<PAGE>
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, 1999
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
- -----------------------------
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
--- ---
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. $19,379,497
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: $ 8,783,299 (as of March 28, 2000)
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: 12,171,559 (as of March 28, 2000)
Transitional Small Business Disclosure Format (check one): Yes No X .
-- --
<PAGE>
TELECOMM INDUSTRIES CORP. AND SUBSIDIARY
INDEX
<TABLE>
<S> <C> <C>
Item 1. Description of Business...........................................................3
Item 2. Description of Property...........................................................9
Item 3. Legal Proceedings.................................................................9
Item 4. Submission of Matters to a Vote of Security Holders...............................9
Item 5. Market for Common Equity and Related Stockholder Matters..........................10
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>
Page 2
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PART I
DESCRIPTION OF BUSINESS
The Company
Telecomm Industries Corp. ("Telecomm" or the "Company"), a Delaware
corporation, is among the nation's largest Regional Bell Operating Company
("RBOC") distributors. As an RBOC distributor, Telecomm sells voice, data, video
and telephone information network solutions to business customers throughout its
five-state region. SBC Global Services, Inc. (SBC), formerly Ameritech
Information Systems, Inc. (Ameritech) and BellSouth Telecommunications, Inc.
(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, DSL, 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's value added services include network consultation, design,
installation, maintenance and product repair of various manufacturers, including
Microsoft, Ascend, Intel, Adtran, Cisco, and Citrix. These manufacturers are
generally recognized throughout the industry for providing high quality
technology and innovative software.
Also, through its recently developed subsidiary, NetVision.Com Inc.,
Telecomm operates a full service Internet Service Provider in the greater
Louisville Metropolitan area. NetVision focuses upon business-to-business
applications such as web design and development. NetVision's ability to provide
dedicated high-speed Internet access to its customers is a strategic fit with
Telecomm's ability to provide the necessary circuit and equipment applications.
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Telecomm operates sales offices in Chicago and Naperville, Illinois;
Indianapolis, Evansville, Schererville, South Bend, and Muncie, Indiana;
Cleveland, Columbus, Dayton and Brooklyn Heights, Ohio; Green Bay, and Appleton
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. Today, Telecomm has two subsidiaries, Teleco Acquisition Corp. ("TAC")
which was formed to acquire Unitel, Inc. ("Unitel") in August 1997, and
NetVision.Com Inc. ("NetVision.Com"), a majority owned and controlled Internet
Service Provider operating in and around Louisville, Kentucky.
Acquisition Strategy
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 SBC/Ameritech States: Indiana, Illinois, Ohio,
Michigan and Wisconsin, and the nine BellSouth 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.
Page 4
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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 an 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 they were used by Unitel prior to the
purchase.
On February 20, 1998, Telecomm acquired Division-Tel Communications
Group, Inc. ("Division-Tel") which 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.
In late 1998, the Company was approached by one of its customers, an
Internet Service Provider (ISP). The customer had been utilizing the Company to
design and procure its access services and Internet backbone services. The
customer recognized that the Company provided virtually all of the equipment and
network services necessary to conduct its Internet business and expressed a
desire to form a strategic alliance with the Company.
After analyzing the ISP Business thoroughly, the Company decided in
early 1999 to create a subsidiary, NetVision.Com, whose primary purpose was to
create strategic alliances and consider acquisitions of ISP's and Internet
related companies. The acquisition team determined that consolidation of the
highly fragmented ISP industry in any marketplace would yield significant
operating savings by combining the network access, billing and customer service
functions into a single operation. The Company determined that concentration on
the business to business aspect of the ISP's operation was the most logical
approach. Not only is the competition much stronger in the residential consumer
marketplace, but that portion of the business is more vulnerable to other
competitive access methods. Since the residential consumers are more cost
sensitive, they are more likely to switch from provider to provider as the price
of connection becomes less and less expensive. The Company is now well
positioned to capitalize upon the rapidly expanding business to business ISP
applications.
The first acquisition made by NetVision.Com with this criteria was on
November 15, 1999 when the Company's subsidiary merged with Aye.Net, LLC.
("Aye.Net") Located in Jeffersonville, Indiana, Aye.Net provides a substantial
foundation and presence in the greater Louisville, Kentucky, market.
Sales and Marketing
Telecomm presently employs 48 sales professionals. Sales Managers,
who report to two Regional Sales Directors, manage and develop Telecomm's sales
force. Based upon their experience level, each sales person is assigned a
monthly margin objective, which triggers eligibility for commissions and
incentive bonuses. 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.
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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.
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.
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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 provisioning of these services.
Employees
As of December 31, 1999, Telecomm and its subsidiary employed 184
persons, compared to 200 at December 31, 1998. Of these employees, 178 are
employed on a full time basis and 6 are employed on a part time basis. The
Company continues to increase the size of its sales force while reducing its
proportionate share of overhead.
Page 7
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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.
<TABLE>
<CAPTION>
Date Service
Name Age Commenced Positions With Registrant
- ----------------------- ----- ------------- ---------------------------
<S> <C> <C>
Paul J. Satterthwaite 45 August, 1997 Director, President and
Chief Executive Officer
Mark Travi 34 July, 1998 Vice-President and CFO
Nicholas Bacon 33 March, 1998 Vice-President and General
Counsel
</TABLE>
PAUL SATTERTHWAITE. Mr. Satterthwaite has served as Director and as
President/CEO of the Company since July 14, 1999. Prior to that appointment, Mr.
Satterthwaite served the Company as its Vice-President of Mergers and
Acquisitions since August 1997. For more than seven years prior to that time, he
served as President and Chief Executive Officer of Unitel.
On July 2, 1997, while Paul J. 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.
MARK TRAVI. Mr. Travi became an officer of the company in the role as
Vice President and Chief Financial Officer on November 15, 1999. Prior to that
time, Mr. Travi served as the Chief Financial Officer of the Company 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.
NICHOLAS BACON. Mr. Bacon became an officer of the company in the role
as Vice President and General Counsel on November 15, 1999. Prior to that time,
Mr. Bacon served as General Counsel to the Company since March 1998. Before
joining Telecomm, Mr. Bacon practiced law in and around Indianapolis, Indiana
following his admittance to the Indiana bar in 1993.
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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 at a cost of
approximately $5,000 per month; approximately 15,000 square feet of a two-story
brick building in Indianapolis, Indiana for a cost of approximately $15,000 per
month; and approximately 5,000 square feet of a one-story brick building located
in Mentor, Ohio at a cost of approximately $2,800 per month. The Naperville
facility is leased through October 2002, the Indianapolis facility is leased
through May 2005 and the Mentor facility is leased through November 2003. The
Mentor, Ohio facility is leased from an affiliate of the Company. The
Evansville, Indiana facility is also leased from an affiliate of the Company.
Telecomm also has sales offices in several Illinois, Kentucky, Indiana,
Wisconsin 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.
<TABLE>
<CAPTION>
Representative Prices
---------------------
Calendar Quarter High/Ask Low/Bid
- ---------------- -------- -------
<S> <C> <C>
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
First quarter 1999 1-5/8 3/8
Second quarter 1999 1-1/8 1/2
Third quarter 1999 2-1/8 1/2
Fourth quarter 1999 1-9/32 13/32
</TABLE>
Holders
The approximate number of holders of Telecomm's Common Stock as of
December 31, 1999 was 415.
Unregistered Stock Issuances
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 April 1998, Telecomm granted 300,000 options to purchase shares of
common stock for prices ranging from $3.00 to $10.00 to David Gruber in
consideration for the surrender of previously granted options for consulting
services (the "Options"). The options expired on April 30, 1999.
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 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, video and telephone information network solutions to business
customers throughout its five-state region. Ameritech and BellSouth 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's value added services include network consultation, design,
installation, maintenance and product repair of various manufacturers, including
Microsoft, Ascend, Intel, Adtran, Cisco, and Citrix. These manufacturers are
generally recognized throughout the industry for providing high quality
technology and innovative software.
Telecomm operates a full service Internet Service Provider through
its Delaware subsidiary, NetVision.Com Inc. in the greater Louisville
metropolitan area. NetVision focuses on high-speed Internet access and
business-to-business applications such as web design and development under the
DigiCove brand name. Additionally, NetVision's ability to provide dedicated
high-speed Internet access to its customers fits strategically with Telecomm's
ability to provide the necessary circuits and equipment. Currently, NetVision
has a Point of Presence (POP) in Louisville, Kentucky; Jeffersonville, Indiana;
Columbus, Indiana; New Albany, Indiana; and Bloomington, Indiana. An
Indianapolis Point of Presence should be established early in the 2nd quarter of
2000. While the Company is still evaluating a number of opportunities
surrounding NetVision, immediate plans involve continued expansion into the
existing Telecomm region.
In 1998, under Ameritech's distributor program, significant bonuses
were awarded to the Company for each commission dollar earned over a certain
threshold. Once the threshold was reached, revenues derived from Ameritech sales
increased at a greater rate than prior to the Company's obtaining the target.
On December 31, 1998, the Company entered into a new agreement with
Ameritech which superseded the previous contract. Compensation to the
distributor under this agreement is based upon a "tier status" of the voice and
data products within the Ameritech distributor program. Based upon the tier
status, a distributor can be paid a commission ranging from 75% to 150% of the
base commission rate. 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.
Ameritech's compensation payments consists of 60% of the Company's
earned commissions after the service is installed, and the remaining 40%
(residual) over the life of the contract which varies from 36 to 84 months. The
percentage of the upfront payment is increased depending on the tier status in a
particular region. The residual payment adversely affects the Company's working
capital and cash flow.
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Telecomm derives revenues primarily from RBOC commissions. The
diversification process is ongoing. The Company continues to provide
communication solutions to the customer by selling Ameritech products and
services along with voice and data equipment. The Company is currently focusing
on increasing equipment sales in the year 2000. Management believes that this
diversification will enable Telecomm to regain its growth and maintain its
relationship with Ameritech while significantly reducing its reliance on
Ameritech.
Year 2000 Technology
Telecomm incurred no material costs and made no material expenditures
to modify its computer information systems in anticipation of the proper
processing of transactions relating to the year 2000 and beyond. The Company
experienced no materially significant problems as a result of the change of the
Millennium, but continues to monitor the systems for any delayed effect.
1999 vs. 1998
The Company's net revenues decreased 19% to $19.4 million for the year
ended 1999 from $24.0 million in the comparable 1998 period. The decrease is
attributable to a $4.4 million decline in equipment sales and service revenues
and a $.2 million decrease in network service revenue. A comparison of the
periods with respect to allocation of total net revenues is as follows:
<TABLE>
<CAPTION>
Year ended Year ended
1999 1998
<S> <C> <C>
Sales of equipment and service revenue 46% 55%
Sales of network services 51% 43%
Long distance and other services 3% 2%
</TABLE>
Net revenues from equipment sales and service decreased 33% to $8.8
million for the year ended 1999 from $13.2 million for the year ended 1998. Of
the $8.8 million, $7.3 million relates to voice equipment sales and services and
$1.5 million relates to data equipment sales and services. The decrease in data
equipment sales was primarily due to equipment sold by Telecomm through
Ameritech for base commission and the increase in market competition from such
vendors as Cisco.
Page 12
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Net revenues from network services sales decreased 2% to $10.0 million
for the year ended 1999 from $10.2 million in the comparable period for 1998. Of
the $10.0 million, $4.0 million relates to voice network services and $6.0
million relates to data network and services. The decrease is primarily due to
the migration to data network sales which are more profitable under the
Ameritech Distributor Agreement.
Net cost of commissions, contractor fees and related expenses decreased
$3.9 million to $7.8 million for the year ended 1999, a 33% decrease from said
expenses of $11.7 million in the comparable period of 1998. The decrease was
primarily due to decreased costs of labor and equipment to support equipment
sales generated in the year ended 1999. As a percentage of net revenues, these
expenses decreased to 40% during the year ended 1999 from 49% during the
comparable 1998 period. This decrease is primarily due to costs associated with
the Company's decrease in equipment sales.
Cost of equipment sales and service as a percentage of related net
revenues remained unchanged at 87% during the year ended 1999 from the
comparable 1998 period while the cost of network revenues as a percentage of
network revenues remained virtually unchanged at 1% compared to 2% for the year
ended 1998.
Selling, general and administrative expenses ("SG&A") decreased $3.3
million to $10.2 million for the year ended 1999, a 24% decrease from SG&A
expenses of $13.5 million in the comparable 1998 period. As a percentage of net
revenues, these expenses decreased to 52% for the year ended 1999 from 56% in
the comparable 1998 period. The decrease is due to shortfall on sales and an
emphasis on cost containment within the sales organization.
Interest expense increased by $.2 million, or 29%, to $.7 million from
$.5 million in the comparable 1998 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 long-term
receivables.
Income from operations before income taxes increased by $2.7 million to
$ .7 million for the year ended 1999, an increase of 135% from $(2.0) million in
the comparable 1998 period. This increase is due to several contributing
factors. Borrowing increased to meet the working capital needs to fund the
internal growth of Ameritech network sales. Consolidation and restructuring
expenses, incurred in 1998 to improve and enhance data integrity and operating
efficiency, were effective in contributing to enhanced profitability. Inventory
and intangible assets, that were obsolete or no longer considered part of the
core business and written down to fair market value in 1998, had no effect on
1999 results. Acquisition related receivables that were deemed uncollectable and
were written-off in 1998 had no effect in 1999. In addition, reserves for trade
or uncollectable Ameritech receivables, recorded in 1998, were settled and
resolved in 1999.
