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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER 0-22636
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CANMAX INC.
(Exact name of registrant as specified in its charter)
WYOMING 75-2461665
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization No.)
150 W. CARPENTER FRWY.
IRVING, TEXAS 75039
(Address of principal executive offices)
(Zip Code)
972-541-1600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, WITHOUT PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amount to this
Form 10-K or any amount to this Form 10-K. [ ]
As of October 22, 1998, 6,611,005 shares of Common Stock were outstanding.
The aggregate market value of the 4,546,543 shares of Common Stock held by
nonaffiliates of Canmax Inc. as of such date approximated $1,318,497 using the
beneficial ownership rules as adopted pursuant to Section 13 of the Securities
Exchange Act of 1934 to exclude stock that may be beneficially owned by
directors, executive officers or ten percent stockholders, some of whom might
not be held to be affiliates upon judicial determination.
The number of outstanding shares of Common Stock of Canmax Inc. as of
January 22, 1999 was 6,611,005.
DOCUMENT INCORPORATED BY REFERENCE
Part III of this Annual Report incorporates by reference information in the
Proxy Statement for the Annual Meeting of Stockholders Canmax Inc. to be filed
with Securities and Exchange Commission on or before March 1, 1999.
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FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Annual Report on Form 10-K include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by the use of such terms as
"expects," "will," "anticipates," "estimates," "believes" and words of similar
meaning. These forward-looking statements relate to business plans, programs,
trends, results of future operations, satisfaction of future cash requirements,
funding of future growth, acquisition plans and other matters. In light of the
risks and uncertainties inherent in all such projected matters, the inclusion of
forward-looking statements in this Form 10-K should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved or that operating expectations will be realized.
Revenues and results of operations are difficult to forecast and could differ
materially from those projects in forward-looking statements contained herein,
including without limitation statements regarding the Company's belief of the
sufficiency of capital resources and its ability to compete in the
Telecommunications Business. Actual results could differ from those projected in
any forward-looking statements for, among others, the following reasons: (a)
increased competition in the prepaid phone card business from existing and new
competitors, (b) the relatively low barriers to entry for start-up prepaid
operators, (c) the price-sensitive nature of consumer demand, (d) the relative
lack of customer loyalty to any particular prepaid card company, (e) the
Company's dependence upon favorable pricing from its suppliers to compete in the
prepaid phone card industry, (f) increased consolidation in the
telecommunication industry, which may result in larger competitors being able to
compete more effectively, (g) the failure to attract or retain key employees and
(h) continuing changes in governmental regulations affecting the
telecommunications industry. The Company does not undertake to update any
forward-looking statements contained herein. For a discussion of these factors
and others, please see "Certain Business Factors" in Item 1 of this Annual
Report on Form 10-K. Readers are cautioned not to place undue reliance on the
forward-looking statements made in, or incorporated by reference into, this
Annual Report on Form 10-K or in any document or statement referring to this
Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS
THE COMPANY
Canmax Inc. was incorporated on July 10, 1986 under Company Act of the
Province of British Columbia, Canada, and subsequently changed its name to
"International Retail Systems Inc." On August 7, 1992, Canmax renounced its
original province of incorporation and elected to continue its domicile under
the laws of the State of Wyoming, and on November 30, 1994 its name was changed
to "Canmax Inc." Canmax was listed on the Nasdaq SmallCap Market tier of The
Nasdaq Stock Market from February 10, 1994 through June 8, 1998. Canmax's common
stock currently trades on the OTC Bulletin Board, under the symbol "CNMX." As
used herein, the terms "Canmax" and the "Company" refer collectively to Canmax
Inc. and its consolidated subsidiaries.
During the fiscal year ended October 31, 1998, Canmax operated two distinct
businesses in the software and telecommunications industries. On December 7,
1998, Canmax sold its retail automation software business (the "Software
Business") to Affiliated Computer Services, Inc. ("ACS"). Therefore, Canmax will
no longer engage in the Software Business, and is now operating only in the
telecommunications industry (the "Telecommunications Business"). During the
fiscal year ended October 31, 1998, the Software Business accounted for 81% of
Canmax's revenues (approximately $9.38 million), 72% of Canmax's costs and
expenses (approximately $9.48 million) and 4% of Canmax's losses (approximately
$103,000). The Software Business accounted for all of Canmax's revenues, costs
and expenses and earnings for all fiscal years through and including October 31,
1997.
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Canmax's principal executive offices are located at 150 West Carpenter
Freeway, Irving, Texas 75039, and its telephone number is (972) 541-1600.
TELECOMMUNICATIONS BUSINESS
GENERAL. On January 30, 1998, Canmax acquired USCommunication Services,
Inc. ("USC") in a private stock transaction. USC provided a number of
telecommunication and internet products and services, including prepaid calling
cards, public internet access kiosks, pay telephones, and pallet exchange
services. USC primarily marketed its products and services to individuals and
businesses in the transportation industry through national and regional
truckstops and trucking fleets. USC's products were sold at selected locations
throughout the U.S., such as locations operated by Pilot Travel Centers, Petro
Stopping Centers, and All American Travel Centers. USC also marketed its
services directly through prepaid calling card recharge sales. The Company
concluded its merger with USC believing that this would give it access to the
telecommunications market. Certain capabilities of USC, along with distribution
channels, failed to meet the expectations of Canmax. On June 15, 1998, Canmax
and former principals of USC executed an agreement to rescind the USC
acquisition effective May 27, 1998.
During its experience with USC, Canmax decided to develop its in house
capabilities to expand its telecommunications operations. The Company chose to
make its entry into the telecommunications industry via the prepaid calling card
market. The prepaid calling card industry has grown significantly in recent
years and industry estimates project revenue growth from prepaid phone cards in
the United States from an estimated $1.5 billion in 1997 to in excess of $5
billion shortly after the year 2000. In August of 1998, the Company entered into
a three-year agreement (the "PT-1 Agreement") with PT-1 Communications, Inc.
("PT-1") to acquire long distance telecommunications and debit services for use
in the Company's marketing and distribution of domestic and international
prepaid calling cards. Canmax conducts its Telecommunications Business through
Canmax Telecom, Inc., its wholly-owned subsidiary. The Company plans to continue
to resell prepaid phone cards acquired from PT-1 until such time as it is able
to install and operate its own debit platform and switching facilities.
The Company believes that, if provided sufficient capital to achieve market
presence, it will be a strong competitor in the industry and that experience in
software development and customer service will permit it to develop efficient
applications to complement its telecommunications business, such as applications
that may allow the immediate on-site activation of prepaid phone cards at the
time of their purchase. The Company also expects to enter other segments of the
telecommunications industry.
REGULATORY ENVIRONMENT. Businesses offering prepaid calling cards are
subject to federal and state governmental regulations applicable to providers of
long distance telephone services. At the federal level, the industry is
regulated by the Federal Communications Commission (the "FCC"), while at the
state level, telecommunication service providers are subject to regulation by
various state agencies. Federal regulations require that long distance telephone
service providers maintain both domestic interstate and international tariffs
that contain the then effective rates, terms and conditions of service.
Intrastate long distance telecommunication service providers are also subject to
various state regulations, which typically require prior state certification,
notification and/or registration and tariff approval. Generally, companies
offering such services must obtain and maintain certificates of public
convenience and necessity from state regulatory authorities in each state which
they offer service and file tariffs and obtain tariff approval prior to
providing intrastate telecommunication services. Pursuant to the Company's
agreement with PT-1, PT-1 is responsible for all tariff and other regulatory
filings with regard to the prepaid calling cards purchased by Canmax. Therefore
Canmax has not made separate tariff filings for its long distance services. The
Company will need to obtain appropriate state and federal regulatory approvals
prior to operating its own debit platform and switching facilities.
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SOFTWARE BUSINESS--DISCONTINUED OPERATIONS
Prior to December 7, 1998, Canmax, through its wholly owned subsidiary
Canmax Retail Systems, Inc., developed and provided enterprise wide technology
solutions to the convenience store and retail petroleum industries. On December
7, 1998, Canmax sold its Software Business to Affiliated Computer Services, Inc.
("ACS") for an initial payment of $4.0 million and contingent payments of up to
$3.625 million (the "Software Business Sale"). See "Recent Events--Software
Business Sale". As of October 31, 1998, Canmax's Software Business products had
been installed in over 5,900 locations. Canmax's primary customers of the
Software Business included The Southland Corporation ("Southland"), ARCO and the
Army and Air Force Exchange.
BUSINESS STRATEGY
Canmax's core business operations are in the telecommunications industry,
and are initially focused on the provision of prepaid long distance services.
Canmax also expects to enter other segments of the prepaid telecommunications
industry such as dial tone and supporting hardware services and prepaid enabling
hardware and cellular services. The Company's entry into these additional
industry segments will be dictated by its development of its capabilities and
capacities in these areas and market factors. To be successful in the
Telecommunications Business, Canmax will need to establish new distribution
channels and a new customer base for its telecommunications products. Although
Canmax intends to continue to market its telecommunications products to the
convenience store and retail petroleum industries in which it conducted its
Software Business, Canmax's prior relationships in the convenience store and
retail petroleum industries do not necessarily provide Canmax any advantages in
future marketing efforts. Industry estimates indicate that the market for
prepaid phone cards in the United States in 1997 was in excess of $1.5 billion,
and project the growth of this industry to in excess of $5 billion shortly after
the year 2000.
The Company's prepaid long distance services are currently being offered
across a system maintained by PT-1 pursuant to the PT-1 Agreement. The PT-1
Agreement provides favorable pricing to Canmax and allows it to compete on a
global basis in the prepaid telecommunications market. The Company expects to
leverage its experience in the retail software industry with its
telecommunications operations to allow it to offer point of sale activation for
its prepaid telecommunications products. Although Canmax believes that its
personnel and the proceeds from the Software Business Sale will position it to
be successful in its new line of business, Canmax has no significant history of
operations in the telecommunications industry and therefore Canmax's entry into
the new line of business is subject to risks similar to other emerging
companies, such as its limited operating history in this industry segment, its
dependence upon existing management and certain key employees, the presence of
competition from various sources (some of which may have substantially greater
financial resources than Canmax) and continuing changes in governmental
regulations affecting the telecommunications industry. See "--Certain Business
Factors."
Canmax also continues to review an acquisition strategy within its current
industries and other related markets. Any material acquisitions may result in
significant changes in Canmax's business.
PRODUCTS AND SERVICES
TELECOMMUNICATIONS BUSINESSES
PREPAID PHONE CARDS. Canmax provides convenient, cost-effective
telecommunications products and services to individuals and businesses through
its prepaid phone card (the "Canmax Card"). The Canmax Card provides customers
with a single point of access to prepaid telecommunications services at a fixed
rate charge per minute regardless of the time of day or, in the case of domestic
calls, the distance of the call. Canmax's services currently include domestic
calling, outbound international long distance calling, as well as enhanced
features such as customized greetings and sequential calling. The Canmax Card
enables consumers to place local, long distance and international calls from
virtually any touch-tone phone, without the need of coins, operator assistance,
collect or other third party billing processes. Consumers may access the
services of the Canmax Card by dialing a toll-free number and entering a
personal
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identification number printed on the back of the card. A voice prompt guides
users through the card's features and, at the beginning of each call, announces
the balance remaining on a card. Time spent on a call or using the card's
enhanced features is automatically deducted from the balance remaining on the
card. Users are reminded when one minute remains on the card. Cards expire upon
the earlier of six months after the date of first use or the expiration date
printed on the card. Pursuant to the PT-1 Agreement, PT-1 provides all customer
support and troubleshooting for the Canmax Card.
MAJOR SUPPLIERS. Canmax currently acquires all of its prepaid telephone
cards from PT-1, which supplies long distance telecommunications and debit
services to Canmax for use in Canmax's marketing and distribution of domestic
and international prepaid long distance calling cards. The PT-1 Agreement
provides Canmax "most favored nations" pricing, meaning Canmax is to receive the
lowest cost offered by PT-1 to any other customer for like services. The PT-1
Agreement also prohibits Canmax from selling other prepaid calling cards or
telecommunications products except through PT-1 pursuant to the PT-1 Agreement;
however, the PT-1 Agreement does not prohibit Canmax from either acquiring other
entities that have commitments to obtain telecommunication services or acquiring
and operating its own switch and/or debit card platform and obtaining long
distance carrier service from a third party to the extent that such third party
carrier offers better rates than provided by PT-1.
PT-1 manages a state-of-the-art digital switch based network consisting of
more than 130,000 switch ports, approximately 50,000 prepaid card processing
ports, and a central switching center located at PT-1's headquarters in
Flushing, New York. PT-1 offers 24-hour customer support for its prepaid cards.
Canmax believes that multiple suppliers are available to meet all of its product
and service needs at competitive prices and rates and expects the availability
of such products and services to continue in the future; however, the continuing
availability of alternative sources cannot be assured. Transition from Canmax's
existing suppliers, if necessary, could have a disruptive effect on Canmax's
operations and could give rise to unforeseen delays and/or expenses. Canmax is
not aware of any current circumstances that would require Canmax to seek
alternative suppliers for any of the products or services used in the operation
of its business.
CUSTOMERS. TSI, a distributor for the Company and a PT-1 affiliate,
accounted for approximately 25% of revenues from continuing operations during
the year ended October 31, 1998, and approximately 77% of trade accounts
receivable balance at such date. The concentration of revenues through this
distributor is due in part to the Company's relatively recent entry into the
Telecommunications Business and limited revenues from continuing operations
through October 31, 1998. The Company expects the concentration of revenues
through this distributor to decrease as Company sales increase.
SOFTWARE BUSINESS--DISCONTINUED OPERATIONS
C-SERVE AND OTHER PRODUCTS. Prior to the Software Business Sale, Canmax's
primary product offering consisted of its C-Serve software, a comprehensive
site-based store automation software solution, and its Vista software, a
headquarters-based management system. The products and services of the Software
Business enabled retailers and operators to interact electronically with
customers, capture data at the point of sale, manage site operations and
logistics and communicate electronically with their sites, vendors and
credit/debit networks. The products and services of the Software Business also
included (a) software development, customization and enhancements, (b) systems
integration, installation and training services, and (c) 24 hour a day, 365 day
per year help desk services. In October, 1997 Canmax completed an enhanced
version of its C-Serve product to run on the Windows NT operating system in
conjunction with a development project with NCR Corporation ("NCR") and The
Southland Corporation ("Southland"). At the time of the Software Business Sale,
Canmax was developing a generic version of its C-Serve software to run under the
Microsoft Windows family of operating systems.
MAJOR CONTRACTS. In December, 1993, Canmax signed a five year agreement
with Southland to provide software licenses, development services, and provide
hardware and help desk services (the "Master Agreement"). Southland chose
Canmax's proprietary convenience store automation software, C-Serve, as the
basis for its automation of store functions and operations at its corporate and
franchise operated
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7-Eleven convenience stores in the United States. Software licensing, product
and service revenue under the Master Agreement during the fiscal years ended
October 31, 1998, 1997, and 1996 totaled approximately $3,160,000, $2,051,000,
and $2,581,000 respectively, while development revenues recorded under the
Master Agreement during these same periods totaled approximately $859,000,
$799,000 and, $1,564,000 respectively.
On October 31, 1997, Canmax and Southland entered into Amendment No. 3 to
the Master Agreement (the "Southland Amendment"), pursuant to which Southland
exercised its right under the Master Agreement to use, possess and modify the
source code for the software developed by Canmax for Southland for a one-time
license fee of $1.0 million. The Southland Amendment also contained Southland's
agreement to purchase from Canmax on or before December 7, 1998, no less than
$4.0 million of hardware, software maintenance, help desk, development and other
services. Canmax recognized revenues of approximately $8,197,000 from Southland
from October 31, 1997 through October 31, 1998. The Master Agreement with
Southland terminated on December 7, 1998, the date of the Software Business
Sale; however, Southland still retains rights to the source code for the
software developed by Canmax for Southland. Any residual rights or obligations
under the Master Contract were assigned to and assumed by ACS upon consummation
of the Software Business Sale.
During fiscal 1996, Canmax reached an agreement with NCR to develop for
Southland a next generation Windows NT based version of the Canmax C-Serve
convenience store software for $9.5 million. NCR was chosen by Southland to
provide project management and other professional services for the project.
