UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998
OR
| | 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 0-4410
TELECOMM INDUSTRIES CORP.
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(Name of Small Business Issuer as Specified in Its Charter)
Delaware 34-1765902
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(State of Incorporation) (I.R.S. Employer Identification No.)
1743 Quincy Ave. Naperville, Illinois 60540
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(Address of Principal Executive Offices) (Zip Code)
(630) 369-7111
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ____
State issuer's revenues for its most recent fiscal year. $24,023,226
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.).
Common Stock, $0.01 par value: $5,255,178 (as of March 30, 1999)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Stock, $0.01 par value: 12,121,559 (as of March 30, 1999)
Transitional Small Business Disclosure Format (check one): Yes No X .
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TELECOMM INDUSTRIES CORP. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Description of Business...........................................................3
Item 2. Description of Property...........................................................8
Item 3. Legal Proceedings.................................................................8
Item 4. Submission of Matters to a Vote of Security Holders...............................8
Item 5. Market for Common Equity and Related Stockholder Matters..........................9
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................................11
Item 7. Financial Statements..............................................................17
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................................N/A
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.................................17
Item 10. Executive Compensation............................................................17
Item 11. Security Ownership of Certain Beneficial Owners and Management....................17
Item 12. Certain Relationships and Related Transactions....................................17
Item 13. Exhibits and Reports on Form 8-K..................................................18
</TABLE>
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PART I
DESCRIPTION OF BUSINESS
The Company
Telecomm Industries Corp. ("Telecomm" or the "Company"), a Delaware
corporation, is one of the nation's largest Regional Bell Operating Company
("RBOC") distributors. As such, Telecomm sells voice, data, cellular, video and
telephone information network solutions to business customers throughout its
five-state region. Ameritech and BellSouth are Telecomm's primary RBOC partners.
The voice services offered by these RBOCs include Centrex, Centrex-ISDN,
Multiserve, Intra-LATA usage plans and audio-conferencing. Data services include
DS0, DS1, DS3, Synchronet, Frame Relay, Sonet, ATM, ISDN and ISDN Prime.
In addition, Telecomm also represents numerous manufacturers of voice
and data equipment. Telecomm markets, installs and maintains telecommunications
equipment manufactured by such globally recognized companies, such as Nortel
(Northern Telecom), Lucent, Toshiba, NEC, and Comdial.
Companies who purchase data equipment from a manufacturer, add value to
the equipment through technical expertise and additional software, and then
resell these solutions to their customers, are called Value Added Resellers
("VARs"). Telecomm was identified as one of the 500 largest VARs in the country
in VAR Business Magazine's 1998 annual industry report. Telecomm's value added
services include network consultation, design, installation, maintenance and
product repair of various manufacturers, including Microsoft, Ascend, Intel,
Adtran, Cisco, Amdahl and Citrix. These manufacturers are generally recognized
throughout the industry for providing high quality technology and innovative
software.
Telecomm operates sales offices in Chicago and Naperville, Illinois;
Indianapolis, Evansville, Schererville, South Bend, and Muncie, Indiana;
Cleveland, Columbus, Dayton and Independence Ohio; Green Bay, Wisconsin; and
Louisville, Kentucky. Telecomm's customers can be found in virtually all
industries, particularly mid-size business enterprises, state and municipal
governments, financial institutions, manufacturing companies and public school
systems. Telecomm's customers' systems range in size from 2 to 7,600 telephone
lines and in sophistication from basic telephone operations to extensive
communications networks that include voice messaging, automatic call
distribution and multi-location networks. The Company also services customers
with advanced data networks.
Telecomm, which is located at 1743 Quincy Avenue, Naperville, Illinois
60540 (telephone number 630-369-7111), was originally incorporated in 1967 as
Scotco Data Leasing Incorporated, and from 1984 to October 18, 1993 was inactive
and had no operations. To streamline the Company's operations, the Company's
wholly-owned subsidiaries, Authorized Network Distributors, Inc. ("AND") and
Centel Corporation ("Teleco") were merged with and into the Company on November
11, 1997. AND and Teleco were acquired in August 1995 and April 1994,
respectively, and in January 1996 the Company, through AND, acquired Seraphim
Information Systems, Inc. Teleco operated as an Ameritech authorized distributor
of telecommunications services in Ohio, and AND operated as an Ameritech
authorized distributor of telecommunications services in Illinois, Indiana and
Ohio. Seraphim operated as an Ameritech authorized distributor of data services,
integrated hardware and software networking solutions in northern Illinois,
particularly the Chicago market. Today, Telecomm has two wholly-owned
subsidiaries, Teleco Acquisition Corp. ("TAC") which was formed to acquire
Unitel, Inc. ("Unitel") in August 1997, and NetVision.Com Inc. ("NetVision.Com")
which is described below.
3
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Acquisition Strategy
To effect its growth strategy, Telecomm has been an aggressive
acquirer. The Company made three acquisitions in 1997. Telecomm acquired
Long-Tell Communications, Inc. ("Long-Tell"), a distributor of long distance
telephone services by merger on January 2, 1997.
On January 4, 1997, Telecomm acquired Northeastern Communications
Services, Inc., ("NCS"). NCS operated as an Ameritech authorized distributor of
voice and usage services, and as a NEC distributor for PBX and Key telephone
systems. NCS was headquartered in Green Bay, Wisconsin and had offices
throughout the state.
Unitel, with seven offices throughout Indiana and Kentucky, had
operated as a computer and telecommunications integrator and a distributor of
Ameritech and BellSouth services. The purchase was effective August 12, 1997.
TAC has continued to use the acquired assets in the same manner as used by
Unitel prior to the purchase.
On January 1, 1998, Telecomm management formed an acquisition team to
evaluate prospective acquisition opportunities. In 1998, the Company's
acquisition strategy was focused on geographic expansion and economies of scale
in administration and sales support. The first 1998 acquisition was completed
when Telecomm acquired substantially all of the assets of Division-Tel
Communications Group, Inc. ("Division-Tel") on February 20, 1998. Division-Tel
was one of Ameritech's fastest growing distributors in Southern Indiana.
Telecomm continues to use the Division-Tel assets in substantially the same
manner as they were used prior to the acquisition.
The Company's acquisition strategy calls for the identification of
acquisition targets that meet certain criteria. The Company will pursue and
negotiate with candidates that operate as interconnect service providers and or
network service providers in the Ameritech States: Indiana, Illinois, Ohio,
Michigan and Wisconsin, and the nine Bell South States: Kentucky, North and
South Carolina, Georgia, Tennessee, Alabama, Florida, Louisiana and Mississippi.
Telecomm will seek acquisition candidates that would be immediately accretive to
earnings per share, have a strong management team in place that is compatible
with the Company's management and have a satisfied customer base.
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In late 1998, Telecomm was approached by an Internet Service Provider
("ISP") that had been utilizing the Company to design and procure its Internet
backbone. The ISP expressed its interest in a strategic alliance with the
Company. After a thorough analysis by Telecomm's acquisition team, it appeared
prudent to explore this avenue whereby the Company could increase the demand for
circuits and equipment from its business customers and, due to the increased
business volume, create increased demand for circuits by the ISPs. The Company
appears to be well positioned to participate in the consolidation of this
industry due to the established relationships with the ISPs within the customer
base.
Pursuant to the acquisition team's findings, the Company's Board of
Directors instructed management to develop a strategy that would allow Telecomm
to capitalize upon its unique position without jeopardizing its strong
relationship with its RBOC partners. In February 1999, the Company created
NetVision.Com, a wholly owned subsidiary whose primary purpose is to create
alliances and consider acquisitions of ISPs. Since its inception, Netvision.Com
has executed letters of intent to purchase six Internet companies. The Company
continues to consider various alternatives to maximize shareholder value created
by its Internet subsidiary.
Sales and Marketing
Telecomm and TAC presently employ 50 sales personnel. Sales Managers,
who report to the Vice President of Sales, manage and develop Telecomm's sales
force by monitoring target objectives such as gross sales, revenue margin and
division profitability. Based on the experience level, each sales person is
assigned a monthly objective. Exceeding target objectives triggers eligibility
for incentive bonuses at various plateaus. Additionally, the Company partners
with third party firms and consultants to supplement their product lines with
voice and data applications provided by Telecomm through Ameritech. The success
of Telecomm's sales force has enabled its product marketing department to
negotiate volume discounts and other advantageous terms that significantly
enhance the Company's products and services.
Telecommunications Industry Regulation
The telecommunications industry is undergoing significant changes. The
Telecommunications Act of 1996 (the "Act") was signed into law on February 8,
1996. Congress and the Justice Department, through legislation and consent
decrees, had previously overseen the deregulation of the long distance and
equipment segments of the industry. This Act is intended to bring competition to
local telephone service, and thereby, provide the final step in the deregulation
of the telecommunications industry in this country.
The Company believes that the Act will bring significant change at the
federal and state levels by enabling the RBOCs and other Local Exchange Carriers
("LECs") that provide local telephone service and Inter-Exchange Carriers
("IXCs") that carry long distance traffic to begin competing in the same market.
In addition, services historically offered at a single tariff rate will be
available at wholesale and retail rates. Accordingly, the Company believes some
customers will choose their service provider based entirely on price, while
others will select their vendor based upon the type and sophistication of
services they provide.
Local exchange and long distance service companies, cable TV companies,
cellular service companies, computer concerns and the entertainment and
information services industries are merging, forming alliances and positioning
to provide a variety of products and services. New competitive LECs have been
formed to purchase services from the RBOCs at wholesale rates and resell these
services to their customers. Regulatory, legislative and judicial decisions and
technological advances, as well as heightened customer interest in advanced
telecommunications services, have expanded the types of available communications
products and services as well as the number of companies offering such services.
5
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Regulatory Environment.
Telecomm's service providers are subject to regulation by the Federal
Communications Commission and various state public utilities commissions. The
Company believes that the complex regulatory environment in which its suppliers
operate has little effect on Telecomm's ability to distribute equipment and
services, and that many sources of supply exist for the types of equipment and
services sold.
Competition
The distribution of telecommunications services and equipment is highly
fragmented and competitive. Many of the Company's competitors are larger than
the Company and have financial and other resources substantially greater than
the Company. Telecomm faces substantial direct competition for the same small
and medium sized business customers that it targets in all of its markets.
Telecomm competes, as a full-service provider of its customers' voice and data
communications needs, providing high quality, competitive prices and a wide
array of equipment and services.
Management believes that substantial opportunities will continue to
arise to increase value for stockholders by expanding Telecomm's business.
Technological advances consistently provide new services for the company to sell
to its existing customer base. The existing relationship with these customers
offers a distinct advantage to the Company over its competition.
The Company anticipates that as local telephone service becomes more
competitive under the provisions of the Act, the RBOCs, and consequently the
Company, will face more competition in the provision of these services.
Employees
As of December 31, 1998, Telecomm and its subsidiary employed 200
persons, compared to 218 at December 31, 1997. Of these employees, 192 are
employed on a full time basis and 8 are employed on a part time basis. The
Company is in the process of increasing its sales force while reducing its
proportionate share of overhead.
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Executive Officers.
The current officers of Telecomm are listed below. Each has been duly
appointed to serve in the capacity set forth opposite their respective names.
Date Service
Name Age Commenced Positions With Registrant
- ----------------------- ----- ------------- ---------------------------
James M. Lowery 50 February 1997 Chairman of the Board
and Chief Executive Officer
Mark Travi 34 July 1998 Chief Financial Officer
Paul J. Satterthwaite 44 August 1997 Director, Vice-President of
Mergers and Acquisitions and
Secretary
James M. Lowery. Mr. Lowery became Chairman of the Board and Chief
Executive Officer of the Company in February 1997 and was President of Seraphim
Information Systems, Inc. ("Seraphim") from August 1992 until it was merged into
the Company in January 1996. Prior to that time, he was employed by Ameritech as
Director of Channel Management for the authorized distributors in Ameritech's
marketing area.
Mark Travi. Mr. Travi has served as the Chief Financial Officer of
Telecomm since July 1998. Before joining Telecomm, Mr. Travi was the former
Chief Financial Officer of the recruitment division of TMP Worldwide ("TMP").
Prior to TMP, he spent 7 years in public accounting.
Paul Satterthwaite. Mr. Satterthwaite has served as a Director and as
Vice-President of Mergers and Acquisitions of the Company since August 1997. For
more than five years prior to that time, he served as President and Chief
Executive Officer of Unitel.
On July 2, 1997, while Paul Satterthwaite was an officer of Unitel,
prior to its acquisition by Telecomm, an involuntary petition was filed under
Chapter 7 of the Bankruptcy Code against Unitel. The petition was dismissed on
July 29, 1997 after a settlement was reached with Unitel's creditors.
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Description of Property.
Telecomm's principal offices are located in approximately 1,650 square
feet of a one-story brick building located in Naperville, Illinois;
approximately 35,000 square feet of a two-story brick building in Indianapolis,
Indiana; and approximately 6,000 square feet of a one-story brick building
located in Mentor, Ohio. The Mentor facility is leased from an affiliate. The
lease expired on November 31, 1998 and is currently at a monthly rate of $2,400.
The Indianapolis facility is leased from affiliates through May 1999. The
Company makes monthly payments for the Indianapolis facility of $12,542 for rent
plus approximately $10,000 for certain expenses. The Company executed a new
six-year lease from the same affiliates to relocate to approximately 15,000
square feet in the same building reducing the total monthly payments for the
facility to $15,000.
Telecomm also has sales offices in several Illinois, Kentucky, Indiana
and Ohio cities. Such offices are leased on a short-term basis not exceeding
five years.
Legal Proceedings.
Telecomm is not a party to, nor are any of Telecomm's assets subject
to, any pending legal proceedings other than non-material litigation incidental
to its business.
Submission of Matters to a Vote of Securities Holders.
None.
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PART II
Market for Common Equity and Related Stockholder Matters.
Market Information
Since November 1, 1993, Telecomm's Common Stock has traded on the
NASDAQ over-the counter market and has been quoted on the NASDAQ Electronic
Bulletin Board under the symbol "TCMM." The following quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Representative Prices
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Calendar Quarter High/Ask Low/Bid
- ---------------- -------- -------
First quarter 1997 1-3/4 1
Second quarter 1997 1-9/16 1-1/8
Third quarter 1997 1-11/32 27/32
Fourth quarter 1997 1-13/16 5/8
First quarter 1998 1-9/16 1-3/32
Second quarter 1998 1-9/16 7/8
Third quarter 1998 1-5/16 13/16
Fourth quarter 1998 27/32 7/16
Holders
The approximate number of holders of Telecomm's Common Stock as of
December 31, 1998 was 405.
Unregistered Stock Issuances
In January 1997, Telecomm issued 400,000 shares of Common Stock
("Shares") to Peter Olk in connection with the acquisition of NCS; 112,500
Shares to Dennis Gehrisch in connection with the acquisition of Long-Tell;
20,202 Shares to Vito Centofani in connection with the acquisition of NCS and
25,253 Shares to Jane Shirk, also in connection with the acquisition of NCS.
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In August 1997, Telecomm issued 1,000,000 Shares to each of Jon
Satterthwaite and Paul Satterthwaite in connection with the acquisition of
Unitel. Also in connection with the acquisition, Telecomm issued a $1.0 million
5% convertible promissory note (the "Note") to P&J Corporation, an affiliate of
Messrs. Satterthwaite. The Note has a term of five years and is convertible, at
the holder's election, at its maturity.
In February 1998, the company issued 350,000 shares in connection with
the acquisition of Division-Tel.
In May 1997, Telecomm granted 400,000 options to purchase shares of
common stock for prices ranging from $3.00 to $14.00 to David Gruber in
consideration for consulting services (the "Options"). The agreement was amended
in April 1998, reducing the number of granted options to 300,000. These options
are exercisable for prices ranging from $3.00 to $10.00 per share.
Each of the above described issuances were exempt under Section 4(2) of
the Act.
Dividends
Telecomm has not declared any cash dividends to date. The Company
intends to retain earnings, if any, to finance the growth and development of its
business and does not anticipate paying any cash dividends in the foreseeable
future. Any future dividends will depend on earnings, capital requirements and
the financial condition of the Company, and on such other factors as the
Company's Board of Directors may consider relevant.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
Telecomm is one of the nation's largest RBOC distributors. The Company
sells voice, data, cellular, video and telephone information network solutions
to business customers throughout its five-state region. Ameritech and Bell South
are Telecomm's primary RBOC partners. In addition, Telecomm represents numerous
manufacturers of voice and data equipment by marketing, installing and
maintaining their telecommunications equipment. Telecomm also operates as a
value added reseller ("VAR") of data equipment. By definition, a VAR is a
company that purchases data equipment from a manufacturer, adds value to the
equipment through technical expertise and additional software, and then resells
these solutions to their customers.
Telecomm was identified as one of the 500 largest VARs in the country
in VAR Business Magazine's 1998 annual industry report. Telecomm's value added
services include network consultation, design, installation, maintenance and
product repair of various manufacturers, including Microsoft, Ascend, Intel,
Adtran, Cisco, Amdahl and Citrix. These manufacturers are generally recognized
throughout the industry for providing high quality technology and innovative
software.
Prior to June 1996, Ameritech paid 100% of the Company's earned
commission at the time the service was installed. After June 1996, Ameritech
began paying 60% of the Company's earned commissions at the time the service was
installed, and the remaining 40% over the life of the contract.
Under Ameritech's accelerator bonus system, significant bonuses are
awarded to the Company for each commission dollar earned over a certain
threshold. Once the threshold is reached, revenue derived from Ameritech sales
increases at a greater rate than prior to the Company's obtaining the target.
Also, once the target is reached, the Company earns promotional and co-op
advertising dollars to be spent in the subsequent year.
In the third quarter of 1996, Ameritech implemented a new billing and
customer record system in an effort to consolidate and standardize its five
non-standard billing systems. The combined effect on the Company of the change
in timing of commission payments and the new system implementation lengthened
the collection period for Ameritech receivables adversely affecting the
Company's working capital and cash flow.
On December 31, 1998 the Company entered into a new agreement with
Ameritech which superseded the previous contract. This new agreement
significantly increased the Company's compensation for many of the data products
sold and also increased the percentage of compensation received at the time of
installation. In addition, Ameritech has simplified its payment approach by
using standard flat rates on voice and usage products. The net effect of these
changes for 1999 will increase revenue and enhance working capital by reducing
the delay associated with their collection.
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While Ameritech is Telecomm's most significant supplier, Telecomm's
acquisitions have enabled it to diversify its product mix. Unitel, acquired in
August 1997, derived revenues predominantly from equipment and service sales,
while prior to the Unitel acquisition, Telecomm derived revenues primarily from
RBOC commissions. The diversification process is ongoing. The Company continues
to sell increased amounts of Ameritech product and services, while reducing the
percent of the same as related to overall revenues. Management believes that
this diversification will enable Telecomm to continue its rapid growth and
maintain its relationship with Ameritech while significantly reducing its
reliance on Ameritech.
Year 2000 Technology
Based upon a review by management, the Company has completed its
Year-2000 compliance requirements on all of the major internal systems through
software upgrades. These upgrades will enable the systems to properly process
transactions relating to the year 2000 and beyond. The Company has assessed
third party issues to determine what impact, if any, they will have on the
Company's operations with respect to the year 2000. All of the Telecomm's major
vendors have indicated that they are currently Year-2000 compliant or will be by
December 1999. However, the Company will continue to evaluate whether additional
corrective action will be necessary.
1998 vs. 1997
The Company's net revenues increased 41% to $24.0 million for the year
ended 1998 from $17.1 million in the comparable 1997 period. The increase is
attributable to a $6.1 million increase from equipment sales and service
revenues and a $.5 million increase in network service revenue. The total
revenue breakdown demonstrates this gradual shift to increased equipment sales.
A comparison of the periods with respect to allocation of total net revenues is
as follows:
Year ended Year ended
1998 1997
Sales of equipment and service revenue 55% 42%
Sales of network services 43% 57%
Long distance and other services 2% 1%
Net revenues from equipment sales and service increased 86% to $13.2
million for the year ended 1998 from $7.1 million for the year ended 1997. Of
the $13.2 million, $8.1 million relates to voice equipment sales and services
and $5.1 million relates to data equipment sales and services.
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Net revenues from network services sales increased 6% to $10.2 million
for the year ended 1998 from $9.7 million in the comparable period for 1997. Of
the $10.2 million, $6.9 million relates to voice network services and $3.3
million relates to data network and services.
Net cost of commissions, contractor fees and related expenses increased
$5.9 million to $11.7 million for the year ended 1998, a 103% increase from said
expenses of $5.8 million in the comparable period of 1997. The increase was
primarily due to increased costs of labor and equipment to support equipment
sales generated in the year ended 1998. As a percentage of net revenues, these
expenses increased to 49% during the year ended 1998 from 34% during the
comparable period of 1997. This increase is primarily due to costs associated
with the Company's increased focus on equipment sales. The related expenses for
equipment sales require a higher percentage of the Company's revenues than the
Company's other sales and services.
Cost of equipment sales and service as a percentage of net revenues
from equipment sales and services increased to 87% during the year ended 1998
from 78% in the comparable 1997 period while the cost of network revenues as a
percentage of network revenues remained virtually unchanged at 2%. This increase
is attributed to heavy discounting by the sales staff to remain competitive in
certain markets and an increase in the indirect cost of the service department.
Selling, general and administrative expenses ("SG&A") increased $4.4
million to $13.5 million for the year ended 1998, a 48% increase from SG&A
expenses of $9.1 million in the comparable 1997 period. As a percentage of net
revenues, these expenses increased to 56% during the year ended 1998, from 54%
during the year ended 1997. This increase is primarily due to the addition of
the product marketing group which specialize in technical data support for the
sales department.
Interest expense increased by $304,000, or 135%, to $528,795 from
$224,750 in the comparable 1997 period. The increase in interest expense was
primarily a result of increased borrowings under the Company's credit facility
in order to support the working capital needs of increased equipment sales and
long-term receivables.
Income from operations before income taxes decreased by $4.0 million to
$(2.0) million for the year ended 1998, a decrease of 207% from $1.9 in the
comparable 1997 period. This decrease is due to several contributing factors.
Borrowing increased to meet the working capital needs of increased equipment
sales and fund the internal growth of Ameritech network sales. Consolidation and
restructuring expenses were incurred to improve and enhance data integrity and
operating efficiency. Inventory and intangible assets that were obsolete or no
longer considered part of the core business were written down to fair market
value. Acquisition related receivables that were deemed uncollectable were
written-off. In addition, a large reserve was recorded for trade and Ameritech
receivables that are currently in negotiations.
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The provision for income taxes decreased by $1.4 million to $(.6)
million for the year ended 1998, compared to $.8 million for the comparable 1997
period, due to decreased earnings.
As a result of the foregoing, net loss for the year ended 1998 was $1.5
million, a decrease of 230%, compared to the net income for the year ended 1997
of $1.1 million.
In 1998 Telecomm underwent some major changes to consolidate and
centralize the Company's operations and redefine the information technology and
accounting departments. Management believes that while these changes have
negatively impacted the short-term profitability, the Company will be better
positioned to integrate acquisitions and to achieve continued growth and
enhanced profitability in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund the growth of
long-term network service receivables, voice and data hardware sales, the
infrastructure to support and monitor the increased sales volume, and new
acquisitions.
Net cash used in operating activities was $2.8 million for the year
ended 1998 compared to net cash used in operating activities of $.8 million for
the comparable period in 1997. The change was primarily due to an increase of
$2.5 million in trade accounts receivable for the year ended 1998 compared to a
$.2 million decrease in the comparable 1997 period and a $.3 million increase in
inventory for the year ended 1998 compared to a $.1 million increase in the
comparable 1997 period. These changes are attributable to the Company's
increased emphasis on equipment sales, which requires the company to maintain
higher levels of inventory and to extend credit to customers.
The above uses of operating cash were offset by increases in accounts
payable and other accrued expenses of $.4 million and $.5 million, respectively
for the year ended 1998 as compared to decreases of $.6 million and $ .4
million, respectively for the comparable 1997 period.
Net cash used in investing activities was $.4 million for the year
ended 1998 compared to $.7 million for the comparable 1997 period. The use of
cash for investing activities was primarily attributable to the purchase of
property and equipment. This was comparable to 1997 except the company used cash
of $.3 million for three acquisitions while only $10,000 was used for an
acquisition in 1998.
Net cash provided by financing activities was $3.1 million for the year
ended 1998 compared to $1.4 million in the comparable 1997 period. The cash
provided is primarily attributable to a net increase in long term debt of $3.0
million in 1998. In 1997, cash provided by financing activities consisted
primarily of $1.3 million of short-term borrowings from the line of credit.
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The change in the commission payment structure by Ameritech, which was
implemented in June 1996, and Ameritech's continuing implementation of a new
billing and customer record system, lengthen the collection period of
receivables, adversely affecting the Company's working capital and cash flow. In
1999, Ameritech, under the new agreement, increased the percentage of
compensation at the time of installation and simplified its payment approach
using standard flat rates on voice and useage products. Management believes cash
flow will continue to be affected as long as the existing Ameritech commission
structure remains, however, the changes for 1999, as indicated above, will
enhance working capital by reducing the delay in collection. Further, the
growing annuity stream of the Ameritech long-term receivables should begin to
help offset this situation in future years.
On November 5, 1998, the Company entered into a financing relationship
with Merrill Lynch Business Financial Services Inc. ("MLBFS"). The structure of
the financing consists of three facilities. The first facility is a term note of
$6,000,000 collateralized by substantially all assets of the Company. Proceeds
of $5,441,179 were received in November and were used to retire the debt from
First Merit. The remaining available balance will provide additional working
capital for expenses relating to future acquisitions as they are incurred. The
term note which commenced on March 1, 1999, bears interest at an annualized rate
of 2.4% above the 30 day commercial paper rate (7.5% effective rate as of
December 31, 1998) and is payable in 60 monthly installments with a balloon
payment due February 1, 2004.
The second facility is a working capital line of credit in the amount
of $4,000,000. Interest is due monthly at an annualized rate of 2.4% above the
30 day commercial rate (7.5% effective rate as of December 31, 1998). The line
of credit is renewable on September 30, 2000.
The third facility is a $3,800,000 revolving credit line to be used
exclusively for specific planned acquisitions. This facility will expire on
September 30, 1999, if not utilized.
Because of the Company's increased emphasis on equipment sales and
related services, an increase in inventory and trade credit is expected. Trade
credit arises from the willingness of the Company's creditors to grant payment
terms for inventory purchases. Although the Company has obtained favorable
payment terms on its trade credit from its vendors, there is no assurance that
the Company will be able to obtain such terms in the future.
The Company may also seek to obtain additional sources of funding,
including additional debt or equity financing as the Company continues to grow.
There is no assurance that the Company will obtain such additional funds or,
that if obtained, such financing will be on terms favorable to the Company.
15
<PAGE>
Forward-Looking Statements
Certain statements contained in this report that are not historical
facts are forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. These risks and uncertainties
include, but are not limited to:
o the dependence of the Company on one principal supplier, Ameritech, for
a significant portion of its revenues;
o the effects of the proposed acquisition of Ameritech by Southwestern
Bell Communications;
o changes in Ameritech's commission payment plan and/or its billing and
record system, adversely affecting the Company's working capital and
long-term accounts receivable;
o changes in Ameritech's Distributor Agreement;
o fluctuations in quarterly revenues and earnings of the Company
depending on when Ameritech bonus acceleration targets are met;
o the ability of the Company to obtain additional financing to support
its growth;
o changes arising from greater competition in local telephone service
attributable to passage of the Telecommunications Act of 1996;
o the introduction of competitors into the market including competitors
with financial and other reserves significantly greater than those of
Telecomm;
o the ability of the Company to integrate the operations of recent
acquisitions into the Company;
o the availability of other acquisitions and the integration of the
operations of those acquisitions, if completed, into the Company, and
the availability of financing for such acquisitions;
o the ability of Telecomm to continue to grow its sales force internally
and to expand its product mix more toward the hardware business,
particularly in light of the increased competition in the
telecommunication markets in which Telecomm operates;
o the loss or inability to attract key personnel;
o the ability of the Company to secure a reasonably high percentage of
its outstanding accounts receivable; and
o general economic conditions, and other risk factors discussed herein.
In addition, any of the risks detailed above may have an impact on the
Company's ability to obtain additional working capital funds under its current
credit facility. An investor or potential investor in the Company must consider
these risks.
Financial Statements
Telecomm's Reports of Independent Accountants and Financial Statements
follow this page.
16
<PAGE>
Item 7. Financial Statements
Page
----
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-5
Notes to Financial Statements F-6 - F-20
Schedule II - Valuation and Qualifying Accounts
for the years ended December 31, 1998 and 1997 F-21
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
For information with respect to the executive officers of the
Registrant, see "The Company -- Executive Officers" in Part I of this Form
10-KSB. Telecomm will file with the Securities and Exchange Commission a
definitive Proxy Statement relating to its 1999 Annual Meeting of Stockholders
no later than 120 days after the close of its fiscal year ended December 31,
1998 (the "Proxy Statement"). The information with respect to the Directors of
Telecomm required by this Item is hereby incorporated by reference to the Proxy
Statement.
Item 10. Executive Compensation.
The section entitled "Executive Compensation and Other Information" in
the Proxy Statement is hereby incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The section entitled "Security Ownership of Certain Beneficial Owners
and Management" in the Proxy Statement is hereby incorporated by reference.
Item 12. Certain Relationships and Related Transactions.
The section entitled "Certain Relationships and Related Transactions"
in the Proxy Statement is hereby incorporated by reference.
17
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
A. Index to Exhibits
Exhibit
Number Description
2.1 Merger Agreement dated September 5, 1995 regarding Authorized Network
Distributors, Inc.(1)
2.2 Merger Agreement dated January 23, 1996 regarding Seraphim Information
Systems, Inc.(2)
3.4 By-Laws of Registrant.(3)
3.5 Amended and Restated Certificate of Incorporation of the Registrant,
dated October 1, 1996.(4)
10.1 Previously effective Non-Exclusive Authorized Distributor Agreement
between Telecomm and Ameritech.(5)
10.2 Superseding Non-Exclusive Authorized Distributor Agreement between
Telecomm and Ameritech, dated December 31, 1998. (Attached)
10.3 Credit and Security Agreement between Telecomm and Peoples Bank, N.A.,
dated September 24, 1997.(6)
10.4 Merger Agreement by and among Peter Olk and Thomas Raasch,
Northeastern Communications Systems, Inc. and Telecomm, dated January
1, 1997.(7)
10.5 Asset Purchase Agreement by and among Unitel, Inc., Paul
Satterthwaite, Jon Satterthwaite, Teleco Acquisition Corporation and
Telecomm, dated July 7, 1997.(8)
10.6 Merger Agreement by and among Micheal Meece, Division-tel
Communications Group, Inc and Telecomm, dated January 29, 1998, and
Addendum to Merger Agreement dated December 17, 1998. (Attached)
10.7 Term Loan and Security Agreement by and between Merrill Lynch Business
Financial Services and Telecomm Industries, dated October 13, 1998.
(Attached).
10.8 Telecomm Industries Corp. 1997 Stock Option and Award Plan as adopted
at the October 16, 1997 annual shareholders meeting. (Attached)
21 Subsidiaries of Registrant. (Attached)
27 Financial Data Schedule. (Attached)
B. Reports on Form 8-K.
None.
- ------------------------
1 Filed as an exhibit to Telecomm's Current Report on Form 8-K
dated September 7, 1995, and incorporated herein by reference.
2 Filed as an exhibit to Telecomm's Current Report on Form 8-K
dated January 25, 1996, and incorporated herein by reference.
3 Filed as an exhibit to Telecomm's Annual Reporton Form 10-KSB
for the year ended December 31, 1994.
4 Filed as an exhibit to Telecomm's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
5 Filed as an exhibit to Telecomm's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
6 Filed as an exhibit to Telecomm's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
7 Filed as an exhibit to Telecomm's Current Report on Form 8-K
dated January 3, 1997, and incorporated herein by reference.
8 Filed as an exhibit to Telecomm's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TELECOMM INDUSTRIES CORP.
By: /s/ James M. Lowery
------------------------------
James M. Lowery, Chairman
And: /s/ Mark Travi
-------------------------------
Mark Travi, Chief Financial and
Accounting Officer
Date: March 30, 1999
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ James M. Lowery Director and March 30, 1999
- -------------------------------- Chairman
James M. Lowery
/s/ Steven W. Smith Director March 30, 1999
- --------------------------------
Steven W. Smith
/s/ Raymond W. Sheets, Jr. Director March 30, 1999
- --------------------------------
Raymond W. Sheets, Jr.
/s/ Paul Satterthwaite Secretary, Director March 30, 1999
- -------------------------------- and Vice President
Paul Satterthwaite
19
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Telecomm Industries Corp. and Subsidiary
In our opinion, the consolidated financial statements listed in the index
appearing on page 17 present fairly, in all material respects, the financial
position of Telecomm Industries Corp and subsidiary at December 31, 1998 and
1997, and the results of their operations and their cash flows for the year
ended December 31, 1998 and for the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule listed in the index appearing
on page 17 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
March 19, 1999
F-1
<PAGE>
Telecomm Industries Corp.
Consolidated Balance Sheets
as of December 31, 1998 and 1997
ASSETS 1998 1997
-------------- --------------
Current assets:
Cash and cash equivalents $ - $ 97,779
Accounts receivable, net 5,041,578 3,387,943
Inventories 1,583,879 1,412,196
Prepaid income taxes 45,147 59,557
Prepaid expenses 118,499 133,936
Employee advances 67,769 147,601
-------------- --------------
Total current assets 6,856,872 5,239,012
Property and equipment, net 1,609,874 1,481,566
Accounts receivable, net 4,102,589 2,992,137
Intangibles and other assets, net 3,670,572 3,462,958
-------------- --------------
Total assets $ 16,239,907 $ 13,175,673
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 453,208 $ -
Line of credit 1,030,377 1,371,210
Current portion of long-term debt 733,389 404,780
Accounts payable 1,612,261 1,139,776
Accrued payroll and related expenses 310,012 268,191
Accrued commissions and bonus 631,492 575,500
Accrued contractor fees 98,311 180,813
Customer deposits 219,841 118,504
Deferred income taxes 108,594 342,321
Income taxes payable 141,107 109,399
Other accrued expenses 615,961 149,730
-------------- --------------
Total current liabilities 5,954,553 4,660,224
Long-term debt, less current portion 6,066,715 2,862,976
Deferred revenue 8,961 10,362
Deferred income taxes 441,709 906,913
-------------- --------------
Total liabilities 12,471,938 8,440,475
Commitments and contingencies - -
Stockholders' equity:
Common stock $.01 par value;
authorized - 20,000,000 shares; issued
12,650,746 and 12,300,746; outstanding
12,121,559 and 11,771,559, at
December 31, 1998 and 1997, respectively 126,508 123,008
Additional paid-in capital 3,957,172 3,577,632
Treasury stock, 529,187 shares at cost (317,512) (317,512)
Receivables from stockholders - (110,065)
Retained earnings 1,801 1,462,135
-------------- --------------
Total stockholders' equity 3,767,969 4,735,198
-------------- --------------
Total liabilities and
stockholders' equity $ 16,239,907 $ 13,175,673
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
Telecomm Industries Corp.