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The provision for income taxes increased by $.8 million to $.2 million
for the year ended 1999, compared to $ (.6) million for the comparable 1998
period, due to increased earnings.
As a result of the foregoing, net income for the year ended 1999 was
$.5 million, an increase of 133%, compared to the net loss for the year ended
1998 of $ (1.5) million.
In 1999 Telecomm focused on increasing and developing the sales
department for the year 2000. Management believes that while these changes have
negatively impacted the profitability for 1999, the Company will be better
positioned to achieve 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 provided by operating activities was $.4 million for the year
ended 1999 compared to net cash used in operating activities of $ (2.8) million
for the comparable period in 1998. The change was primarily due to an increase
of $.4 million in trade accounts receivable for the year ended 1999 compared to
a $3.5 million increase in the comparable 1998 period. This change is
attributable to the Company's increased emphasis on resolving and collecting the
Ameritech and other trade receivables.
Net cash used in investing activities was $.2 million for the year
ended 1999 compared to $.4 million for the comparable 1998 period. The use of
cash for investing activities was primarily attributable to the purchase of
property and equipment of $.1 million, virtually unchanged from the comparable
period in 1998, and $.1 million for acquisitions. This was comparable to 1998
except the company used cash of $10,000 for an acquisition in 1998 compared to
$.1 million for the acquisition in 1999.
Net cash used in financing activities was $.1 million for the year
ended 1999 compared to $3.1 million provided by financing activities in the
comparable 1998 period. The cash used was primarily attributable to a net
decrease resulting from cash overdrafts of $.1 million in 1999. In 1998, cash
provided by financing activities consisted primarily of $3.0 million of
increased borrowings of long-term debt.
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Ameritech's compensation payments consists of 60% (upfront) of the
Company's earned commissions after the service is installed, and the remaining
40% (residual) over the life of the contract which varies from 36 to 84 months.
This residual payment structure adversely affects the Company's working capital
and cash flow.
The 1999 Ameritech agreement simplified its payment approach using
standard flat rates on voice and usage products which enhanced working capital
by reducing the delay in collection. The growing annuity stream of the Ameritech
long-term receivables should begin to help offset this situation in future
years, however, management believes cash flow will continue to be affected as
long as the existing Ameritech commission structure remains as indicated above.
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
$5,441,179 collateralized by substantially all assets of the Company. Proceeds
were used to retire the debt from First Merit. 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 (8.0% effective rate as of December 31, 1999) 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. The amount of availability on the line is dependent upon a
borrowing formula based on sales and inventory. Interest is due monthly at an
annualized rate of 2.4% above the 30 day commercial rate (8.0% effective rate as
of December 31, 1999). The line of credit is renewable on September 30, 2000.
The third facility was a $3,800,000 revolving credit line to be used
exclusively for specific planned acquisitions. This unused facility expired on
September 30, 1999.
As of December 31, 1999, the Company was not in compliance with the
established loan covenants for the facilities provided by Merrill Lynch Business
Financial Services. The two covenants involve Minimum Net Cash Flow and Total
Liabilities to EBITDA. These covenants were set based upon the use of the
revolving credit line of $3,800,000 to complete three acquisitions. Merrill
Lynch waived these covenants for the period ending December 31, 1999.
Because of the Company's renewed 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.
Page 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:
- - the dependence of the Company on one principal supplier, Ameritech, for
a significant portion of its revenues;
- - the effects of the recently completed acquisition of Ameritech by SBC;
- - 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;
- - changes in Ameritech's Distributor Agreement;
- - the ability of the Company to obtain additional financing to support
its growth;
- - changes arising from greater competition in local telephone service
attributable to passage of the Telecommunications Act of 1996;
- - the introduction of competitors into the market including competitors
with financial and other reserves significantly greater than those of
Telecomm;
- - 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;
- - 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;
- - the loss or inability to attract key personnel;
- - the ability of the Company to secure a reasonably high percentage of
its outstanding accounts receivable; and
- - general economic conditions, and other risk factors discussed herein.
- - Ability of the Company to sustain sufficient cash flow to meet
operating needs.
- - Ability of the Company to meet loan covenants or obtain additional
waivers from Lender.
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.
Page 16
<PAGE>
Item 7. Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 F-5
Notes to Financial Statements F-6 - F-18
Schedule II - Valuation and Qualifying Accounts
for the years ended December 31, 1999 and 1998 F-19
</TABLE>
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 2000 Annual Meeting of Stockholders
no later than 120 days after the close of its fiscal year ended December 31,
1999 (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.
Page 17
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
A. Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
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, 1998.6
10.2 Credit and Security Agreement between Telecomm and Peoples Bank, N.A.,
dated September 24, 1997. 7
10.3 Merger Agreement by and among Peter Olk and Thomas Raasch, Northeastern
Communications Systems, Inc. and Telecomm, dated January 1, 1997. 8
10.5 Asset Purchase Agreement by and among Unitel, Inc., Paul Satterthwaite,
Jon Satterthwaite, Teleco Acquisition Corporation and Telecomm, dated
July 7, 1997. 9
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. 10
10.7 Term Loan and Security Agreement by and between Merrill Lynch Business
Financial Services and Telecomm Industries, dated October 13, 1998. 11
10.8 Telecomm Industries Corp. 1997 Stock Option and Award Plan as adopted
at the October 16, 1997 annual shareholders meeting. 12
10.9 Merger Agreement by and between NetVision.Com and Aye.Net, LLC et al.,
effective November 15, 1999. (Attached)
10.10 Merger Agreement by and between NetVision.Com and Global Marketing
Concepts, Inc. et al., effective January 28, 2000. (Attached)
21 Subsidiaries of Registrant. (Attached)
27 Financial Data Schedule. (Attached)
B. Reports on Form 8K
None
</TABLE>
____________________________________________
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 Report on Form 10KSB for the year
ended December 31,1994
4 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1996
5 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1996
6 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1998
7 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1997
8 Filed as an exhibit to Telecomm's Current Report of Form 8-K dated January
3, 1997, and incorporated herein by reference.
9 Filed as an Exhibit to Telecomm's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1997.
10 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1998
11 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1998
12 Filed as an exhibit to Telecomm's Annual Report on Form 10KSB for the year
ended December 31, 1998
Page 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/ Paul Satterthwaite
------------------------------
Paul Satterthwaite, President and CEO
And: /s/ Mark Travi
-------------------------------
Mark Travi, Chief Financial and
Accounting Officer
Date: March 29, 2000
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/ Paul Satterthwaite Director, President March 29, 2000
- -------------------------------- and CEO
Paul Satterthwaite
/s/ Steven W. Smith Director March 29, 2000
- --------------------------------
Steven W. Smith
/s/ Raymond W. Sheets, Jr. Director March 29, 2000
- --------------------------------
Raymond W. Sheets, Jr.
/s/ David Gruber Director and Secretary March 29, 2000
- --------------------------------
David Gruber
Page 19
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Telecomm Industries Corp. and Subsidiaries
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 subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash flows for the
year ended December 31, 1999 and for the two years in the period ended
December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 auditing
standards generally accepted in the United States, 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 29, 2000
F-1
<PAGE>
Telecomm Industries Corp.
Consolidated Balance Sheets
as of December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
-------------- --------------
<S> <C> <C>
Current assets:
Accounts receivable, net of allowance of
$550,000 in 1999 and $906,000 in 1998 $ 5,061,434 $ 5,041,578
Inventories 1,627,597 1,583,879
Prepaid income taxes 45,147 45,147
Prepaid expenses 383,960 118,499
Employee advances 2,600 67,769
-------------- --------------
Total current assets 7,120,738 6,856,872
Property and equipment, net 1,666,407 1,609,874
Accounts receivable, net 4,121,843 4,102,589
Intangibles and other assets, net 3,824,454 3,670,572
Deferred income taxes 5,617 -
-------------- --------------
Total assets $ 16,739,059 $ 16,239,907
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 259,224 $ 453,208
Line of credit 1,868,182 1,030,377
Current portion of long-term debt 1,038,611 733,389
Accounts payable 1,481,996 1,612,261
Accrued payroll and related expenses 233,067 310,012
Accrued commissions and bonus 296,751 631,492
Accrued contractor fees - 98,311
Customer deposits 364,491 219,841
Deferred income taxes 704,898 108,594
Income taxes payable 123,323 141,107
Other accrued expenses 425,081 615,961
Deferred revenue 101,270 -
-------------- --------------
Total current liabilities 6,896,894 5,954,553
Long-term debt, less current portion 5,523,543 6,066,715
Deferred revenue 41,677 8,961
Deferred income taxes - 441,709
-------------- --------------
Total liabilities 12,462,114 12,471,938
Commitments and contingencies - -
Stockholders' equity:
Common stock $.01 par value;
authorized - 20,000,000 shares; issued
12,670,746 and 12,650,746; outstanding
12,141,559 and 12,121,559, at
December 31, 1999 and 1998, respectively 126,708 126,508
Additional paid-in capital 3,976,947 3,957,172
Treasury stock, 529,187 shares at cost (317,512) (317,512)
Retained earnings 490,802 1,801
-------------- --------------
Total stockholders' equity 4,276,945 3,767,969
-------------- --------------
Total liabilities and
stockholders' equity $ 16,739,059 $ 16,239,907
============== ==============
</TABLE>
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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Network service revenue $ 9,983,580 $ 10,209,138
Equipment sales and service revenues 8,831,711 13,214,297
Long distance and other revenue 564,206 599,791
------------ -------------
Net revenues 19,379,497 24,023,226
------------ -------------
Commissions, contractor fees and related expenses 85,538 165,372
Equipment sales and service costs 7,675,080 11,517,829
Long distance and other costs - 45,565
------------ -------------
Net cost of commissions, contractor fees
and related expenses 7,760,618 11,728,766
------------ -------------
Selling, general and administrative expenses 10,161,396 13,499,720
Impairment loss 50,000 311,656
------------ -------------
Operating income (loss) 1,407,483 (1,516,916)
Other income (expense):
Gain (loss) on disposal of assets 2,129 (1,008)
Interest expense (680,619) (528,795)
------------ -------------
(678,490) (529,803)
------------ -------------
Income (loss) from operations before
income tax expense (benefit) 728,993 (2,046,719)
Income tax expense (benefit) 239,992 (586,385)
------------ -------------
Net income (loss) $ 489,001 $ (1,460,334)
============ ============
Net income (loss) per common share:
Basic $ 0.04 $ (0.12)
============ ============
Diluted $ 0.04 $ (0.12)
============ ============
Average number of common shares outstanding:
Basic $ 12,126,901 $ 12,091,833
============ ============
Diluted $ 12,208,870 $ 12,091,833
============ ============
</TABLE>
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, 1999 and 1998
<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, 1998 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 loss (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
Stock Options Exercised 20,000 200 19,775 19,975
Net income 489,001 489,001
---------- -------- ----------- --------- --------- ---------- --------- ----------
Balance at December 31, 1999 12,670,746 $ 126,708 $ 3,976,947 (529,187) $ (317,512) $ - $ 490,802 $ 4,276,945
========== ========= =========== ========= ========== ========== ========== ==========
</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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 489,001 $ (1,460,334)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 647,203 588,184
Impairment loss 50,000 311,656
Deferred revenue 13,641 (1,401)
Deferred income taxes 148,978 (698,931)
Reserve for bad debt 354,769 957,494
Reserve for inventory 15,000 150,000
(Gain) Loss on sale of property and equipment (2,129) 1,008
Minority interest (222) -
Changes in assets and liabilities:
Accounts receivable, net (106,870) (2,524,864)
Accounts receivable, net - long-term portion (269,254) (960,452)
Inventories (58,718) (300,947)
Prepaid income taxes - 14,410
Prepaid expenses (263,130) 19,337
Employee advances 65,169 82,832
Accounts payable (215,913) 442,485
Accrued payroll and related expenses (83,758) 36,743
Accrued commissions and bonus (334,741) 40,992
Accrued contractor fees (98,311) (82,502)
Customer deposits 144,650 101,337
Income taxes payable (17,784) 31,708
Other accrued expenses (197,787) 450,899
Deferred revenue 92,770 _
----------- -----------
Total adjustments (116,437) (1,340,012)
----------- -----------
Net cash provided by (used in) operating activities 372,564 (2,800,346)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (143,233) (446,981)
Proceeds from sale of property and equipment 8,755 7,656
Purchase acquisitions, net of cash acquired
of $6,226 (1999)and $0 (1998) (117,284) (10,000)
Decrease (Increase) in other assets 27,848 (62,657)
Proceeds from stockholders' receivables - 73,105
----------- -----------
Net cash (used in) investing activities (223,914) (438,877)
----------- -----------
Cash flows from financing activities:
Financing fees paid in connection with debt financing - (167,084)
Payments on long-term debt (812,446) (3,395,026)
Proceeds from issuance of long-term debt - 6,591,179
Net borrowings (payments) under line of credit 837,805 (340,833)
Cash overdraft (193,984) 453,208
Proceeds from exercise of stock options 19,975 _
----------- -----------
Net cash (used in) provided by financing activities (148,650) 3,141,444
----------- -----------
Net decrease in cash - (97,779)
Cash at beginning of period - 97,779
----------- -----------
Cash at end of period $ - $ -
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 646,746 $ 528,795
=========== ===========
Cash paid for income taxes $ 100,798 $ 66,797
=========== ===========
Non-cash investing and financing activities:
Common stock issued for purchase acquisitions $ - $ 420,000
=========== ===========
Notes issued for purchase acquisitions $ - $ 20,000
=========== ===========
</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
1. Principles of Consolidation and Nature of Business:
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. On February 11, 1999, the Company formed a subsidiary,
NetVision.Com Inc. to acquire local internet service providers primarily in
the BellSouth region.