Modifications to project requirements increased total project revenues from $9.5
million to $11.5 million. Since this project was completed in 1997, no
development revenues under such agreement were recognized by Canmax in fiscal
1998, as compared to $7,560,000 and $3,920,000 in fiscal years 1997 and 1996,
respectively.
CONCENTRATION OF REVENUES; CUSTOMER CONCENTRATION. Historically, Canmax's
revenues have been concentrated in Southland which accounted for approximately
87%, 92% and 83% of Canmax's total Software Business revenue for fiscal years
ended October 31, 1998, 1997 and 1996, respectively. Canmax's revenues derived
from its relationship with Southland include revenues from products and services
provided directly by Canmax to Southland and indirectly through NCR to Southland
pursuant to NCR's contract with Southland. No other customer accounted for over
10% of Canmax's total revenues during such periods.
At October 31, 1998, 1997 and 1996, Southland accounted for 87%, 95% and
83%, respectively, of Canmax's total accounts receivable of the Software
Business. Because a significant portion of Canmax's revenues were derived from
its relationship with Southland, the timing of payments received from Southland
affected the percentage of the current assets of Canmax classified as either
cash (or cash equivalents) or accounts receivable. On December 7, 1998, the
Software Business was sold to ACS, at which time all rights and obligations
under contracts between Canmax and Southland were transferred to and assumed by
ACS.
During the fiscal years ended October 31, 1998, 1997 and 1996, Canmax
expensed approximately $0, $615,000, $1,287,000, respectively, on product
development activities associated with the Software Business. Canmax capitalized
approximately $730,000, $209,000 and $129,000 of software development costs
during the fiscal years ended October 31, 1998, 1997 and 1996, respectively.
COMPETITION
The telecommunications services industry is highly competitive, rapidly
evolving and subject to constant technological change. Currently, numerous
companies sell prepaid calling cards and Canmax expects competition to increase
in the future. Other providers currently offer one or more of each of the
services offered by Canmax. Telecommunication service companies compete for
consumers based on price, with the dominant providers conducting extensive
advertising campaigns to capture market share. As a service provider in the long
distance telecommunications industry, Canmax competes with three dominant
providers, AT&T Corp. ("AT&T"), MCI WorldCom Inc. ("WorldCom"), and Sprint
Corporation
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("Sprint"), all of which are substantially larger than Canmax and have (i)
greater financial, technical, engineering, personnel and marketing resources;
(ii) longer operating histories; (iii) greater name recognition; and (iv) larger
consumer bases than Canmax. These advantages afford Canmax's competitors the
ability to (a) offer greater pricing flexibility, (b) more attractive incentive
packages to encourage retailers to carry competitive products, (c) negotiate
more favorable distribution contracts with retailers, and (d) negotiate more
favorable contracts with suppliers of telecommunication services. Canmax also
competes with other smaller, emerging carriers in both the prepaid long distance
card retail and wholesale markets, including IDT Corporation, RSL Communications
and Telegroup, Inc. Canmax believes that additional competitors will be
attracted to the prepaid calling card market, including internet-based service
providers and other telecommunications companies. Canmax also believes that
existing competitors are likely to continue to expand their service offerings to
appeal to retailers and consumers.
The ability of Canmax to compete effectively in the telecommunications
services industry will depend upon Canmax's ability to (i) continue to provide
high quality services at prices generally competitive with, or lower than, those
charged by its competitors and (ii) develop new innovative products and
services. There can be no assurance that competition from existing or new
competitors or a decrease in the rates charged for telecommunications services
by major long distance carriers or other competitors will not have a material
adverse effect on Canmax business, financial condition and results of
operations, or that Canmax will be able to compete successfully in the future.
CERTAIN BUSINESS FACTORS
LIMITED OPERATING HISTORY; NET LOSSES
The Company commenced its Telecommunications Business in early 1998. For the
year ended October 31, 1998, the Company recorded net losses from continuing
operations of approximately $2.6 million on revenues from continuing operations
of approximately $2.2 million. These losses were primarily attributable to the
Company's unsuccessful acquisition of USC and a one time charge of approximately
$1.2 million incurred in connection with the disposition of USC. Canmax's
revenues from the Telecommunications Business other than revenues derived
through USC for the year ended October 31, 1998 were $1.5 million with
associated costs and expenses of $2.5 million and net losses of $1.0 million.
Until the Company substantially increases its distribution network and customer
base, it expects to continue to experience losses.
COMPETITION
The telecommunications industry is highly competitive. Telecommunications
providers face competition from multiple sources, including AT&T, WorldCom and
Sprint as well as smaller emerging carriers such as IDT Corporation, RSL
Communications and TeleGroup, Inc. The prepaid calling card business is a
rapidly growing segment of the telecommunications industry with relatively low
barriers to entry. Canmax believes that additional competitors will be attracted
to the prepaid calling card market, including internet-based service providers
and other telecommunications companies. Telecommunications service companies
compete based upon price, additional competition may result in significant
pressures on pricing and the margins realized by the Company and its
telecommunications operations. The Company resells telecommunications services
acquired from other industry participants, and if the Company is unsuccessful in
negotiating favorable rates for its telecommunications services, then the
Company may not be able to effectively compete in the Telecommunications
Business. There can be no assurances that the Company will be able to compete
successfully in the future.
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CONSUMER DEMAND
The Company's products and services primarily compete, based upon pricing.
The price-sensitive nature of consumers in this market results in a relative
lack of customer loyalty to any particular prepaid card company. Therefore, to
be successful, the Company must be able to offer competitive pricing within the
industry. Although the Company believes it has a favorable arrangement with PT-1
for the provision of telecommunications products and services, there can be no
assurances that the rates and services provided to the Company through PT-1 will
remain competitive within the industry.
RELATIONSHIP WITH PT-1
Although the Company's arrangement with PT-1 requires PT-1 to offer the
Company its most favorable pricing structure, the PT-1 Agreement restricts the
Company's ability to acquire telecommunication services from third parties that
may provide more favorable prices for telecommunications products and services.
Pursuant to an amended and restated agreement and plan of merger dated August
20, 1998, PT-1 agreed to be acquired by StarTelecommunications, Inc., a publicly
held telecommunications company. Although the proposed acquisition of PT-1 by
Star Telecommunications should not affect the Company's legal rights under the
PT-1 Agreement, the Company is unable to predict the effect of the proposed
acquisition of PT-1 on the future relationship between the Company and PT-1.
DEPENDENCE ON AND NEED TO RECRUIT AND KEY MANAGEMENT AND TECHNICAL PERSONNEL
The Company success depends to a significant extent on its ability to
attract and retain key personnel. In particular, the Company is dependent on its
senior management team and personnel with experience in the telecommunications
industry. The Company's future success will depend, in part, upon its ability to
attract and retain key personnel.
MARKET FOR COMMON STOCK; VOLATILITY OF THE STOCK PRICE
Canmax cannot ensure that an active trading market for the common stock
exists or will exist in the future. However, even if the trading market for the
common stock exists, the price at which the shares of common stock trade is
likely to be subject to significant volatility. The market for the common stock
may be influenced by many factors, including the depth and liquidity of the
market for the Company's common stock, investor perceptions of the Company, and
general economic and similar conditions.
LISTING STATUS; PENNY STOCK RULES
The Company's common stock currently trades on the OTC Bulletin Board.
Therefore, no assurances can be given that a liquid trading market will exist as
the time any investor desires to dispose of any shares of Canmax common stock.
In addition, Canmax's common stock is subject to the so-called "penny stock"
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally defined as an investor with a net worth in excess of $1
million or annual income exceeding $200,000 or $300,000 together with a spouse).
For transactions covered by the penny stock rules, a broker-dealer must make a
suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. Consequently, both
the ability of a broker-dealer to sell the Canmax common stock and the ability
of holders of Canmax common stock to sell their securities in the secondary
market may be adversely affected. The Securities and Exchange Commission has
adopted regulations that define a "penny stock" to be an equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules require
the delivery, prior to the transaction, of a disclosure schedule relating to the
penny stock market. The broker-dealer must disclose the commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is to sell the securities as a market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
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information on the limited market in penny stocks. As a result of the additional
suitability requirements and disclosure requirements imposed by the "penny
stock" rules, an investor may find it more difficult to dispose of the Company's
common stock.
ABSENCE OF DIVIDENDS
The Company has never declared or paid any cash dividends on its common
stock and does not presently intend to pay cash dividend on its common stock in
the foreseeable future. The Company intends to retain all cash received from the
Software Business Sale and from future earnings for reinvestment in its
Telecommunications Business.
SALES AND MARKETING
Canmax markets prepaid long distance products and services from its offices
in Irving, Texas. Canmax's revenues originate from sales of its prepaid phone
cards through four principal marketing channels, including wholesale and retail
sales through independent distributors, direct sales to retail stores,
telemarketing sales to retail stores, and promotional and specialty marketing
sales to businesses. Virtually all sales efforts are focused on the U.S. at this
time. However, Canmax may expand its international marketing efforts in the
future.
BACKLOG
Software and telecommunication products are generally delivered to customers
when ordered and therefore there is no backlog of orders.
IMPACT OF YEAR 2000
Canmax has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. Canmax has initiated
communications with all of its significant suppliers and customers to determine
the extent to which Canmax's internal systems and developed software products
are vulnerable to those third parties failure. In connection with the Software
Business Sale, Canmax and ACS conducted a Year 2000 compliance audit of software
and systems developed by Canmax. Such audit did not reveal any material items of
noncompliance, and Canmax does not expect to incur any material expenses to
cause its developed software and systems to become Year 2000 compliant.
EMPLOYEES
As of January 19, 1999, Canmax had approximately 25 full time employees,
approximately ten of which perform administrative and financial functions and
approximately ten of which have experience in telecommunications and/or
telemarketing. All of Canmax's current employees are located in Irving, Texas.
No employees are represented by a labor union, and Canmax considers its employee
relations to be excellent.
RECENT EVENTS
SOFTWARE BUSINESS SALE
On December 7, 1998, Canmax consummated the sale of its Software Business to
ACS for an initial payment of $4.0 million and ACS' assumption of certain
liabilities associated with the Software Business. In addition, Canmax is
entitled to receive additional deferred payments of up to $3.625 million, based
upon the cumulative revenue attributable to the Software Business during the one
year period ending December 31, 1999. The deferred revenue payments will equal
the sum of (a) 75% of all such revenues greater than $4.0 million and less than
or equal to $7.0 million plus (b) 13.75% of all such revenues greater than $7.0
million and less than or equal to $17 million. As a result of the Software
Business Sale, Canmax will no longer be engaged in the retail automation
software business, and the results of operations of the Software Business will
be reported as discontinued operations in Canmax's financial statements.
8
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APPROVAL OF REINCORPORATION MERGER
On December 7, 1998, Canmax's shareholders approved the merger of Canmax
with and into a wholly-owned subsidiary of Canmax organized under the laws of
the state of Delaware, to effect the change of Canmax's domicile from Wyoming to
Delaware. On December 30, 1998, Canmax formed ARDIS Telecom & Technologies, Inc.
("ARDIS"), a Delaware corporation and wholly-owned subsidiary, to effect the
reincorporation merger. Canmax expects the reincorporation merger to be
consummated in early February 1999. Upon consummation of the reincorporation
merger, Canmax will change its name to "ARDIS Telecommunications & Technologies,
Inc." and its corporate affairs will be governed by the laws of the state of
Delaware. Upon consummation of the reincorporation merger, the certificate of
incorporation and bylaws of ARDIS will constitute the governing instruments of
Canmax. The form of certificate of incorporation and bylaws for ARDIS were
approved by the Company's shareholders at the annual meeting of shareholders
held on December 7, 1998.
AMENDMENT TO FOUNDERS' LOAN AGREEMENT
On December 11, 1998, the Company and Founders Equity Group, Inc., on its
own behalf and as agent for various other lenders ("Founders"), executed
Amendment No. 1 to the Restated Convertible Loan Agreement dated March 31, 1998,
as amended by the letter agreement dated August 25, 1998 (as amended, the "Loan
Agreement"). As a result of the amendment, Canmax agreed to defer Founders'
conversion of the remaining indebtedness outstanding under the Loan Agreement in
exchange for (a) Founders' waiver of any registration obligations under the
Registration Rights Agreement dated May 1, 1997 or under the Loan Agreement,
until February 1, 1999 or Canmax's earlier delivery of a conversion notice, (b)
the adjustment of the conversion price for the remaining convertible
indebtedness outstanding under the Loan Agreement ($500,000) from $.50 per share
to the greater of $.50 per share or 75% of the average closing price of Canmax
common stock over the ten trading days preceding the delivery of a conversion
notice, and (c) Founders' agreement to convert the remaining outstanding
principal under the Loan Agreement ($500,000) upon written notice from the
Company at the adjusted conversion price described above. Further, the amendment
to the Loan Agreement reduced the interest rate payable on the outstanding
principal amount under the Loan Agreement from 12% to 9% per annum. The
amendment also terminated any additional funding obligations of Founders' under
the Loan Agreement. See "Market for Registrant's Common Equity and Related
Stockholder Matters--Recent Sales of Unregistered Securities."
ITEM 2. PROPERTIES
Canmax currently occupies 47,178 square feet of office space at 150 West
Carpenter Freeway, Irving, Texas, as a hold over tenant on a month-to-month
basis. The month-to-month tenancy will terminate on or about March 15, 1999. The
space is used for executive, administrative, sales, engineering personnel, help
desk and related services, as well as for inventory storage and demonstration
purposes. Canmax has entered into a five-year lease for approximately 13,163
square feet located 8100 Jetstar Drive in Irving, Texas, commencing on March 1,
1999.
ITEM 3. LEGAL PROCEEDINGS
Neither Canmax nor any of its subsidiaries are parties to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
9
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
Canmax has only one class of shares, common stock without par value, which
is traded on the OTC Bulletin Board. Each share ranks equally as to dividends,
voting rights, participation in assets on winding-up and in all other respects.
No shares have been or will be issued subject to call or assessment. There are
no preemptive rights, provisions for redemption or purpose for either
cancellation or surrender or provisions for sinking or purchase funds.
Canmax was listed on the Nasdaq SmallCap Market tier of The Nasdaq Stock
Market on February 10, 1994 through June 8, 1998. Canmax Common Stock is
currently traded on the OTC Bulletin Board under the symbol "CNMX."
Canmax's principal executive offices are located at 150 West Carpenter
Freeway, Irving, Texas 75039, and its telephone number is (972) 541-1600.
MARKET PRICES OF CANMAX COMMON STOCK
The following table sets forth for the fiscal periods indicated the high and
low closing sales price per share of Canmax Common Stock as quoted on the Nasdaq
SmallCap Market through June 8, 1998 and as reported on the OTC Bulletin Board
after such date. The market quotations presented reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily reflect
actual transactions.
<TABLE>
<CAPTION>
CANMAX
COMMON STOCK
CLOSING PRICES
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
FISCAL 1997
First Quarter.......................................................... $ 2.50 $ 1.50
Second Quarter......................................................... $ 2.88 $ 1.50
Third Quarter.......................................................... $ 2.75 $ 1.88
Fourth Quarter......................................................... $ 2.50 $ 1.38
FISCAL 1998
First Quarter.......................................................... $ 1.50 $ 0.88
Second Quarter......................................................... $ 1.13 $ 0.63
Third Quarter.......................................................... $ 0.75 $ 0.28
Fourth Quarter......................................................... $ 0.65 $ 0.32
FISCAL 1999
First Quarter (through January 26, 1999)............................... $ 0.40 $ 0.28
</TABLE>
The closing price for the Canmax Common Stock on January 26, 1999 as
reported on the OTC Bulletin Board was $0.30.
DIVIDENDS
Canmax has never declared or paid any cash dividends on the Canmax Common
Stock and does not presently intend to pay cash dividends on the Canmax Common
Stock in the foreseeable future. Canmax intends to retain future earnings for
reinvestment in its business. Additionally, dividends are restricted to
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less than 5% of net operating income in accordance with the terms of the
convertible loan agreement effective December 15, 1997, as amended.
