regulatory commissions in those states a
tariff or schedule of its intrastate rates and charges.
Various state legislatures and public utility commissions
are considering a variety of regulatory policy questions
which could adversely affect the Company.
13
<PAGE>
At this time, it is impossible to determine what effect, if
any, such regulations, including the cost of compliance with
such regulations, may have on the operations of the Company.
MAJOR CUSTOMERS
The Company provided service to four major customers in
1996 and two major customers in 1995. The Company earned
revenues of approximately $27.6 million and $2.0 million
from these major customers during the years ended June 30,
1996 and 1995, respectively. The loss of one or more of
these customers is not expected to have a material adverse
impact on the Company's results of operations.
SEASONAL FACTORS
The Company does not believe that its revenues are
significantly seasonal, although the Company's long-distance
telecommunications traffic is less during national holidays
in the United States since commercial businesses are
generally not utilizing long-distance services on those
days.
BACKLOG
At June 30, 1996, the Company had six switch
termination agreements which were not provisioned. The
Company cannot estimate the dollar amount represented by
such agreements. The Company anticipates that it will
commence providing services under the contracts within the
next six months. At June 30, 1995, the Company also had six
switch termination agreements which were not provisioned.
EMPLOYEES
At June 30, 1996, the Company had 22 full-time
employees. None of the Company's employees are represented
by a union. The Company believes that its employee
relations are good.
ITEM 2. PROPERTIES
The Company believes that its properties are in good
condition, are well maintained, and are suitable to carry on
the Company's business.
The Company currently leases from a third party
approximately 2,200 square feet of office space in Las
Vegas, Nevada which it uses as its executive offices center.
The facilities are leased for a term expiring in November
1996. Rent is approximately $2,800 per month. In November
1996, the Company anticipates moving into new office space
in the same office building, which new office space will
consist of approximately 10,000 square feet. The terms of
the new lease are being negotiated.
14
<PAGE>
The Company leases from a third party approximately
2,300 square feet of office space in Las Vegas, Nevada which
it uses as a switch and operations center. The facilities
are leased for a term expiring in March 1999. Rent is
approximately $3,700 per month.
The Company leases from a third party approximately
3,000 square feet of office space in Overland Park, Kansas
which it uses as a switch and operations center. The
facilities are leased for a term expiring in 2000. Rent is
approximately $5,200 per month.
ITEM 3. LEGAL PROCEEDINGS
HI-RIM COMMUNICATIONS, INC. V. MCI COMMUNICATIONS
CORP., instituted in June 1996, as an arbitration proceeding
at J.A.M.S./Endispute, Washington, D.C. On May 25, 1995,
MCI entered into a carrier agreement with Hi-Rim (the "MCI
Carrier Agreement") in connection with the Company's
switched and switchless products. MCI's services under the
MCI Carrier Agreement were necessary for the Company to
provide services to its customers. On February 20, 1996,
MCI partially disconnected its services to the Company and
on March 18, 1996, MCI totally disconnected its services to
the Company. Hi-Rim subsequently filed a Notice of Claims
and Demand for Arbitration ("Demand") against MCI alleging,
among other things, breach of contract, breach of MCI's
implied duty of good faith and fair dealing, and intentional
interference with Hi-Rim's business relationships. The
Company seeks to recover damages in excess of approximately
$20.0 million. MCI filed an Answer and Counterclaim denying
each of the allegations contained in Hi-Rim's Demand and
alleging, among other things, a breach of contract. MCI
seeks to recover in excess of approximately $28.0 million
for unpaid services provided under the MCI Carrier Agreement
and $10.0 million in early termination penalties. The
arbitration hearing is currently scheduled to begin on
January 7, 1997. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
IN THE MATTER OF CERTAIN UNDISCLOSED PAYMENTS OF
COMPENSATION, File No. HO-2814, instituted on January 5,
1994, before the U.S. Securities and Exchange Commission
("SEC"). On January 5, 1994, the SEC issued an order
directing a formal investigation to determine whether
federal securities laws had been violated and whether an
enforcement action should be recommended. In approximately
July 1995, the Company received a subpoena in connection
with the SEC's investigation. In approximately August 1994
and January 1995, the Company also received subpoenas from a
federal grand jury in Las Vegas, Nevada, for the production
of documents in a related investigation. Management
believes the Company has fully complied with both subpoenas.
The Company is unable to predict what action, if any, will
result from either of the investigations.
MICHAEL G. SWAN ("SWAN") AND TELETEK, INC. V. SEC,
instituted in June 1995, in the United Stated District Court
for the District of Columbia. In connection with the SEC's
investigation of various persons, including the Company and
Swan, a former executive officer and director of the
Company, the Company and Swan believed that its former
counsel may have released privileged records and other
information to the SEC. The Company and Swan filed a
complaint for injunctive relief, seeking to compel the SEC
to allow them access to those records and information
pursuant to the Freedom of Information Act. The district
court denied the
15
<PAGE>
Company's and Swan's request, and on October 1, 1996, the
United States Court of Appeals for the District of Columbia
Circuit upheld the denial.
TELETEK, INC., ET AL. V. FRANZ JOSEF KUTTNER AND UDO
DRISANG, Case No. 9 O 391/95, instituted on October 5, 1995,
in the First Instance Court of Wiesbaden (Landgericht
Wiesbaden, Germany). The Company and three other plaintiffs
filed a lawsuit alleging fraud and embezzlement, among other
claims. The Company is attempting to recover 500,000 shares
of its common stock that were delivered to the defendants
for the purpose of securing a foreign loan sought by the
Company in 1993. In March 1996, the court entered a
judgment ordering the defendants to return the shares to the
Company. The defendants are appealing the judgment on
technical procedural grounds.
PETER TOSTO ("TOSTO") V. TELETEK, INC., instituted in
May 1996, as an arbitration proceeding at the American
Arbitration Association, New York Regional Office. Tosto
alleges that the Company breached a consulting agreement,
and seeks an order directing the Company to issue 100,000
shares of its common stock as compensation under the
consulting agreement. A hearing on the matter has been
scheduled for November 18, 1996.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is currently listed on the
Nasdaq Smallcap Market under the symbol "TLTK." The
following table shows the range of high and low bid prices
for the Company's common stock for the periods indicated as
reported by the Nasdaq Stock Market. These quotations
represent inter-dealer prices without adjustment for retail
markup, markdown or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
Fiscal Year High Low
<S> <C> <C>
1995
First Quarter $3.69 $2.50
Second Quarter 2.88 .91
Third Quarter 2.44 .91
Fourth Quarter 1.78 .68
1996
First Quarter 1.00 .50
Second Quarter 2.81 .56
Third Quarter 9.75 1.75
Fourth Quarter 9.25 5.50
1997
First Quarter (through
September 17, 1996) 7.19 3.25
</TABLE>
As of September 17, 1996, the Company had approximately
3,873 stockholders of record.
DIVIDENDS
The Company has not declared cash dividends on its
common stock since its inception. The payment of dividends
are within the discretion of the Company's Board of
Directors and depend upon the earnings, capital requirements
and financial condition of the Company, among other factors.
The Company currently expects to retain its earnings to
finance the growth and development of its business and does
not anticipate paying cash dividends in the foreseeable
future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data included in
the following tables should be read in conjunction with the
Company's Consolidated Financial Statements and related
notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing
elsewhere herein. The selected consolidated financial data
for the years ended June 30, 1994, 1995 and 1996 and as of
June 30, 1995 and 1996 have been derived from the audited
Consolidated Financial Statements of the Company included
elsewhere herein. The selected consolidated financial data
for the years ended June 30, 1992 and 1993 and as of
June 30, 1992, 1993 and 1994 have been derived from the
Company's audited financial statements not included herein.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1992<F1> 1993<F1> 1994<F1> 1995<F1> 1996
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Revenues $ 1,783 $ 1,538 $ 1,797 $ 5,614 $50,074
Cost of goods sold 1,088 859 979 3,606 41,739
Gross profit 695 678 818 2,008 8,336
General and administrative
expenses 1,557 2,619 2,710 3,854 4,014
Operating income (loss) (861) (1,941) (2,323) (2,013) 3,621
Other income (expense) 209 72 99 7 (1,397)
Income (loss) before income
taxes (652) (1,869) (2,223) (2,006) 2,224
Income tax (expense) benefit - (1) (1) - 135
Net income (loss) $ (652) $ (1,870) $ (2,224) $ (2,006) $ 2,089
Net income (loss) per
share<F2> $ (0.48) $ (3.65) $ (1.03) $ (0.41) $ 0.12
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1992<F1>,<F2> 1993<F1>,<F2> 1994 <F1> 1995<F1> 1996
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalent $45 $523 $302 $357 $1,486
Working capital (1,226) (457) 348 584 902
Property and equipment, net 1,841 1,487 2,175 933 2,393
Total assets<F3> 3,215 2,631 3,372 4,632 18,616
Current liabilities 1,749 1,138 358 1,095 12,785
Long-term debt 309 3 315 - 230
Stockholders' equity <F3> 1,157 1,489 2,645 3,537 5,601
<FN>
<F1> Includes the accounts of United Payphone Services, Inc.
("United Payphone") until April 1995 when the Company
sold its controlling interest in United Payphone. See
Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -
General."
<F2> In 1996, the Company discovered certain errors in the
calculation of the weighted average shares outstanding
for the years ended June 30, 1994 and 1995. See note 3
to the consolidated financial statements.
<F3> In 1996, the Company discovered certain errors in its
previously issued consolidated financial statements
related to the carrying value of the Company's
investment in the common stock of United Payphone. The
correction of this error resulted in a reduction in
previously reported total assets of $306,177 at
June 30, 1995 and a decrease of previously reported
retained earnings of $306,177 for the year ended
June 30, 1995.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements
that may be considered forward-looking, such as statements
relating to anticipated obligations, capital spending and
financing sources. Such forward-looking information
involves important risks and uncertainties that could
significantly affect anticipated results in the future and,
accordingly, such results may differ from those expressed in
any forward-looking statements made herein. These risks and
uncertainties include, but are not limited to, those
relating to dependence on existing management, leverage and
debt service (including sensitivity to fluctuations in
interest rates), the outcome of litigation, domestic or
global economic conditions, regulatory requirements, and
changes in federal or state tax laws or the administration
of such laws.
GENERAL
The Company, through its operating subsidiaries,
provides long-distance telecommunication services,
consisting primarily of direct dial international long-
distance telephone transmissions from the United States for
commercial customers. Currently, the Company's wholly-owned
subsidiaries are Hi-Rim and SelecTel. In April 1995, the
Company
18
<PAGE>
sold its controlling interest in United Payphone in exchange
for the cancellation of 95,292 shares of the Company's
Class A Preferred Stock. As of June 30, 1996, the Company
owned 992,065 shares or approximately 19% of the outstanding
common stock of United Payphone, and all of United
Payphone's outstanding preferred stock bearing a 6%
cumulative dividend rate. The consolidated financial
statements include Hi-Rim and, through April 1995, United
Payphone. The Company's investment in United Payphone is
carried at cost plus equity in undistributed earnings or
loss since acquisition. The Company's carrying value of its
investment in United Payphone has been reduced to zero as a
result of recording the Company's share of net losses. All
material intercompany balances have been eliminated in
consolidation.
In 1996, the Company discovered certain errors in its
previously issued consolidated financial statements related
to the carrying value of the Company's investment in the
common stock of United Payphone. The correction of this
error resulted in a reduction in previously reported total
assets of $306,177 at June 30, 1995 and a decrease of
previously reported retained earnings of $306,177 for the
year ended June 30, 1995. In addition, the Company
discovered certain errors in the calculation of the weighted
average shares outstanding for the years ended June 30, 1994
and 1995. The Company has made all adjustments to the
consolidated financial statements for the year ended
June 30, 1995 and periods prior to July 1, 1994 which the
Company believes are necessary for a fair presentation of
such statements.
YEAR ENDED JUNE 30, 1996 AND 1995
REVENUES
Net revenues for the Company increased to approximately
$50.0 million for the year ended June 30, 1996 from
approximately $5.6 million for the year ended June 30, 1995,
an increase of $44.5 million or 792%. Management believes
the increase is due to the increase in the sales staff from
one person in 1995 to five persons in 1996, the development
of customer contacts by the Company's management, an
increase in demand due to a decrease in the Company's rates,
and the general increase in acceptance of the Company's
services among the Company's target customer market.
GROSS PROFIT
Gross profit for the year ended June 30, 1996 increased
to approximately $8.3 million from approximately $2.0
million for the year ended June 30, 1995, an approximately
$6.3 million or 315% increase. The increase in gross profit
reflects the results of the increase in sales of the
Company's long-distance service. Gross revenues increased
in 1996 at a lower rate than net revenues because the
Company offered lower rates to its customers as a
competitive measure to increase demand for its services.
The Company's gross profit in the fourth quarter of the
fiscal year ended June 30, 1996, was negatively affected by
the termination in March 1996 of the Company's relationship
with MCI, which at the time carried approximately 75% of the
Company's long-distance traffic. During the third and
fourth quarters of the fiscal year ended June 30, 1996, the
Company expanded its network of transmission carriers in
order to reduce the Company's reliance on any one carrier
and to enable the Company to handle higher volume customers
at lower rates and with improved customer services.
Currently, the Company uses
19
<PAGE>
approximately seven different carriers, none of which
handles more than 20% of the Company's long-distance
traffic.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to
approximately $4.0 million for the year ended June 30, 1996,
up from approximately $3.9 million for the year ended
June 30, 1995, a $160,639 or 4.2% increase. The increase
was principally due to staff increases and compensation of
management.
INTEREST EXPENSE
For the year ended June 30, 1996, interest expense
increased to $59,047 from $3,413 for the year ended June 30,
1995, a $55,634 or 1,630% increase. The increase was
principally due to the purchase of the Company's switches.
NET INCOME
Net income for the year ended June 30, 1996 was
approximately $2.1 million compared to a net loss of
approximately $2.0 million for the year ended June 30, 1995,
an approximately $4.1 million increase. The increase was
principally due to the large increase in revenues and the
resultant increase in gross profit, and the relatively lower
rate of increase in general and administrative expenses.
YEAR ENDED JUNE 30, 1995 AND 1994
REVENUES
Net revenues for the Company increased to approximately
$5.6 million for the year ended June 30, 1995 from
approximately $1.8 million for the year ended June 30, 1994,
an increase of approximately $3.8 million or 212%. The
increase was principally due to the Company's focus on its
principal service of providing direct dial international
long-distance telephone transmissions for commercial
customers in the United States, the gradual development of
customer contacts by the Company's management and the
general increase in acceptance of the Company's services
among the Company's target customer market.
GROSS PROFIT
The Company's gross profit for the year ended June 30,
1995 increased to approximately $2.0 million from $817,928
for the year ended June 30, 1994, an approximately $1.2
million or 145% increase. The increase was due to the
increase in revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended June 30, 1995, general and
administrative expenses increased to approximately $3.9
million from approximately $2.7 million for the year ended
June 30, 1994, an
20
<PAGE>
approximately $1.1 million or 42% increase. The increase
was principally due to increased staffing associated with
the Company's focus on its long-distance telephone services.
INTEREST EXPENSE
The Company's interest expense for the year ended
June 30, 1995 decreased to $3,413 from $191,752 for the year
ended June 10, 1994, a decrease of $188,339 or 98%. The
decrease was principally due to the payoff of switching
equipment in 1994.
NET LOSS
The net loss for the year ended June 30, 1995 decreased
to approximately $2.0 million from approximately $2.3
million for the year ended June 30, 1994, a $218,311 or 10%
decrease. The decrease in the net loss was principally due
to the increase in gross profit as a result of the Company's
focus on its long-distance telephone services.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of
$901,718 compared to $583,619 at June 30, 1995. Cash and
cash equivalents were approximately $1.5 million at June 30,
1996 compared to $356,538 at June 30, 1995. The increase in
both working capital and cash is primarily due to the
increase in revenues.
The Company has historically funded its daily
operations with net cash provided by operating and financing
activities. For the fiscal years 1996, 1995 and 1994, net
cash provided by (used in) operating activities totaled
approximately $2.0 million, $(2.0) million and $(1.1)
million, respectively. During the fiscal year ended June
30, 1996, net cash provided by operating activities was
sufficient to fund the day to day operating expenses of the
Company.
Net cash used in investing activities for the years
ended June 30, 1996, 1995 and 1994, which consisted
primarily of property and equipment, totaled approximately
$2.0 million, $103,103, and $1.1 million, respectively.
During 1996, major capital expenditures included the
purchase of the new switch in Overland Park, Kansas and a
mini main frame computer.
Net cash provided by (used in) financing activities
totaled approximately $1.1 million, $2.4 million, and $2.1
million in 1996, 1995, and 1994, respectively. Net cash
provided by financing activities in 1996 primarily reflects
proceeds from the sale of equity as a result of the exercise
of options and proceeds from equipment financing. Net cash
provided by financing activities in 1995 and 1994 primarily
reflects the sale of equity.
The Company is currently arbitrating a dispute with MCI
in connection with the MCI Carrier Agreement. See Item 3.
"Legal Proceedings." In June 1996, the Company initiated a
claim against MCI seeking damages in excess of approximately
$20.0 million related to overbilling of international calls
and lost customer revenues caused by poor service and
premature termination of service by MCI. MCI has asserted a
counterclaim of in excess of approximately $28.0 million for
unpaid services and $10.0 million in early termination
penalties. The Company believes it has meritorious defenses
to its claim for early termination penalties. The Company
21
<PAGE>
believes any recovery by the Company for its overbilling
claim would be set off against sums MCI may be owed for
international calls. The Company currently believes that a
net judgment equal to the cost of services received from MCI
aggregating approximately $4.2 million is probable, and such
amount has been accrued and charged to operations in the
Company's 1996 consolidated financial statements. No
assurance can be given, however, that damages in excess of
the reserved amount will not be awarded to MCI.
On August 22, 1996, the Company received a loan in the
amount of $2.0 million (the "Private Loan") from a private
lender, bearing interest at 8.5% per annum. All accrued and
unpaid interest on the outstanding balance of the loan plus
$25,000 is payable monthly. The loan is due in full on
August 22, 1999. The loan may be used by the Company for
working capital or any other purposes. As of the date
hereof, the Company has not expended any of the loan
proceeds.
The Company is currently in negotiations with AT&T with
respect to services provided during the fiscal year 1996.
The Company has accrued and charged to operations in the
accompanying 1996 consolidated financial statements
approximately $2.1 million, the Company's estimate of the
cost of the services provided. No assurance can be given,
however, that the actual cost of the services will not
exceed the reserved amount.
The Company currently does not have any firm
commitments for any capital expenditures or business
acquisitions. However, subject to certain factors, the
Company's present intention is to purchase an additional
computerized digital network switch during the fiscal year
1997. In addition, the Company continues to monitor
acquisition and expansion opportunities throughout the
United States.
The Company presently anticipates that its principal
uses of funds in 1997, outside of day to day operational
expenses, will be for payment of accrued expenses, including
amounts owing MCI and AT&T, the payment of approximately
$50,000 per month for the repurchase of the Company's
securities from a former executive officer and director, the
payment of capital leases, the payments of principal and
interest on the Private Loan, and the payments of principal
and interest on the $300,000 promissory note to SelecTel.
The Company expects to be able to meet its debt obligations
and to finance operations and capital expenditures through
cash flow from operations, present and future borrowings,
including proceeds available under the Private Loan, or
other sources of public or private financing.
The ability of the Company to meet its debt service
requirements and to finance operations and capital
expenditures will be dependent on the Company's operations,
which are subject to financial, economic, competitive,
regulatory, and other factors affecting the Company, many of
which are beyond its control. While the Company expects net
cash provided by operating activities to be sufficient to
meet its day to day expenses, including interest expense,
the Company can provide no assurances with respect thereto.
22
<PAGE>
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This pronouncement permits the Company to
choose either a new fair value based method or the current
Accounting Principles Board Opinion ("APB") No. 25 intrinsic
value based method of accounting for its stock-based
compensation arrangements. The Company intends to retain
the intrinsic value based method of accounting for its stock
based compensation arrangements and provide the footnote
disclosure as required by SFAS No. 123 in fiscal year 1997.
Consequently, implementation of this pronouncement will not
impact the Company's financial position of results or
operations.
In March 1995, the FASB issued SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed of." This statement requires that
long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In
addition, this statement requires that long-lived assets and
certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less
cost to sell, except for assets that are covered by APB No.
30. The Company anticipates that the adoption of SFAS No.
121 in fiscal year 1997 will not have a material effect on
the Company's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report (KPMG Peat Marwick LLP);
Independent Auditors' Report (Crouch, Bierwolf & Call);
Consolidated Balance Sheets as of June 30, 1995 and
June 30, 1996;
Consolidated Statements of Operations for the Years
Ended June 30, 1994, 1995 and 1996;
Consolidated Statements of Stockholders' Equity for the
Years Ended June 1994, 1995 and 1996;
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1994, 1995 and 1996; and
Notes to Consolidated Financial Statements.
23
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Teletek, Inc.