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiary, Teleco Acquisition, and its 90%
owned subsidiary, NetVision.Com Inc. All significant intercompany accounts
and transactions have been eliminated.
Nature of Business: The Company is an authorized distributor for Ameritech
and BellSouth and is a full-service provider of telecommunication services
and equipment and provides internet services in the BellSouth region.
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, providing
quality, price and selection of equipment and services.
2. Summary of Significant Accounting Policies:
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles in the United States 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 6), approximate fair value.
F-6
<PAGE>
2. 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 52% and
42% of the Company's revenues for 1999 and 1998, respectively. At December
31, 1999 and 1998, the outstanding accounts receivable balance due from
Ameritech was $8,332,814 and $7,211,327, respectively. The Company may
establish an allowance for possible losses based upon factors surrounding
the credit and historical information. At December 31, 1999 and 1998, the
Company recorded an allowance for doubtful accounts of approximately
$550,000 and $906,000, 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: Intangible and other assets consist of
goodwill, customer lists, capitalized software costs, and loan acquisition
costs and are being amortized over their estimated useful lives.
Goodwill is the excess of cost over fair value assigned to identifiable
tangible and intangible net assets acquired.
F-7
<PAGE>
2. 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 basis 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 1998 consolidated financial
statements of the Company have been reclassified to conform to the current
year's presentation.
Advertising costs: In accordance with Statement of Position 93-7,
"Reporting On Advertising Costs," advertising costs are expensed as
incurred.
F-8
<PAGE>
3. Acquisitions:
On November 15, 1999, the Company's subsidiary NetVision.Com Inc. acquired
Aye-Net, L.L.C. ("Aye-Net"). Under the terms of the agreement, the Company
issued 222,318 shares of NetVision.Com Inc.'s common stock valued at $222,
paid $123,510 in cash, and assumed approximately $701,439 of Aye-Net's
liabilities in exchange for all of the outstanding common stock of Aye-Net.
The net purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets $ 26,312
Property and equipment 365,836
Goodwill 433,023
Liabilities assumed (701,439)
---------
Net purchase price 123,732
Less:Common stock in NetVision 222
---------
Cash paid for acquisition $ 123,510
=========
</TABLE>
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, paid August 1998, and assumed approximately
$370,480 of Division-Tel's liabilities in exchange for all of the
outstanding common stock of Division-Tel.
The net purchase price was allocated as follows:
<TABLE>
<S> <C>
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
=========
</TABLE>
F-9
<PAGE>
4. Property and Equipment:
Property and equipment at December 31, 1999 and 1998, consists of the
following:
<TABLE>
<CAPTION>
Useful Lives 1999 1998
-------------- ------------- -------------
<S> <C> <C> <C>
Office furniture and fixtures 5-7 years $ 647,121 $ 599,571
Transportation equipment 3-5 years 346,692 346,692
Leasehold improvements Life of Lease 73,999 59,699
Computer equipment 5 years 1,337,439 1,203,566
Cable plant 7 years 206,373 206,373
Leased equipment 3-4 years 306,608 -
------------- -------------
2,918,232 2,415,901
Less accumulated depreciation 1,251,825 806,027
------------- -------------
$ 1,666,407 $ 1,609,874
============= =============
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998,
amounted to $445,910 and $390,608, respectively.
5. Intangible Assets:
Intangibles and other assets at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
Useful Lives 1999 1998
-------------- ------------- -------------
<S> <C> <C> <C>
Goodwill 10-30 years $ 4,109,890 $ 3,676,867
Customer lists 15 years 99,482 99,482
Loan acquisition costs 5 years 139,236 167,084
Software development costs 3-5 years -- 50,000
------------- -------------
4,348,608 3,993,433
Less accumulated amortization 524,154 322,861
------------- -------------
$ 3,824,454 $ 3,670,572
============= =============
</TABLE>
Amortization expense for the years ended December 31, 1999 and 1998,
amounted to $201,293 and $187,776, respectively.
In the fourth quarter of fiscal 1999 and 1998, the Company recorded a
non-cash impairment loss of $50,000 and $311,656 related to capitalized
software. In 1999 and 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-10
<PAGE>
6. Debt:
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Note payable to a financial institution, collateralized by a blanket filing
on corporate assets. Interest accrues at 2.4% over the 30-Day Commercial
Paper Rate (8.0% and 7.5% effective rate at December 31, 1999 and 1998,
respectively). The note required interest only payments for three months
with principal and interest payable thereafter in 60 monthly installments.
Monthly principal payments of $64,776 commenced March 1, 1999 with
a balloon payment due on February 1, 2004 of $1,554,619. $4,728,644 $5,441,179
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
Capitalized lease obligations payable in monthly installments ranging from
$262 to $5,401 (including interest ranging from 4.8% to 29.8%) through
November 2003, collateralized by equipment. 345,408 -
Vehicle and equipment loans and other long-term obligations payable in
monthly installments ranging from $348 to $6,143 (including interest
ranging from 1.9% to 9.5%) through November 2002, collateralized by
vehicles and equipment with a net book value of $87,577 and $132,400 at
December 31, 1999 and 1998, respectively.
288,102 158,925
---------- ----------
Total long-term debt 6,562,154 6,800,104
Less current portion 1,038,611 733,389
---------- ----------
$5,523,543 $6,066,715
========== ==========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
2000 $ 1,038,611
2001 1,001,964
2002 2,101,218
2003 800,963
2004 and thereafter 1,619,398
-----------
$ 6,562,154
===========
</TABLE>
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, 1999 and 1998, the fair value of the long-term
debt approximates the amount recorded in the consolidated financial
statements.
F-11
<PAGE>
6. Debt, continued:
The Company has a line of credit with Merrill Lynch for an amount up to
$4,000,000, of which $1,868,182 and $1,030,377 was outstanding at December
31, 1999 and 1998, respectively. Interest is due monthly at an annualized
rate of 2.4% above the 30-day commercial paper rate (8.0% and 7.5%
effective rate as of December 31, 1999 and 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 had a $3,800,000 revolving credit line to be used
exclusively for specific planned acquisitions 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 expired on September 30, 1999 and was not
utilized. At December 31, 1998, the outstanding balance on the revolver was
zero.
As of December 31, 1999, the Company was not in compliance with the
established loan covenants for the facilities provided by Merrill Lynch
Business Financial Services. The two covenants involve Minimum Net Cash
Flow and Total Liabilities to EBITDA. These covenants were set based upon
the use of the revolving credit line of $3,800,000 to complete three
acquisitions. Merrill Lynch waived these covenants for the period ending
December 31, 1999.
7. Income Taxes:
The provision for income tax expense (benefit) consists of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal $ - $ -
State and local 91,014 112,546
Deferred - federal 124,852 (608,036)
Deferred - state and local 24,126 (90,895)
--------- ---------
Provision for income tax expense (benefit) $ 239,992 $(586,385)
========= =========
</TABLE>
The following is a reconciliation of income taxes computed at the federal
statutory rate with income taxes recorded by the Company at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Statutory federal income tax rate 34.0% (34.0)%
State and local taxes
(net of federal tax effect) 9.6 4.3
Non-deductible items 1.7 1.0
Other (12.4) -
------ ------
Effective income tax rate 32.9% (28.7)%
====== ======
</TABLE>
F-12
<PAGE>
7. Income Taxes, continued:
The tax effect of the temporary differences which comprise the deferred tax
assets and liabilities at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued bonuses $ - $ 72,753
Allowance for doubtful accounts 212,300 349,870
Net operating loss 1,759,401 1,234,576
Other 148,511 209,045
---------- ----------
2,120,212 1,866,244
Deferred tax liabilities:
Deferred accounts receivable 2,555,693 2,212,509
Fixed assets 147,117 129,196
Other 116,683 74,842
---------- ----------
2,819,493 2,416,547
---------- ----------
Net deferred tax liabilities $ 699,281 $ 550,303
========== ==========
</TABLE>
8. 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-13
<PAGE>
8. Stockholders' Equity Data, continued:
Reconciliation of Numerators and Denominators of the Basic
and Diluted EPS Computations
<TABLE>
<CAPTION>
For the year ended December 31, 1999
------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ----------- ------
<S> <C> <C> <C>
Net income $ 489,001 - -
Basic EPS:
Income available to common stockholders;
weighted average common stock
outstanding 489,001 12,126,901 $0.04
----------- ----------- ------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 489,001 12,208,870 $0.04
=========== =========== ======
</TABLE>
<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>
F-14
<PAGE>
9. 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.
The 1997 Stock Option and Award Plan provides for 2,000,000 shares to be
used for the grant of non-qualified options. The options are generally
granted at fair market value and expire after ten years or within a short
time after the termination of employment with the Company. The vesting
schedule varies from grant to grant.
The following is a summary of the activity in the Company's stock option
plans during fiscal 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Shares Averaged
------------------------- Exercise
Shares Exercisable Price
----------- ----------- ------
<S> <C> <C> <C>
Outstanding at January 1, 1998 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
Granted 330,000 205,000 0.66
Exercised (20,000) (20,000) 0.55
Expired (700,000) (525,000) 3.37
----------- ----------- -----
Outstanding at December 31, 1999 835,000 525,000 $ 0.79
=========== =========== =====
</TABLE>
At December 31, 1999 and 1998 the Company had 1,390,000 and 1,335,000
shares, respectively, available for grant.
In April 1998, Telecomm granted 300,000 options to purchase shares of
common stock for prices ranging from $3.00 to $10.00 to David Gruber in
consideration for the surrender of previously granted options for
consulting services (the "Options"). The options expired on April 30, 1999.
F-15
<PAGE>
9. Stock-Based Compensation Plans, continued:
At December 31, 1999, there were options outstanding under the Company's
stock option plans to purchase 835,000 shares of common stock, of which all
are currently exercisable at $.50 to $1.18 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 1999 and 1998: (1) Average dividend yield of 0%, (2)
expected volatility of 110% and 120% was used for grants in 1999 and 1998,
respectively, and (3) expected life of 5 years. A risk-free interest rate
of 6.13% and 5.00% was used for grants in 1999 and 1998, respectively.
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, 1999, as reported in the accompanying
consolidated financial statements, would have been decreased by $162,835
($0.01 per common share).
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).
10. 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, 1999, future minimum rental payments applicable to
non-cancelable operating leases were as follows:
<TABLE>
<S> <C>
2000 $ 577,779
2001 474,302
2002 376,872
2003 305,722
2004 and thereafter 308,563
----------
$2,043,238
==========
</TABLE>
Rent expense for all operating leases was $634,979 and $600,247 in 1999 and
1998, respectively.
F-16
<PAGE>
11. 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 called 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 allowed the Company to terminate
the existing lease by providing a twelve- month written notice. The Company
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. In June 1999,
the building was sold to an unrelated entity that assumed this lease. Rent
expense related to this lease amounted to $167,700 and $150,500 for the
years ended 1999 and 1998.
Additionally, the Company also assumed other vehicle leases as part of the
Unitel acquisition through an entity owned by a director/shareholder. The
vehicle lease agreements expired in June 1999. Rent expense related to
these leases amounted to $15,406 and $31,989 for the years ended 1999 and
1998.
At December 31, 1999, certain notes aggregating $1,200,000 were due to
related parties.
12. 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, 1999 and 1998, contributions
totaled $57,199 and $65,961, respectively.
13. 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-17
<PAGE>
14. 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 non-owner 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,
as amended is effective for fiscal years beginning after June 15, 2000.
In December 1999, the SEC issued Staff Accounting Bulletin Number ("SAB
No.") 101. "Revenue Recognition in Financial Statements," which provides
additional guidance in applying generally accepted accounting principles
for revenue recognition. The Company is currently evaluating the impact,
if any, that SAB No. 101 may have on its revenue recognition policies.
Although the Company has not yet determined whether SAB No. 101 will
require any changes in its revenue recognition practices, management
expects that any such changes would be accounted for prospectively as a
cumulative effect of a change in accounting policy as permitted by the
SAB No. 101. The SEC initially required any changes resulting from SAB
No. 101 to be reflected in the Company's first quarter 2000 financial
statements. However, on March 25, 2000, the SEC issued SAB No. 101A
which defers required implementation of any changes resulting from SAB
No. 101 until the Company's second quarter of 2000. Management does not
expect that any changes in its accounting policies as a result of SAB
No. 101 will have a material impact on its 2000 operating results and
management believes that any such change will have no impact on the
Company's previously reported financial position, results of operations
or cash flows.