Consolidated Statements of Operations
for the years ended December 31, 1998 and 1997
1998 1997
------------- -------------
Network service revenue $ 10,209,138 $ 9,661,009
Equipment sales and service revenues 13,214,297 7,118,797
Long distance and other revenue 599,791 271,533
------------- -------------
Net revenues 24,023,226 17,051,339
------------- -------------
Commissions, contractor fees and related expenses 165,372 161,245
Equipment sales and service costs 11,517,829 5,554,531
Long distance and other costs 45,565 67,400
------------- -------------
Net cost of commissions, contractor fees
and related expenses 11,728,766 5,783,176
------------- -------------
Selling, general and administrative expenses 13,499,720 9,137,518
Impairment loss 311,656 --
------------- -------------
Operating (loss) income (1,516,916) 2,130,645
Other income (expense):
(Loss) on disposal of assets (1,008) (3,166)
Interest income -- 11,417
Interest expense (528,795) (224,750)
------------- -------------
(529,803) (216,499)
------------- -------------
(Loss) income from operations before
income tax (benefit) expense (2,046,719) 1,914,146
Income tax (benefit) expense (586,385) 792,683
------------- -------------
Net (loss) income $ (1,460,334) $ 1,121,463
============ ============
Net (loss) income per common share:
Basic $ (0.12) $ .10
============ ============
Diluted $ (0.12) $ .10
============ ============
Average number of common shares outstanding:
Basic $ 12,091,833 $ 10,854,949
============ ============
Diluted $ 12,091,833 $ 11,654,949
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
Telecomm Industries Corp.
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional Receivables
Common Stock Paid-In Treasury Stock From Retained
Shares Amount Capital Shares Amount Stockholders Earnings Total
---------- --------- ----------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 9,642,791 $ 96,428 $ 2,085,887 $ (44,531) $ 340,672 $ 2,478,456
Purchase of treasury shares (529,187) $ (317,512) (317,512)
Stock issued for Long-Tell, 112,500 1,125 91,800 92,925
Inc.
Stock issued for NCS
Communications 400,000 4,000 326,400 330,400
Stock issued for Unitel, 2,000,000 20,000 980,000 1,000,000
Inc.
Stockholder advances
acquired from Unitel, (174,227) (174,227)
Inc.
Settlement of advances
to stockholders 108,693 108,693
Stock purchased by 145,455 1,455 93,545 95,000
employees
Net income 1,121,463 1,121,463
---------- -------- ----------- --------- --------- ---------- ---------- ----------
Balance at December 31, 1997 12,300,746 123,008 3,577,632 (529,187) (317,512) (110,065) 1,462,135 4,735,198
Stock issued for
Division-Tel
Communications Group,
Inc. 350,000 3,500 416,500 420,000
Forgiveness of
stockholder's debt (36,960) 36,960 -
Settlement of advances 73,105 73,105
Net income (1,460,334) (1,460,334)
---------- -------- ----------- --------- --------- ------------ ---------- ----------
Balance at December 31, 1998 12,650,746 $ 126,508 $ 3,957,172 (529,187) $ (317,512) $ - $ 1,801 $ 3,767,969
========== ========= =========== ======== ========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
Telecomm Industries Corp.
Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) $(1,460,334) $ 1,121,463
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 588,184 388,170
Impairment loss 311,656 --
Deferred revenues (1,401) (966)
Deferred income taxes (698,931) 740,000
Reserve for bad debt 957,494 56,833
Reserve for inventory 150,000 --
Loss on sale of property and equipment 1,008 3,416
Changes in assets and liabilities:
Accounts receivable - trade (2,524,864) 210,499
Accounts receivable - long-term portion (960,452) (1,604,617)
Inventories (300,947) (59,487)
Prepaid income taxes 14,410 (11,297)
Prepaid expenses 19,337 (39,903)
Employee advances 82,832 (1,510)
Accounts payable - trade 442,485 (585,172)
Accrued payroll and related expenses 36,743 89,133
Accrued commissions and bonus 40,992 (241,400)
Accrued contractor fees (82,502) (296,279)
Customer deposits 101,337 (175,514)
Income taxes payable 31,708 28,263
Other accrued expenses 450,899 (428,002)
----------- -----------
Total adjustments (1,340,012) (1,927,833)
----------- -----------
Net cash (used in) operating activities (2,800,346) (806,370)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (446,981) (542,461)
Proceeds from sale of property and equipment 7,656 4,000
Purchase acquisitions, net of cash acquired
of $0 (1998)and $123,547 (1997) (10,000) (301,453)
(Increase) in other assets (62,657) --
Proceeds from stockholders' receivables 73,105 108,693
----------- -----------
Net cash (used in) investing activities (438,877) (731,221)
----------- -----------
Cash flows from financing activities:
Financing fees paid in connection with debt financing (167,084) --
Payments on long-term debt (3,395,026) (1,312,087)
Proceeds from issuance of long-term debt 6,591,179 1,273,831
Proceeds from common stock purchased by employees -- 95,000
Net (payments) borrowings under line of credit (340,833) 1,257,826
Notes receivable - related parties -- 400,000
Purchases of treasury stock -- (317,512)
Cash overdraft 453,208 --
----------- -----------
Net cash provided by financing activities 3,141,444 1,397,058
----------- -----------
Net decrease in cash (97,779) (140,533)
Cash at beginning of period 97,779 238,312
----------- -----------
Cash at end of period $ -- $ 97,779
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 528,795 $ 203,917
=========== ===========
Cash paid for income taxes $ 66,797 $ 31,048
=========== ===========
Non-cash investing and financing activities:
Common stock issued for purchase acquisitions $ 420,000 $ 1,423,325
=========== ===========
Notes issued for purchase acquisitions $ 20,000 $ 1,200,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
Telecomm Industries Corp.
Notes to the Consolidated Financial Statements, Continued
Telecomm Industries Corp.
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Principles of Consolidation: Telecomm Industries Corp. ("Telecomm" or the
"Company") is incorporated under the laws of the State of Delaware and
has its principal offices in Naperville, Illinois. In July 1997, Teleco
Acquisition Corporation ("Teleco Acquisition"), a wholly-owned subsidiary
and an Ohio corporation doing business under the tradename
Unitel/Telecomm Industries, was formed to acquire the assets of Unitel,
Inc. On November 11, 1997, the Company's wholly-owned subsidiaries,
Centel Corporation, an Ohio Corporation, doing business under the
tradename Teleco ("Teleco") and Authorized Network Distributor ("AND"),
an Indiana Corporation, were merged into Telecomm.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, Teleco Acquisition. All
significant intercompany accounts and transactions have been eliminated.
Business and Industry: The Company is an authorized distributor for
Ameritech, Bell South and GTE and is a full-service provider of
telecommunication services and equipment.
The telecommunications industry is undergoing significant changes. Local
exchange and long distance service companies, cable TV companies,
cellular service companies, computer concerns and the entertainment and
information services industries are converging, forming alliances and
positioning to provide a variety of services. Regulatory, legislative and
judicial decisions and technological advances, as well as heightened
customer interest in advanced telecommunication services, have expanded
the types of available communication services and products, as well as
the number of companies offering such services.
The distribution of telecommunications equipment and services is highly
fragmented and competitive. Many of the major suppliers to the industry
such as Ameritech, AT&T and Northern Telecom, have sales forces that
compete with their authorized distributors. These sales forces, as well
as those of various distributors, compete for the same small and medium
sized business customers that Telecomm targets. Telecomm competes as a
full-service provider of its customers' telecommunications needs, as well
as quality, price and selection of equipment and services.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. The
Company receives a significant amount of commission sales revenue from
Ameritech that is based upon the submission of valid sales contracts.
Sales transactions in support of commission sales revenue are subject to
adjustment upon review. Actual results may differ from those estimates.
Fair Value of Financial Instruments: Management has determined that the
carrying values of financial instruments, primarily accounts receivable,
accounts payable and debt (Note 5), approximate fair value.
F-6
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Concentrations of Credit Risk: Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
accounts receivable. Ameritech and its subsidiaries accounted for 42% and
57% of the Company's revenues for 1998 and 1997, respectively. At
December 31, 1998 and 1997 the outstanding accounts receivable balance
due from Ameritech was $7,211,327 and $5,023,231, respectively. The
Company may establish an allowance for possible losses based upon factors
surrounding the credit and historical information. At December 31, 1998
and 1997, the Company recorded an allowance for doubtful accounts of
approximately $906,000 and $145,000, respectively.
The Company places cash with high quality financial institutions. At
times, deposits may be in excess of FDIC insurance limits.
Property and Equipment: Property and equipment is recorded at cost, less
accumulated depreciation. Depreciation is computed principally by using
the straight-line method over the estimated useful lives. The provision
for amortization of leasehold improvements is based on the term of the
lease or the estimated useful lives, whichever is shorter.
Revenue Recognition: Revenues are recognized when earned and are recorded
net of estimated cancellations and chargebacks. Sales of data and voice
equipment and related services to such equipment will be recognized as
earned upon shipment or installation.
Network services or chargebacks will be recognized as earned when the
Company receives notification from the carrier that the service has been
installed or discontinued. The residual stream is recognized as earned
only if it can be reasonably estimated and the carrier's contract
stipulates a buyout clause for those future monies, otherwise it will be
recognized on a monthly basis over the term of the contract.
Inventory: Inventory consists of purchased equipment for installation
contracts and is recorded at the lower of cost (first-in, first-out) or
market value.
Intangible and Other Assets: The excess of the purchase cost over the
fair value of net assets in an acquisition (goodwill) is included in
intangible and other assets in the accompanying consolidated balance
sheet. Goodwill is amortized on a straight-line basis over fifteen to
thirty years.
Other intangibles are amortized over their estimated useful lives.
Software costs are capitalized in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise Marketed" and are included in
intangible and other assets in the accompanying consolidated balance
sheets. Purchased computer software is capitalized and amortized for both
financial and tax reporting purposes, using the straight-line method,
over the expected useful life of the software, generally no more than
five years. Similarly, internally developed computer software for sale or
lease is capitalized and amortized for financial reporting purposes using
the straight-line method.
F-7
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Intangible and Other Assets, continued:
The Company's policy is to evaluate the intangible assets based on a
review of such factors as the occurrence of a significant adverse event
or change in the environment in which the business operates or if the
expected future net cash flows (not discounted and without interest)
would become less than the carrying amount of the asset. An impairment
loss is recorded in the period such determination is made based on the
fair value of the related businesses.
Income Taxes: The Company utilizes the liability method of computing
deferred income taxes. Deferred income taxes are recorded to reflect the
income tax consequences on future years of temporary differences between
the income tax and financial reporting bases of assets and liabilities as
of the balance sheet date. Under the liability method, deferred income
taxes are adjusted for tax rate changes as they occur. This method also
provides for the current recognition of the expected income tax benefits
from net operating losses if it is expected such income tax benefits are
more likely than not to be realized.
Receivables From Stockholders: Advances and other receivables due from
stockholders have been recorded as a reduction of stockholders' equity.
Stock-Based Compensation: Effective for the fiscal year ending December
31, 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". The pronouncement encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock
options, and other equity instruments to employees based on new fair
value accounting rules. The Company did not adopt the new fair value
accounting, but instead chose to comply with the disclosure requirements
of SFAS No. 123. Accordingly, the adoption of SFAS No. 123 did not have a
material impact on the Company's financial statements.
Earnings Per Share: The Company adopted SFAS No. 128, "Earnings Per
Share" for the year ended December 31, 1998. The pronouncement specifies
the computation, presentation, and disclosure requirements for earnings
per share. Adoption of this pronouncement, which was applied to prior
periods presented, did not have a material impact on the Company's
financial statements.
Reclassifications: Certain items in the 1997 consolidated financial
statements of the Company have been reclassified to conform to the
current year's presentation.
2. Acquisitions:
On February 20, 1998, the Company acquired Division-Tel Communications
Group, Inc. ("Division-Tel") under the provisions of an Asset Purchase
Agreement. Under the terms of this agreement, the Company issued 350,000
shares of its common stock valued at $420,000, paid $10,000 in cash,
issued a $20,000 promissory note, due August 1998, and assumed
approximately $370,480 of Division-Tel's liabilities in exchange for all
of the outstanding common stock of Division-Tel.
F-8
<PAGE>
2. Acquisitions, continued:
The net purchase price was allocated as follows:
Current assets $ 95,876
Property and equipment 80,599
Other assets 156,900
Goodwill 487,105
Liabilities assumed (370,480)
---------
Net purchase price 450,000
Less: Common stock 420,000
Non-cash note payable 20,000
---------
Cash paid for acquisition $ 10,000
=========
Goodwill is being amortized on a straight-line basis over 15 years. The
amortization expense for fiscal 1998 is $29,768.
On August 12, 1997, the Company purchased all of the assets of Unitel,
Inc. ("Unitel"), an Indiana corporation, pursuant to an Asset Purchase
Agreement dated July 7, 1997, among the Company, Unitel, Paul
Satterthwaite, Jon Satterthwaite, the controlling stockholders of Unitel,
and Teleco Acquisition. The purchase price for the assets consisted of
(i) 2,000,000 shares of the Company's common stock valued at $1,000,000,
(ii) a convertible promissory note in the principal amount of $1,000,000,
and (iii) the assumption of Unitel's liabilities, including a bank loan
with a balance of $1,309,000, and obligations to trade creditors of
Unitel in an amount not to exceed $1,200,000.
The Unitel asset acquisition has been accounted for using the purchase
method of accounting and accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based upon
the fair values at the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired was $2,112,617 and
has been recorded as goodwill, which is being amortized on a
straight-line basis over thirty years.
F-9
<PAGE>
2. Acquisitions, continued:
The net purchase price was allocated as follows:
Current assets $ 1,827,297
Property and equipment 777,471
Stockholder receivable 174,227
Other assets 381,204
Goodwill 2,112,617
Liabilities assumed (3,272,816)
----------
Net purchase price 2,000,000
Less: common stock issued 1,000,000
convertible note issued 1,000,000
----------
Cash paid for acquisition $ --
==========
Had the acquisition of Unitel occurred at January 1, 1997, the unaudited
pro forma consolidated statement of operations for the year ended
December 31, 1997 would have been as follows:
<TABLE>
<CAPTION>
Telecomm Pro Forma
Industries Unitel, Inc. Statement of
Corp. (1/1/97 to Pro Forma Operations
(as reported) 8/12/97) Adjustments (Unaudited)
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net revenues $ 17,051,339 $ 4,952,033 $ 22,003,372
Operating expenses 14,920,694 4,709,560 $ 28,600 (1) 19,658,854
Other income (expense) (216,499) (216,499)
-------------- ------------- ------------ --------------
Income (loss) from operations
before income taxes 1,914,146 242,473 (28,600) 2,128,019
Income taxes 792,683 96,989 (2) 889,672
-------------- ------------- ------------ --------------
Net income (loss) $ 1,121,463 $ 242,473 $ (125,589) $ 1,238,347
============== ============= ============ ==============
Earnings per common share:
Basic $ .10 $ .11
============== ==============
Diluted $ .10 $ .11
============== ==============
Average number of common shares outstanding:
Basic 10,854,949 10,854,949
============== ==============
Diluted 11,654,949 11,654,949
============== ==============
<FN>
(1): Adjustment to recognize amortization of Unitel non-compete agreement and
customer lists.
(2): Adjustment to record income tax provision as if Unitel had been treated as
a "C" corporation.
</FN>
</TABLE>
F-10
<PAGE>
2. Acquisitions, continued:
On January 2, 1997, the Company acquired Northeastern Communication
Systems, Inc. ("NCS") under the provisions of a Stock Purchase Agreement.
Under the terms of this agreement, the Company issued 400,000 shares of
its common stock valued at $330,400, paid $400,000 in cash and assumed
$503,957 of NCS's liabilities for all of the outstanding common stock of
NCS.
The NCS acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values
at the date of acquisition. The excess of the purchase price over the
fair values of the net assets acquired was $759,219 and has been recorded
as goodwill, which is being amortized on a straight-line basis over
fifteen years. The net purchase price was allocated as follows:
Working capital $ 194,497
Property and equipment 280,641
Goodwill 759,219
Liabilities assumed (503,957)
----------
Net purchase price 730,400
Less: common stock issued 330,400
---------
Cash paid for acquisition $ 400,000
=========
On January 2, 1997, the Company entered into a Stock Purchase Agreement
to purchase all of the outstanding stock of Long-Tell, Inc. of Mentor,
Ohio. Under the terms of this agreement, the Company issued 112,500
shares of its common stock valued at $92,925, paid $25,000 cash and
issued a $200,000 note (bearing interest at a fixed rate of 9% and
maturing January 2, 2002). The entire purchase price was allocated to
goodwill and is being amortized on a straight-line basis over 15 years.
F-11
<PAGE>
3. Property and Equipment:
Property and equipment at December 31, 1998 and 1997, consists of the
following:
<TABLE>
<CAPTION>
Useful Lives 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Office furniture and fixtures 5-7 years $ 599,571 $ 542,076
Transportation equipment 3-5 years 346,692 286,017
Leasehold improvements Life of Lease 59,699 42,899
Computer equipment 5 years 1,203,566 868,748
Cable plant 7 years 206,373 206,373
------------- -------------
2,415,901 1,946,113
Less accumulated depreciation 806,027 464,547
------------- -------------
$ 1,609,874 $ 1,481,566
============= =============
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997,
amounted to $390,608 and $271,323, respectively.
4. Intangible Assets:
Intangibles and other assets at December 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
Useful Lives 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Goodwill 15-30 years $ 3,676,867 $ 3,189,761
Customer lists 15 years 99,482 99,482
Loan acquisition costs 5 years 167,084 -
Software development costs 3-5 years 50,000 308,800
------------- -------------
3,993,433 3,598,043
Less accumulated amortization 322,861 135,085
------------- -------------
$ 3,670,572 $ 3,462,958
============= =============
</TABLE>
Amortization expense for the years ended December 31, 1998 and 1997,
amounted to $187,776 and $116,847, respectively.
In the fourth quarter of fiscal 1998, the Company recorded a non-cash
impairment loss of $311,656 related to capitalized software. In 1998, the
company evaluated the recoverability of its capitalized software and
determined that the future cash flows to be received are less than the
carrying value of the asset. As a result, the asset was written down to
its fair value and an impairment loss was recognized.
F-12
<PAGE>
5. Debt:
<TABLE>
<CAPTION>
Long-term debt at December 31, 1998 and 1997 consists of the following:
1998 1997
---------- ----------
<S> <C> <C>
Note payable to a financial institution for $5,441,179, collateralized by a
blanket filing on corporate assets. Interest accrues at 2.4% over the
30-Day Commercial Paper Rate (7.5% effective rate at December 31,
1998). The note requires interest only payments for three months with
principal and interest payable thereafter in 60 monthly installments
Monthly principal payments of $64,776 commence March 1, 1999 with
a balloon payment due on February 1, 2004 of $1,554,619. $5,441,179 $ --
Note payable to a financial institution for $2,000,000, collateralized by a
blanket filing on corporate assets. Principal and interest (fixed at
9.23% per annum) is payable in 59 monthly installments of $41,740
commencing October 1, 1997 and maturing September 24, 2002. -- 1,920,757
Note payable to a related party in connection with the acquisition of
Long-Tell, Inc. Principal is due on January 2, 2002. Interest is payable
quarterly at 9% per annum. 200,000 200,000
Convertible note payable to a related party in connection with the
acquisition of Unitel, Inc. Principal is due on August 11, 2002.
Interest is payable quarterly at 5% per annum. The note may only be
converted at the maturity date with a conversion rate of $2.00 per share. 1,000,000 1,000,000
Vehicle and equipment loans payable in monthly installments ranging from
$295 to $1,991 (including interest ranging from 1.9% to 9.9%) through
January 2002, collateralized by vehicles and equipment with a net book
value of $132,400 and $138,617 at December 31, 1998 and 1997, respectively. 158,925 146,999
---------- ----------
Total long-term debt 6,800,104 3,267,756
Less current portion 733,389 404,780
---------- ----------
$6,066,715 $2,862,976
========== ==========
</TABLE>
Maturities of long-term debt are as follows:
Fiscal Year
1999 $ 733,389
2000 829,250
2001 798,668
2002 1,977,311
2003 and thereafter 2,461,486
----------------
$ 6,800,104
================
The fair market value of the Company's long-term debt is estimated based
on the current rates offered to the Company for debt of the same
remaining maturities. At December 31, 1998 and 1997, the fair value of
the long-term debt approximates the amount recorded in the consolidated
financial statements.
F-13
<PAGE>
5. Debt, continued:
The Company has a line of credit with Merrill Lynch for an amount up to
$4,000,000, of which $1,030,377 was outstanding at December 31, 1998.
Interest is due monthly at an annualized rate of 2.4% above the 30-day
commercial paper rate (7.5% effective rate as of December 31, 1998). The
line of credit is renewable on September 30, 2000 and is secured by all
assets of the Company. As of December 31, 1999, the Company is subject to
certain restrictive and financial covenants including covenants relating
to the Company's liabilities to EBITDA and minimum net cash flow. Merrill
Lynch also has the right to call the loan upon the occurrence of a
material impairment. Additionally, the Company had a line of credit with
Peoples Bank in 1997, of which $1,371,210 was outstanding at December 31,
1997. The outstanding balance was paid during 1998.
The Company also has a $3,800,000 revolving credit line to be used
exclusively for specific planned acquisitions. The revolver bears
interest at an annualized rate of 2.4% above the 30-day commercial paper
rate (7.5% effective rate as of December 31, 1998). This facility will
expire on September 30, 1999 if not utilized. At December 31, 1998 the
outstanding balance on the revolver is zero.
6. Income Taxes:
The provision for income tax (benefit) consists of the following at
December 31, 1998 and 1997:
1998 1997
---------- ---------
Federal $ - $ -
State and local 112,546 52,683
Deferred - federal (608,036) 656,373
Deferred - state and local (90,895) 83,627
---------- ---------
Provision for income tax (benefit) expense $ (586,385) $ 792,683
========== =========
The following is a reconciliation of income taxes computed at the federal
statutory rate with income taxes recorded by the Company at December 31,
1998 and 1997:
1998 1997
------ ------
Statutory federal income tax rate (34.0) % 34.0 %
State and local taxes
(net of federal tax effect) 4.3 7.8
Non-deductible items 1.0 -
Other - (.4)
------ ------
Effective income tax rate (28.7) % 41.4 %
====== ======
F-14
<PAGE>
6. Income Taxes, continued:
The tax effect of the temporary differences which comprise the deferred
tax assets and liabilities at December 31, 1998 and 1997 are as follows:
1998 1997
---------- ----------
Deferred tax assets:
Accrued bonuses $ 72,753 $ 154,762
Allowance for doubtful accounts 349,870 --
Net operating loss 1,234,576 --
Other 209,045 --
---------- ----------
1,866,244 154,762
Deferred tax liabilities:
Deferred accounts receivable 2,212,509 1,365,354
Fixed assets 129,196 --
Other 74,842 38,642
---------- ----------
2,416,547 1,403,996
---------- ----------
Net deferred tax liabilities $ 550,303 $1,249,234
========== ==========
7. Stockholders' Equity Data:
During 1997, certain former employees purchased 145,455 shares of common
stock at an average price of $.65 per share pursuant to existing
performance measurement agreements.
On July 31, 1997, the Company repurchased 529,187 shares of its common
stock. These shares are held in treasury, at cost and are presented as a
reduction to stockholders' equity on the consolidated balance sheets.
Computations of basic and diluted earnings per share of common stock have
been made in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128, "Earning Per Share"
("SFAS No. 128"). The Company was required to adopt the provisions of
SFAS No. 128 beginning with the year ended December 31, 1997. All prior
and interim period earnings per share amounts have been restated
accordingly. All securities that have an anti-dilutive effect on earnings
per share have been excluded from such computations.
F-15
<PAGE>
7. Stockholders' Equity Data, continued:
Reconciliation of Numerators and Denominators of the Basic
and Diluted EPS Computations
<TABLE>
<CAPTION>
For the year ended December 31, 1998
------------------------------------
Loss Shares Per-share
(Numerator) (Denominator) Amount
----------- ----------- ------
<S> <C> <C> <C>
Net loss $(1,460,334)
Basic EPS:
Loss available to common stockholders;
weighted average common stock
outstanding (1,460,334) 12,091,833 $(0.12)
----------- ----------- ------
Diluted EPS:
Loss available to stockholders of common
shares and common stock equivalents $(1,460,334) 12,091,833 $(0.12)
=========== =========== ======
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997
------------------------------------
Loss Shares Per-share
(Numerator) (Denominator) Amount
----------- ----------- ------
<S> <C> <C> <C>
Net income $1,121,463
Basic EPS:
Income available to common stockholders:
weighted average common stock
outstanding 1,121,463 10,854,949 $ .10
Effect of dilutive securities options 29,500 800,000
----------- ----------- ------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $1,150,963 11,654,949 $ .10
========== ========== =====
</TABLE>
Options to purchase 400,000 shares of common stock at $3.00 to $14.00 per
share were outstanding during fiscal 1997, but were not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares for the year.
F-16
<PAGE>
8. Stock-Based Compensation Plans:
The Company accounts for stock based compensation issued to employees and
directors in accordance with Accounting Principles Board Opinion 25 ("APB
25") and has elected the "disclosure-only" provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). Certain grants to non-employees of the
Company have been accounted for under the provisions of SFAS No. 123.
The 1995 Stock Option Plan (the "1995 Plan") provides for the grant of
non-qualified options at an exercise price of $.50 per share. Options
outstanding under the 1995 Plan vested in equal installments over a
two-year period on the first two anniversary dates after the date of
grant. The option price is equal to the market price for the Company's
common stock at the time of grant.
On May 1, 1997, the Company Board of Directors issued stock options for
400,000 shares to a consultant that will assist in public and investor
relations of the Company. These options have exercise prices ranging from
$3.00 to $14.00 per share and vest upon grant. This option agreement was
substantially amended on April 3, 1998 to reduce the number of shares
granted under option by 25% and modify the range of exercise prices from
$3.00 to $14.00 per share to $3.00-$10.00 per share.
The following is a summary of the activity in the Company's stock option
plans during fiscal 1998 and 1997:
Weighted
Shares Averaged
------------------------- Exercise
Shares Exercisable Price
----------- ----------- ------
Outstanding at January 1, 1997 300,000 300,000 $ .50
Granted 400,000 400,000 8.92
Exercised --
Expired --
----------- ----------- -----
Outstanding at December 31, 1997 700,000 700,000 5.31
Granted 840,000 330,000 1.17
Exercised --
Expired (315,000) (165,000) 1.18
----------- ----------- -----
Outstanding at December 31, 1998 $ 1,225,000 865,000 $ 3.44
=========== =========== =====
At December 31, 1998 and 1997 the Company had 1,335,000 and 0 shares,
respectively, available for grant.
F-17
<PAGE>
8. Stock-Based Compensation Plans, continued:
At December 31, 1998, there were options outstanding under the Company's
stock option plans to purchase 1,180,000 shares of common stock, of which
all are currently exercisable at $.50 to $10.00 per share. The options
generally have a 10-year term.
For SFAS No. 123 purposes, the fair value of each option under the
Company's stock option plans is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used
for grants in both 1998 and 1997: (1) Average dividend yield of 0%, (2)
expected volatility of 120%, and (3) expected life of 5 years. A
risk-free interest rate of 5.00% and 5.71% was used for grants in 1998
and 1997, respectively.
Had the Company elected the fair value methodology for determining
compensation expense, the Company's net loss for the year ended December
31, 1998, as reported in the accompanying consolidated financial
statements, would have been increased by $388,908 ($0.03 per common
share).
Had the Company elected the fair value methodology for determining
compensation expense, the Company's net income and net income per common
share for the year ended December 31, 1997 would not have changed from
amounts reported in the accompanying consolidated financial statements.
9. Leases:
The Company and its subsidiaries lease office space, equipment and
vehicles under various operating leases. Leases that expire are generally
expected to be renewed or replaced by other leases.
At December 31, 1998, future minimum rental payments applicable to
noncancelable operating leases were as follows:
1999 $ 488,499
2000 300,105
2001 218,650
2002 117,047
2003 and thereafter 45,085
----------
$1,169,386
==========
Rent expense for all operating leases was $600,247 and $590,258 in 1998
and 1997, respectively.
F-18
<PAGE>
10. Related Party Transactions:
The Company acquired from the Unitel asset acquisition a lease for office
and warehouse space through an entity owned by a director/shareholder. The
lease agreement calls for the Company to make monthly payments of $12,542
through September 2015, as well as payment of certain expenses of
approximately $10,000 per month. As a part of the acquisition, the Company
obtained an amendment to the lease which allows the Company to terminate
the existing lease by providing a twelve month written notice. The Company
has exercised this option to terminate the lease effective May 15, 1999
and executed a six-year lease from the same affiliate which reduces the
total monthly payments to $15,000 per month through June 1, 2005. Rent
expense related to this lease amounted to $150,500 and $62,710 for the
years ended 1998 and 1997.
Additionally, the Company also assumed other vehicle leases as part of the
Unitel asset acquisition, through an entity owned by a
director/shareholder. The vehicle lease agreements call for monthly
payments ranging from $343 to $805, and expire in June 1999. Rent expense
related to these leases amounted to $31,989 and $23,251 for the years
ended 1998 and 1997.
At December 31, 1998, certain notes aggregating $1,200,000 were due to
related parties.
11. Employee Benefit Plan:
The Company sponsors a 401(k) plan that covers substantially all eligible
employees. Contributions to the plan are determined by the Company's
management. For the years ended December 31, 1998 and 1997, contributions
totaled $65,961 and $40,914, respectively.
12. Commitments and Contingencies:
The Company is subject to legal proceedings and claims in the ordinary
course of business that have not been finally adjudicated. In management's
opinion, all such outstanding matters would not have a material adverse
affect on the Company's consolidated financial position, results of
operations or cash flows.
F-19
<PAGE>
13. Future Adoption of Recently Issued Accounting Standards:
During 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 established
standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income is defined as the change in
equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and
includes net income. The Company does not have any comprehensive items.
Therefore, SFAS No. 130 is not applicable to the Company.
The FASB also issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 specifies revised
guidelines for determining an entity's operating segment and the type and
level of financial information to be disclosed. This standard requires
that management identify operating segments based on the way that
management desegregates the entity for making internal operating
decisions. The Company currently operates under the definition of one
segment. Therefore, SFAS No. 131 is not applicable to the Company.
Both of these statements are effective for fiscal years beginning after
December 15, 1997. The Company does not have any comprehensive income
items for the periods presented.
In February 1998 the FASB issued SFAS No. 132 "Employer's Disclosures
about Pensions and Other Post-Retirement Benefits". SFAS No. 132
standardizes the disclosure requirements for pension and other
post-retirement benefits. The statement is effective for fiscal years
beginning after December 15, 1997. The Company does not have a pension or
other post-retirement plan. Therefore, SFAS No. 132 is not applicable to
the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at
fair value. The statement is effective for fiscal years beginning after
June 15, 1999.
14. Subsequent Events:
On February 11, 1999, the Company approved plans to form a subsidiary,
NetVision.Com to acquire local internet service providers primarily in
the BellSouth region.
15. Fourth Quarter Adjustments to Financial Results:
During the fourth quarter of the year ended December 31, 1998, the
Company recorded net charges against pre-tax income of approximately
$1,860,000 primarily related to an adjustment to the allowance for
doubtful accounts, inventory and an impairment writeoff.
F-20
<PAGE>
Telecomm Industries Corp.
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1998 and 1997
1998 1997
--------- ---------
Allowance for doubtful accounts:
Balance, beginning of year $ 145,000 $ 370,000
Additions 957,494 56,833
Write-offs, net of recoveries (196,494) (281,833)
--------- ---------
Balance, end of year $ 906,000 $ 145,000
========= =========
Inventory valuation allowance:
Balance, beginning of year $ -- $ --
Additions 150,000 --
Write-offs -- --
--------- ---------
Balance, end of year $ 150,000 $ --
========= =========
F-21
EXHIBIT 10.2
AUTHORIZED DISTRIBUTOR AGREEMENT
BETWEEN AMERITECH
AND
Telecomm Industries, Inc.
<PAGE>
TABLE OF CONTENTS
Business Purpose.............................................................1
Recitals.....................................................................1
ARTICLE 1....................................................................1
APPOINTMENT OF DISTRIBUTORSHIP and AD REPRESENTATION......................1
ARTICLE 2....................................................................3
TERRITORY.................................................................3
ARTICLE 3....................................................................4
EXCLUSIVITY...............................................................4
ARTICLE 4....................................................................4
TERM and TERMINATION......................................................4
ARTICLE 5....................................................................6
AUTHORIZEDDISTRIBUTOR DUTIES..............................................6
ARTICLE 6....................................................................8
AMERITECH'S DUTIES........................................................8
ARTICLE 7....................................................................9
SALES AND COMMISSION......................................................9
ARTICLE 8...................................................................11
THE PARTIES'RELATIONSHIP.................................................11
ARTICLE 9...................................................................11
FACILITIES AND MATERIALS.................................................11
ARTICLE 10..................................................................12
TRADEMARKS AND TRADE NAMES...............................................12
ARTICLE 11..................................................................13
OWNERSHIP OF INFORMATION AND CONFIDENTIALITY.............................13
ARTICLE 12..................................................................15
RIGHT TO SET-OFF.........................................................15
ARTICLE 13..................................................................15
RIGHT TO AUDIT AND INSPECT DISTRIBUTOR'S RECORDS.........................15
ARTICLE 14..................................................................15
AGREEMENT NOT TO COMPETE.................................................15
ARTICLE 15..................................................................16
NOTICE...................................................................16
ARTICLE 16..................................................................17
ASSIGNMENT...............................................................17
ARTICLE 17..................................................................17
GENERAL TERMS............................................................17
Exhibit A TERRITORY....................................................19
Exhibit B PRODUCTS.....................................................20
ATTACHMENT 1: VOICE NETWORK PRODUCTS AND SERVICES.......................21
ATTACHMENT 2: STANDARD DATA PRODUCTS AND SERVICES.......................22
ATTACHMENT 3: USAGE PRODUCTS AND SERVICES...............................23
ATTACHMENT 4: OBJECTIVE RETIREMENT PRODUCT LIST (BY PRODUCT FAMILY).....24
ANNEX 1: VOICE NETWORK PRODUCTS AND SERVICES.........................25
ANNEX 2: STANDARD DATA PRODUCTS AND SERVICES.........................26
ANNEX 3: USAGE PRODUCTS AND SERVICES.................................27
Exhibit C COMMISSION...................................................28
1.0 General............................................................28
2.0 Commission Set Off.................................................31
3.0 Upon Termination...................................................31
4.0 Commission Calculation Methodology.................................32
5.0 Sales Outside of Territory and Sales Outside
of "Objective Territory".......................................33
6.0 Partnering.........................................................33
7.0 Centrex Product Family.............................................33
8.0 Ameritech FeatureLink..............................................37
9.0 Other Voice Products...............................................37
10.0 Ameritech SmartFax Connections..................................38
11.0 Ameritech 9-1-1 Locator ID......................................39
12.0 Eligible Standard Data Products.................................39
13.0 ValueLink Products..............................................42
14.0 1-800-CONFERENCE................................................54
15.0 Ameritech Prepaid Products......................................55
Exhibit D CO-OP AND 5-STAR PROGRAM.....................................56
Exhibit E CODE OF BUSINESS CONDUCT........................................57
Exhibit F HOUSE ACCOUNTS..................................................58
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT
BETWEEN AMERITECH
AND
Telecomm Industries, Inc.