We have audited the accompanying consolidated balance sheet of
Teletek, Inc. and subsidiary (Company) as of June 30, 1996, and
the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Teletek, Inc. and subsidiary as of June 30, 1996, and
the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
October 11, 1996
<PAGE>
[LETTERHEAD OF CROUCH, BIERWOLF & CALL]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Teletek, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of
Teletek, Inc. and subsidiary as of June 30, 1995, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the years ended June 30, 1994 and 1995. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Teletek, Inc. and subsidiary as of June 30, 1995,
and the results of their operations and their cash flows for the
years ended June 30, 1994 and 1995 in conformity with generally
accepted accounting principles.
As discussed in note 3 to the consolidated financial statements,
during 1996 management discovered certain errors in the 1995
consolidated financial statements. Accordingly, the previously
issued consolidated financial statements as of and for the year
ended June 30, 1995 have been restated to correct these errors.
/s/ Crouch, Bierwolf & Call
Crouch, Bierwolf & Call
October 10, 1995, except as to note 3 which
is as of October 10, 1996
<PAGE>
<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS 1995 1996
(As restated)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 356,538 $ 1,485,883
Marketable securities available for sale (note 4) 14,800 -
Receivables:
Trade accounts receivable, less allowance for
doubtful accounts of $70,475 and $450,000,
respectively 403,407 3,820,305
Unbilled trade accounts receivable 394,993 8,301,875
Interest receivable 3,516 17,280
Employee receivable 93,000 -
Notes receivable (note 5) 235,945 20,000
Prepaid expenses 175,963 41,345
Total current assets 1,678,162 13,686,688
Property and equipment, net (note 6) 932,828 2,393,110
Other assets:
Investment in United Payphone Services, Inc. (note 7) 1,817,591 1,817,591
Deposits - 480,410
Notes receivable (note 5) 169,443 169,443
Other 33,848 68,976
Total other assets 2,020,882 2,536,420
$ 4,631,872 $ 18,616,218
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 8) $ 2,310 $ 906,510
Accounts payable 86,510 7,208,242
Accrued expenses (note 16) 905,723 4,424,318
Deposits 100,000 122,900
Income taxes - 123,000
Total current liabilities 1,094,543 12,784,970
Long-term debt, excluding current installments (note 8) - 230,082
Total liabilities 1,094,543 13,015,052
Commitments and contingencies (note 16)
Stockholders' equity (note 9):
Common stock, $.0001 par value. Authorized
100,000,000 shares, issued and outstanding
7,989,134 (1995) and 13,722,883 (1996) shares 798 1,372
Class A, convertible preferred stock, no par value.
Authorized 50,000,000 shares, issued and
outstanding 278,624 (1995) and 0 (1996) shares 575,913 -
Class B, convertible preferred stock, no par value.
Authorized 50,000,000 shares, issued and
outstanding 13,241 (1995) and 0 (1996) shares 601,345 -
Class C, convertible preferred stock, no par value.
Authorized 50,000,000 shares, issued and
outstanding 0 (1995) and 135 (1996) shares - 70,000
Additional paid-in capital 10,529,921 11,619,905
Unrealized holding gains from marketable securities
available for sale 8,400 -
Accumulated deficit (8,179,048) (6,090,111)
Total stockholders' equity 3,537,329 5,601,166
$ 4,631,872 $ 18,616,218
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Total revenue $ 1,797,292 $ 5,614,272 $ 50,074,350
Cost of goods sold 979,364 3,606,309 41,738,715
Gross profit 817,928 2,007,963 8,335,635
Operating expenses:
General and administrative 2,710,472 3,853,726 4,014,365
Bad debts 5,052 70,475 482,808
Depreciation and amortization 425,044 96,923 217,468
Total operating expenses 3,140,568 4,021,124 4,714,641
Income (loss) from operations (2,322,640) (2,013,161) 3,620,994
Other income (expense):
Litigation settlements (note 16) - (100,000) (1,395,000)
Interest income 126,376 57,425 56,621
Interest expense (191,752) (3,413) (59,047)
Dividend income - 52,060 -
Loss on sale of investment - (25,616) -
Minority interest in subsidiaries
losses 135,522 26,791 -
Loss on sale of property and equipment - - (24,550)
Other, net 29,149 - 24,919
99,295 7,247 (1,397,057)
Income (loss) before income taxes (2,223,345) (2,005,914) 2,223,937
Provision for income taxes (note 10) 880 - 135,000
Net income (loss) $ (2,224,225) $ (2,005,914) $ 2,088,937
Net income (loss) per common share and
common share equivalents $ (1.03) $ (0.41) $ 0.12
Net income (loss) per common share
assuming full dilution $ (1.03) $ (0.41) $ 0.11
Weighted average common shares
outstanding (notes 2 and 3) 2,162,506 4,918,158 18,012,491
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1994, 1995 and 1996
COMMON STOCK ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
<S> <C> <C> <C>
Consolidated balance as of June 30, 1993 1,291,893 $ 128 $ 5,334,674
1 for 3 reverse split, October 1993
(fractional shares after rounding) 3,213 - -
Conversion of Class B preferred stock to
common stock 100,000 10 239,990
Issuance of Class C preferred stock for cash - - -
Conversion of Class C preferred stock to
common stock 1,128,000 113 1,871,887
Issuance of common stock for services 130,000 13 239,987
Issuance of common stock for cash 417,500 42 1,393,458
Cancellation of shares of subsidiary - - (32,800)
Net loss - - -
Consolidated balance as of June 30, 1994 3,070,606 306 9,047,196
Investment in United Payphone (note 3) - - -
Dividends paid - - -
Retirement of Treasury stock - - -
Issuance of Class B preferred stock for cash,
less commission - - -
Issuance of Class C preferred stock for cash - - -
Conversion of Class C preferred stock for
common stock 300,000 30 299,970
Issuance of common stock for services 30,000 3 31,997
Conversion of Class B preferred stock for
common stock 4,088,528 409 2,138,055
Conversion of Class A preferred stock for
common stock 500,000 50 34,451
Exchange of Class A preferred stock for common
stock of Subsidiary - - (1,021,748)
Unrealized holding gain from marketable
securities - - -
Net loss - - -
Consolidated balance as of June 30, 1995
(note 3) 7,989,134 798 10,529,921
Sale of marketable security - - -
Issuance of common stock for litigation
settlement 25,000 3 24,997
Issuance of note payable in exchange for
common stock and Class A preferred stock (32,034) (3) (517,998)
Issuance of Class C preferred stock for cash - - -
Conversion of Class A preferred stock to
common stock 3,503,780 350 242,864
Conversion of Class A preferred stock to Class
B preferred stock - - -
Conversion of Class B preferred stock to Class
A preferred stock - - -
Conversion of Class B preferred stock to
common stock 1,482,003 148 611,897
Common stock issued through exercise of
options and warrants 755,000 76 728,224
Net income - - -
Consolidated balance as of June 30, 1996 13,722,883 $ 1,372 $ 11,619,905
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK
SHARES CLASS A SHARES CLASS B
<S> <C> <C> <C> <C>
Consolidated balance as of June 30, 1993 390,583 $ 807,332 2,500 $ 250,000
1 for 3 reverse split, October 1993
(fractional shares after rounding) - - - -
Conversion of Class B preferred stock to
common stock - - (2,400) (240,000)
Issuance of Class C preferred stock for cash - - - -
Conversion of Class C preferred stock to
common stock - - - -
Issuance of common stock for services - - - -
Issuance of common stock for cash - - - -
Cancellation of shares of subsidiary - - - -
Net loss - - - -
Consolidated balance as of June 30, 1994 390,583 807,332 100 10,000
Investment in United Payphone (note 3) - - - -
Dividends paid - - - -
Retirement of Treasury stock - - - -
Issuance of Class B preferred stock for cash,
less commission - - 60,000 2,700,000
Issuance of Class C preferred stock for cash - - - -
Conversion of Class C preferred stock for
common stock - - - -
Issuance of common stock for services - - - -
Conversion of Class B preferred stock for
common stock - - (46,859) (2,108,655)
Conversion of Class A preferred stock for
common stock (16,667) (34,451) - -
Exchange of Class A preferred stock for
common stock of Subsidiary (95,292) (196,968) - -
Unrealized holding gain from marketable
securities - - - -
Net loss - - - -
Consolidated balance as of June 30, 1995
(note 3) 278,624 575,913 13,241 601,345
Sale of marketable security - - - -
Issuance of common stock for litigation
settlement - - - -
Issuance of note payable in exchange for
common stock and Class A preferred stock (153,333) (321,999) - -
Issuance of Class C preferred stock for cash - - - -
Conversion of Class A preferred stock to
common stock (116,291) (243,214) - -
Conversion of Class A preferred stock to
Class B preferred stock (10,000) (20,700) 2,859 20,700
Conversion of Class B preferred stock to
Class A preferred stock 1,000 10,000 (100) (10,000)
Conversion of Class B preferred stock to
common stock - - (16,000) (612,045)
Common stock issued through exercise of
options and warrants - - - -
Net income - - - -
Consolidated balance as of June 30, 1996 - $ - - $ -
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
PREFERRED STOCK RETAINED GAIN FROM
EARNINGS MARKETABLE
SHARES CLASS C (DEFICIT) SECURITIES
(As restated)
<S> <C> <C> <C> <C>
Consolidated balance as of June 30, 1993 - $ - $ (5,138,724) $ -
1 for 3 reverse split, October 1993
(fractional shares after rounding) - - - -
Conversion of Class B preferred stock to
common stock - - - -
Issuance of Class C preferred stock for cash 2,022 2,022,000 - -
Conversion of Class C preferred stock to
common stock (1,872) (1,872,000) - -
Issuance of common stock for services - - - -
Issuance of common stock for cash - - - -
Cancellation of shares of subsidiary - - - -
Net loss - - (2,224,225) -
Consolidated balance as of June 30, 1994 150 150,000 (7,362,949) -
Investment in United Payphone (note 3) - - 1,306,198 -
Dividends paid - - (116,383) -
Retirement of Treasury stock - - - -
Issuance of Class B preferred stock for cash,
less commission - - - -
Issuance of Class C preferred stock for cash 150 150,000 - -
Conversion of Class C preferred stock for
common stock (300) (300,000) - -
Issuance of common stock for services - - - -
Conversion of Class B preferred stock for
common stock - - - -
Conversion of Class A preferred stock for
common stock - - - -
Exchange of Class A preferred stock for
common stock of Subsidiary - - - -
Unrealized holding gain from marketable
securities - - - 8,400
Net loss - - (2,005,914) -
Consolidated balance as of June 30, 1995
(note 3) - - (8,179,048) 8,400
Sale of marketable security - - - (8,400)
Issuance of common stock for litigation
settlement - - - -
Issuance of note payable in exchange for
common stock and Class A preferred stock - - - -
Issuance of Class C preferred stock for cash 135 70,000 - -
Conversion of Class A preferred stock to
common stock - - - -
Conversion of Class A preferred stock to
Class B preferred stock - - - -
Conversion of Class B preferred stock to
Class A preferred stock - - - -
Conversion of Class B preferred stock to
common stock - - - -
Common stock issued through exercise of
options and warrants - - - -
Net income - - 2,088,937 -
Consolidated balance as of June 30, 1996 135 $ 70,000 $ (6,090,111) $ -
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TREASURY STOCK STOCKHOLDERS'
SHARES AMOUNT EQUITY
<S> <C> <C> <C>
Consolidated balance as of June 30, 1993 1,000 $ (6,408) $ 1,247,002
1 for 3 reverse split, October 1993
(fractional shares after rounding) - - -
Conversion of Class B preferred stock to
common stock - - -
Issuance of Class C preferred stock for cash - - 2,022,000
Conversion of Class C preferred stock to
common stock - - -
Issuance of common stock for services - - 240,000
Issuance of common stock for cash - - 1,393,500
Cancellation of shares of subsidiary - - (32,800)
Net loss - - (2,224,225)
Consolidated balance as of June 30, 1994 1,000 (6,408) 2,645,477
Investment in United Payphone (note 3) - - 1,306,198
Dividends paid - - (116,383)
Retirement of Treasury stock (1,000) 6,408 6,408
Issuance of Class B preferred stock for cash,
less commission - - 2,700,000
Issuance of Class C preferred stock for cash - - 150,000
Conversion of Class C preferred stock for
common stock - - -
Issuance of common stock for services - 32,000
Conversion of Class B preferred stock for
common stock - - 29,809
Conversion of Class A preferred stock for
common stock - - 50
Exchange of Class A preferred stock for
common stock of Subsidiary - - (1,218,716)
Unrealized holding gain from marketable
securities - - 8,400
Net loss - - (2,005,914)
Consolidated balance as of June 30, 1995
(note 3) - - 3,537,329
Sale of marketable security - - (8,400)
Issuance of common stock for litigation
settlement - - 25,000
Issuance of note payable in exchange for
common stock and Class A preferred stock - - (840,000)
Issuance of Class C preferred stock for cash - - 70,000
Conversion of Class A preferred stock to
common stock - - -
Conversion of Class A preferred stock to
Class B preferred stock - - -
Conversion of Class B preferred stock to
Class A preferred stock - - -
Conversion of Class B preferred stock to
common stock - - -
Common stock issued through exercise of
options - - 728,300
Net income - - 2,088,937
Consolidated balance as of June 30, 1996 - $ - $ 5,601,166
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,224,225) $ (2,005,914) $ 2,088,937
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Gain (loss) on sale of equipment (11,661) - 24,550
Minority interest (135,522) (26,791) -
Effect of change in control of affiliate - 153,729 -
Depreciation and amortization 425,044 96,923 217,468
Bad debts 5,052 70,475 482,808
Common stock issued for services 689,318 32,000 -
Common stock issued in litigation settlement - - 25,000
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable 172 (1,058,141) (11,727,352)
(Increase) decrease in prepaid expenses (2,770) (164,400) 134,618
Increase in accounts payable 41,907 28,563 7,121,732
Increase in accrued expenses 71,587 883,961 3,518,595
Increase in income taxes - - 123,000
Net cash provided by (used in)
operating activities (1,141,098) (1,989,595) 2,009,356
Cash flows from investing activities:
Purchase of property and equipment (1,120,226) (238,371) (1,703,092)
Proceeds on sale of property and equipment - - 10,842
Loss on sale of marketable securities - - 6,400
Net proceeds from customer deposits - 100,000 22,900
Net increase in other - (10,827) (45,178)
Payments received on notes receivable - 2,695 215,945
Net proceeds (payments) of deposits - 43,400 (480,410)
Net cash used in investing activities (1,120,226) (103,103) (1,972,593)
Cash flows from financing activities:
Principle payments on notes payable and
lease obligations (15,316) (495,942) (374,320)
Proceeds from notes payable and lease obligations 463,496 - 668,602
Proceeds from issuance of Class B preferred stock - 2,700,000 -
Proceeds from issuance of Class C preferred stock - 150,000 70,000
Proceeds from issuance of common stock 1,642,043 - 728,300
Net cash provided by financing activities 2,090,223 2,354,058 1,092,582
Net increase in cash and cash equivalents (171,101) 261,360 1,129,345
Cash and cash equivalents at beginning of year 523,140 95,178 356,538
Cash and cash equivalents at end of year $ 352,039 $ 356,538 $ 1,485,883
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1996
(1) DESCRIPTION OF BUSINESS
Teletek, Inc. ("Teletek") and Hi-Rim Communications, Inc.
("Hi-Rim"), a wholly owned subsidiary, are primarily engaged
in direct dial international long-distance service from the
United States for commercial customers through two switches
owned and operated in Overland Park, Kansas and Las Vegas,
Nevada. Prior to April 1995, Teletek owned 85% of the
common stock of United Payphone Services, Inc. ("United
Payphone"). United Payphone primarily is engaged in the
business of operating a public pay phone service in Arizona.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of Teletek, its wholly-owned subsidiary, Hi-Rim, and until
April 1995, United Payphone. All significant intercompany
balances and transactions have been eliminated in
consolidation. Collectively these entities are referred to
as the Company.
On April 3, 1995, the Company exchanged as consideration
2,500,000 shares of common stock of United Payphone in
return for 95,292 shares of Class A preferred stock of the
Company. This transaction reduced the Company holdings in
United Payphone from approximately 85% to approximately 21%.
For financial reporting purposes the Company now accounts
for the investment in United Payphone on the equity method.
CASH AND CASH EQUIVALENTS
Cash equivalents consists of short term, highly liquid
investments which are readily convertible into cash.
INVESTMENT SECURITIES
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES ("SFAS No.
115"), at July 1, 1994. Under SFAS No. 115, the Company
classifies its debt and equity securities in one of three
categories: trading, available-for-sale, or held-to-
maturity. Trading securities are bought and held
principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in
which the Company has the
30
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ability and intent to hold the security until maturity.
All other securities not included in trading or held-to-
maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at
fair value. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization or accretion
of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of
stockholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are
determined on a specific identification basis.
A decline in the market value of any available-for-sale or
held-to-maturity securities below cost that is deemed other
than temporary results in a reduction in carrying amount to
fair value. The impairment is charged to earnings and a new
cost basis for the security is established.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Equipment
financed under capital leases is recorded at the lower of
fair market value or the present value of future minimum
lease payments.
Repairs and maintenance are charged to operations, and
renewals and additions are capitalized. Gains or losses are
recognized at the time of ordinary retirements, sales or
other dispositions of property.
Depreciation is calculated on the straight-line method over
the estimated useful lives as follows:
Computer equipment 3 to 5 years
Furniture and office equipment 5 to 7 years
Property and equipment held under capital leases and
leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or estimated useful
life of the asset.
INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that
includes the enactment date.
31
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
USE OF ESTIMATES
Management of the Company has made estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosures of contingent assets and liabilities to prepare
these financial statements in conformity with generally
accepted accounting principles. Actual results could differ
from those estimates.
REVENUE RECOGNITION
Revenues generated from long-distance telecommunication
services are recognized when the services are provided.
Other revenues are recognized when service is provided. The
Company has eight billing cycles. Accordingly, a
significant amount of revenues is unbilled at month's end.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year
financial statements to conform with the current year
presentation.
EARNINGS PER SHARE
Earnings per share and common stock equivalent shares are
computed based on the weighted average number of common and
common equivalent shares outstanding during each period.
Dilutive stock options included in the number of common and
common equivalent shares are based on the treasury stock
method.
Weighted average number of common and common stock
equivalent share outstanding at June 30, 1994, 1995 and 1996
follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Weighted average common shares
outstanding 2,162,506 4,918,158 9,846,646
Common equivalent shares:
Stock options - - 1,934,965
Convertible preferred stock - - 6,230,880
2,162,506 4,918,158 18,012,491
</TABLE>
STOCK-BASED EMPLOYEE COMPENSATION AWARDS
The Company accounts for its stock-based employee
compensation awards in accordance with Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB No. 25"). Under APB No. 25, because the
exercise price of the Company's stock options equaled or
exceeded the market price on date of grant, no compensation
expense has been recognized in the accompanying consolidated
financial statements.
32
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In 1995, Statement of Financial Accounting Standards No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS No.
123"), was issued which will be effective for the Company's
year ending June 30, 1997. SFAS No. 123 provides
alternative accounting treatment to APB No. 25 with respect
to stock-based compensation and requires certain additional
disclosures, including disclosures if the Company elects not
to adopt the measurement and recognition criteria of SFAS
No. 123. At this point, the Company does not anticipate
adopting the measurement and recognition criteria of SFAS
No. 123 and therefore in future years would expect to
provide the required additional disclosures in the footnotes
to the consolidated financial statements.
(3) PRIOR PERIOD ADJUSTMENT
In 1996, the Company discovered an error in its previously
issued consolidated financial statements related to the
carrying value of the Company's investment in the common
stock of United Payphone. The correction of this error
resulted in a reduction of previously reported total assets
of $306,177 and a decrease of previously reported retained
earnings of $306,177. The following table presents the
effect of the prior period adjustments:
<TABLE>
<CAPTION>
1995
As previously Prior period As
reported adjustments restated
<S> <C> <C> <C>
Total Assets $ 4,938,049 $ (306,177) $ 4,631,872
Accumulated deficit 7,872,871 306,177 8,179,048
</TABLE>
In addition, the Company discovered certain errors in the
calculation of the weighted average shares outstanding for
the years ended June 30, 1994 and 1995. The following table
presents the effect of the recalculation of weighted average
shares outstanding and net loss per share:
<TABLE>
<CAPTION>
1994 1995
As As As As
previously restated previously restated
reported reported
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 1,597,975 2,162,506 5,087,000 4,918,158
Net loss per common share $ (1.39) $ (1.03) $ (0.39) $ (0.41)
</TABLE>
The Company has made all adjustments to the consolidated
financial statements for the year ended June 30, 1995 and
periods prior to July 1, 1994, which the Company believes
are necessary for a fair presentation of such statements.
33
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) INVESTMENT SECURITIES
The following is a summary of available-for-sale securities
as of June 30, 1995:
<TABLE>
<CAPTION>
Gross Unrealized
Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Groen Brothers Aviation $ 6,400 $ 8,400 $ - $ 14,800
</TABLE>
(5) Notes Receivable
Notes receivable at June 30, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
8% unsecured note receivable from United
Payphone due on September 30, 1997 $ 113,760 $ 113,760
8% unsecured note receivable from United
Payphone due on September 30, 1997 55,683 55,683
15% unsecured note receivable due on
December 31, 1996 10,000 10,000
10% note receivable due on demand 215,945 -
15% unsecured note receivable due on
December 31, 1996 10,000 10,000
405,388 189,443
Less current portion (235,945) (20,000)
$ 169,443 $ 169,443
</TABLE>
During the year ended June 30, 1995, United Payphone
borrowed $55,683 from the Company. The note bears interest
at 8% with interest and principle payable September 30,
1997. During the year ended June 30, 1995 United Payphone
owed Teletek dividends on the preferred stock issued the
previous year. The total amount of dividends due at June
30, 1995 was $113,760. United Payphone signed a note in
this amount due September 30, 1997 at 8% interest.