15. Subsequent Events
On January 3, 2000, the Company issued the option to purchase one hundred
thousand shares of Company common stock to David L. Gruber at the exercise
price of $1.00 per share. These options were not issued through the 1997
Stock Option and Award Plan, but instead through a separate Stock Option
Agreement. The Options vested immediately and expire ten years from the
date of issue.
On January 28, 2000, NetVision acquired Global Marketing Concepts, Inc.
("Global"). Global's focus is primarily on business to business web
design and development in and around the greater Louisville, Kentucky
metropolitan area. The acquisition sought to enhance the profitability
of the subsidiary and to further focus on business to business
applications.
16. 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 write-off.
F-18
<PAGE>
Telecomm Industries Corp.
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Allowance for doubtful accounts:
Balance, beginning of year $ 906,000 $ 145,000
Additions 354,769 957,494
Write-offs, net of recoveries (710,769) (196,494)
--------- ---------
Balance, end of year $ 550,000 $ 906,000
========= =========
Inventory valuation allowance:
Balance, beginning of year $ 150,000 $ --
Additions 15,000 150,000
Write-offs -- --
--------- ---------
Balance, end of year $ 165,000 $ 150,000
========= =========
</TABLE>
F-19
<PAGE>
EXHIBIT 10.9
MERGER AGREEMENT
THIS MERGER AGREEMENT is made this _______________________, at
Indianapolis, Indiana by and among Aye-Net, L.L.C., an Indiana limited liability
company, (hereinafter referred to as "Private Entity"), J. Cleve Gatchel and
Eric A. Paul, individuals and controlling members of Private Entity (hereinafter
referred to as "Members"), and NetVision.com, Inc., a Delaware corporation
(hereinafter referred to as "NetVision ").
RECITALS
A. Private Entity is an Indiana limited liability company, and
presently owns and operates an Internet Service Provider ("ISP")
business, operated from the locations, identified on SCHEDULE
3.3.5
B. Both NetVision, through it's Board of Directors, and Private
Entity, through its Members, J. Cleve Gatchel and Eric A. Paul,
believe this Merger to be in the best interests of their
respective business entities.
C. The entities shall merge together, with the new entity,
(hereinafter "Merged Companies") and shall become known as
NetVision.com, Inc. Private Entity shall cease to exist as a
separate legal entity, but shall continue to exist as a part of
the surviving entity.
D. The parties intend for the transactions contemplated by this
Agreement to be accounted for as a pooling of interests in
accordance with GAAP and that said transactions shall not be
deemed a taxable event as defined by the Internal Revenue
Service.
E. As promptly as practicable after the satisfaction or waiver of
the conditions set forth in Section 8 hereof and the consummation
of the Closing referred to in Section 9 hereof, the Parties shall
cause the Merger to be consummated by filing a Certificate of
Merger with the Secretary of State in accordance with, the
relevant provisions of Delaware Law (the time of such filing
being the "Effective Time").
F. Unless otherwise agreed by NetVision and Private Entity the
Certificate of Incorporation of NetVision as the Surviving
Corporation shall be the Certificate of Incorporation of
NetVision as in effect immediately prior to the Effective Time,
until thereafter amended as provided by law and such Certificate
of Incorporation.
G. Unless otherwise agreed by NetVision and Private Entity the
By-Laws of NetVision as the Surviving Corporation shall be the
By-Laws of NetVision immediately prior to the Effective Time,
until thereafter amended as provided by law and Certificate of
Incorporation and the By-Laws of Such Surviving Corporation.
H. Unless otherwise agreed by NetVision and Private Entity the
directors and officers of NetVision immediately prior to the
Effective Time shall continue to serve in their respective
offices of the Surviving Corporation from and after the Effective
Time, in each case until their resignation or removal. If, at the
Effective Time, a vacancy shall exist on the Board of Directors
or in any office of the Surviving Corporation, such vacancy may
thereafter be filled in the manner provided by law and the
By-Laws of the Surviving Corporation.
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 Agreement - means this Merger Agreement together with the
Attachments.
1.2 Attachments - means the Schedules and Exhibits referred to
herein and attached hereto.
1
<PAGE>
1.3 Authorization - means any Government consent, license, permit,
grant or other governmental authorization.
1.4 Balance Sheet - means the most recent Balance Sheet available
for Private Entity, a copy of which is attached hereto and
marked SCHEDULE 1.4.
1.5 Closing - means the Closing of the Transaction as described in
Section 9 of this Agreement.
1.6 Closing Date - means the date and time as set forth in Section
9, 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.
1.7 Contract - means any voluntarily entered written or oral
agreement or commitment that is legally binding on any person
or entity under applicable law.
1.8 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.
1.9 Cumulative Diminutive Errors - Means the combined total of all
diminutive errors made within this agreement.
1.10 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)
1.11 Effective Date - means the date first above written unless
otherwise agreed to in writing by the Parties.
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 Financial Statements - means the Balance Sheet, as defined in
Section 1.4, the Statement of Income and Expenses, as defined
in Section 1.19, and Cash Flow Statements, when referred to
collectively.
1.14 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.
1.15 Merged Assets - means the assets to be merged and transferred
by Private Entity to NetVision in accordance with this
Agreement as more specifically described in Section 3.3
1.16 Parties - means NetVision.Com, Inc., Private Entity, and
Principal Members.
1.17 Private Entity - means Aye.Net, L.L.C., an Indiana Limited
Liability Company.
1.18 Private Entity '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
Private Entity, and the name Private Entity, or any derivative
thereof.
1.19 Statement of Income and Expenses - means the most recent
Statement of Income and Expenses available for Private Entity,
a copy of which is attached hereto and marked SCHEDULE 1.19.
1.20 NetVision - means NetVision .com, Inc., a Delaware
Corporation.
1.21 Transaction - means the transaction contemplated by the
Agreement, and the related Attachments.
1.22 Year-End Balance Sheets - means the Balance Sheet for the year
ended December 31, 1998.
1.23 Year-End Statements of Income and Expenses - means the
Statements of Income and Expenses of Private Entity for the
year ended December 31, 1998.
1.24 Year-End Financial Statements - means the Year-End Balance
Sheets, and the Year-End Statement of Income and Expenses.
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
Delaware and
2
<PAGE>
Indiana law. Upon execution of this Agreement, NetVision and
Private Entity 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 such
States, any other State required, in order to effectuate the
transactions contemplated by this Agreement.
2.2 General. Private Entity shall be merged with and into
NetVision effective as of the date of closing as set forth
below and the separate corporate existence of Private Entity
shall thereupon cease. The Articles of Incorporation and Code
of Regulations of NetVision 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 in Section 3.
2.3 Conversion of Private Entity Shares. The Private Entity Shares
shall be exchanged with NetVision Shares as a result of the
Merger of the two entities. NetVision shall deliver to each
Member at the Closing and/or within a reasonable time
thereafter, a share certificate evidencing ownership of
NetVision Shares, as set forth in the table below, upon
surrender to NetVision of the share certificate or
certificates representing such Member's ownership of Private
Entity Shares duly endorsed for transfer or accompanied by
properly executed stock powers.
2.4 Employee Stock Ownership Plans. For all purposes of this
Agreement, unless otherwise specified, all shares held by
employee stock ownership plans of Private Entity shall be
deemed to be issued and outstanding, shall not be deemed to be
held in the treasury of Private Entity and shall be converted
into shares of NetVision Common Stock in accordance with this
Agreement.
SECTION 3 - SPECIFIC TERMS OF MERGER
3.1 Merger Consideration by NetVision. To effectuate this Merger,
NetVision will transfer to the Members of Private Entity the
following Consideration, to be divided by and between the
Members of Private entity as they agree. The total Merger
consideration shall be paid in cash and stock, with ten
percent (10%) of the consideration transferred in cash, and
ninety percent (90%) in stock. The specific amounts are:
3.1.1 Two hundred twenty two thousand three hundred and
eighteen (222,318) shares of NetVision common stock
as evidenced by the issuance of a stock certificate
for said number of shares. Each share is valued at
$5.00 for the purpose of this valuation. Said stock
certificate shall be tendered at the Closing, as set
forth in the Conditions Precedent set forth below in
Section 8.
3.1.2 One hundred twenty three thousand five hundred and
ten dollars ($123,510). Said amount shall be
transferred via certified check and tendered at the
Closing, as set forth in the Conditions Precedent set
forth below in Section 8.
3.1.3 Assumption of Liabilities. The assumption of Private
Entity 's liabilities as described in SECTION 4, as
approved by NetVision and as set forth in SCHEDULE
4.2 AND 4.3. The liabilities as set forth in those
schedules (hereinafter "Liability Schedules") shall
be assumed by NetVision and paid in the normal course
of business.
3.1.4 True-up Amount. An additional amount paid in stock
and cash via certified check and stock certificate
tendered at the closing, in an amount equal to four
hundred dollars ($400) for each bona-fide Private
Entity internet subscriber in excess of the minimum
number of subscribers set forth in Section 8,
specifically 2,300, as verified by the auditors
during the due diligence process, and as measured on
a date no less than 30 days prior to close as
determined in Section 9. Said amount shall increase
the total Merger Consideration and shall be paid at
the rate ten percent (10%) cash and ninety percent
(90%) stock.
3.2 Transfer of Stock by Private Entity. To effectuate this
Merger, the Members of Private Entity
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shall cause the transfer of all Private Entity shares to
NetVision. The Share certificate or certificates representing
such Member's ownership of Private Entity Shares shall be duly
endorsed for transfer or accompanied by properly executed stock
powers.
3.3 Transfer of Assets by Private Entity. Included in the transfer of
all Shares of Stock to NetVision, Private Entity shall turn over,
surrender, and transfer, any and all assets currently held by
Private Entity. This specification of assets in no way affects
the validity of the Merger Agreement, nor does it limit the
transfer of all assets of Private Entity in any way, nor does it
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 Private
Entity, whether specifically set forth below or not. This
agreement does not contemplate the transfer of any personal
assets of Member, as set forth on SCHEDULE 3.3. Any assets used
in the business, not specified on SCHEDULE 3.3, shall be
transferred to NetVision herewith.
3.3.1 All of the Accounts Receivable of Private Entity , as
of the Closing Date;
3.3.2 All inventory of Private Entity;
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 Private Entity; all other
fixed assets owned by Private Entity and used in
connection with the conduct of Private Entity 's
business; all right, title and interest in and to all
of Private Entity 's Contracts, including but not
limited to all Private Entity's rights to any
leasehold interest or improvements. SCHEDULE 3.3.5
sets forth without limitation the real property owned
by or used in the course of Private Entity's
business.
3.3.6 Any and all of the Customers of Private Entity, as
reflected by SCHEDULE 3.3.6. 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 current, past and prospective
customers or clients of Private Entity.
3.3.7 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 Private
Entity 's Business, and all documents, papers and
records pertaining to employees, customers and
vendors in connection with Private Entity 's
Business, including accounts receivable and trade
payable records; provided, however, that Private
Entity may retain all corporate records and minute
books, all original books of account and accounting
data maintained by Private Entity for financial
reporting and tax reporting purpose;
3.3.8 All Intellectual Property of Private Entity used in
connection with Private Entity's business, and
including all rights Private Entity has to its
know-how, trade secrets, processes, technology,
discoveries, patented or 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 therefore any where in
the world;
3.3.9 All assignable authorizations relating to or utilized
in connection with Private Entity's Business,
including without limitation, stationery and other
office supplies;
3.3.10 All Private Entity's interest in and to all
telephone, fax and telex numbers, post office
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box numbers and all listings pertaining to Private
Entity'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 3.3.10;
3.3.11 Rights in, to and under third-party manufacturers'
warranties;
3.3.12 Claims as to which Private Entity is a judgment
creditor;
3.3.13 The goodwill and going concern of value of Private
Entity's Business;
3.3.14 All cash, bank deposits, and marketable securities.
3.3.15 The name "Aye-Net, L.L.C.", or any derivative
thereof, including but not limited to Aye-Net or
Aye.Net.
3.3.16 Any and all Internet registered web sites, Internet
addresses, domain names, e-mail registrations,
web-site registrations, or any other internet related
registration or technology asset used in the
business, including but not limited to any such items
registered with Internic, in which Private Entity
holds any proprietary or leasehold interest.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
4.1 Representations of Each Member. Each Member represents and
warrants to NetVision as follows:
4.1.1 Title. Each Member 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 Private Entity Shares shown below.
The Private Entity Shares are owned in the following
numbers and percentages by the below listed Members,
and collectively constitute all of the Private Entity
Shares owned by such Member.
<TABLE>
<CAPTION>
Member Number of Shares Owned Percent of Ownership
<S> <C> <C>
J. Cleve Gatchel
Eric Paul
</TABLE>
4.1.2 Authority. Such Member has the full legal right,
power and authority to enter into, execute and
deliver this Agreement and to perform such Member's
obligations hereunder.
4.1.3 This Agreement has been duly executed and delivered
by such Member and is the valid and binding
obligation of such Member enforceable in accordance
with its terms.