This Authorized Distributor Agreement ("Agreement") effective January
1, 1999 by and between Ameritech Information Systems, Inc. a Delaware
corporation with offices at 225 West Randolph, Chicago, IL 60606 (hereinafter
"Ameritech") and Telecomm Industries, Inc., with offices at 1743 Quincy Street,
Suite 143, Naperville, IL 60540 (hereinafter "Authorized Distributor" or "AD").
Business Purpose
Ameritech and AD have entered into this Distribution Agreement for the
purpose of facilitating the marketing and sale of Ameritech retail products, the
servicing of Ameritech retail business customers in the Territory, and to
provide market coverage and market penetration of Ameritech retail products to
retail, business customers in the Territory. The sales made by AD hereunder
shall always be at the prices and rates Ameritech sets as retail prices for its
business customers. It is the intent of the parties hereto that both parties
will benefit from this Agreement and the relationship established herein.
Recitals
WHEREAS, Ameritech is engaged in providing telecommunications products and
services and desires to appoint distributors to market and sell its Products (as
hereafter defined);
WHEREAS, AD represents and warrants that it is qualified to market and sell
Ameritech's Products and has sufficient knowledge of Ameritech's products to do
so;
NOW, THEREFORE, in consideration of the covenants set forth herein, the
parties agree as follows:
ARTICLE 1
APPOINTMENT OF DISTRIBUTORSHIP and AD REPRESENTATION
Section 1.1.......Grant. Subject to the terms and conditions of this
Agreement, AD is hereby appointed as an authorized distributor of Ameritech
Products (as hereinafter defined) in the geographic Territory (as hereinafter
defined). For purposes of this Agreement, the activities of marketing, promoting
and selling Products, and the servicing of customer accounts pursuant to the
terms of this Agreement shall collectively be referred to herein as "Distribute"
or "Distribution". AD's right to Distribute is limited to the Distribution of
Products which are expressly defined as "Products" under Exhibit B, and in the
"Territory" under Exhibit A, both Exhibits hereby incorporated by reference
herein as modified from time-to-time. "Territory " for purposes of this
Agreement means collectively the geographic area, area codes and Ameritech
business units which are specified on Exhibit A.
Section 1.2.......Non-exclusive. Nothing contained herein shall be
construed to prohibit Ameritech from selling or servicing any of Ameritech's
Products or other products and services in the Territory. In addition, Ameritech
reserves the right to appoint others to Distribute its products and services in
the Territory, and to send its own or third party technical or sales personnel
to any place inside or outside the Territory to assist its distributors or
independent sales representatives in contacting customers (potential or
otherwise), servicing accounts, soliciting business, or promoting the sale of
its products and services.
<PAGE>
Section 1.3.......Parties' Relationship. The parties' relationship is
set forth under Article 8 of this Agreement. AD shall not use any sales person
to perform on its behalf hereunder unless said sales person has been registered
by Ameritech as qualified to Distribute its Product. Ameritech reserves the
right to set minimum qualification levels for sales personnel at its sole
discretion and Ameritech will notify AD in writing of all such qualifications.
Section 1.4.......No Authority to Bind. AD shall have no authority to
bind Ameritech by contract or otherwise, or make representations as to policies
or procedures of Ameritech other than as specifically and expressly authorized
by this Agreement.
Section 1.5.......Third Parties and Sub-Distributors. The AD hereby
acknowledges and agrees that Ameritech has the sole and exclusive right to
appoint and authorize others to function and represent themselves as Ameritech
Authorized Distributors or Authorized Sales Representatives. The AD shall not
delegate its appointment or in any way authorize anyone to distribute or
represent themselves as an agent of Ameritech or as an Ameritech Authorized
Distributor or as an Ameritech Authorized Sales Representative. In the event AD
utilizes independent sales representatives to perform on AD's behalf hereunder,
such sales representatives must at all times represent themselves as sales
representatives of AD and not as Authorized Distributors of Ameritech. Ameritech
shall not be liable to pay any fees or compensation to any independent sales
representative acting on behalf of AD, or to pay any other party, including, but
not limited to the AD, for sales generated by any unauthorized representative.
In addition, processing orders for unauthorized or unregistered
individuals shall be deemed a material breach of this Agreement, and in such a
case Ameritech may terminate this Agreement immediately for cause, and pursue
all other rights or remedies it may have in law or equity.
Section 1.6.......AD Responsibility. AD shall be held responsible for
the actions or omissions of each sales representative acting on its behalf,
whether the sales representative is an employee, agent or independent sales
representative of AD. The AD shall require that its employees, agents,
contractors and representatives comply with the requirements of this Agreement
to the same extent as the AD has agreed to comply, including without limitation,
the obligations hereunder regarding Ameritech's logo and other marks (See
Article 10), and the ownership and confidentiality of information (See Article
11).
Section 1.7.......House Accounts. Ameritech reserves the right to
identify certain accounts as "House Accounts", and AD is not authorized to, and
shall not Distribute Products to such accounts. A list of House Accounts is set
forth under Exhibit F of this Agreement, incorporated by reference herein, and
Ameritech, at its sole discretion, may modify Exhibit F from time-to-time via
the "ameritechdealer.com" web site and bulletin board, and each modification
will be deemed incorporated herein as if originally set forth herein, and the
modification shall be effective on the date the modification is posted on the
web site and bulletin board.
a) In the event Ameritech newly designates an account as a House
Account, AD will have ninety (90) days from the date of such designation to
close all pending sales activity, and AD will be paid commission for sales made
to that account within said ninety (90) day period. To be eligible for this
exception to the House Account rule, AD must notify Ameritech in writing within
three (3) business days of the new designation by Ameritech that AD has pending
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sales activity on that account. The writing must include the account name,
telephone number, the Product(s) being marketed, and the current stage of the
sale. AD will not be awarded commission under this subsection on any sale made
to a House Account after ninety (90) days from the date the account is so
designated.
Section 1.8.......Retail Business Customers; Retail Business Prices.
The parties hereto acknowledge and agree that this Agreement is for the purpose
of Distribution of Products to Ameritech's retail business customers at prices
and rates Ameritech deems as its retail prices or rate for sales to business
customers. For purposes of this Agreement "retail customer" shall be determined
by Ameritech in its sole discretion. Unless an exception applies, if an account
is "marked' by Ameritech according to its practices and procedures as assigned
to Ameritech's general business services or custom business services divisions,
the account is deemed to be a retail business customer by Ameritech.
Section 1.9.......End User of Product. In no event is AD granted the
right or authority under this Agreement to distribute Products to anyone whom
the AD knows, or should have known, at the time of sale or within two (2) years
thereafter, is: a) not the end user of the Product; b) subscribing to the
Product for the purpose of reselling it to retail customers; or, c) is not
designated by Ameritech GBS as a "retail" customer of Ameritech.
Section 1.10......Reseller of Ameritech Products. AD is prohibited from
acting as a reseller of Ameritech products and services as that term is defined
under applicable law or as it is used in the telecommunications industry, or
acting on behalf of a reseller of Ameritech products and services.
Section 1.11......Sole Agreement. Ameritech utilizes various channels
to Distribute Product to its retail business customers, and Ameritech's strategy
prohibits cross-over appointments between its channels. Therefore, AD is
prohibited from acting as an Ameritech Enhanced Service Provider, an Authorized
Video Sales Representative or to enter into any other Distribution agreement
with Ameritech under which an appointment to market or sell landline Products to
Ameritech's retail customers is granted.
Section 1.12......Accepts Appointment. AD hereby accepts the
appointment granted above and agrees to comply with the terms and conditions of
the appointment as set forth in this Agreement.
ARTICLE 2
TERRITORY
Section 2.1.......Geographic Territory. The AD's non-exclusive
geographic Territory is set forth in Exhibit A, which is incorporated by
reference herein. During the term of this Agreement, Territory may be expanded
or contracted provided the change is in writing and signed and dated by both
parties. In some cases, expansion of Territory will be deemed by Ameritech to
constitute an addition of a Branch Location, and the conditions set forth in
Section 2.3 below will apply.
Section 2.2.......Out-of-Territory Sale. Ameritech and AD may, in
certain cases, agree that AD will have the right to Distribute Product to an
individual customer outside the Territory. Such arrangement must be in writing,
and signed and dated by Ameritech prior to any sale, and the writing must
include, at a minimum, where and to whom the sale will be made, and the
commission payment, if any, which will apply to any sale made pursuant to that
agreement. No commission will be paid without such a writing.
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Section 2.3.......Branch Locations. At all times during this Agreement,
AD must maintain in the Territory a physical presence and a formal place of
business from which it carries out its Distribution activities. If AD desires to
Distribute Products outside the Territory or if AD desires to add an additional
business location within the Territory, AD must receive prior written approval
from Ameritech, and said location(s) may be considered "Branch Locations" for
purposes of this Agreement.
Ameritech's approval of any Branch Location may be conditioned, at its
sole discretion, on one or more of the following:
(a) AD enters into a separate Distribution Agreement with Ameritech
whereby Ameritech makes a separate grant of appointment in the new Territory;
(b) AD's annual sales objective level under this Agreement is modified
by Ameritech to recognize the opportunities in the new Territory(ies);
(c) AD establishing a physical presence in the new geographic area;
(d) AD submits to Ameritech satisfactory written documentation
regarding the AD's proposed activities and objectives for the marketing and
sales of the Products as a result of the Branch Location. Said documentation
will be deemed satisfactory at Ameritech's sole discretion. This factor is to
ensure that expansion by the AD will not adversely affect the market coverage
Ameritech expects in the Territory then assigned to AD; and,
(e) Ameritech reserves the right to base its approval on other relevant
business factors which are particular to the AD's request for a branch location.
Section 2.4.......Material Breach. Any violation by AD of the
provisions and conditions of this Article 2 will constitute a material breach,
and Ameritech may terminate this Agreement immediately for cause.
ARTICLE 3
EXCLUSIVITY
Ameritech values its customer relationships, and, as provided elsewhere
in this Agreement, intends to share with AD Ameritech Confidential Information
regarding its customers and customer relationships, including, but not limited
to, business and product plans, customer relationship information and other
sensitive customer data. In the event Ameritech knows or has a reasonable belief
that the AD is marketing, selling or in some way promoting the sale and customer
use of intraLATA telecommunications services, or Prepaid Phone Card, or audio
conferencing and bridging services, or any product or service which is
competitive with a Product, and unless such activity is expressly provided for
elsewhere in this Agreement, Ameritech may terminate this Agreement for cause
immediately. Ameritech's right to terminate under this Article is in addition to
any other right or remedy it may have at law or equity.
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ARTICLE 4
TERM and TERMINATION
Section 4.1.......Term. This agreement commences on January 1, 1999 or
upon full execution by both parties, whichever is later. This Agreement will
expire on January 1, 2002 ("Initial Term") unless terminated earlier pursuant to
terms of this Agreement. This Agreement will automatically renew for a
subsequent one (1) year term ("Renewal Term") unless one of the parties elects
not to renew, and provides written notice to the other party no later than
ninety (90) days prior to the expiration of the Initial Term.
If a party exercises this right not to renew, the Agreement will expire
naturally at the end of the Initial Term, and all rights and obligations of the
parties cease on the expiration date.
Section 4.2.......Termination.
a) This Agreement may be terminated by Ameritech in whole or in part
without cause and for convenience upon thirty (30) days written Notice to the
AD;
b) This Agreement may be terminated by AD for any reason upon thirty
(30) days written Notice to Ameritech;
c) This Agreement may be terminated immediately where expressly
provided for elsewhere in this Agreement. In such cases, Ameritech will notify
the AD in writing, and the termination shall be for cause, and the effective
date of the termination shall be the date of notice;
d) This Agreement may be terminated by Ameritech for cause in the event
of unsatisfactory performance including, but not limited to, unsatisfactory
sales performance or violation of Section 5.4 of this agreement on the part of
the AD. Ameritech will provide written notice to AD of unsatisfactory
performance, and such notice will provide the period of time available to the AD
to cure the unsatisfactory performance. If AD does not cure in the specified
time, the AD will be given written notice of its termination for cause; and,
e) Notwithstanding the foregoing Sections in this Article, it is agreed
that Ameritech may terminate this Agreement immediately without Notice in the
event of:
(i) an assignment by the AD for the benefit of creditors;
(ii) the institution of voluntary or involuntary proceedings
against the Authorized Distributor in bankruptcy, or under any other
insolvency or similar law which is not dismissed within sixty (60)
days;
(iii) the dissolution of the Authorized Distributor;
(iv) an attempted assignment of this Agreement by the
Authorized Distributor without Ameritech's prior written consent as
required under Article 16 of this Agreement;
(v) Ameritech becomes aware of a sale, transfer or
relinquishment of a substantial interest in the ownership of AD, or a
substantial change in management of the AD;
(vi) a Seriously Delinquent status on any AD landline or
PrePaid Product account with Ameritech which is not cured by AD upon
notice of the Seriously Delinquent, and which cannot be cured through
set-off provided for under this Agreement. "Seriously Delinquent" is
determined solely by Ameritech at its discretion but in no event will a
delinquency of less than ninety (90) days be considered a "Seriously
Delinquent";
(vii) submission to Ameritech by the AD, its employee,
representative, agent or contractor of any false or fraudulent reports
or statements including, but not limited to, any false or fraudulent
claims for credits or reimbursements under the "Co-op", "5 Star" or
other similar Ameritech incentive programs; or,
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(viii) submission by AD, its representative, contractor or
agent of a sales agreement or sales order or any other document which
is subsequently found to contain forged customer signatures or the
customer denies any knowledge of placing an order with AD.
(ix) AD violates in any way the terms or limitations of its
appointments as set forth under Article 1, or violates in any way AD's
obligations and duties under Article 5.
Section 4.3.......Upon Termination.
(a) Upon expiration or termination of this Agreement, AD shall no
longer be an Authorized Distributor of Ameritech's Products and AD must not
represent itself as such to others;
(b) Upon expiration or termination of this Agreement, AD agrees to
provide to Ameritech a detailed report of all work in progress under this
Agreement within three (3) business days from the termination or expiration of
this Agreement, including, without limitation, pending sales and installations;
(c) Upon expiration or termination of this Agreement, AD shall remove
and return to Ameritech any material, including, without limitation, manuals,
catalogues, brochures, advertising copy, and training materials, or destroy such
materials at Ameritech's sole option;
(d) Upon expiration or termination of this Agreement, the AD shall
remove and discontinue the use of any sign or any other designation containing
any of Ameritech's logos, trademarks or trade names, including, without
limitation, the designation of "Ameritech Authorized Distributor" or "Ameritech
Authorized 5-Star Distributor". Should such trademarks or trade names be printed
on any of the AD's business cards, letterhead or other written documents, the
written documents shall promptly be destroyed, and AD must reprint the materials
so as to remove any such trademarks or trade names of Ameritech;
(e) Upon expiration or termination of this Agreement, AD hereby has the
duty to notify all publishers and others who may identify, list or publish AD's
identity or name as a marketer, promoter or supporter of Ameritech Products that
such identification or publication is prohibited as of the date this Agreement
is terminated. For purposes of this Agreement, Publishers means, but is not
limited to, the publisher of telephone directories, yellow pages, association
directories, or membership rolls; and,
(f) Certain Exhibits and Attachments set forth terms which apply upon
termination of this Agreement, and AD and Ameritech hereby acknowledge their
agreement to those terms.
Section 4.4.......Account Transfer. Upon termination of this Agreement,
Ameritech, at its sole discretion, will designate itself or another AD to act as
successor to AD in providing Ameritech Products to customers "in progress" at
the time of termination, and to service those customers who subscribed to
Products through AD when this Agreement was in effect.
Section 4.5.......Commissions Upon Termination. Upon termination of
this Agreement, Exhibit C governs the treatment of commissions, including,
without limitation, residuals which may apply to AD sales made during the term
of this Agreement.
ARTICLE 5
AUTHORIZED DISTRIBUTOR DUTIES
Section 5.1.......Standard of Conduct. The AD agrees to promote,
encourage and increase the sales to, and acceptance by customers of the Products
within the Territory. AD will fulfill this duty in a professional and diligent
manner. AD agrees that Ameritech's business reputation is one of its most
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valuable assets. In performing its duties under this Agreement, AD shall observe
the highest standard of integrity and fair dealing with members of the public.
AD shall do nothing which would tend to discredit, dishonor, reflect adversely
upon or in any manner injure the reputation of Ameritech.
Section 5.2.......Application. AD must complete and sign an application
form and return it to Ameritech for acceptance. Ameritech hereby acknowledges
that an application may have already been submitted by AD, and the parties agree
that any prior applications are hereby superceded and replaced by the one which
is submitted pursuant to this Section. Ameritech will review and accept the
application according to its standard practice, and Ameritech will not
countersign this Agreement unless and until an application is accepted by
Ameritech.
Section 5.3.......Sales Achievement. The AD shall satisfy minimum
monthly, quarterly and annual sales performance requirements as set forth on the
document titled "AD Annual Objective Sheet and Tier Multiplier" effective
January 1, 1999, which has been signed by each party and which is incorporated
by reference herein and which may be modified or amended during the term of this
Agreement upon thirty (30) days written notice by Ameritech to AD, and each such
modification or amendment shall be deemed to have been included as if originally
set forth under Attachment 1.
Section 5.4.......Compliance. The Distributor shall comply with all
Ameritech policies, procedures and practices. This includes, but is not limited
to: practices and procedures regarding order and subscriber agreement
processing; accuracy of submitted orders and agreements; Product methods and
procedures; advertising placement and quality rules; commission submission,
payment and inquiry guidelines; Ameritech Identity Guidelines; and, Ameritech
Authorized Distributor Policies and Practices. Notwithstanding the foregoing,
AD, its employees, agents and representatives must comply with all rules,
limitations, procedures and policies related to Ameritech's sales incentive
programs such as 5-Star and Co-Op.
Section 5.5.......Code of Business Conduct. AD understands and agrees
that any violation of the Ameritech Code of Business Conduct by AD's employees,
representatives, contractors or agents will be considered by Ameritech a
violation of this duty by the AD.
Section 5.6.......Inquiries, Quotations and Customer Relations. AD
shall promptly transmit any customer inquiries regarding any matter related to
Ameritech or its Products to Ameritech in a manner prescribed by Ameritech.
Section 5.7.......Customer Information. AD agrees to make available to
Ameritech the names and addresses of all purchasers of Ameritech Products
through AD, and AD agrees that such information is Confidential Information of
Ameritech. The use and disclosure of Ameritech Confidential Information is
governed by the restrictions set forth under Article 11 of this Agreement.
Section 5.8.......Financial Statements. AD shall furnish to Ameritech
such financial statements as may be reasonably requested by Ameritech's credit
manager for Ameritech's confidential use in evaluating the AD's ongoing
participation in the AD Program.
Section 5.9.......Indemnity. AD agrees to indemnify and hold Ameritech
harmless from any claims or losses, including attorneys' fees and expenses,
which arise out of any act or omission of the AD, its employees, agents,
representatives, or contractors, in connection with or related to the AD's
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marketing, promotion, or demonstration of Ameritech's products or services. In
addition, and not in derogation of the foregoing, AD agrees to indemnify and
hold Ameritech harmless from any claim or loss (including attorneys' fees and
expenses) which arise or is in connection with any statements (whether oral or
written) made with respect to the Ameritech's products or services, and from any
claim or loss which arises from or in connection with any representation or
warranty given, or allegedly given, by AD regarding Ameritech's products or
services, or regarding AD's right to market and sell Ameritech's products and
services, whether such representation or warranty is oral or written, express or
implied.
In addition to, and not in derogation of the above, AD agrees to
indemnify, defend and hold Ameritech free and harmless from any loss, damage,
liability, cost or expense, including legal fees and expenses, for which
Ameritech becomes liable by reason of acts or omissions of AD, its employees,
agents, representatives and contractors during the course of their performance
hereunder, except to the extent that such act or omission was the result of
Ameritech's gross negligence.
Section 5.10......C.P.N.I. AD must comply at all times with Ameritech's
policies on the use of information deemed by Ameritech to be Customer
Proprietary Network Information ("CPNI") under the Telecommunications Act of
1996.
Section 5.11......Duty. AD assumes full responsibility and liability
for the acts of its employees, agents, contractors and representatives, and for
their supervision, daily direction and control. AD shall require compliance with
the duties and obligations of this Agreement to the extent those duties or
obligations apply to the acts of the employee, agent, contractor or
representative.
Section 5.12......Insurance. AD will at all time during the term of
this Agreement, at AD's sole expense, maintain insurance which is appropriate in
type and amount for its performance hereunder, including, but not limited to,
automobile insurance and comprehensive liability insurance against claims for
bodily and personal injury, death, property damage and all other harm caused by
or occurring in connection with AD's, its employees', representatives' and
agents' actions, omissions or misrepresentations. Upon request of Ameritech, AD
will furnish proof which is satisfactory to Ameritech that insurance coverage
required under this Agreement is in effect. Ameritech reserves the right to deem
in its sole discretion whether or not the insurance is "appropriate in type and
amount".
ARTICLE 6
AMERITECH'S DUTIES
Section 6.1.......Sales Materials. Ameritech shall from time-to-time
furnish catalogues, brochures, pamphlets, promotional and other materials
pertaining Products to assist AD in promoting and developing the sale and
acceptance of the products and services in the Territory. AD may request
additional sales materials, Ameritech will furnish them, and a charge may
sometimes apply.
Section 6.2.......Duty to Promote. Ameritech agrees to use reasonable
efforts to promote, encourage and increase the marketing efforts of its Products
through advertising and other marketing initiatives.
Section 6.3.......Payment of Commissions. Ameritech shall pay
commissions to AD pursuant to the terms, conditions and schedule set forth under
Exhibit C.
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Section 6.4.......AD Incentive Programs.
(a) Ameritech will provide Co-Operative advertising funds under its
"Ameritech Authorized Distributor Co-Op Program" ("Co-Op"). The terms,
conditions, limitations and obligations of the parties under the Co-Op program
are set forth in the document titled, "The Co-Op and 5-Star Program" dated
January, 1999 set forth under Exhibit D hereto, which is incorporated by
reference herein. Notice of any modification to the Co-Op program will be made
via the "ameritechdealer.com" web site and bulletin board, and each modification
will be deemed incorporated herein under Exhibit D as if originally set forth
therein in its entirety. The modification will be effective the date it is
posted by Ameritech on the web site bulletin board. Modification means any
change to the Co-Op program, up to and including discontinuing all or part of
the program.
(b) Partners in Excellence. Ameritech will make available to AD an
incentive program which will allow the AD, at its election and discretion, to
qualify as an "Ameritech 5-Star Distributor", and become eligible for the
benefits associated with that status. On an annual basis Ameritech will provide
AD with the criteria for the "Partner's in Excellence" program ("PIE"), which is
the criteria which will be used to determine if the AD qualifies as an
"Ameritech 5-Star Authorized Distributor" ("5-Star"). If qualified under PIE, AD
may indicate to others its status as a "5-Star" AD, and will receive benefits
associated with the 5-Star status.
ARTICLE 7
SALES AND COMMISSION
Section 7.1.......Exhibit C - Commissions. Ameritech agrees to pay AD
commission pursuant to Exhibit C hereto, incorporated by reference herein, as
may be amended from time-to-time. Commissions are earned by AD at the time of
payment by Ameritech. Ameritech's commission payment procedures and practices
are governed by Ameritech AD commission practices and procedures which are
established by Ameritech in its sole discretion, and may be modified by
Ameritech at any time for any reason, including, but not limited to, more
efficient handling of payment inquiries and tracking.
Section 7.2.......Sales Within Territory. Ameritech shall pay
commission to AD on sales within the Territory for all Products and will pay
commission for sales out of Territory only if AD has received prior written
consent from Ameritech for such treatment. Sales outside of the Objective
Territory (hereinafter defined) are treated differently from those within the
Objective Territory for purposes of commission, as further described under
Exhibit C.
Section 7.3.......End Users. As provided elsewhere in this Agreement,
AD is prohibited from selling Product to a purchaser the AD knows or should know
is not, or will not be in the future, the end user of the Product, therefore,
Ameritech will not pay commission on such a sale. Nonpayment of commission is in
addition to any right or remedy Ameritech may have available in law or in equity
for violation of this Section.
Section 7.4.......Retail Business Customers. As provided elsewhere in
this Agreement, the purpose of this Agreement is to benefit each party from the
sale of Product to the retail business customers of Ameritech at retail business
prices. Therefore, Ameritech will not pay commission on any product sold to a
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customer who is not designated as a retail business customer by Ameritech, or
which is sold at a rate or price which is not deemed by Ameritech to be a retail
price. Nonpayment of commission under this subsection is in addition to any
right or remedy Ameritech may have available in law or in equity for a violation
of this Section.
Section 7.5.......Special Arrangements. Ameritech acknowledges that the
dynamics of the telecommunications industry and the retail business customer
market may result in specialized sales. AD may request unique commission
handling for a specialized sale, and Ameritech reserves the right in its sole
discretion to accept or reject the AD's request, to set the commission payment
the AD will receive if the sale is finalized, and establish the payment schedule
which will apply to such a payment. The decision by Ameritech on a specialized
arrangement is final and not appealable. To be eligible for unique commission
handling, Ameritech must consent in writing to the special arrangement prior to
the close of the sale. No exceptions will apply to this condition.
Section 7.6.......Commission Values. Ameritech is solely responsible
for the determination and calculation of the commission to be paid on an
individual sale, and Ameritech's commission award to AD, absent arithmetic
errors, is final and not appealable. Ameritech reserves the right to pay a
commission amount different from that which is set forth under Exhibit C,
provided that modification is reasonable, and Ameritech reserves the right to
establish a payment schedule for such a commission award.
Section 7.7.......Partnering. Ameritech does not discourage its ADs
from working together or with other Ameritech direct sales representatives on a
specific sale if it is in the best interest of Ameritech, provided Ameritech is
notified and approves of such partnering prior to any customer sales proposal.
In the event of such approved partnering arrangements, Ameritech reserves the
right to establish a commission payment value and payment schedule for such a
sale without invalidating any part of this Agreement, and such arrangement shall
not be considered as establishing a precedent. Ameritech in its sole discretion
shall establish the value and commission payment percentages due to each of the
sale partners.
Section 7.8.......No Authority to Bind. AD has no authority to bind
Ameritech, and all orders, subscriber agreements and customer contracts are
subject to acceptance by Ameritech in the manner prescribed by Ameritech.
Therefore, AD shall not be paid commission on any sale or order until the
subscriber agreement or order is accepted by Ameritech under the then-in-effect
acceptance procedures. Ameritech's acceptance will not be unreasonably withheld
or delayed. Ameritech as the Product supplier has the right to refuse any
customer order for any reason Ameritech deems sufficient, and AD shall not be
entitled to any commission on any order so refused.
Section 7.9.......Discrepancy of Commission Due and Audit. In the event
of a discrepancy between the sales reflected on the Ameritech generated AD
commission report and the sales which AD claims were approved and processed by
Ameritech, AD may request an audit of Ameritech's commission records. The AD may
employ such assistance as it deems desirable to conduct the audit, but may not
use the assistance of: (i) a person or an entity that competes or whose employer
competes with Ameritech; (ii) that is the principal outside auditor of a
competitor of Ameritech (unless such auditor is also the AD's principal outside
auditor); or, (iii) is someone to whom Ameritech reasonably objects to
performing any such audit. AD shall cause any person or firm retained for this
purpose to execute a non-disclosure agreement in favor of Ameritech.
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If the audit reveals that Ameritech made an error in its favor which
totals twenty-five percent (25%) or more of the AD's year to date commissions,
as determined by the most current Ameritech commission report, Ameritech will
bear the expense of the audit, provided that AD submits evidence of actual
expense.
ARTICLE 8
THE PARTIES' RELATIONSHIP
Section 8.1.......Independent Representative. The parties agree that
the relationship arising from this Agreement is that of Product supplier and
independent sales representative, and the relationship arising from this
Agreement does not constitute or create an agency, joint venture, partnership,
an employee relationship or franchise between them. AD has no authority to bind
Ameritech in contract or otherwise, or to make representations as to the
policies or procedures of Ameritech other than as expressly authorized by
Ameritech. AD acknowledges and agrees that it is an independent business with
respect to its performance under this Agreement.
Section 8.2.......Identification. The AD is and must at all times hold
itself out to be an independent business authorized to act as an authorized
distributor with respect to the Products. Unless expressly and specifically
authorized by Ameritech in writing, AD shall not make any promise, warranty or
representation on Ameritech's behalf with respect to the Products, or any other
matter.
Section 8.3.......No Fee. AD acknowledges that it has awarded no fee to
Ameritech in connection with the appointment made by Ameritech under this
Agreement.
Section 8.4.......Employees. AD, its employees, agents, representatives
and contractors are not and will not be, and shall not be deemed to be,
employees or joint employees of Ameritech, its parent or its affiliates, and
shall at no time be eligible for or apply for eligibility for any insurance or
other benefit available to an employee of Ameritech Corporation, its
subsidiaries or affiliates. Ameritech is not and will not be responsible for
worker's compensation, disability benefits, unemployment insurance, withholding
taxes, social security or any other taxes or benefits for AD, its employees,
agents, representatives and contractors. AD is and shall be responsible for all
federal, state, and local taxes applicable to it, and hereby agrees to indemnify
and hold Ameritech harmless from any claim or liability therefrom.
ARTICLE 9
FACILITIES AND MATERIALS
AD hereby represents and warrants that it has adequate facilities,
equipment, means of transportation, sales force, distribution capabilities, and
business office and clerical staff necessary to perform the services and
activities required by this Agreement. Ameritech reserves the right to obtain
access to AD's facilities for the purpose of examining the adequacy of the
facilities and materials. Such access will be granted by AD provided it is
during AD's regular business hours. AD also represents that none of the above
items have been specifically acquired or obtained for the performance of this
Agreement.
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ARTICLE 10
TRADEMARKS AND TRADE NAMES
Section 10.1......Limited, Non-exclusive License. Ameritech hereby
grants to AD a limited, non-exclusive, non-transferable, non-sublicenseable,
royalty-free right to use the AMERITECH trade names, trademarks, and service
marks, (hereinafter, "the Marks") in the Territory in accordance with AD's
performance hereunder. This license is conditioned on AD's complete compliance
with Ameritech's policies, practices and procedures for use of the Marks, and
Ameritech's Identity Guidelines, both which are provided to AD by Ameritech. In
addition, the AD must comply with all applicable governmental regulations with
respect to the Marks. Ameritech reserves the right to inspect, observe, review
and in any way audit the AD's use of the Marks at any time during the term of
this Agreement, and, if requested by Ameritech, such review or audit shall take
place on AD's premises, and AD grants Ameritech access to conduct such review
during AD's normal business hours.
AD shall not use, and is prohibited from adopting any of the Marks, or
any part of any of the Marks as an Internet domain name, and shall not register,
or seek to register any name or mark anywhere in the world which is identical or
confusingly similar to any Mark, or so similar thereto as to constitute a
colorable imitation thereof or to suggest some association, sponsorship, or
endorsement by Ameritech.
Section 10.2......Ameritech's Rights in Marks. AD will not alter,
modify, dilute or misuse the Marks, bring them into disrepute or challenge
Ameritech's rights in them. AD shall cooperate with Ameritech as may be
reasonably necessary for Ameritech to protect, prosecute or defend its rights
with respect to the Marks.
Section 10.3......Layout Limitations. AD's right to use the designation
of "Ameritech Authorized Distributor" or "Ameritech Authorized 5-Star
Distributor" is limited to the layout and design guidelines which are set forth
in Ameritech's Identity Guidelines. Any use of that designation which is not in
complete compliance with the use requirements and guidelines under Exhibit D
will be considered a material breach of this Agreement, and Ameritech may
terminate this Agreement upon Notice if AD does not cure the breach immediately
and to the satisfaction of Ameritech. Such termination is in addition to any
other right or remedy Ameritech may have available to it at law or equity.
Section 10.4......Ameritech Consent Required. AD will not combine the
Marks with any other marks, names, or symbols without Ameritech's prior written
consent. The AD shall refrain from using any name, trademark, trade name, logo,
slogan, label, title or insignia, or one confusingly similar thereto, now or
hereafter owned adopted or used by Ameritech (whether registered or
unregistered) in any manner, or any medium, or for any other reason than that
approved by Ameritech, and shall refrain from any use in any geographic area
outside of the Territory.
Section 10.5......Substantial Value. AD hereby acknowledges the
substantial value of the Marks and the goodwill associated therewith, and
acknowledges that such goodwill is a property right belonging to Ameritech. AD
recognizes that Ameritech is the owner of the Marks, and that nothing contained
in this Agreement is intended as an assignment or grant to the AD of any right,
title, or interest in or to the Marks. AD shall not do anything which is
inconsistent with Ameritech's ownership of the Marks, and all use of the Marks
by AD shall inure to the benefit of and be on behalf of Ameritech. AD hereby
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<PAGE>
acknowledges and agrees that its use of the Marks is limited to purposes which
are necessary for its performance hereunder.