34
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) PROPERTY AND EQUIPMENT
The components of property and equipment at June 30, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Switching equipment $ 777,762 $ 2,151,317
Furniture and office equipment 240,478 512,742
Leasehold improvements 24,386 32,654
1,042,626 2,696,713
Less accumulated depreciation (109,798) (303,603)
$ 932,828 $ 2,393,110
</TABLE>
At June 30, 1996, the gross amount of plant and equipment
and related accumulated amortization recorded under capital
leases were as follows:
<TABLE>
<CAPTION>
<S> <C>
Switching equipment $ 602,022
Minicomputer 221,602
823,624
Less accumulated amortization (51,215)
$ 772,409
</TABLE>
Amortization of assets held under capital leases is included
with depreciation expense.
(7) INVESTMENT IN AFFILIATED COMPANY
The Company's investment in United Payphone at June 30, 1995
and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1995 1996
Carrying Carrying
Shares Value Shares Value
<S> <C> <C> <C> <C>
Common stock 992,065 $ - 992,065 $ -
Preferred stock 727 1,817,591 727 1,817,591
$ 1,817,591 $ 1,817,591
</TABLE>
The Company has an investment in United Payphone consisting
of 19% of United Payphone's common stock. The Company's
carrying value has been reduced to zero as a result of
recording the Company's share of net losses.
35
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A summary of combined financial information for United
Payphone as of and for the year ended June 30, 1995 and 1996
follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Current assets $ 246,525 $ 728,817
Current liabilities 168,960 224,946
Working capital 77,565 503,871
Property, plant and equipment, net 876,977 707,204
Other assets 3,216 2,106
Long-term debt and commitment and
contingencies 470,845 530,589
Stockholders' equity 655,873 907,538
Sales 2,074,244 2,127,574
Net loss (190,163) (92,529)
</TABLE>
During 1994, the Company exchanged a $1,817,591 note
receivable for 727 shares of 6% cumulative convertible
preferred stock of United Payphone, which is convertible
into common stock at a rate equal to 75% of the average bid
price of the common stock for the ten days prior to the
conversion date. The preferred stock is redeemable by
United Payphone at the cash price paid for the shares plus
the amount of any dividends accumulated and unpaid as of the
date of redemption. The Company is carrying the
nonmarketable security at cost. Management has determined
that it is not probable that an impairment deemed other than
temporary has occurred as of the balance sheet date.
(8) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt at June 30, 1995 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Note payable to a former stockholder,
principal and interest at 8%, with
monthly payments of $49,668, due July
1997 $ - $ 626,992
Note payable with monthly payments of
$108 with interest of 12% 2,310 -
Capital lease obligations (note 11) - 509,600
2,310 1,136,592
Less current installments (2,310) (906,510)
Note payable and capital lease
obligations, less current portion $ - $ 230,082
</TABLE>
36
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of June 30, 1996, maturities of long-term debt and
capital lease obligations were as follows:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1997 $ 906,510
1998 165,037
1999 65,045
$ 1,136,592
</TABLE>
In connection to the note payable to a former stockholder,
the Company issued an 18-month note for $840,000 at 8%
interest in exchange for the surrender of the former
stockholder's balance of Class A preferred shares 153,333
and 32,034 shares of the Company's common stock.
(9) STOCKHOLDERS' EQUITY
In February 1993, the stockholders approved the creation of
three classes of preferred stock. Class A preferred shares
are convertible into 30 shares of common stock for each
share of preferred and are entitled to 20 votes per share
and an 8% non-cumulative dividend, but have no liquidation
preference. Class B preferred shares have an 8% non-
cumulative dividend and are convertible into common shares
as follows: Each share of preferred stock is valued at
$100.00. The preferred shares can be converted into common
shares at the market rate less 25%. The terms of the
outstanding Class C preferred stock with a face value of
$1,000 per share, is non-voting, bears a 5% non-cumulative
dividend and is convertible into common stock on the terms
set by the Company's board of directors. The current terms
for the outstanding Class C preferred stock are convertible
into 500 shares of common stock for each share of Class C
preferred stock.
STOCK OPTIONS NOT PURSUANT TO A PLAN
<TABLE>
<CAPTION>
Exercise
Shares Price
<S> <C> <C>
Options outstanding at June 30, 1993 - $ -
Granted - -
Exercised - -
Canceled - -
Options outstanding at June 30, 1994 - -
Granted 500,000 0.75
Exercised - -
Canceled - -
Options outstanding at June 30, 1995 500,000 0.75
Granted 3,270,000 0.66-2.00
Exercised (755,000) 0.66-1.40
Canceled - -
Options outstanding at June 30, 1996 3,015,000 0.66-2.00
</TABLE>
37
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of June 30, 1996, options outstanding and exercisable not
pursuant to a plan are as follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
<S> <C> <C>
Mr. Thomas A. Mills (Secretary) 1,050,000 $ .66
Mr. Wayne J. Godbout (Director) 550,000 .66-2.00
Mr. John M. Vergiels (Chairman of the 350,000 .66
Board of Directors)
Entertainment Technologies, Inc. (Thomas
A. Mills, President) 275,000 .66
Mr. Michael G. Swan (Former President) 350,000 .66
Others 440,000 .66-2.00
3,015,000
</TABLE>
(10) INCOME TAXES
Income tax expense for the years ended June 30 consists of
the following:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Current tax expense $ 880 $ - $ 135,000
Deferred tax expense - - -
Total tax expense $ 880 $ - $ 135,000
</TABLE>
Total income tax expense (benefit) differed from the
"expected" income tax expense (benefit) determined by
applying the statutory federal income tax rate of 34% for
the years ended June 30 as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Computed "expected" income tax
expense (benefit) $ (755,937) $ (682,011) $ 753,139
Change in valuation allowance
for deferred tax assets 751,837 678,811 (623,294)
Nondeductible expenses 4,980 3,200 5,155
Total tax expense $ 880 $ - $ 135,000
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at June 30, 1995 and 1996 are as follows:
38
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for doubtful accounts $ 23,961 $ 153,000
Accruals deducted for financial
reporting purposes not currently
deductible for tax purposes - 1,430,991
Federal alternative minimum tax credit
carryforward - 139,645
Net operating loss carryforward 2,380,000 57,031
Total deferred tax assets 2,403,961 1,780,667
Valuation allowance (2,403,961) (1,780,667)
Net deferred tax assets $ - $ -
</TABLE>
The Company has recorded a valuation allowance in accordance
with the provisions of Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME Taxes, to reflect
the estimated amount of deferred tax assets which may not be
realized. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable
income during the periods in which those temporary
differences become deductible.
At June 30, 1996, the Company has net operating loss
carryforwards for federal income tax purposes of
approximately $168,000 which are available to offset future
taxable income, if any, through 2007.
(11) LEASES
The Company entered into a capital lease for various
switching equipment in September 1995 providing for payments
of $20,553 for 24 months. This lease expires October 1997.
The Company entered into a capital lease for a minicomputer
in April 1996 providing for payments of $6,759 for 36
months. This lease expires March 1999.
The Company has various operating leases for the use of
office space and office equipment. Total rent expense under
operating leases was $64,424, $63,178 and $146,851 for the
years ended June 30, 1994, 1995 and 1996, respectively.
A summary of future minimum lease payments as of June 30,
1996 under capital leases and operating leases with
noncancelable terms beyond one year follows:
39
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Capital Operating
leases leases
<S> <C> <C>
Years ended June 30:
1997 $ 327,468 $ 117,871
1998 163,204 102,816
1999 67,560 87,029
2000 - 51,972
2001 - 51,972
Thereafter - 25,986
Total minimum lease payments 558,232 $ 437,646
Less interest portion (48,632)
$ 509,600
</TABLE>
It is expected that in the normal course of business, leases
that expire will be renewed or replaced by leases on other
properties.
(12) RELATED PARTY TRANSACTIONS
During 1995, Hi-Rim incurred fees from a company affiliated
with an officer of Hi-Rim for consulting services and rental
of office furniture, which were satisfied in 1996,
aggregating approximately $130,000.
During the year ended June 30, 1994 and 1995, the Company
paid to Claudia Higgins, a former Secretary/Treasurer of
United Payphone and wife of former officer and director
Michael Swan, salaries of $52,000 and $48,000, respectively.
Said salary was for services performed for both the Company
and United Payphone.
(13) MAJOR CUSTOMERS
Revenue from contracts with four customers in 1996 and two
customers in 1995 accounted for 55% and 36% of the Company's
revenue for the year ended June 30, 1996 and 1995,
respectively.
During 1995 and 1996, approximately 75% of the Company's
long-distance service was carried by a single carrier.
Beginning in May 1996, the Company's volume has been
diversified in such a manner that no one carrier accounts
for more than 20% of the Company's volume.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of
financial instruments was made in accordance with Statement
of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL STATEMENTS ("SFAS No. 107"). SFAS
No. 107 specifically excludes certain items from its
disclosure requirements such as the Company's investment
40
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
in leased assets. Accordingly, the aggregate fair value
amounts presented are not intended to represent the
underlying value of the net assets of the Company.
The carrying amounts at June 30, 1995 and June 30, 1996 for
cash, receivables, accounts payable and accrued liabilities
approximate their fair values due to the short maturity of
these instruments.
(15) SUPPLEMENTAL FINANCIAL INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
June 30
1994 1995 1996
<S> <C> <C> <C>
Supplemental disclosure of cash
flow information:
Cash paid during the year for
interest $ 774 $ 3,413 $ 59,047
Cash paid during the year for
taxes $ 800 $ - $ 12,000
Supplemental schedule of noncash
investing and financing
activities:
Stock issued from subsidiary for
services $ 689,318 $ 32,000 $ -
Stock issued from subsidiary for
debt relief $ 1,814,591 $ - $ -
Stock canceled for collection of
note receivable $ 32,800 $ - $ -
Issuance of note payable in
exchange for common stock and
Class A preferred stock $ - $ - $ 840,000
Issuance of common stock in
litigation settlement $ - $ - $ 25,000
</TABLE>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table represents the activity for the
allowance for doubtful accounts for each of the fiscal years
ended June 30, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
Balance at Balance at
beginning end of
of year Additions Deductions year
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended June 30, 1994 $ - $ 5,052 $ 5,052 $ -
Year ended June 30, 1995 - 70,475 - 70,475
Year ended June 30, 1996 70,475 482,808 103,283 450,000
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
In the second quarter of 1996, the Company settled the case
of Teletek v. U.S. Tel, et. al., and its related case
Schwartz, et. al. v. Teletek. Pursuant to the terms of the
settlement,
41
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
the Company was obligated to pay $1,150,000, issue 25,000
shares in restricted stock, and issue an option to purchase
250,000 shares of common stock at $1.40 per share. As of
June 30, 1996, the Company has paid $1,150,000 and issued
25,000 shares in restricted common stock and options to
purchase 250,000 shares of common stock. On April 9, 1996,
options were exercised in exchange for 250,000 shares of
common stock for $350,000.
Hi-Rim Communication Inc. v. MCI Communication Corp.
("MCI"), instituted on June 1996, as an arbitration
proceeding at J.A.M.S./Endispute, Washington D.C. On May
25, 1995, MCI entered into a carrier agreement with Hi-Rim
(the "MCI Carrier Agreement") in connection with the
Company's switched and switchless products. MCI's services
under the MCI Carrier Agreement were necessary for the
Company to provide services to its customers. On
February 20, 1996, MCI disconnected its services to Hi-Rim.
Hi-Rim subsequently filed a Notice of Claims and Demand for
Arbitration ("Demand") against MCI alleging, among other
things, breach of contract, breach of MCI's implied duty of
good faith and fair dealing, and intentional interference
with Hi-Rim's business relationships. The Company seeks to
recover damages in excess of approximately $20,000,000. MCI
filed an Answer and Counterclaim denying each of the
allegations contained in Hi-Rim's Demand and alleging, among
other things, a breach of contract. MCI seeks to recover in
excess of $28,000,000 for unpaid services provided under the
MCI Carrier Agreement and $10,000,000 in early termination
penalties. The Company currently believes that a judgment
equal to the cost of services received from MCI, a vendor
carrier, aggregating approximately $4,200,000 is probable,
and such amount has been accrued and charged to operations
in the accompanying 1996 consolidated financial statements.
The arbitration hearing is currently scheduled to begin on
January 7, 1997.
In the Matter of Certain Undisclosed Payments of
Compensation, File No. HO-2814, instituted on January 5,
1994, before the U.S. Securities and Exchange Commission
("SEC"). On January 5, 1994, the SEC issued an order
directing a formal investigation to determine whether
federal securities laws had been violated and whether an
enforcement action should be recommended. In approximately
July 1995, the Company received a subpoena in connection
with the SEC's investigation. In approximately August 1994
and January 1995, the Company also received subpoenas from a
federal grand jury in Las Vegas, Nevada for the production
of documents in a related investigation. Management
believes the Company has fully complied with both subpoenas.
The Company is unable to predict what action, if any, will
result from either of the investigations.
Michael G. Swan ("Swan") and Teletek, Inc. v. SEC,
instituted in June 1995, in the United States District Court
for the District of Columbia. In connection with the SEC's
investigation of various persons, including the Company and
Swan, a former executive officer and director of the Company,
the Company and Swan believed that its former counsel may
have released privileged records and other information to
the SEC. The Company and Swan filed a complaint for
injunctive relief, seeking to compel the SEC to allow them
access to those records and information pursuant to the
Freedom of
42
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Information Act. The district court denied the Company's
and Swan's request, and on October 1, 1996, the United State
Court of Appeals for the District of Columbia Circuit upheld
the denial.
Teletek, Inc. et. al. v. Franz Josef Kuttner and Udo
Drisang, Case No. 9 O 391/95, instituted on October 5, 1995,
in the First Instance Court of Wiesbaden (Landgericht
Wiesbaden, Germany). The Company and three other plaintiffs
filed a lawsuit alleging fraud and embezzlement, among other
claims. The Company is attempting to recover 500,000 shares
of its common stock that were delivered to the defendants
for the purpose of securing a foreign loan sought by the
Company in 1993. In March 1996, the court entered a
judgment ordering the defendants to return the shares to the
Company. The defendants are appealing the judgment on
technical procedures grounds.
Peter Tosto ("Tosto") v. Teletek, Inc., instituted in May
1996, as an arbitration proceeding at American Arbitration
Association, New York Regional Office. Tosto alleges that
the Company breached a consulting agreement, and seeks an
order directing the Company to issue 100,000 shares of its
common stock as compensation under the consulting agreement.
A hearing on the matter has been scheduled for November 18,
1996. Based on consultation with its counsel, the Company
does not believe it is responsible for such liabilities and,
therefore, no provision for this matter has been recorded in
the Company's consolidated financial statements.
The Company is currently in negotiations with AT&T with
respect to services provided during the 1996 fiscal year.
The Company has accrued and charged to operations in the
accompanying 1996 consolidated financial statements
approximately $2,060,000, the Company's estimate of the cost
of the services provided.
In the normal course of the Company's operations it is
involved in various legal and regulatory matters. While the
Company does not anticipate that the ultimate disposition of
such matters will result in abrupt changes in the
competitive structure of the business of the Company, no
assurance can be given that such changes will not occur and
that such changes would not be materially adverse to the
Company.
(17) SUBSEQUENT EVENTS
In August 1996, the company purchased all of the capital
stock of SelecTel, in consideration for a $300,000 note
bearing interest at 8% per annum and due in two years,
190,000 restricted shares of the Company's common stock. The
acquisition will be accounted for as a purchase.
Accordingly, the purchase price in excess of the fair value
of the identifiable net assets acquired, if any, will be
recorded as goodwill and will be amortized on a straight.
43
<PAGE>
TELETEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
line basis over the life of goodwill. SelecTel is a
switchless reseller of long-distance telecommunications
services. SelecTel principally markets such services to
hotels and motels and other similar leisure industry
businesses in approximately 14 states. SelecTel does not
own or lease any switching equipment. The Company is in the
process of integrating SelecTel's customers into its
transmission network.
In August 1996, the Company purchased substantially all of
the assets of Xtel, Inc., a Nevada corporation, dba Phone
Line USA ("Phone Line USA"), for approximately $145,000, of
which approximately $120,000 was paid by forgiving
indebtedness of Phone Line USA to the Company. In addition,
the Company agreed to employ the President of Phone Line USA
for a one-year period. Phone Line USA markets disposable
prepaid calling cards which enable the holder to make long-
distance telephone calls. Phone Line USA primarily markets
its prepaid calling cards with international calling
capabilities through approximately 100 vending machines
strategically located in major metropolitan areas of the
United States, such as New York, Los Angeles, San Francisco,
Miami, Honolulu and Seattle. The prepaid calling cards
typically are sold in denominations of $10 and $20.
On August 22, 1996, the Company received a loan in the
amount of $2,000,000 from a private lender, bearing interest
at 8.5% per annum. All accrued and unpaid interest on the
outstanding balance of the loan plus $25,000 is payable
monthly. The loan is due in full on August 22, 1999. The
loan may be used by the Company for working capital or any
other purposes.
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In approximately February 1996, the Company dismissed the
independent accountants previously engaged to audit the Company's
financial statements, Crouch, Bierwolf & Call ("CBC"). Neither
of CBC's reports on the Company's financial statements for the
fiscal years ended June 30, 1995 or 1994 contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified
as to uncertainty, audit scope, or accounting principles. In
approximately August 1996, the Company formally engaged KPMG Peat
Marwick LLP to audit the Company's financial statements for the
fiscal year ended June 30, 1996. The change in accountants was
approved by the Company's Board of Directors. During the
Company's fiscal years and interim periods preceding the
dismissal, there were no disagreements with CBC on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to the
Company's Board of Directors and executive officers. There are
no family relationships between or among any of the Company's
directors or executive officers.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
DIRECTOR POSITION WITH THE
NAME AGE SINCE<F1> COMPANY<F2>
<S> <C> <C> <C>
John M. Vergiels 58 1995 Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer,
President and Treasurer
Thomas A. Mills 59 1996 Director and Secretary
Wayne J. Godbout 50 1996 Director
<FN>
<F1> Directors serve until their successors are elected and
qualified. Directors are currently not elected for a
specific term.
<F2> Officers serve at the pleasure of the Company's Board of
Directors.
</FN>
</TABLE>
JOHN M. VERGIELS has been a director, Chief Executive
Officer, Chief Financial Officer, President and Treasurer of the
Company since April 1995. Mr. Vergiels has been a Director of Hi-
Rim since July 1994. From February 1988 to July 1995,
Mr. Vergiels was Vice President and Director of United Payphone.
Since 1992, Mr. Vergiels has been a lobbyist and a full-time
professor at the University of Nevada, Las Vegas. From 1973 to
1984, he was an assemblyman in the Nevada State Legislature and
from 1985 to 1992, he was a senator in the Nevada State
45
<PAGE>
Legislature. Since 1994, Mr. Vergiels has been a director of
Silicon Valley Development, a California-based milling company.
THOMAS A MILLS has been a director of the Company since
February 1996. Since June 1993, Mr. Mills has been a Director
and President of Hi-Rim. Since September 1991, Mr. Mills has
been President of Entertainment Technologies, Inc. ("ETI"), a
privately held, Las Vegas-based company, which until 1994
operated an electronic subscription sports information service
and currently holds investments in other companies. In 1994,
Mr. Mills filed a petition in the U.S. Bankruptcy Court for
relief under Chapter 7 of the U.S. Bankruptcy Code.
WAYNE J. GODBOUT has been a director of the Company since
March 1996. Since November 1993, Mr. Godbout has been Vice
President of Hi-Rim. From 1989 to 1993, Mr. Godbout was
Executive Vice President of Com Tec Telecommunications
Consultants, Inc., an Overland Park, Kansas-based
telecommunications consulting company, with responsibilities for
all local exchange carriers and inter-exchange carriers projects,
including networking, budgeting and engineering consulting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and officers, and persons who
own more than ten percent of the Company's common stock, to file
reports of ownership and changes in ownership with the Securities
and Exchange Commission. Directors, officers and greater than
ten percent stockholders are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on the Company's
review of the copies of such forms received by it with respect to
the fiscal year ended June 30, 1996, the following Section 16(a)
filing requirements were not timely satisfied: (a) John M.
Vergiels failed to file three reports on a timely basis covering
three transactions; (b) Thomas A. Mills failed to file two
reports on a timely basis covering three transactions; and
(c) Wayne J. Godbout failed to file three reports on a timely
basis covering three transactions.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth compensation received by John M.
Vergiels, the Company's Chief Executive Officer, and Thomas A.
Mills and Wayne J. Godbout, the only other executive officers of
the Company and its subsidiaries whose total compensation for the
fiscal year ended June 30, 1996, exceeded $100,000.