HOLDERS OF RECORDS
There were 448 stockholders of record as at September 28, 1998, and
approximately 2,790 beneficial stockholders.
RECENT SALES OF UNREGISTERED SECURITIES
On December 15, 1997, Canmax executed a convertible loan agreement (the
"Original Agreement") with Founders providing for financing of up $500,000 at an
interest rate of 10% per annum. Advances under the Original Agreement were
secured by a lien on all of Canmax's assets and indebtedness outstanding under
the Original Agreement was convertible, at the option of Founders, into shares
of Canmax common stock at a conversion price of $1.25 per share. Advances under
this loan totaling $500,000 were made from December of 1997, through February of
1998. On February 11, 1998, Canmax and Founders executed a loan commitment
letter (the "Loan Commitment") which provided for a multiple advance loan of up
to an additional $2.0 million upon terms similar to the Original Agreement;
however indebtedness outstanding under the Loan Commitment was convertible into
shares of Canmax common stock at a conversion price equal to the average closing
prices of the Canmax common stock over the five day trading period immediately
preceding the date of each advance. On February 24, 1998, Founders advanced
$150,000 under the Loan Commitment which was convertible into shares of Canmax
common stock at a conversion price equal to $1.025. The Company and Founders
(and certain of its affiliates) entered into the First Restated Loan Agreement
(the "Loan Agreement") effective as of March 31, 1998 which consolidated all
rights and obligations of Canmax to Founders under the Original Agreement and
the Loan Commitment and amended the terms of the then outstanding notes. Amounts
advanced or consolidated under the Loan Agreement bore interest at the rate of
12% per annum, were secured by a lien on all of Canmax's assets and were
convertible into shares of Canmax common stock at $.80 per share.
By letter dated August 25, 1998, Founders agreed to release its lien on all
of Canmax's assets upon the consummation of the Software Business Sale. As
consideration for the release, Canmax agreed to repay $1.0 million of the $1.5
million outstanding under the Loan Agreement and to allow Founders to convert
the remaining $500,000 plus accrued but unpaid interest outstanding under the
Loan Agreement into shares of Canmax common stock at a reduced conversion price
of $.50 per share. On December 11, 1998, Canmax and Founders executed Amendment
No. 1 to the Loan Agreement, pursuant to which Canmax agreed to defer Founder's
obligation to convert the remaining indebtedness outstanding under the Loan
Agreement ($500,000) in exchange for (a) Founders' waiver of any registration
obligations under the registration rights agreement dated May 1, 1997 or under
the Loan Agreement until February 1, 1999 or Canmax's earlier delivery of a
conversion notice, (b) the adjustment of the conversion price for the remaining
convertible indebtedness outstanding under the Loan Agreement from $.50 to the
greater of $.50 per share or 75% of the average closing price of the Canmax
common stock over the ten trading days preceding the delivery of a conversion
notice, and (c) Founders' agreement to convert the remaining outstanding
principal amount under the Loan Agreement ($500,000) upon written notice from
Canmax at the adjusted conversion price described above. The amendment also
reduced the interest rate on the outstanding principal amount under the Loan
Agreement from 12% to 9% per annum and terminated any additional funding
obligation of Founders under the Loan Agreement. All convertible notes issued
under the Original Agreement, the Loan Commitment and the Loan Agreement were
issued at face value in private transactions in reliance upon the exemption set
forth in Section 4(2) of the Securities Act of 1933, as amended. The proceeds
received by Canmax from the issuance of the convertible notes were used for
working capital purposes.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1):
Revenues.............................................................. $ 2,189 $ -- $ -- $ -- $ --
Cost of revenues...................................................... 2,155 -- -- -- --
Operating expenses.................................................... 1,399 -- -- -- --
Interest expense, net................................................. 101 -- -- -- --
Writedown of capitalized software..................................... -- -- -- -- --
Loss on Disposal of USC............................................... 1,155 -- -- -- --
Income (loss) from discontinued operations............................ (103) 87 143 (3,734) (6,042)
Net income (loss)..................................................... (2,724) 87 143 (3,734) (6,042)
Net income (loss) per share(2)........................................ $ (.38) $ 0.01 $ 0.02 $ (0.79) $ (1.54)
CONSOLIDATED BALANCE SHEET DATA(1):
Total assets..........................................................
Continuing operations............................................... 1,936 -- -- -- --
Discontinued operations............................................. 3,355 4,578 4,741 4,225 5,317
Working capital (deficiency)
Continuing operations............................................... (1,460) -- -- -- --
Discontinued operations............................................. 623 664 701 (946) 135
Non Current obligations
Continuing operations............................................... -- -- -- -- --
Discontinued operations............................................. 147 178 256 265 1,375
Shareholders' equity.................................................. 1,064 2,220 2,075 1,719 1,910
</TABLE>
- ------------------------
(1) The results of operations of the Software Business have been presented in
the financial statements as discontinued operations. Results of operations
in prior years have been restated to reclassify the Software Business as
discontinued operations.
(2) All per share amounts have been retroactively adjusted to reflect a
one-for-five reverse stock split of Canmax Common Stock effective December
21, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
GENERAL
During the fiscal year ended October 31, 1998, Canmax operated two distinct
businesses, the Software Business and the Telecommunications Business. For the
fiscal year ended October 31, 1997, the Software Business accounted for all of
Canmax's revenues. On December 7, 1998, Canmax consummated the sale of the
Software Business to Affiliated Computer Services, Inc. As a result of the
Software Business Sale, Canmax will no longer engage in the Software Business,
and, its business will be focused solely on its Telecommunications Business.
Therefore, historic financial information attributable to the Software Business
will be reported as discontinued operations.
The following discussion and analysis of financial condition and results of
operations covers the years ended October 31, 1998, 1997 and 1996 and should be
read in conjunction with Canmax's Financial Statements and the Notes thereto
commencing at page F-1 hereof.
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<PAGE>
RESULTS OF OPERATIONS--1998 VERSUS 1997
In the later part of fiscal 1996, Canmax decided that it was critical that
it expand its market beyond one vertical market and one large customer. After
evaluating a number of alternative strategies, Canmax decided that the rapidly
expanding telecommunications market presented an opportunity to utilize some of
the technology and support capabilities that it had developed through its
Software Business. The Company chose to make its entry into the
telecommunications industry via the prepaid long distance market.
On January 30, 1998, Canmax acquired USCommunications. Effective May 27,
1998, Canmax and principals of USC agreed to rescind the USC acquisition and
that the economic benefits and burdens of any revenues received or expenses
incurred following May 27, 1998 would accrue to USC. The statement of operations
for the fiscal year ended October 31, 1998 includes the operations of
USCommunications since its acquisition through May 27, 1998.
Following its entry into the Telecommunications Business, Canmax formed
Canmax Telecom, Inc., its telecommunications operating company and a
wholly-owned subsidiary, and has established sales and marketing activities in
four principle marketing channels for its prepaid phone card program, including
(a) wholesale and retail sales through independent distributors, (b) direct
sales to retail stores, (c) telemarketing sales to retail stores, and (d)
promotional and specialty marketing sales to businesses. The initial product
used to introduce Canmax Telecom to the market was referred to as the Latino
Card, as it was targeted to the long distance market for calls originating
within the continental United States to certain Latin American countries.
Services required to offer this card were provided by USC, and Canmax Telecom
continued to purchase those services from USC following the rescission of the
acquisition.
The Company recently announced its establishment of a strategic relationship
with PT-1 Communications, Inc., the nation's largest prepaid card provider. This
relationship enables Canmax to pursue its rapid growth plan in the prepaid
market prior to the commitment of large facilities investments. The Company
began marketing prepaid phone cards with services provided by PT-1 in the latter
part of August, 1998, and at that time discontinued purchasing any services from
USC except those required to complete the operation of the already distributed
Latino Cards.
The Company plans to commit approximately $1.0 million in capital
investments for fiscal 1999 to its Telecommunications Business, and plans to be
able to internally fund additional infrastructure development through
operations. The Telecommunications Business was launched during the second
quarter of 1998. The Company's financial statements for the year ended October
31, 1998 and management's discussion and analysis of the results of operations
for 1998 reflect the results of operations of the Telecommunications Business
only. Because the Telecommunications Business was launched in the 1998 fiscal
year, the Company is not able to compare the results of operations for the
Telecommunications Business to prior periods. The results of operations of the
Software Business have been condensed into the line item caption "Discontinued
Operations" in the Company's financial statements and, because the Software
Business has been discontinued, management has not discussed the results of
operations for the Software Business in 1998 as compared to 1997.
REVENUE
For the year ended October 31, 1998, Canmax had revenues from continuing
operations of $2,190,000, $710,000 of which were attributable to revenues
derived through USC, and $1,480,000 of which were derived from revenues from
Canmax Telecom prepaid calling cards. The Company ceased recognizing revenues of
USC as of May 27, 1998.
Revenues from discontinued operations were $9,380,000 for the year ended
October 31, 1998, as compared to $12,736,000 for the comparable period in 1997.
13
<PAGE>
EXPENSES
For the year ended October 31, 1998, Canmax had total costs of revenues
relating to revenue from continuing operations of $3,554,000, of which
$1,119,000 was attributable to operations of USC and $2,435,000 was attributable
to Canmax Telecom prepaid calling cards.
General and administrative costs attributable to continuing operations
excluding USC were $437,000 for the year ended October 31, 1998. These costs
were primarily comprised of management, accounting, legal and overhead expenses.
Sales and marketing costs attributable to continuing operations excluding
USC were $389,000.
Interest and financing expenses attributable to continuing operations were
$155,000 for the year ended October 31, 1998. These expenses were associated
with indebtedness outstanding under the Loan Agreement that was entered into
during the 1998 period.
On June 15, 1998, Canmax and USCommunications signed an agreement effective
May 27, 1998 to rescind the purchase of USCommunications. Revenues, phone card
cost of revenues, and other expenses for the period from acquisition through
disposition, May 27, 1998 amounted to $709,525, $565,151 and $554,253,
respectively. The Company recorded a loss on disposal of $1,155,385.
As a result of the foregoing, Canmax incurred a net loss from continuing
operations of $2,621,000 or $0.37 per share for the year ended October 31, 1998.
RESULTS OF OPERATIONS--1997 VERSUS 1996
In the second quarter of the year ended October 31, 1998, Canmax launched
its Telecommunications Business. On December 7, 1998, Canmax disposed of its
Software Business, which represented all of its operations for the fiscal year
ended October 31, 1997 and prior periods. Therefore, the results of operations
for the years ended October 31, 1997 and 1996 relates solely to operations that
have been discontinued by Canmax.
REVENUE
For the year ended October 31, 1997, Canmax had revenues of $12,736,223, an
increase of $472,363 or 3.9% over 1996. During 1997, The Southland Corporation
(Southland) and NCR Corporation (NCR) accounted for approximately 92% of
Canmax's total revenue as compared with approximately 83% for the comparable
period of 1996.
Software licenses and product revenue for the year ended October 31, 1997
increased by 1.2% from $1,901,302 in 1996 to $1,924,897 in 1997. This increase
is primarily due to increased software and hardware sales to Southland during
the first nine months of 1997 for the planned implementation by Southland of a
Windows NT solution that commenced in December, 1997 and the sale to Southland
in October, 1997 of the right to use, possess and modify the source code of the
software developed by Canmax for Southland, for a one-time license fee of $1.0
million. These increases were partially offset by a decline in sales of software
and hardware components to other customers and a decrease in software and
hardware sales to Southland resulting from the completion of one phase of a UNIX
store upgrade which commenced during 1995 and concluded during the first quarter
of 1996.
Development revenue for the year ended October 31, 1997 increased $763,823
or 9.6% from $7,940,515 in 1996 to $8,704,338 in 1997. Development revenue from
the base contract with Southland continued to decline from approximately
$1,564,000 in 1996 to approximately $799,000 during the same period in 1997, in
accordance with the terms of the contract. Additionally, during 1996, Canmax
recognized development revenues of approximately $2,165,000 for work associated
with a contract between Canmax and NCR to develop a preliminary (non scanning)
point of sale software application in UNIX for Southland. This project was
completed in July, 1996. Also during 1996, Canmax recognized approximately
14
<PAGE>
$3,920,000 of development revenue for work performed under an agreement which
commenced in May, 1996 with NCR and Southland to develop a scanning point of
sale application for Southland and other associated inventory, merchandising,
and back office functions, running in a Windows NT environment (the "Southland
Windows NT development project"). Canmax recognized revenues of approximately
$7,560,000 during 1997 related to the Southland Windows NT development project.
Modifications to original project requirements increased total project revenues
from $9.5 million to $11.5 million. The Southland Windows NT development project
was completed in October, 1997. Additionally, during the fourth quarter of 1997,
Canmax provided development and other resources to Southland on an as-needed
basis. Canmax recognized approximately $254,000 of development revenue related
to this effort.
Development revenue increased $1,415,028 or 50.0% from $603,731 in the third
quarter of 1997 to $2,018,759 in the fourth quarter of 1997. During the third
quarter of 1997, Canmax undertook a significant work effort to support the
expanded testing of the Southland Windows NT development project for an interim
period up to pilot implementation. This expanded work effort was out of scope of
the original contract. Accordingly, at the end of the third quarter, Canmax
increased its cost estimates used to compute development project revenue under
the percentage-of-completion method and expensed all costs incurred related to
the additional work effort, including approximately $854,000 for work performed
during the third quarter of 1997. Canmax subsequently negotiated approximately
$981,000 of additional revenue related to this work effort. Therefore, as the
project was completed in October, 1997, Canmax recognized approximately $543,000
of remaining revenue under the percentage-of-completion method and approximately
$981,000 of the approved change control during the fourth quarter of 1997.
Service agreements revenue for the year ended October 31, 1997 decreased
$315,055 or 13.0% from $2,422,043 in 1996 to $2,106,988 in 1997. This decrease
resulted from a decline in the installation, training and site survey revenues
reflecting a lower number of new installations of Canmax's proprietary software
accompanied by a decrease in calls received from Southland locations by the 24
hour/7 day a week help desk, which caused a decline in revenue due to the
structure of the support contract with Southland.
GROSS MARGIN
Gross margin, as a percentage of software licenses and product revenue, was
59.9% for the year ended October 31, 1997 as compared with 30.5% for the same
period in 1996, prior to 1996 inventory writedowns of $217,623. Gross margin on
software sales for 1997 was 66.4% compared with 23.9% for the same period in
1996, excluding 1996 inventory writedowns. The increase is due to the effects of
the higher margin source code sale to Southland in October, 1997. This increase
in margin was partially offset by a decrease in margin resulting from increased
sales of lower margin purchased software during the reporting period coupled
with a decline in sales of Canmax's higher margin proprietary software. Gross
margin on hardware sales for 1997 was 37.6% compared with 32.8% for the same
period in 1996, excluding 1996 inventory writedowns. The increase in margin
resulted from a change in the mix of hardware components sold. Included in the
cost of revenues of software licenses and product revenue for 1996 is a one time
writedown of $105,763 for software inventory that Canmax determined was
necessary due to the limited likelihood of future sales of that item. Further,
also included in cost of revenues of software licenses and product revenue for
1996 is a one time writedown of inventory of $111,860 that Canmax determined was
required to reflect the inventory at net realizable value.
Gross margin on development revenues for 1997 was 47.6% for the year ended
October 31, 1997 as compared with 62.9% for the same period in 1996. This
decrease is partially due to lower anticipated profit margins on the Southland
Windows NT development project as compared to the NCR/Southland development
project in progress in 1996, the preliminary (non scanning) point of sale
software application in UNIX as well as changes in cost estimates of the
Southland Windows NT development project. The lower planned profit margin is a
result of the need to employ a significant number of highly skilled contractors
to complete certain phases of the Southland Windows NT development project
throughout the life of the
15
<PAGE>
project which was completed in October, 1997. No such requirements were
necessary or incurred for the NCR/Southland UNIX based project which was
completed in July, 1996.