Section 10.6......Reproduction. AD agrees that accurate reproduction of
the Marks is uppermost. Prior to use, AD must provide Ameritech with approval
samples of all advertising, business cards, letterhead and any other materials
which bear Marks. Ameritech will attempt to answer promptly; if Ameritech does
not respond within sixty (60) days of receipt of such materials (except
advertising), they will be deemed not approved. With respect to advertising, if
Ameritech does not respond within thirty (30) days, the advertising will be
considered approved. AD is prohibited from modifying or changing any such
approved material without first obtaining written approval.
Section 10.7......Discontinue Use. Upon expiration or termination of
this Agreement, AD shall immediately discontinue use of any trademark, trade
name, logo, slogan, label, title or insignia now or hereafter owned, adopted or
used by Ameritech (whether registered or unregistered), and destroy all printed
materials (including but not limited to business cards, letterhead, promotional
and advertising materials, store signage, vehicle signage, and customer premises
stickers and signage) bearing any of the Marks.
Section 10.8......Indemnification. Ameritech shall indemnify and hold
AD harmless from any and all damage or expense resulting from valid trademark
infringement claims with respect to any of the Marks used by the AD pursuant to
this Agreement, provided, however, that: (a) Ameritech is given notice within
ten (10) days after the AD received notice of such claim or suit for
infringement, together with full information with respect thereto, and complete
control of the defense and any settlement thereof; and, (b) AD's use of the
Mark(s) which gives rise to the claim is a permitted use in accordance with this
Agreement.
Section 10.9......No Other Rights. No other rights are granted to AD to
use any trademarks, trade names, service marks or service names of Ameritech or
its affiliates. Further, no licenses, warranties, or indemnifications, express
or implied, under any patents, copyrights, or any trade secrets are granted to
AD.
Section 10.10.....Survival. This Article 10 and all its Sections shall
survive any termination or expiration of this Agreement.
ARTICLE 11
OWNERSHIP OF INFORMATION AND CONFIDENTIALITY
Section 11.1......Ameritech Confidential Information. Any business and
management information of Ameritech, its parent or its affiliates, including,
but not limited to, reports, product specifications, pricing, product design,
business plans, strategies and practices, marketing or technical information and
data, and information regarding or related to customers, including, without
limitation, customer segmentation strategies and placement, existing customer
account information and history and potential targeted customers, and any
material marked "confidential" or "proprietary" which is furnished or disclosed
by Ameritech or its representative is collectively deemed "Ameritech
Confidential Information". Ameritech Confidential Information of Ameritech is
acknowledged herein by the parties to be a significant asset of Ameritech, and
Ameritech will disclose its Confidential Information for AD to assist AD in its
13
<PAGE>
performance hereunder. Any Ameritech Confidential Information which is disclosed
to AD or otherwise learned by AD during the term of this Agreement is deemed the
exclusive property of Ameritech.
In addition, sales information including, but not limited to, the terms
and conditions of standard contracts, sales and operational methods, business
acquisition plans; new personnel acquisition plans; and, other business affairs
of Ameritech and any of its affiliates, are Ameritech "Confidential Information"
and trade secrets.
Section 11.2......Ten Years. During the term of this Agreement and for
a period of ten (10) years thereafter Ameritech Confidential Information shall
not be disclosed by AD to any person except officers and employees of the AD
requiring the information to perform under this Agreement. In no event shall
Ameritech Confidential Information or trade secrets be used for the benefit of
the AD except in connection with performing under this Agreement.
Section 11.3......Bound to the Same Extent as AD. The AD shall require
all officers, employees, agents and representatives to whom that information is
available or disclosed to by AD to agree to protect against disclosure to others
of Ameritech Confidential Information to the same extent as the AD has agreed.
Section 11.4......Liability. The AD shall be liable to Ameritech for
damages caused by any breach of this provision or by any unauthorized disclosure
of that Confidential Information and those materials by its officers, employees,
representatives and agents.
Section 11.5......AD Confidential Information. Ameritech agrees that it
will protect the disclosure of AD Confidential Information to the same extent it
protects its own Confidential Information. In no event is Ameritech authorized
to disclose AD Confidential Information outside of Ameritech without prior
written approval of AD.
Section 11.6......Limitations. The obligations of this Article 11 shall
not apply to Ameritech Confidential Information which is: (i) available to the
public through no breach of this Agreement; (ii) is required by law or
regulation to be disclosed, but only to the extent and for the purposes of such
required disclosure; or, (iii) is disclosed in response to a valid order of a
court or other governmental body of the United States with proper jurisdiction,
but only to the extent of and for the purposes of such order and only if the AD
first notifies Ameritech of the order and permits Ameritech to seek an
appropriate protective order.
Section 11.7......Ownership of Subscriber Information. To the extent
allowed under law, all subscriber and customer information, which includes, but
is not limited to: subscriber and customer lists; customer's use of products and
services; subscriber billing and related information; and, subscriber and
customer satisfaction information, all of which is collectively referred to
herein as "Subscriber Information" is the exclusive property of Ameritech and is
to be used by the AD only for purposes of this Agreement, and promptly returned
to Ameritech upon termination or expiration of this Agreement. Subscriber
Information is always Ameritech Confidential Information.
Section 11.8......Terms of this Agreement. The terms and conditions of
this Agreement are Confidential Information of Ameritech and AD.
14
<PAGE>
Section 11.9......Survival. This Article 11 and all its Sections shall
survive the termination or expiration of this Agreement.
ARTICLE 12
RIGHT TO SET-OFF
Ameritech reserves the right to set-off commissions due to AD if any AD
account with Ameritech is deemed by Ameritech to be "Seriously Delinquent"
(defined hereinafter). Ameritech's set-off right is governed by Exhibit C,
Section 2.0. In the event set-off is not adequate for an AD's Seriously
Delinquent accounts, Ameritech's right to terminate is governed by Section 4.2
(c).
ARTICLE 13
RIGHT TO AUDIT AND INSPECT DISTRIBUTOR'S RECORDS
During the term of this Agreement and for one (1) year after
termination or expiration of this Agreement, Ameritech reserves the right to
obtain access to and examine fully the books, records and accounts of all
transactions and activities covered by this Agreement upon reasonable notice to
AD and during AD's regular business hours.
ARTICLE 14
AGREEMENT NOT TO COMPETE
Section 14.1......Protection of Ameritech's Customer Relationship. The
parties agree with the Business Purpose of this Agreement which is stated above,
and agree that the commitments of this Article 14 are necessary to maintain this
mutual benefit. The parties agree that this Article 14 serves to protect
Ameritech's legitimate business interest in protecting Ameritech's customer
relationships and Ameritech's customer/subscriber information which is disclosed
to AD solely for successful performance hereunder.
Section 14.2......Term of Non-Compete. During the term of this
Agreement and for a period of one (1) year thereafter, AD and individuals
associated with AD will be privileged to a significant amount of Ameritech
Confidential Information, therefore, AD and its principal(s) director(s),
officer(s) and shareholder(s) (except those holding stock in the AD corporation
whose stock is publicly traded and which is subject to the reporting
requirements of the Securities Exchange Act of 1934 and then only to the extent
of owning not more than ten percent (10%) of the issued and outstanding shares
of such corporation), collectively and individually are bound by the terms of
this Section.
AD and any individual subject to this Section shall not assist or
facilitate the sale or use by a customer of a product or service which is
"competitive" to the Products. For purposes of this Section, "competitive to"
shall mean that the product or service is of a similar type or serves the same
purpose as the Product(s), or performs the same function as the Products, or
provides the customer the same benefit as the Products covered by this
Agreement. This shall mean that an individual subject to this Section shall not
15
<PAGE>
be employed by, serve as an agent for, or act as a representative or contractor
for a company which sells, promotes or distributes the competitive products or
services in the Territory.
Section 14.3......Equitable Relief. The AD, its shareholders and
officers, jointly and severally acknowledge and agree that the remedy at law for
any breach, or threatened breach, of any of the provisions of Article 14 will be
inadequate, and the AD and its shareholders jointly and severally agree that
Ameritech shall be entitled to such equitable relief as may be available from
any court of competent jurisdiction, and this right shall be in addition to any
other rights or remedies it may have for any violation of these provisions.
Section 14.4......Severability. In the event any of the provisions of
this Article 14 is determined by a court of competent jurisdiction to be in
violation of applicable law for any reason whatsoever, then any such provision
or part of a provision shall be deemed to be automatically amended so as to
comply with applicable law, and not deemed void.
Section 14.5......Survival. This Article 14 and all its Sections shall
survive the termination or expiration of this Agreement.
ARTICLE 15
NOTICE
Section 15.1......Notice. Unless Notice via "ameritechdealer.com" is
expressly identified as proper communication elsewhere in this Agreement, Notice
or other communication given by one party to the other under this Agreement
shall be deemed sufficient and proper if the Notice is in writing and is
delivered personally, or is sent postage prepaid, first class U.S. Mail, or by
overnight courier, and such Notice shall be deemed received by the other party:
a) three (3) days after the Notice is deposited with the U.S. Postal Service;
or, b) the following business day if sent by overnight courier. Notice will also
be deemed sufficient and proper if sent by facsimile provided the original
notice is sent via postage prepaid, first class U.S. Mail the same day as the
facsimile; if sent by facsimile Notice will be deemed received by the other
party on the date and time shown on the original transmission confirmation sheet
which is electronically generated by the facsimile machine at the time the
transmission is completed. Notice must be directed as set forth below; each
party reserves the right to change the direction of the Notice, and will do so
through proper Notice to the other party.
If to Ameritech If to AD
Ameritech James Lowery
225 W. Randolph, Floor Telecomm Industries
Chicago, Illinois 60606 1743 Quincy Street, Suite 143
Attn: Alternate Channels Naperville, IL 60540
Facsimile Number: 312-251-0633 Facsimile Number:_________________
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<PAGE>
ARTICLE 16
ASSIGNMENT
Section 16.1......AD Assignment. This Agreement may not be assigned by
AD without the prior written consent of Ameritech, and such consent will not be
unreasonably denied or withheld. Any attempted assignment in violation of this
Section shall be deemed void. In the event the proposed assignee is an existing
Ameritech AD, Ameritech reserves the right to consent with conditions, including
but not limited to, conditioning consent on acceptance by AD of Territory
modifications or sales objective restructure.
Section 16.2......Complying Assignment. In the event of a complying
assignment, this Agreement shall be binding upon and shall inure to the benefit
of the party's respective assigns and successors.
ARTICLE 17
GENERAL TERMS
Section 17.1......Governing Law. This Agreement shall be governed and
construed by the laws of the State of Illinois, as those laws apply to contracts
which are executed and fully performed within that State.
Section 17.2......Counterparts. This Agreement shall be executed in
counterparts and shall not be binding upon Ameritech until each counterpart is
executed by Ameritech and AD. Each party will retain a document with original
signature, and each fully executed counterpart will be considered an original
Agreement.
Section 17.3......Non-Waiver. All rights, remedies and relief available
to Ameritech shall be exercised at Ameritech's sole option. The failure of
Ameritech to enforce at any time any provision of this Agreement, or to exercise
any option which is provided for herein, or the failure of Ameritech to require
performance by the AD of any provision herein, shall in no way affect the
validity of, or act as a waiver of this Agreement, or any part thereof or any
right of Ameritech thereafter to enforce it.
Section 17.4......Incorporation. All Recitals, Exhibits and Attachments
and Annexes are fully incorporated herein, and each modification or amendment
thereto shall be deemed incorporated as if set forth originally therein.
Ameritech reserves the right to modify, add to and amend this Agreement,
including the Exhibits and Attachments hereto upon thirty (30) days written
notice to AD, and the modification, addition or amendment will be effective on
the thirtieth (30th) calendar day after the date the Notice is received by the
AD without the requirement of acknowledgement or any other act by AD.
Section 17.5......Entire Agreement. This Agreement contains the entire
agreement of the parties related to Ameritech's grant of rights as an Ameritech
Authorized Distributor and AD's acceptance thereof, and cancels all prior
agreements, understandings and representations, whether written or oral, express
or implied, and all such prior agreements are hereby deemed terminated by mutual
consent of the parties and all obligations under any such prior agreement are
agreed by each party to be inoperable and unenforceable.
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<PAGE>
Section 17.6......Section Headings. All article and section headings
and captions used in this Agreement are for convenience or reference only and
are not intended to define or limit the scope of any provisions in this
Agreement.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
authorized parties have duly executed this Agreement effective on the date.
Ameritech Information Systems, Inc. Telecomm Industries, Inc.
By:_______________________________ By:______________________________
Signature: /S/ Steve Mitchell Signature: /S/ James Lowery
Name Typed or Printed: Steve Mitchell Name Typed or Printed: James Lowery
Title: Director Title: CEO
Date: January 22, 1999 Date: December 30, 1998
[The Balance of this Page Intentionally Left Blank]
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<PAGE>
Exhibit A
Territory
Exhibit A TERRITORY
This is Exhibit A to the Authorized Distributor Agreement Between
Ameritech and Telecomm Industries, Inc. ("AD") dated January 1, 1999.
AD is hereby granted the right to distribute in the Territory specified
under this Exhibit. AD's right under the Agreement and this Exhibit is
conditioned on full execution of the Agreement and the signature of both parties
at the end of each Exhibit.
Ameritech and AD agree that sales outside of the Territory are not
encouraged and AD's authority to market, promote or sell Ameritech products to
customers outside of the Territory requires prior written approval by Ameritech.
STATE:
AREA CODES*:
If a business unit is not specifically listed below, sales by AD to
customers classified by Ameritech as served by that business unit are considered
"out of Territory" sales for purpose of this Agreement.**
*Any area code split will result in automatic inclusion of the new area codes
unless AD is otherwise notified in writing by Ameritech.
**Key - CBS means customers of the Custom Business Services
business unit
GBS means customers of the General
Business Services business unit
[The Balance of this Page Intentionally Left Blank]
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Exhibit B
Products
Exhibit B PRODUCTS
This is Exhibit B to the Authorized Distributor Agreement between
Ameritech and Telecomm Industries, Inc. ("AD") dated January 1, 1999.
AD is authorized to Distribute the Products specified under the
Attachments only if the following conditions are satisfied: i) the
above-referenced Agreement is fully executed by the parties; and, ii) all three
product family Attachment pages of this Exhibit are fully executed by each
party.
Attachment 4 to this Exhibit specifies which Products retire AD's sales
objective in a Product family. Sales of Products which do not retire the AD's
objective are treated differently for purpose of commission, and such treatment
is specified in Exhibit C.
For convenience purposes only, each product family category is set
forth under its own Attachment to this Exhibit, and each product or service in
that product family category is itemized. AD and Ameritech will appropriately
indicate which Products AD is authorized to Distribute, and will sign and date
each product family Attachment.
The products and services which are identified under the fully executed
Exhibits herein together and collectively constitute the "Product" for purposes
of the above referenced Agreement between Ameritech and AD.
The Attachments are:
Attachment 1 Voice Network Products and Services
Attachment 2 Standard Data Products and Services
Attachment 3 Usage Products and Services
Attachment 4 Objective Retirement Product List (by Product Family)
[The Balance of this Page Intentionally Left Blank]
20
<PAGE>
Exhibit B, Attachment 1
Voice Network Products
ATTACHMENT 1: VOICE NETWORK PRODUCTS AND SERVICES
This is incorporated as Attachment 1 to Exhibit B to the Authorized
Distributor Agreement between Ameritech and Telecomm Industries, Inc. ("AD")
dated January 1, 1999.
Ameritech 1-800-CONFERENCE
Ameritech 9-1-1 Locator ID
Ameritech Caller ID
Ameritech Centrex Service (Includes ISDN Centrex)
Ameritech Custom CallingServices
Ameritech Digital Transport Service-Enhanced (ADTS-E)
Ameritech DSO(except Total Access Service)
Ameritech DS1 (except Total Access Service)
Ameritech FeatureLink
Ameritech ISDN Direct Service
Ameritech ISDN Prime Service
Ameritech Linebacker
Ameritech Local Access Lines
Ameritech PBX Trunks
Ameritech Remote Call Forwarding
Ameritech SmartFax Connections
Ameritech VoiceMail
- ------------------------------ ---------------------------------------
Ameritech Signature AD Signature
- ------------------------------ ---------------------------------------
Date Date
[The Balance of this Page Intentionally Left Blank]
21
<PAGE>
Exhibit B, Attachment 2
Standard Data Products
ATTACHMENT 2: STANDARD DATA PRODUCTS AND SERVICES
This is incorporated as Attachment 2 to Exhibit B to the Authorized
Distributor Agreement between Ameritech and Telecomm Industries, Inc. ("AD")
dated January 1, 1999.
Ameritech Analog Video Service
Ameritech Asynchronous Transfer Mode Service (ATM)
Ameritech Broadcast Video Service
Ameritech Connectionless Broadband Data Service (CBDS)
Ameritech Digital Transport Service - Enhanced (ADTS-E)
Ameritech DSO (except Total Access Service)
Ameritech DS1 (except Total Access Service)
Ameritech DS3 (except Total Access Service)
Ameritech Fiber Distributed Data Interface Service (FDDI)
Ameritech Fractional DS1 (384) (except Total Access Service)
Ameritech Frame Relay Service (FRS)
Ameritech Host Interconnection Service (AHIS)
Ameritech Internet Access (Dedicated Access over Frame Relay or CBDS)
Ameritech ISDN Direct Service
Ameritech ISDN Prime Service
Ameritech LAN Interconnect Service (ALIS)
Ameritech Packet Switched Data Service
Ameritech Reconfiguration Service (ARS)
Ameritech Remote Office Access Manager (ROAM)
Ameritech Synchronized Optical Network Service (SONET)
- ------------------------------ -----------------------------------
Ameritech Signature AD Signature
- ------------------------------ -----------------------------------
Date Date
[The Balance of this Page Intentionally Left Blank]
22
<PAGE>
Exhibit B, Attachment 3
Usage Products
ATTACHMENT 3: USAGE PRODUCTS AND SERVICES
This is incorporated as Attachment 3 to Exhibit B to the Authorized
Distributor Agreement between Ameritech and Telecomm Industries, Inc. ("AD")
dated January 1, 1999.
Ameritech 1-800-CONFERENCE
Ameritech 9-1-1 Locator ID
Ameritech Caller ID
Ameritech Custom Calling Services
Ameritech Digital Transport Service - Enhanced (ADTS-E)
Ameritech Linebacker
Ameritech Local Access Lines
Ameritech PrePaid Products
Ameritech PBX Trunks
Ameritech Remote Call Forwarding
Ameritech SmartFax Connections
Ameritech ValueLink Product Family
Ameritech Voice Mail
- ------------------------------ -----------------------------------
Ameritech Signature AD Signature
- ------------------------------ -----------------------------------
Date Date
[The Balance of this Page Intentionally Left Blank]
23
<PAGE>
Exhibit B, Attachment 4
Objective Retirement Product List (by Product Family)
ATTACHMENT 4: OBJECTIVE RETIREMENT PRODUCT LIST (BY PRODUCT FAMILY)
This is incorporated as Attachment 4 to Exhibit B to the Authorized
Distributor Agreement between Ameritech and Telecomm Industries, Inc. ("AD")
dated January 1, 1999.
The products and services identified in each Annex to this Attachment
will or will not retire an AD's objective for the product family specified on
the Annex as indicated in the column titled "Objective Retirement".
[The Balance of this Page Intentionally Left Blank]
24
<PAGE>
ANNEX 1: VOICE NETWORK PRODUCTS AND SERVICES
OBJECTIVE RETIREMENT
This is incorporated as Annex 1 to Attachment 4 of Exhibit B to the
Authorized Distributor Agreement between Ameritech and Telecomm Industries, Inc.
("AD") dated January 1, 1999.
- ------------------------------------------------------ -----------------------
Eligible Products and Services Objective Retirement
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech 1-800-CONFERENCE Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech 9-1-1 Locator ID Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Caller ID Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Centrex Service (Includes ISDN Centrex Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Custom Calling Services Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Digital Transport Service-Enhanced (ADTS-E) Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech DSO (except Total Access Service) No
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech DS1 (except Total Access Service) No
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech FeatureLink Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech ISDN Direct Service Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech ISDN Prime Service Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Linebacker Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Local Access Lines Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech PBX Trunks Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Remote Call Forwarding Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech SmartFax Connections Yes
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
Ameritech Voice Mail Yes
- ------------------------------------------------------ -----------------------
[The Balance of this Page Intentionally Left Blank]
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<PAGE>
Exhibit B, Attachment 4
Annex 2
Standard Data Products
ANNEX 2: STANDARD DATA PRODUCTS AND SERVICES
OBJECTIVE RETIREMENT
This is incorporated as Annex 2 to Attachment 4 of Exhibit B to the
Authorized Distributor Agreement between Ameritech and Telecomm Industries, Inc.
("AD") dated January 1, 1999.
- ---------------------------------------------------------------- ------------
Objective
Eligible Products and Services Retirement
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Analog Video Service Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Asynchronous Transfer Mode Service (ATM) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Broadcast Video Service Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Connectionless Broadband Data Service (CBDS) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Digital Transport Service - Enhanced (ADTS-E) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech DSO (except Total Access Service) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech DS1 (except Total Access Service) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech DS3 (except Total Access Service) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Fiber Distributed Data Interface Service (FDDI) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Fractional DS1 (384) (except Total Access Service) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Frame Relay Service (FRS) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Host Interconnection Service (AHIS) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Internet Access
(Dedicated Access over Frame Relay or CBDS) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech ISDN Direct Service Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech ISDN Prime Service Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech LAN Interconnect Service (ALIS) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Packet Switched Data Service Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Reconfiguration Service (ARS) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Remote Office Access Manager (ROAM) Yes
- ---------------------------------------------------------------- ------------
- ---------------------------------------------------------------- ------------
Ameritech Synchronized Optical Network Service (SONET) Yes
- ---------------------------------------------------------------- ------------
[The Balance of this Page Intentionally Left Blank]
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<PAGE>
Exhibit B, Attachment 4
Annex 3
Usage Products
ANNEX 3: USAGE PRODUCTS AND SERVICES
OBJECTIVE RETIREMENT
This is incorporated as Annex 3 to Attachment 4 of Exhibit B to the
Authorized Distributor Agreement between Ameritech and Telecomm Industries, Inc.
("AD") dated January 1, 1999.
- ---------------------------------------------------------- --------------------
Eligible Products and Services Objective Retirement
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech 1-800-CONFERENCE Yes
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech 9-1-1 Locator ID No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Caller ID No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Custom Calling Services No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Digital Transport Service - Enhanced (ADTS-E) No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Linebacker No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Local Access Lines No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech PrePaid Products Yes
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech PBX Trunks No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Remote Call Forwarding No
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech SmartFax Connections Yes
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech ValueLink Product Family Yes
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Ameritech Voice Mail No
- ---------------------------------------------------------- --------------------
[The Balance of this Page Intentionally Left Blank]
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<PAGE>
Exhibit C
Commission
Exhibit C COMMISSION
This is incorporated as Exhibit C to the Authorized Distributor
Agreement Between Ameritech and Telecomm Industries, Inc. ("AD") dated January
1, 1999 (hereinafter the "Agreement").
1.0 General
1.1 Definitions
As used in this Agreement, the following definitions apply:
"AD of Record" shall mean the Authorized Distributor firm
credited with the sale of a new or renewed Centrex System or
PrePaid Products.
"Base Commission" shall mean the amount paid upfront to an AD
for sales of Ameritech Products. The base commission may
increase as an AD's objective increases relative to other ADs.
"Billable Revenue" shall mean those Recurring and
Non-Recurring charges which result from the customer service
order(s) which result from the sale submitted by the AD.
"Completed Orders" shall mean a "completed" status in an
Ameritech service ordering or billing systems.
"Contract Value" or "CV" shall mean the value of the Recurring
and Non-Recurring revenue charges for each product which is
used by Ameritech for purposes of establishing the value of a
sale for commission purposes.
"Eligible Product" or "Product Eligibility" shall mean those
Products the AD is authorized to promote, market and sell
under this Agreement and which are identified fully under
Exhibit B of the Agreement. AD is authorized to sell all the
Products, but only sales of those Products for which AD has an
annual sales objective will retire the AD's sales objective
for that product family.
"Migration" occurs when a customer with an existing Ameritech
Usage contract signs a new contract for a different Ameritech
Usage product, and that product is deemed solely by Ameritech
to be within the same product family as the replaced product.
"Netting" is applied to the sale of certain ValueLink products
when existing products such as, but not limited to, centrex
are already existing at that location of the customer.
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"New" shall mean the sale of a Product to a customer who does
not currently have that specific Product and Ameritech in its
sole discretion will determine if customer currently has the
Product. To retire an AD's objective in the applicable product
family, the sale must be made in the AD's Objective Territory
and must be an Eligible Product. In no event will a sale which
is classified by Ameritech in its sole discretion as a Recast,
a Renewal, a Renegotiation, a Migration or an Upgrade be
considered a "New" sale for purposes of the Agreement.
"Non-Recurring Revenue" shall mean those one-time billed
charges which are a result of a sale by AD.
"Objective Bonus" shall mean the amount paid as the Upfront
Payment once an AD exceeds the sales volume thresholds, as
those sales volumes are stated in dollars, and which are
related to the AD's annual product family sales objective in
each state. The amount of the Objective Bonus payment may
increase over the term of this Agreement based upon the AD's
objective relative to other ADs' objectives. The Objective
Bonus payment shall apply only to New sales of Products which
retire the objective for its product family in the Objective
Territory.
"Objective Retirement" shall mean the process whereby New
sales of Ameritech Products retire the objectives for the
product family. In the event a Product retires AD's Objective
as specified under Exhibit B, Attachment 4 in more than one
product family, New sales of those products will retire the
AD's objective in one, and only one, product family in the
following order: (i) Data; (ii) Voice; and (iii) Usage. Sales
of Products which do not retire objective (see Attachments to
Exhibit B) are considered "Sales Without Objective Retirement"
for purposes of this Agreement.
"Objective Revenue" shall mean that dollar amount which is
considered the unit of measure to retire an AD's sales
objective in a product family. Objective Retirement shall
equal one month of the Recurring Revenue associated with the
New sale of a Product.
"Objective Territory" shall mean a sales area or region which
is a sub-set of AD's authorized Territory. Objective
Retirement is satisfied only by sales in AD's Objective
Territory, and Ameritech in its sole discretion will establish
and assign AD an "Objective Territory".
"Objective Tier ("Tier")" means that the AD has been assigned
to Tier I, Tier II or Tier III for purposes of commission
value calculation and Objective Retirement. Determining the
Tier the AD is assigned is at the sole discretion of
Ameritech.
"Partnering" means that the AD is not the sole sales entity in
the sales effort with a particular customer, and AD markets
Product(s) to a particular customer with another AD or
Ameritech sales representative. AD must receive prior written
approval by Ameritech for each Partnering effort, and
commission will not be paid on sales which result from such
efforts without the prior written consent of Ameritech.
Ameritech reserves the right to set commission values for each
partnering arrangement.
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<PAGE>
"Recast/Renewal/Renegotiation" collectively shall mean a sale
of Data or Voice, or a sales which includes data and voice,
and such sale is not classified as a New sale for purposes of
Objective Retirement or Commission Payment purposes. For
purposes of the Agreement, a sale will be deemed a Recast or a
Renewal (whichever is appropriate) when a customer signs a new
contract for a Product, and the customer already subscribes to
the same Ameritech product or to an Ameritech product which is
deemed solely by Ameritech to be similar to the Product
covered under the new contract, and the new contract extends
the customer's term commitment for the Product.
A sale will be deemed a Renegotiation when a customer enters
into a new contract with Ameritech for a Product they already
subscribe to, and the terms of the contract are substantially
changed from the contract then-in-effect for that Product, and
Ameritech determines, in its sole discretion that the sale is
eligible for commission payment to the AD at the Renegotiation
rate.
"Recurring Revenue" shall mean those monthly charges billed to
the customer for Products as a result of a sale by AD.
"Residual Payment" shall mean the commission payment which is
paid by Ameritech over time, and the time period for payment
is established by Ameritech based on contract term or other
factors relevant to the sale. Ameritech determines the amount
and payment schedule in its sole discretion.
"Takeback" shall mean commission amounts which are forfeited
or returned by the AD as a result of a customer discontinuing
its subscription to the Product(s). In the event the Takeback
is accomplished by the AD returning commissions already paid,
Ameritech will debit the AD's future commission payments by
the amount to be returned. If such a debit does not satisfy
the Takeback amount, Ameritech may demand full payment from
the AD immediately.
"Territory" is defined under Exhibit B of the Agreement and
the rules governing payment of commission for sales made to
customers outside the Territory are set forth in the
Agreement.
"Upfront Commission Payment" shall mean that portion of the
total commission paid to the AD upon Ameritech's verification
that the order(s) associated with the sale are Completed
Orders.
"Upgrade" means that a customer signs a contract for an
Ameritech Product to which the customer already subscribes, or
for a Product which Ameritech deems is similar to the Product
the customer already subscribes to, and the new contract is
for a term that extends the customer's contract term beyond
the existing contract's expiration date, and the new contract
includes a product commitment which is larger than that which
is in effect at the time of the new contract.
30
<PAGE>
"Winback Bonus" shall mean the incremental commission amount
paid to AD because the sale of an Eligible Product is deemed
solely by Ameritech to satisfy Ameritech's criteria to be
classified as a "winback" sale as that term is understood in
the telecommunications industry.
1.2 Earned Date. AD earns the commission on any sale at the time
the commission is paid by Ameritech.
1.3 Commission Amount and Payment Schedules. The commission value
and the time of payment for each sale is based upon a number
of factors, first and foremost is the Product sold and the
terms and conditions of this Agreement. To be eligible for
commission on a specific sale, the AD must comply with all
Ameritech practices and procedures, including, but not limited
to, those related to the processing of sales and subscriber
agreements by AD, and the accuracy of each submission by AD.
Ameritech reserves the sole right to modify or change any or
all of its practices and procedures related to the AD program,
and will provide AD with a minimum of thirty (30) days prior
written Notice of any modification which will affect the AD's
own practices or procedures. Ameritech may elect to serve this
Notice via the "ameritechdealer.com" web site and bulletin
board, and the Notice will be considered given on the date the
Notice is posted by Ameritech on the web site.
1.4 Acceptance by Ameritech. Ameritech reserves the right to
accept or reject any sale submitted by AD, and, accept or
deny, in whole or in part, any request for commission for a
specific sale. Ameritech in its sole discretion has the right
to establish the reasonable commission value of any sale.
2.0 Commission Set Off
In the event of a "Seriously Delinquent" on any AD Ameritech
account, including, but not limited to, Ameritech monthly billing
statements for service and Ameritech invoices for CPE, Ameritech may,
at its sole election, set off the amount of the delinquency by the
amount owed to AD in future commissions, including, without
limitations, Residual Payments. Ameritech's decision to set-off is
final and not subject to appeal. In the event such set-off is
necessary, Ameritech will notify AD in writing of its intent to set
off, and AD's commission statement will reflect the set-off. In no
event will Ameritech define "Seriously Delinquent" if the delinquency
is less than ninety (90) days.
3.0 Upon Termination
3.1 Ameritech Terminates. The parties agree that in the event
Ameritech exercises its right to terminate for convenience as
is provided for under Section 4.2.a of the Agreement,
Ameritech will, at its sole election, pay the Authorized
Distributor either:
a) Liquidated damages equal to a sum of the following
formula: [The amount of residual commission the AD
would be awarded if all contracts remained in effect
through the end of the contract term then in effect
provided the AD remained eligible for residual
31
<PAGE>
payments for those customer contracts for the entire
term] x (times) [the Ameritech net present value
discount rate on the date of termination] x (times)
[seventy five percent (75%)]; or,
b) Pay on a monthly basis Residual Payment for customer
sales which are in effect and approved for commission
on the date Ameritech terminates the Agreement.
Residual Payments will continue through the
expiration date of the customer contract in effect at
the time Ameritech terminates this Agreement, or
until the original expiration date of this Agreement,
whichever is sooner.
3.2 AD Terminates. In the event AD exercises its right to
terminate the Agreement pursuant to the terms of the
Agreement, AD is not entitled to any commission payment after
the date of termination. Ameritech agrees that in
extraordinary situations a commission payment after the
termination date may be reasonable, and under such situations
Ameritech will deem at its sole discretion that the AD will
receive payment. If such a situation occurs, Ameritech will
provide to the AD in writing the amount and timing of the
payment, and the conditions or limitations on such payment(s).
3.3 Upfront Commission Payment. AD will be eligible for the
Upfront Commission Payment for any sale which is accepted by
Ameritech prior to the date this Agreement is terminated.
4.0 Commission Calculation Methodology
4.1. Calculation Basis. Ameritech will pay commissions on a sale
submitted by AD based upon:
a) The Product sold.
b) Whether the sale is deemed by Ameritech to be: (i) a
New sale or an addition to an existing service; (ii)
a Recast, Renewal or Renegotiation; (iii) a Migration
or Upgrade;
c) Whether the AD is the sole sales entity or if the
sale is the result of an approved Partnering sale as
provided for elsewhere in this Exhibit; and,
d) The order(s) which are associated with the sale
are Completed Orders.
4.2 Commission Eligibility. In no event will an AD be paid
commission on a sale: (i) outside the Territory unless such a
sale is provided for elsewhere in this Agreement and AD
receives prior written consent for such a sale pursuant to the
requirements set forth elsewhere in the Agreement; (ii) of a
product AD is not authorized to sell under the Agreement
(i.e., product or service is not specified in Exhibit B of the
Agreement); (iii) made to a customer the AD is not authorized
to sell to, including, but not limited to, an Ameritech house
account, a customer who is not deemed to be a retail business
customer, or a customer who has expressly granted agency to
another AD unless that customer has expressly, in writing
revoked such agency; and (iv) to Ameritech or to an AD or
other independent Authorized Ameritech representative.
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<PAGE>
4.3 Commission Award Final. Ameritech reserves the right to
establish the commission value for any sale, and that value
may, with reasonable justification, be less than, more than or
equal to the values set forth herein for such sale, or the
value previously paid for similar sales. Ameritech is solely
responsible for the determination and calculation of the
commission to be paid on any single sale, and Ameritech's
commission determination, absent arithmetic errors, is final
and not appealable.
5.0 Sales Outside of Territory and Sales Outside of "Objective Territory"
In the event the AD sells Product outside of the Territory,
and such sale has received Ameritech's prior written consent, the
commission payment for such sale will be established by Ameritech at
its sole discretion.
In the event that AD sells Product for which the AD does not
have a sales objective,(which is deemed a sale outside of Objective
Territory), the sale is subject to a twenty-five percent (25%)
reduction in the Upfront Commission Payment.