46
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Other Annual
Name and Principal Position Year Salary Bonus Compensation
($) ($) ($)
<S> <C> <C> <C> <C>
John M. Vergiels 1996 47,500 -0- -0-
Chairman of the Board, President, 1995 -0- -0- -0-
Chief Executive Officer, Chief 1994 -0- -0- -0-
Financial Officer and Treasurer
of the Company
Thomas A. Mills 1996 128,000 335,000 -0-
Director and Secretary of the 1995 60,000 -0- -0-
Company and President of Hi-Rim 1994 25,000 -0- -0-
Wayne J. Godbout 1996 128,600 335,178 -0-
Director of the Company and Vice 1995 63,000 25,000 -0-
President of Hi-Rim 1994 10,000 -0- -0-
</TABLE>
<TABLE>
<CAPTION>
Summary Compensation Table (Continued)
Long-Term Compensation
Awards Payouts
Restricted Securities Long-Term
Stock Underlying Incentive All Other
Name and Principal Position Year Awards Options/SARs Payouts Compensation
($) (#) ($) ($)
<S> <C> <C> <C> <C> <C>
John M. Vergiels 1996 -0- 350,000 -0- -0-
Chairman of the Board, President, 1995 -0- -0- -0- -0-
Chief Executive Officer, Chief 1994 -0- -0- -0- -0-
Financial Officer and Treasurer of
the Company
Thomas A. Mills 1996 -0- 1,050,000 -0- -0-
Director and Secretary of the 1995 -0- -0- -0- 40,000<F1>
Company and President of Hi-Rim 1994 -0- -0- -0- 60,000<F1>
Wayne J. Godbout 1996 -0- 550,000 -0- -0-
Director of the Company and Vice 1995 -0- -0- -0- -0-
President of Hi-Rim 1994 -0- -0- -0- -0-
<FN>
<F1> Represents payment in fees and expense to ETI. See Item 12.
"Certain Relationships and Related Transactions - Transactions
with Management."
</FN>
</TABLE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants Potential realizable value at
assumed annual rates of stock
price appreciatio for option
term
Percent of
Number of total
securities options/SARs
underlying granted to Exercise or Market price Expir-
options/SARs employees in base price on date of ation 0% ($) 5% ($) 10% ($)
Name granted (#) fiscal year ($/Share) grant ($) date <F1> <F1> <F1>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John M. Vergiels 25,000 16.0 .66 .69 none 750 11,598 28,242
325,000 .66 .56 none 0 81,959 257,561
Thomas A. Mills 350,000 44.4 .66 .69 none 10,500 162,378 395,389
700,000 .66 .56 none 0 176,527 554,747
Wayne J. Godbout 100,000 23.3 .66 .69 none 3,000 46,394 109,968
350,000 .66 .56 none 0 88,263 277,374
100,000 2.00 1.91 none 0 120,119 304,405
<FN>
<F1> For valuation purposes only, a term of ten years has been
attributed to the options granted to Messrs. Vergiels, Mills
and Godbout.
</FN>
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
Number of securities
underlying unexercised Value of unexercised in-the-
options/SARs at fiscal money options/SARs at fiscal
year end (#) year end ($)<F1>
Shares acquired Value
Name on exercise (#) realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John M. Vergiels -0- -0- 350,000 -0- 1,869,000 -0-
Thomas A. Mills -0- -0- 1,050,000 -0- 3,738,000 -0-
Wayne J. Godbout -0- -0- 550,000 -0- 2,803,000 -0-
<FN>
<F1> Based on the closing bid price of the Company's common
stock of $6.00 per share on June 28, 1996, the last trading
day in the fiscal year, minus the exercise price of "in-the-
money" options.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS
The Company has employment agreements (the "Agreements")
with each of the named executives. The Agreements are for a term
of three years commencing February 1, 1996, and provide for
annual salaries to Messrs. Vergiels, Mills and Godbout in the
amount of $80,400, $160,800 and $160,800, respectively, plus a
cost of living increase of six percent at the beginning of each
new year. Upon a termination without cause, the Agreements
provide for a severance payment equal to all compensation
remaining under the respective Agreement, less any bonus
payments. In the event of a change in ownership of Teletek or
Hi-Rim, including, but not limited to a merger, acquisition, buy-
out or sale of stock which materially changes the ownership
control of either Teletek or Hi-Rim, the Agreements with Messrs.
Mills and Godbout provide for a bonus payment of $100,000.
Pursuant to a resolution of the Company's Board of
Directors, the Company has agreed to pay Messrs. Mills and
Godbout each a monthly bonus of $25,000 for each increase of
$500,000 in the Company's monthly revenues.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
The directors of the Company who are not employees or
officers of the Company or its affiliates, if any, are entitled
to receive $100 plus expense reimbursement for each Board of
Directors meeting which they attend. There are currently no non-
employee directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT
The following is a list of the beneficial stock ownership as
of September 17, 1996 of (a) all persons who beneficially owned
more than five percent of the outstanding Common Stock of the
Company, (b) all directors, (c) all executive officers named in
the Summary Compensation Table and (d) all officers and directors
as a group at the close of business on September 17, 1996,
according to record-ownership listings as of that date, according
to the SEC Forms 3, 4 and 5 and
48
<PAGE>
Schedules 13D and 13G, of which the Company has received copies,
and according to verifications as of September 17, 1996, which
the Company solicited and received from each officer, director
and stockholder listed:
<TABLE>
<CAPTION>
Title of Amount and Nature Percent
Class Beneficial Owner of Beneficial of Class
Ownership<F1><F2> <F2>
<S> <C> <C> <C>
Common John M. Vergiels 560,000<F3> 3.8
1771 E. Flamingo Road, Suite 111A
Las Vegas, Nevada 89119
Common Thomas A. Mills 3,425,000<F4> 19.4
1771 E. Flamingo Road, Suite 111A
Las Vegas, Nevada 89119
Common Wayne J. Godbout 1,550,000<F5> 9.8
1771 E. Flamingo Road, Suite 111A
Las Vegas, Nevada 89119
Common William Miller 807,600 5.6
39-33 223rd Street
Bayside, New York 11361
Common All executive officers and 5,535,000<F6> 28.4
directors as a group (3 persons)
<FN>
<F1> Unless otherwise noted, the persons identified in this
table have sole voting and sole investment power with
regard to the shares beneficially owned by them.
<F2> Includes shares issuable upon exercise of options which are
exercisable within 60 days of the stated date.
<F3> Includes options to purchase 450,000 shares.
<F4> Includes options to purchase 3,225,000 shares, including
options issued to ETI to purchase 275,000 shares.
<F5> Includes options to purchase 1,398,885 shares.
<F6> Includes options to purchase 5,073,885 shares.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
The Company entered into an agreement on January 11, 1993
with ETI to provide certain consulting and advisory services.
ETI is a wholly-owned corporation of Sandra Mills, the spouse of
Thomas A. Mills, currently a director and Secretary of the
Company. During the year ended June 30, 1996, the Company paid
ETI a total of $180,000 in fees and expenses for services
rendered and expenses incurred by ETI during the years ended
June 30, 1995 ($40,000), 1994 ($60,000) and 1993 ($80,000)
pursuant to the terms of the agreement.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) The following consolidated financial statements of the
Company and its subsidiaries have been filed as a part
of this report (see Item 8. "Financial Statements and
Supplementary Data):
Independent Auditors' Report (KPMG Peat Marwick LLP);
Independent Auditors' Report (Crouch, Bierwolf & Call);
Consolidated Balance Sheets as of June 30, 1995 and
1996;
Consolidated Statements of Operations for the Years
Ended June 30, 1994, 1995 and 1996;
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1994, 1995 and 1996;
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1994, 1995 and 1996; and
Notes to Consolidated Financial Statements.
(2) Schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial
statements or notes thereto.
(3) Exhibits
EXHIBIT
NO. DESCRIPTION
3.01 Articles of Incorporation of Teletek, Inc. dated March
15, 1993.
3.02 Bylaws of Teletek, Inc. dated March 17, 1993.
3.03 Certificate of Preferences of Teletek, Inc. dated
April 19, 1995.
4.01 Specimen Common Stock Certificate of Teletek, Inc.
10.01 Contract of Employment dated January 27, 1996, between
Hi-Rim Communications, Inc. and Thomas A. Mills;
Contract of Employment dated January 26, 1996, between
Hi-Rim Communications, Inc. and Wayne J. Godbout; and
Contract of Employment dated January 26, 1996, between
Teletek, Inc. and John M. Vergiels.
50
<PAGE>
10.02 Consulting Agreement dated January 11, 1993, between
Teletek, Inc. and Entertainment Technologies, Inc.
10.03 Promissory Note dated August 22, 1996, in the
principal amount of $2,000,000 by Teletek, Inc. in
favor of Dingaan Holdings S.A.
10.04 Equipment Lease Agreement dated September 25, 1995,
between DSC Finance Corporation and Hi-Rim
Communications, Inc.; and Guaranty dated September 29,
1995, between DSC Finance Corporation and Hi-Rim
Communications, Inc.
10.05 Acquisition Agreement dated August 1, 1996, between
Teletek, Inc. and SelecTel Corporation.
16.01 Letter re: Change in Certifying Accountant.
21.01 List of Subsidiaries.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
None.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant duly has caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Teletek, Inc.,
a Nevada corporation
Dated: September 30, 1996 By: /s/ John M. Vergiels
John M. Vergiels, Chairman
of the Board, Chief Executive
Officer, Chief Financial Officer,
President and Treasurer
(principal executive officer,
principal financial officer and
principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
September 30, 1996 By: /s/ John M. Vergiels
John M. Vergiels, Chairman of
the Board, Chief Executive
Officer, Chief Financial
Officer, President and
Treasurer (principal executive
officer, principal financial
officer and principal
accounting officer)
September 30, 1996 By: /s/ Thomas A. Mills
Thomas A. Mills, Secretary and
Director
September 30, 1996 By: /s/ Wayne J. Godbout
Wayne J. Godbout, Director
52
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE NO.
3.01 Articles of Incorporation of Teletek, Inc.
dated March 15, 1993.
3.02 Bylaws of Teletek, Inc. dated March 17, 1993.
3.03 Certificate of Preferences of Teletek, Inc.
dated April 19, 1995.
4.01 Specimen Common Stock Certificate of Teletek,
Inc.
10.01 Contract of Employment dated January 27, 1996,
between Hi-Rim Communications, Inc. and
Thomas A. Mills; Contract of Employment dated
January 26, 1996, between Hi-Rim
Communications, Inc. and Wayne J. Godbout; and
Contract of Employment dated January 26, 1996,
between Teletek, Inc. and John Vergiels.
10.02 Consulting Agreement dated January 11, 1993,
between Teletek, Inc. and Entertainment
Technologies, Inc.
10.03 Promissory Note dated August 22, 1996, in the
principal amount of $2,000,000 by Teletek, Inc.
in favor of Dingaan Holdings S.A.
10.04 Equipment Lease Agreement dated September 25,
1995, between DSC Finance Corporation and
Hi-Rim Communications, Inc.; and Guaranty dated
September 29, 1995, between DSC Finance
Corporation and Hi-Rim Communications, Inc.
10.05 Acquisition Agreement dated August 1, 1996
between Teletek, Inc. and SelecTel Corporation.
16.01 Letter re: Change in Certifying Accountant.
21.01 List of Subsidiaries.
27.01 Financial Data Schedule.
53
<PAGE>
EXHIBIT 3.01
<PAGE>
ARTICLES OF INCORPORATION
OF
TELETEK, INC.
The undersigned, a natural person being more than eighteen
years of age, acting as incorporator of a corporation pursuant to
the provisions of the General Corporation Laws of the State of
Nevada, does hereby adopt the following Articles of Incorporation
for such corporation:
ARTICLE I
NAME
The name of the corporation is Teletek, Inc.
ARTICLE II
DURATION
The duration of the corporation is perpetual.
ARTICLE III
PURPOSES
The purposes for which this corporation is organized are:
Section 1. To engage in any lawful business or activity
which may be conducted under the laws of the State of Nevada or
any other state or nation wherein this corporation shall be
authorized to transact business.
Section 2. To purchase or otherwise acquire, own, mortgage,
sell, manufacture, assign and transfer or otherwise dispose of,
invest, trade, deal in and with real and personal property, of
every kind, class, and description.
Section 3. To issue promissory notes, bonds, debentures, and
other evidences of indebtedness in the furtherance of any of the
stated purposes of the corporation.
Section 4. To enter into or execute contracts of any kind
and character, sealed or unsealed, with individuals, firms,
associations, corporations (private, public or municipal),
political subdivisions of the United States or with the
Government of the United States.
Section 5. To acquire and develop any interest in patents,
trademarks and copyrights connected with the business of the
corporation.
Section 6. To borrow money, without limitation, and give a
<PAGE>
lien on any of its property as security for any borrowing.
Section 7. To acquire by purchase, exchange or otherwise,
all, or any part of, or any interest in, the properties, assets,
business and good will of any one or more persons, firms,
associations, or corporations either within or out of the State
of Nevada heretofore or hereafter engaged in any business for
which a corporation may now or hereafter be organized under the
laws of the State of Nevada; pay for the same in cash, property
or the corporation's own or other securities; hold, operate,
reorganize, liquidate, sell or in any manner dispose of the whole
or any part thereof; and in connection therewith, assume or
guaranty performance of any liabilities, obligations or contracts
of such persons, firms, associations or corporations, and to
conduct the whole or any part of any business thus acquired.
Section 8. To purchase, receive, take, acquire or otherwise
acquire, own and hold, sell, lend, exchange, reissue, transfer or
otherwise dispose of, pledge, use, cancel, and otherwise deal in
and with the corporation's shares and its other securities from
time to time to the extent, in the manner and upon terms
determined by the Board of Directors; provided that the
corporation shall not use its funds or property for the purchase
of its own shares of capital stock when its capital is impaired
or when the purchase would cause any impairment of the
corporation's capital, except to the extent permitted by law.
Section 9. To reorganize, as an incorporator, or cause to
be organized under the laws of any State of the United States of
America, or of any commonwealth, territory, agency or
instrumentality of the United States of America, or of any
foreign country, a corporation or corporations for the purpose of
conducting and promoting any business or purpose for which
corporations may be organized, and to dissolve, wind up,
liquidate, merge or consolidate any such corporation or
corporations or to cause the same to be dissolved, wound up,
liquidated, merged or consolidated.
Section 10. To do each and every thing necessary, suitable
or proper for the accomplishment of any of the purposes or the
attainment of any of the objects herein enumerated, or which
shall at any time appear conducive to or expedient for the
protection or benefit of the corporation.
ARTICLE IV
CAPITALIZATION
Section 1. The authorized capital of this corporation shall
consist of the following stock:
a. One hundred million common shares, par value $.0001 per
share. Each common share shall have equal rights as to voting
and
<PAGE>
in the event of dissolution and liquidation. There shall be no
cumulative voting by shareholders.
b. Fifty million shares of Class A Preferred stock, no par
value, with twenty votes per share, no other preferences.
c. Fifty million shares of Class B Preferred stock, no par
value and non-voting, with other terms to be set by the Board of
Directors.
d. Fifty million shares of Class C Preferred stock, no par
value and non-voting, with other terms to be set by the Board of
Directors.
Section 2. The shareholders shall have no preemptive rights
to acquire any shares of this corporation.
Section 3. The common and preferred stock of the
corporation, after the amount of the subscription price has been
paid in, shall not be subject to assessment to pay the debts of
the corporation.
ARTICLE V
PRINCIPAL OFFICE
The address of the registered office of the corporation is
6000 South Eastern, Suite 9G, Las Vegas, Nevada 89119 and the
registered agent at that address is Michael G. Swan. The
corporation may maintain such other offices, either within or out
of the State of Nevada, as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE VI
DIRECTORS
The corporation shall be governed by a Board of Directors.
There shall be one (1) or more directors as to serve, from time
to time, as elected by the Shareholders, or by the Board of
Directors in the case of a vacancy. The original Board of
Directors shall be comprised of one (1) person and the name and
address of the person who is to serve as director until the first
annual meeting of shareholders and until successors are elected
and shall is:
Michael G. Swan
6000 South Eastern
Suite 9G
Las Vegas, Nevada 89119
ARTICLE VII
INDEMNIFICATION
As the Board of Directors may from time to time provide in
the
<PAGE>
By-laws or by resolution, the corporation may indemnify its
officers, directors, agents and other persons to the full extent
permitted by the laws of the State of Nevada.
ARTICLE VIII
INCORPORATOR
The name and address of the incorporator is:
Michael Swan
6000 South Eastern, Suite 9G
Las Vegas, Nevada 89119
Dated this 15th day of March, 1993.
/s/ Michael Swan
Michael Swan
State of Nevada )
) ss.
County of )
On the 15th day of March, 1993, personally appeared before
me, a Notary Public, who acknowledged that Michael Swan executed
the foregoing Articles of Incorporation of Teletek, Inc.
/s/ Nancy Mahlen-Fejfar
Notary Public
My Commission Expires: 3/31/96
Residing in: Las Vegas, Nevada
<PAGE>
EXHIBIT 3.02
<PAGE>
TELETEK, INC.
BY-LAWS
ARTICLE I--OFFICES
SECTION 1.1 OFFICE
The initial principal office of the corporation shall be
located at 3340 Topaz Street, Suite 270, Las Vegas, Nevada 89121.
SECTION 1.2 OTHER OFFICES
The corporation may also have such other offices, either
within or without the State of Nevada as the Board of Directors
may from time to time determine or the business of the
corporation may require.
ARTICLE II--STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING
An annual meeting of the stockholders, for the selection of
directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before
the meeting, shall be held at the principal office of the
corporation, or such other place as designated by the Board, on
the third Friday of January, or on such date and at such time
designated by the Board or as may be called by the shareholders.
If the election of directors is not held on the day designated
for any annual meeting of the shareholders or at any adjournment
of the meeting, the Board of Directors may call for the election
to be held at a special meeting of the Shareholders at some time
thereafter.
SECTION 2.2 SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or
purposes prescribed in the notice of the meeting, may be called
by the Board of Directors, the president, the chief executive
officer, or the holders of not less than one-tenth of all the
shares entitled to vote at the meeting, and shall be held at such
place, on such date, and at such time as they or he shall fix.
1
<PAGE>
SECTION 2.3 NOTICE OF MEETINGS
Written notice of the place, date and time of all meetings
of the stockholders shall be given, not less than ten nor more
than fifty days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the
statutes of the State of Nevada or the Articles of
Incorporation).
When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the
place, date and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the
date of any adjourned meeting is more than thirty days after the
date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given
in conformity herewith. At any adjourned meeting, any business
may be transacted which might have been transacted at the
original meeting.
SECTION 2.4 QUORUM
At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at
the meeting, present in person or by proxy, shall constitute a
quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman
of the meeting or the holders of a majority of the shares of the
stock entitled to vote who are present, in person or by proxy,
may adjourn the meeting to another place, date, or time.
If a notice of any adjourned special meeting of stockholders
is sent to all stockholders entitled to vote thereat, stating
that it will be held with those present constituting a quorum,
then except as otherwise required by law, those present at such
adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such
meeting.
SECTION 2.5 ORGANIZATION
Such person as the Board of Directors may have designated
or, in the absence of such a person, the highest ranking officer
of the corporation who is present shall call to order any meeting
of the stockholders and act as chairman of the meeting. In the
absence of the Secretary of the corporation, the secretary of the
meeting shall be such person as the chairman appoints.
2
<PAGE>
SECTION 2.6 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
SECTION 2.7 PROXIES AND VOTING
At any meeting of the stockholders, every stockholder
entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure
established for the meeting.
Each stockholder shall have one vote for every share of
stock entitled to vote which is registered in his name on the
record date for the meeting, except as otherwise provided herein
or as provided in the Articles of Incorporation (as may be the
case wherein certain Preferred shares are issued and
outstanding), or required by law.
All voting, except on the election of directors and where
otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefor by a stockholder entitled to
vote or his proxy, a stock vote shall be taken. Every stock vote
shall be taken by ballots, each of which shall state the name of
the stockholder or proxy voting and such other information as may
be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders, unless
the vote of a greater number or voting by class is required by
law, the Articles of Incorporation, or these By-laws.
SECTION 2.8 SHAREHOLDER ACTION BY WRITTEN CONSENT
Any action which may be taken at a meeting of the
Shareholders may be taken by written consent without a meeting if
such action is taken in conformance with the Nevada Corporations
Code.
SECTION 2.9 STOCK LIST
A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder
and the number of shares registered in his name, shall be open to
the examination of any such stockholder, for any purpose germane
to the meeting, during ordinary business hours for a period of at
least ten (10) days prior to the meeting, either at a place
within the city where the meeting
3
<PAGE>
is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the
meeting is to be held.
The Stock list shall also be kept at the place of the
meeting during the whole time thereof and shall be open to the
examination of any such stockholder who is present. This list
shall presumptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE III--BOARD OF DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE
The Board of Directors shall consist of a minimum of one
director. Each director shall be selected for a term of one
year, or until his successor is elected and qualified, except as
otherwise provided herein or required by law.