Gross margin on development revenue for the fourth quarter of 1997 was 67.5%
as compared to (51.9)% for the third quarter of 1997. This increase is primarily
related to changes in project cost estimates and accounting for the additional
work effort undertaken in the third quarter of 1997. As previously discussed,
during the third quarter of 1997, Canmax undertook a significant work effort to
support the extended testing of the Southland Windows NT development project for
an interim period up to pilot implementation. This expanded work effort was out
of the scope of the original contract. Accordingly, at the end of the third
quarter, Canmax increased its cost estimates used to compute development project
revenue under the percentage-of-completion method and expensed all costs
incurred related to the additional work effort, including approximately $854,000
for the work effort performed during the third quarter of 1997. Canmax
subsequently negotiated approximately $981,000 of additional revenue related to
this work effort. Therefore, as the Southland Windows NT development project was
completed in October, 1997, Canmax recognized approximately $543,000 of
remaining revenue under the percentage-of-completion method and approximately
$981,000 of the approved change control during the fourth quarter of 1997.
EXPENSES
Customer service costs for the year ended October 31, 1997 decreased by 2.9%
compared with the same period in 1996. The decline in costs is due to lower
operating costs for the service arising from increased efficiencies and lower
overall expenditure levels.
Product development costs declined $672,463 or 52.3% from $1,286,966 in 1996
to $614,503 in 1997. The reduction is due to a significant increase in funded
development projects which resulted in development expenditures being included
in cost of revenues. Additionally, there was an increase in software development
costs capitalized. During the first quarter of 1996, Canmax capitalized $128,874
of software development costs relating to a new credit card processing network
interface as compared with $209,202 of such costs capitalized in the fourth
quarter of 1997 relating to Canmax's next generation Windows based project which
is scheduled for release in the first calendar quarter of 1998.
General and administrative expenses increased $258,225 or 7.3% from
$3,555,042 in 1996 to $3,813,267 in 1997. This net increase is primarily due to
Canmax expensing approximately $360,000 of merger related costs during October,
1997 upon termination of the proposed merger with Auto Gas Systems, Inc. These
costs, comprised primarily of legal and other professional fees incurred during
the second and third quarter of 1997, were originally deferred and would have
been accounted for as additional purchase price or as a reduction in the fair
value of the securities issued upon consummation of the proposed merger
transaction. Additionally, Canmax experienced increases in expenditures related
to the establishment of a business development unit, responsible for identifying
new business opportunities and project management and increased expenditures for
investor relations. These increases were partially offset by a reduction in
development project premiums to ensure timely completion of projects and
performance bonuses.
Sales and marketing expenses increased by $167,864 or 38.1% from $440,581 in
1996 to $608,445 in 1997. These increases are due to increased headcount and
advertising and marketing expenditures aimed at generating interest in existing
products as well as Canmax's new Windows based product scheduled for release in
the first calendar quarter of 1998.
For the year ended October 31, 1997 Canmax recorded no tax provision as net
operating loss carryforwards of approximately $20.3 million would offset any tax
liability related to fiscal year 1997.
As a result of the foregoing, Canmax generated net income of $87,331, or
$0.01 per share, for the year ended October 31, 1997 as compared with net income
of $142,614, or $0.02 per share, for the year ended October 31, 1996.
16
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
Upon consummation of the Software Business Sale on December 7, 1998, Canmax
received its initial installment of $4.0 million from ACS, approximately $1.1
million of which has been used to repay amounts owed to Founders under the Loan
Agreement and $250,000 of which was used to pay transaction expenses. The
Company plans to commit approximately $1.0 million for capital investments in
the Telecommunications Business for fiscal 1999, and plans to internally fund
additional infrastructure development through operations of the
Telecommunications Business. The Company believes existing capital resources and
cash from operations will be sufficient to meet the Company's capital and
liquidity needs through 1999.
At October 31, 1998, Canmax had cash and cash equivalents of approximately
$208,000, up from $129,000 for the same period in 1997, an increase of $79,000.
Cash used by continuing operating activities totaled $556,000 for the year
ended October 31, 1998. Cash used was comprised of Canmax's net loss of
$2,724,000, adjusted for: loss from discontinued operations of $103,000; loss on
disposal of USCommunications of $1,568,000; depreciation and capitalized
software and intellectual property rights amortization of $19,000; and net
changes in operating assets and liabilities of $477,000.
Cash used in investing activities for continuing operations for the year
ended October 31, 1998 totaled $803,000 and was primarily comprised of funds
provided to USCommunications in the form of a note receivable of $725,000 and
purchase of property and equipment of $78,000.
Cash provided by financing activities for continuing operations for the year
ended October 31, 1998 totaled $1,500,000 provided through borrowings under the
Loan Agreement that was entered into during the 1998 period.
Current assets from continuing operations totaled $937,000 at the end of the
fourth quarter of 1998, resulting in negative net working capital from
continuing operations of $1,460,000. Accounts receivable totaled $292,000 and
represented 31% of current assets from continuing operations. Accounts
receivable include one significant account which comprised 77% of total trade
accounts receivable from continuing operations. The note receivable totaled
$576,000 at October 31, 1998 and represented funds provided to USC.
Net property and equipment from continuing operations totaled $59,000 at the
end of the fourth quarter of 1998. The majority of property and equipment is
comprised of furniture, fixtures and computer equipment.
Current liabilities from continuing operations totaled $2,396,000 at the end
of the fourth quarter of 1998. The majority of liabilities were comprised of
convertible debentures issued under the Loan Agreement, accounts payable and
accrued liabilities. $1,000,000 of the convertible debentures were repaid out of
proceeds resulting from the sale of the Software Business.
At October 31, 1997 and 1996 Canmax had a net working capital surplus
(deficiency) of $793,000 and $208,000, respectively. During the years ended
October 31, 1997 and 1996 Canmax provided (used) total cash from ($780,000) and
$431,000, respectively.
In connection with the rescission Canmax's acquisition of USC, USC executed
a note payable to Canmax in the amount of $724,660. The USC note matures on June
15, 2001, and is payable in monthly installments on the fifteenth day of each
month. Monthly payments for November and December of 1998 are $15,000 and
monthly payments thereafter through the maturity date are approximately $20,000.
The USC note is secured by a lien on all of USC's assets. As of January 29,
1999, approximately $553,000 remained outstanding under the USC note.
17
<PAGE>
ACQUISITIONS
Canmax continues to review an acquisition strategy within its
Telecommunications Business. From time to time Canmax will review acquisition
candidates with products, technologies or other services that could enhance
Canmax product offerings or services. Any material acquisitions could result in
Canmax issuing or selling additional debt or equity securities, obtaining
additional debt or other lines of credit and may result in a decrease to Canmax
working capital depending on the amount, timing and nature of the consideration
to be paid. Canmax is not currently a party to any agreements, negotiations or
understandings regarding any material acquisitions.
SIGNIFICANT CUSTOMERS
Historically, The Southland Corporation ("Southland") has accounted for
approximately 85% of the revenue of Canmax in prior periods. The Software
Business and all rights under agreements with Southland were sold to ACS on
December 7, 1998, and therefore Southland is no longer a customer of Canmax.
Canmax currently distributes its prepaid long distance cards through a network
of independent distributors and none of its individual customers is considered
significant.
NASDAQ DELISTING
On June 8, 1998, Canmax Common Stock was delisted from the Nasdaq SmallCap
Market for a failure to meet the minimum net tangible asset requirement for
continued listing. Canmax Common Stock now trades on the OTC Bulletin Board. The
delisting of Canmax Common Stock may adversely affect the liquidity of the
Canmax Common Stock, the operations of Canmax and the ability of Canmax to raise
capital in the future.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes new guidance for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires that Canmax's
foreign currency translation adjustment be included in other comprehensive
income. The provisions of SFAS No. 130 have been applied to the prior period
presentation. The Company adopted these Statements as of November 1, 1998 and
does not expect the adoption of these standards to result in material changes to
previously reported amounts.
In July 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement expands certain reporting
and disclosure requirements for segments from current standards.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), which supercedes Statement
of Position No. 91-1. SOP 97-2 will be effective for all transactions entered
into by Canmax subsequent to October 31, 1998. Canmax is currently evaluating
the impact that SOP 97-2 will have on software license revenue transactions
entered into subsequent to October 31, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which will be effective for all transactions entered
into by Canmax subsequent to October 31, 1999. The Company is currently
evaluating the impact that SOP 98-1 will have on software developed or obtained
for internal use subsequent to October 31, 1999.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which will be
effective for all transactions entered into by Canmax subsequent to October 31,
1999. Canmax does not currently expect this standard to impact its disclosures.
18
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Standard No.
133 "Accounting for Derivative Instruments and Hedging Activities." The Standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The new
Standard is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. The Company does not expect the adoption of the new
Standard to have a material impact on its financial position or results of
operations.
IMPACT OF YEAR 2000
Canmax has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. Canmax has initiated
communications with all of its significant suppliers and customers to determine
the extent to which Canmax's internal systems and developed software products
are vulnerable to those third parties failure. In connection with the Software
Business Sale, Canmax and ACS conducted a Year 2000 compliance audit of software
and systems developed by Canmax. Such audit did not reveal any material items of
noncompliance, and Canmax does not expect to incur any material expenses to
cause its developed software and systems to become Year 2000 compliant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is presented at pages F-1 to
F-25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Item 9 of Form 10-K has been previously reported
(as defined in Rule 12b-2 of the Exchange Act) in the Company's Current Report
on Form 8-K dated July 13, 1998 and in the Company's definitive proxy materials
dated November 17, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than March 1, 1999 (120 days after the Company's fiscal year end covered
by this Report) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than March 1, 1999 (120 days after the Company's fiscal year end covered
by this Report) and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than March 1, 1999 (120 days after the Company's fiscal year end covered
by this Report) and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's
definitive proxy statement which the Company will file with the Commission no
later than March 1, 1999 (120 days after the Company's fiscal year end covered
by this Report) and is incorporated herein by reference.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) AND (2) LIST OF FINANCIAL STATEMENTS
The response to this item is submitted as a separate section of the Report.
See the index on Page F-1.
(3) EXHIBITS
The following is a list of all exhibits filed with this Form 10-K, including
those incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of January 30, 1998, among Canmax Inc., CNMX MergerSub, Inc. and
USCommunications Services, Inc. (filed as Exhibit 2.1 to Form 8-K dated January 30, 1998 (the "USC
8-K"), and incorporated herein by reference)
2.2 Rescission Agreement dated June 15, 1998 among Canmax Inc., USC and former principals of USC (filed as
Exhibit 10.1 to Form 8-K dated January 15, 1998 (the "USC Rescission 8-K"), and incorporated herein
by reference).
2.3 Asset Purchase Agreement by and among Affiliated Computed Services, Inc., Canmax and Canmax Retail
Systems, Inc. dated September 3, 1998 (filed as Exhibit 10.1 to Canmax's Form 8-K dated December 7,
1998 and incorporated herein by reference)
3.1 Articles of Incorporation of Canmax (filed as Exhibit 3.01 to Canmax's Registration Statement on Form
10, File No. 0-22636 (the "Form 10"), and incorporated herein by reference)
3.2* Amended and Restated Bylaws of Canmax
3.3* Certificate of Incorporation of ARDIS Telecom and Technologies, Inc.
3.4* Bylaws of ARDIS Telecom and Technologies, Inc.
4.1 Registration Rights Agreement between Canmax and the Dodge Jones Foundation (filed as Exhibit 4.02 to
Canmax's Quarterly Report on Form 10-Q for the period ended April 30, 1997 and incorporated herein
by reference)
4.2 Registration Rights Agreement between Canmax and Founders Equity Group, Inc. (filed as Exhibit 4.02 to
Canmax's Quarterly Report on Form 10-Q for the period ended April 30, 1997 and incorporated herein
by reference)
4.3* Amended Stock Option Plan
10.1 Master Agreement for Computer Software Development, License and Maintenance between CRSI and The
Southland Corporation (filed as Exhibit 10.05 to the Form 10 and incorporated herein by reference)
10.2** Software Development Agreement dated July 1, 1996 between NCR Corporation and CRSI (filed as Exhibit
10.09 to Canmax's Annual Report on Form 10-K for the period ended October 31, 1996)
10.3 Office Building Lease between Canmax and Commercial Properties Inc. (filed as Exhibit 10.3 to Canmax's
Registration Statement on Form S-3, File No. 333-33523 (the "Form S-3"), and incorporated herein by
reference)
10.4 Employment Agreement, dated June 30, 1997 between Canmax Retail Systems, Inc. and Roger Bryant (filed
as Exhibit 10.4 to the Form S-3 and incorporated herein by reference)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.5 Employment Agreement, dated June 30, 1997 between Canmax Retail Systems, Inc. and Debra L. Burgess
(filed as Exhibit 10.6 to the Form S-3 and incorporated herein by reference)
10.6 Amendment No. 3 to Master Agreement for Computer Software Development, License and Maintenance dated
October 31, 1997 between Canmax Retail Systems, Inc. and The Southland Corporation (filed as Exhibit
10.7 to the Form S-3 and incorporated herein by reference)
10.7 Convertible Loan Agreement by and between Canmax Inc. and Canmax Retail Systems, Inc. as Co-Borrowers
and Founders Equity Group, Inc. and Founders Mezzanine Investors III, LLC as Lenders dated December
15, 1997 (filed as Exhibit 10.8 to Canmax's Annual Report on Form 10-K for the year ended October
31, 1997 (the "1997 Form 10-K") and incorporated herein by reference)
10.8 Security Agreement between Canmax Inc. and Canmax Retail Systems, Inc. as Co-Borrowers and Founders
Equity Group, Inc. and Founders Mezzanine Investors III, LLC as Lenders dated December 15, 1997
(filed as Exhibit 10.9 to the 1997 Form 10-K and incorporated herein by reference)
10.9 Canmax Inc. and Canmax Retail Systems, Inc. 10.00% Senior Secured Convertible Debenture No. 1 (filed
as Exhibit 10.10 to the 1997 Form 10-K and incorporated herein by reference)
10.10 Canmax Inc. and Canmax Retail Systems, Inc. 10.00% Senior Secured Convertible Debenture No. 2 (filed
as Exhibit 10.11 to the 1997 Form 10-K and incorporated herein by reference)
10.11 Loan commitment letter dated February 11, 1998, between Canmax Inc. and Canmax Retail Systems, Inc. as
Borrowers and Founders Equity Group, Inc. and Founders Mezzanine Investors III, LLC as Lenders
(filed as Exhibit 10.18 to the 1997 Form 10-K and incorporated herein by reference)
10.12 Amendment No. 1 to First Restated Convertible Loan Agreement dated December 11, 1998 among Canmax,
Canmax Telecom, Inc. and Founders Equity Group, Inc. as agent (filed as Exhibit 10.2 to Canmax Form
8-K dated December 7, 1998 and incorporated herein by reference).
10.13 Restated Promissory Note dated June 15, 1998 from USC to Canmax Telecom, Inc. (filed as Exhibit 10.2
to the USC Rescission Form 8-K and incorporated herein by reference)
10.14 Security Agreement dated June 15, 1998 from USC for the benefit of Canmax Telecom, Inc. (filed as
Exhibit 10.3 to the USC Rescission Form 8-K and incorporated herein by reference)
10.15 Guaranty dated June 15, 1998 executed by Delia O'Donnell for the benefit of Canmax Telecom, Inc.
(filed as Exhibit 10.4 to the USC Rescission Form 8-K and incorporated herein by reference)
10.16 Guaranty dated June 15, 1998 executed by Alan Anderson, trustee, for the benefit of Canmax Telecom,
Inc. (filed as Exhibit 10.5 to the USC Rescission Form 8-K and incorporated herein by reference)
10.17 Pledge Agreement executed by Delia O'Donnell and Alan Anderson, as trustee, for the benefit of Canmax
Telecom, Inc. (filed as Exhibit 10.6 to the USC Rescission Form 8-K and incorporated herein by
reference)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.18 Guaranty date June 15, 1998 executed by James C. Bernet for the benefit of Canmax Telecom, Inc. (filed
as Exhibit 10.7 to the USC Rescission Form 8-K and incorporated herein by reference)
10.19*** Debit Telecommunications Services Agreement dated August 4, 1998 between PT-1 Communications, Inc.,
Canmax Telecom, Inc. and Canmax Inc.
10.20* Commercial Lease Agreement between Jackson--Shaw/Jetstar Tri-star Limited Partnership and Canmax.