6.0 Partnering
Provided a Partnering arrangement complies with the
requirements under Article 7, Section 7.7 of the Agreement, Ameritech
will pay commission on such sales. The general commission payment
treatment for a Partnering sale is that AD will be paid an Upfront
Commission Payment equal to fifty percent (50%) of the Upfront
Commission Payment which would be paid for the same sale if no
Partnering took place. If two ADs partner, each will receive this
reduction. An exception to the general commission payment treatment for
a Partnering sale when the Partnering efforts are with an Ameritech GBS
Territory Manager, and the result of the effort is a Data Product sale,
the Upfront Commission Payment for all resulting sales will be
twenty-five percent (25%) less than the Upfront Commission Payment for
the same sale if no Partnering took place.
7.0 Centrex Product Family
For purposes of the Agreement, Products classified by
Ameritech as part of the Centrex product family will be paid commission
pursuant to this Section 7.0.
7.1 Centrex Product Family. The Centrex product family is the
collective term for the following Ameritech Centrex products:
Ameritech Centrex Service (ACS); Indiana Advanced Centrex
Service; ISDN Centrex; and, Individual Case Basis (ICB)
Centrex.
7.2 Grandfather and Sunset Offerings. Commission will not be paid
on New sales of an Ameritech Centrex offering which has been
grandfathered or sunset as those terms relate to
telecommunications offerings. Commission will be paid for
sales which are additions to an existing, installed system of
a grandfathered or sunset Centrex offering.
33
<PAGE>
7.3 New Centrex Sales. Commission on New Centrex system sales will
be paid provided the sale results in a net increase in Centrex
station lines of at least fifteen percent (15%) of the
existing installed system. In Indiana, the Centrex station
line net increase must be at least one hundred percent (100%)
of the existing installed system.
7.4 Upfront Commission Payment Schedule
The Upfront Commission Payment schedule set forth below
applies to New Centrex system sales. The Commission Payments
are stated in terms of one Centrex station line; the actual
Commission Payment for a particular sale will be based on the
number of lines sold, and, the Commission Payment amount will
be calculated by multiplying the rate set forth below for a
single Centrex station line by the total number of station
lines sold.
---------------------------------------------------------------------------
ACS and Indiana Advanced Centrex
---------------------------------------------------------------------------
------------------ ---------------------- ------------------ --------------
Month-to-Month 36 Months 60 Months 84 Months
------------------ ---------------------- ------------------ --------------
------------------ ---------------------- ------------------ --------------
$20 $45 $65 $90
------------------ ---------------------- ------------------ --------------
---------------------------------------------------------------------------
ISDN Centrex
---------------------------------------------------------------------------
------------------ ---------------------- ------------------ --------------
Month-to-Month 36 Months 60 Months 84 Months
------------------ ---------------------- ------------------ --------------
------------------ ---------------------- ------------------ --------------
$30 $70 $100 $135
------------------ ---------------------- ------------------ --------------
---------------------------------------------------------------------------
ICB Centrex
---------------------------------------------------------------------------
------------------ ---------------------- ------------------ --------------
Month-to-Month 36 Months 60 Months 84 Months
------------------ ---------------------- ------------------ --------------
------------------ ---------------------- ------------------ --------------
$16 $36 $52 $72
------------------ ---------------------- ------------------ --------------
---------------------------------------------------------------------------
Note: ICB Centrex sales for contract lengths greater than 84
months will be awarded commission based on the 84 month
commission award.
---------------------------------------------------------------------------
7.5 Centrex Station Line Additions
a) Commission for Centrex station line additions to an
existing installed system will be awarded only to the
AD of Record unless Ameritech has approved in writing
alternative treatment of commission payments.
Ameritech will determine at its sole discretion when
there is a deviation in this payment policy.
b) The Upfront Commission Payment for Centrex station
line additions will be 50% of the commission values
in the above schedules. The Upfront Commission
Payment for Centrex station line additions to a
system which is a grandfathered or sunset offering
will be $20 regardless of type of system or contract
length.
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<PAGE>
7.6 Winback Bonus
If the AD makes a Centrex sale which is designated by
Ameritech as a "winback" sale, a Winback Bonus will be paid
which will increase the Base Commission by one hundred percent
(100%).
7.7 Commitment Bonus
If a new Centrex sale results in a contract which commits the
customer to a number of Centrex station lines which Ameritech
identifies in the chart that follows here as the appropriate
number of lines based upon the number of lines sold, the AD
will be eligible to receive the commitment bonus. The
commitment bonus increases the Upfront Commission Payment by
fifteen percent (15%). Ameritech, in its sole discretion, will
determine if a sale is eligible for the Commitment Bonus. The
following schedule will be used to determine the applicability
of the commitment bonus for ACS and ISDN Centrex.
--------------------------------- ----------------------------
Number of Lines Sold Number of Lines Committed
--------------------------------- ----------------------------
--------------------------------- ----------------------------
2 - 7 2
8 - 25 7
26 - 50 25
51 - 100 50
101 - 200 100
over 200 200
--------------------------------- ----------------------------
The following schedule will be used to determine the
applicability of the Commitment Bonus for Indiana Advanced
Centrex:
--------------------------------- ----------------------------
Number of Lines Sold Number of Lines Committed
--------------------------------- ----------------------------
--------------------------------- ----------------------------
11 - 21 11
22 - 101 22
102 - 251 101
252 - 1,001 251
over 1,001 1,001
--------------------------------- ----------------------------
The Commitment Bonus for ICB Centrex will be awarded if, and
only if, the number of lines committed to by the customer
equals at least eighty percent (80%) of the number of lines
sold to the customer.
7.8 Objective Retirement and Objective Attainment
For Objective Retirement purposes, the monthly contract values
used for New Centrex sales and additions to existing Centrex
systems are as follows:
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<PAGE>
------------------------------------------- ------------------
Centrex Service CV Per Month
------------------------------------------- ------------------
------------------------------------------- ------------------
ACS and Indiana Advanced Centrex $20
ISDN Centrex $30
ICB Centrex $16
------------------------------------------- ------------------
The following factors will be applied to the Base Upfront
Commission Payment for purposes of Objective Attainment:
--------------------------------- ----------------------------
Objective Attainment Factor
--------------------------------- ----------------------------
--------------------------------- ----------------------------
0 - 69.9% 1.00
70 - 99.9% 1.15
100% and over 1.30
--------------------------------- ----------------------------
7.9 Residual Commission Payment Schedule
A Residual Commission Payment will be paid at a rate of one
dollar ($1.00) per line, per month, and will continue for so
long as the customer's contract is in effect. In no event will
Residual Payments be paid on a month-to-month Centrex sale.
7.10 Recasts, Renewals, Renegotiations of existing Centrex
Contracts
a) The AD of Record or other Ameritech representative of
Record has the exclusive right to Renew, Recast or
Renegotiate the contract during the contract term
through sixty (60) days prior to the contract
expiration date.
b) If the customer's contract term in effect at the time
of the Recast or Renewal is more than one hundred and
eighty (180) days from the date the contract expires,
commission will not be paid to AD for a Centrex
Recast or Renewal, unless Ameritech has provided
prior written approval for such a payment. Commission
will not be paid on Centrex Renegotiations unless
Ameritech has provided written approval for such
payment prior to the date the contract was signed by
the customer.
c) After a customer contract has expired, and the
customer is under a month-to-month term for that
Product, any sale of that Product which is submitted
by AD will be considered a Recast or Renewal for
purposes of commission. If the customer contract
expired six (6) or more months prior to the AD's
submission, and the customer has been on a
month-to-month subscription for that period,
Ameritech will pay commission at the New sale rate.
d) Commission for Centrex Recasts, Renewals and
Renegotiations will be paid as follows:
(i) The Base Commission will equal 75% of the amount
paid for an identical New sale.
(ii) The Residual Commission Payment will be paid at
the same rate as an identical New Centrex sale.
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<PAGE>
7.11 Month-to-Month Centrex. For purposes of calculating the CV, a
month-to-month Centrex sale will be considered equal to nine
(9) months Recurring Revenue. In no event will Residual
Payments be paid on a month-to-month Centrex sale.
7.12 Takeback. The Upfront Commission Payment is subject to
Takeback in the event the customer discontinues a service (for
any or no reason) for which AD received commission in the
past. The Takeback amount will be based upon the length of
time the customer retained the service and whether the sale
was under a term contract:
a) If the sale is a term contract, and the service is
discontinued within the first fifty percent (50%) of
the contract term, the amount of Takeback will be
prorated to the length of time remaining on the
customer's contract.
b) If the sale was a month-to-month subscription, and
the customer discontinues the service within sixty
(60) days of the Completed Order date, the Takeback
amount will equal one hundred percent (100%) of the
commission paid. Residual Commission Payments cease
when a service is discontinued.
8.0 Ameritech FeatureLink.
Commission payment and conditions for payment for Ameritech
FeatureLink service are the same as those set forth above for
ACS Centrex, except that no Commitment Bonus is available for
the sale of Ameritech FeatureLink.
9.0 Other Voice Products
9.1 The commission payment schedule set forth below applies to New
sales of the following Products:
Caller ID
Custom Calling Services
Linebacker
Local Access Lines
PBX Trunks
Remote Call Forwarding
Voice Mail Service
<TABLE>
<CAPTION>
--------------------- ----------------- ------------------------- ---------------------------------
Objective Winback Bonus
Attainment Upfront (See Note) Residual
--------------------- ----------------- ------------------------- ---------------------------------
--------------------- ----------------- ------------------------- ---------------------------------
<S> <C> <C> <C> <C>
0 - 69.9% 7.00% of CV 7.00% of CV 5.00% of Monthly Charges
70 - 99.9% 8.05% of CV 7.00% of CV 5.00% of Monthly Charges
100% and over 9.10% of CV 7.00% of CV 5.00% of Monthly Charges
--------------------- ----------------- ------------------------- ---------------------------------
---------------------------------------------------------------------------------------------------
<FN>
Note: The winback bonus applies only to the sale of Local Access Lines.
</FN>
---------------------------------------------------------------------------------------------------
</TABLE>
9.2 CV. The CV for the above Products will be determined by the
following formula:
(Nonrecurring Revenue) + (Recurring Revenue x 24 Months) = CV
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<PAGE>
9.3 Residual Commission Payments. Residual Commission Payments
will be paid for a period of twenty four (24) months, and in
no event will AD be eligible for Residual Commission Payment
on the above Products after twenty four (24) monthly
commission payments have been made.
9.4 Conversion from Centrex Service. In no event will AD be paid
commission on a sale which converts the customer from Centrex
service (of any type) to Local Access Lines.
9.5 Takeback. If the AD received commission for a Product subject
to this Section 9.0, and the customer discontinues the Product
for any reason within one hundred and eighty (180) days after
the Completed Order date, Takeback applies, and the amount of
takeback equals one hundred percent (100%) of the commission
paid to AD.
10.0 Ameritech SmartFax Connections
10.1 Upfront Commission Payment. The following Upfront Commission
Payment schedule applies to New sales of, and "Sales of
Additions" to, Ameritech SmartFax Connections.
-------------------------------------- ----------------------
Contract Description Commission Award
-------------------------------------- ----------------------
-------------------------------------- ----------------------
No Contract (Month-to-Month) $10.00
One Year Contract $40.00
Contract Renewal $20.00
-------------------------------------- ----------------------
10.2 CV. CV is determined by the following formula:
(Nonrecurring Revenue) + (Recurring Revenue x Contract Length) = CV
10.3 Residual Commission Payment. Residual Commission Payment will
equal five percent (5%) of the monthly Recurring Revenue and
the monthly usage revenue which appears on the customer's
Ameritech local service bill.
10.4 Renewal Upfront Commission Payment. In the event AD submits a
sale which is deemed by Ameritech to be a Renewal for the
Ameritech SmartFax Product, and the Renewal is submitted
within sixty (60) days from the expiration date of the
customer's then-in-effect contract for that service, the AD
will receive a Renewal Upfront Commission Payment. If the AD
converts a customer's subscription to the service from a
month-to-month to a term contract, the AD will receive
commission at the Renewal rate.
After a customer's contract has expired, and the customer is
under a month-to-month term for at least six (6) months
following the expiration, any sale submitted by AD will be
considered a New sale for purposes of commission.
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<PAGE>
11.0 Ameritech 9-1-1 Locator ID
11.1 Commission Schedule. Commission for this Product will be
awarded according to the following schedule:
------------------------------------ ----------------------------------------
Sale Description Commission Award
------------------------------------ ----------------------------------------
------------------------------------ ----------------------------------------
Non-Centrex
Software Only $350.00
Software and Hardware $750.00
Centrex
Software Only $250.00
Software and Technical Support $350.00
Record Loading $0.01 per record, not to exceed $250.00
------------------------------------ ----------------------------------------
11.2 CV. The CV is determined by the following formula:
(Nonrecurring Revenue) + (Recurring Revenue x Contract Length) = CV
11.3 Residual Commission Payment. No Residual Commission Payment
will be paid.
12.0 Eligible Standard Data Products
12.1 Common Provisions. The following applies to all Eligible
Standard Data Products.
a) Sales to Retail Business Customers Only. The
conditions and limitations set forth elsewhere in the
Agreement apply to the sale of Data Products. In
addition, Ameritech will not pay commission on any
network sale which is configured as terminating only
service, as that term is understood in the
telecommunications industry.
b) Eligible Standard Data Products. Eligible Standard
Data Products are specified under Exhibit B of the
Agreement, and AD's right to earn commission for
sales of Data Products as set forth below are
governed by the terms, conditions and limitations of
the Agreement and Exhibit B.
c) Recasts, Renewals, Renegotiations.
(i) If the customer's contract term-in-effect at
the time of the Recast or Renewal is more
than one hundred and eighty (180) days from
the date the contract expires, commission
will not be paid to AD for a Data Product
Recast or Renewal, unless Ameritech has
provided prior written approval for such a
payment. Commission will not be paid on Data
Product Renegotiations unless AD has
received from Ameritech written approval for
such payment prior to the date the contract
was signed by the customer.
39
<PAGE>
(ii) After a customer contract has expired, and
the customer is under a month-to-month term
for that Product, any sale for that Product
which is submitted by AD will be considered
a Recast or Renewal for purposes of
commission. If the customer contract expired
six (6) or more months prior to the AD's
submission, and the customer has been on a
month-to-month subscription for that period,
Ameritech will be pay commission at the New
sale rate.
(iii) Commission for Data contract Recasts,
Renewals and Renegotiations will be awarded
as follows:
(a) The Base Commission will equal 50%
of the amount paid for an identical
New sale (New sale commission
payment schedule set forth below)
(b) The Residual Payment will be paid at
the same rate as an identical New
sale of the same Data Product
d) Month-to-Month Subscription. For purposes of
commission payment calculation, a month-to-month Data
sale will be considered equal to nine (9) months
Recurring Revenue. In no event will Residual Payments
be paid on a month-to-month Data sale.
e) Takeback. If the AD received commission for a Product
subject to this Section 12.0, and the customer
discontinues the Product for any reason, Takeback
applies. The amount of Takeback is based upon the
length of time the customer retained the service and
if the sale was a term contract: a) if the customer
discontinues the Product during the first fifty
percent (50%) of the contract term, the Takeback
amount will be prorated to the length of time
remaining on the customer's contract; b) if the
customer discontinues a month-to-month subscription
of the Product within sixty (60) days of
installation, the Takeback will equal one-hundred
percent (100%) of the Upfront Commission Payment.
Residual Commission Payments cease when a contract is
discontinued.
12.2 Basic Data Products
a) Commission Payment Schedule. The following commission
payment schedule applies to New sales and additions
to existing, installed services for the following
Products:
Ameritech Base Rate (BR or DS0)
Ameritech DS1
Ameritech Fractional DS1 (384)
Ameritech DS3
Ameritech ISDN Prime
Ameritech Reconfiguration Service
Ameritech Digital Transport Service -
Enhanced (ADTS-E)
40
<PAGE>
--------------- -------------- ------------- -------------------------
Objective Winback
Attainment Upfront Bonus Residual
--------------- -------------- ------------- -------------------------
--------------- -------------- ------------- -------------------------
0 - 69.9% 8.00% of CV 8.00% of CV 5.00% of Monthly Charges
70 - 99.9% 10.00% of CV 8.00% of CV 5.00% of Monthly Charges
100% and over 12.00% of CV 8.00% of CV 5.00% of Monthly Charges
--------------- -------------- ------------- -------------------------
b) CV. The CV for the above schedule is determined by
the following formula: (Nonrecurring Revenue) +
(Recurring Revenue x Contract Length) = CV
12.3 Ameritech Analog and Broadcast Video Services
a) Ameritech Analog and Broadcast Video. The following
commission payment schedule applies to New sales and
Additions to existing installations of Ameritech
Analog and Broadcast Video services:
--------------- ---------------- ------------- -------------------------
Objective Winback
Attainment Upfront Bonus Residual
--------------- ---------------- ------------- -------------------------
--------------- ---------------- ------------- -------------------------
0 - 69.9% 7.00% of CV 7.00% of CV 5.00% of Monthly Charges
70 - 99.9% 9.00% of CV 7.00% of CV 5.00% of Monthly Charges
100% and over 11.00% of CV 7.00% of CV 5.00% of Monthly Charges
--------------- ---------------- ------------- -------------------------
b) CV. The CV for the above schedule is determined by
the following formula: (Nonrecurring Revenue) +
(Recurring Revenue x Contract Length) = CV
12.4 Complex Data Products
a) Commission Payment Schedule. The following commission
payment schedule applies to New sales and additions
to existing installations of the following Data
products:
Ameritech Synchronized Optical Network Service (SONET)
Ameritech Frame Relay Service (FRS)
Ameritech Connectionless Broadband Data Service(CBDS)
Ameritech Internet Access (Dedicated Access over FRS or CBDS)
Ameritech Remote Office Access Manager (ROAM)
Ameritech LAN Interconnection Service (ALIS)
Ameritech Host Interconnection Service (AHIS)
Ameritech Fiber Distributed Data Interface Service (FDDI)
Ameritech Asynchronous Transfer Mode Service(ATM)
-------------- --------------- ------------- -------------------------
Objective Winback
Attainment Upfront Bonus Residual
-------------- --------------- ------------- -------------------------
-------------- --------------- ------------- -------------------------
0 - 69.9% 5.00% of CV 5.00% of CV 2.00% of Monthly Charges
70 - 99.9% 7.00% of CV 5.00% of CV 2.00% of Monthly Charges
100% and over 9.00% of CV 5.00% of CV 2.00% of Monthly Charges
-------------- --------------- ------------- -------------------------
41
<PAGE>
b) CV. The CV for the above schedule is determined by
the following formula: (Nonrecurring Revenue) +
(Recurring Revenue x Contract Length) = CV
12.5 Ameritech ISDN Direct Service
a) The following commission payment schedule applies to
New sales and additions to existing installations of
Ameritech ISDN Direct Service:
---------------- ------------------- ------------------------
Objective
Attainment Upfront Residual
---------------- ------------------- ------------------------
---------------- ------------------- ------------------------
0 - 69.9% 12.00% of CV 4.25% of Monthly Charges
70 - 99.9% 14.00% of CV 4.25% of Monthly Charges
100% and over 16.00% of CV 4.25% of Monthly Charges
---------------- ------------------- ------------------------
b) CV. The CV for the above schedule is determined by
the following formula: (Nonrecurring Revenue) +
(Recurring Revenue x Contract Length) = CV
12.6 Ameritech Packet Switched Network Service
a) The following commission payment schedule applies to
New sales and additions to existing installations of
Ameritech Packet Switched Network Service. For
purposes of the Agreement, Ameritech Packet Switched
Network Service includes x.25 direct line, and ISDN B
Channel which serves an x.25 application computer.
--------------------- -------------- ---------------------------
Objective
Attainment Upfront Residual
--------------------- -------------- ---------------------------
--------------------- -------------- ---------------------------
0 - 69.9% $750.00 5.00% of Monthly Charges
70 - 99.9% $1,000.00 5.00% of Monthly Charges
100% and over $1,250.00 5.00% of Monthly Charges
--------------------- -------------- ---------------------------
b) CV. The CV for the above schedule is determined by
the following formula: (Nonrecurring Revenue) +
(Recurring Revenue x Contract Length) = CV
13.0 ValueLink Products
13.1 For purposes of the Agreement, the Products referenced in this
Section 13.0 are collectively classified by Ameritech as the
Ameritech ValueLink product family. The conditions and
limitations regarding the sale of Products apply to the
ValueLink product family, including, without limitation, that
the AD shall not sell the Products, and is not entitled to
commission on sales to customers who are not designated by
Ameritech as retail business customers.
13.2 Month-to-month subscriptions. In no event will AD be awarded
commission for month-to-month ValueLink product sale.
42
<PAGE>
13.3 Enhanced ValueLink Plus. The commission payment schedule
provided below applies to New sales of Enhanced ValueLink
Plus.
a) Commission Payment Schedule
------------------------------------------------------
12 Month Contract
Objective Attainment
------------------------------------------------------
------------------- ---------- -------------- ------------- --------------
Minimum Annual Upfront
Revenue Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
------------------- ---------- -------------- ------------- --------------
------------------- ---------- -------------- ------------- --------------
$300 $5 $3 $6 $7
$600 $9 $6 $11 $14
$1,200 $20 $13 $24 $29
$3,000 $49 $33 $61 $73
$6,000 $105 $70 $131 $158
$12,000 $210 $140 $263 $315
$30,000 $563 $375 $703 $844
------------------- ---------- -------------- ------------- --------------
------------------------------------------------------
24 Month Contract
Objective Attainment
------------------------------------------------------
------------------- ---------- -------------- ------------- --------------
Minimum Annual Upfront
Revenue Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
------------------- ---------- -------------- ------------- --------------
------------------- ---------- -------------- ------------- --------------
$300 $12 $8 $15 $18
$600 $24 $16 $30 $36
$1,200 $51 $34 $64 $77
$3,000 $128 $85 $159 $191
$6,000 $255 $170 $319 $383
$12,000 $525 $350 $656 $788
$30,000 $1,313 $875 $1,641 $1,969
------------------- ---------- -------------- ------------- --------------
------------------------------------------------------
36 Month Contract
Objective Attainment
------------------------------------------------------
------------------- ---------- -------------- ------------- --------------
Minimum Annual Upfront
Revenue Commitment Upfront Upfront 100% and
0 - 69.9% Residual 70 - 99.9% over
------------------- ---------- -------------- ------------- --------------
------------------- ---------- -------------- ------------- --------------
$300 $20 $14 $25 $30
$600 $41 $27 $51 $61
$1,200 $81 $54 $101 $122
$3,000 $210 $140 $263 $315
$6,000 $420 $280 $525 $630
$12,000 $900 $600 $1,125 $1,350
$30,000 $2,250 $1,500 $2,813 $3,375
------------------- ---------- -------------- ------------- --------------
b) CV. The CV for the above schedule is
determined by the following formula: (MARC)
x (Contract Length in Years) = CV
43
<PAGE>
13.4 ValueLink Extra. The commission payment schedule below applies to
New sales of ValueLink Extra.
a) Commission Payment Schedules Without Netting
--------------------------------------------------------
24 Month Contract - Without Netting
Objective Attainment
--------------------------------------------------------
--------------- ------------ ----------- ---------------- --------------
Minimum Annual Upfront
Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
--------------- ------------ ----------- ---------------- --------------
--------------- ------------ ----------- ---------------- --------------
$25,000 $1,300 $650 $1,625 $1,950
$50,000 $2,300 $1,150 $2,875 $3,450
$75,000 $3,000 $1,500 $3,750 $4,500
$100,000 $4,000 $2,000 $5,000 $6,000
$150,000 $6,000 $3,000 $7,500 $9,000
$200,000 $8,500 $4,250 $10,625 $12,750
$300,000 $12,000 $6,000 $15,000 $18,000
$500,000 $20,000 $10,000 $25,000 $30,000
--------------- ------------ ----------- ---------------- --------------
--------------------------------------------------------
36 Month Contract - Without Netting
Objective Attainment
--------------------------------------------------------
--------------- ------------ ----------- ---------------- --------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
--------------- ------------ ----------- ---------------- --------------
--------------- ------------ ----------- ---------------- --------------
$25,000 $2,200 $1,100 $2,750 $3,300
$50,000 $4,000 $2,000 $5,000 $6,000
$75,000 $5,000 $2,500 $6,250 $7,500
$100,000 $6,500 $3,250 $8,125 $9,750
$150,000 $10,000 $5,000 $12,500 $15,000
$200,000 $13,000 $6,500 $16,250 $19,500
$300,000 $20,000 $10,000 $25,000 $30,000
$500,000 $33,000 $16,500 $41,250 $49,500
--------------- ------------ ----------- ---------------- --------------
44
<PAGE>
b) Commission Payment Schedule With Netting
------------------------------------------------------
24 Month Contract - With Netting
Objective Attainment
---------------------------------------------------
--------------- ----------- ----------- ---------------- ---------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
--------------- ----------- ----------- ---------------- ---------------
--------------- ----------- ----------- ---------------- ---------------
$25,000 $1,040 $520 $1,300 $1,560
$50,000 $1,840 $920 $2,300 $2,760
$75,000 $2,400 $1,200 $3,000 $3,600
$100,000 $3,200 $1,600 $4,000 $4,800
$150,000 $4,800 $2,400 $6,000 $7,200
$200,000 $6,800 $3,400 $8,500 $10,200
$300,000 $9,600 $4,800 $12,000 $14,400
$500,000 $16,000 $8,000 $20,000 $24,000
--------------- ----------- ----------- ---------------- ---------------
---------------------------------------------------------
36 Month Contract - With Netting
Objective Attainment
----------------------------------------------------
--------------- ----------- ----------- ---------------- -----------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
--------------- ----------- ----------- ---------------- ---------------
--------------- ----------- ----------- ---------------- ---------------
$25,000 $1,760 $880 $2,200 $2,640
$50,000 $3,200 $1,600 $4,000 $4,800
$75,000 $4,000 $2,000 $5,000 $6,000
$100,000 $5,200 $2,600 $6,500 $7,800
$150,000 $8,000 $4,000 $10,000 $12,000
$200,000 $10,400 $5,200 $13,000 $15,600
$300,000 $16,000 $8,000 $20,000 $24,000
$500,000 $26,400 $13,200 $33,000 $39,600
--------------- ----------- ----------- ---------------- ---------------
c) CV. The CV for a contract without Netting is
determined by the following formula: (MARC) x
(Contract Length in Years) = CV
The CV for a contract with Netting is determined by
the following formula:
(Net MARC) x (Contract Length in Years) = CV
13.5 ValueLink Extra - Local. The commission payment schedule below
applies to New sales of ValueLink Extra - Local.
45
<PAGE>
a) Commission Payment Schedule Without Netting
<TABLE>
<CAPTION>
-----------------------------------------------------------------
24 Month Contract - Without Netting
Objective Attainment
-----------------------------------------------------------------
------------------- ---------------- ---------------- ---------------- --------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and
Commitment 0 - 69.9% Residual 70 - 99.9% over
------------------- ---------------- ---------------- ---------------- --------------
------------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$25,000 $871 $436 $1,089 $1,307
$50,000 $1,541 $771 $1,926 $2,312
$75,000 $2,010 $1,005 $2,513 $3,015
$100,000 $2,680 $1,340 $3,350 $4,020
$150,000 $4,020 $2,010 $5,025 $6,030
$200,000 $5,695 $2,848 $7,119 $8,543
$300,000 $8,040 $4,020 $10,050 $12,060
$500,000 $13,400 $6,700 $16,750 $20,100
------------------- ---------------- ---------------- ---------------- --------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
36 Month Contract - Without Netting
Objective Attainment
-----------------------------------------------------------------
------------------- ---------------- ---------------- ---------------- --------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
------------------- ---------------- ---------------- ---------------- --------------
------------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$25,000 $1,474 $737 $1,843 $2,211
$50,000 $2,680 $1,340 $3,350 $4,020
$75,000 $3,350 $1,675 $4,188 $5,025
$100,000 $4,355 $2,178 $5,444 $6,533
$150,000 $6,700 $3,350 $8,375 $10,050
$200,000 $8,710 $4,355 $10,888 $13,065
$300,000 $13,400 $6,700 $16,750 $20,100
$500,000 $22,110 $11,055 $27,638 $33,165
------------------- ---------------- ---------------- ---------------- --------------
</TABLE>
b) Commission Payment Schedule With Netting
<TABLE>
<CAPTION>
-------------------------------------------------------------------
24 Month Contract - With Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$25,000 $697 $348 $871 $1,045
$50,000 $1,233 $616 $1,541 $1,849
$75,000 $1,608 $804 $2,010 $2,412
$100,000 $2,144 $1,072 $2,680 $3,216
$150,000 $3,216 $1,608 $4,020 $4,824
$200,000 $4,556 $2,278 $5,695 $6,834
$300,000 $6,432 $3,216 $8,040 $9,648
$500,000 $10,720 $5,360 $13,400 $16,080
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
36 Month Contract - With Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$25,000 $1,179 $590 $1,474 $1,769
$50,000 $2,144 $1,072 $2,680 $3,216
$75,000 $2,680 $1,340 $3,350 $4,020
$100,000 $3,484 $1,742 $4,355 $5,226
$150,000 $5,360 $2,680 $6,700 $8,040
$200,000 $6,968 $3,484 $8,710 $10,452
$300,000 $10,720 $5,360 $13,400 $16,080
$500,000 $17,688 $8,844 $22,110 $26,532
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
c) CV. The CV for a contract without Netting is
determined by the following formula: (MARC) x
(Contract Length in Years) = CV.
The CV for a contract with Netting is determined by
the following formula:
(Net MARC) x (Contract Length in Years) = CV
13.6 ValueLink Extra-Select. The commission award and payment
schedules provided below apply to New sales of ValueLink
Extra-Select.
a) Commission Payment Schedules Without Netting
<TABLE>
<CAPTION>
-------------------------------------------------------------------
12 Month Contract - Without Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$700 $35 $18 $44 $53
$3,000 $70 $35 $88 $105
$6,000 $150 $75 $188 $225
$12,000 $325 $163 $406 $488
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
24 Month Contract - Without Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$700 $75 $38 $94 $113
$3,000 $170 $85 $213 $255
$6,000 $350 $175 $438 $525
$12,000 $800 $400 $1,000 $1,200
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
36 Month Contract - Without Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$700 $100 $50 $125 $150
$3,000 $270 $135 $338 $405
$6,000 $600 $300 $750 $900
$12,000 $1,300 $650 $1,625 $1,950
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
b) Commission Payment Schedule With Netting
<TABLE>
<CAPTION>
-------------------------------------------------------------------
12 Month Contract - With Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$700 $28 $14 $35 $42
$3,000 $56 $28 $70 $84
$6,000 $120 $60 $150 $180
$12,000 $260 $130 $325 $390
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
24 Month Contract - With Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$700 $60 $30 $75 $90
$3,000 $136 $68 $170 $204
$6,000 $280 $140 $350 $420
$12,000 $640 $320 $800 $960
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
36 Month Contract - With Netting
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Upfront
Annual Revenue Upfront Upfront 100% and over
Commitment 0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$700 $80 $40 $100 $120
$3,000 $216 $108 $270 $324
$6,000 $480 $240 $600 $720
$12,000 $1,040 $520 $1,300 $1,560
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
c) CV. The CV for a contract without Netting is
determined by the following formula: (MARC) x
(Contract Length in Years) = CV.
48
<PAGE>
The CV for a contract with Netting is determined by
the following formula (Net MARC) x (Contract Length
in Years) = CV
13.7 ValueLink Illinois Option F Preferred. The commission payment
schedules below applies to New sales of ValueLink Illinois
Option F Preferred.
a) Commission Payment Schedules
<TABLE>
<CAPTION>
--------------------------------------------------------------------
12 Month Contract
Objective Attainment
--------------------------------------------------------------------
---------------------- ---------------- ---------------- ----------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ----------------- ----------------
---------------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
12,000 $18 $12 $23 $27
---------------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
24 Month Contract
Objective Attainment
--------------------------------------------------------------------
---------------------- ---------------- ---------------- ----------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ----------------- ----------------
---------------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
12,000 $36 $24 $45 $54
---------------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
36 Month Contract
Objective Attainment
--------------------------------------------------------------------
---------------------- ---------------- ---------------- ----------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ----------------- ----------------
---------------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
12,000 $54 $36 $68 $81
---------------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
b) CV. The CV for the above schedules is determined by
the following formula: (Minimum Annual MOU x Per
Minute Rate) x (Contract Length In Years)
49
<PAGE>
13.8 ValueLink Illinois Option F. The commission payment schedules
below applies to New sales of ValueLink Illinois Option F.
a) Commission Payment Schedules
<TABLE>
<CAPTION>
--------------------------------------------------------------------
12 Month Contract
Objective Attainment
--------------------------------------------------------------------
---------------------- ---------------- ---------------- ----------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ----------------- ----------------
---------------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
24,000 $38 $25 $47 $56
60,000 $90 $60 $113 $135
120,000 $165 $110 $206 $248
240,000 $300 $200 $375 $450
360,000 $405 $270 $506 $608
480,000 $488 $325 $609 $731
600,000 $540 $360 $675 $810
1,200,000 $945 $630 $1,181 $1,418
---------------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
24 Month Contract
Objective Attainment
--------------------------------------------------------------------
---------------------- ---------------- ---------------- ----------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ----------------- ----------------
---------------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
24,000 $75 $50 $94 $113
60,000 $180 $120 $225 $270
120,000 $330 $220 $413 $495
240,000 $600 $400 $750 $900
360,000 $810 $540 $1,013 $1,215
480,000 $975 $650 $1,219 $1,463
600,000 $1,080 $720 $1,350 $1,620
1,200,000 $1,890 $1,260 $2,363 $2,835
---------------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
36 Month Contract
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
24,000 $113 $75 $141 $169
60,000 $270 $180 $338 $405
120,000 $495 $330 $619 $743
240,000 $900 $600 $1,125 $1,350
360,000 $1,215 $810 $1,519 $1,823
480,000 $1,463 $975 $1,828 $2,194
600,000 $1,620 $1,080 $2,025 $2,430
1,200,000 $2,835 $1,890 $3,544 $4,253
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
b) CV. The CV for the above schedules is determined by
the following formula: (Minimum Annual MOU x Per
Minute Rate) x (Contract Length In Years) = CV
[The Balance of this Page Intentionally Left Blank]
51
<PAGE>
13.9 StraightRate Illinois. The commission payment schedule below
applies to New sales of StraightRate Illinois.
a) Commission Payment Schedules
<TABLE>
<CAPTION>
-------------------------------------------------------------------
12 Month Contract
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
4,000 $0 $0 $0 $0
50,000 $75 $50 $94 $113
100,000 $75 $50 $94 $113
300,000 $75 $50 $94 $113
700,000 $75 $50 $94 $113
1,300,000 $75 $50 $94 $113
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
24 Month Contract
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
4,000 $0 $0 $0 $0
50,000 $150 $100 $188 $225
100,000 $150 $100 $188 $225
300,000 $150 $100 $188 $225
700,000 $150 $100 $188 $225
1,300,000 $150 $100 $188 $225
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
36 Month Contract
Objective Attainment
-------------------------------------------------------------------
---------------------- ---------------- ---------------- ---------------- ----------------
Minimum Annual
Minutes of Use Upfront
Commitment Upfront Upfront 100% and over
0 - 69.9% Residual 70 - 99.9%
---------------------- ---------------- ---------------- ---------------- ----------------
---------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
4,000 $0 $0 $0 $0
50,000 $225 $150 $281 $338
100,000 $225 $150 $281 $338
300,000 $225 $150 $281 $338
700,000 $225 $150 $281 $338
1,300,000 $225 $150 $281 $338
---------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
b) CV. The CV for the above schedules is determined by
the following formula: (Minimum Annual MOU x Per
Minute Rate) x (Contract Length In Years) = CV
52
<PAGE>
13.10 ValueLink Extra - HQ - Individual Case Basis (ICB) Usage. The
following commission payment schedule applies to New sales of
ValueLink Extra - HQ - Individual Case Basis (ICB) Usage
contracts:
a) Upfront Commission Payment Schedule
<TABLE>
<CAPTION>
-------------------------------------------------------------------
ValueLink Extra - HQ - ICB
Objective Attainment
-------------------------------------------------------------------
---------------------- --------------------- ---------------------- ----------------------
Contract
Length 0 - 69.9% 70 - 99.9% 100% and over
---------------------- --------------------- ---------------------- ----------------------
---------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
24 Months 0.50 x MBRC 0.65 x MBRC 0.75 x MBRC
36 Months 0.65 x MBRC 0.80 x MBRC 1.00 x MBRC
---------------------- --------------------- ---------------------- ----------------------
</TABLE>
b) CV. The CV for the above schedule is determined by
the following formula: (MBRC) x (Contract Length In
Months) = CV
c) Residual Commission Payment. No residual commissions
will be paid for ValueLink Extra - HQ - ICB Usage
sales.
d) Contract term greater than 36 months. If a ValueLink
Extra - HQ - ICB Usage sale is for a contract with a
term greater than thirty six (36) months, the
commission payment for such a sale will use the
Commission Payment Schedule set forth above for a
thirty six (36) month ValueLink Extra - HQ - ICB
Usage sale.