Whenever the authorized number of directors is increased
between annual meetings of the stockholders, a majority of the
directors then in office shall have the power to elect such new
directors for the balance of a term and until their successors
are elected and qualified. Any decrease in the authorized number
of directors shall not become effective until the expiration of
the term of the directors then in office unless, at the time of
such decrease, there shall be vacancies on the board which are
being eliminated by the decrease.
SECTION 3.2 VACANCIES
If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a
majority of the directors remaining in office, although less than
a quorum, may elect a successor for the unexpired term and until
his successor is elected and qualified.
SECTION 3.3 REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held at
such place or places, on such date or dates, and at such time or
times as shall have been established by the Board of Directors
and publicized among all directors. A notice of each regular
meeting shall not be required.
4
<PAGE>
SECTION 3.4 SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by
one-third of the directors then in office or by the chief
executive officer and shall be held at such place, on such date
and at such time as they or he shall fix. Notice of the place,
date and time of each such special meeting shall be given by each
director by whom it is not waived by mailing written notice not
less than three days before the meeting or by telegraphing the
same not less than eighteen hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
SECTION 3.5 QUORUM
At any meeting of the Board of Directors, a majority of the
total number of the whole board shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a
majority of those present may adjourn the meeting to another
place, date or time, without further notice or waiver thereof.
SECTION 3.6 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
Members of the Board of Directors or of any committee
thereof, may participate in a meeting of such board or committee
by means of conference telephone or similar communications
equipment that enables all persons participating in the meeting
to hear each other. Such participation shall constitute presence
in person at such meeting.
SECTION 3.7 CONDUCT OF BUSINESS
At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the board may from time to
time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise
provided herein or required by law. Action may be taken by the
Board of Directors without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors.
SECTION 3.8 POWERS
The Board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts and things as
may be exercised or done by the corporation, including, without
limiting the generality of the foregoing, the unqualified power:
(a) To declare dividends from time to time in accordance
with law;
(b) To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
5
<PAGE>
(c) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(d) To remove any officer of the corporation with or
without cause, and from time to time to devolve the powers and
duties of any officer upon any other person for the time being;
(e) To confer upon any officer of the corporation the power
to appoint, remove and suspend subordinate officers and agents;
(f) To adopt from time to time such stock option, stock
purchase, bonus or other compensation plans for directors,
officers and agents of the corporation and its subsidiaries as it
may determine;
(g) To adopt from time to time such insurance, retirement
and other benefit plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine; and
(h) To adopt from time to time regulations, not
inconsistent with these By-laws, for the management of the
corporation's business and affairs.
SECTION 3.9 COMPENSATION OF DIRECTORS
Directors, as such, may receive, pursuant to resolution of
the Board of Directors, fixed fees and other compensation for
their services as directors, including, without limitation, their
services as members of committees of the directors.
SECTION 3.10 INTERESTED DIRECTORS
1. No contract or transaction between the corporation and
one or more of its directors or officers, or between the
corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or
officers, are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or
participates in the meeting of the board or committee which
authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if;
i. The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and
the board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested
directors be less than a quorum; or
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ii. The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or
iii. The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee or the
shareholders.
2. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or
transaction.
SECTION 3.11 LOANS
The corporation may lend money to or use its credit to
assist its officers, directors or other control persons if
authorized by the Board of Directors and such transaction is
reasonably believed to benefit the corporation.
ARTICLE IV--COMMITTEES
SECTION 4.1 COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors, by a vote of a majority of the whole
board, may from time to time designate committees of the board,
with such lawfully delegable powers and duties as it thereby
confers, to serve at the pleasure of the board and shall, for
those committees and any others provided for herein, elect a
director or directors to serve as the member or members,
designating, if it desires, other directors as alternative
members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may
exercise the power and authority of the Board of Directors to
declare a dividend or to authorize the issuance of stock if the
resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and
any alternate member in his place, the member or members of the
committee present at the meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may by
unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified
member.
SECTION 4.2 CONDUCT OF BUSINESS
Each committee may determine the procedural rules for
meeting and conducting its business and shall act in accordance
therewith, except as otherwise provided herein or required
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<PAGE>
by law. Adequate provisions shall be made for notice to members
of all meetings; a majority of the members shall constitute a
quorum unless the committee shall consist of one or two members,
in which event one member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting
if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings
of such committee.
ARTICLE V--OFFICERS
SECTION 5.1 GENERALLY
The officers of the corporation shall consist of a
president, one or more vice-presidents, a secretary, a treasurer
and such other subordinate officers as may from time to time be
appointed by the Board of Directors. The corporation may also
have a Chief Executive Officer, Chief Financial Officer, and/or
Chief Operational Officer, with such duties and compensation as
may be established by the Board. All officers shall be elected
by the Board of Directors, which shall consider that subject at
its first meeting after every annual meeting of stockholders.
Each officer shall hold his office until his successor is elected
and qualified or until his earlier resignation or removal. Any
number of offices may be held by the same person.
SECTION 5.2 PRESIDENT
Unless the Board has appointed a Chief Executive Officer,
the President shall be the Chief Executive Officer of the
corporation, except as set forth in Section 5.6 of this Article.
Subject to the provisions of these By-laws and to the direction
of the Board of Directors, he shall have the responsibility for
the general management and control of the affairs and business of
the corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or
which are delegated to him by the Board of Directors. He shall
have power to sign all stock certificates, contracts and other
instruments of the corporation which are authorized. He shall
have general supervision and direction of all of the other
officers and agents of the corporation.
SECTION 5.3 VICE-PRESIDENT
Each vice-president shall perform such duties as the Board
of Directors shall prescribe. In the absence or disability of
the President, the vice-president who has served in such capacity
for the longest time shall perform the duties and exercise the
powers of the President.
SECTION 5.4 TREASURER
The treasurer shall have the custody of the monies and
securities of the corporation and shall keep regular books of
account. He shall make such disbursements of the funds of the
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corporation as are proper and shall render from time to time an
account of all such transactions and of the financial condition
of the corporation.
SECTION 5.5 SECRETARY
The secretary shall issue all authorized notices for, and
shall keep minutes of, all meetings of the stockholders and the
Board of Directors. He shall have charge of the corporate books.
SECTION 5.6 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 a committee, he shall employ all employees of the
corporation, or delegate such employment to subordinate officers,
or division officers, or 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 results of the operations
under his charge, together with suggestions regarding the
improvement and betterment of the condition of the corporation,
and shall perform such other duties as the Board of Directors
shall require.
SECTION 5.7 DELEGATION OF AUTHORITY
The Board of Directors may, from time to time, delegate the
powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
SECTION 5.8 REMOVAL
Any officer of the corporation may be removed at any time,
with or without cause, by the Board of Directors.
SECTION 5.9 ACTION WITH RESPECT TO SECURITIES OF OTHER
CORPORATION
Unless otherwise directed by the Board of Directors, the
president shall have power to vote and otherwise act on behalf of
the corporation, in person or by proxy, at any meeting of
stockholders of or with respect to any action of stockholders of
any other corporation in which this corporation may hold
securities and otherwise to exercise any and all rights and
powers which this corporation may possess by reason of its
ownership of securities in such other corporation.
9
<PAGE>
ARTICLE VI--INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHERS
SECTION 6.1 GENERALLY
The corporation shall have the power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or items equivalent, shall not, of
itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was lawful.
The corporation shall have the power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his
duty to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such
court shall deem proper.
SECTION 6.2 EXPENSES
To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section
6.1 of this Article, or in defense of any claim, issue or matter
therein, he shall be
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<PAGE>
indemnified against expenses (including attorney's fees) actually
and reasonably incurred by him in connection therewith. Expenses
incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in
the manner provided in Section 6.3 of this Article upon receipt
of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount unless it shall ultimately
be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
SECTION 6.3 DETERMINATION BY BOARD OF DIRECTORS
Any indemnification under Section 6.1 of this Article
(unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 6.1 of this Article.
Such determination shall be made by the Board of Directors by a
majority vote of a quorum of the directors, or by the
shareholders.
SECTION 6.4 NON-EXCLUSIVE RIGHT
The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified
may be entitled under any by-law, agreement, vote of shareholders
or interested 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, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
SECTION 6.5 INSURANCE
The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity or arising
out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the
provisions of this Article.
The corporation's indemnity of any person who is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be reduced by any
amounts such person may collect as indemnification (i) under any
policy of insurance purchased and maintained on his behalf by the
corporation or (ii) from such other corporation, partnership,
joint venture, trust or other enterprise.
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SECTION 6.6 VIOLATION OF LAW
Nothing contained in this Article, or elsewhere in these By-
laws, shall operate to indemnify any director or officer if such
indemnification is for any reason contrary to law, either as a
matter of public policy, or under the provisions of the Federal
Securities Act of 1933, the Securities Exchange Act of 1934, or
any other applicable state or federal law.
SECTION 6.7 COVERAGE
For the purposes of this Article, references to "the
corporation" include all constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was
serving at the request of such a constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he would if
he had served the resulting or surviving corporation in the same
capacity.
ARTICLE VII--STOCK
SECTION 7.1 CERTIFICATES OF STOCK
Each stockholder shall be entitled to a certificate signed
by, or in the name of the corporation by, the President or a vice-
president, and by the secretary or an assistant secretary, or the
treasurer or an assistant treasurer, certifying the number of
shares owned by him. Any of or all the signatures on the
certificate may be facsimile.
SECTION 7.2 TRANSFERS OF STOCK
Transfers of stock shall be made only upon the transfer
books of the corporation kept at an office of the corporation or
by transfer agents designated to transfer shares of the stock of
the corporation. Except where a certificate is issued in
accordance with Section 7.4 of this Article, an outstanding
certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued
therefor.
SECTION 7.3 RECORD DATE
The Board of Directors may fix a record date, which shall
not be more than fifty nor less than ten days before the date of
any meeting of stockholders, nor more than fifty days prior to
the time for the other action hereinafter described, as of which
there shall be determined the stockholders who are entitled: to
notice of or to vote at any meeting of stockholders or any
adjournment thereof; to express consent to corporate action in
writing without a meeting; to
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<PAGE>
receive payment of any dividend or other distribution or
allotment of any rights; or to exercise any rights with respect
of any change, conversion or exchange of stock or with respect to
any other lawful action.
SECTION 7.4 LOST, STOLEN OR DESTROYED CERTIFICATES
In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant
to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of
indemnity.
SECTION 7.5 REGULATIONS
The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VIII--NOTICES
SECTION 8.1 NOTICES
Whenever notice is required to be given to any stockholder,
director, officer, or agent, such requirement shall not be
construed to mean personal notice. Such notice may in every
instance be effectively given by depositing a writing in a post
office or letter box, in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram, addressed to such stockholder,
director, officer, or agent at his or her address as the same
appears on the books of the corporation. The time when such
notice is dispatched shall be the time of the giving of the
notice.
SECTION 8.2 WAIVERS
A written waiver of any notice, signed by a stockholder,
director, officer or agent, whether before or after the time of
the event for which notice is given, shall be deemed equivalent
to the notice required to be given to such stockholder, director,
officer or agent. Neither the business nor the purpose of any
meeting need be specified in such a waiver.
ARTICLE IX--MISCELLANEOUS
SECTION 9.1 FACSIMILE SIGNATURES
In addition to the provisions for the use of facsimile
signatures elsewhere specifically authorized in these By-laws,
facsimile signatures of any officer or officers of the
corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
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SECTION 9.2 CORPORATE SEAL
The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in
the charge of the secretary. If and when so directed by the
Board of Directors or a committee thereof, duplicates of the seal
may be kept and used by the treasurer or by the assistant
secretary or assistant treasurer.
SECTION 9.3 RELIANCE UPON BOOKS, REPORTS AND RECORDS
Each director, each member of any committee designated by
the Board of Directors, and each officer of the corporation
shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records
of the corporation, including reports made to the corporation by
any of its officers, by an independent certified public
accountant, or by an appraiser selected with reasonable care.
SECTION 9.4 FISCAL YEAR
The fiscal year of the corporation shall end June 30 of each
year, or as later changed by the Board of Directors.
SECTION 9.5 TIME PERIODS
In applying any of these By-laws which require that an act
be done or not done a specified number of days prior to any event
or that an act be done during a period of a specified number of
days prior to an event, calendar days shall be used, the day of
the doing of the act shall be excluded and the day of the event
shall be included.
ARTICLE X--AMENDMENTS
SECTION 10.1 AMENDMENTS
These By-laws, or any portion hereof, may be amended or
repealed by a majority vote of the Board of Directors at any
meeting or by a majority vote of the stockholders at any meeting.
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<PAGE>
CERTIFICATE OF SECRETARY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby certify that the
undersigned is the secretary of Teletek, Inc., a corporation duly
organized and existing under and by virtue of the laws of the
State of Nevada; that the above and foregoing By-laws of said
corporation were duly and regularly adopted as such by the Board
of Directors of said corporation and that the above and foregoing
By-laws are now in full force and effect.
Dated this 17th day of March 1993.
/S/ MICHAEL SWAN
Michael Swan, Secretary
Approved and Accepted:
/S/ MICHAEL SWAN
Michael Swan, President
15
<PAGE>
EXHIBIT 3.03
<PAGE>
CERTIFICATE
OF
PREFERENCES
OF
TELETEK, INC.
CLASS A, CLASS B, AND CLASS C PREFERRED STOCK
The Undersigned officers of Teletek, Inc., a corporation
organized and existing under the laws of Nevada ("the Company"),
hereby declare and certify that pursuant to action duly taken by
the Board of Directors of the Company, the rights and preferences
of the Company's three classes of preferred stock have been
established as follows:
Whereas, the Company's Articles of Incorporation authorized
fifty million shares each of Class A, B, and C Preferred stock,
no par value and without preemptive rights to acquire additional
shares, and non-voting in the cases of Classes B and C,
additional rights and preferences are as follows:
1. Class A Preferred Stock has twenty votes per share,
an 8% non-cumulative dividend, no liquidation preferences
over the common shareholders, and is convertible into common
shares with conversion based upon the amount paid for the
Class A Preferred Stock.
2. Class B Preferred Stock has a $100 per share face
value, an 8% cumulative dividend, no liquidation preferences
over the common shareholders, and is convertible into common
shares at 75% of bid price at the time of conversion.
3. Class C Preferred Stock has a $1,000 per share face
value, a 5% non-cumulative dividend, and may be converted
into common stock at a price set by agreement between the
Company and the Class C Preferred Stock shareholder.
1
<PAGE>
This Certificate of Preferences is dated this 17th of day
April, 1995.
TELETEK, INC.
By: /s/ Thomas A. Mills
Thomas A. Mills,
Assistant Secretary
Attest:
/s/ John Vergiels
John Vergiels, President
State of Nevada )
) ss.
Clark County )
On the 17th day of April 1994, Thomas A. Mills and John
Vergiels personally appeared before me, a notary public, and
acknowledge that they did execute the foregoing Certificate.
/s/ Sherry A. McEvoy
Notary Public
Residing in Las Vegas Nevada.
My commission expires November 1, 1997
2
<PAGE>
EXHIBIT 4.01
<PAGE>
NUMBER SHARES
TELETEK, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
PAR VALUE $.0001 CAPITAL STOCK CUSIP NO. 879905 40 4
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK PAR
VALUE OF $.0001 EACH OF
TELETEK, INC.
transferable on the books of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by
the Transfer Agent and registered by the Registrar. Witness the
facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED:
Countersigned and Registered:
1 DATA INC
(Dallas, Texas) Transfer Agent
By
/s/ John M. Vergiels
CHAIRMAN/SECRETARY Authorized Signature
[SEAL]
<PAGE>
The following abbreviations, when used in the inscription of the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as
tenants in common
UNIF GIFT MIN ACT __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)
Additional abbreviations may also be used though not in the above
list.
For Value Received _______________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Shares of the Capital Stock represented by the within
Certificate, and do hereby irrevocably continue and appoint
______________________________________________, Attorney to
transfer the said Stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated ___________________
X _________________________________
NOTICE: The signature to the
assignment must correspond with the
name as written upon the face of
the certificate, in every
particular, without alteration or
enlargement, or any change
whatever.
____________________________________
SIGNATURE GUARANTEE
(BY: BANK, BROKER, CORPORATE OFFICER)
<PAGE>
EXHIBIT 10.01
<PAGE>
CONTRACT FOR EMPLOYMENT
THIS AGREEMENT, entered into this day, by and between Hi-Rim
Communications, Inc. (hereinafter referred to as "Company"), and
Thomas A. Mills (hereinafter referred to as "Employee"), for and
in consideration of the mutual covenants and agreements herein
set forth
W I T N E S S E T H :
1. Employee agrees to work for Company as its President
for a period of three (3) years beginning February 1, 1996, for
an annual salary of One Hundred Sixty Thousand Eight Hundred
Dollars ($160,800.00). It is agreed that this salary will be
paid the fifteenth (15th) and last day of each month at the rate
of Six Thousand Seven Hundred Dollars ($6,700.00), per period,
but variation in the salary terms, or time of payment, may be
mutually agreed upon from time to time between the parties
hereto. Employee shall be entitled to a cost of living increase
of six percent (6%) commencing on February 1, 1997, and on each
calendar year thereafter.
2. All expenses in connection with the employment of
Employee including, but not limited to, membership fees,
licensing fees, occupational taxes, and special insurance
premiums, shall be the responsibility of the Company.
3. Duties of the Employee shall be such as are generally
performed by a President of a telecommunications company. The
Employee shall devote substantially his full time and efforts to
the performance of his duties and shall spend no less than forty
(40) hours per week in said performance, vacations and sick time
excluded.
4. The Employee shall be entitled to four (4) weeks of
paid vacation to be determined by the mutual consent of the
Employee and the Company. The Employee's vacation time shall not
include attendance at company related functions, including
attendance of meetings and conventions.
5. The Employee shall be entitled to participate in the
Company's employee benefit insurance plan at the level
established commensurate with his position.
<PAGE>
6. Employee covenants and agrees to perform the services
provided by this Agreement to the best of his ability using
accepted professional standards for a President of a
telecommunications company. The Employee shall not, without the
express prior written consent of the Company, directly or
indirectly, during the term of this Agreement, render services of
a similar nature to, or for, any person or firm for compensation;
or engage in any activity competitive with, and/or adverse to,
the Company's business or practice, whether alone, as a partner
or an officer, director, employee, or shareholder, of any other
corporation, or as a Trustee, fiduciary, or other representative
of any other activity. The making of passive and personal
investments shall not be prohibited hereunder.
7. The death or permanent disability of Employee shall
terminate this Agreement. The question of permanent disability
shall be determined by a qualified medical doctor selected by the
Company.
8. In addition to the salary to be paid to Employee
provided in Paragraph 1, the Company may pay a bonus to Employee
if, in the discretion of the Company, such bonus is determined to
be appropriate based on services rendered by Employee to the
Company.
9. Employee promises to preserve the confidentiality of
the Company's trade secrets, proprietary information, and
commercially useful confidential information learned through the
Employee's employment at the Company and to use all such
information only as necessary and appropriate for the Company's
legitimate business purposes. Employee promises to safeguard
against disclosing any such information without the prior written
consent of the Company.
10. Employee understands that any concepts, ideas,
intellectual property, trade secrets or proprietary information
developed by him while working under this Agreement shall be the
sole and exclusive property of the Company.
11. Both parties agree that the Employee may terminate his
employment during the term of this Agreement with or without
cause. Employee agrees to give written notice, of a minimum of
ninety (90) days, prior to any voluntary employee termination
during the term of this Agreement. In the event that the
Employee voluntarily chooses to terminate his employment, his
compensation and benefits shall close as of his last day of
employment consistent with Company policy and applicable Federal
and State laws.
12. Both parties agree that the Employee may be terminated
during the term of this Agreement only with cause.
<PAGE>
13. Both parties agree that the Employee may be terminated
with "Cause". "Cause" shall be defined as any of the following:
an act or omission by the Employee constituting a material breach
by the Employee of this contract; theft of the Company's
property, trade secrets or proprietary information; being
intoxicated while on duty; failure or refusal to participate in
drug testing; dereliction in the performance of his duties;
unexplained absence from work; substantial breach of any of the
Company's policies; failure to implement or abide by the Equal
Opportunity Employment Commission's Directives; sexual
harassment; a determination by an authority having proper
jurisdiction that the Employee is adverse to the best interests
of the industry; or any violation of Local, State or Federal law.
In the event the Company terminates the Employee's employment
during the term of this Agreement for "Cause", as defined herein,
the Employee shall be entitled to no further compensation or
benefits consistent with State and Federal law.
14. In the event Employee's employment is terminated by the
Company without "Cause" as defined in this Agreement, then
Employee shall be entitled to receive a severance payment equal
to the compensation remaining under the terms of this Agreement,
minus any "bonus" payments. Said severance payment shall be paid
within five (5) days of Employee's termination. In the event
that there is a change in the majority ownership of either Hi-Rim
Communications, Inc., or Teletek, Inc., then the employee shall
be entitled to a One Hundred Thousand Dollars ($100,000.00) bonus
payment within ten (10) days of the change in said ownership.
Change in ownership shall include, but not be limited to, any
merger, acquisition, buy-out or sale of stock which materially
"changes" the ownership control of either corporation.