11.1* Statement re: Computation of earnings per share
21.1* Subsidiaries of the Registrant
23.1* Consent of Independent Auditors (King Griffin & Adamson, P.C.)
23.2* Consent of Ernst & Young, LLP
27.1* Financial Data Schedule
27.2* Restated Financial Data Schedule
</TABLE>
* Filed herewith.
** Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to Canmax's Application requesting
confidential treatment under Rule 406 under the Securities Act of 1933, as
amended.
*** Filed herewith; however portions of this Exhibit have been omitted and filed
separately with the Secretary of the Commission pursuant to Canmax's
Application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
October 31, 1998. However, on December 22, 1998, the Registrant filed a report
on Form 8-K regarding the consummation of the Software Business Sale.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed in
its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
CANMAX INC.
By: /s/ ROGER D. BRYANT
-----------------------------------------
Roger D. Bryant
Date: January 29, 1999 PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ ROGER D. BRYANT Officer and Director
- ------------------------------ (principal executive January 29, 1999
Roger D. Bryant officer)
Executive Vice President,
Secretary, Chief
Financial Officer, Chief
/s/ DEBRA L. BURGESS Operating Officer and
- ------------------------------ Director (principal January 29, 1999
Debra L. Burgess financial officer and
principal accounting
officer)
/s/ ROBERT M. FIDLER
- ------------------------------ Director January 29, 1999
Robert M. Fidler
/s/ W. THOMAS RINEHART
- ------------------------------ Director January 29, 1999
W. Thomas Rinehart
- ------------------------------ Director January , 1999
Nick DeMare
</TABLE>
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CANMAX INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
ITEM 14(A)(1) AND (2)
<TABLE>
<S> <C> <C>
1. Consolidated Financial Statements
Reports of Independent Auditors................................................... F-2
Consolidated Balance Sheets at October 31, 1998 and October 31, 1997.............. F-4
Consolidated Statements of Operations for the fiscal years ended October 31, 1998,
October 31, 1997 and October 31, 1996........................................... F-5
Consolidated Statements of Shareholders' Equity for the fiscal years ended October
31, 1998, October 31, 1997 and October 31, 1996................................. F-6
Consolidated Statements of Cash Flows for the fiscal years ended October 31, 1998,
October 31, 1997 and October 31, 1996........................................... F-7
Notes to Consolidated Financial Statements........................................ F-8
2. Financial Statement Schedules
Schedules are omitted because they are not applicable or because the required
information is shown in the consolidated financial statements or notes hereto.
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Canmax Inc.
We have audited the accompanying consolidated balance sheet of Canmax Inc.
and subsidiaries as of October 31, 1998, and the related consolidated statements
of operations, shareholders' equity and cash flows for the year ended October
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Canmax Inc. and
subsidiaries at October 31, 1998, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
January 20, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Canmax Inc.
We have audited the accompanying consolidated balance sheet of Canmax Inc.
and subsidiaries as of October 31, 1997, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the two years in
the period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Canmax Inc. and
subsidiaries at October 31, 1997, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
December 18, 1997
F-3
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.............................................................................. $ 207,609 $ 128,871
Trade accounts receivable......................................................... 292,086 --
Inventory......................................................................... 229,672 --
Prepaid expenses and other........................................................ 29,002 --
Current portion of long-term receivable........................................... 177,845 --
Current assets of discontinued operations......................................... 2,305,502 2,973,373
------------- -------------
Total current assets............................................................ 3,241,716 3,102,244
------------- -------------
PROPERTY AND EQUIPMENT, net......................................................... 59,135 --
PROPERTY AND EQUIPMENT OF DISCONTINUED OPERATIONS, net.............................. 524,849 962,175
LONG-TERM RECEIVABLE, net of current portion........................................ 397,851 --
OTHER ASSETS........................................................................ 17,387 --
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS......................................... 1,049,641 643,059
------------- -------------
TOTAL ASSETS........................................................................ $ 5,290,579 $ 4,707,478
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable............................................................ $ 622,836 $ --
Accrued liabilities............................................................... 227,578 --
Deferred revenue.................................................................. 46,033 --
Advances from shareholder......................................................... 1,500,000 --
Current liabilities of discontinued operations.................................... 1,683,591 2,309,437
------------- -------------
Total current liabilities....................................................... 4,080,038 2,309,437
------------- -------------
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS.................................... 146,693 178,107
COMMITMENTS--(Notes H and J)
SHAREHOLDERS' EQUITY
Common stock, no par value, 44,169,100 shares authorized; 6,611,005 shares issued
and outstanding in 1998 and 1997.................................................. 24,858,809 23,290,733
Accumulated deficit................................................................. (23,789,545) (21,065,383)
Foreign currency translation adjustment............................................. (5,416) (5,416)
------------- -------------
Total shareholders' equity.......................................................... 1,063,848 2,219,934
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... $ 5,290,579 $ 4,707,478
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
REVENUES
Prepaid phone cards and other........................................ $ 1,479,588 $ -- $ --
Prepaid phone cards--USC............................................. 709,525 -- --
------------- ------------ ------------
Total revenues..................................................... 2,189,113 -- --
------------- ------------ ------------
COSTS AND EXPENSES
Prepaid phone cards and other........................................ 1,589,811 -- --
Prepaid phone cards--USC............................................. 565,151 -- --
Sales & marketing.................................................... 388,506 -- --
General & administrative............................................. 436,939 -- --
Selling general & administrative--USC................................ 554,253 -- --
Depreciation and amortization........................................ 19,356 -- --
------------- ------------ ------------
Total cost of revenues............................................. 3,554,016 -- --
------------- ------------ ------------
OTHER INCOME (EXPENSES)
Interest and financing costs......................................... (155,318) -- --
Interest income...................................................... 54,535 -- --
Loss on disposal of USC.............................................. (1,155,385) -- --
------------- ------------ ------------
Total other expense................................................ (1,256,168)
NET LOSS FROM CONTINUING OPERATIONS.................................... (2,621,071)
DISCONTINUED OPERATIONS
Income (loss) from operation of software business, net of income taxes
of $0................................................................ (103,091) 87,331 142,614
------------- ------------ ------------
NET INCOME (LOSS)...................................................... $ (2,724,162) $ 87,331 $ 142,614
------------- ------------ ------------
------------- ------------ ------------
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations.................................................. $ (0.37) $ -- $ --
Discontinued........................................................... (0.01) 0.01 0.03
------------- ------------ ------------
Net earnings (loss).................................................... $ (0.38) $ 0.01 $ 0.03
------------- ------------ ------------
------------- ------------ ------------
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations.................................................. $ (0.37) $ -- $ --
Discontinued operations................................................ (0.01) 0.01 0.02
------------- ------------ ------------
Net earnings (loss).................................................... $ (0.38) $ 0.01 $ 0.02
------------- ------------ ------------
------------- ------------ ------------
SHARES USED IN THE CALCULATION OF PER SHARE AMOUNTS:
Basic common shares.................................................... 7,095,937 5,827,262 4,983,011
Dilutive impact of stock options and warrants.......................... -- 827,703 1,868,137
------------- ------------ ------------
Diluted common shares.................................................. 7,095,937 6,654,965 6,851,148
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
OPTION TO FOREIGN
PURCHASE CURRENCY
COMMON COMMON COMMON ACCUMULATED TRANSLATION
SHARES STOCK AMOUNT STOCK DEFICIT ADJUSTMENT TOTAL
----------- ------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1995........ 4,935,269 $ 18,163,634 $ 4,861,659 $ (21,295,328) $ (11,293) $ 1,718,672
Shares issued for cash on exercise
of options....................... 77,600 208,940 -- -- -- 208,940
Net income......................... -- -- -- 142,614 -- 142,614
Translation adjustment............. -- -- -- -- 5,092 5,092
----------- ------------- ------------ -------------- ----------- -------------
Balance at October 31, 1996........ 5,012,869 18,372,574 4,861,659 (21,152,714) (6,201) 2,075,318
Shares issued to EDS............... 1,598,136 4,861,659 (4,861,659) -- -- --
Warrants issued in settlement of
registration obligation.......... -- 56,500 -- -- -- 56,500
Net income......................... -- -- -- 87,331 -- 87,331
Translation adjustment............. -- -- -- -- 785 785
----------- ------------- ------------ -------------- ----------- -------------
Balance at October 31, 1997........ 6,611,005 23,290,733 -- (21,065,383) (5,416) 2,219,934
----------- ------------- ------------ -------------- ----------- -------------
Issuance of common stock and
warrants in connection with
acquisition of USC............... 1,500,000 2,647,398 -- -- -- 2,647,398
Effect of USC rescission........... (1,500,000) (1,079,322) -- -- -- (1,079,322)
Net loss........................... -- -- -- (2,724,162) -- (2,724,162)
----------- ------------- ------------ -------------- ----------- -------------
Balance at October 31, 1998........ 6,611,005 $ 24,858,809 -- $ (23,789,545) $ (5,416) $ 1,063,848
----------- ------------- ------------ -------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................... $ (2,724,162) $ 87,331 $ 142,614
Adjustments to reconcile net income (loss) to net cash provided (used) by
continuing operating activities:
Loss (income) from discontinued operations.............................. 103,091 (87,331) (142,614)
Loss on disposal of USC................................................. 1,568,076 -- --
Depreciation and amortization........................................... 19,356 -- --
(Increase) decrease in:
Trade accounts receivable............................................. (292,086) -- --
Inventory............................................................. (229,672) -- --
Prepaid expenses and other............................................ (29,002) -- --
Other assets.......................................................... (17,387) -- --
Increase (decrease) in:
Trade accounts payable................................................ 771,799 -- --
Accrued liabilities................................................... 227,578 -- --
Deferred revenue...................................................... 46,033 -- --
------------- ----------- -----------
Net cash used by operating activities from continuing operations.......... (556,376) -- --
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................................ (78,493) -- --
Advances made under note receivable....................................... (724,660) -- --
------------- ----------- -----------
Net cash used in investing activities of continuing operations............ (803,153) -- --
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible debenture--shareholder.......................... 1,500,000 -- --
------------- ----------- -----------
Net cash provided by financing activities of continuing operations........ 1,500,000 -- --
------------- ----------- -----------
Cash provided by (used in) discontinued operations........................ (61,733) (779,901) 431,408
------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................................... 78,738 (779,901) 431,408
Cash at beginning of year................................................. 128,871 908,772 477,364
------------- ----------- -----------
Cash at end of year....................................................... $ 207,609 $ 128,871 $ 908,772
------------- ----------- -----------
------------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of USC through issuance of 1,500,000 common shares and
2,500,000 warrants for 1 common share each.............................. $ 2,647,398 $ -- $ --
USC rescission............................................................ $ (1,079,322) $ -- $ --
Offset of note receivable against trade accounts payable.................. $ 148,963 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ORGANIZATION AND NATURE OF BUSINESS
Canmax Inc. ("Canmax") was incorporated on July 10, 1986 under the Company
Act of the Province of British Columbia, Canada, and subsequently changed its
name to "International Retail Systems Inc." On August 7, 1992, Canmax renounced
its original province of incorporation and elected to continue its domicile
under the laws of the State of Wyoming, and on November 30, 1994, its name was
changed to "Canmax Inc."
During 1998 Canmax began competing in the telecommunications market through
its wholly-owned subsidiary, Canmax Telecom, Inc. ("Telecom"). Telecom's
operations include mainly sales and distribution of prepaid domestic and
international calling cards to wholesale and retail customers. In connection
with Canmax's entry into this new business, on January 30, 1998, Canmax acquired
USCommunications Services, Inc. ("USC"). The acquisition was rescinded as of May
27, 1998. (See Note C) The accompanying statement of operations for the year
ended October 31, 1998 includes the operations of USC from its acquisition date
through May 27, 1998.
In August 1998, the Company entered into an agreement with PT-1
Communications, Inc. ("PT-1"). The agreement provides for PT-1 to supply long
distance telecom and debit services, for use in Canmax's marketing and
distribution of domestic and international prepaid long distance calling cards.
PT-1 is currently the sole source of these services to the Company.
Canmax through its wholly owned subsidiary Canmax Retail Systems, Inc.,
("CRSI") developed and provided enterprise wide technology solutions to the
convenience store and retail petroleum industries, its "Software Business".
Canmax offered fully integrated retail automation solutions, including
"C-Serve," which included point of sale ("POS") systems, credit/debit network
authorization systems, pump control systems, and other back office management
systems, and "Vista," its headquarters-based management system. Canmax's
products and services enabled retailers and operators to interact electronically
with customers, capture data at the point of sale, manage site operations and
logistics and communicate electronically with their sites, vendors and
credit/debit networks. Canmax also provided (a) software development,
customization and enhancements, (b) systems integration, installation and
training services, and (c) 24 hour a day, 365 day per year help desk services.
These additional services enabled Canmax to tailor the solutions to each
customer's specifications and provide successful system implementation,
installation, training and after sales support.
On December 7, 1998, Canmax obtained shareholder approval for the sale of,
and sold, the assets of its Software Business. The results of operations of the
Software Business have been presented in the financial statements as
discontinued operations. Results of operations in prior years have been restated
to reclassify the Software Business as discontinued operations. The measurement
date for the sale is December 7, 1998, the date the shareholders approved the
transaction.
LIQUIDITY
Upon consummation of the Software Business Sale on December 7, 1998, Canmax
received its initial installment of $4,000,000 from ACS, approximately
$1,100,000 of which has been used to repay amounts owed to Founders Equity
Group, Inc. ("Founders") and $250,000 of which was used to pay transaction
expenses. The Company plans to commit approximately $1.0 million for capital
investments in the Telecommunications Business for fiscal 1999, and plans to
internally fund additional infrastructure development through operations of the
Telecommunications Business. The Company believes existing
F-8
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
capital resources and cash from operations will be sufficient to meet the
Company's capital and liquidity needs through fiscal 1999.
NOTE B--SUMMARY OF SIGNIFICANT POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of Canmax and
its wholly-owned subsidiaries, Canmax Retail Systems Inc. (Texas), Canmax Retail
Systems Inc. (British Columbia) and Canmax Telecom, Inc. All significant
intercompany transactions have been eliminated.
REVENUE RECOGNITION
The following describes Canmax's revenue recognition policies by type of
activity:
DISCONTINUED OPERATIONS:
Software Licenses and Products--Revenue was recognized when the software or
products were delivered to the customer, collectibility was probable, and no
significant vendor obligations remained after delivery.
Software Development Contracts--Revenue was recognized as Canmax performed
the services in accordance with the contract terms. Revenue from long-term
contracts was recognized using the percentage-of-completion method. Progress
to completion was measured based upon the relationship that total costs
incurred to date bears to the total costs expected to be incurred on a
specified project. Losses on fixed price contracts were recorded when
estimable.
Service Agreements--Revenue from maintenance and support agreements was
generally recognized in one of the following ways:
- Billed annually in advance and recognized ratably over the ensuing year.
- Billed and recognized monthly based on a fixed fee per site.
- Billed and recognized monthly at a minimum base fee plus a variable fee
which was dependent on call volumes.
CONTINUING OPERATIONS:
Phone cards sold while Canmax owned USC--Revenue recognition originated from
customer usage of prepaid calling cards. The Company sold cards to retailers
and distributors at a fixed price. When the retailer or distributor was
invoiced, deferred revenue was recognized. The Company recognized revenue,
and reduced the deferred revenue account as the customer utilized calling
time and upon expiration of cards containing unused calling time.
Phone cards sold other than through USC--Revenue is recognized when the
prepaid phone cards are invoiced and shipped. The Company performs no other
services after the cards are shipped.
F-9
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
INVENTORY
Inventory is stated at the lower of cost (first in-first out) or market and
is primarily comprised of activated and unactivated calling cards.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets ranging from three to five years. Equipment held under
capital leases and leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or the estimated useful life of the related
asset.
CAPITALIZED SOFTWARE COSTS
Under provisions of the Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed", software development costs in connection with the discontinued
operations were charged to expense when incurred until technological feasibility
for the product had been established, at which time the costs were capitalized
until the product was available for release. Canmax began amortizing capitalized
software costs upon general release of the software products to customers.