4.1.4 The execution and delivery of this Agreement and the
consummation by such Member of the transactions
contemplated by this Agreement will not:
4.1.4.1 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
4.1.4.2 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 Member 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 Member is a party.
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4.2 Private Entity Liabilities. SCHEDULE 4.2 sets forth those
certain liabilities, which NetVision 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 Private Entity to its
past and present Members, 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 Private Entity not incurred in the
Normal Course of Business. The payment of the SCHEDULE 4.2
liabilities will become the obligation of NetVision from and
after the Merger Date and shall be paid in the ordinary course
of business.
4.3 Private Entity Liabilities incurred in the normal course of
business. SCHEDULE 4.3 will set forth as of the Merger Date
those other obligations of Private Entity 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, Private Entity shall
indicate the estimated amount due and owing. The payment of
the SCHEDULE 4.3 liabilities will become the obligation of
NetVision from and after the Merger Date and shall be paid in
the ordinary course of business.
4.4 NetVision Review and Acceptance. The closing of this
transaction is contingent upon NetVision's review and
acceptance of the liabilities set forth in SCHEDULES 4.2 and
4.3, (collectively "the Liability Schedules") provided
however, that NetVision's acceptance of said Schedules shall
not in any manner modify, limit, or invalidate the
representations and warranties of Private Entity and the
Member 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
NetVision, or any other party, including, but not limited to,
Private Entity or Member, 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 Private
Entity and the Member with respect to the Liability Schedules.
4.5 Tax Payments and Returns. Such Member and Private Entity 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 Member or Private Entity, by
federal, state, local or foreign taxing authorities, except as
where indicated on SCHEDULE 4.5. Said Member has no actual
knowledge, nor any reason to know, that any taxing authority
has audited any portion of such Member or Private Entity '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 Members.
4.6 Restricted Shares. Such Member acknowledges, understands and
agrees
4.6.3 The NetVision Shares set forth as consideration in
Section 3 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 NetVision 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.
4.6.4 The NetVision Shares being acquired by such Member
under this Agreement, are being acquired for such
Member'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 NetVision Shares.
4.6.5 Such Member does not have any right to compel
NetVision to register the NetVision Shares under the
Securities Act or any state securities law and such
Member acknowledges that NetVision has no present
intention of registering the NetVision shares, unless
as specified in a Registration Rights Agreement, and
then only to the extent contained therein, and in the
form attached hereto.
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4.6.6 Such Member 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 NetVision Shares and of making an
informed investment decision.
4.6.7 Such Member is aware of the tax consequences of
owning NetVision Shares and of this transaction in
general.
4.6.8 The certificates evidencing the NetVision 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. THESE
SHARES ARE RESTRICTED PURSUANT TO A MERGER AGREEMENT
EXECUTED ON OR ABOUT OCTOBER 25TH, 1999. FURTHER, THE
CORPORATION IS UNDER NO OBLIGATION TO REGISTER THE
SHARES UNDER THE STATE ACTS OR THE SECURITIES ACT.
SECTION 5 - JOINT AND SEVERAL REPRESENTATIONS OF THE MEMBER AND PRIVATE ENTITY
Each Member and Private Entity, jointly and severally,
represents and warrants to NetVision as follows:
5.1 Organization and Qualification; Capitalization. Private Entity
is an Indiana corporation duly organized, validly existing and
in good standing under the laws of the State of Indiana.
Private Entity has the full corporate power to carry on its
business as is now being conducted.
5.2 The authorized capital stock and the number of shares of
capital stock issued and outstanding for Private Entity is as
follows:
Authorized Capital Stock ______________.
Issued Shares __________________.
Outstanding Shares _________________.
5.3 Authority. Private Entity has the full legal right, power, and
authority to enter into, execute and deliver this Agreement
and to perform fully its obligations hereunder.
5.4 This Agreement has been duly executed and delivered by Private
Entity and is the valid and binding obligation of Private
Entity enforceable against Private Entity in accordance with
its terms.
5.5 The Board of Directors of Private Entity and the Members have
approved, and no other corporate proceedings are necessary to
authorize, this Agreement and the consummation of the
transactions contemplated by this Agreement.
5.6 The execution and delivery of this Agreement and the
consummation by Private Entity of the transactions
contemplated hereby will not:
5.6.1 conflict with, result in a breach of, or constitute
or result in a default under any of the terms,
conditions or provisions of the Articles of
Incorporation (or Certificate of Incorporation), Code
of Regulations (or by-laws) or other governing
instruments of Private Entity;
5.6.2 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
5.6.3 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 of, any
7
<PAGE>
statute, regulation, order, judgment or decree
applicable to Private Entity or any instrument,
contract or other agreement to which Private Entity
is a party or to which Private Entity is bound or
subject, including without limitation the contracts
identified in Sections 5.10 and 5.26 below.
5.7 Financial Statements/Dividends/Distributions. The balance
sheets of Private Entity as defined in Section 1.4, and
evidenced by SCHEDULE 1.4, and the related statements of
income and expenses as defined by Section 1.19, and evidenced
by SCHEDULE 1.19, previously delivered to NetVision
(Collectively the "Financial Statements") fairly, accurately
and completely represent the financial position of Private
Entity on the date of execution of this document, and the
results of operations and cash flows for Private Entity for
the years then ended.
5.8 No dividends or other distributions have been made by Private
Entity to their respective Members since January 1, 1999,
except for salaries and commissions in the ordinary course of
business, or as set forth in SCHEDULE 5.8.
5.9 Ownership of Operating Assets. Private Entity 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
5.9
5.10 Contracts and Leases. SCHEDULE 5.10 sets forth the contracts
and leases (including office lease) material to the operation
of Private Entity and which have been previously delivered to
NetVision, are valid, binding upon the parties thereto, in
full force and effect and, except as indicated below, have not
been amended or modified. Private Entity and Members will
cooperate in having the contracts and leases set forth on
SCHEDULE 5.10 assigned to NetVision if requested by NetVision.
Private Entity and NetVision acknowledge that a separate
Agreement reflecting the assignment of the Contracts and
Leases is not required as a result of the merger of Private
Entity into NetVision.
5.11 Intellectual Property Rights. To the best of the Member's
knowledge Private Entity 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 not conflict with, infringe on, or
otherwise violate any rights of others.
5.12 Member Benefits. The Member benefits programs set forth in
SCHEDULE 5.12 constitute the only Member benefit programs in
effect for Private Entity prior to the date of this Agreement.
5.13 Employee Benefit Programs. The Employee Benefit programs set
forth in SCHEDULE 5.13 constitute the only Employee benefit
programs in effect for Private Entity prior to the date of the
Agreement.
5.14 Insurance. Private Entity has in place and in full force and
effect, hazard and liability insurance policies with coverage
amounts and deductibles as set forth in SCHEDULE 5.14.
5.15 Insurance Coverage. The Member and Private Entity shall take
all action necessary to maintain, in the name and for the
benefit of NetVision, all insurance policies of Private
Entity.
5.16 Bank Accounts. The Members and Private Entity shall take all
action necessary to maintain the bank accounts, lock boxes and
other depositories of Private Entity, and shall cause them to
be identified under NetVision's Federal Tax Identification
Number.
5.17 Permits, Licenses and Compliance with Laws. For this Section,
Member and Private Entity represent and warrant that they have
no actual knowledge, nor any reason to know of any violations,
and to the best of their knowledge:
8
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5.17.1 Private Entity maintains in full force and effect,
all permits, licenses and approvals from federal,
state, local and foreign governmental and regulatory
bodies required in order to carry on its business.
5.17.2 Private Entity 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.
5.17.3 Neither Private Entity nor any officer, director or
agent of Private Entity has been convicted of,
charged with, or to the knowledge of Private Entity
or the Members, 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.
5.18 Litigation. Except as set forth in SCHEDULE 5.18, (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 Members or Private Entity threatened, or
anticipated, including actions known, or actions that Member
or Private Entity have reason to know, against Private Entity,
or any of their respective officers, directors or agents.
5.19 Tax Payments and Returns. Private Entity has delivered to
NetVision true and complete copies of its federal, state and
local income tax returns for its tax year ended December 31,
1998. Private Entity 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 Member's knowledge, no taxing authority has audited
any portion or a tax return relating to any Member or Private
Entity, and there are no notices of audit, pending questions
relating to, or claims asserted for, taxes or assessments
received by or made against any Private Entity.
5.20 Company Documents and Minute Books; Officers and Directors.
The minutes of company proceedings, stock transfer records,
Articles of Organization (or Certificate of Organization) and
Code of Regulations (or by-laws) of Private Entity have been
delivered to NetVision and are correct and complete,
accurately reflect all actions and proceedings of the Members
and Board of Directors of Private Entity to date.
5.21 Brokers/Fees. Negotiations related to this Agreement and the
transactions contemplated hereby have been carried on by the
Members and Private Entity, and no brokerage or finders' fees
are payable by any Member or Private Entity to any other party
in connection with this Agreement or the transactions
contemplated hereby.
5.22 Adverse Changes. Since January 1, 1999, Private Entity 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.
5.23 Operations in the Ordinary Course. Since January 1, 1999,
Private Entity has been operated only in the normal and
ordinary course, and has not:
5.23.1 Issued or committed to issue any capital stock or
other ownership interest therein, other than shown on
SCHEDULE 5.24.1.
5.23.2 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;
5.23.3 entered into any material agreement to make capital
expenditures, except as noted on SCHEDULE 5.24.3;
5.23.4 entered into any agreement relating to the borrowing
of money or other contract for
9
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indebtedness, or the guarantee of any obligation for
the borrowing of money;
5.23.5 entered into any material real or personal property
lease except as noted on SCHEDULE 5.24.5; or
5.23.6 entered into, modified, or canceled any other
agreement, contract or commitment which is not
terminable at will.
5.24 Third Party Consents. The Members and Private Entity have
obtained and delivered to NetVision the consent or approval of
each third party whose consent or approval is required or
deemed necessary by NetVision for the consummation of the
transactions contemplated by this Agreement.
5.25 Transactions with Related Parties. Except for the employment
of the Members, and the proposed real estate lease with
Windsor Corporation, 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 Private Entity and
any Related Party. For purposes of this Section, the term
"Related Party" means (a) any Member, (b) the spouse, lineal
descendant or other family member of a Member, (c) any
corporation, partnership, trust, limited liability company, or
other entity controlled by, or under common control with a
Member, (d) any officer, director or Member of Private Entity,
and (e) any person who is a member, partner or Member in any
relationship or similar form of business association with any
person or entity referred to above.
5.26 Disclosure. To the best knowledge of the Members and to the
best knowledge of Private Entity, no representation or
warranty by the Members or Private Entity, or any document,
written statement or certificate furnished to NetVision
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.
5.27 Accuracy of Liability Schedules. The LIABILITY SCHEDULES
accurately reflect all obligations of Private Entity, which
were not incurred in the "ordinary course of business." For
purpose of this representation obligations owed by Private
Entity whether contingent, fixed, liquidated or unliquidated,
including but not limited to obligations owed to Member or
Member loans; pending or threatened litigation claims;
obligation to repurchase shares of stock form former Members
shall be considered obligations of Private Entity not incurred
in the "Ordinary course of business". The obligations and
amounts set forth on THE LIABILITY SCHEDULES are true and
correct.
5.28 Payment of Liability SCHEDULE Indebtedness. NetVision agrees
to assume any and all liabilities as listed on THE LIABILITY
SCHEDULES . Any liabilities not listed on said SCHEDULES shall
remain the sole and absolute responsibility of the Member, and
shall be paid by the Member within thirty (30) days after
NetVision is notified, or otherwise becomes aware, of any such
liability or claim
5.29 Diminutive Errors. Notwithstanding the above Representations
and Warranties, Private Entity and the Member shall bear no
liability for Diminutive errors, as defined in Section 1.22,
so long as the Cumulative Diminutive Errors shall not exceed
Two Thousand Dollars ($2,000).
5.30 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 - REPRESENTATIONS AND WARRANTIES OF NETVISION
6.1 Organization and Good Standing. NetVision 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.
NetVision has full corporate power to carry on its business as
it is now being conducted.
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6.2 Authority. NetVision 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 NetVision and is the valid and binding obligation
of NetVision, enforceable in accordance with its terms. The
execution and delivery of this agreement and the consummation
by NetVision of the transactions contemplated will not:
6.2.1 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
NetVision.
6.2.2 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.
6.2.3 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 NetVision, or any
instrument, contract or other agreement to which
NetVision is a party.
6.3 Brokers / Fees. Negotiations related to this agreement and the
transactions contemplated hereby have been carried on by
NetVision and no brokerage or finders' fees are payable by
NetVision to any other party in connection with this agreement
or the Transactions contemplated hereby.
6.4 Payment of Liability Schedule Indebtedness. NetVision agrees
to assume any and all liabilities as listed on the Liability
Schedules, or more specifically, SCHEDULES 4.2 AND 4.3. Any
liabilities not listed on said Schedules shall remain the sole
and absolute responsibility of the Member, and shall be paid
by the Member within thirty (30) days after NetVision is
notified, or otherwise becomes aware, of any such liability or
claim. With regard to any liability listed on said LIABILITY
SCHEDULES, where Member has personally guaranteed the same,
NetVision agrees to indemnify and hold harmless the Member to
the extent of the corporate debt.