15. Employee acknowledges and agrees that Employee's sole
entitlement to compensation, payment of any kind, monetary or non-
monetary benefits and/or prerequisites with respect to his
employment, is expressly set forth in this Agreement.
16. This Agreement is drawn to be effective in and shall be
construed with the laws of the State of Nevada and, where
applicable, Federal law. Both parties consent to the exclusive
jurisdiction of the Eighth Judicial District, State Courts of
Nevada, in Clark County, Nevada, in pursuing resolution of any
and all disputes arising out of this contract.
17. No amendment or variation of the terms of this
Agreement shall be valid unless made in writing and signed by
both parties. A waiver of any terms and conditions hereof shall
not be construed as a general waiver by the other party.
18. The terms and conditions of this Agreement shall apply
to, be binding upon, inure to the benefit of, and be enforceable
against, the parties hereto and their respective heirs, assigns,
successors, executives, personal representatives, administrators
and legal representatives, whether by will, merger, reverse
merger, consolidation, sale of stock or assets, operation of law,
or without limitation otherwise.
<PAGE>
19. This contract has been prepared by Lisowski Law Firm,
Chtd., in its capacity as counsel for Teletek, Inc., and Hi-Rim
Communications, Inc. The Employee is urged to consult with
counsel of his own choosing with regards to the legal
ramifications of this contract.
HI-RIM COMMUNICATIONS, INC. EMPLOYEE
By: /s/ John Vergiels By: /s/ Thomas A. Mills
John Vergiels Thomas A. Mills
Its: CHAIRMAN
Date: 1/26/96 Date: 1/26/96
<PAGE>
CONTRACT FOR EMPLOYMENT
THIS AGREEMENT, entered into this day, by and between Hi-Rim
Communications, Inc. (hereinafter referred to as "Company"), and
Wayne J. Godbout (hereinafter referred to as "Employee"), for and
in consideration of the mutual covenants and agreements herein
set forth
W I T N E S S E T H :
1. Employee agrees to work for Company as its Vice-
President for a period of three (3) years beginning February 1,
1996, for an annual salary of One Hundred Sixty Thousand Eight
Hundred Dollars ($160,800.00). It is agreed that this salary
will be paid the fifteenth (15th) and last day of each month at
the rate of Six Thousand Seven Hundred Dollars ($6,700.00), per
period, but variation in the salary terms, or time of payment,
may be mutually agreed upon from time to time between the parties
hereto. Employee shall be entitled to a cost of living increase
of six percent (6%) commencing on February 1, 1997, and on each
calendar year thereafter.
2. All expenses in connection with the employment of
Employee including, but not limited to, membership fees,
licensing fees, occupational taxes, and special insurance
premiums, shall be the responsibility of the Company.
3. Duties of the Employee shall be such as are generally
performed by a Vice-President of a telecommunications company.
The Employee shall devote substantially his full time and efforts
to the performance of his duties and shall spend no less than
forty (40) hours per week in said performance, vacations and sick
time excluded.
4. The Employee shall be entitled to four (4) weeks of
paid vacation to be determined by the mutual consent of the
Employee and the Company. The Employee's vacation time shall not
include attendance at company related functions, including
attendance of meetings and conventions.
5. The Employee shall be entitled to participate in the
Company's employee benefit insurance plan at the level
established commensurate with his position.
<PAGE>
6. Employee covenants and agrees to perform the services
provided by this Agreement to the best of his ability using
accepted professional standards for a Vice-President of a
telecommunications company. The Employee shall not, without the
express prior written consent of the Company, directly or
indirectly, during the term of this Agreement, render services of
a similar nature to, or for, any person or firm for compensation;
or engage in any activity competitive with, and/or adverse to,
the Company's business or practice, whether alone, as a partner
or an officer, director, employee, or shareholder, of any other
corporation, or as a Trustee, fiduciary, or other representative
of any other activity. The making of passive and personal
investments shall not be prohibited hereunder.
7. The death or permanent disability of Employee shall
terminate this Agreement. The question of permanent disability
shall be determined by a qualified medical doctor selected by the
Company.
8. In addition to the salary to be paid to Employee
provided in Paragraph 1, the Company may pay a bonus to Employee
if, in the discretion of the Company, such bonus is determined to
be appropriate based on services rendered by Employee to the
Company.
9. Employee promises to preserve the confidentiality of
the Company's trade secrets, proprietary information, and
commercially useful confidential information learned through the
Employee's employment at the Company and to use all such
information only as necessary and appropriate for the Company's
legitimate business purposes. Employee promises to safeguard
against disclosing any such information without the prior written
consent of the Company.
10. Employee understands that any concepts, ideas,
intellectual property, trade secrets or proprietary information
developed by him while working under this Agreement shall be the
sole and exclusive property of the Company.
11. Both parties agree that the Employee may terminate his
employment during the term of this Agreement with or without
cause. Employee agrees to give written notice, of a minimum of
ninety (90) days, prior to any voluntary employee termination
during the term of this Agreement. In the event that the
Employee voluntarily chooses to terminate his employment, his
compensation and benefits shall close as of his last day of
employment consistent with Company policy and applicable Federal
and State laws.
12. Both parties agree that the Employee may be terminated
during the term of this Agreement only with cause.
<PAGE>
13. Both parties agree that the Employee may be terminated
with "Cause". "Cause" shall be defined as any of the following:
an act or omission by the Employee constituting a material breach
by the Employee of this contract; theft of the Company's
property, trade secrets or proprietary information; being
intoxicated while on duty; failure or refusal to participate in
drug testing; dereliction in the performance of his duties;
unexplained absence from work; substantial breach of any of the
Company's policies; failure to implement or abide by the Equal
Opportunity Employment Commission's Directives; sexual
harassment; a determination by an authority having proper
jurisdiction that the Employee is adverse to the best interests
of the industry; or any violation of Local, State or Federal law.
In the event the Company terminates the Employee's employment
during the term of this Agreement for "Cause", as defined herein,
the Employee shall be entitled to no further compensation or
benefits consistent with State and Federal law.
14. In the event Employee's employment is terminated by the
Company without "Cause" as defined in this Agreement, then
Employee shall be entitled to receive a severance payment equal
to the compensation remaining under the terms of this Agreement,
minus any "bonus" payments. Said severance payment shall be paid
within five (5) days of Employee's termination. In the event
that there is a change in the majority ownership of either Hi-Rim
Communications, Inc., or Teletek, Inc., then the employee shall
be entitled to a One Hundred Thousand Dollars ($100,000.00) bonus
payment within ten (10) days of the change in said ownership.
Change in ownership shall include, but not be limited to, any
merger, acquisition, buy-out or sale of stock which materially
"changes" the ownership control of either corporation.
15. Employee acknowledges and agrees that Employee's sole
entitlement to compensation, payment of any kind, monetary or non-
monetary benefits and/or prerequisites with respect to his
employment, is expressly set forth in this Agreement.
16. This Agreement is drawn to be effective in and shall be
construed with the laws of the State of Nevada and, where
applicable, Federal law. Both parties consent to the exclusive
jurisdiction of the Eighth Judicial District, State Courts of
Nevada, in Clark County, Nevada, in pursuing resolution of any
and all disputes arising out of this contract.
17. No amendment or variation of the terms of this
Agreement shall be valid unless made in writing and signed by
both parties. A waiver of any terms and conditions hereof shall
not be construed as a general waiver by the other party.
18. The terms and conditions of this Agreement shall apply
to, be binding upon, inure to the benefit of, and be enforceable
against, the parties hereto and their respective heirs, assigns,
successors, executives, personal representatives, administrators
and legal representatives, whether by will, merger, reverse
merger, consolidation, sale of stock or assets, operation of law,
or without limitation otherwise.
<PAGE>
19. This contract has been prepared by Lisowski Law Firm,
Chtd., in its capacity as counsel for Teletek, Inc., and Hi-Rim
Communications, Inc. The Employee is urged to consult with
counsel of his own choosing with regards to the legal
ramifications of this contract.
HI-RIM COMMUNICATIONS, INC. EMPLOYEE
By: /s/ John Vergiels By: /s/ Wayne J. Godbout
John Vergiels Wayne J. Godbout
Its: CHAIRMAN
Date: 1/26/96 Date: 1/26/96
<PAGE>
CONTRACT FOR EMPLOYMENT
THIS AGREEMENT, entered into this day, by and between
Teletek Corporation, Inc. (hereinafter referred to as "Company"),
and John Vergiels (hereinafter referred to as "Employee"), for
and in consideration of the mutual covenants and agreements
herein set forth
W I T N E S S E T H :
1. Employee agrees to work for Company as a Director for a
period of three (3) years beginning February 1, 1996, for an
annual salary of Eighty Thousand Four Hundred Dollars
($80,400.00). It is agreed that this salary will be paid the
fifteenth (15th) of each month at the rate of Six Thousand Seven
Hundred Dollars ($6,700.00), but variation in the salary terms,
or time of payment, may be mutually agreed upon from time to time
between the parties hereto. Employee shall be entitled to a cost
of living increase of six percent (6%) commencing on February 1,
1997, and on each calendar year thereafter.
2. Duties of the Employee shall be such as are generally
performed by a Director of a telecommunications company. The
Employee shall devote the necessary time and effort to the
performance of his duties as in his sole discretion he deems fit.
3. Employee covenants and agrees to perform the services
provided by this Agreement to the best of his ability using
accepted professional standards for a Director of a
telecommunications company. The Employee shall not, without the
express prior written consent of the Company, directly or
indirectly, during the term of this Agreement, render services of
a similar nature to, or for, any person or firm for compensation;
or engage in any activity competitive with, and/or adverse to,
the Company's business or practice, whether alone, as a partner
or an officer, director, employee, or shareholder, of any other
corporation, or as a Trustee, fiduciary, or other representative
of any other activity. The making of passive and personal
investments shall not be prohibited hereunder.
4. The death or permanent disability of Employee shall
terminate this Agreement. The question of permanent disability
shall be determined by a qualified medical doctor selected by the
Company.
5. In addition to the salary to be paid to Employee
provided in Paragraph 1, the Company may pay a bonus to Employee
if, in the discretion of the Company, such bonus is determined to
be appropriate based on services rendered by Employee to the
Company.
6. Employee promises to preserve the confidentiality of
the Company's trade secrets, proprietary information, and
commercially useful confidential information learned through his
employment at the Company and to use all such information only as
necessary and appropriate
<PAGE>
for the Company's legitimate business purposes. Employee
promises to safeguard against disclosing any such information
without the prior written consent of the Company.
7. Employee understands that any concepts, ideas,
intellectual property, trade secrets or proprietary information
developed by him while working under this Agreement shall be the
sole and exclusive property of the Company.
8. Both parties agree that the Employee may terminate his
employment during the term of this Agreement with or without
cause. Employee agrees to give written notice, of a minimum of
ninety (90) days, prior to any voluntary employee termination
during the term of this Agreement. In the event that the
Employee voluntarily chooses to terminate his employment, his
compensation and benefits shall close as of his last day of
employment consistent with Company policy and applicable Federal
and State laws.
9. Both parties agree that the Employee may be terminated
during the term of this Agreement only with cause.
10. Both parties agree that the Employee may be terminated
with "Cause". "Cause" shall be defined as any of the following:
an act or omission by the Employee constituting a material breach
by the Employee of this contract; theft of the Company's
property, trade secrets or proprietary information; being
intoxicated while on duty; failure or refusal to participate in
drug testing; dereliction in the performance of his duties;
unexplained absence from work; excess absence from work;
substantial breach of any of the Company's policies; failure to
implement or abide by the Equal Opportunity Employment
Commission's Directives; sexual harassment; a determination by an
authority having proper jurisdiction that the Employee is adverse
to the best interests of the industry; or any violation of Local,
State or Federal law. In the event the Company terminates the
Employee's employment during the term of this Agreement for
"Cause", as defined herein, the Employee shall be entitled to no
further compensation or benefits consistent with State and
Federal law.
11. In the event Employee's employment is terminated by the
Company, then Employee shall be entitled to receive a severance
payment equal to the compensation remaining under the terms of
this Agreement, minus any "bonus" payments. Said severance
payment shall be paid within five (5) days of Employee's
termination.
12. Employee acknowledges and agrees that Employee's sole
entitlement to compensation, payment of any kind, monetary or non-
monetary benefits and/or prerequisites with respect to his
employment, is expressly set forth in this Agreement.
<PAGE>
13. This Agreement is drawn to be effective in and shall be
construed with the laws of the State of Nevada and, where
applicable, Federal law. Both parties consent to the exclusive
jurisdiction of the Eighth Judicial District, State Courts of
Nevada, in Clark County, Nevada, in pursuing resolution of any
and all disputes arising out of this contract.
14. No amendment or variation of the terms of this
Agreement shall be valid unless made in writing and signed by
both parties. A waiver of any terms and conditions hereof shall
not be construed as a general waiver by the other party.
15. The terms and conditions of this Agreement shall apply
to, be binding upon, inure to the benefit of, and be enforceable
against, the parties hereto and their respective heirs, assigns,
successors, executives, personal representatives, administrators
and legal representatives, whether by will, merger, reverse
merger, consolidation, sale of stock or assets, operation of law,
or without limitation otherwise.
16. This contract has been prepared by Lisowski Law Firm,
Chtd., in its capacity as counsel for Teletek, Inc., and Hi-Rim
Communications, Inc. The Employee is urged to consult with
counsel of his own choosing with regards to the legal
ramifications of this contract.
TELETEK CORPORATION, INC. EMPLOYEE
By: /s/ Thomas A. Mills By: /s/ John Vergiels
(name) John Vergiels
Its: Board Member
(title)
Date: 1/27/96 Date: 1/27/96
By: /s/ Wayne Godbout
(name)
Its: Board Member
(title)
Date: 1/27/96
<PAGE>
EXHIBIT 10.02
<PAGE>
CONSULTING AGREEMENT
This Agreement is entered into by and between Teletek, Inc.
and its subsidiary United Payphone Services, Inc. (collectively
referred to as the "Company") and Entertainment Technologies,
Inc. ("ETI").
Whereas, the Company desires to employ ETI as a business
consultant; and
Whereas, ETI is willing to act as a consultant to the
Company.
Now Therefore, in exchange for the mutual convenants and
obligations contained herein, the other valuable consideration,
the parties agree as follows:
1. ETI will be an independent contractor engaged for the
purposes of providing financial and managerial consulting on an
as needed basis.
2. In exchange for the above consulting services, the Company
will compensate the ETI a minimum of $1,000 per month, with
additional compensation to be mutually agreed to based upon the
amount of work and the results of the services.
Dated this 11th day of January, 1993.
Teletek, Inc.
By: /s/ Michael Swan
Entertainment Technologies,
Inc.
By: /s/ Thomas Mills
<PAGE>
EXHIBIT 10.03
<PAGE>
PROMISSORY NOTE
Principal Amount: U.S. $2,000,000.00 Las Vegas, Nevada
Interest Rate: 8 1/2% per annum August 22, 1996
Due: August 22, 1999
1. For value received, Teletek, Inc., a Nevada corporation
(together with its successors and assigns collectively called
"Maker"), promises to pay to the order of Dingaan Holdings S.A.
(together with its successors and assigns who become holders of
this Note collectively called "Holder"), the principal amount of
Two Million and No/100ths Dollars (U.S. $2,000,000.00).
2. Maker also promises to pay to Holder interest on the
outstanding principal amount due under this Promissory Note (this
"Note") at a fixed rate of eight and one-half percent (8 1/2%)
per annum (the "Interest Rate"). Interest hereunder shall accrue
from the date hereof and shall be calculated for the actual
number of days elapsed on the basis of a 365-day or 366-day year,
as appropriate. All accrued and unpaid interest plus an
additional Twenty-Five Thousand and No/100ths Dollars
($25,000.00), to be applied to the outstanding principal, shall
be due and payable monthly, commencing on the 22nd day of
September, 1996, and thereafter on the 22nd day of each
succeeding month. If not paid sooner, all unpaid principal and
any accrued interest, and any other amounts due under this Note,
shall be due and payable in full on August 22, 1999 (the
"Maturity Date").
3. Maker shall be in default under this Note ("Default") if:
A. Any payment of principal or interest is not made
when due;
B. Any representation or warranty contained in
Section 9 is false or misleading in any material respect at
the date hereof;
C. Maker fails in a material respect to perform any
covenant contained in Section 10;
D. Maker becomes insolvent; or admits in writing the
inability to pay its debts as they mature; or fails
generally to pay debts as they become due; or makes an
assignment for the benefit of creditors or commences a case
for the dissolution of itself; or applies for or consents to
the appointment of or taking possession by a trustee,
liquidator, custodian or receiver (or similar official) for
itself or for a substantial part of the property or business
of itself; or takes any corporate action in furtherance of
any of the foregoing;
E. A trustee, liquidator, custodian or receiver (or
similar official) is appointed for Maker without its consent
and is not discharged within sixty (60) calendar days after
such appointment;
<PAGE>
F. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
assumes custody or control of the whole or any substantial
portion of the properties or assets of Maker and such is not
dismissed within sixty (60) calendar days thereafter;
G. A bankruptcy, reorganization, insolvency, or
liquidation case or other case for relief under any
bankruptcy law or any law for the relief of debtors is
commenced by or against Maker and is not dismissed within
sixty (60) calendar days after such institution or Maker by
any action or answer approves of, consents to, or acquiesces
in any such case or admits the material allegations of, or
defaults in answering a petition filed in any such case; or
H. Maker voluntarily suspends the transaction of
business for more than thirty (30) calendar days.
4. If any Default is not cured within ten (10) Business
Days (as defined below) after receipt of written notice thereof
by Holder to Maker, the whole sum of principal and interest shall
become immediately due and payable at the option of Holder, and
Holder may thereafter exercise any and all rights and remedies it
may possess at law or in equity for the collection of this
obligation. Upon a Default, this Note shall bear interest,
payable upon demand, at a rate per annum equal to the sum of the
Interest Rate plus one percent (1%) ("Default Rate").
Notwithstanding anything contained in this Note to the contrary,
the amount of interest payable under the terms of this Note shall
in no event exceed the maximum amount of interest permitted to be
charged by law.
5. All principal and interest payments shall be paid by
Maker in lawful money of the United States of America not later
than 3:00 p.m. Bahamas time on the date that such payment is due.
Any payment made after 3:00 p.m. Bahamas time shall be deemed
received on the next Business Day. If any payment hereunder
becomes due on any day which is not a Business Day, such payment
shall be made on the next succeeding Business Day. The term
"Business Day" means Monday through Friday, excluding any
national holidays as designated by the Government of the
Commonwealth of the Bahamas.
6. All Payments shall be made to Holder at Enro Canadian
Center, First Floor, Marlborough Street, P.O. Box N3802, Nassau,
Bahamas or such other place as Holder may reasonably designate in
writing.
7. Maker may, at any time, prepay all or any portion of
this Note without penalty. There shall be no additional fees or
costs to Maker due to such prepayment.
8. This Note is unsecured.
9. Maker hereby represents and warrants as follows:
A. Maker is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Nevada, and has the requisite corporate power and authority
to own its properties and to carry on its business in all
material respects as it is now being conducted. Maker is
qualified to do business as a foreign corporation in each
2
<PAGE>
jurisdiction in which Maker's business or property makes
such qualification necessary and in which the failure to be
so qualified would have a material adverse effect upon Maker
taken as a whole. Maker has the requisite corporate power
and authority to issue this Note and to otherwise perform
its obligations under this Note.
B. Maker has good and marketable title to all of its
assets, including without limitation the assets used in the
conduct of its business, which assets are not subject to any
mortgage, pledge, lease, lien, charge, security interest,
encumbrance or restriction, except those which do not
materially affect or interfere with the use made of assets.
C. To the knowledge of Maker, the business and
operations of Maker have been and are being conducted in all
material respects in accordance with all applicable laws,
rules and regulations of all governmental authorities.
Neither the execution nor delivery of, nor the performance
of or compliance with, this Note will, with or without the
giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the
imposition of any lien or encumbrance upon any asset of
Maker pursuant to, any agreement or other instrument to
which Maker is a party or by which it or any of its assets
or rights is bound or affected, and will not violate Maker's
Articles or Bylaws. Maker is not in violation of its
Articles or Bylaws nor in violation of, or in default under,
any material agreement, instrument, commitment or
arrangement in any material respect. Maker is not subject
to any restriction which would prohibit it from entering
into or performing its obligations under this Note.
D. This Note has been duly authorized by all
necessary corporate action on behalf of Maker, has been duly
executed and delivered by an authorized officer of Maker,
and is a valid and binding obligation on the part of Maker
that is enforceable against Maker in accordance with its
terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors'
rights generally and to judicial limitations on the
enforcement of the remedy of specific performance and other
equitable remedies.
10. Until all outstanding amounts due under this Note have
been paid in full, Maker covenants and agrees that it shall:
A. Within forty-five (45) days of the end of each of
the first three (3) quarters of Maker's fiscal year, provide
Holder with unaudited financial statements consisting of at
least a balance sheet dated as of the end of the quarter and
an income statement for the quarter;
B. Within ninety (90) days of the end of each fiscal
year, provide Holder with financial statements for the
fiscal year, audited in accordance with the generally
accepted auditing practices of the United States of America;
C. Remain in and continue to operate substantially
the same line of business presently engaged in; maintain and
preserve its corporate existence and all rights,
3
<PAGE>
privileges and licenses necessary in the conduct of its
business; and conduct its business in an orderly, efficient
and customary manner; and
D. Maintain, preserve and keep all assets necessary
in its business in good working order and condition.