13.11 Contract Upgrade or Migration
a) Commission Payment
(i) When both the Product sold and the Ameritech
product or service which is being replaced are both
specified in Exhibit B as "Products" for purposes of
the Agreement, the Upfront Commission Payment for a
sale deemed by Ameritech as an Upgrade or a Migration
will be determined by the following formula:
(Current Base Upfront Commission for New Product)
- (minus)
(Current Base Upfront Commission for Old Product)
= Upfront Commission Payment
(ii) When a sale for a Product is replacing an
Ameritech product or service which is not specified
in Exhibit B as a "Product", the Upfront Commission
Payment for the sale (whether it is deemed an Upgrade
or a Migration) is determined by the following
formula: (Current Base Upfront Commission for New
Product) x (50%) = Upfront Commission Payment
53
<PAGE>
b) Does Not Retire Objective. Neither an Upgrade nor a
Migration will serve to retire the AD's Usage Product
family objective, and neither an Upgrade nor a
Migration is subject to an Objective Bonus.
c) Residual Commission Payment. The Residual Commission
Payment for an Upgrade or a Migration will be
calculated in the same manner and at the same rate as
a New sale of the Product. In every case, the
Residual Commission Payment, if any, for the product
or service which is being replaced as the result of
the Upgrade or Migration will be discontinued
effective the date of the Completed Order.
13.12 Takeback. If the AD received commission for a Product subject
to this Section 13.0, and the customer discontinues the
Product for any reason, Takeback applies. If the customer
discontinues a Product within one-hundred and eighty days
after the Completed Order date, the Takeback will equal
one-hundred percent (100%) of the Upfront Commission Payment.
Residual commissions cease effective the date the customer
cancels the product.
14.0 1-800-CONFERENCE
14.1 Commission Payment Schedule. Sales of 1-800-CONFERENCE consist
only of an Upfront Commission Payment, and no Residual Payment
applies.
a) Non-ICB Term Contract Sale. The following commission
payment schedule applies to sales under which the customer
signs a term agreement which is not an ICB contract for
1-800-CONFERENCE service:
<TABLE>
<CAPTION>
----------------------- ---------------------- --------------------- ---------------------
Minimum
Annual Revenue
Commitment 1 Year Contract 2 Year Contract 3 Year Contract
----------------------- ---------------------- --------------------- ---------------------
----------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
$1,500 $120 $300 $450
$3,000 $240 $600 $900
$6,000 $480 $1,200 $1,800
$15,000 $1,200 $3,000 $4,500
$24,000 $1,920 $4,800 $7,200
----------------------- ---------------------- --------------------- ---------------------
</TABLE>
b) CV. The CV is determined by the following formula:
(Annual Revenue Commitment) x (Contract Length In
Years) = CV
c) ICB Term Contract Sale. The commission to be paid for
an ICB term contract sale for 1-800-CONFERENCE
service will be arrived at through the following
formula: (CV) x (Ten-Percent (10%)) = Commission
Payment
54
<PAGE>
14.2 Objective Attainment. For purposes of Objective Attainment,
the following factors will be applied to the Base Commission
Payment to arrive at the Objective Attainment number:
---------------------------- ----------
Objective Attainment Factor
---------------------------- ----------
---------------------------- ----------
0 - 69.9% 1.00
70 - 99.9% 1.25
100% and over 1.50
---------------------------- ----------
15.0 Ameritech Prepaid Products
15.1 Commission Payment. The AD of Record will be paid commission
for PrePaid Product sales. If the customer places orders for
additional Product, the AD of Record will be paid for those
additional sales whether the customer places the order with
the AD or with Ameritech's PrePaid product support
organization.
15.2 Commission Value. The Base Commission value and the Upfront
Commission Payment for a sale will equal ten percent (10%) of
the gross value of the sale, net of taxes whether it is the
original sale or a subsequent sale as provided for under
Section 15.1 above. No Residual Commission Payment applies to
PrePaid Products.
15.3 Objective Attainment. For purposes of objective attainment,
the following factors will be applied to the Base
Commission:
---------------------------- ----------------
Objective Attainment Factor
---------------------------- ----------------
---------------------------- ----------------
0 - 69.9% 1.00
70 - 99.9% 1.25
100% and over 1.50
---------------------------- ----------------
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55
<PAGE>
Exhibit D
COOP & 5-STAR PROGRAM
Exhibit D CO-OP AND 5-STAR PROGRAM
This is Exhibit D to the Authorized Distributor Agreement between
Telecomm Industries, Inc. ("AD") and Ameritech, effective January 1, 1999, and
this Exhibit is incorporated into the Agreement by reference.
Ameritech provides incentive programs as an integral part of the
Agreement. The "Co-Op Program" and the "5-Star Program" is governed by the rules
and regulations which are fully set forth in a document titled "Ameritech
Authorized Distributor Co-Op and 5-Star Program", and said document is dated
"January 1999, and said document is incorporated herein as if originally set
forth here as Exhibit D. The Co-Op and 5-Star Program may be modified during the
term of the Agreement, and such modification is governed by the terms of the
Agreement, and each modification is incorporated by reference herein on the date
the modification is effective.
[The Balance of this Page Intentionally Left Blank]
56
<PAGE>
Exhibit E
Code of Business Conduct
Exhibit E CODE OF BUSINESS CONDUCT
This is Exhibit E to the Authorized Distributor Agreement between
Telecomm Industries, Inc. ("AD") and Ameritech effective January 1, 1999, and
this Exhibit is incorporated into the Agreement by reference.
1. Every Authorized Distributor has the professional responsibility of fair
dealing towards Ameritech's customers, past and present, fellow Authorized
Distributors, and the general public.
2. Every Authorized Distributor has the professional responsibility of adhering
to generally accepted standards of accuracy and truth.
3. An Authorized Distributor shall not place itself in a position where the
Authorized Distributors interest is, or may be, in conflict with its duty to the
customer or Ameritech.
4. Each Authorized Distributor shall safeguard the confidence of both present
and former customers/clients, and shall not disclose or use these confidences to
disadvantage or prejudice such clients.
5. An Authorized Distributor shall not intentionally disseminate false or
misleading information, and each Authorized Distributor is obligated to use
appropriate means to avoid dissemination of false or misleading information.
6. An Authorized Distributor shall not disparage the professional reputation or
practice of another Authorized Distributor.
7. Each Authorized Distributor's employees shall be treated as individuals with
respect to their dignity and recognition of their merit.
[The Balance of this Page Intentionally Left Blank]
57
<PAGE>
Exhibit F
House Accounts
Exhibit F HOUSE ACCOUNTS
This is Exhibit F to the Authorized Distributor Agreement between
Telecomm Industries, Inc. ("AD") and Ameritech effective January 1, 1999, and
this Exhibit is incorporated by reference therein.
House Accounts
Pursuant to Article 1, Section 1.7, the Customer accounts which
Ameritech designates, in its sole discretion, as "House Accounts" are listed on
the web site "ameritechdealer.com", and said list is incorporated by reference
as if set forth fully herein, as modified from time-to-time by Ameritech, and
each such modification is deemed incorporated as if set forth originally herein.
[The Balance of this Page Intentionally Left Blank]
58
EXHIBIT 10.6
MERGER AGREEMENT
THIS MERGER AGREEMENT is made this 29th day of January, 1998, at
Evansville, Indiana, by and among Division - Tel Communications Group, Inc., an
Indiana corporation, (hereinafter referred to as "Division - Tel"), Michael R.
Meece, an individual and controlling shareholder of Division-Tel (hereinafter
referred to as "Meece"), and Telecomm Industries Corp., a Delaware corporation
(hereinafter referred to as "Telecomm").
Recitals
1. Division-Tel is an Indiana corporation, and presently owns and
operates a voice and data telecommunication business, operated
from the locations, identified on Schedule 8.1
2. Both Telecomm, through it's Board of Directors, and Division-Tel,
through it's Sole Shareholder, Micheal R, Meece, believe this
Merger to be in the best interests of their respective business
entities.
3. The entities shall merge together, with the new entity,
(hereinafter "Merged Companies") becoming known as Telecomm
Industries Corp. Division-Tel shall cease to exist.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are acknowledged, the parties agree as follows:
Section 1. Definitions
As used in this Agreement, the terms identified below in this Section
will have the meanings indicated, unless a different and common meaning of the
term is clearly indicated by the context.
1.1 Balance Sheet - means the December 31, 1997 Balance Sheet of
Division-Tel, a copy of which is attached hereto and marked
Schedule 1.1.
1.2 Statement of Income and Expenses - means the December 31, 1997
Statement of Income and Expenses of Division-Tel, a copy of which
is attached hereto and marked Schedule 1.2.
1.3 Financial Statements - means the Balance Sheet, as defined in
Section 1.1, the Statement of Income and Expenses, as defined in
Section 1.2, and Cash Flow Statements, when referred to
collectively.
1.4 Agreement - means this Merger Agreement together with the
Attachments.
1.5 Attachments - means the Schedules and Exhibits referred to herein
and attached hereto.
1.6 Authorization - means any Government consent, license, permit,
grant or other governmental authorization.
1.7 Closing - means the Closing of the Transaction as described in
Section 8 of this Agreement.
1.8 Closing Date - means the date and time as set forth in Section 8,
or such other date and time as subsequently may be agreed upon by
the parties, in writing. Any reference herein to the Closing Date
for the purpose of establishing a point in time, or calculating a
period of time, means 11:59 p.m., local time on the Closing Date.
1.9 Contract - means any voluntarily entered written or oral agreement
or commitment that is legally binding on any person or entity
under applicable law.
<PAGE>
1.10 Court Order - means any judgment, decree, injunction or order of
any federal, state, local or foreign court that is binding on any
person or entity or its property under applicable law.
1.11 Effective Date - means the date first above written.
1.12 Entity - means a corporation, partnership, sole proprietorship,
limited liability company, joint venture or other form of
organization whether formed for the conduct of a business or
profit seeking activity, active or passive, or not for profit.
1.13 Intellectual Property - means any trade names, trademarks, service
marks, copyrights and work of authorship, and all registrations
and applications for the foregoing, and all licenses or license
rights related to or based upon the foregoing, software licenses
and know-how licenses, trade secrets, fictitious names, assumed
names, all industrial models and all United States and foreign
patent rights covered by, disclosed in or otherwise related
thereto and all registrations and applications therefor and all
reissues, divisions, continuations-in-part, re-examinations and
extensions thereof, together with the right to sue for past
infringement and improper, unlawful or unfair use of any of the
foregoing.
1.14 Division-Tel - means Division - Tel Communications Group, Inc., an
Indiana corporation.
1.15 Division-Tel's Business - means the existing business operations
(including without limitation, the goodwill and going concern
value), labor relations, customer and supplier relations, and
products, if any, or services, if any, of Division-Tel.
1.16 Telecomm - means Telecomm Industries Corp., a Delaware
Corporation.
1.17 Transaction - means the transaction contemplated by the Agreement,
and the related Exhibits.
1.18 Merged Assets - means the assets to be merged and transferred by
Division-Tel to Telecomm in accordance with this Agreement as more
specifically described in Section 3.3
1.19 Year-End Balance Sheets - means the Balance Sheet for the year
ended December 31, 1997.
1.20 Year-End Statements of Income and Expenses - means the Statements
of Income and Expenses of Division-Tel for the year ended December
31, 1997.
1.21 Year-End Financial Statements - means the Year-End Balance Sheets,
and the Year-End Statement of Income and Expenses.
1.22 Diminutive Error - Means any mistake, misrepresentation, failure
to disclose, or other error which has a net dollar value of less
than Five Hundred Dollars. ($500.00)
1.23 Cumulative Diminutive Errors - Means the combined total of all
diminutive errors made within this agreement.
Section 2 - The Merger
2.1 Adoption of Plan of Merger. Both parties have taken all requisite
corporate action prior to the date hereof for the purposes of
adopting and approving this Agreement pursuant to Indiana Law.
Upon execution of this Agreement, Telecomm and Division-Tel shall
cause Articles of Merger pursuant to this Agreement to be filed
with the Secretary of State of Delaware and Indiana, and shall
cause to be filed such certificates, documents or instruments as
are required to be filed in Indiana or any other State required in
order to effectuate the transactions contemplated by this
Agreement.
2
<PAGE>
2.2 Terms of Merger in General; Conversion of Division-Tel Shares.
2.2.1 General. Division-Tel shall be merged with and into Telecomm
effective as of the date of Closing as set forth below, and the
separate corporate existence of Division-Tel shall thereupon
cease. The Articles of Incorporation and Code of Regulations of
Telecomm as in effect on the Closing Date shall remain in full
force and effect. The Merger Consideration shall be payable on
the date of Closing as set forth below.
2.2.2 Conversion of Division -Tel Shares. The Division- Tel Shares
shall be exchanged with Telecomm Shares as a result of the Merger
of the two entities. Telecomm shall deliver to each Shareholder
at the Closing and/or within a reasonable time thereafter, a
share certificate evidencing ownership of Telecomm Shares, as set
forth in the table below, upon surrender to Telecomm of the share
certificate or certificates representing such Shareholder's
ownership of Division - Tel Shares duly endorsed for transfer or
accompanied by properly executed stock powers.
Section 3 - Specific Terms of Merger
3.1 Merger Consideration by Telecomm. To effectuate this Merger,
Telecomm will transfer to the Shareholders of Division-Tel, the
following:
3.1.1 Three Hundred Fifty Thousand (350,000) shares of common stock of
Telecomm, par value $.01 shares ("Shares").
3.1.2 Ten Thousand Dollars ($10,000) United States currency.("Cash")
3.1.3 The payment of Division-Tel's obligation with regard to a
Promissory Note payable to Donald TenBarge, with an outstanding
balance in the amount of Ninety One Thousand Eighty Six Dollars,
zero cents, ($91,086.00) or at such lesser amount as may be owed
on said Note at the date of Closing.
3.1.4 Twenty Thousand Dollars ($20,000) United States currency payable
over six months, interest free, as reflected by, and subject to
the specific terms as set forth in the Note attached as Exhibit
A.
3.1.5 The assumption of Division-Tel's liabilities per Schedule 4.1.3
as approved by Telecomm, including, but not limited to, the
Division-Tel debt as set forth in Section 3.1.3. The liabilities
as set forth in Schedule 4.1.3, shall be assumed by Telecomm and
paid in the normal course of business, excepting the debts as set
forth in Section 3.1.5(a) and 3.1.5(b), as set forth below.
(a) The debt incurred by Division-Tel in the amount of
Twenty Five Thousand Dollars, ($25,000) to Micheal R.
Meece, shall be due and payable at the closing of
this agreement. Said debt shall include no interest,
nor expenses, above and beyond Twenty Five Thousand
Dollars.
(b) A bonus due and payable to two Employee's of
Division-Tel, specifically, Jon Jackson and Miki
Hinman, in the amount of Four Thousand Five Hundred
Dollars per Employee, shall be due and payable at the
closing of this agreement.
3.1.6 The assumption of Division-Tel's liabilities incurred in the
normal course of business, as approved by Telecomm, as set forth
in Schedule 4.1.4, which Schedule will be updated at Closing to
include those additional liabilities of Division-Tel incurred in
the normal course of business through the Closing Date; provided
however, Division-Tel shall be solely responsible for all
professional fees including accounting and legal incurred by
Division-Tel in connection with the execution and consummation of
this Agreement.
3
<PAGE>
3.2. Transfer of Stock by Division-Tel. To effectuate this Merger, the
Shareholders of Division-Tel shall cause the transfer of all
Division-Tel shares to Telecomm. The Share certificate or
certificates representing such Shareholder's ownership of
Division-Tel Shares shall be duly endorsed for transfer or
accompanied by properly executed stock powers.
3.3. Transfer of Assets by Division-Tel. Included in the transfer of
all Shares of Stock to Telecomm, Division-Tel shall turn over,
surrender, and transfer, any and all assets currently held by
Division-Tel. This specification of assets in no way affects the
validity of the Merger Agreement, and specifically does not
convert this Agreement to an Asset Purchase Agreement. The items
set forth below are for the mutual protection of the parties, and
are intended only as a guide to the assets to be transferred. This
agreement contemplates the transfer of all assets of Division-Tel,
whether specifically set forth below or not. This agreement does
not contemplate the transfer of any personal assets of
Shareholder, as set forth on Schedule 3.3. Any assets used in the
business, not specified on Schedule 3.3 shall be transferred to
Telecomm herewith.
3.3.1 All of the Receivables of Division-Tel, as of the Closing Date;
3.3.2 All inventory of Division-Tel;
3.3.3 All rights to prepaid expenses, as of the Closing Date;
3.3.4 The motor vehicles described in Schedule 3.3.4
3.3.5 The real property owned by Division-Tel;
3.3.6 All other fixed assets owned by Division-Tel and used in
connection with the conduct of Division-Tel's business,
3.3.7 All right, title and interest in and to all of Division-Tel's
Contracts;
3.3.8 Any and all of the Customers of Division-Tel, as reflected by
Schedule 3.3.8 Said Schedule is not intended to be an exhaustive
list, rather a guide for the benefit of the parties. Nothing in
this Section, this contract, nor any attachment, restricts the
transfer of all customers of Division-Tel.
3.3.9 All manuals, charts, instruction of application, files and
records, signs, customer and marketing-data, engineering data,
plans and blueprints as are used in connection with
Division-Tel's Business, and all documents, papers and records
pertaining to employees, customers and vendors in connection with
Division-Tel's Business, including accounts receivable and trade
payable records; provided, however, that Division-Tel may retain
all corporate records and minute books, all original books of
account and accounting data maintained by Division-Tel for
financial reporting and tax reporting purpose;
3.3.10 All Intellectual Property of Division-Tel used in connection
with Division-Tel's business, and including all rights
Division-Tel has to its know-how, trade secrets, processes,
technology, discoveries, unpatented inventions and designs,
formulae and procedures and other intellectual property,
including, but not limited to, documentation relating to any of
the foregoing, all shop rights and the right to sue for past
infringement or improper, unlawful or unfair use or disclosure
thereof and the right to apply for patent, design or similar
protection therefor any where in the world;
4
<PAGE>
3.3.11 All assignable authorizations relating to or utilized in
connection with Division-Tel's Business, including without
limitation, stationery and other office supplies;
3.3.12 All Division-Tel's rights to any leasehold improvements;
3.3.13 All Division-Tel's interest in and to all telephone, fax and
telex numbers, post office box numbers and all listings
pertaining to Division-Tel's Business in all telephone books and
directories, stationery, forms, labels, shipping material,
catalogs, brochures, art work, photographs and advertising and
promotional materials. The telephone, fax, telex numbers and post
office box numbers being identified in attached Schedule 3.3.13;
3.3.14 Rights in, to and under third-party manufacturers' warranties;
3.3.15 Claims as to which Division-Tel is a judgment creditor,
excluding any action currently pending involving Comvest
Communications and Division-Tel.
3.3.16 The goodwill and going concern of value of Division-Tel's
Business;
3.3.17 All cash, bank deposits, and marketable securities.
Section 4. Representations and Warranties of the Shareholders and Division - Tel
4.1 Representations of Each Shareholder. Each Shareholder represents and
warrants to Telecomm as follows:
4.1.1 Title. Each Shareholder owns beneficially and of record,
and has full power and authority to vote and transfer, free
and clear of any claims, liens or encumbrances, the
Division-Tel Shares shown below. The Division-Tel Shares are
owned in the following numbers and percentages by the below
listed Shareholders, and collectively constitute all of the
Division-Tel Shares owned by such Shareholder.
Shareholder Number of Shares Owned Percent of Ownership
Micheal R. Meece 400 100
4.1.2 Authority Such Shareholder has the full legal right,
power and authority to enter into, execute and deliver this
Agreement and to perform such Shareholder's obligations
hereunder.
(a) This Agreement has been duly executed and delivered by
such Shareholder and is the valid and binding obligation
of such Shareholder enforceable in accordance with its
terms.
(b) The execution and delivery of this Agreement and the
consummation by such Shareholder of the transactions
contemplated by this Agreement will not:
5
<PAGE>
(i) require the further approval or consent of any
federal, state, county or local court or other
governmental or regulatory body of the approval
or consent of any other person; or
(ii) conflict with or result in a breach or violation
of any of the terms and conditions of, or
constitute (with notice, lapse of time or both) a
default under or a violation of, any statute,
regulation, order, judgment or decree applicable
to any such Shareholder or any instrument,
contract or other agreement, including, but not
limited to, Covenant not to Compete, Stock Lien,
mortgage lien, assignment contract, or any other
contract to which such Shareholder is a party.
4.1.3 Division-Tel Liabilities. Schedule 4.1.3 sets forth those certain
liabilities which Telecomm has agreed to assume. These
liabilities are categorized as liabilities not incurred in the
normal course of business and include, but are not limited by,
all obligations due from Division-Tel to its past and present
shareholders, any debt incurred to raise capital financing,
current and past litigation claims, and any other debt not
incurred in the Ordinary Course of Business. There are no
additional debts of Division-Tel not incurred in the Normal
Course of Business. The payment of the Schedule 4.1.3 liabilities
will become the obligation of Telecomm from and after the Merger
Date and shall be paid in the ordinary course of business.
4.1.4 Division-Tel Liabilities incurred in the normal course of
business. Schedule 4.1.4 will set forth as of the Merger Date
those other obligations of Division-Tel incurred in the ordinary
course of business and which remain due and owing as of the
Merger Date. Where exact amounts of these liabilities cannot be
determined on the Merger Date, Division-Tel shall indicate the
estimated amount due and owing. The payment of the Schedule 4.1.4
liabilities will become the obligation of Telecomm from and after
the Merger Date and shall be paid in the ordinary course of
business.
4.1.5 Telecomm Review and Acceptance. The closing of this transaction
is contingent upon Telecomm's review and acceptance of the
liabilities set forth in Schedules 4.1.3 and 4.1.4, (collectively
"the Liability Schedules")provided however, that Telecomm's
acceptance of said Schedules shall not in any manner modify,
limit, or invalidate the representations and warranties of
Division-Tel and the Shareholder as contained in the Agreement,
including but not limited to the representations, warranties and
indemnification specifically pertaining to the accuracy of the
liabilities listed in the Liability Schedules. No action, or
inaction by Telecomm Industries, or any other party, including,
but not limited to, Division -Tel or Shareholder, nor any
provision in this contract, or any other contract, writing,
agreement, oral or otherwise, shall in any manner modify, limit,
or invalidate the representations, warranties and indemnification
by Division-Tel and the Shareholder with respect to the Liability
Schedules.
4.1.6 Tax Payments and Returns. Such Shareholder and Division-Tel has
filed all tax reports and returns required to be filed through
the date of this Agreement and has paid all taxes and other
related charges (including interest and penalties) due or claimed
to be due from such Shareholder or Division-Tel, by federal,
state, local or foreign taxing authorities, except as where
indicated on Schedule 4.1.6. Said Shareholder has no actual
knowledge, nor any reason to know, that any taxing authority has
audited any portion of such Shareholder or Division-Tel's tax
return, and has no actual knowledge, nor any reason to know, that
there are any notices of audit, pending questions relating to, or
claims asserted for, taxes or assessment received by or made
against such Shareholder.
6
<PAGE>
4.1.7 Restricted Shares. Such Shareholder acknowledges, understands and
agrees
(a) The Telecomm Shares have not been registered with
the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as
amended (the "Securities Act") and have not been
registered under any state securities law. The
Telecomm Shares may not be resold or
redistributed without registration under the
Securities Act and any applicable state
securities laws, unless an applicable exemption
from such registration is available.
(b) The Telecomm Shares being acquired by such
Shareholder under this Agreement, are being
acquired for such Shareholder's own account, for
investment purposes, not for the interest of any
other person, firm or entity, and not with a view
to or present intention or reselling or
distributing all or any portion of, or interest
in, the Telecomm Shares. In order to assure the
forgoing and the status of the Merger as a tax
free reorganization, Telecomm Shares cannot be
sold, assigned, transferred, conveyed, pledged,
hypothecated or other otherwise disposed of by
any Shareholder without the prior written consent
of the Company for two years after the date the
Merger becomes effective.
(c) Such Shareholder does not have any right to
compel Telecomm to register the Telecomm Shares
under the Securities Act or any state securities
law and such Shareholder acknowledges that
Telecomm has no present intention of registering
the Telecomm shares.
(d) Such Shareholder has such knowledge and
experience in financial and business matters that
he is capable by himself of evaluating the merits
and risks of his investment in the Telecomm
Shares and of making an informed investment
decision.
(e) Such Shareholder is aware of the tax consequences
of owning Telecomm Shares and the termination of
S corporation status of Division-Tel.
(f) The certificates evidencing the Telecomm Shares
shall bear the following legend: The shares
represented by this stock certified have not been
registered under any state securities act (the
"State Acts") or the Securities Act of 1933, as
amended (the "Securities Act"). The shares cannot
be sold or otherwise disposed of without either
registration or an exemption from registration.
The corporation is under no obligation to
register the shares under the State Acts or the
Securities Act.
4.1.8 Option to Buy Stock upon Termination
(a) Termination within Probationary Period. Upon
Termination of employment for any reason,
including but not limited to; termination for
cause, (as defined in the Employment agreement
incorporated herein) resignation, death or
disability, or any other termination of the
Employment relationship, within one year
following the effective date of the Employment
Agreement, (hereinafter the "Probationary
Period"), Shareholder agrees to offer for sale to
the Company any and all Telecomm Industries Corp.
stock received as consideration for the Merger,
7
<PAGE>
to wit: Three Hundred Fifty Thousand (350,000)
shares, (hereinafter "Possessed Stock") at the
amount computed to the stock, based upon the
closing per share bid price, on the date of the
execution of this agreement.
(b) Termination following Probationary Period. Upon
Termination of employment for any reason,
following said Probationary period as set forth
above in Section 4.1.8 (a), Shareholder agrees to
offer for sale to the Company any and all
Possessed Stock as set forth above in Section
4.1.8 (b), at the fair market value of said stock
on the date of termination. The calculation of
stock value on the date of termination shall be
equal to the most recent bid value, not the most
recent ask value.
(c) Death of Shareholder at any time prior to
Termination, In the event of the death of the
Shareholder, either during the probationary
period or following said period, notwithstanding
section 4.1.8 (a), the value shall be equal to
the fair market value of the stock at the date of
death. The Option to buy the Stock on the part of
Telecomm survives the death of the Shareholder,
and is binding upon the estate, heirs, assigns,
legatees, devisees, or any other third party.
(d) Voluntary Purchase by Company. The purchase of
the stock by Telecomm is absolutely voluntary,
and is to be conducted at the sole discretion of
the Chairman and the Board of Directors of
Telecomm Industries. Should Telecomm fail to
exercise its option, then purchase the stock
pursuant to this agreement within Thirty (30)
days of Company's actual knowledge, or written
notice, of the event that causes the option, the
Shareholder, Shareholders estate, heirs, assigns,
legatees, devisees, or any other third parties,
are no longer bound by this agreement with regard
to the transfer of said stock.
4.1.9 Action Pending with regard to Comvest Communication.
The actions currently pending in the Vanderburgh
County Superior Court, reflecting a dispute between
the Shareholder, Shareholder's spouse, and Comvest
Communications, 82D03-9704-CP- 1039 and
82D03-9704-CP-1666, are potential individual and
Division-Tel debts. Shareholder individually agrees
to indemnify, and hold harmless, Telecomm or
Division-Tel from any and all liability that may
result from said action.
4.2 Joint and Several Representations of the Shareholder and
Division-Tel Each Shareholder and Division-Tel, jointly
and severally, represents and warrants to Telecomm as
follows:
4.2.1 Organization and Qualification; Capitalization.
(a) Division-Tel is an Indiana corporation
duly organized, validly existing and in
good standing under the laws of the
State of Indiana. Division-Tel has the
full corporate power to carry on its
business as is now being conducted.
(b) The authorized capital stock and the
number of shares of capital stock issued
and outstanding for Division-Tel is as
follows:
(i) Authorized Capital Stock 1000.
(ii) Issued Shares 400.
8
<PAGE>
4.2.2 Authority.
(a) Division-Tel has the full legal right,
power, and authority to enter into,
execute and deliver this Agreement and
to perform fully its obligations
hereunder.
(b) This Agreement has been duly executed
and delivered by Division-Tel and is the
valid and binding obligation of
Division-Tel enforceable against
Division-Tel in accordance with its
terms.
(c) The Board of Directors of Division-Tel
and the Shareholders have approved, and
no other corporate proceedings are
necessary to authorize, this Agreement
and the consummation of the transactions
contemplated by this Agreement.
(d) The execution and delivery of this
Agreement and the consummation by
Division-Tel of the transactions
contemplated hereby will not:
(i) conflict with, result in a
breach of, or constitute or
result in a default under any
of the terms, conditions or
provisions of the Articles of
Incorporation (or Certificate
of Incorporation), Code of
Regulations (or by-laws) or
other governing instruments of
Division-Tel;
(ii) require the further approval or
consent of any federal, state,
county or local court or other
governmental or regulatory
body, or the approval or
consent of any other person; or
(iii) conflict with or result in any
breach or violation of any of
the terms and conditions of, or
constitute a default (with
notice, lapse of time or both)
under, or a violation or, any
statute, regulation, order,
judgment or decree applicable
to Division-Tel or any
instrument, contract or other
agreement to which Division-Tel
is a party or to which
Division-Tel is bound or
subject, including without
limitation the contracts
identified in Sections 4.2.4 or
4.2.5 below.
4.2.3 Financial Statements/Dividends/Distributions.
(a) The balance sheets of Division-Tel as
defined in Section 1.1, and evidenced by
Schedule 1.1, and the related statements
of income and expenses as defined by
Section 1.2, and evidenced by Schedule
1.2, previously delivered to Telecomm
(Collectively the "Financial
Statements") fairly, accurately and
completely represent the financial
position of Division-Tel on the date of
execution of this document, and the
results of operations and cash flows for
Division-Tel for the years then ended.
(b) No dividends or other distributions have
been made by Division-Tel to their
respective Shareholders since November
26, 1997, except for salaries and
commissions in the ordinary course of
business, or as set forth in Schedule
4.2.3(b).
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4.2.4 Ownership of Operating Assets. Division-Tel has
good and marketable title to, or holds a valid
lease to, (the "Operating Leases"), all of its
office equipment, furniture, motor vehicles and
other tangible personal property (collectively,
the "Operating Assets") owned or used by it in
its business, free and clear of all restrictions,
liens, claims and other encumbrances except as
set forth in Schedule 4.2.4
4.2.5 Contracts and Leases. Schedule 4.2.5 sets forth
the contracts and leases (including office lease)
material to the operation of Division-Tel and
which have been previously delivered to Telecomm,
are valid, binding upon the parties thereto, in
full force and effect and, except as indicated
below, have not been amended or modified.
Division-Tel and Shareholders will cooperate in
having Schedule 4.2.5 Contracts and Leases
assigned to Telecomm if requested by Telecomm.
Division-Tel and Telecomm acknowledge that a
separate Agreement reflecting the assignment of
the Contracts and Leases is not required as a
result of the merger of Division-Tel into
Telecomm.
4.2.6 Intellectual Property Rights. To the best of the
Shareholder's knowledge Division-Tel owns, or
holds adequate licenses to, the intellectual
property used in its business, including, without
limitation, trademarks, service marks,
copyrights, patents, and computer software and
data bases, free and clear of all restrictions,
liens, claims and other encumbrances, and such
use does not and will conflict with, infringe on,
or otherwise violate any rights of others.
4.2.7 Shareholders: Shareholder Benefits. The
Shareholder benefits programs set forth in
Schedule 4.2.7 constitute the only Shareholder
benefit programs in effect for Division-Tel prior
to the date of this Agreement.
4.2.8 Employee Benefit Programs. The Employee Benefit
programs set forth in Schedule 4.2.8 constitute
the only Employee benefit programs in effect for
Division-Tel prior to the date of the Agreement
4.2.9 Insurance. Division-Tel has in place and in full
force and effect, hazard and liability insurance
policies with coverage amounts and deductibles as
set forth in Schedule 4.2.9
4.2.10 Insurance Coverage. The Shareholder and
Division-Tel shall take all action necessary to
maintain, in the name and for the benefit of
Telecomm, all insurance policies of Division-Tel
4.2.11 Bank Accounts. The Shareholders and Division-Tel
shall take all action Necessary to maintain the
bank accounts, lock boxes and other depositories
of Division-Tel, and shall cause them to be
identified under Telecomm's Federal Employer
Identification Number.