6.5 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 7- MISCELLANEOUS
7.1 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.
7.2 Assignment. Without the consent of Private Entity, NetVision
may assign all or any part of this Agreement and all or any
part of its rights and obligations hereunder to an affiliate
of NetVision.
7.3 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.
7.4 Investigation Will Not Constitute A Waiver. No investigation,
or lack thereof, by NetVision, or any of its agents, will be
deemed to constitute or imply a waiver of any rights of
NetVision may have, including any right to indemnification as
the result of any material misrepresentation, or breach of
warranty, or covenant in favor of NetVision as otherwise
provided in this Agreement.
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7.5 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.
7.6 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.
7.7 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.
7.8 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, Private Entity
will perform all reasonable acts to cause any licenses or
permits issued to Private Entity to be assigned or transferred
to NetVision in order that NetVision may conduct Private
Entity 's Business subsequent to the Closing as herein
contemplated.
7.9 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.
7.10 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.
7.11 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.
7.12 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.
7.13 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.
7.14 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
12
<PAGE>
form that date. The addresses of the parties to this Agreement
are as shown herein below.
To Shareholder(s) See Schedule 7.14
To the Company: NetVision.com, Inc.
8450 Westfield Blvd., Suite 100
Indianapolis, IN 46240
Attn.: Mr. Paul Satterthwaite, CEO and
Chairman of the Board
Attn: Mr. Nicholas Bacon, General Counsel
7.15 Binding. This Agreement will bind and inure to the benefit of
the parties hereto, their respective assigns, and personal
representatives and successors.
7.16 Incorporation by Reference. All Exhibits Schedules and
documents attached hereto will be deemed to be incorporated
herein by reference as though fully set forth.
7.17 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.
7.18 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.
7.19 Non Competition Agreement. Attached hereto as EXHIBITs C, is
the Non-Competition and Confidentiality Agreement entered into
by the Parties contemporaneously with this Merger Agreement.
Said agreement is 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, and the Non-Compete and Confidentiality
Agreement.
7.20 Revocation of Previous Definitive Agreement. The Parties have
previously entered into a valid and enforceable form of this
Agreement. 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, executed previously by and among the
parties.
SECTION 8 - CONDITIONS PRECEDENT
8.1 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.
8.2 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, or waived in
writing by both Parties:
8.2.1 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
8.2.2 Transfer of Stock as set forth in Section 3.2
8.2.3 Transfer of Assets as set forth in Section 3.3 et
seq.
13
<PAGE>
8.2.4 Completion and delivery of all Schedules and Exhibits
as referenced in this agreement by both parties, and
acceptance of the same by both parties.
8.2.5 Successful completion of due diligence as performed
by auditors, attorneys or agents of NetVision,
including but not limited to verification by the
auditors that Private Entity has at least 2300
bona-fide subscribers.
8.2.6 Execution of the mutually acceptable Non-Competition
Agreement by both Parties.
8.2.7 Successful assignment of any and all material
contracts to which Private Entity is a party.
8.2.8 Closing shall be scheduled for a date prior, and
completed no later than, October 25th, 1999, unless
mutually agreed to, or waived, by both parties.
8.2.9 Should the Conditions Precedent not be satisfied as
set forth in this section 8, 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.
8.2.10 Preparation of appropriate Articles of Merger to be
filed with the Secretary of State in the States of
Delaware and Indiana, and good faith acceptance
thereof by and among all parties.
8.2.11 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.
8.2.12 Execution and Delivery of Certified Corporate
Resolutions authorizing this Merger transaction by
both parties.
8.2.13 Execution and Delivery of a Registration Rights
Agreement, or such other instrument as may be agreed
to by the Parties in lieu thereof, attached as
EXHIBIT F.
SECTION 9 - CLOSING
9.1 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.
9.2 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.
9.3 Closing Date and Time. The Closing shall take place on the
_______________________ at _________, 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.
9.4 Transfer of Business. Upon the successful Closing of this
transaction, NetVision and Private Entity shall become one
entity, and Private Entity 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 NetVision. 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.
IN WITNESS WHEREOF, the parties have signed this Agreement, consisting
of 15 pages. The intent of
14
<PAGE>
the Parties is to be legally bound thereby.
Signed in the Presence of the following, and on the date first indicated on this
agreement:
AYE.NET, INC (Private Entity)
By: _________________________
J. Cleve Gatchel, as President
_________________________
J. Cleve Gatchel, Individually
_________________________
Eric A. Paul, Individually
NETVISION .COM, INC. (NetVision)
By: _____________________________
Paul J. Satterthwaite, CEO and
Chairman of the Board
15
<PAGE>
EXHIBIT 10.10
MERGER AGREEMENT
THIS MERGER AGREEMENT is made this ___ day of _________, 1999, at
Indianapolis, Indiana by and among Global Marketing Concepts, Inc., a Kentucky
corporation, (hereinafter referred to as "Private Entity"), Jeremy N. Schell, E.
Allen Schuler, Stan Logan, Jr., James Lavelle, Jr., John Lavelle, Jonathan
Robertson, its shareholders, (hereinafter referred to as "Stockholders" or
"Shareholders"), and NetVision.com, Inc., a Delaware corporation (hereinafter
referred to as "NetVision").
RECITALS
A. Private Entity is a Kentucky corporation, and presently owns and
operates an Internet Service Provider ("ISP") business, operated from
the locations, identified on SCHEDULE 3.3.5
B. Both NetVision, through its Board of Directors, and Private Entity,
through its Shareholders, Jeremy N. Schell, E. Allen Schuler, Stan
Logan, Jr., James Lavelle, Jr., John Lavelle, Jonathan Robertson,
believe this Merger to be in the best interests of their respective
business entities.
C. The entities shall merge together, with NetVision surviving the Merger
as the new entity (hereinafter "Merged Companies") which shall be
known as NetVision.com, Inc. Private Entity shall cease to exist as a
separate legal entity, but shall continue to exist as a part of the
surviving entity.
D. The parties intend for the transactions contemplated by this Agreement
to be accounted for as a tax-free "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") for federal income tax purposes.
E. As promptly as practicable after the satisfaction or waiver of the
conditions set forth in Section 8 hereof and the consummation of the
Closing referred to in Section 9 hereof, the Parties shall cause the
Merger to be consummated by filing a Certificate of Merger with the
Delaware Secretary of State in accordance with the relevant provisions
of Delaware Law (the time of such filing being the "Effective Time")
and Articles of Merger with the Kentucky Secretary of State in
accordance with the relevant provisions of Kentucky law.
F. Unless otherwise agreed by NetVision and Private Entity the
Certificate of Incorporation of NetVision as the Surviving Corporation
shall be the Certificate of Incorporation of NetVision as in effect
immediately prior to the Effective Time, until thereafter amended as
provided by law and such Certificate of Incorporation.
G. Unless otherwise agreed by NetVision and Private Entity the By-Laws of
NetVision as the Surviving Corporation shall be the By-Laws of
NetVision immediately prior to the Effective Time, until thereafter
amended as provided by law and Certificate of Incorporation and the
By-Laws of Such Surviving Corporation.
H. Unless otherwise agreed by NetVision and Private Entity the directors
and officers of NetVision immediately prior to the Effective Time
shall continue to serve in their respective offices of the Surviving
Corporation from and after the Effective Time, in each case until
their resignation or removal. If, at the Effective Time, a vacancy
shall exist on the Board of Directors or in any office of the
Surviving Corporation, such vacancy may thereafter be filled in the
manner provided by law and the By-Laws of the Surviving Corporation.
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,
<PAGE>
unless a different and common meaning of the term is clearly indicated by the
context.
1.1 Agreement - means this Merger Agreement together with the
Attachments.
1.2 Attachments - means the Schedules and Exhibits referred to herein
and attached hereto.
1.3 Authorization - means any Government consent, license, permit,
grant or other governmental authorization.
1.4 Balance Sheet - means the most recent Balance Sheet available for
Private Entity, a copy of which is attached hereto and marked
SCHEDULE 1.4.
1.5 Closing - means the Closing of the Transaction as described in
Section 9 of this Agreement.
1.6 Closing Date - means the date and time as set forth in Section 9,
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.
1.7 Contract - means any voluntarily entered written or oral
agreement or commitment that is legally binding on any person or
entity under applicable law.
1.8 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.
1.9 Intentionally left blank.
1.10 Diminutive Error - Means any mistake, misrepresentation, failure
to disclose, or other error, which has a net dollar value of less
than Two Thousand Dollars. ($2000.00)
1.11 Effective Date - means the date first above written unless
otherwise agreed to in writing by the Parties.
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 Financial Statements - means the Balance Sheet, as defined in
Section 1.4, the Statement of Income and Expenses, as defined in
Section 1.19, and Cash Flow Statements, when referred to
collectively.
1.14 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.
1.15 Merged Assets - means the assets to be merged and transferred by
Private Entity to NetVision in accordance with this Agreement as
more specifically described in Section 3.3
1.16 Parties - means NetVision.Com, Inc., Private Entity, and
Stockholder.
1.17 Private Entity - means Global Marketing Concepts, Inc., a
Kentucky corporation.
1.18 Private Entity '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 Private Entity, and
the name Private Entity, or any derivative thereof.
1.19 Statement of Income and Expenses - means the most recent
Statement of Income and Expenses available for Private Entity, a
copy of which is attached hereto and marked SCHEDULE 1.19.
1.20 NetVision - means NetVision .com, Inc., a Delaware Corporation.
1.21 Transaction - means the transaction contemplated by the
Agreement, and the related Attachments.
1.22 Year-End Balance Sheets - means the Balance Sheet for the year
ended December 31, 1998.
1.23 Year-End Statements of Income and Expenses - means the Statements
of Income and Expenses of Private Entity for the year ended
December 31, 1998.
1.24 Year-End Financial Statements - means the Year-End Balance
Sheets, and the Year-End Statement of Income and Expenses.
2
<PAGE>
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 Delaware and
Kentucky law. Upon the closing of the transactions contemplated
by this Agreement, NetVision shall cause a Certificate of Merger
pursuant to this Agreement to be filed with the Secretary of
State of Delaware and Articles of Merger to be filed with the
Secretary of State of Kentucky, and shall cause to be filed such
certificates, documents or instruments as are required to be
filed in such States, any other State required, in order to
effectuate the transactions contemplated by this Agreement.
2.2 General. Private Entity shall be merged with and into NetVision
effective as of the Effective Time and the separate corporate
existence of Private Entity shall thereupon cease. The
Certificate of Incorporation and Bylaws of NetVision 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 in Section 3.
2.3 Conversion of Private Entity Shares. By operation of law and
without any further action on the part of NetVision, Private
Entity or the Stockholders, the Private Entity Shares shall be
converted into a number of NetVision Shares and an amount of cash
determined pursuant to Section 3.1 as a result of the Merger of
the two entities. NetVision shall deliver to each Stockholder at
the Closing and/or within a reasonable time thereafter, a share
certificate evidencing ownership of NetVision Shares, as set
forth in the table below, upon surrender to NetVision of the
share certificate or certificates representing such Stockholder's
ownership of Private Entity Shares duly endorsed for transfer or
accompanied by properly executed stock powers.
SECTION 3 - SPECIFIC TERMS OF MERGER
3.1 Merger Consideration by NetVision.
3.1.1 At the Effective Time, by virtue of the Merger and
without any action on the part of NetVision, Private
Entity or the Stockholders, the Private Entity Shares
shall be converted into an aggregate merger
consideration equal to six hundred fifty thousand
dollars ($650,000). Ten Percent (10%) of said merger
consideration, in an amount not less than sixty-five
thousand dollars ($65,000) shall be paid in cash at the
closing. Said amount shall be payable via certified
check(s), wire transfers or other means of immediately
available funds and tendered at the Closing, as set
forth in the Conditions Precedent set forth below in
Section 8. The remainder of the merger consideration
shall be paid in shares of NetVision common stock
pursuant to Section 3.1.2 herein.
3.1.2 The NetVision common stock shares are to be allocated to
the payment of the remainder of the merger consideration
at a rate of one (1) share of NetVision common stock per
Five Dollars ($5) of remaining purchase price (the
"Exchange Ratio"), for a total number of shares equal to
one hundred seventeen thousand (117,000) shares. The
shares of NetVision common stock are to be evidenced by
the issuance of stock certificates for said number of
shares. Said stock certificates shall be tendered at the
Closing, as set forth in the Conditions Precedent set
forth below in Section 8.
3.2 Transfer of Stock by Private Entity. To effectuate this Merger,
the Stockholders of Private Entity shall surrender all
outstanding Private Entity shares to NetVision. The Share
certificate or certificates representing such Stockholder's
ownership of Private Entity Shares shall be duly endorsed for
transfer or accompanied by properly executed stock powers.
3.3 Transfer of Assets by Private Entity. In connection with the
Merger and by operation of law, any and all assets currently held
by Private Entity shall be transferred, surrendered or otherwise
vested in NetVision. The following list of assets in no way
affects the validity of the Merger Agreement,
3
<PAGE>
nor does it limit the transfer of all assets of Private Entity in
any way, nor does it 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. The Merger contemplates the
transfer of all assets of Private Entity, whether specifically
set forth below or not. This agreement does not contemplate the
transfer of any personal assets of the Stockholders, as set forth
on SCHEDULE 3.3. Any assets used in the business, not specified
on SCHEDULE 3.3, shall be transferred to NetVision herewith.