11. If any attorney is engaged by Holder or if Holder
incurs any costs, expenses or losses because of any Default or to
enforce or defend any provision of this Note, then Maker shall
pay upon demand the reasonable attorneys' fees and all costs,
expenses and losses so incurred by Holder together with interest
thereon until paid at the Default Rate as if such unpaid
attorneys' fees and all costs, expenses and losses had been added
to the principal owing hereunder. Interest on the amount of
attorneys' fees and all costs, expenses and losses so unpaid
shall be compounded monthly and shall be due and payable upon
demand.
12. If any provision hereof is found invalid or
unenforceable, the other provisions hereof shall remain in full
force and effect and shall be construed to effectuate the
provisions hereof. The provisions of this Note shall be binding
and inure to the benefit of the successors and assigns of the
parties hereto.
13. No waiver of any Default shall be implied from any
failure of Holder to take or any delay by Holder in taking action
with respect to any such Default or from any previous waiver of
any similar or unrelated Default. A waiver of any term of this
Note must be made in writing and shall be limited to the express,
written terms of such waiver.
14. Maker and each endorser of this Note waves demand for
payment, presentment, protest, notice of dishonor, notice of
nonpayment and notice of acceleration of maturity.
15. Maker agrees that Holder may from time to time extend
the Maturity Date or the time any payment is due under this Note,
and may accept security or release security for payment of this
Note, without in any way affecting any obligations of Maker to
Holder.
16. Time is of the essence with respect to every provision
hereof.
4
<PAGE>
17. This Note shall be construed and enforced in accordance
with the laws of the state of Nevada without resort to any
conflict of laws principles, and all persons and entities in any
manner obligated under this Note hereby consent to the
jurisdiction of any federal or state court within Clark County,
Nevada as selected by Holder, and also consent to service of
process by any means authorized by Nevada or United States law.
"Maker"
Teletek, Inc.
By:/s/John Vergiels
JOHN VERGIELS
PRESIDENT
5
<PAGE>
EXHIBIT 10.04
<PAGE>
[ORGINAL PRINTED ON LETTERHEAD OF DSC COMMUNICATIONS]
September 25, 1995 VIA OVERNIGHT DELIVERY
Mr. Thomas A. Mills
President
Hi-Rim Communications, Inc.
Century Park
1771 East Flamingo Road
Suite 111A
Las Vegas, Nevada 89119
Re: Equipment Financing
Mr. Mills
DSC Finance Corporation ("DSCFC") proposes to finance Hi-Rim
Communications, Inc.'s ("HRC") purchase of a DSC DEX 600SC
Switching System plus peripheral equipment and software licenses
as listed on Attachment B to HRC's Purchase Order Letter dated
March 9, 1994, under the following terms and conditions:
LESSOR: DSC FINANCE CORPORATION;
LESSEE: HI-RIM COMMUNICATIONS, INC., a Nevada
corporation;
GUARANTOR: TELETEK, INC., a Nevada corporation;
EQUIPMENT: Overland Park, Kansas: One (1)
Refurbished DSC DEX 600SC Switching
System wired with 1,536 digital ports and
equipped with 1,152 digital ports; One
(1) Refurbished SP Subsystem plus
peripheral equipment and software
licenses as listed on Attachment B to
Lessee's Purchase Order Letter dated
March 9, 1994;
<PAGE>
Hi-Rim Communications, Inc.
9/25/95
Page 2
SALE PRICE: $575,000.00, Freight and Sales Tax due
net thirty (30) days from shipment;
DOWN PAYMENT: $125,000.00, Down Payment due prior to
Shipment;
AMOUNT FINANCED: $450,000.00;
SHIPMENT: Per Purchase Order;
PAYMENT COMMENCEMENT: Sixty (60) days after shipment;
TERM/PAYMENTS: Twenty-four (24) consecutive monthly
payments equal to 0.04703231 times the
Amount Financed, payable in advance;
IMPLICIT INTEREST
RATE: Thirteen percent (13.0%) per annum;
PURCHASE OPTION: At the expiration of this lease, Lessee
may purchase the equipment financed for
ONE DOLLAR ($1.00); or return the
equipment to the Lessor in good operating
order, repair and condition;
MAINTENANCE: Lessee, at its sole cost and expense,
will keep and maintain the equipment in
good operating order, repair and
condition;
TYPE OF TRANSACTION: This is a net transaction, whereby
freight, property taxes, sales taxes, all
documentation costs, all legal fees, and
all other items of a similar nature will
be for Lessee's account. Lessee will
comply with all laws and regulations in
the use of the equipment;
INSURANCE: Lessee, at its own expense, will provide
all inclusive insurance including, but
not limited to Public Liability and
Property Damage, and Casualty Coverage
with DSC Finance Corporation named as
Loss Payee and Additional Insured and for
an amount not less than 100% of the
amount financed; and
<PAGE>
Hi-Rim Communications, Inc.
9/25/95
Page 3
SECURITY INTEREST: Lessee hereby grants DSCFC a security
interest in the Equipment and agrees to
execute and furnish to DSCFC any and all
documentation necessary for the
perfection of such security interest.
This proposal is subject to DSCFC management approval and the
execution of all documentation, prior to and after shipment,
which DSCFC may reasonably require. HRC and DSCFC agree this
proposal is the final agreement with respect to financing, the
parties agree this proposal will prevail over any conflicts of
terms and conditions with respect to any previous financing
offers or agreements. This proposal will expire, if not accepted
and delivered, on or before September 29, 1995. Please execute
this letter and return to my attention as soon as possible.
Thank you.
Sincerely,
/s/ Jeff Partenheimer
Jeff Partenheimer
Director
Agreed and Accepted this
27 day of September, 1995.
LESSEE: Hi-Rim Communications, Inc.
X /s/ Thomas Mills
Name: Thomas Mills
Title: President
GUARANTOR: Teletek, Inc.
X /s/ John Vergiels
Name: John Vergiels
Title: President & CEO
<PAGE>
GUARANTY
WHEREAS, Hi-Rim Communications, Inc. ("HRC"), a Nevada
corporation with a principal place of business at 1771 East
Flamingo Road, Suite 111A, Las Vegas, Nevada, 89119, has entered
into an Equipment Lease dated September 29, 1995 (the "Lease"),
pursuant to which HRC agreed to Lease certain equipment and
services from DSC Finance Corporation ("DSC") a Delaware
corporation with its principal place of business at 1000 Coit
Road, Plano, Texas 75075; and,
WHEREAS, HRC is a subsidiary of Teletek, Inc. ("Teletek") a
Nevada corporation with a principal place of business at 3340
Topaz St., Suite 210, Las Vegas, Nevada 89121; and,
WHEREAS, in order to induce DSC to consent to such lease, and in
consideration of DSC agreeing to such lease agreement with HRC,
Teletek hereby agrees to guarantee the full and prompt
performance by all and any amounts due by HRC under the Lease.
NOW THEREFORE, Teletek hereby agrees as follows:
1. Teletek hereby fully and unconditionally guarantees the
prompt performance by HRC of all its obligations and payment of
any and all amounts due under the Lease, whether now existing or
hereafter incurred; whether direct, indirect, or contingent;
whether otherwise guaranteed or secured; whether on open account,
evidenced by an instrument, or otherwise.
2. Teletek agrees to reimburse DSC, to the extent that
such reimbursement is not made by HRC, for all expenses,
including, without limitation, attorney fees incurred by DSC in
connection with the enforcement of any provision of the Lease or
of this Guaranty if this Guaranty or the Lease is placed in the
hands of an attorney.
3. This Guaranty is a continuing Guaranty which shall
remain in full force and effect for the duration of the Lease
and, thereafter, until each and every obligation of HRC to DSC
arising out of or in any way connected with the Lease has been
performed in full.
4. Teletek hereby consents that from time-to-time, before
or after any default by HRC, with or without further notice to or
assent from Teletek: (i) any security at any time held by or
available to DSC for any obligation of HRC, or any security at
any time held by or available to DSC for any obligation of any
other person or entity secondary or otherwise liable for any of
the liabilities of HRC, may be exchanged, surrendered,
substituted, or released or the price of the security may be
increased or decreased; and (ii) any obligation, the time for
payment of same, or any term of such obligation of HRC, or of any
such other person, may be changed, altered renewed, extended,
continued, surrendered, compromised, waived, or released in whole
or in part, or any default with respect thereto waived, and (iii)
DSC may release, in whole or in part, any other person or
entity, and may extend further credit in any manner whatsoever to
HRC; and (iv) generally deal with HRC or any security or other
person or entity as DSC may see fit, and (v) DSC may sustain from
taking advantage of or realizing upon any security interest or
other guarantee and Teletek shall remain bound under this
Guaranty notwithstanding any such exchange, surrender, release,
change, alteration, renewal, extension, continuance, compromise,
waiver, inaction, extension of further credit, or other dealing.
Furthermore, Teletek hereby expressly waives any impairment of
collateral including, but not limited to, failure to perfect a
security interest in the collateral.
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5. Teletek hereby waives: (a) notice of acceptance of this
Guaranty and of extensions, renewals, modifications, or
rearrangements of credit by DSC to HRC; (b) presentment and
demand for payment of any of the liabilities of HRC; (c) protest
and notice of dishonor or default to Teletek or to any other
party with respect to any of the liabilities of HRC; (d) all
other notices to which Teletek might otherwise be entitled; (e)
any demand for payment under this Guaranty; (f) benefit of all
exemptions and homestead laws; and (g) all set-offs and
counterclaims.
6. This is a guaranty of payment and not of collection and
Teletek further waives any right to require that DSC enforce any
remedies against HRC or any other person or entity or to require
that resort be had to any security.
7. TELETEK HEREBY SUBORDINATES ANY SUMS NOW OR HEREAFTER
DUE TO IT FROM HRC (the "Subordinated Indebtedness") to the
payment of any sums now or hereafter due to DSC from HRC and
assigns, transfers and sets over to DSC all of its rights, title
and interest in and to the Subordinated Indebtedness (and agrees
to execute any additional assignments and instruments that DSC
may deem necessary or desirable to effectuate, complete, perfect,
or further confirm such assignment and transfer), provided,
however, that, unless and until HRC shall default in the payment,
performance or discharge of any obligation to DSC, Teletek, may
receive payments of principal of, and interest on, the
Subordinated Indebtedness. In the event of any such default, and
for so long thereafter as HRC shall be indebted to DSC, Teletek:
(a) agrees that it will not, without the prior written consent of
DSC, demand, take steps for the collection of, or assign,
transfer, or otherwise dispose of the Subordinated Indebtedness
or any part thereof, or realize upon, or enforce any collateral
securing the Subordinated Indebtedness or any part thereof and
will not demand or accept any property of HRC as security for the
Subordinated Indebtedness or any part thereof; (b) agrees that it
will deliver to DSC upon demand each negotiable or other
instrument held by it evidencing all or any part of the
Subordinated Indebtedness and any security received for or on
account of the Subordinated Indebtedness and any security
received for or on account of the Subordinated Indebtedness; and
(c) authorized and empowers DSC or any person or entity DSC may
designate to demand, receive, sue for, collect, receipt for, and
give full discharge for the Subordinated Indebtedness, to endorse
any checks drafts, notes, or other orders and instruments for the
payment thereof payable to or to the order of Teletek that may be
received by DSC, and to exercise all other rights and remedies
that Teletek would have with respect to the Subordinated
Indebtedness but for this Guaranty and any and all payments made
on account of the Subordinated Indebtedness received by Teletek
after any such default shall be held by Teletek in trust for DSC
and promptly remitted to DSC after appropriate endorsement, if
necessary, in the exact form received by Teletek.
8. If a proceeding in bankruptcy, receivership or
insolvency shall be instituted by or against HRC or HRC's
property, Teletek empowers DSC, in addition to the foregoing, to
file proof of claim for the Subordinated Indebtedness then owing
to it in the name of DSC, or in the name of Teletek, as the true
and lawful owner of such claim, with power to receipt for all
payments thereon, and Teletek agrees to provide DSC with all
information and documents necessary to file such proof of claim;
to vote for or against any proposal or resolution that may be
submitted under the Bankruptcy Act or any amendment thereto, to
vote for a trustee of the estate of HRC or for a committee of
creditors; to accept or reject any plan of reorganization,
arrangement or extension or proposition proposed by or for HRD;
to receive payments of dividends or distributions or other
consideration; and otherwise to exercise all other rights and
privileges that could be exercised by Teletek in connection with
any of the foregoing matters but for this agreement. The net
amount received by DSC from the Subordinated Indebtedness shall
be applied to any amounts due and to become due to DSC from HRC,
and the excess, if any, shall be returned to Teletek. DSC shall
in no event be liable for any failure to prove the Subordinated
Indebtedness, for failure to exercise any rights with respect
thereto, or to collect any sums payable thereon or to otherwise
take any action in connection therewith.
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9. Teletek shall furnish to DSC such balance sheets,
statements of income, and other financial statements as DSC may
reasonably request from time to time.
10. Each reference herein to DSC shall be deemed to include
its affiliates, successors and assigns, in whose favor the
provisions of this Guaranty shall also inure. Each reference
herein to Teletek shall be deemed to include the successors and
assigns of Teletek, all of whom shall be bound by the provisions
of this Guaranty.
11. No delay on the part of DSC in exercising any rights
hereunder or failure to exercise the same shall operate as a
waiver of such rights, nor shall notice to or demand on Teletek
be deemed to be a waiver of the obligation of Teletek or of the
right of DSC to take further action without notice or demand as
provided herein; nor in any event shall any modification or
waiver of the provisions of this Guaranty be effective unless in
writing, nor shall any such waiver be applicable except in the
specified instance for which given.
12. THIS GUARANTY IS, AND SHALL BE DEEMED TO BE, A CONTRACT
ENTERED INTO UNDER AND PURSUANT TO THE LAWS OF THE STATE OF TEXAS
AND SHALL BE IN ALL RESPECTS GOVERNED, CONSTRUED, APPLIED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF SAID STATE; AND NO
DEFENSE GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR
COUNTRY SHALL BE INTERPOSED IN ANY ACTION HEREON UNLESS SUCH
DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
TEXAS.
13. This writing is intended by the parties as a final
expression of this Guaranty and is also intended as a complete
and exclusive statement of the terms of this agreement. No
course of dealing, course of performance, or trade usage, and no
parol evidence of any nature, shall be used to supplement or
modify any terms. Nor are there any conditions to the full
effectiveness of this agreement.
14. Termination of this Guaranty shall be effective only as
that portion of the debt incurred after written notice of
termination has been received by an officer of DSC, and this
Guaranty shall remain in full force and effect as to all debt
incurred before that time, including loan commitments.
Regardless of when a renewal or extension of pretermination debt
occurs (with or without adjustment of interest rate or other
terms), the debt is deemed to have been incurred prior to
termination to the extent of the renewal or extension and to be
fully covered by this Guaranty.
15. Teletek warrants to DSC that it has adequate means to
obtain from the Lessee on a continuing basis information
concerning the financial condition of the Lessee and that they
are not relying on DSC to provide such information either now or
in the future.
16. Teletek has signed this Guaranty and has
unconditionally delivered it to DSC, and failure to sign this or
any other guaranty by any other person or entity shall not
discharge the liability of Teletek. The unconditional liability
of Teletek applies whether Teletek is jointly and severally
liable for the entire amount of the debt, or for only a pro-rata
portion.
17. Teletek hereby waives all errors and omissions in
connection with DSC's administration of the guaranteed debt,
except behavior which amounts to bad faith.
18. Without in any way limiting the foregoing, Teletek
hereby waives any other act or omission of DSC (except acts or
omissions in bad faith) which changes the scope of Teletek's
risk.
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19. This Guaranty remains fully enforceable irrespective of
any defenses which the Lessee may assert on the underlying debt,
including, but not limited to, failure of consideration, breach
of warranty, payment, statute of frauds, statute of limitations,
accord, and satisfaction and usury.
20. Teletek agrees that, if at any time all or any part of
any payment previously applied by DSC to any of the guaranteed
debt must be returned by DSC for any reason, whether by court
order, administrative order, or settlement, Teletek remains
liable for the full amount returned as if such amount had never
been received by DSC, notwithstanding any termination of this
Guaranty or the cancellation of any note or other agreement
evidencing the obligation of the Lessee.
Dated: as of September 29, 1995
GUARANTOR:
TELETEK, INC.
X /s/ John M. Vergiels
Name: John M. Vergiels
Title: President
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EXHIBIT 10.05
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ACQUISITION AGREEMENT
This Agreement, effective the 1st day of August, 1996, by,
between and among Teletek, Inc., a corporation organized under
the laws of the State of Nevada (hereinafter the "Purchaser"),
and the Shareholders ("the Shareholders") of Selectel a
California Corporation, corporation (hereinafter the "Company").
WITNESSETH:
WHEREAS, Purchaser wishes to acquire, and Shareholders are
willing to sell one hundred percent of the outstanding stock of
the Company in exchange for consideration hereafter described;
NOW, THEREFORE, in consideration of the mutual terms and
covenants set forth herein, Purchaser and Shareholders approve
and adopt this Acquisition Agreement and mutually covenant and
agree with each other as follows:
ARTICLE I
CONSIDERATION
1. a. On the closing date the Shareholders shall deliver to
Purchaser certificates representing the number of shares of the
Company as listed in Schedule A, attached hereto and incorporated
herein, which in the aggregate shall represent one hundred
percent of the issued and outstanding shares of stock of the
Company. Such certificates shall be duly endorsed in blank by
Shareholders or accompanied by duly executed stock powers in
blank with signatures guaranteed. Alternatively, the
shareholders may assign their rights to the shares if the shares
have not been physically issued in the form of stock
certificates.
b. In exchange for the transfer of the common stock of the
Company pursuant to sub-section 1.a. hereof, Purchaser shall
provide on the closing date the following consideration:
1) One hundred and thirty thousand (130,000) shares of
the common stock of Teletek, Inc., which shares shall be issued
by Teletek and deemed restricted securities for two years
pursuant to Rule 144;
2) Sixty thousand (60,000) shares of the common stock
of Teletek, Inc., which shares shall be free trading;
3) Two hundred and seventy thousand dollars ($270,000);
4) A promissory note in the amount of three hundred
thousand dollars ($300,000), bearing an 8% a.p.r., principal due
two years from the date of the note;
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5) Prepayment of interest on the note in subparagraph
(4) above, totaling $48,000.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION BY SHAREHOLDERS
2.01 OWNERSHIP OF STOCK.
1. Shareholders are the record owners and holders of the
number of fully paid and nonassessable shares of the Company
listed in Schedule "A" hereto as of the date hereof and will
continue to own such shares of the stock of the Company until the
delivery thereof to the Purchaser on the closing date and all
such shares of stock are or will be on the closing date owned
free and clear of all liens, encumbrances, charges and
assessments of every nature and subject to no restrictions with
respect to transferability. The Shareholders will have full
power and authority to assign and transfer their shares of the
Company in accordance with the terms hereof.
2.01 Indemnification of Lawsuit
Shareholders hereby indemnify the Purchaser of any all
expenses, judgments, assessments, etc. which may result from
litigation against the Company filed by ADT.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
3.01 CAPITALIZATION
Except for this Agreement, there are no outstanding options,
contracts, calls, commitments, agreements or demands of any
character relating to the stock of the Company owned by
Shareholders.
3.02 ORGANIZATION AND AUTHORITY.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of California, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its
business as now being conducted, is duly qualified and in good
standing in every jurisdiction in which the property owned,
leased or operated by it, or the nature of the business conducted
by it, makes such qualification necessary to avoid material
liability or material interference in its business operations,
and is not subject to any agreement, commitment or understanding
which restricts or may restrict the conduct of its business in
any jurisdiction or location. The Company is
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qualified to do business in the State of Incorporation and those
other states listed in Schedule C.
(b) The outstanding shares of the Company are legally
and validly issued, fully paid and nonassessable.
(c) The Company does not own five percent (5%) or more
of the outstanding stock of any corporation, except as listed on
the Disclosure Statement.
(d) The minute book of the Company made available to
Purchaser contains complete and accurate records of all meetings
and other corporate actions of the shareholders and the Board of
Directors (and any committee thereof) of the Company.
(e) The Disclosure Statement contains a list of the
officers, directors and shareholders of the Company and copies of
the articles of incorporation and by-laws currently in effect of
the Company.
(f) The execution and delivery of this Agreement does
not, and the consummation of the transaction contemplated hereby
will not, subject to the approval and adoption by the
Shareholders of the Company, violate any provision of the
certificate/articles of incorporation or bylaws of the Company,
or any provisions thereof, or result in the acceleration of any
obligation under, any mortgage, lien, lease, agreement,
instrument, court order, arbitration award, judgment or decree to
which the Company is a party, or by which it is bound, and will
not violate any other restriction of any kind or character to
which it is subject.
(g) The authorized capital stock of the Company is an
unlimited number of shares of common stock, no par value, of
which five hundred shares of such stock will be issued and
outstanding at the time of closing.