4.2.12 Permits, Licenses and Compliance with Laws. For
this Section, Shareholder and Division-Tel
represent and warrant that they have no actual
knowledge, nor any reason to know of any
violations, and to the best of their knowledge:
10
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(a) Division Tel maintains in full force and
effect, all permits, licenses and
approvals from federal, state, local and
foreign governmental and regulatory
bodies required to carry on its
business.
(b) Division-Tel is in compliance in all
material respects with all federal,
state and local laws, ordinances, codes,
regulations, orders, requirements,
standards and procedures which are
applicable to its business.
(c) Neither Division-Tel nor any officer,
director or agent of Division-Tel has
been convicted of, charged with, or to
the knowledge of Division-Tel or the
Shareholders, investigated for a
violation of federal or state law
related to fraud, theft, embezzlement,
breach of fiduciary responsibility, or
financial misconduct, including but not
limited any violation of the Securities
Act, or State Securities Law; or has
been subject to any order or consent
decree of, or criminal or civil fine or
penalty imposed by, any court of
governmental agency.
4.2.13 Litigation. Except as set forth in Schedules
4.1.3, 4.1.4 and 4.13, (Collectively "the
Liability Schedules" and the "Litigation
Schedule") there are no claims, complaints,
suits, actions and judicial, regulatory,
arbitration or governmental actions, proceedings
or investigations pending, or to the knowledge of
the Shareholders or Division-Tel threatened, or
anticipated, including actions known, or actions
that Shareholder or Division-Tel have reason to
know, against Division-Tel, or any of their
respective officers, directors or agents.
4.2.14 Tax Payments and Returns.
(a) Division-Tel has delivered to Telecomm
true and complete copies of its federal,
state and local income tax returns for
its tax year ended December 31, 1997.
Division-Tel has filed all tax reports
and returns required to be filed by it
through the date of this Agreement and
has paid all taxes and other related
charges (including interest and
penalties) due or claimed to be due from
it by foreign, federal, state or local
taxing authorities. To the best of
Shareholder knowledge, no taxing
authority has audited any portion or a
tax return relating to any Shareholder
or Division-Tel, and there are no
notices of audit, pending questions
relating to, or claims asserted for,
taxes or assessments received by or made
against any Division-Tel.
(b) Since its inception, Division-Tel has
been duly qualified as a Sub Chapter S
corporation for federal and state income
tax purposes and, in connection
therewith,
(i) has not had more than 35
shareholders,
(ii) has not had as a shareholder a
person (other than an estate
and other than a trust
described in Section 1361 ( c)
(2) of the Internal Revenue
Code of 1986, as amended) who
is not an individual,
(iii) has not had a nonresident alien
as a shareholder,
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(iv) has not had more than "one
class of stock" (as such term
is used in Section 1361 of the
Internal Revenue Code of 1986,
as amended), and
(v) has properly filed S
corporation elections with and
is approved as a sub Chapter S
Corporation by the Internal
Revenue Services and all
applicable State Departments
of Revenue or Taxation.
4.2.14 Corporate Documents and Minute Books; Officers
and Directors. The minutes of corporate
proceedings, stock transfer records, Articles of
Incorporation (or Certificate of Incorporation)
and Code of Regulations (or by-laws) of
Division-Tel have been delivered to Telecomm and
are correct and complete, accurately reflect all
actions and proceedings of the shareholders and
Board of Directors of Division-Tel to date.
4.2.15 Brokers/Fees. Negotiations related to this
Agreement and the transactions contemplated
hereby have been carried on by the Shareholders
and Division-Tel, and no brokerage or finders'
fees are payable by any Shareholder or
Division-Tel to any other party in connection
with this Agreement or the transactions
contemplated hereby.
4.2.16 Adverse Changes. Since September 30, 1997,
Division-Tel has not suffered any adverse changes
in its financial condition, assets, liabilities
or business or any damage, destruction or loss to
its assets, whether or not covered by insurance.
4.2.17 Operations in the Ordinary Course. Since
September 30, 1997 Division-Tel has been operated
only in the normal and ordinary course, and has
not:
(a) issued or committed to issue any capital
stock or other ownership interest
therein, other than shown in Section
4.1.1.
(b) granted or committed to grant any
options, warrants, convertible
securities or other rights to subscribe
for, purchase or otherwise acquire any
shares of its capital stock or other
ownership interest therein;
(c) entered into any material agreement to
make capital expenditures, except as
noted on Schedule 4.2.17 (c);
(d) entered into any agreement relating to
the borrowing of money or other contract
for indebtedness, or the guarantee of
any obligation for the borrowing of
money;
(e) entered into any material real or
personal property lease except as noted
on Schedule 4.2.17 (e); or
(f) entered into, modified, or canceled any
other agreement, contract or commitment
which is not terminable at will.
4.2.18 Third Party Consents. The Shareholders and
Division-Tel have obtained and delivered to
Telecomm the consent or approval of each third
party whose consent or approval is required or
deemed necessary by Telecomm for the consummation
of the transactions contemplated by this
Agreement, including but not limited to, Donald
Tenbarge.
12
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4.2.19 Transactions with Related Parties. Except for the
employment of the Shareholders, and the proposed
real estate lease with Eclipse Realty, LLC, the
summary terms of which is set forth in Exhibit D,
there are no contracts, leases, loans,
commitments, transactions, arrangements or other
understandings, oral or written, between
Division-Tel and any Related Party. For purposes
of this Section 4.2.19, the term "Related Party"
means (a) any Shareholder, (b) the spouse, lineal
descendant or other family member of a
Shareholder, ( c) any corporation, partnership,
trust, limited liability company, or other entity
controlled by, or under common control with a
Shareholder, (d) any officer, directory or
Shareholder of Division-Tel, and (e) any person
who is a member, partner or shareholder in any
relationship or similar form of business
association with any person or entity referred to
above.
4.2.20 Disclosure. To the best knowledge of the
Shareholders and to the best knowledge of
Division-Tel, no representation or warranty by
the Shareholders or Division-Tel, or any
document, written statement or certificate
furnished to Telecomm pursuant to this Agreement,
contains any untrue statement of material fact or
omits to state a fact necessary in order to make
the statements contained herein or therein not
misleading.
4.2.21 Accuracy of Schedule 4.1.3 Said Schedule
accurately reflects all obligations of
Division-Tel which were not incurred in the
"ordinary course of business."
(a) For purpose of this representation
obligations owed by Division-Tel whether
contingent, fixed, liquidated or
unliquidated, including but not limited
to obligations owed to
(i) Shareholder or Shareholder loans;
(ii) pending or threatened litigation
claims;
(iii) obligation to repurchase shares
of stock form former shareholders
shall be considered obligations of
Division-Tel not incurred in the
"Ordinary course of business". The
obligations and amounts set forth
on Schedule 4.1.3 are true and
correct.
4.2.22 Accuracy of Schedule 4.1.4 Said Schedule
accurately reflects all obligations of
Division-Tel which were incurred in the "ordinary
course of business."
4.2.23 Diminutive Errors. Notwithstanding the above
Representations and Warranties, Division-Tel and
the Shareholder shall bear no liability for
Diminutive errors, as defined in section 1.22, so
long as the Cumulative Diminutive Errors shall
not exceed Five Thousand Dollars ($5,000).
4.2.24 Articles of Merger. The preparation and
acceptance of Articles of Merger is a Condition
Precedent to the Closing of this Agreement. Both
parties represent and warrant that they will
cooperate with the other party in full and that
they will not take any action to hinder, delay,
or prevent, the filing of the Articles of Merger
with the Secretary of State in both the States of
Delaware and Indiana.
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Section 5 - Representations and Warranties of Telecomm
5.1 Organization and Good Standing. Telecomm is a corporation
duly organized, validly existing and in good standing
under the laws of the State of Delaware, registered to
conduct business in, among other States, the State of
Indiana. Telecomm has full corporate power to carry on its
business as it is now being conducted.
5.2 Authority. Telecomm has the full legal right, power and
authority to enter into, execute and deliver this
agreement, and to perform its obligations under this
agreement. This agreement has been duly executed and
delivered by authorized officers of Telecomm and is the
valid and binding obligation of Telecomm, enforceable in
accordance with its terms. The execution and delivery of
this agreement and the consummation by Telecomm of the
transactions contemplated will not:
5.2.1 Conflict with, result in a breach of, or
constitute or result in a default under any
of the terms, conditions or provisions of
the Certificate of Incorporation, Articles
of Incorporation, By-laws or Code of
Regulations, or other governing documents of
Telecomm.
5.2.2 Require the further approval or consent of
any federal, state, county or local court,
or other Government or regulatory body or
the approval or consent of any other person.
5.2.3 Conflict with or result in a breach or
violation of any of the terms and conditions
of, or constitute (with notice, lapse of
time, or both) a default under or a
violation of, any statute, regulation,
order, judgment or decree applicable to
Telecomm, or any instrument, contract or
other agreement to which Telecomm is a
party.
5.3 Brokers / Fees. Negotiations related to this
agreement and the transactions contemplated hereby
have been carried on by Telecomm and no brokerage
or finders' fees are payable by Telecomm to any
other party in connection with this agreement or
the Transactions contemplated hereby
5.4 Payment of Schedule 4.1.3 and Schedule 4.1.4
Indebtedness. Telecomm agrees to assume any and all
liabilities as listed on Schedules 4.1.3 and 4.1.4.
Any liabilities not listed on said schedules shall
remain the sole and absolute responsibility of the
Shareholder, and shall be paid by the Shareholder
within thirty (30) days after Telecomm is notified,
or otherwise becomes aware, of any such liability
or claim. With regard to any liability listed on
said liability schedules, where Shareholder has
personally guaranteed the same, Telecomm agrees to
indemnify and hold harmless the Shareholder to the
extent of the Corporate debt.
5.5 Adverse Changes. Telecomm has not suffered any
adverse changes in its financial condition, assets,
liabilities or business or any damage, destruction
or loss to its assets, whether or not covered by
insurance, since the most recent filings with the
Securities and Exchange commission, more
specifically, the Form 10KSB/A, filed on or about
September 17, 1997, and the Form 10QSB, filed on or
about November 12, 1997, except as where indicated
on Schedule 5.5.
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<PAGE>
5.6 Articles of Merger. The preparation and acceptance
of Articles of Merger is a Condition Precedent to
the Closing of this Agreement. Both parties
represent and warrant that they will cooperate with
the other party in full and that they will not take
any action to hinder, delay, or prevent, the filing
of the Articles of Merger with the Secretary of
State in both the States of Delaware and Indiana.
Section 6- Miscellaneous
6.1 Further Acts. The parties agree to perform any
further acts and to execute and deliver any other
documents which may be reasonably necessary to
carry out the intent and provisions of this
Agreement.
6.2 Assignment. Without the consent of Division-Tel,
Telecomm may assign all or any part of this
Agreement and all or any part of its rights and
obligations hereunder to an affiliate of Telecomm.
6.3 Headings. The clause headings appearing in this
Agreement have been inserted for the purpose of
convenience and reference. They do not purport to,
and will not be deemed to, define, limit or extend
the scope or intent of the clauses to which they
apply, and they will not be considered in
construing the terms of this Agreement.
6.4 Investigation Will Not Constitute A Waiver. No
investigation, or lack thereof, by Telecomm, or any
of its agents, will be deemed to constitute or
imply a waiver of any rights of Telecomm may have,
including any right to indemnification as the
result of any material misrepresentation, or breach
of warranty, or covenant in favor of Telecomm as
otherwise provided in this Agreement.
6.5 Counterparts. This Agreement may be executed in
several counterparts, each of which when so
executed will be deemed to be an original for all
purposes.
6.6 Partial Invalidity. If any provision of this
Agreement is invalid or is held illegal or
unenforceable, then notwithstanding any such
invalidity, illegality, or unenforceablility of
such provision, the remainder of this Agreement
will subsist and will be in full force and effect
as though such invalid, illegal or unenforceable
provision had been omitted form this Agreement.
6.7 Entire Agreement. This Agreement embodies the
entire agreement of the parties as to the subject
matter herein contained. There are no promises,
terms, conditions or obligations other than those
contained herein; and this Agreement will supersede
all previous communications, representations, or
agreements, either verbal or written, between the
parties hereto. Without limiting the foregoing, no
letter, telegram, or other communication passing
between the parties hereto, concerning any matter
during the negotiation of this Agreement, will be
deemed a part of this Agreement, nor will it have
the effect of modifying or adding to this
Agreement.
15
<PAGE>
6.8 Additional Documents. Each party will execute and
deliver, to either party, subsequent to the
Closing, such other documents or instruments as may
be reasonably necessary to effectuate the
provisions and purpose of this Agreement. Without
limitation of the generality of the foregoing,
Division-Tel will perform all reasonable acts to
cause any licenses or permits issued to
Division-Tel to be assigned or transferred to
Telecomm in order that Telecomm may conduct
Division-Tel's Business subsequent to the Closing
as herein contemplated.
6.9 No Amendment. No amendment, modification, change or
discharge of any term or provision of this
Agreement will be valid or binding unless the same
is in writing and signed by all the parties hereto.
No waiver of any of the terms of this Agreement
will be valid unless signed by the parties against
whom such waiver is asserted.
6.10 Gender. All terms and words used in this Agreement,
regardless of the number and gender in which they
are used, will be deemed and construed to include
any other number, singular or plural, and any other
gender, masculine, feminine, or neuter, as the
context or sense of this Agreement, or any other
section or clause herein, may require, the same as
if such words had been fully and properly written
in the required number and gender.
6.11 Time Periods. Any action required hereunder to be
taken within a certain number of days will be taken
within that number of calendar days; provided,
however, that if the last day for taking such
action falls on a weekend or a holiday, the period
during which such action may be taken will be
automatically extended to the next business day.
6.12 Construction. This Agreement has been prepared by
the joint efforts of the respective attorneys for
each of the parties. This Agreement should be
interpreted fairly, and not strictly construed
against either party.
6.13 No Third Party Beneficiaries. The parties
affirmatively state that they do not intend to
confer any legal or contractual rights or benefits
upon any third persons or Entities, either directly
or incidentally, and all legal rights, duties and
obligation set forth in this Agreement will bind
and benefit only the parties hereto.
6.14 Notices. Any notice or demand required or permitted
to be given hereunder, will be in writing, signed
by the party giving or making the same, and will be
delivered by certified mail, return receipt
requested, or by personal hand delivery, to all
parties hereto at their respective addresses
hereinafter set forth. In the event that delivery
of any such notice or demand cannot be effected as
aforesaid, the same may be served by any method
authorized for the service of legal process as set
forth in the Indiana Rules of Civil Procedure. Any
party hereto will have the right to change the
place to which any such notice or demand, or other
written instrument will be sent to him by similar
notice sent in a like manner to all parties hereto.
The date of mailing of any such offer or demand, if
applicable, will be deemed to be the date of such
offer or demand and will be effective form that
date. The addresses of the parties to this
Agreement are as shown herein below.
To Employee: Mr. Micheal Meece
6500 Danielle Lane
Newburgh, Indiana 47630
16
<PAGE>
CC: Marc D. Fine, Esq.
MATTINGLY, RUDOLF, FINE & PORTER, LLP
221 NW Fifth Street, Second Floor
P.O. Box 1507
Evansville, Indiana 47706
To the Company: Telecomm Industries Corp.
8450 Westfield Blvd.
Indianapolis, IN 46240
Attn.: Mr. Paul Stoyanoff, Vice President
Attn.: Mr. Paul Satterthwaite, Vice President
And
CC: Nicholas Bacon, esq.
8450 Westfield Blvd.
Indianapolis, IN 46204
6.15 Binding. This Agreement will bind an inure to the
benefit of the parties hereto, their respective
assigns, and personal representatives and
successors.
6.16 Incorporation by Reference. All exhibits schedules
and documents attached hereto will be deemed to be
incorporated herein by reference as though fully
set forth.
6.17 Competent Professional Advice. All parties to this
agreement have reviewed this agreement with
competent legal counsel. Both parties have sought
and obtained legal counsel and certified public
accountants with respect to this agreement and the
transactions contemplated therein. Both parties,
therefore, enter this agreement, knowingly,
intentionally, and intelligently.
6.18 Professional Fees. Each Party shall bear the
expense of any Professional Fees, including, but
not limited to, Attorney fees, Accountant fees, or
Investigative fees. However, notwithstanding this
paragraph, in the event of a Breach of this
Agreement, the Non-breaching party shall be
responsible for Attorney fees and costs of
collection.
6.19 Employment Agreement and Non Competition Agreement.
Attached hereto as Exhibits C and D, are the
Employment Agreement and
Non-Competition/Confidentiality Agreements entered
into by the Parties contemporaneously with this
Merger Agreement. Said agreements are incorporated
by reference into this document and made a part
hereof. The consideration for this Merger Agreement
is sufficient and adequate consideration for the
Merger Agreement, the Employment Agreement and the
Non-Compete/Confidentiality Agreement.
6.20 Letter of Intent Restriction. This Agreement does
not modify, nor does it supersede, the restrictions
upon the parties as set forth in the Letter of
Intent of Telecomm, as issued on the 26th day on
November, 1997. Following the closing of the
transaction, as set forth in section 8, this
Agreement shall become legally binding, and shall
supersede said letter of intent.
17
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6.21 Revocation of Previous Definitive Agreement. The
Parties have previously entered into a valid and
enforceable form of this Agreement, including an
addendum, both executed via facsimile transmission.
It is the intent of the Parties to execute an
original Merger Agreement at the Closing of this
transaction, as set forth in Section 8. Upon it's
execution, said original shall supersede, revoke,
and make null and void any and all Merger
Agreements, including any addendum, executed
previously by and among the parties.
Section 7 - Conditions Precedent
7.1 Non-Binding until Satisfaction of Conditions This
transaction is Non-Binding upon either Party until
and upon the Satisfaction of the Conditions
Precedent and Closing as set forth Below, except
where specifically indicated. It is the Parties
intention that this document will become a binding,
valid, and enforceable Agreement following the
Closing of this Transaction.
7.2 Conditions Precedent - The intention of the Parties
is to become legally bound to this agreement
following the closing of this transaction. Said
Closing shall not take place until the following
Conditions Precedent are satisfied:
7.2.1 Exchange of Tangible Consideration as
set forth in this Agreement, including,
but not limited to, exchange of cash,
promissory notes, certificates of stock,
or other consideration as set forth in
Section 3.1
7.2.2 Transfer of Stock as set forth in
Section 3.2
7.2.3 Transfer of Assets as set forth in
Section 3.3 et seq.
7.2.4 Completion and delivery of all schedules
and exhibits as referenced in this
agreement by both parties, and
acceptance of the same by both parties.
7.2.5 Successful completion of due diligence
as performed by auditors, attorneys or
agents of Telecomm.
7.2.6 Execution of the mutually acceptable
Employment Agreement by both Parties.
7.2.7 Execution of the mutually acceptable
Non-Competition Agreement by both
Parties.
7.2.8 Execution of the mutually acceptable
Lease for the property located at 4855
Stonegate Square, Highway 261, Newburgh,
Indiana 47630.
7.2.9 Satisfaction, and subsequent release, of
the obligation of Division-Tel with
regard to the Debt owed to Donald C.
TenBarge.
18
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7.2.10 Successful assignment of any and all
material contracts to which Division-Tel
is a party, including but limited to,
any Contract to which Ameritech, Bell
South, or any other Regional Bell
Operating Company, is a party.
7.2.11 Closing shall be scheduled for a date
prior, and completed no later than,
January 29, 1998, unless mutually agreed
to, or waived, by both parties.
7.2.12 Should the Conditions Precedent not be
satisfied as set forth above, and should
the Closing not occur as set forth
below, neither party shall be bound, nor
bear any liability from this agreement,
unless any of said provisions are
mutually modified or waived by the
parties in writing.
7.2.13 Preparation of appropriate Articles of
Merger to be filed with the Secretary of
State in the States of Delaware and
Indiana, and acceptance thereof by and
among all parties.
7.2.14 Execution of the Document titled
Checklist of Merger, attached as Exhibit
E. Said document has no binding effect
other than to reflect the parties
understanding regarding the necessary
documentation to effectuate this Merger.
7.2.15 Execution and Delivery of Certified
Corporate Resolutions authorizing this
Merger transaction by both parties.
Section 8 - Closing
8.1 Upon Completion of the Conditions Precedent set
forth above, and the completion of Closing as set
forth below, this Agreement shall become a
legally binding, valid and enforceable Agreement.
8.2 The Closing of this transaction shall be deemed
an express representation that there have been no
material changes by, between or among, any of the
parties hereto, since the execution of this
Merger Agreement.
8.3 Closing Date and Time. The Closing shall take
place on the 29th day of January, 1998, at 10:30
AM., or such other date and time as subsequently
may be agreed upon by the parties, in writing.
Any reference herein to the Closing Date for the
purpose of establishing a point in time, or
calculating a period of time, means 11:59 p.m.,
local time on the Closing Date.
8.4 Transfer of Business. Upon the successful Closing
of this transaction, Telecomm and Division-Tel
shall become one entity, and Division-Tel shall
cease to exist as a valid and legally existing
entity. Any and all business transactions, or
activities, as contemplated by this agreement,
shall be transferred to Telecomm. In no event
shall this clause, or any other clause in this
contract, be construed to effect the
Representations, Warranties or Indemnification as
set forth by both parties in this agreement.
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IN WITNESS WHEREOF, the parties have signed this Agreement, consisting
of 20 pages. The intent of the Parties is to be legally bound thereby.
Signed in the Presence of the following, and on the date first indicated on this
agreement:
DIVISION - TEL COMMUNICATIONS GROUP, INC. (Division-Tel)
By:_________________________
Micheal R. Meece, President
______________________________
Micheal R. Meece, Individually
TELECOMM INDUSTRIES CORP. (Telecomm)
By: _____________________________
James M. Lowery, CEO and
Chairman of the Board
Counsel for the Parties:
________________________________
Nicholas Bacon, Esquire
Counsel for Telecomm Industries
8450 Westfield Blvd.
Indianapolis, Indiana 46240
________________________________
Marc D. Fine, Esq.
Counsel for Division-Tel and Micheal Meece
MATTINGLY, RUDOLF, FINE & PORTER, LLP
221 NW Fifth Street, Second Floor
P.O. Box 1507
Evansville, Indiana 47706
<PAGE>
ADDENDUM TO MERGER AGREEMENT
Come now the Parties, Telecomm Industries, Corp. (hereinafter
"Telecomm") and Micheal Meece, (hereinafter "Meece") and agree to this Addendum
to Merger Agreement, executed contemporaneously with a General Release of
Liability.
Recitals
A. That the Merger Agreement executed on February 19, 1998 by
and among Telecomm, Meece and Division Tel Communications
Group, Inc.(hereinafter "Division-Tel"), be and hereby is
amended by this Addendum.
B. That Division-Tel ceased to exist following the perfection
of the Merger as outlined in the Merger Agreement, and as
such, is not a necessary party to this Addendum.
C. That Meece was sole shareholder of Division-Tel prior to
the transaction set forth in the Merger Agreement.
D. That other than as set forth in this Addendum, and the
contemporaneously executed General Release of Liability,
the previously executed Merger Agreement remains in full
force and effect.
The Parties agree as follows:
1. That Section 4.1.7 (b) of the Merger Agreement shall be, and
hereby is, replaced in full by the following text:
The Telecomm shares being acquired by such Shareholder under
this Agreement are being acquired for such Shareholder's own
account, for investment purposes, not for the interest of any
other person, firm or entity and not with a view to or present
intention of reselling or distributing all or any portion of,
or interest in, the Telecomm shares. In order to assure the
foregoing and the status of the Merger as a tax-free
reorganization, the Telecomm shares are restricted as follows:
One hundred thousand (100,000) shares cannot be sold,
assigned, transferred, conveyed, pledged, hypothecated, or
otherwise disposed of by the Shareholder without the prior
written consent of the Company prior to February 20, 1999.
The remaining shares, or more specifically, two hundred fifty
thousand (250,000) shares cannot be sold, assigned,
transferred, conveyed, pledged, hypothecated, or otherwise
disposed of by the Shareholder without the prior written
consent of the Company prior to February 20, 2000.
2. That Section 5 of the Merger Agreement be, and hereby is, modified
as necessary to give the true and anticipated meaning to the
language set forth in the General Release of Liability executed
contemporaneously herewith, and attached hereto as Exhibit A1.
3. That the Parties agree that the transfers anticipated in Paragraph
one of this Addendum may only be performed in a manner not
violative of any Federal, State or Local law, statute, regulation,
or ordinance, including but not limited to, the rules and
regulations of the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities
Act").
<PAGE>
4. That the contemporaneous execution of both this Addendum and the
General Release of Liability is required before any obligation or
relief from obligation as set forth in any of the same occurs.
5. That both this Addendum and the General Release of Liability
become Null and Void if, and only if, all of the following
conditions are met:
a. Micheal Meece, individually or through an appropriate
transfer agent, requests an opinion to sell or transfer a
number of shares equal to or less than 100,000 shares;
b. The request is made after February 19, 1999; c. The request
is made before May 19, 1999;
d. The requested opinion is not issued within 30 days of the
request or the opinion is issued that said sale would not be
permissible;
e. That the failure to issue a timely opinion authorizing the
sale or transfer is not a result of any act or omission of
Meece or any person acting on his behalf;
Telecomm Industries, Corp. by:
______________________________________________ __________________
James M. Lowery, CEO and Chairman of the Board Dated
______________________________________________ __________________
Nicholas Bacon, General Counsel Dated
______________________________________________ __________________
Micheal R. Meece, Individually Dated
EXHIBIT 10.7
[GRAPHIC OMITTED][GRAPHIC OMITTED]
WCMA(R) AND TERM LOAN AND SECURITY AGREEMENT
================================================================================
WCMA and Term Loan and Security Agreement NO. 9810551101 ("Loan Agreement")
dated as of October 13, 1998, between TELECOMM INDUSTRIES CORP., a corporation
organized and existing under the laws of the State of Delaware having its
principal office at 8450 Westfield Blvd., Indianapolis, IN 46240 ("Customer"),
and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain Working Capital Management(R) Account Agreement
No. 655-07532 ("WCMA Agreement") between Customer and MLBFS' affiliate, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith, and as
part of the WCMA Program, Customer has requested that MLBFS provide Customer
with a commercial line of credit upon the terms hereinafter described (the "WCMA
Line of Credit"). Customer has further requested that MLBFS make the 5-year term
loan hereinafter described (the "Term Loan"). Subject to the terms and
conditions hereinafter set forth, MLBFS has agreed to provide the WCMA Line of
Credit and make the Term Loan.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(b) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(c) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations, and shall include, without limitation, the Term Note.
(d) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer; or (ii)
any such proceeding shall be filed against Customer and shall not be dismissed
or withdrawn within sixty (60) days after filing; or (iii) Customer shall make a
general assignment for the benefit of creditors; or (iv) Customer shall
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (v) Customer shall be adjudicated a bankrupt or insolvent.
(e) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(f) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the first advance on account of the Term Loan shall
have been met to the satisfaction of MLBFS.
(g) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 4.6 (b) hereof.
(h) "Commitment Expiration Date" shall mean November 12, 1998.
(i) "Conversion Date" shall mean January 31, 1999.
(j) "Default" shall mean an "Event of Default" as defined in Section 4.5 hereof,
or an event which with the giving of notice, passage of time, or both, would
constitute such an Event of Default.
<PAGE>
(k) "General Funding Conditions" shall mean each of the following conditions to
any loan or advance by MLBFS hereunder: (i) no Default shall have occurred and
be continuing or would result from the making of any such loan or advance
hereunder by MLBFS; (ii) there shall not have occurred and be continuing any
material adverse change in the business or financial condition of Customer;
(iii) all representations and warranties of Customer herein or in any Additional
Agreements shall then be true and correct in all material respects; (iv) MLBFS
shall have received this Loan Agreement, the Term Note and all other Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (v) with
respect to the Term Loan, MLBFS shall have received, as and to the extent
applicable, copies of invoices, bills of sale, loan payoff letters and/or other
evidence reasonably satisfactory to it that the proceeds of the Term Loan will
satisfy the Term Loan Purpose; (vi) MLBFS shall have received evidence
reasonably satisfactory to it as to the ownership of the Collateral and the
perfection and priority of MLBFS' liens and security interests thereon, as well
as the ownership of and the perfection and priority of MLBFS' liens and security
interests on any other collateral for the Obligations furnished pursuant to any
of the Additional Agreements; (vii) MLBFS shall have received evidence
reasonably satisfactory to it of the insurance required hereby or by any of the
Additional Agreements; and (viii) any additional conditions specified in the
"WCMA Line of Credit and Term Loan Approval" letter executed by MLBFS with
respect to the transactions contemplated hereby shall have been met to the
reasonable satisfaction of MLBFS.
(l) "Initial Maturity Date" shall mean the first date upon which the WCMA Line
of Credit will expire (subject to renewal in accordance with the terms hereof);
to wit: September 30, 2000.
(m) "Interest Due Date" shall mean, with respect the WCMA Line of Credit, the
last Business Day of each calendar month during the term hereof (or, if Customer
makes special arrangements with MLPF&S, the last Friday of each calendar month
during the term hereof).
(n) "Interest Rate" shall mean, with respect the WCMA Line of Credit, a variable
per annum rate of interest equal to the sum of (i) 2.40% and (ii) the 30-Day
Commercial Paper Rate. The "30-Day Commercial Paper Rate" shall mean, as of the
date of any determination, the interest rate from time to time published in the
"Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured
notes sold through dealers by major corporations. The Interest Rate will change
as of the date of publication in The Wall Street Journal of a 30-Day Commercial
Paper Rate that is different from that published on the preceding Business Day.
In the event that The Wall Street Journal shall, for any reason, fail or cease
to publish the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate. The
Interest Rate on the Term Loan is set forth or defined in the Term Note.
(o) "Line Fee" shall mean the fee of $15,000.00 payable periodically by Customer
to MLBFS in connection with the WCMA Line of Credit, as provided herein.
(p) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(q) " Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.
(r) "Maximum WCMA Line of Credit" shall mean, as of any date of determination
thereof, an amount equal to the lesser of: (i) 80% of Customer's Accounts and
Chattel Paper, as shown on its regular books and records (excluding Accounts
over 90 days old, Chattel Paper with installments or other sums more than 90
days past due, and Accounts and Chattel Paper directly or indirectly due from
any person or entity not domiciled in the United States or from any shareholder,
officer or employee of Customer or any affiliated entity) and 50% of Customer's
Inventory, as shown on its regular books and records, or (B) $4,000,000.00.
(s) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement, the WCMA
Note included herein and the Term Note.
(t) "Permitted Liens" shall mean with respect to the Collateral: (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS; (iii) liens which will be discharged with the proceeds of the
initial WCMA Loan or the Term Loan; and (iv) any other liens expressly permitted
in writing by MLBFS.
(u) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12-month period thereafter.
-2-
<PAGE>
(v) "Term Loan Amount" shall mean an amount equal to the lesser of: (i) 100% of
the amount required by Customer to satisfy or fulfill the Term Loan Purpose,
(ii) the principal balance of the Term Loan outstanding on the Conversion Date,
or (iii) $6,000,000.00.
(w) "Term Loan Commitment Fee" shall mean the fee of $45,000.00 due to MLBFS in
connection with and as partial consideration for the commitment by MLBFS under
this Loan Agreement to make the Term Loan.
(x) "Term Loan Purpose" shall mean the purpose for which the proceeds of the
Term Loan will be used; to wit: to refinance term loan with Peoples Bank, to
cover legal fees associated with the acquistions of three companies (as
evidenced by invoices) and to term out balances on the line of credit with
People's Bank.
(y) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 655-07532 and any
successor WCMA account.
(z) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit.
(aa) "WCMA Loan Balance" shall mean an amount equal the aggregate unpaid
principal amount of all WCMA Loans.
1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
Article II. THE TERM LOAN
2.1 Term Loan Commitment. Subject to the terms and conditions hereof, MLBFS
hereby agrees to make the Term Loan to Customer for the Term Loan Purpose, and
Customer agrees to borrow all amounts borrowed to satisfy the Term Loan Purpose
from MLBFS. The Term Loan shall be funded as requested by Customer in up to
three separate advances on or prior to the Conversion Date; provided, however,
that Customer shall not request funding of, and MLBFS shall not be obligated to
fund, any advances on account of the Term Loan in an amount less than
$500,000.00. Each such advance shall either be funded directly to the applicable
third party or parties on account of the Term Loan Purpose or to reimburse
Customer for amounts directly expended by it; all as directed by Customer in an
Advance Certificate to be executed and delivered to MLBFS prior to the funding
date of each advance.
2.2 Term Note. The Term Loan shall be evidenced by and repayable in accordance
with that certain Collateral Installment Note made by Customer payable to the
order of MLBFS and issued pursuant to this Loan Agreement (the "Term Note"). The
Term Note is hereby incorporated as a part hereof as if fully set forth herein.
2.3 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligation to
make each advance on account of the Term Loan on or prior to the Conversion Date
are subject to the prior fulfillment of each of the following conditions: (a)
MLBFS shall have received a written request from Customer that an advance on
account of the Term Loan be funded in accordance with the terms hereof, together
with a written direction from Customer as to the method of payment and payee(s)
of the proceeds of the such advance, which request and direction shall have been
received by MLBFS not less than two Business Days prior to any requested funding
date; (b) MLBFS shall have received a copy of invoices, bills of sale, payoff
letters or other applicable evidence reasonably satisfactory to it that the
proceeds of such advance will be applied on account of the Term Loan Purpose;
(c) the Commitment Fee shall have been paid in full; (d) the Conversion Date
shall not then have occurred; and (e) each of the General Funding Conditions
shall then have been met or satisfied to the reasonable satisfaction of MLBFS.
2.4 Term Loan Commitment Fee. In consideration of the agreement by MLBFS to make
the Term Loan to Customer in accordance with and subject to the terms hereof,
Customer has paid or shall, on or before the Closing Date pay, the Term Loan
Commitment Fee to MLBFS. Customer acknowledges and agrees that the Term Loan
Commitment Fee has been fully earned by MLBFS, and that it will not under any
circumstances be refundable.
Article III. THE WCMA LINE OF CREDIT
3.1 WCMA Promissory Note.
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, or if earlier, on the date of termination
of the WCMA Line of Credit, the WCMA Loan Balance; (b) interest at the Interest
Rate on the outstanding WCMA Loan Balance, from and including the date on which
the initial WCMA Loan is made until the date of payment of all WCMA Loans in
full; and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the periodic Line Fee and any late charges.
Except as otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this WCMA Promissory Note ("WCMA
Note") and this Loan Agreement.