3.3.1 All of the Accounts Receivable of Private Entity , as of
the Closing Date;
3.3.2 All inventory of Private Entity;
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 Private Entity; all other fixed
assets owned by Private Entity and used in connection with
the conduct of Private Entity 's business; all right, title
and interest in and to all of Private Entity 's Contracts,
including but not limited to all Private Entity's rights to
any leasehold interest or improvements. SCHEDULE 3.3.5 sets
forth without limitation the real property owned by or used
in the course of Private Entity's business.
3.3.6 Any and all of the Customers and Subscribers of Private
Entity, as reflected by SCHEDULE 3.3.6. 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
current, past and prospective customers or clients of
Private Entity.
3.3.7 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
Private Entity 's Business, and all documents, papers and
records pertaining to employees, customers and vendors in
connection with Private Entity 's Business, including
accounts receivable and trade payable records; provided,
however, that Private Entity may retain all corporate
records and minute books, all original books of account and
accounting data maintained by Private Entity for financial
reporting and tax reporting purpose;
3.3.8 All Intellectual Property of Private Entity used in
connection with Private Entity's business, and including
all rights Private Entity has to its know-how, trade
secrets, processes, technology, discoveries, patented or
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
therefore any where in the world;
3.3.9 All assignable authorizations relating to or utilized in
connection with Private Entity's Business, including
without limitation, stationery and other office supplies;
3.3.10 Any and all Private Entity's interest in and to all
telephone, fax and telex numbers, post office box numbers
and all listings pertaining to Private Entity'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 3.3.10;
3.3.11 Rights in, to and under third-party manufacturers'
warranties;
3.3.12 Claims as to which Private Entity is a judgment creditor;
4
<PAGE>
3.3.13 The goodwill and going concern of value of Private
Entity's Business;
3.3.14 All cash, bank deposits, and marketable securities.
3.3.15 The names Global Marketing Concepts, Inc.;
"thoseinternetguys.com"; The Legal Network, Inc.;
Louisville.net, Inc.; Internet Partners, Inc.;
KentuckyGolf.com; or any derivative thereof.
3.3.16 Any and all Internet registered web sites, Internet
addresses, domain names, e-mail registrations, web-site
registrations, or any other internet related license,
registration or technological asset used in the business,
including but not limited to any such items registered with
Internic, or the American Registry for Internet Numbers, in
which Private Entity holds any proprietary or leasehold
interest, including but not limited to the domain names
thoseinternetguys.com; The Legal Network, Inc.;
Louisville.net, Inc.; Internet Partners, Inc.;
KentuckyGolf.com, any derivative thereof, or any other name
used in connection with the ISP business contemplated
hereby.
SECTION 4. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
4.1 Representations of Each Stockholder. Each Stockholder severally
and not jointly represents and warrants to NetVision as follows:
4.1.1 Title. Each Stockholder 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
Private Entity Shares indicated next to his name below.
Such shares constitute all of the Private Entity Shares
owned by such Stockholder.
<TABLE>
<CAPTION>
NAME OUTSTANDING SHARES PERCENT OWNERSHIP
<S> <C> <C>
JEREMY SCHELL 221 46.23%
E. ALLEN SCHULER 221 46.23%
STAN LOGAN, JR. 10 2.09%
JAMES LAVELLE, JR. 10 2.09%
JOHN LAVELLE 10 2.09%
JONATHAN ROBERTSON 6 1.26%
478 100.00%
</TABLE>
4.1.2 Authority. Such Stockholder has the full legal right,
power and authority to enter into, execute and deliver
this Agreement and to perform such Stockholder's
obligations hereunder.
4.1.3 This Agreement has been duly executed and delivered by
such Stockholder and is the valid and binding obligation
of such Stockholder enforceable in accordance with its
terms.
4.1.4 The execution and delivery of this Agreement and the
consummation by such Stockholder of the transactions
contemplated by this Agreement will not:
4.1.4.1 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
5
<PAGE>
4.1.4.2 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 Stockholder 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 Stockholder is a party.
4.2 Intentionally left blank (Moved to Section 5.27)
4.3 Intentionally left blank (Moved to Section 5.28)
4.4 Intentionally left blank (Moved to Section 5.29)
4.5 Intentionally left blank (Moved to Section 5.30)
4.6 Restricted Shares. Such Stockholder acknowledges, understands and
agrees
4.6.1 The NetVision Shares set forth as consideration in
Section 3 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
NetVision 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.
4.6.2 The NetVision Shares being acquired by such Stockholder
under this Agreement, are being acquired for such
Stockholder'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 NetVision Shares.
4.6.3 Such Stockholder does not have any right to compel
NetVision to register the NetVision Shares under the
Securities Act or any state securities law and such
Stockholder acknowledges that NetVision has no present
intention of registering the NetVision shares, unless as
specified in a Registration Rights Agreement, and then
only to the extent contained therein, and in the form
attached hereto.
4.6.4 Such Stockholder 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 NetVision Shares and of making an
informed investment decision.
4.6.5 Such Stockholder has sought and received competent
professional accounting advice from a qualified
professional with regard to the tax consequences of
owning NetVision Shares and of this transaction in
general.
4.6.6 The certificates evidencing the NetVision 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.
SECTION 5 - JOINT AND SEVERAL REPRESENTATIONS OF SCHELL, SCHULER
AND PRIVATE ENTITY
Schell, Schuler and Private Entity, jointly and
severally, represent and warrant to NetVision as follows:
5.1 Organization and Qualification; Capitalization. Private Entity is
a Kentucky corporation duly organized and validly existing under
the laws of the Commonwealth of Kentucky. Private Entity has
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the full corporate power to carry on its business as is now being
conducted.
5.2 The authorized capital stock and the number of shares of capital
stock issued and outstanding for Private Entity is as follows:
AUTHORIZED CAPITAL STOCK: 1,000
ISSUED SHARES: 478
OUTSTANDING SHARES: 478
TREASURY SHARES: 0
5.3 Authority. Private Entity has the full legal right, power, and
authority to enter into, execute and deliver this Agreement and
to perform fully its obligations hereunder.
5.4 This Agreement has been duly executed and delivered by Private
Entity and is the valid and binding obligation of Private Entity
enforceable against Private Entity in accordance with its terms.
5.5 The Board of Directors of Private Entity and the Stockholders
have approved, and no other corporate proceedings are necessary
to authorize, this Agreement and the consummation of the
transactions contemplated by this Agreement.
5.6 The execution and delivery of this Agreement and the consummation
by Private Entity of the transactions contemplated hereby will
not:
5.6.1 conflict with, result in a breach of, or constitute or
result in a default under any of the terms, conditions
or provisions of the Articles of Incorporation or
by-laws or other governing instruments of Private Entity;
5.6.2 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
5.6.3 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 of, any statute, regulation, order, judgment
or decree applicable to Private Entity or any
instrument, contract or other agreement to which Private
Entity is a party or to which Private Entity is bound or
subject, including without limitation the contracts
identified in Sections 5.10 and 5.26 below.
5.7 Financial Statements/Dividends/Distributions. The balance sheets
of Private Entity as defined in SECTION 1.4, and evidenced by
SCHEDULE 1.4, and the related statements of income and expenses
as defined by Section 1.19, and evidenced by SCHEDULE 1.19
(Collectively the "Financial Statements") fairly, accurately and
completely represent the financial position of Private Entity on
the date of execution of this document in all material aspects,
and the results of operations and cash flows for Private Entity
for the years then ended.
5.8 No dividends or other distributions have been made by Private
Entity to the Stockholders since January 1, 1999 except for
salaries and commissions in the ordinary course of business, or
as set forth in SCHEDULE 5.8.
5.9 Ownership of Operating Assets. Private Entity 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 5.9
5.10 Contracts and Leases. SCHEDULE 5.10 sets forth the contracts and
leases (including office lease) material to the operation of
Private Entity and which have been previously delivered to
NetVision, are valid, binding upon the parties thereto, in full
force and effect and, except as indicated below, have not been
amended or modified. Private Entity will cooperate in having the
contracts and leases set forth
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on SCHEDULE 5.10 assigned to NetVision if requested by NetVision.
Private Entity and NetVision acknowledge that a separate
Agreement reflecting the assignment of the Contracts and Leases
is not required as a result of the merger of Private Entity into
NetVision.
5.11 Intellectual Property Rights. To the best of Schell's and
Schuler's knowledge Private Entity 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 not conflict with,
infringe on, or otherwise violate any rights of others.
5.12 Stockholders: Stockholder Benefits. The Stockholder benefits
programs set forth in SCHEDULE 5.12 constitute the only
Stockholder benefit programs in effect for Private Entity prior
to the date of this Agreement.
5.13 Employee Benefit Programs. The Employee Benefit programs set
forth in SCHEDULE 5.13 constitute the only Employee benefit
programs in effect for Private Entity prior to the date of the
Agreement.
5.14 Insurance. Private Entity has in place and in full force and
effect, hazard and liability insurance policies with coverage
amounts and deductibles as set forth in SCHEDULE 5.14.
5.15 Insurance Coverage. The Stockholders and Private Entity shall
take all action reasonably necessary to maintain, in the name and
for the benefit of NetVision, all insurance policies of Private
Entity, until the Closing.
5.16 Bank Accounts. Schell, Schuler and Private Entity shall take all
action reasonably necessary to maintain the current bank
accounts, lock boxes and other depositories of Private Entity,
until the Closing Date.
5.17 Permits, Licenses and Compliance with Laws. For this Section,
Schell, Schuler and Private Entity represent and warrant that
they have no actual knowledge, nor any reason to know of any
violations, and to the best of their knowledge:
5.17.1 Private Entity maintains in full force and effect, all
permits, licenses and approvals from federal, state,
local and foreign governmental and regulatory bodies
required in order to carry on its business.
5.17.2 Private Entity 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.
5.17.3 Neither Private Entity nor any officer, director or
agent of Private Entity has been convicted of, charged
with, or to the knowledge of Private Entity, Schell, or
Schuler 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.
5.18 Litigation. Except as set forth in SCHEDULE 5.18, (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 Schell, Schuler or Private Entity threatened, or
anticipated, including actions known, or actions that Schell,
Schuler or Private Entity have reason to know, against Private
Entity, or any of their respective officers, directors or agents.
5.19 Tax Payments and Returns. Private Entity has delivered to
NetVision true and complete copies of its federal, state and
local income tax returns for its tax year ended December 31,
1998. Except as set forth on Schedule 5.19, Private Entity has
filed all tax reports and returns required to be filed by it
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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 Schell's and Schuler's
knowledge, no taxing authority has audited any portion or a tax
return relating to Schell, Schuler or Private Entity, and there
are no notices of audit, pending questions relating to, or claims
asserted for, taxes or assessments received by or made against
any Private Entity.
5.20 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 Private Entity have been
delivered to NetVision and are correct and complete, accurately
reflect all actions and proceedings of the Stockholders and Board
of Directors of Private Entity to date.
5.21 Brokers/Fees. Negotiations related to this Agreement and the
transactions contemplated hereby have been carried on by the
Stockholders and Private Entity, and no brokerage or finders'
fees are payable by any Stockholder or Private Entity to any
other party in connection with this Agreement or the transactions
contemplated hereby.
5.22 Adverse Changes. Since, November 30, 1999, Private Entity has not
suffered any material adverse changes in its financial condition,
assets, liabilities or business or any material damage,
destruction or loss to its assets, whether or not covered by
insurance.
5.23 Operations in the Ordinary Course. Except as set forth on
Schedule 5.23, since November 30, 1999, Private Entity has been
operated only in the normal and ordinary course, and has not:
5.23.1 Issued or committed to issue any capital stock or other
ownership interest therein; 5.23.2 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;
5.23.3 entered into any material agreement to make capital
expenditures;
5.23.4 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;
5.23.5 entered into any material real or personal property
lease; or
5.23.6 entered into, modified, or canceled any other
agreement, contract or commitment which is not
terminable at will.
5.24 Third Party Consents. The Stockholders and Private Entity have
obtained and delivered, or will obtain and deliver by the Closing
Date, to NetVision the consent or approval of each third party
whose consent or approval is required or deemed necessary by
NetVision for the consummation of the transactions contemplated
by this Agreement.
5.25 Transactions with Related Parties. Except for the employment of
the Stockholders and as set forth on Schedule 5.25, there are no
contracts, leases, loans, commitments, transactions, arrangements
or other understandings, oral or written, between Private Entity
and any Related Party. For purposes of this Section, the term
"Related Party" means (a) any Stockholder, (b) the spouse, lineal
descendant or other family member of a Stockholder, (c) any
corporation, partnership, trust, limited liability company, or
other entity controlled by, or under common control with a
Stockholder, (d) any officer, director or Stockholder of Private
Entity, and (e) any person who is a member, partner or
Stockholder in any relationship or similar form of business
association with any person or entity referred to above.
5.26 Disclosure. To the best knowledge of Schell and Schuler and to
the best knowledge of Private Entity, no representation or
warranty by Schell, Schuler or Private Entity, or any document,
written statement or certificate furnished to NetVision 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.