3.03 FINANCIALS.
(a) Financial statements (hereafter "financial
statements") of the Company as of December 31, 1995, and interim
financial statements, have been delivered by the Company to the
Purchaser on or before the closing date. Said financial
statements are true and correct in all material respects and
present an accurate and complete disclosure of the financial
condition of the Company as of its date and for the periods
covered.
(b) All accounts receivable, if any, (net of reserves
for doubtful accounts) of the Company shown on the books of
account on the statement date and as incurred in the
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normal course of business since that date, are collectible in the
normal course of business.
(c) The Company has good and marketable title to all
of its assets, business and properties including, without
limitation, all such properties reflected in the balance sheet as
of the statement date except as disposed of in the normal course
of business, free and clear of any mortgage, lien, pledge,
charge, claim or encumbrance, except as shown on said balance
sheet as of the statement date and, in the case of real
properties except for rights-of-way and easements which do not
adversely affect the use of such property.
(d) All currently used property and assets of the
Company, or in which it has an interest, or which it has in
possession, are in good operating condition and repair subject
only to ordinary wear and tear.
3.04 CHANGES SINCE THE STATEMENT DATE. Since the financial
statement date, except as disclosed in the Disclosure Statement,
there will not have been any material negative change in the
financial position or assets of the Company.
3.05 LIABILITIES. There are no material liabilities of the
Company, whether accrued, absolute, contingent or otherwise,
which arose or relate to any transaction of the Company, its
agents or servants occurring prior to the statement date, which
are not disclosed by or reflected in said financial statements,
except as disclosed in the Disclosure Statement. There are no
such liabilities of the Company which have arisen or relate to
any transaction of the Company, its agents or servants, occurring
since the statement date, other than normal liabilities incurred
in the normal conduct of the business of the Company, and none of
which have a material adverse effect on the business or financial
condition of the Company, except as disclosed in the Disclosure
Statement. As of the date hereof, there are no known
circumstances, conditions, happenings, events or arrangements,
contractual or otherwise, which may hereafter give rise to
liabilities, except in the normal course of business of the
Company, except as disclosed in the Disclosure Statement.
3.06 TAXES. All federal, province, foreign, county and
local income, ad valorem, excise, profits, franchise, occupation,
property, sales, use gross receipts and other taxes (including
any interest or penalties relating thereto) and assessments which
are due and payable have been duly reported, fully paid and
discharged as reported by the Company, and there are no unpaid
taxes which are, or could become a lien on the properties and
assets of the Company, except as provided for in the financial
statements of their date, or have been incurred in the normal
course of business of the Company since that date. All tax
returns of any kind required to be filed have been filed and the
taxes paid or accrued.
3.07 ACCURACY OF ALL STATEMENTS MADE BY COMPANY. No
representation or warranty by the Company and Shareholders in
this Agreement, nor any statement, certificate, schedule
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or exhibit hereto furnished or to be furnished by or on behalf of
the Shareholders pursuant to this Agreement, nor any document or
certificate delivered to Purchaser pursuant to this Agreement or
in connection with actions contemplated hereby, contains or shall
contain any untrue statement of material fact or omits or shall
omit a material fact necessary to make the statement contained
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants as follows:
4.01 ORGANIZATION AND GOOD STANDING. Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Nevada with full power and
authority to enter into and perform the transactions contemplated
by this Agreement.
4.02 PERFORMANCE OF THIS AGREEMENT. The execution and
performance of this Agreement and the issuance of stock contem
plated hereby have been authorized by the board of directors of
Purchaser.
4.03 FINANCIALS.
(a) True copies of the financial statements of the
Purchaser consisting of the balance sheet as of June 30, 1995,
and a statement of income and retained earnings for the year
ended June 30, 1995, and interim financial statements, have been
provided on or the closing date. Said financial statements are
true and correct in all material respects and present an accurate
and complete disclosure of the financial condition and earnings
of the Purchaser for the periods covered, in accordance with
generally accepted accounting principles applied on a consistent
basis.
(b) All accounts receivable, if any, (net of reserves
for doubtful accounts) of the Purchaser shown on financial
statement, and as incurred in the normal course of business since
that date, are collectible in the normal course of business.
(c) The Purchaser has good and marketable title to all
of its assets, business and properties including, without
limitation, all such properties reflected in the aforementioned
balance sheet, except as disposed of in the normal course of
business, free and clear of any mortgage, lien, pledge, charge,
claim or encumbrance, except as shown on said balance sheet, and,
in the case of real properties, except for rights-of-way and
easements which do not adversely affect the use of such property.
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4.04 CHANGES SINCE STATEMENT DATE. Since the date of the
financial statements, except as disclosed in writing, there has
not been any material change in the financial position or assets
of the Purchaser.
4.05 ACCURACY OF ALL STATEMENTS MADE BY PURCHASER. No
representation or warranty by the Purchaser in this Agreement,
nor any statement, certificate, schedule or exhibit hereto
furnished or to be furnished by the Purchaser pursuant to this
Agreement, nor any document or certificate delivered to the
Company or the Shareholders pursuant to this Agreement or in
connection with actions contemplated hereby, contains or shall
contain any untrue statement of material fact or omits or shall
omit a material fact necessary to make the statement contained
therein not misleading.
4.06 LEGALITY OF SHARES TO BE ISSUED. The shares of common
stock of Purchaser to be delivered pursuant to this Agreement,
when so delivered, will have been duly and validly authorized and
issued by Purchaser and will be fully paid and nonassessable.
4.07 NO COVENANT AS TO TAX CONSEQUENCES. It is expressly
understood and agreed that neither Purchaser nor its officers or
agents has made any warranty or agreement, expressed or implied,
as to the tax consequences of the transactions contemplated by
this Agreement or the tax consequences of any action pursuant to
or growing out of this Agreement.
ARTICLE V
COVENANTS OF SHAREHOLDERS
5.01 ACCESS TO INFORMATION. Purchaser and its authorized
representatives shall have full access during normal business
hours to all properties, books, records, contracts and documents
of the Company, and the Company shall furnish or cause to be
furnished to Purchaser and its authorized representative all
information with respect to its affairs and business of the
Company as Purchaser may reasonably request.
5.02 ACTIONS PRIOR TO CLOSING. From and after the date of
this Agreement and until the closing date, the Company shall not
materially alter its business.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser to be performed on
the closing date shall be subject to the satisfaction of the
Purchaser of the following conditions:
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6.01 TRUTH OF REPRESENTATIONS AND WARRANTIES. The represen
tations and warranties made by the Company and Shareholders in
this Agreement or given on its behalf hereunder shall be
substantially accurate in all material respects on and as of the
closing date with the same effect as though such representations
and warranties had been made or given on and as of the closing
date.
6.02 COMPLIANCE WITH COVENANTS. Shareholders shall have
performed and complied with all obligations under this Agreement
which are to be performed or complied with by them prior to or on
the closing date, including the delivery of the closing documents
specified hereafter.
6.03 ABSENCE OF SUIT. No action, suit or proceedings before
any court or any governmental or regulatory authority shall have
been commenced or threatened and, no investigation by any
governmental or regulatory authority shall have been commenced,
against the Shareholders, the Company or any of the affiliates,
associates, officers or directors of any of them, seeking to
restrain, prevent or change the transactions contemplated hereby,
or questioning the validity or legality of the transaction, or
seeking damages in connection with the such transaction.
6.04 RECEIPT OF APPROVALS, ETC. All approvals, consents
and/or waivers that are necessary to effect the transactions
contemplated hereby shall have been received.
6.05 NO MATERIAL ADVERSE CHANGE. As of the closing date
there shall not have occurred any material adverse change which
materially impairs the ability of the Company to conduct its
business or the earning power thereof on the same basis as in the
past.
6.06 ACCURACY OF FINANCIAL STATEMENT. Purchaser and its
representatives shall be satisfied as to the accuracy of all
balance sheets, statements of income and other financial
statements of the Company furnished to Purchaser herewith.
6.07 PROCEEDINGS AND INSTRUMENTS SATISFACTORY; CERTIFICATES.
All proceedings, corporate or otherwise, to be taken in connec
tion with the transactions contemplated by this Agreement shall
have occurred and all appropriate documents incident thereto as
Purchaser may request shall have been delivered to Purchaser.
The Company and the Shareholders shall have delivered certi
ficates in such detail as Purchaser may request as to compliance
with the conditions set forth in this Article.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND SHAREHOLDERS
Each and every obligation of the Company and shareholders to
be performed on the closing date shall be subject to the
satisfaction prior thereto of the following conditions:
7.01 TRUTH OF REPRESENTATIONS AND WARRANTIES. The represen
tations and warranties of Purchaser contained in this Agreement
shall be true at and as of the closing date as though such
representations and warranties were made at and as of the
transfer date.
7.02 PURCHASER'S COMPLIANCE WITH COVENANTS. Purchaser shall
have performed and complied with its obligations under this
Agreement which are to be performed or complied with by it prior
to or on the closing date.
7.03 ABSENCE OF SUIT. No action, suit or proceedings before
any court or any governmental or regulatory authority shall have
been commenced or threatened and, no investigation by any
governmental or regulatory authority shall have been commenced
against Purchaser, or any of the affiliates, associates, officers
or directors of the Purchaser seeking to restrain, prevent or
change the transactions contemplated hereby, or questioning the
validity or legality of the transaction, or seeking damages in
connection with the transaction.
7.04 RECEIPT OF APPROVALS, ETC. All approvals, consents
and/or waivers that are necessary to effect the transactions
contemplated hereby shall have been received.
7.05 NO MATERIAL ADVERSE CHANGE. As of the closing date
there shall not have occurred any material adverse change which
materially impairs the ability of the Purchaser to conduct its
business or the earning power thereof on the same basis as in the
past.
7.06 ACCURACY OF FINANCIAL STATEMENTS. The Shareholders
shall be satisfied as to the accuracy of all balance sheets,
statements of income and other financial statements of the
Purchaser furnished to the Shareholders herewith.
7.07 PROCEEDINGS AND INSTRUMENTS SATISFACTORY; CERTIFICATES. All
proceedings, corporate or otherwise, to be taken in connection
with the transactions contemplated by this Agreement shall have
occurred and all appropriate documents incident thereto as the
Shareholders may request shall have been delivered to the
Company. The Purchaser shall have delivered certificates in such
detail as the Shareholders may request as to compliance with the
conditions set forth in this Article.
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ARTICLE VIII
INDEMNIFICATION
The Shareholders and the Company shall indemnify Purchaser
for any loss, cost, expense or other damage suffered by Purchaser
resulting from, arising out of, or incurred with respect to the
falsity or the breach of any representation, warranty or covenant
made by the Company herein, and any claims arising from the
operations of the Company prior to the closing date. Purchaser
shall indemnify and hold the Shareholders harmless from and
against any loss, cost, expense or other damage (including,
without limitation, attorneys' fees and expenses) resulting from,
arising out of, or incurred with respect to, or alleged to result
from, arise out of or have been incurred with respect to, the
falsity or the breach of any representation, covenant, warranty
or agreement made by Purchaser herein.
ARTICLE IX
SECURITY ACT PROVISIONS
9.01 RESTRICTIONS ON DISPOSITION OF SHARES. Shareholders
covenant and warrant that the "restricted" shares received hereby
are acquired for their own accounts and not with the present view
towards the distribution thereof and will not dispose of such
shares except (i) pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or (ii) in any
other transaction which, in the opinion of counsel, acceptable to
Purchaser, is exempt from registration under the Securities Act
of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. In order to
effectuate the covenants of this sub-section, an appropriate
endorsement will be placed upon each of the restricted
certificates of common stock of the Purchaser at the time of
distribution of such shares pursuant to this Agreement, and stop
transfer instructions shall be placed with the transfer agent for
the securities.
9.02 NOTICE OF LIMITATION UPON DISPOSITION. Each Share
holder is aware that the shares distributed will not have been
registered pursuant to the Securities Act of 1933, as amended;
and, therefore, under current interpretations and applicable
rules, said shares will probably have to be retained for a period
of at least two years and at the expiration of such two year
period sales may be confined to brokerage transactions of limited
amounts requiring certain notification filings with the
Securities and Exchange Commission and such disposition may be
available only if the Purchaser is current in its filings with
the Securities and Exchange Commission under the Securities Act
of 1933, as amended, or other public disclosure requirements, and
the other limitations imposed thereby on the disposition of
shares of the Purchaser.
9
<PAGE>
9.03 NO PUBLIC MARKET FOR COMMON SHARES. Each Shareholder
acknowledges that the common shares being issued pursuant to this
agreement do not currently have a public market in which the
shares may be liquidated and there is no assurance that such
pubic market will develop.
ARTICLE X
CLOSING
10.01 TIME. The closing of this transaction ("closing")
shall be effective Effective August 1, 1996, but will
subsequently take place on a date and at a place to be agreed to
by the parties. Such date is referred to in this agreement as
the "closing date."
10.02 DOCUMENTS TO BE DELIVERED BY SHAREHOLDERS. At the
closing Shareholders shall deliver to Purchaser the following
documents:
(a) Certificates or assignments for all shares of
stock of the Company in the manner and form required by sub-
section 1.01 hereof.
(b) A certificate signed by the Management of the
Company that the representations and warranties made by the
Company in this Agreement are true and correct on and as of the
closing date with the same effect as though such representations
and warranties had been made on or given on and as of the closing
date and that Shareholders have performed and complied with all
of their obligations under this Agreement which are to be
performed or complied with by or prior to or on the closing date.
(c) A copy of the by-laws of the Company certified by
its secretary and a copy of the certificate of incorporation of
the Company certified by the secretary of state.
(d) Certificates or letters from Shareholders evidenc
ing the taking of the restricted shares in accordance with the
provisions of this agreement and their understanding of the
restrictions thereunder.
(e) Such other documents of transfer, certificates of
authority and other documents as Purchaser may reasonably
request.
10.03 DOCUMENTS TO BE DELIVERED BY PURCHASER. At the
closing Purchaser shall deliver to Shareholders the following
documents:
(a) Cash, notes, and certificates for the number of
shares of common stock of Purchaser as determined in Article 1
hereof.
10
<PAGE>
(b) A certified copy of the duly adopted resolutions
of the board of directors of Purchaser authorizing or ratifying
the execution and performance of this Agreement and authorizing
or ratifying the acts of its officers and employees in carrying
out the terms and provisions thereof.
ARTICLE XI
TERMINATION AND ABANDONMENT
This Agreement may be terminated and the transaction
provided for by this Agreement may be abandoned without liability
on the part of any part to any other, at any time before the
closing date, or on a post closing basis as provided previously
herein:
(a) By mutual consent of Purchaser and the
Shareholders;
(b) By Purchaser if any of the conditions provided for
in Article 6 of this Agreement have not been met and have not
been waived in writing by Purchaser.
(c) By the Company if any of the conditions provided
for in Article 7 of this Agreement have not been met and have not
been waived in writing by the Company.
In the event of termination and abandonment by any party as
above provided in this Article, written notice shall forthwith be
given to the other party, and each party shall pay its own
expenses incident to preparation for the consummation of this
Agreement and the transactions contemplated hereunder.
ARTICLE XII
MISCELLANEOUS
12.01 NOTICES. All notices, requests, demands and
other communications hereunder shall be deemed to have been duly
given, if delivered by hand or mailed, certified or registered
mail with postage prepaid:
(a) If to the Shareholders, to Joseph Viggarro at 69-
730 Highway 111, Suite 112, Rancho Mirage, California, or to such
other person and place as the Company shall furnish to Purchaser
in writing; or
(b) If to Purchaser, to Nathan W. Drage at 50 West 300
South, Suite 1130, Salt Lake City, Utah 84101, or to such other
person and place as Purchaser shall furnish to Company in
writing.
11
<PAGE>
12.02 ANNOUNCEMENTS. Announcements concerning the
transactions provided for in this Agreement by either the Company
or Purchaser shall be subject to the approval of the other in all
essential respects, except that the approval of the Company shall
not be required as to any statements and other information which
Purchaser may submit to its shareholders.
12.03 DEFAULT. Should any party to this Agreement
default in any of the covenants, conditions, or promises
contained herein, the defaulting party shall pay all costs and
expenses, including a reasonable attorney's fee, which may arise
or accrue from enforcing this Agreement, or in pursuing any
remedy provided hereunder or by the statutes of the State of
Nevada.
12.04 ASSIGNMENT. This Agreement may not be assigned in
whole or in part by the parties hereto without the prior written
consent of the other party or parties, which consent shall not be
unreasonably withheld.
12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties
hereto, their successors and assigns.
12.06 HOLIDAYS. If any obligation or act required to be
performed hereunder shall fall due on a Saturday, Sunday or other
day which is a legal holiday established by the State of Nevada,
such obligation or act may be performed on the next succeeding
business day with the same effect as if it had been performed
upon the day appointed.
12.07 COMPUTATION OF TIME. The time in which any
obligation or act provided by this Agreement is to be performed
is computed by excluding the first day and including the last,
unless the last day is a holiday, in which event such day shall
also be excluded.
12.08 GOVERNING LAW AND VENUE. This Agreement shall be
governed by and interpreted pursuant to the laws of the Sate of
Nevada. Any action to enforce the provisions of this Agreement
shall be brought in a court of competent jurisdiction within the
State of Nevada and in no other place.
12.09 PARTIAL INVALIDITY. If any term, covenant,
condition or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or
application of such term or provision to persons or circumstances
other than those as to which it is held to be invalid or
unenforceable shall not be affected thereby and each term,
covenant, condition or provision of this Agreement shall be valid
and shall be enforceable to the fullest extent permitted by law.
12
<PAGE>
12.10 NO OTHER AGREEMENTS. This Agreement constitutes
the entire Agreement between the parties and there are and will
be no oral representations which will be binding upon any of the
parties hereto.
12.11 RIGHTS ARE CUMULATIVE. The rights and remedies
granted hereunder shall be in addition to and cumulative of any
other rights or remedies provided under the laws of the State of
Nevada.
12.12 WAIVER. No delay or failure in the exercise of
any power or right shall operate as a waiver thereof or as an
acquiescence in default. No single or partial exercise of any
power or right hereunder shall preclude any other or further
exercise thereof or the exercise of any other power or right.
12.13 SURVIVAL OF COVENANTS, ETC. All covenants,
representations, and warranties made herein to any parties or in
any statement or document delivered to any party hereto, shall
survive the making of this Agreement and shall remain in full
force and effect until the obligations of such party hereunder
have been fully satisfied.
12.14 FURTHER ACTION. The parties hereto agree to
execute and deliver such additional documents and to take such
other and further action as may be required to carry out fully
the transaction(s) contemplated herein.
12.15 AMENDMENT. This Agreement or any provision hereof
may not be changed, waived, terminated or discharged except by
means of a written supplemental instrument signed by the party or
parties against whom enforcement of the change, waiver,
termination, or discharge is sought.
12.16 HEADINGS. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and
shall not affect the meaning or construction of any of the
provisions hereof.
12.17 COUNTERPARTS. This agreement may be executed in
two or more partially or fully executed counterparts, each of
which shall be deemed an original and shall bind the signatory,
but all of which together shall constitute but one and the same
instrument, provided that Purchaser shall have no obligations
hereunder until all Shareholders have become signatories hereto.
IN WITNESS WHEREOF, the parties hereto executed the fore
going Acquisition Agreement as of the day and year first above
written.
13
<PAGE>
TELETEK, INC.
By: /s/John Vergiels
John G. Vergiels, Chairman
Attest: /s/ Thomas A. Mills
COMPANY: SELECTEL CORPORATION
By: /s/
President
Attest:____________________
SHAREHOLDERS:
/s/ /s/
___________________________ /s/
14
<PAGE>
[LETTERHEAD OF CROUCH, BIERWOLF & CALL]
Securities and Exchange Commission
Washington, DC 20549
We were previously the independent accountants for Teletek, Inc.
and on October 10, 1995, we reported on the consolidated
financial statements for Teletek, Inc. and subsidiaries as of
and for the two years ended June 30, 1994 and 1995. In February,
1996, we were dismissed as independent accountants of Teletek,
Inc. We have read Teletek, Inc.'s statements included under Item
9 of its annual report on Form 10-K for the year ended June 30,
1996, and we agree with such statements.
/s/ Crouch, Bierwolf & Call
Crouch, Bierwolf & Call
Salt Lake City, Utah
October 10, 1996
EXHIBIT 21.01
<PAGE>
LIST OF SUBSIDIARIES
STATE OF
NAME INCORPORATION
Hi-Rim Communications, Inc. Nevada
SelecTel Corporation Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statements of income of Teletek, Inc. as
of and for the year ended June 30, 1996, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,486
<SECURITIES> 0
<RECEIVABLES> 12,139
<ALLOWANCES> 450
<INVENTORY> 0
<CURRENT-ASSETS> 13,687
<PP&E> 2,697
<DEPRECIATION> 304
<TOTAL-ASSETS> 18,616
<CURRENT-LIABILITIES> 12,785
<BONDS> 0
0
70
<COMMON> 1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,601
<SALES> 0
<TOTAL-REVENUES> 50,074
<CGS> 41,739
<TOTAL-COSTS> 41,739
<OTHER-EXPENSES> 4,715
<LOSS-PROVISION> 483
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 2,224
<INCOME-TAX> 135
<INCOME-CONTINUING> 2,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,089
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