-3-
<PAGE>
3.2 WCMA Loans.
(a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof. Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date any and all amounts necessary to
fully pay off any bank or other financial institution having a lien upon any of
the Collateral other than a Permitted Lien.
(b) WCMA Loans. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WMCA Line of Credit pursuant to the terms hereof,
and in addition to WCMA Loans automatically made to pay accrued interest, as
hereafter provided: (i) MLBFS will make WCMA Loans to Customer in such amounts
as Customer may from time to time request in accordance with the terms hereof,
up to an aggregate outstanding amount not to exceed the Maximum WCMA Line of
Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid on
a revolving basis. Customer may request WCMA Loans by use of WCMA Checks, FTS,
Visa(R) charges, wire transfers, or such other means of access to the WCMA Line
of Credit as may be permitted by MLBFS from time to time; it being understood
that so long as the WCMA Line of Credit shall be in effect, any charge or debit
to the WCMA Account which but for the WCMA Line of Credit would under the terms
of the WCMA Agreement result in an overdraft, shall be deemed a request by
Customer for a WCMA Loan.
(c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(d) Limitation of Liability. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) Interest. (i) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Activation
Date shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof, such interest will be
automatically charged to the WCMA Account on the applicable Interest Due Date,
and, to the extent not paid with free credit balances or the proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by a
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(ii) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (A) Customer shall not be obligated to pay any Excess
Interest; and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be: (1)
applied as a credit against the then unpaid WCMA Loan Balance, (2) refunded to
the payer thereof, or (3) any combination of the foregoing.
(f) Payments. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
-4-
<PAGE>
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit or Term Loan are subject to final collection.
(g) Irrevocable Instructions to MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Agreement shall be
in effect: (i) to immediately and prior to application for any other purpose pay
to MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (ii) if such available free credit balances are insufficient
to pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
(h) Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(i) Use of WCMA Loan Proceeds; Securities Transactions. On the Activation Date,
a WCMA Loan will be made to pay any indebtedness of Customer to a third party
secured by all or any part of the Collateral. The proceeds of each subsequent
WCMA Loan shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for other
lawful business purposes of Customer not prohibited hereby. Customer agrees that
under no circumstances will funds borrowed from MLBFS through the WCMA Line of
Credit or under the Term Loan be used: (i) for personal, family or household
purposes of any person whatsoever, or (ii) to purchase, carry or trade in
securities, or repay debt incurred to purchase, carry or trade in securities,
whether in or in connection with the WCMA Account, another account of Customer
with MLPF&S or an account of Customer at any other broker or dealer in
securities.
(j) Renewal at Option of MLBFS; Right of Customer to Terminate. MLBFS may at any
time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by a proposed change in the terms of the WCMA Line of
Credit (other than the extension of the Maturity Date), no such renewal shall
require Customer's approval. Customer shall, however, have the right to
terminate the WCMA Line of Credit at any time upon written notice to MLBFS.
(k) Line Fees. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to and including
the last day of September in the calendar year immediately following the
calendar year in which the Activation Date shall occur (the "Initial Line
Period"), Customer has paid or shall pay the initial Line Fee to MLBFS. If the
initial Line Fee has not heretofore been paid by Customer, Customer hereby
authorizes MLBFS, at its option, to either cause the initial Line Fee to be paid
on the Activation Date with a WCMA Loan, or invoice Customer for such initial
Line Fee (in which event Customer shall pay said fee within 5 Business Days
after receipt of such invoice). No delay in the Activation Date, howsoever
caused, shall entitle Customer to any rebate or reduction in the Line Fee or to
any extension of the Initial Maturity Date.
(ii) Customer shall pay an additional Line Fee for each 12-month period
following the Initial Line Period to the Initial Maturity Date, and for each
Renewal Year. In connection therewith, Customer hereby authorizes MLBFS, at its
option, to either cause each such additional Line Fee to be paid with a WCMA
Loan on or at any time after the first Business Day of such 12-month period or
Renewal Year, as applicable, or invoiced to Customer at such time (in which
event Customer shall pay such Line Fee within 5 Business Days after receipt of
such invoice). Each Line Fee shall be deemed fully earned by MLBFS on the date
payable by Customer, and no termination of the WCMA Line of Credit, howsoever
caused, shall entitle Customer to any rebate or refund of any portion of such
Line Fee; provided, however, that if Customer shall terminate the WCMA Line of
Credit not later than 5 Business Days after the receipt by Customer of notice
from MLBFS of a renewal of the WCMA Line of Credit, Customer shall be entitled
to a refund of any Line Fee charged by MLBFS for the ensuing Renewal Year.
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<PAGE>
Article IV. GENERAL PROVISIONS
4.1 Representations and Warranties.
Customer represents and warrants to MLBFS that:
(a) Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement, the Term Note and the other Additional Agreements to which
it is a party.
(d) Enforceability. This Loan Agreement, the Term Note and such of the other
Additional Agreements to which Customer is a party are the legal, valid and
binding obligations of Customer, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.
(e) Collateral. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
(f) Financial Statements Except as expressly set forth in Customer's financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct in all material respects, and fairly
present the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim unaudited
financial statements, to normal year-end adjustments); and since the most recent
date covered by such financial statements, there has been no material adverse
change in any such financial condition or operation.
(g) Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).
(i) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit and
make the Term Loan, and (ii) is continuing and shall be deemed remade by
Customer on both the Closing Date and Activation Date, and thereafter
concurrently with each request for a WCMA Loan or an advance on account of the
Term Loan.
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4.2 Financial and Other Information.
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) 10-K Reports. Within 10 days after the date filed with the Securities &
Exchange Commission, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual 10-K report of Customer.
(b) 10-Q Reports. Within 10 days after the date filed with the Securities &
Exchange Commission, Customer shall furnish or cause to be furnished to MLBFS a
copy of the quarterly 10-Q report of Customer
(c) Agings of Accounts. Within 45 days after the close of each fiscal quarter of
Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of
Accounts and Chattel Paper for Customer as of the end of such fiscal quarter, in
reasonable detail and certified by its chief financial officer.
(d) Other Information. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.
4.3 Other Covenants. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) Financial Records; Inspection. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) Taxes. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.
(c) Compliance With Laws and Agreements. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, or the financial condition
or the continued operations of Customer.
(d) Notification By Customer. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer; and (iii) any
information which indicates that any financial statements of Customer fail in
any material respect to present fairly the financial condition and results of
operations purported to be presented in such statements. Each notification by
Customer pursuant hereto shall specify the event or information causing such
notification, and, to the extent applicable, shall specify the steps being taken
to rectify or remedy such event or information.
(e) Notice of Change. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer.
(f) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer, or (B) a material adverse change in the financial condition or
operations of Customer; (ii) Customer shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Customer
shall not engage in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business; (iv) Customer shall not
cause or permit any other person or entity to assume or succeed to any material
business or operations of Customer; and (v) Customer shall not cause or permit
any material change in its controlling ownership.
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(g) Borrowed Debt. Except upon the prior written consent of MLBFS, Customer
shall not directly or indirectly hereafter incur or permit to exist any debt of
Customer for borrowed money or the lease under a capital lease or deferred
purchase price of real or personal property other than: (i) debt to MLBFS and
(ii) debt existing as of the date of and reflected on the last financial
statements of Customer submitted to MLBFS prior to the date hereof and not
refinanced by MLBFS.
(h) Minimum Net Cash Flow. The "Net Cash Flow" of Customer as of December 31,
1999 and at all times thereafter be not less than $1,500,000.00. As used herein,
"Net Cash Flow" shall mean the excess of (i) the sum of Customer's annual net
after-tax income and depreciation and any non-recurring expenses, less any
non-recurring income, less (ii) the sum of the current portion of Customer's
long term debt and any dividends or other distributions to its owners; all as
set forth on Customer's regular annual financial statements prepared in a manner
consistent with the terms hereof.
(i) Total Liabilities to EBITDA. The ratio of Customer's total liabilities to
its net income before interest, taxes, depreciation and amortization, as shown
on Customer's regular fiscal year-end financial statements prepared in a manner
consistent with the terms hereof, shall not as of December 31, 1999, or as of
the end of any fiscal year of Customer thereafter, exceed 3.5 to 1.
(j) Acquisition of Technology or Business. Without limiting any other provision
hereof, Customer agrees that it will not without the prior written consent of
MLBFS directly or indirectly acquire any technology (whether or not patented) or
the assets or stock of any other entity if the cost thereof is in excess of
$500,000.00
(k) Acquisition of Stock. Customer agrees that it will not without the prior
written consent of MLBFS purchase its outstanding stock or Registered Rights
Stock .
4.4 Collateral.
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) Liens. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) Sales and Collections. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral, as well
as all obligations with respect to each Location of Tangible Collateral, except
for any such obligations being contested by Customer in good faith by
appropriate proceedings.
(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
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(h) Insurance. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance policies shall provide that
MLBFS will receive not less than 10 days prior written notice of any
cancellation, and shall otherwise be in form and amount and with an insurer or
insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any expiration
or cancellation, each renewal or replacement thereof.
(i) Event of Loss. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
prepay the Term Loan by an amount equal to the actual cash value of such
Collateral as determined by either the insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that if such actual
cash value is in excess of the balance then outstanding under the Term Loan, any
excess shall be deposited into the WCMA Account concurrently with a like
permanent reduction in the Maximum WCMA Line of Credit. Notwithstanding the
foregoing, if at the time of occurrence of such Event of Loss or any time
thereafter prior to replacement or line reduction, as aforesaid, an Event of
Default shall have occurred and be continuing hereunder, then MLBFS may at its
sole option, exercisable at any time while such Event of Default shall be
continuing, require Customer to either replace such Collateral or prepay the
Term Loan and/or reduce the Maximum WCMA Line of Credit, as aforesaid. Any
partial prepayment of the Term Loan shall be applied to installments due in
inverse order of maturity.
(j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
4.5 Events of Default.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Exceeding the Maximum WCMA Line of Credit. If the WCMA Loan Balance shall at
any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within five (5) Business Days after
written notice thereof shall have been given by MLBFS to Customer.
(b) Other Failure to Pay. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement or the Term Note, or shall fail
to pay when due any other Obligations, and any such failure shall continue for
more than five (5) Business Days after written notice thereof shall have been
given by MLBFS to Customer.
(c) Failure to Perform. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Loan Agreement, the Term Note or any of the other Additional Agreements (not
constituting an Event of Default under any other clause of this Section), and
such default shall continue unremedied for ten (10) Business Days after written
notice thereof shall have been given by MLBFS to Customer.
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(d) Breach of Warranty. Any representation or warranty made by Customer
contained in this Loan Agreement, the Term Note or any of the other Additional
Agreements shall at any time prove to have been incorrect in any material
respect when made.
(e) Cross Default. A default or Event of Default by Customer or any other party
providing collateral for the Obligations shall occur under the terms of any
other agreement, instrument or document with or intended for the benefit of
MLBFS, and any required notice shall have been given and required passage of
time shall have elapsed.
(f) Default Under Other Agreement. A default by Customer or any other party
providing collateral for the Obligations shall occur under the terms of any
other agreement, instrument or document with or intended for the benefit of
MLPF&S or any affiliate of MLBFS or MLPF&S, and such default shall continue
unremedied for five (5) Business Days after written notice thereof shall have
been given by MLBFS to Customer.
(g) Bankruptcy Event. Any Bankruptcy Event shall occur.
(h) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired. The existence of such a material
impairment shall be determined in a manner consistent with the intent of Section
1-208 of the UCC.
(i) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.
(j) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
4.6 Remedies.
(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice terminate its obligation to make any
further advances on account of the Term Loan (if any portion of the Term Loan
has not then been funded) and terminate the WCMA Line of Credit and all
obligations to provide the WCMA Line of Credit or otherwise extend any credit to
or for the benefit of Customer (it being understood, however, that upon the
occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.
(ii) Acceleration. MLBFS may declare the principal of and interest on the Term
Note and WCMA Note, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.
(iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) Sale. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer remaining liable for any amount remaining unpaid after such
application.
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(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Customer hereby
collaterally assigns and grants to MLBFS a continuing security interest in all
such property as additional Collateral.
(c) Power of Attorney. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
(d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
4.7 Miscellaneous.
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term Note or any of
the other Additional Agreements shall operate as a waiver thereof, and no single
or partial exercise of any such right, power or remedy shall preclude any other
or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement, the Term
Note or any of the other Additional Agreements, nor any consent to any departure
by Customer therefrom, shall be effective unless the same shall be in writing
and signed by MLBFS. Any waiver of any provision of this Loan Agreement or any
of the Additional Agreements and any consent to any departure by Customer from
the terms of this Loan Agreement, the Term Note or any of the other Additional
Agreements shall be effective only in the specific instance and for the specific
purpose for which given. Except as otherwise expressly provided herein, no
notice to or demand on Customer shall in any case entitle Customer to any other
or further notice or demand in similar or other circumstances.
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(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
(c) Communications. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the collection of any sum payable hereunder or under
any of the Additional Agreements not paid when due, the enforcement of this Loan
Agreement or any of the Additional Agreements and the protection of MLBFS'
rights hereunder or thereunder, excluding, however, salaries and normal overhead
attributable to MLBFS' employees. The obligations of Customer under this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) Late Charge. Any payment required to be made by Customer pursuant to this
Loan Agreement or any of the Additional Agreements not paid within ten (10) days
of the applicable due date shall be subject to a late charge in an amount equal
to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount
permitted by applicable law. Such late charge shall be payable on demand, or,
without demand, may in the sole discretion of MLBFS be paid by a WCMA Loan and
added to the WCMA Loan Balance in the same manner as provided herein for accrued
interest with respect to the WCMA Line of Credit.
(g) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Term Note or any of the other Additional
Agreements, or to establish, perfect and maintain MLBFS' security interests and
liens upon the Collateral, including, but not limited to: (i) executing
financing statements or amendments thereto when and as reasonably requested by
MLBFS; and (ii) if in the reasonable judgment of MLBFS it is required by local
law, causing the owners and/or mortgagees of the real property on which any
Collateral may be located to execute and deliver to MLBFS waivers or
subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(h) Binding Effect; Assignment. This Loan Agreement, the Term Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term Note or any of the other Additional Agreements without the
prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term Note or the other
Additional Agreements.
(i) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
-12-
<PAGE>
(j) Governing Law. This Loan Agreement, the Term Note and, unless otherwise
expressly provided therein, each of the other Additional Agreements, shall be
governed in all respects by the laws of the State of Illinois.
(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement, the Term Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Loan Agreement, the Term Note and the other Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as either MLBFS shall be obligated
to make the Term Loan or extend the WCMA Line of Credit, or, after the
Activation Date and/or the Closing Date, there shall be any moneys outstanding
under the Term Note, WCMA Note or this Loan Agreement, or there shall be any
other Obligations outstanding.
(m) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) Jurisdiction; Waiver. Customer acknowledges that this Loan Agreement is
being accepted by MLBFS in partial consideration of MLBFS' right and option, in
its sole discretion, to enforce this Loan Agreement (including the WCMA Note set
forth herein), the Term Note and the other Additional Agreements in either the
State of Illinois or in any other jurisdiction where Customer or any collateral
for the Obligations may be located. Customer consents to jurisdiction in the
State of Illinois and venue in any State or Federal Court in the County of Cook
for such purposes, and Customer waives any and all rights to contest said
jurisdiction and venue. Customer further waives any rights to commence any
action against MLBFS in any jurisdiction except in the County of Cook and State
of Illinois. MLBFS and Customer hereby each expressly waive any and all rights
to a trial by jury in any action, proceeding or counterclaim brought BY either
of the parties against the other party with respect to any matter relating to,
arising out of or in any way connected with the WCMA Line of Credit, the Term
Loan, this Loan Agreement, any Additional Agreements and/or any of the
transactions which are the subject matter of this Loan Agreement.
(o) Integration. This Loan Agreement, together with the Term Note and the other
Additional Agreements, constitutes the entire understanding and represents the
full and final agreement between the parties with respect to the subject matter
hereof, and may not be contradicted by evidence of prior written agreements or
prior, contemporaneous or subsequent oral agreements of the parties. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. Without limiting the foregoing,
Customer acknowledges that EXCEPT AS otherwise EXPRESSLY PROVIDED HEREIN: (i) no
promise or commitment has been made to it by MLBFS, MLPF&S or any of their
respective employees, agents or representatives to: (x) lend any additional
moneys, under the Term Loan, or otherwise, or otherwise extend any other credit
to Customer or any other party, or (y) extend the availability of the WCMA Line
of Credit or the due date of the WCMA Loan Balance, or (z) increase the Maximum
WCMA Line of Credit; (ii) no purported agreement to lend additional moneys or
otherwise modify the terms of the Term Loan, or to extend the Maturity Date or
increase the Maximum WCMA Line of Credit, shall be valid or binding unless
expressly set forth in a written instrument signed by MLBFS; and (iii) this Loan
Agreement supersedes and replaces any and all proposals, letters of intent and
approval and commitment letters from MLBFS to Customer, none of which shall be
considered an Additional Agreement. No amendment or modification of this
Agreement or any of the Additional Agreements to which Customer is a party shall
be effective unless in a writing signed by both MLBFS and Customer.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
TELECOMM INDUSTRIES CORP.
By: ____________________________________________________________________________
Signature (1) Signature (2)
________________________________________________________________________________
Printed Name Printed Name
________________________________________________________________________________
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: __________________________________________________________
-13-
EXHIBIT 10.8
TELECOMM INDUSTRIES CORP.
1997 STOCK OPTION AND AWARD PLAN
APPENDIX A
1. Purpose. The purpose of this Plan is to advance the interests of
TELECOMM INDUSTRIES CORP., a Delaware corporation (the "Company"), by providing
additional incentive to attract and retain qualified and competent persons who
are key to the Company, including key employees, Officers and Directors, and
upon whose efforts and judgment the success of the Company is largely dependent,
by encouraging such persons to own stock in the Company
2. Definitions. As used herein, the following terms shall have the meaning
indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control" shall mean the occurrence of any of the following:
(i) any transaction (which shall include a series
of transactions occurring within sixty days or occurring pursuant to a plan)
that has the result that stockholders of the Company immediately before such
transaction cease to own at least 5 1 % of the voting stock of the Company or of
any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) the stockholders of the Company approving a
plan of merger, consolidation,
reorganization, liquidation or dissolution in which the Company does not survive
(unless the approved merger, consolidation, reorganization, liquidation or
dissolution is subsequently abandoned); or
(iii) the stockholders of the Company approving a
plan for the sale, lease, exchange,
transfer, assignment or other disposition of all or substantially all the
property and assets of the Company (unless such plan is subsequently abandoned).
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the compensation committee
appointed by the Board pursuant to Section 15 hereof or, if not appointed, the
full Board,
per share
(e) "Common Stock" shall mean the Company's Common Stock, par value $0.01
<PAGE>
(f) "Controlled Entity" shall mean any trust, partnership,
limited liability company or other entity in which such person that receives
Options or Restricted Shares under this Plan acts as trustee, managing partner,
managing member or otherwise controls; provided that, to the extent any such
Option or Restricted Shares received under this Plan is awarded to a spouse
pursuant to any divorce proceeding, such interest shall be deemed to be
terminated and forfeited notwithstanding any vesting provisions or other terms
herein or in the agreement evidencing such Option.
(g) "Director" shall mean a member of the Board.
(h) "Effective Date" shall mean September 15, 1997.
(i) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and consistent manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be the average of the average bid and ask prices
of the Common Stock on the National Association of Securities Dealers Over the
Counter Bulletin Board for the five business days preceding such day.
0) ss.422 of the Code.
Stock Option.
"Incentive Stock Option" shall mean an incentive stock option as defined in
(k) "Non-Employee Director" shall mean a Director who: (i) is
not an Officer or employee of the Company or any Subsidiary; (ii) does not (A)
receive compensation, directly or indirectly, from the Company or any Subsidiary
for services rendered as a consultant or in any other capacity other than as a
Director, except for an amount that does not exceed the dollar amount for which
disclosure would be required under Item 404(a) of Regulation S-K, 17 C.F.R.
ss.229.404(a), or (B) possess an interest in any transaction for which
disclosure would be required under Item 404(a) of Regulation S-K, 17
C.F,Rss.229.404(a); and (iii) is not engaged in a business relationship for
which disclosure would be required under Item 404(b) of Regulation S-K, 17
C.F.R, ss.229.404(b).
(1) "Non-Statutory Stock Option" shall mean an Option which is not an
Incentive
(in) "Officer" shall mean the Company's Chairman, Chief
Financial Officer, principal accounting officer (or, if there is no such
accounting officer, the controller), any vice president of the Company in charge
of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making
function, or any other person who performs similar policy-making functions for
the Company. Officers of Subsidiaries shall be deemed Officers of the Company if
they perform such policy-making functions for the Company- As used in this
paragraph, the phrase "policy-making function" does not include policy-making
functions that are not significant
-2-
<PAGE>
(n) "Option" (when capitalized) shall mean any option granted
under this Plan.
(o) "Optionee" shall mean a person to whom an Option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of a transfer made pursuant to Section 13 hereof.
(p) "Participant" shall mean either a person to whom
Restricted Shares are granted under this Plan, an Optionee or any person who
succeeds to the rights of either such person under this Plan by reason of the
death of such person.
"Plan" shall mean this 1997 Stock Option and Award Plan of the Company.
(r) "Restricted Shams" "I mean Shares granted or sold pursuant
to Section 10 of this Plan as to which neither the substantial risk of
forfeiture nor the prohibition on transfers referred to in such Section 10 has
expired.
(s) "Restricted Share Agreement" shall mean the agreement
entered into between the Company and the Participant who is to receive
Restricted Shares at the time of any Restricted Share grant.
as amended.
the Code.
(t) "Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
(u) "Share(s)" shall mean a sham or shares of the Common Stock.
(v) "Subsidiary" shall mean a "subsidiary corporation" as defined in
ss.424(f) of
3. Available Shares. The Company may grant to Participants from time
to time an aggregate of up to 2,000,000 Restricted Shares or Options from Shares
held in the Company's treasury or from authorized and unissued Shares. If any
Option granted under this Plan shall terminate, expire, or be canceled or
surrendered as to any Shares, or if any Restricted Shares are forfeited by the
holder thereof, new Options or Restricted Shares may thereafter be granted
covering such Shares,
4. Option Grants. An Option granted hereunder shall be either an
Incentive Stock Option or a Non-Statutory Stock Option as determined by the
Committee at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or a Non-Statutory Stock Option. All Incentive
Stock Options shall be granted within ten years from the date this Plan is
adopted by the Board or the date this Plan is approved by the stockholders of
the Company, whichever is later.
5. Dollar Limitation. Options otherwise qualifying as Incentive Stock
Options hereunder will not be treated as Incentive Stock Options to the extent
that the aggregate Fair Market
-3-
<PAGE>
Value (determined at the time the Option is granted) of the Shares, with respect
to which Options meeting the requirements of Code ss.422(b) are exercisable for
the first time by any individual during any calendar year (under all plans of
the Company and any Subsidiary), exceeds $ 100,000.
6. Conditions for Grant of Options.
(a) Each Option shall be evidenced by a written agreement
that may contain any term deemed necessary or desirable by the Committee,
provided such terms are not inconsistent with this Plan or any applicable law.
Optionees shall be those persons selected by the Committee from the class of all
Directors, Officers and regular employees of the Company or its Subsidiaries.
Any person who files with the Committee, in a form satisfactory to the
Committee, a written waiver of eligibility to receive any Option under this Plan
shall not be eligible to receive any Option under this Plan for the duration of
such waiver.
(b) In granting Options to Directors, Officers and employees
of the Company or its Subsidiaries, the Committee shall take into consideration
the contribution the person has made to the success of the Company or its
Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Options to Directors, Officers and employees of the Company or its
Subsidiaries under this Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
(i) prescribing the date or dates on which the Option becomes exercisable., (ii)
providing that the Option rights accrue or become exercisable in installments
over a period of years, or upon the attainment of stated goals or both, or (iii)
relating an Option to the continued employment of the Optionee for a specified
period of time, provided that such terms and conditions are not more favorable
to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under This Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither this
Plan nor any Option granted under this Plan shall confer upon any person any
right to employment or continuance of employment by the Company or its
Subsidiaries.
7. Option Price. The Committee shall establish, at the time any Option
is granted, the price per Share for which the Shares covered by the option may
be purchased; provided, however, that if the option is an Incentive Option, such
price shall not be less than 100% of the Fair Market Value of the Shares on the
date on which the option is granted; provided, further, that with respect to an
incentive Option granted to a Participant who at the time of the grant owns
(after applying the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting stock of the Corporation or of any parent
corporation (as defined in Section 424(e) of the Code) or Subsidiary, the option
price shall not be less than 110% of the fair market value of the Shares subject
to the Incentive Option on the date such Option is granted.
-4-
<PAGE>
8. Exercise of Options. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of an amount that is sufficient to satisfy
all applicable federal or state tax withholding requirements relating to
exercise of the Option, if any. Unless further limited by the Committee in any
Option, the option price of any Shares purchased shall be paid in cash, by
certified or official bank check, by money order, with Shares or by a
combination of the above; provided further, however, that the Committee in its
sole discretion may accept a personal check in full or partial payment of any
Shares. If the exercise price is paid in whole or in part with Shares, the value
of the Shares surrendered shall be their Fair Market Value on the date the
Option is exercised. The Company in its sole discretion may, on an individual
basis or pursuant to a general program established in connection with this Plan,
lend money to an Optionee, guarantee a loan to an Optionee, or otherwise assist
an Optionee to obtain the cash necessary to exercise all or a portion of an
Option granted hereunder or to pay any tax liability of the Optionee
attributable to such exercise, If the exercise price is paid in whole or in part
with an Optionee's promissory note, such note shall (i) provide for full
recourse to the maker, (ii) be collateralized by the pledge of the Shares that
the Optionee purchases upon exercise of such Option, (iii) bear interest at the
base lending rate of the Company's principal lender, and (iv) contain such other
terms as the Committee in its sole discretion shall reasonably require. No
Optionee shall be deemed to be a holder of any Shares subject to an Option
unless and until a stock certificate or certificates for such Shares are issued
to such person(s) under the terms of this Plan- No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as expressly provided in
Section 12 hereof
9. Exercisability of Options. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee shall
provide in such Option, except as otherwise provided in this Section 9.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall (i) an Option be
exercisable after the expiration of ten years from the date of grant of the
Option or (ii) an Incentive Option granted to a Participant, who at the time of
the grant owns (after applying the attribution rules of Section 424(d) of the
Code) more than 10% of the total combined voting stock of the Corporation or of
any parent corporation (as defined in Section 424(e) of the Code) or Subsidiary,
be exercisable after the expiration of five years from the date of grant of the
incentive Option,
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable upon any Change in Control.
(c) The Committee may in its sole-discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option or previously acquired by the exercise of any
Option.
-5-
<PAGE>
10. Termination of Option Period.
(a) The unexercised portion of any Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason of (A)
Cause, which, solely for purposes of this Plan, shall mean the termination of
the Optionee's employment by reason of the Optionee's willful misconduct or
gross negligence, (B) a mental or physical disability (within the meaning of
ss.22(e) of the Code) as determined by a medical doctor satisfactory to the
Committee, or (C) death;
cause;
immediately upon the termination of the Optionee's employment for
(iii) one year after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability (within
the meaning of ss.22(e) of the Code) as determined by a medical doctor
satisfactory to the Committee; or
(iv) (A) one year after the date of termination of
the Optionee's employment by reason
of death of the Optionee, or (B) three months after the date on which the
Optionee dies if the Optionee dies during the one year period specified in
Section 9(a)(iii) hereof.
(b) The Committee in its sole discretion may, by giving
written notice (a "cancellation notice"), cancel, effective upon the date of the
consummation of any corporate transaction described in Sections 2(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Such
cancellation notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
approval of such corporate transaction.
11. Restricted Shares. The Committee may also authorize the grant or
sale to Directors, Officers and employees of the Company or its subsidiaries of
Restricted Shares, Each such grant or sale may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(a) Each such grant or sale shall constitute an immediate
transfer of the ownership of Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer referred to in the Restricted Share Agreement.
(b) In granting Restricted Share awards to Directors,
Officers and employees of the Company or its Subsidiaries, the Committee shall
take into consideration the contribution the person has made to the success of
the Company or its Subsidiaries and such other factors as the Committee shall
determine, The Committee shall also have the authority to consult with and
receive recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Restricted Share awards to
-6-
<PAGE>
Directors, Officers and employees of the Company or its Subsidiaries under this
Plan prescribe such other terms and conditions concerning such grants as it
deems appropriate.
(c) Each Restricted Share grant or sale may be made without
additional consideration or in consideration of a payment by the Participant
that is less than Fair Market Value per Share at the date of grant.
(d) Each such grant or sale shall be subject to a Restricted
Share Agreement, which shall provide that the Restricted Shares covered by such
grant or sale shall be subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code for a period of not less than one (1) year to
be determined by the Committee at the date of grant, and any grant or sale may
provide for the earlier termination of such period in the event of a Change in
Control, retirement, or death or disability of the Participant or other similar
transaction or event as approved by the Committee,
(e) Each Restricted Share Agreement shall provide that during
the period for which such substantial risk of forfeiture is to continue, and any
other period prescribed by law, the transferability of the Restricted Shares
shall be prohibited or restricted in the manner and to the extent prescribed by
the Committee or law, as the case may be, at the date of grant (which
restrictions may include, without limitation, prohibitions on transfer, rights
of repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the hands of
any transferee).
(f) Any grant or sale of Restricted Shares may require that
any or all dividends or other distributions paid thereon during the period of
such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be subject to the same restrictions as the
underlying award.
12. Adjustment of Shares.
(a) If at any time while this Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then a-ad in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant to Participants under this Plan, so
that the same percentage of the Company's issued and outstanding Shares shall
continue to be subject to being so granted; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise
price per Share thereof then subject to any outstanding Option, so that the same
percentage of the Company's issued and outstanding Shares shall remain subject
to purchase at the same aggregate exercise price.
-7-
<PAGE>
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, with respect to the
option price of the number of Shares subject to the Options, or both, when, in
the Committee7s sole discretion, such adjustments become appropriate by reason
of any corporate transaction described in Sections 2(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under this
Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under this Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, lease, exchange, transfer, assignment or other disposition of all or any
part of the assets or business of the Company; or (vi) any other corporate act
or proceeding, whether of a similar character or otherwise,
13, Transferability of Options and Restricted Shares.
(a) No Incentive Stock Option shall be transferable by the
Optionee other than by will, the laws of descent and distribution, and each
Incentive Stock Option shall be exercisable during the Optionee's lifetime only
by the Optionee.
(b) A person that receives Non-Statutory Stock Options under
this Plan or such person's beneficiary shall have the power or right to sell,
exchange, pledge, transfer, assign or otherwise encumber or dispose of such
person's or beneficiary's Non-Statutory Stock Options received under this Plan
only as follows: (i) to the spouse or any children or grandchildren of such
person that receives Non-Statutory Stock Options under this Plan-, (ii) as a
charitable contribution or gift to or for the use of any person or entity
described in ss.170(c) of the Code; (iii) to any Controlled Entity; or (iv) by
will or the laws of intestate succession.
(c) Restricted Shares may be transferred only as set forth in
the applicable Restricted Share Agreement.
Issuance of Shares. As a condition of any sale or issuance of
Shares upon exercise of any Option or Restricted Share award grant, the
Committee may require such agreements or undertakings (in an Option Agreement or
Restricted Share Agreement), if any, as the Committee
-8-
<PAGE>
may deem necessary or advisable to assure compliance with any such federal or
state securities or other law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Participant to the
Company, at the time any Option is exercised or Restricted Share granted, that
he is acquiring the Shares to be issued to him for investment and not with a
view to, or for sale in connection with, the distribution of any such Shares;
and
(ii) a representation, warranty and/or agreement by the
Participant to the Company to be bound by any legends that are, in the opinion
of the Committee or counsel to the Company, necessary or appropriate to comply
with the provisions of any securities law deemed by the Committee or counsel to
the Company to be applicable to the issuance of the Shares and are endorsed upon
the Share certificates.
15. Administration of the Plan.
(a) This Plan shall be administered by the Committee, which
shall consist of not less than two Directors. The Committee shall have all of
the powers of the Board with respect to this Plan; provided that if any member
of the Committee is not a Non-Employee Director, then the Board shall approve
any Option or Restricted Share that the Committee proposes to grant hereunder.
The Board may change the membership of the Committee at any time and fill any
vacancy occurring in the membership of the Committee by appointment.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of this Plan. The Committee's
determinations and its interpretation and construction of any provision of this
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written consent of the
members of the Committee.
-9-
<PAGE>
16. Interpretation.
(a) The Plan shall be administered and interpreted so that
all Incentive Stock Options granted under this Plan will qualify as Incentive
Stock Options under ss.422 of the Code. If any provision of this Plan should be
held invalid for the granting of Incentive Stock Options or illegal for any
reason, such determination shall not affect the remaining provisions hereof, but
instead this Plan shall be construed and enforced as if such provision had never
been included in this Plan.
(b) This Plan shall be governed by the laws of the State of Ohio.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter
gender shall be a reference to such other gender as is appropriate.
17. Amendment and Discontinuation of the Plan.
(a) Either the Board or the Committee may from time to time
amend this Plan or any Option; provided, however, that, except to the extent
provided in Section 12, no such amendment may, without approval by the
stockholders of the Company, (i) materially increase the benefits accruing to
participants under this Plan, (ii) materially increase the number of securities
which may be issued under this Plan, or (iii) materially modify the requirements
as to eligibility for participation in this Plan; and provided further, that
except to the extent provided in Section 10, no amendment or suspension of this
Plan or any Option issued hereunder shall substantially impair any Option
previously granted to any Optionee without the consent of such Optionee.
(b) Notwithstanding anything herein to the contrary, the
provisions of this Plan which govem the exercise price per Share under each such
Option, when and under what circumstances such Option will I be granted and the
period within which each such Option may be exercised, shall not be amended more
than once every six months (even with stockholder approval) other than to
conform to changes to (i) the Code or the rules promulgated thereunder, (ii) the
Employee Retirement Income Security Act of 1974, as amended, or the rules
promulgated thereunder, or (iii) rules promulgated by the Securities and
Exchange Commission.
is. Effective Date and Termination Date. The Plan shall be
effective upon the Effective Date and shall terminate on the tenth anniversary
of the Effective Date.
-10-
Exhibit 21
Subsidiaries of Registrant
Teleco Acquisition Corp., an Ohio Corporation
NetVision.Com Inc., a Delaware Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-KSB.
</LEGEND>
<CIK> 0000087888
<NAME> TELECOMM INDUSTRIES CORP.
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