Canmax evaluated the net realizable value for each of its capitalized projects
by comparing the estimated future gross revenues from a project less estimated
future disposal costs to the amount of the unamortized capitalized cost. Costs
were being amortized using the greater of 1) the ratio that current gross
revenues for a capitalized software project bears to the total of current and
future gross revenue for that project or 2) the straight-line method over the
remaining economic life of the related projects which is estimated to be a
period of between four and five years. Amortization of capitalized software
costs, all related to the discontinued operations, amounted to approximately
$231,000, $231,000, and $226,000, in 1998, 1997, and 1996, respectively.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FASB 128),
effective for both interim and annual periods ending after December 15, 1997.
Statement 128 requires companies to report basic and diluted earnings per share.
Basic earnings per share is computed using the weighted average number of shares
of common stock outstanding during each period. Diluted earnings per share is
computed using the weighted average number of shares of common stock outstanding
during each period and common equivalent shares consisting of stock options and
warrants (using the treasury stock method) to the extent they are dilutive.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
F-10
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, Canmax considers all cash and
highly liquid short-term deposits to be cash equivalents. Total interest paid
during 1998, 1997, and 1996 amounted approximately to $24,000, $46,000, and
$50,000, respectively.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
DISCONTINUED OPERATIONS:
Canmax derived its sales primarily from customers in the retail petroleum
market. Canmax performed periodic credit evaluations of its customers and
generally did not require collateral. Billed receivables were generally due
within 30 days. Credit losses have historically been insignificant.
Canmax's revenues (See Note F) were concentrated in The Southland
Corporation ("Southland"), which accounted for approximately 87%, 92% and
83% of Canmax's total discontinued revenue for fiscal years 1998, 1997 and
1996, respectively. Canmax's revenues derived from its relationship with
Southland included products and services provided directly by Canmax to
Southland and indirectly through NCR Corporation ("NCR") to Southland
pursuant to NCR's contract with Southland. During those same periods,
Electronic Data Systems ("EDS") accounted for 0%, 2% and 7%, respectively,
of Canmax's revenues for such fiscal years. No other customer accounted for
over 10% of Canmax's total revenues. On April 29, 1997, Canmax and EDS
agreed to terminate substantially all of their business arrangements.
At October 31, 1998 and 1997, Southland accounted for 87% and 95%,
respectively of total discontinued accounts receivable (See Note F). Because
a significant portion of Canmax's revenues were derived from its
relationship with Southland, the timing of payments received from Southland
affected the percentage of current assets of Canmax classified as either
cash (or cash equivalents) or accounts receivable.
CONTINUING OPERATIONS:
One customer accounted for approximately 25% of revenues during 1998, and
approximately 77% of the trade accounts receivable balance at October 31,
1998. The Company does not generally require collateral. Canmax has a note
receivable from its prior subsidiary, USC, totaling $575,696. The note is
secured by a lien on all of USC's assets and bears interest at 12% with
principal due on maturity, June 15, 2001. Management provides an allowance
for doubtful accounts, which reflects its estimate of the uncollectible
receivables. In the event of non-performance the maximum exposure to the
Company is the recorded amount of the receivable at the balance sheet date.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-11
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash and cash equivalents, notes receivable, and
long-term debt is not materially different than fair market value because of the
short maturity of the instruments and/or their respective interest rate amounts.
STOCK-BASED COMPENSATION
Canmax accounts for its stock-based compensation in accordance with
provisions of the Accounting Principles Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees."
CURRENT AND PENDING ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes new guidance for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires that the
Company's foreign currency translation adjustment be included in other
comprehensive income. Canmax is not required to adopt these Statements until
November 1, 1998, and does not expect the adoption of these standards to result
in material changes to previously reported amounts.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement expands certain reporting
and disclosure requirements for segments from current Standards and will be
adopted November 1, 1998. As Canmax will be operating in one segment after the
disposition of its software business, Canmax does not currently expect this
standard to impact disclosures.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), which supercedes Statement
of Position No. 91-1. SOP 97-2 will be effective for all transactions entered
into by Canmax subsequent to October 31, 1998. Canmax is currently evaluating
the impact that SOP 97-2 will have on software license revenue transactions
entered into subsequent to October 31, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which will be effective for all transactions entered
into by Canmax subsequent to October 31, 1999. Canmax is currently evaluating
the impact the SOP 98-1 will have on software developed or obtained for internal
use subsequent to October 31, 1999.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which will be
effective for all transactions entered into by Canmax subsequent to October 31,
1999. Canmax does not currently expect this standard to impact disclosures.
In June 1998, the Financial Accounting Standards Board issued Standard No.
133 "Accounting for Derivative Instruments and Hedging Activities." The Standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The new
Standard is effective for all
F-12
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
fiscal quarters of all fiscal years beginning after June 15, 1999. Canmax does
not expect the adoption of the new Standard to have a material impact on its
financial position or results of operations.
NOTE C--ACQUISITIONS AND REVERSALS
USC ACQUISITION AND REVERSAL
On January 30, 1998, Canmax acquired USC in a transaction recorded under the
purchase method. The total purchase price of the acquisition was $2,647,398. The
purchase price consisted of the issuance of 1,500,000 common shares and warrants
to acquire 2,500,000 common shares. The Canmax shares were valued at the trading
price at the acquisition date with the warrants being valued using the
Black-Scholes pricing model. The following assumptions were used in the
Black-Scholes model at both the acquisition and disposition dates; dividend
yield of 0%, expected volalility of 112%, risk free interest rate of 6% over a 3
year period and a expected life of 3 years. In May of 1998, Canmax and
principals of USC agreed to rescind the USC acquisition and that the economic
benefits and burdens of any revenues received or expenses incurred following May
27, 1998 would accrue to USC. On June 15, 1998, the Company and USC executed
definitive documents to reflect the rescission of the acquisition of USC. Canmax
recovered 1,500,000 common shares, and canceled the warrants to acquire
2,500,000 common shares as a result of this reversal. Cash payments made on
behalf of USC are expected to be recovered through a note receivable in the
original principal amount of $724,660. Canmax has collected approximately
$175,000 on the note since the rescission. These collections have taken the form
of offsets against amounts owed by Canmax to USC for prepaid long distance
calling cards issued by Canmax which were run across USC's telephone calling
card platform. PT-1 Communications, Inc. ("PT-1") now provides the calling card
platform for Canmax's prepaid phone card customers and therefore Canmax does not
expect to continue to accrue amounts to offset against payments otherwise owed
by USC. The offset arrangement was not provided for at the time of the
rescission (or in the note) and the arrangement has been agreed to on a
month-to-month basis by Canmax and USC. In addition $23,446 in cash payments
have been collected on the note through the date of this report. The Company has
no reason to believe at this time that the USC note will not be collected. The
two board members who were elected as part of the acquisition agreement have
resigned.
Canmax recognized a loss on the disposition of $1,155,385. The loss on
disposal is calculated as the difference between the fair value of common stock
and warrants returned by USC and the net investment in USC, recognized by Canmax
through its disposition date.
ACQUISITION OF TALK TIME INC.
On June 16, 1998, Canmax acquired the assets of Talk Time, a wholesale
distributor of prepaid calling cards to convenience stores in the Rocky Mountain
and Oklahoma Regions. The asset purchase agreement provided for the acquisition
of certain assets and the assumption of obligations with a cash purchase price
approximating $54,000. In addition, the owner of Talk Time received warrants to
purchase 50,000 shares of the Company's common stock at $1 per share. The value
of these warrants using the Black-Scholes method approximates the fair value
assigned by management to the net assets acquired of $3,000. The following
assumptions were used in the Black-Scholes model; dividend yield of 0%, expected
volatility of 112%, risk free interest rate of 6% and an expected life of 2
years.
F-13
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--NASDAQ DELISTING
On August 25, 1997, the U.S. Securities and Exchange Commission, The
National Association of Securities Dealers, Inc. and the NASDAQ Stock Market
approved increases in the listing and maintenance standards governing the NASDAQ
SmallCap Market. On June 8, 1998 Canmax was delisted from the NASDAQ SmallCap
Market for failing to meet such new requirements, and is now traded on the OTC
Bulletin Board. The delisting of Canmax Common Stock may adversely affect the
liquidity of the Canmax Common Stock, the operations of Canmax and the ability
of Canmax to raise capital in the future.
NOTE E--ADVANCES FROM SHAREHOLDERS AND CONVERTIBLE DEBENTURES
ADVANCES FROM SHAREHOLDERS
On October 30, 1997, a shareholder, Founders Equity Group, Inc.
("Founders"), advanced Canmax $100,000. The advance was unsecured and had an
interest rate of 12%. On November 6, 1997, Canmax repaid principal and interest
of $100,230, which fully satisfied Canmax's obligation.
CONVERTIBLE DEBENTURES TO SHAREHOLDERS
On December 15, 1997, Canmax executed a convertible loan agreement (the
"Original Agreement") with a shareholder, Founders which provided financing of
up to $500,000. Funds obtained under the loan agreement are collateralized by
all assets of Canmax and bear interest at 10%. Required payments are for
interest only and are due monthly beginning February 1, 1998. Borrowings under
the loan agreement originally matured January 1, 1999, unless otherwise redeemed
or converted. Under the terms of the loan agreement, Founders may exercise its
right at any time to convert all, or in multiples of $25,000, any part of the
borrowed funds into Canmax Common Stock at a conversion price of $1.25 per
share. The conversion price is subject to adjustment for certain events and
transactions as specified in the loan agreements. Additionally, the outstanding
principal amount is redeemable at the option of Canmax at 110% of par.
On February 11, 1998, Canmax and Founders executed a loan commitment letter
(the "Loan Commitment") which provided for multiple advance loans of up to $2
million upon terms similar to the Original Agreement; however, indebtedness
outstanding under the Loan Commitment was convertible into shares of Canmax
Common Stock at a conversion price equal to the average closing prices of the
Canmax Common Stock over the five-day trading period immediately preceding the
date of each advance. As consideration for the Loan Commitment, Canmax paid a
commitment fee of $10,000.
As of March 31, 1998, Founders (and certain of its affiliates) entered into
the First Restated Loan Agreement (the "Loan Agreement") which consolidated all
rights and obligations of Canmax to Founders under the Original Agreement and
the Loan Commitment. Amounts advanced under the Loan Agreement bear interest at
the rate of 12% per annum, are secured by a lien on all other Company's assets
and are convertible into shares of Canmax Common Stock, at the option of
Founders, at $0.80 per share. On August 25, 1998, Founders agreed to release its
lien on all of Canmax's assets upon the consummation of the sale of the Software
Business (See Note M). As consideration for the release, Canmax agreed, upon the
consummation of the sale, to repay $1.0 million of the $1.5 million currently
outstanding under the Loan Agreement, and to allow Founders to convert, at the
Company's option, the remaining $0.5 million plus accrued but unpaid interest
outstanding under the Loan Agreement into shares of Canmax Common Stock at a
conversion price of $.50 per share.
On February 5, 1998, Founders and Canmax entered into a financial consulting
agreement pursuant to which Founders agreed to provide financial advisory and
consulting services to the Company, and Canmax
F-14
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--ADVANCES FROM SHAREHOLDERS AND CONVERTIBLE DEBENTURES (CONTINUED)
agreed to pay to Founders a fee equal to 3% of the value of the consideration
received in any sale or merger of any division or subsidiary of the Company. As
a result of this agreement, Founders will receive $120,000 of the initial
proceeds of the sale of the Software Business. Founders' agreed to forego any
further payments that may be attributable to Canmax's receipt of deferred
payments in connection with the sale.
Interest expense in connection with Founders debt was $103,352 for the year
ended October 31, 1998.
At October 31, 1998, shareholder advances from Founders totaled $1,500,000.
See also Note M.
NOTE F--DISCONTINUED OPERATIONS
On December 7, 1998, the Company obtained shareholder approval to sell the
assets of the Software Business to Affiliated Computer Services, Inc. a Delaware
corporation ("ACS"). The Asset Purchase Agreement dated as of September 3, 1998
provides for the sale of the computer equipment, purchased software, and
internally developed software for $4,000,000 in cash and additional deferred
payments (See note M).
The estimated gain on disposal of the assets of the Software Business is
$2,400,000. The gain will be recognized as of the disposal date.
Summarized operating results of discontinued Software Business operations
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Revenues......................................... $ 9,380,064 $ 12,736,223 $ 12,263,860
Costs and expenses............................... 9,483,155 12,648,892 12,121,246
------------ ------------- -------------
Net income (loss)................................ $ (103,091) $ 87,331 $ 142,614
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
F-15
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At October 31, 1998, assets and liabilities of the discontinued Software
Businesses operations are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash................................................................................ $ -- $ --
Accounts receivable................................................................. 2,135,862 2,751,264
Inventories......................................................................... 33,990 46,615
Prepaid expenses.................................................................... 135,650 175,494
------------ ------------
$ 2,305,502 $ 2,973,373
------------ ------------
Furniture and fixtures................................................................ $ 699,552 $ 929,060
Computer equipment.................................................................... 910,442 1,464,809
Computer software..................................................................... 354,868 465,321
Leasehold improvements................................................................ -- 87,635
Equipment held under capital lease obligations........................................ 370,235 239,207
Leasehold improvements under leasehold obligations.................................... 536,880 508,892
------------ ------------
2,871,977 3,694,924
Less accumulated depreciation and amortization........................................ (2,347,128) (2,732,749)
------------ ------------
$ 524,849 $ 962,175
------------ ------------
Noncurrent assets:
Capitalized software costs, net of accumulated amortization of $1,070,686 in 1998 and
$839,271 in 1997.................................................................... $ 993,180 $ 494,786
Intellectual property rights, net of accumulated amortization of $656,284 in 1998 and
$639,617 in 1997.................................................................... -- 30,556
Other assets.......................................................................... 56,461 117,717
------------ ------------
$ 1,049,641 $ 643,059
------------ ------------
Current liabilities:
Trade accounts payable.............................................................. $ 1,032,300 $ 878,241
Accrued liabilities................................................................. 297,113 867,233
Deferred revenue.................................................................... 210,342 269,404
Current portion of lease obligations................................................ 108,641 159,364
Current portion of long-term debt................................................... 35,195 35,195
Advances from shareholders.......................................................... -- 100,000
------------ ------------
$ 1,683,591 $ 2,309,437
------------ ------------
Long-term obligations, net of current maturities:
Lease obligations................................................................... $ 130,676 $ 127,051
Long-term debt...................................................................... 16,017 51,056
------------ ------------
$ 146,693 $ 178,107
------------ ------------
------------ ------------
</TABLE>
F-16
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOUTHLAND AGREEMENTS
In December, 1993, Canmax signed a five year agreement with Southland to
provide software licenses, development services, and provide hardware and help
desk services (the "Master Agreement"). Southland chose Canmax's proprietary
convenience store automation software, C-Serve, as the basis for its automation
of store functions and operations at its corporate and franchise operated
7-Eleven convenience stores in the United States. Software licensing, product
and service revenue under this agreement during the fiscal years ended October
31, 1998, 1997 and 1996 totaled approximately $3,160,000, $2,051,000 and
$2,581,000, respectively, while development revenues recorded under the Master
Agreement during these same periods totaled approximately $859,000, $799,000 and
$1,564,000, respectively. This agreement expired on December 7, 1998.
On October 31, 1997, Canmax and Southland entered into Amendment No. 3 to
the Master Agreement (the "Southland Amendment"). Pursuant to the terms of the
Southland Amendment, Canmax allowed Southland to exercise its right as specified
in the Master Agreement to use, possess and modify the source code for the
software developed by Canmax for Southland for a one-time license fee of $1.0
million. Payment of the license fee was due in two installments of $500,000. The
first installment was received in November, 1997 and the second installment was
received in January, 1998.
Total revenue recognized from Southland pursuant to all agreements totaled
approximately $8,197,000 during the year ended October 31, 1998.
During fiscal 1996, Canmax reached an agreement with NCR to develop for
Southland a next generation Windows NT based version of the Canmax C-Serve
convenience store software for $9.5 million. NCR was chosen by Southland to
provide project management and other professional services for the project.