5.27 Private Entity Liabilities. SCHEDULE 5.27 sets forth those
certain liabilities of Private Entity, which NetVision shall
assume pursuant to the terms of the Merger. These liabilities are
categorized as
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liabilities not incurred in the normal course of business and
include, but are not limited by, all obligations due from Private
Entity to its past and present Stockholders, 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 Private Entity not incurred in
the Normal Course of Business. The payment of the SCHEDULE 5.27
liabilities will become the obligation of NetVision from and
after the Effective Time and shall be paid in the ordinary course
of business.
5.28 Private Entity Liabilities incurred in the normal course of
business. SCHEDULE 5.28 sets forth as of the date hereof those
other obligations of Private Entity incurred in the ordinary
course of business and which remain due and owing as of the date
hereof. Where exact amounts of these liabilities cannot be
determined on the Closing Date, Private Entity shall indicate the
estimated amount due and owing. The payment of the SCHEDULE 5.28
liabilities will become the obligation of NetVision from and
after the Effective Time and shall be paid in the ordinary course
of business.
5.29 NetVision Review and Acceptance. The closing of this transaction
is contingent upon NetVision's review of the revised Schedules
5.27 and 5.28 (collectively "the Liability Schedules")which the
Private Entity shall deliver on the Closing Date. NetVision's
acceptance of said liabilities shall not in any manner modify,
limit, or invalidate the representations and warranties of
Private Entity and the Stockholder 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 NetVision, or any other party, including, but not
limited to, Private Entity or Stockholder, 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 Private Entity
and the Stockholder with respect to the Liability Schedules.
5.30 Tax Payments and Returns. Private Entity 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
Private Entity, by federal, state, local or foreign taxing
authorities, except as where indicated on SCHEDULE 5.5 and
SCHEDULE 5.19. Schell or Schuler has no actual knowledge, nor any
reason to know, that any taxing authority has audited any portion
of Private Entity '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 Private Entity.
5.31 Indemnification. For a period commencing on the Closing Date and
continuing for twenty-four months thereafter, Schell and Schuler,
jointly and severally, agree to defend, hold harmless and
indemnify NetVision or any affiliate thereof from any and all
liabilities or claims attributable to or arising out of a breach
of a Shareholder's or Private Entity's representations and
warranties, including without limitation the representations and
warranties in connection with the Liability Schedules, that in
the aggregate exceed the Diminutive Error, made by or on behalf
of any person, corporation, estate or other legal entity;
provided, however, that in no event shall Schell and Schuler be
liable for any liabilities or claims in excess of $650,000 and
Schell and Schuler may satisfy any claim in excess of $65,000 by
tendering cash or NetVision Shares which shall be valued at $5.00
per share or a combination thereof. The parties hereby agree that
the indemnification provisions contained in this Section 5.31
shall be NetVision's sole remedy at law or in equity in
connection with a breach of the representations and warranties
contained in Sections 4 and 5 of this Agreement. Notwithstanding
the language contained herein, nothing limits or restricts
Schell's liability or Schuler's liability for acts of fraud.
5.32 Articles of Merger. After the Closing, Schell, Schuller and
Private Entity shall cooperate with NetVision in full and it
shall not take any action to hinder, delay, or prevent, the
filing of the Certificate of Merger and Articles of Merger with
the respective Secretary of State of Delaware and Commonwealth of
Kentucky.
SECTION 6 - REPRESENTATIONS AND WARRANTIES OF NETVISION
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6.1 Organization and Good Standing. NetVision is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware, registered to conduct business in every
jurisdiction where the failure to qualify would have an adverse
impact on its ability to perform its obligations hereunder,
including, the State of Indiana and the Commonwealth of Kentucky.
NetVision has full corporate power to carry on its business as it
is now being conducted.
6.2 Authority. NetVision 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
NetVision and is the valid and binding obligation of NetVision,
enforceable in accordance with its terms. The execution and
delivery of this agreement and the consummation by NetVision of
the transactions contemplated will not:
6.2.1 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 other governing
documents of NetVision.
6.2.2 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.
6.2.3 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 NetVision, or any instrument,
contract or other agreement to which NetVision is a
party.
6.3 The authorized capital stock and the number of shares of capital
stock issued and outstanding for NetVision is as follows:
<TABLE>
<CAPTION>
AUTHORIZED SHARES ISSUED SHARES PERCENT
<S> <C> <C> <C>
TELECOMM 2,000,100 89.997%
AYE.NET OWNERS 222,318 10.003%
TOTAL 3,000,000 2,222,418 100.000%
</TABLE>
6.4 Brokers / Fees. Negotiations related to this agreement and the
transactions contemplated hereby have been carried on by
NetVision and no brokerage or finders' fees are payable by
NetVision to any other party in connection with this agreement or
the Transactions contemplated hereby.
6.5 Payment of Liability Schedule Indebtedness. By operation of law
without further action by the parties, NetVision shall assume any
and all liabilities listed on the LIABILITY SCHEDULES after the
Effective Time of the Merger. With regard to any liability listed
on said LIABILITY SCHEDULES, where Stockholder has personally
guaranteed the same, NetVision agrees to indemnify and hold
harmless the Stockholder to the extent such Stockholder is
obligated to perform pursuant to such guaranty.
6.6 Articles of Merger. The preparation and acceptance of a
Certificate of Merger and Articles of Merger shall not be 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 Certificate of
Merger or Articles of Merger with the respective Secretary of
State of Delaware and Kentucky.
6.8 Acquisition of Stock for Investment. NetVision is acquiring the
Private Entity shares for investment and not with a view toward,
or for sale in connection with, any distribution thereof, nor
with any present intention of distributing or selling such shares
of Private Entity. NetVision agrees that such shares of Private
Entity may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under
the 1933 Act, as amended, except pursuant to an
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exemption from registration available under such Act. NetVision
will not sell, offer to sell or solicit offers to buy any of the
shares of Private Entity in violation of the 1933 Act or the
securities law of any state.
6.9 Disclosure. No representation or warranty by NetVision, or any
document, written statement or certificate furnished to Private
Entity or the Stockholders in connection with 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.
6.10 Indemnification. For a period commencing on the Closing Date and
continuing for twenty-four months thereafter, NetVision agrees to
defend, hold harmless and indemnify each of the Shareholders and
their respective personal representatives, heirs and assigns from
any and all liabilities or claims attributable to or arising out
of a breach of NetVision's warranties that in the aggregate
exceed the Diminutive Error, made by or on behalf of any person,
corporation, estate or other legal entity; provided, however,
that in no event shall NetVision be liable for any liabilities or
claims in excess of $650,000, except in the event of fraud.
SECTION 7- MISCELLANEOUS
7.1 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.
7.2 Assignment. None of the parties may assign any part of this
Agreement without the prior written consent of the other parties,
except that NetVision may assign its rights or obligations hereto
to Telecomm Industries, so long as NetVision remains a controlled
subsidiary thereof.
7.3 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.
7.4 Investigation Will Not Constitute A Waiver. No investigation, or
lack thereof, by NetVision, or any of its agents, will be deemed
to constitute or imply a waiver of any rights of NetVision may
have, including any right to indemnification as the result of any
material misrepresentation, or breach of warranty, or covenant in
favor of NetVision as otherwise provided in this Agreement.
7.5 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.
7.6 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.
7.7 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. The foregoing notwithstanding, the parties hereby
acknowledge and agree that Private Entity and the Shareholders
have not delivered the disclosure schedules referenced in this
Agreement and that until the Closing of this transaction, the
failure to disclose any information on such schedules which could
make the representations and warranties contained herein true,
accurate or not misleading shall not constitute a breach of this
Agreement. Notwithstanding any other language
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to the contrary, for the purpose of this paragraph, the filing of
Articles of Merger with the Kentucky Secretary of State and a
Certificate of merger with the Delaware Secretary of State shall
be sufficient evidence of said Closing.
7.8 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, Private Entity will perform all
reasonable acts to cause any licenses or permits issued to
Private Entity to be assigned or transferred to NetVision in
order that NetVision may conduct Private Entity 's Business
subsequent to the Closing as herein contemplated.
7.9 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.
7.10 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.
7.11 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.
7.12 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.
7.13 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.
7.14 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
Kentucky 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 Shareholder(s) Set Forth on SCHEDULE 7.14
To the Company: NetVision.com, Inc.
8450 Westfield Blvd, Suite 100.
Indianapolis, IN 46240
Attn.: Mr. Paul Satterthwaite, CEO and Chairman of the Board
Attn: Mr. Nicholas Bacon, General Counsel
7.15 Binding. This Agreement will bind and inure to the benefit of the
parties hereto, their respective assigns, and personal
representatives and successors.
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7.16 Incorporation by Reference. All Exhibits Schedules and documents
attached hereto will be deemed to be incorporated herein by
reference as though fully set forth.
7.17 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.
7.18 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
breaching party shall be responsible for Attorney fees and costs
of collection.
7.19 Choice of Law. The Parties all consent to the non-exclusive
subject matter and personal jurisdiction of the State of Indiana
and State of Kentucky. Non-exclusive preferred venue lies in the
Superior Court, County of Marion, State of Indiana.
7.20 Post Closing Covenants of NetVision.
7.20.1 NetVision shall not require the business of Private
Entity to relocate to the Offices of Winnet
Communications, Inc., a Kentucky corporation
("Winnet"), until such time as Winnet has been finally
acquired by NetVision.
7.20.2 Within 30 days following closing, NetVision shall use
its best efforts to cause each creditor or other
obligee of Private Entity to release any personal
guaranty of the Shareholders securing any debt or other
obligation of Private Entity as set forth on the
LIABILITY SCHEDULES.
7.20.3 So long as a Shareholder or his/her spouse remains a
shareholder of NetVision, NetVision shall provide or
cause to be provided to such Shareholder or such
Shareholder's spouse free of any charge, two internet
access accounts. So long as Schuler or his spouse
remains a shareholder of NetVision, NetVision shall
provide or cause to be provided to Schuler or Schuler's
spouse free of any charge, eight additional internet
access accounts. These access accounts shall be at the
fastest access speeds then utilized by at least 33% of
the residential consumers in the Shareholder's local
market or such lesser speed as the Shareholder may
choose and shall include the most common and widely
used services.
SECTION 8 - CONDITIONS PRECEDENT
8.1 Termination at will until Closing. Either Party may terminate
this Agreement without liability until the transaction set forth
herein becomes effective, as defined by satisfactory Closing set
forth in Section 9.
8.2 Good Faith Progress. All parties intend to Close this transaction
as set forth below in Section 9, and will take any and all
reasonable action to do the same. Failure or refusal to Close as
a result of the failure to satisfy any of the following shall be
deemed a good faith failure and as such allows a termination
without liability.
8.2.1 Completion and delivery of all Schedules and Exhibits as
referenced in this agreement by both parties, and
acceptance of the same by both parties.
8.2.2 Successful completion of due diligence as performed by
auditors, attorneys or agents of NetVision.
8.2.3 Execution of the mutually acceptable Non-Competition
Agreement by NetVision and
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Schuler, in substantially the same form as attached as
Exhibit A.
8.2.4 Execution of the mutually acceptable Employment
Agreement by Netvision and Schell, , in substantially
the same form as attached as Exhibit B.
8.2.5 Execution of a mutually acceptable Registration Rights
Agreement by all parties, in substantially the same form
as attached as Exhibit C.
8.2.6 Execution of the Document titled Checklist of Merger,
attached as Exhibit D. Said document has no binding
effect other than to reflect the parties understanding
regarding the necessary documentation to effectuate this
Merger.
8.2.7 Execution and Delivery of Certified Corporate
Resolutions authorizing this Merger transaction by both
parties.
SECTION 9 - CLOSING
9.1 Upon the Closing as set forth below, this Agreement shall become
a legally binding, valid and enforceable Agreement, and shall
supersede any previous Agreement executed by and between the
Parties on the same subject matter, including but not limited to
the Letter of Intent and any previously executed Merger
Agreement.
9.2 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.
9.3 Closing Date and Time. The Closing shall take place on the 11th
day of January, 2000 at 9:00am, 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.
9.4 Transfer of Business. Upon the successful Closing of this
transaction, NetVision and Private Entity shall become one
entity, and Private Entity 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 NetVision. 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.
15
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement, consisting
of 16 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:
GLOBAL MARKETING CONCEPTS, INC.
By:
-----------------------------------
Jeremy N. Schell, President
NETVISION .COM, INC. (NetVision)
By:
------------------------------------
Paul J. Satterthwaite, CEO and
Chairman of the Board
STOCKHOLDERS
-------------------------
Jeremey N. Schell, Individually
-------------------------
E. Allen Schuler, Individually
-----------------------------
Stan Logan, Jr., Individually
-----------------------------
James Lavelle, Jr., Individually
-----------------------------
John Lavelle, Individually
-----------------------------
Jonathan Robertson, Individually
16
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Teleco Acquisition, Corp., a Ohio Corporation
NetVision.Com Inc., a Delaware Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-KSB.
</LEGEND>
<CIK> 0000087888
<NAME> TELECOMM INDUSTRIES CORP.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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