Modifications to project requirements increased total project revenues from $9.5
million to $11.5 million. Since this project was completed in 1997, no
development revenues under such agreement were recognized by Canmax in fiscal
1998, as compared to $7,560,000 and $3,920,000 in fiscal years 1997 and 1996,
respectively.
EDS AGREEMENTS AND TRANSACTION
Canmax signed agreements with Electronic Data Systems Corporation ("EDS") in
April 1993 which were amended in October 1994. Under the terms of the amended
agreements, EDS marketed Canmax's software, services and hardware technology to
the retail petroleum marketplace exclusively, and Canmax offered EDS the right
to participate with its customers and prospective customers. Additionally,
Canmax granted EDS the right to acquire up to 25% of Canmax's Common Stock
calculated on a fully diluted basis at the time of exercise, at an exercise
price of not less than 75% of the market value of the Common Stock at the time
of exercise, minus $4,861,659, which would be reduced by royalties or similar
payments received by EDS from any licensing of Canmax's product other than
through EDS.
On April 29, 1997, EDS exercised its option to acquire up to 25% of Canmax's
Common Stock, resulting in Canmax issuing an additional 1,598,136 shares. Canmax
accounted for this transaction by reclassifying the amount associated with the
option to Common Stock. EDS then immediately sold its total interest in Canmax,
representing 1,863,364 shares, in a private transaction to Founders Equity
Group, Inc. and the Dodge Jones Foundation, two Texas-based institutional
investors. In conjunction with this transaction, Canmax entered into
registration rights agreements with the two institutional investors.
Additionally, EDS and Canmax agreed to amend a license and grant of rights
agreement which specifies rights and obligations of both parties as to 788 of
Canmax's site licenses sold to EDS in fiscal
F-17
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1994, and to terminate all formal agreements including the aforementioned stock
option agreement, as well as their joint marketing and other supporting business
agreements.
A summary of transactions with EDS for the last three fiscal years is set
forth below:
<TABLE>
<CAPTION>
OPTION TO
TOTAL PURCHASE
AMOUNT OF COMMON COMMON REVENUE
YEAR/TRANSACTION DESCRIPTION TRANSACTION STOCK STOCK (EXPENSE)
- ---------------------------------------------------------- ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C>
1996
Other services purchased from EDS....................... $ 84,327 $ -- $ -- $ (84,327)
Development revenue..................................... 143,415 -- -- 143,415
product & services revenue.............................. 690,751 -- -- 690,751
1997
Exercise of EDS options................................. 4,861,659 (4,861,659) 4,861,659 --
1998 -- -- -- --
</TABLE>
NOTE G--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at October 31:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Furniture and fixtures..................................................... $ 72,282 $ --
Computer equipment......................................................... 5,199 --
Computer software.......................................................... 1,010 --
---------- ---
78,491 --
Less accumulated depreciation and amortization............................. (19,356) --
---------- ---
$ 59,135 $ --
---------- ---
---------- ---
</TABLE>
Depreciation and amortization expense from continuing operations amounted to
$19,356, $0 and $0 in 1998, 1997, and 1996, respectively.
F-18
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--SHAREHOLDERS' EQUITY
WARRANT ISSUANCES
FOUNDERS EQUITY GROUP, INC.
On May 9, 1997, Founders Equity Group, Inc. exercised its right to demand
that Canmax file a registration statement with regard to all its shares
(863,364) of Canmax Common Stock. Such shares were acquired from EDS on
April 29, 1997 (see Note F-EDS Agreements and Transaction). Under applicable
securities laws, Canmax was unable to file such registration statement until
after the filing of the registration statement relating to the resale of
shares of Canmax Common Stock in the proposed Merger of Canmax and Auto-Gas
Systems, Inc. Pursuant to the terms of the registration rights agreement
with Founders Equity Group, Inc., Canmax was to have filed a registration
statement on or about July 23, 1997 or incur a registration penalty of
50,000 shares per month. Founders Equity Group, Inc. agreed to extend the
registration obligation until August 26, 1997 in exchange for its receipt of
a warrant to purchase 50,000 shares of Canmax Common Stock at an exercise
price of $2.00 per share. Such warrants are exerciseable and expire on
August 1, 2000. The registration obligation was satisfied by the filing of a
registration statement on Form S-3 on August 13, 1997.
Canmax recorded expense of $56,500 in August, 1997 related to these
Warrants. This amount represents Canmax's estimate of the fair value of
these warrants at the date of grant using a Black-Scholes pricing model with
the following assumptions: applicable risk-free interest rate based on the
current treasury-bill interest rate at the grant date of 5.9%; dividend
yields of 0%; volatility factors of the expected market price of Canmax
common stock of .85; and an expected life of the warrant of 1.5 years.
PERFORMANCE WARRANTS
In September 1997, Canmax executed employment agreements with certain
executives which provided for the issuance of warrants ("Performance
Warrants") to each executive as additional compensation. These agreements
were effective July 1, 1997. The aggregate number of shares to be issued
upon exercise of such Performance Warrants is 475,000. Each Performance
Warrant expires 10 years from the date of issuance, and is exercisable at a
price of $2.25 per share, the closing price of the Canmax Common Stock on
July 17, 1997, the date that the compensation committee approved the
issuance of such warrants. The Performance Warrants vest 50% upon the
"Trigger Date" and 50% on the one-year anniversary of the Trigger Date. As
used in each employment agreement, the Trigger Date means the date of the
earlier of the following events: (i) the earnings per share of Canmax (after
tax) equals or exceeds $0.30 per share during any fiscal year (ii) the
closing price of the Canmax Common Stock equals or exceeds $8.00 per share
for sixty-five consecutive trading days. The Performance Warrants also vest
100% upon a Change of Control.
The employment agreements define a "Change of Control" as existing upon any
of the following: (i) any person or entity is or becomes the beneficial
owner of more than thirty percent (30%) of the combined voting power of the
outstanding securities of CRSI or Canmax; (ii) at any time during the
twenty-four month period following a merger, tender offer, consolidation,
sale of assets or contested election, or any combination of such
transactions, at least a majority of the Board of Directors of CRSI or
Canmax shall cease to be "continuing directors" (meaning a director of CRSI
or Canmax prior to such transaction or who subsequently became directors and
whose election or nomination for election by the stockholders of CRSI or
Canmax, was approved by a vote of at least two-thirds of the
F-19
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--SHAREHOLDERS' EQUITY (CONTINUED)
directors then still in office prior to such transaction); or (iii) the
stockholders approve an agreement of sale or disposition by CRSI or Canmax
of all or substantially all of the assets of CRSI or Canmax.
In accordance with APB No. 25, and its related interpretations, Canmax has
recorded no compensation expense.
Effective on January 30, 1998, 475,000 of the Performance Warrants vested
concurrent with the issuance of common stock in connection with the
acquisition of USC. During fiscal 1998, 100,000 of these warrants were
cancelled. The exercise price of $2.25 was in excess of the trading price at
the vesting date, and accordingly no compensation pursuant to APB No. 25 has
been recorded by Canmax during 1998. The fair value of these warrants has
been calculated pursuant to SFAS 123 "Accounting for Stock Based
Compensation". The fair value of the warrants using the Black-Scholes
pricing model was $650,011 with the following assumptions: applicable
risk-free interest rates based on the current treasury-bill interest rate at
the grant date of 6.0%; dividend yields of 0%; volatility factors of the
expected market price of the Canmax common stock of .99; and an expected
life of the Performance Warrants of 5 years. See pro forma and other
disclosures further.
Effective July 20, 1998, the Performance warrants were repriced to 0.53 per
share, the closing price of the Canmax Common Stock on that date. The
repricing was made because management believes that the higher priced
options were no longer a motivating factor. The options repriced are
reflected in the cancellation and grant activity for 1998.
Effective July 20, 1998, additional performance warrants were issued to
certain executives ("1998 Performance Warrants"). Each 1998 Performance
Warrant expires 10 years after the date of issuance and is exercisable at a
price of $0.53 per share, the closing price of the Canmax Stock on July 20,
1998. The 1998 Performance Warrants vest upon achieving either $50 million
in revenue in any period of twelve consecutive months with positive earnings
during such months, or upon a change of control of Canmax. In accordance
with APB No. 25, and its related interpretations, Canmax has recorded no
compensation expense to date. Compensation expense may be recognized when it
becomes probable that an event which will trigger vesting will occur.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 "Accounting for Stock-Based Compensation", and has
been determined as if Canmax had accounted for the Performance Warrants
under the fair value method of that statement. The fair value of the 1998
Performance Warrants was estimated to be approximately $205,000 at the date
of grant using a Black-Scholes pricing model with the following assumptions:
applicable risk-free interest rates based on the current treasury-bill
interest rate at the grant date of 5.4%; dividend yields of 0%; volatility
factors of the expected market price of the Canmax common stock of 1.01; and
an expected life of the Performance Warrants of 5 years.
The weighted-average fair value of warrants granted during the year is $1.08
and the weighted-average remaining contracted life of warrants outstanding
at October 31, 1998 is 9.2 years.
STOCK OPTIONS
In 1990, Canmax adopted a stock option plan (the "Stock Option Plan"). The
Stock Option Plan authorizes the Board of Directors to grant up to 1,200,000
options to purchase common shares of Canmax. No options will be granted to any
individual director or employee which will, when exercised, exceed 5% of
F-20
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--SHAREHOLDERS' EQUITY (CONTINUED)
the issued and outstanding shares of Canmax. The term of any option granted
under the Stock Option Plan is fixed by the Board of Directors at the time the
options are granted, provided that the exercise period may not be longer than 10
years from the date of granting. All options granted under the Stock Option Plan
have up to 10 year terms and have vesting periods which range from 0 to 3 years
from the grant date. The exercise price of any options granted under the Stock
Option Plan is the fair market value at the date of grant. As of October 31,
1997, the Board had granted certain options under the Stock Option Plan in
excess of shares authorized under the plan. On February 26, 1998, the Board of
Directors increased the number of shares issuable under Canmax's stock option
plan (the "Stock Option Plan") from 1.2 million shares to 2.3 million shares.
Activity under the Stock Option Plan for the three years ended October 31, 1998
was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
---------- --------------
<S> <C> <C>
Options outstanding at October 31, 1995.............................................. 490,550 $ 2.50 - $5.00
Options granted.................................................................... 729,600 1.88 - 4.19
Options exercised.................................................................. (77,600) 1.90 - 2.88
Options canceled................................................................... (91,500) 2.25 - 6.25
---------- --------------
Options outstanding at October 31, 1996.............................................. 1,051,050 1.88 - 5.00
Options granted.................................................................... 266,000 1.50 - 2.50
Options canceled................................................................... (299,350) 1.88 - 5.00
---------- --------------
Options outstanding at October 31, 1997.............................................. 1,017,700 1.50 - 5.00
Options granted.................................................................... 199,050 0.38 - 1.41
Options exercised.................................................................. -- --
Options canceled................................................................... (122,600) 1.41 - 5.00
---------- --------------
Options outstanding at October 31, 1998.............................................. 1,094,150 0.38 - 5.00
---------- --------------
---------- --------------
</TABLE>
Effective December 29, 1995, employee options to purchase 87,100 shares of
Canmax's Common stock were repriced to the then current market price. The
options repriced are reflected in the cancellation and grant activity for 1996.
Effective December 11, 1998, employee options to purchase 1,094,150 shares were
repriced to $.40 per share, the closing price of Canmax stock on that date. The
repricing was made because the Board of Directors believed that the higher
priced options were no longer a motivating factor for key employees and
officers.
F-21
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--SHAREHOLDERS' EQUITY (CONTINUED)
A summary of Canmax's stock option activity and related information for the
years ended October 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
WEIGHTED - WEIGHTED - WEIGHTED -
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--Beginning of year............. 1,017,700 $ 2.23 1,051,050 $ 3.04 490,550 $ 4.10
Granted.................................... 199,050 0.94 266,000 1.91 729,600 2.19
Exercised.................................. -- -- -- -- (77,600) 2.69
Canceled................................... (122,600) 2.17 (299,350) 4.35 (91,500) 4.86
---------- ---------- ----------
Outstanding-End of year.................... 1,094,150 1.95 1,017,700 $ 2.23 1,051,050 3.04
---------- ---------- ----------
---------- ---------- ----------
Exercisable at end of year................. 732,850 2.20 691,535 $ 2.29 623,300 3.67
Weighted-average fair value of options
granted during the year.................. $ 0.49 $ 1.33 $ 2.18
</TABLE>
The weighted-average remaining contractual life of options outstanding at
October 31, 1998, 1997 and 1996 is 4.37 years, 4.37 years and 5.37 years,
respectively.
At October 31, 1998, there are 1,969,150 shares issuable upon the exercise
or conversion of outstanding warrants and options.
Under APB 25, because the exercise price of Canmax's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if Canmax had accounted for
its employee stock options under the fair value method of that statement. The
fair value for options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions: applicable risk-free
interest rates based on the current treasury-bill interest rate at the grant
date, which ranged from 5.4% to 6% in 1998, 5.8% to 6.2% in 1997 and 5.2% to
5.6% in 1996; dividend yields of 0% in 1998, 0% in 1997 and 1996; volatility
factors of the expected market price of Canmax common stock of between .94 and
1.0 in 1998; between .89 and .95 in 1997 and between 0.8 and 0.9 in 1996; and an
expected life of the option of between 2 and 6 years in 1998, 1.6 and 6 years in
1997 and between 2 and 7 years in 1996.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because Canmax employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options and warrants is amortized to expense over the vesting period of the
related option or warrant. The effects of applying SFAS No. 123 in computing the
pro forma disclosures presented below are not indicative of future amounts as
only options and warrants granted subsequent to October 31, 1995 have been
included in the
F-22
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--SHAREHOLDERS' EQUITY (CONTINUED)
pro forma computations. Canmax's pro forma information for the years ended
October 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) as reported............................................ $ (2,724,162) $ 87,331 $ 142,614
SFAS No. 123 Pro forma adjustments:
Stock options.......................................................... (261,726) (465,476) (585,718)
Founders Equity Group, Inc. warrants................................... -- -- --
Performance warrants................................................... $ (650,011) -- --
------------- ----------- -----------
Pro forma net loss....................................................... $ (3,635,899) $ (378,145) $ (443,104)
------------- ----------- -----------
------------- ----------- -----------
Pro forma loss per share................................................. $ (0.51) $ (0.06) $ (0.06)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
STOCK OPTION PLAN
As of October 31, 1998, 1,121,990 shares of Canmax Common Stock have been
issued under the Stock Option Plan, 1,094,150 shares remain subject to
outstanding options under the Stock Option Plan, and 83,860 shares were
available for future grants under the Stock Option Plan.
NOTE I--INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. There are no significant
deferred tax liabilities and assets related to the continuing operations as of
October 31, 1998 other than the net operating loss benefit of approximately
$7,360,000 which had a full valuation allowance recorded against it. Significant
deferred tax assets related to discontinued operations at October 31, 1997 were
composed of property and equipment, and net operating losses, all of which were
offset by a valuation allowance. The valuation allowance increased $415,000
during the year ended October 31, 1998.
The reconciliation of income tax provision at the statutory United States
federal income tax rates to income tax provision is:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate............................. $ (923,263) $ 29,693 $ 48,489
Benefit of net operating loss not recognized................................. 390,118 -- --
Difference related to USC rescission......................................... 533,145 -- --
Other........................................................................ -- (29,693) (48,489)
----------- ---------- ----------
$ -- $ -- $ --
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
At October 31, 1998, Canmax has net operating loss carryforwards for federal
income tax purposes of approximately $21,650,000 which expire in 2006 through
2013. Utilization of net operating losses may be subject to annual limitations
due to the ownership change limitation provided by the Internal Revenue Code of
1986. The annual limitation may result in the expiration of net operating losses
before utilization.
F-23
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--INCOME TAXES (CONTINUED)
At October 31, 1998, the net operating losses carryforwards of Canmax and its
subsidiaries were not subject to any material annual limitation.
NOTE J--COMMITMENTS
The lease on Canmax's office space expired August 31, 1998 and is month to
month. The space is used for executive, administrative, sales, engineering
personnel, help desk and related services, as well as for inventory storage and
demonstration purposes. Canmax has entered into a new five-year lease commencing
on March 1, 1999, at $10,250 per month. Future minimum lease payments under this
lease for the years ended October 31, 1999 through 2003 and thereafter are as
follows: $82,000, $123,000, $123,000, $123,000 and $164,000.
Neither Canmax nor any of its subsidiaries are party to any material legal
proceedings.
NOTE K--BENEFIT PLAN
Effective January 1, 1994, Canmax implemented an Internal Revenue Code
Section 401(k) Profit Sharing Plan for all employees of the Company. The Plan
provides for voluntary contributions by employees into the Plan subject to the
limitations imposed by the Internal Revenue Code Section 401(k). Canmax may
match employee contributions to a discretionary percentage of the employees
contribution. Canmax's matching funds are determined at the discretion of the
Board of Directors and are subject to a seven year vesting schedule from the
date of original employment. Canmax made no matching contributions during the
years ended October 31, 1998, 1997 and 1996.
NOTE L--YEAR 2000
Canmax has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. Canmax has initiated
communications with all of its significant suppliers and customers to determine
the extent to which Canmax's internal systems and developed software products
are vulnerable to those third parties failure. In connection with the sale of
the Software Business, Canmax and ACS conducted a Year 2000 compliance audit of
software and systems developed by Canmax. Such audit did not reveal any material
items of noncompliance, and Canmax does not expect to incur any material
expenses to cause its developed software and systems to become Year 2000
compliant.
NOTE M--SUBSEQUENT EVENTS
DISPOSITION OF SOFTWARE BUSINESS
On December 7, 1998, Canmax Inc. sold substantially all of the assets of
CRSI. Pursuant to the terms of the Purchase Agreement, ACS purchased the assets
and paid to CRSI $4,000,000 at closing and assumed certain liabilities arising
from the Software Business. Canmax is entitled to receive additional deferred
payments of up to an additional $3,625,000 calculated as described below.
In addition, on or before January 21, 1999, ACS and Canmax are to calculate
the net working capital (generally current assets other than cash minus current
liabilities) as of the closing date, and the Company is entitled to receive from
(or required to pay to) ACS an amount equal to the positive (negative)
difference between the net working capital as of the closing minus $530,019.
F-24
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M--SUBSEQUENT EVENTS (CONTINUED)
The deferred payments will be calculated at the end of each calendar quarter
during the twelve month period commencing on January 1, 1999. Each deferred
payment is calculated based upon the cumulative level of revenue attributable to
the Software Business from January 1, 1999 through the end of each three month
period through December 31, 1999, and equals (a) the sum of (i) 75% of all such
revenues greater than $4 million and less than or equal to $7 million plus (ii)
13.75% of all such revenues greater than $7 million or less than or equal to $17
million, minus (b) the sum of any deferred payments previously made by ACS. If
CRSI disputes any calculation of the amount of any deferred payment and such
dispute cannot be resolved among the parties, then the independent public
accountants for each party are to mutually designate a third independent public
accountant to resolve such dispute and the determination of such designated
party will be conclusive and binding on all parties.
CONVERTIBLE LOAN AGREEMENTS
On December 11, 1998, the Company and Founders, on its own behalf and as
agent for various lenders ("Founders"), executed Amendment No. 1 to the Restated
Convertible Loan Agreement dated March 31, 1998, as amended by the Letter
Agreement dated August 25, 1998 (as amended, the "Loan Agreement"). As a result
of the Amendment, Canmax agreed to defer the Founders' conversion of the
remaining indebtedness outstanding under the Loan Agreement in exchange for (a)
Founders' waiver of any registration obligations under the Registration Rights
Agreement dated May 1, 1997 or under the Loan Agreement, until February 1, 1999
or Canmax's earlier delivery of a Conversion Notice, (b) the adjustment of the
conversion price for the remaining convertible indebtedness outstanding under
the Loan Agreement ($500,000) from $.50 per share to the greater of $.50 per
share of 75% of the average closing price of the Canmax common stock over the
ten trading days preceding the delivery of a conversion notice, and (c)
Founders' agreement to convert the remaining outstanding principal amount under
the Loan Agreement ($500,000) upon written notice from the Company at the
adjusted conversion price described above. Further, the amendment to the Loan
Agreement reduced the interest rate payable on the outstanding principal amount
on the Loan Agreement from 12% to 9% per annum. The amendment also terminated
any additional funding obligations or Founders under the Loan Agreement. (See
note E)
F-25
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
CANMAX INC.
ARTICLE I
NAME, SEAL AND OFFICES
1.1 NAME. The name of this corporation is Canmax Inc. ("Corporation").
1.2 SEAL. The seal of this Corporation shall be circular in form and
shall have inscribed thereon the name of the Corporation and the words,
"Corporate Seal, Wyoming". The Board of Directors may change the form of the
seal or the inscription thereon at its pleasure.
1.3 OFFICES. The principal office of the Corporation shall be located
in Irving, Texas. The Corporation may have such other offices, as the Board of
Directors may from time to time appoint, as the purposes of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the Shareholders shall be
held once in every calendar year at such time and place as may be determined by
the Board of Directors for the purpose of electing Directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day. If the election of Directors shall
not be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the Shareholders as soon thereafter as conveniently may
be.
2.2 SPECIAL MEETINGS. Special meetings of the Shareholders may be
called by the Board of Directors or by the Shareholders holding at least ten
percent (10%) of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting by signing, either manually or in
facsimile, dating and delivering to the Corporation's secretary one (1) or more
written demands for the meeting describing the purpose or purposes for which it
is to be held.
2.3 PLACE OF MEETING. The Board of Directors may designate any place,
either within or without the State of Wyoming as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all Shareholders may designate any place, either
within or without the State of Wyoming as the
1
<PAGE>
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation.
2.4 NOTICE OF MEETINGS. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the President, or the Secretary, or the officer
or persons calling the meeting, to each Shareholder of record entitled to vote
at such meeting; except that if the authorized shares are to be increased, not
less than thirty (30) days notice shall be given, and if sale of all or
substantially all assets are to be voted upon, at least twenty (20) days' notice
shall be given. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail in a sealed envelope addressed to the
Shareholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid.
2.5 MEETING OF ALL SHAREHOLDERS. If all of the Shareholders shall meet
at any time and place, either within or without the State of Wyoming and consent
to the holding of a meeting, such meeting shall be valid without call or notice,
and at such meeting any corporate action may be taken.
2.6 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
Directors of the Corporation may close its stock transfer books for a period not
exceeding seventy (70) and not less than twenty (20) days prior to the date of
any meeting of Shareholders, or the date for the payment of any dividend or for
the allotment of rights, or the date when any exchange or reclassification of
shares shall be effective; or, in lieu of the date when any exchange or
reclassification of shares shall be effective; or, in lieu thereof, may fix in
advance a date, not exceeding seventy (70) and not less than twenty (20) days
prior to the date of any meeting of Shareholders, or to the date for the payment
of any dividend or for the allotment of rights, or to the date when any exchange
or reclassification of shares shall be effective, as the record the date for the
determination of Shareholders entitled to notice of, or to vote at, such
meeting, or Shareholders entitled to receive payment of any such dividend or to
receive any such allotment of rights, or to exercise rights in respect of any
exchange or reclassification of shares; and the Shareholders of record on such
date shall be the Shareholders entitled to notice of and to vote at, such
meeting, or to receive payment of such dividend or to receive such allotment of
rights, or to exercise such rights in the event of an exchange or
reclassification of shares, as the case may be. If the transfer books are not
closed and no record date is fixed by the Board of Directors, the date on which
notice of the meeting is mailed shall be deemed to be the record date for the
determination of Shareholders entitled to vote at such meeting. Transferees of
shares which are transferred after the record date shall not be entitled to
notice of or to vote at such meeting.
2.7 VOTING LISTS. The officer or agent having charge of the transfer
book for shares of the Corporation shall prepare, at least two (2) days after
notice of the meeting is given for which the list was prepared, a complete list
of the Shareholders entitled to vote at such meeting, arranged in alphabetical
order, with the address of and the number of shares held by each, which list
shall be kept on file at the principal office of the Corporation and shall be
subject
2
<PAGE>
to inspection by any Shareholder at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any Shareholder during the
whole time of the meeting. The original share ledger or transfer book, or a
duplicate thereof kept at the Corporation's principal office, shall be prima
facie evidence as to who are the Shareholders entitled to examine such list
or share ledger or transfer book or to vote at any meeting of Shareholders.
2.8 QUORUM. Fifty percent (50%) of the outstanding shares of the
Corporation, represented in person or by proxy, shall constitute a quorum at any
meeting of Shareholders, except as otherwise provided by Wyoming Business
Corporation Act and the Articles of Incorporation. In the absence of a quorum
at any such meeting, a majority of the shares so represented may adjourn the
meeting for a period not to exceed sixty (60) days at any one adjournment
without further notice. The Shareholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Shareholders to leave less than a quorum.
2.9 MANNER OF ACTING. At any Shareholder meeting at which a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote shall be the act of the Shareholders, unless a
greater number of votes is required under the Wyoming Business Corporation Act.
2.10 PROXIES. At all meetings of Shareholders, a Shareholder may vote
by proxy executed in writing by the Shareholder or by his or her duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. Unless otherwise provided in
the proxy, a proxy may be revoked at any time before it is voted, either by
written notice filed with the Secretary or the Acting Secretary of the meeting
or by oral notice given by the Shareholder to the presiding officer during the
meeting. The presence of a Shareholder who has filed his or her proxy shall not
of itself constitute a revocation. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
2.11 VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one (1) vote upon each matter submitted to a vote at a
meeting of Shareholders.
2.12 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name
of another corporation, domestic or foreign, may be voted by such officer,
agent, or proxy as the bylaws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation may
determine.
Shares standing in the name of a deceased person may be voted by his or her
administrator or personal representative, either in person or by proxy. Shares
standing in the name of a guardian, conservator, or trustee may be voted by such
fiduciary, either in person or by proxy, but no guardian, conservator, or
trustee shall be entitled, as such fiduciary, to vote shares held by him or her
without a transfer of such shares into his or her name.
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Shares held by a minor or incompetent may be voted by the minor or
incompetent in person or by proxy and no such vote shall be subject to
disaffirmance or avoidance, unless prior to the vote the Secretary of the
Corporation has actual knowledge that the Shareholder is a minor, or that the
Shareholder has been adjudicated an incompetent or that judicial proceedings
have been started for the appointment of a guardian.
As to Shares held in the names of two or more persons whether fiduciaries,
members of a partnership, tenants in common, tenants by the entireties, joint
tenants or otherwise or if two or more persons have the same fiduciary
relationship respecting the same shares, voting with respect to the shares shall
have the following effect:
(i) If only one person votes, his or her act binds all;
(ii) If two or more persons vote, the act of the majority so voting
binds all; or
(iii) If two or more persons vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately, or any person voting the shares of a beneficiary,
if any, may apply to any court of competent jurisdiction in the
State of Wyoming to appoint an additional person to act with the
persons so voting the shares. The shares shall then be voted as
determined by a majority of such persons and the person appointed
by the court. If a tenancy is held in unequal interests, a
majority or even split for the purpose of this subparagraph (iii)
shall be a majority or even split in interest.
The effects of voting stated above shall not be applicable if the Secretary
of the Corporation is given written notice of alternative voting provisions and
is furnished with a copy of the instrument or order wherein the alternate voting
provisions are stated.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on and
after the date on which written notice of redemption has been mailed to
Shareholders and a sum sufficient to redeem such shares
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has been deposited with a bank or trust company with irrevocable instruction
and authority to pay the redemption price to the holders of the shares upon
surrender of certificates therefor.
2.13 VOTING BY BALLOT. Voting on any question or in any election may be
by voice vote unless the presiding officer shall order or any Shareholder shall
demand that voting be by ballot.
2.14 INFORMAL ACTION BY SHAREHOLDERS. Any action required or permitted
to be taken at a meeting of the Shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the Shareholders entitled to vote with respect to the subject matter thereof.
The action shall be evidenced by one (1) or more written consents describing the
action taken, signed, either manually or in facsimile, by the holders of the
requisite number of shares entitled to vote on the action, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
2.15 PARTICIPATION BY ELECTRONIC MEANS. The Shareholders may
participate in any meeting of Shareholders by means of telephone conference or
similar communications equipment by which all persons participating in the
meeting can hear each other at the same time. Such participation shall
constitute presence in person at
the meeting.
ARTICLE III
DIRECTORS
3.1 GENERAL POWERS. The business and affairs of the Corporation shall
be managed by its Board of Directors.
3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of Directors shall
be fixed from time to time by resolution of the Board of Directors. There may
not be less than one (1) Director. Each Director shall hold office until the
next annual meeting of Shareholders or until his or her successor shall have
been elected and qualified. Directors shall be natural persons, eighteen (18)
years of age or older, but need not be residents of Wyoming or Shareholders of
the Corporation.
3.3 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw, immediately after, and at
the same place as, the annual meeting of Shareholders for the purpose of
organization, election of corporate officers, election or appointment of other
officers, agents or employees and for any other proper business. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Wyoming, for the holding of additional regular meetings
without other notice than such resolution.
3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the President or any two Directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the
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State of Wyoming, as the place for holding any special meeting of the Board
of Directors called by them.
3.5 NOTICE. Notice of any special meeting shall be given at least two
(2) days previously thereto by written notice delivered personally or mailed to
each Director at his or her business address, telex or by telegram. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail in a sealed envelope so addressed, with postage thereon prepaid. If notice
be given by telex or telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Any Director may waive
notice of any meeting. The attendance of a Director at any meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
3.6 QUORUM. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
provided, that if less than a majority of the Directors are present at said
meeting, a majority of the Directors present may adjourn the meeting for a
period not to exceed sixty (60) days without further notice.
3.7 MANNER OF ACTING. Except as otherwise required by law or by the
Articles of Incorporation, the act of the majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
3.8 COMPENSATION. Directors as such shall not receive any stated
salaries for their services, but by resolution of the Board of Directors, a
fixed sum and expense of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors; provided that nothing
herein contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
3.9 INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a
meeting of the Board of Directors may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
Directors. Such consent shall have the same force and effect as a unanimous
vote of the Directors.
3.10 PARTICIPATION BY ELECTRONIC MEANS. Any members of the Board of
Directors or any committee designated by such Board may participate in a meeting
of the Board of Directors or committee by means of telephone conference or
similar communications equipment by which all persons participating in the
meeting can hear each other at the same time. Such participation shall
constitute presence in person at the meeting.
3.11 VACANCIES. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining Directors though
less than a quorum of the Board of Directors. A Director elected to fill a
vacancy shall be elected for the unexpired term of his or her predecessor in
office. Any directorship to be filled by reason of an increase in the number of
directors may be filled by the affirmative vote of a majority of the Directors
then in
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office or by an election at an annual meeting or at a special meeting called
for that purpose. A Director chosen to fill a position resulting from an
increase in the number of directors shall hold office until the next election
of Directors by the Shareholders and until his or her successor shall have
been elected and qualified.
3.12 RESIGNATION. Any Director of the Corporation may resign at any
time by giving written notice to the President or the Secretary of the
Corporation. The resignation of any Director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. When one or more Directors shall resign from
the Board, effective at a future date, a majority of the Directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the results of the vote thereon to take effect when such
resignation or resignations shall become effective.
3.13 REMOVAL OF DIRECTORS. At a meeting called expressly for the
purpose of removal of Directors, the Shareholders may remove the entire Board of
Directors or any lesser number with or without cause, by a vote of the holders
of the majority of the shares then entitled to vote at an election of Directors.
3.14 PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent shall be entered in the minutes of the meeting or unless he
or she shall file his or her written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a Director who voted in favor of such action.
ARTICLE IV
COMMITTEES
4.1 DESIGNATION AND AUTHORITY: The Board of Directors may adopt a
resolution designating from among its members an Executive Committee and one or
more other committees each of which, to the extent provided in the resolution,
shall have all the authority of the Board of Directors; except no committee
shall have the authority of the Board of Directors in reference to amending the
Articles of Incorporation, adopting a plan of merger or consolidation,
recommending to the Shareholders the sale, lease, exchange, or other disposition
of all or substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business, recommending to
the Shareholders a voluntary dissolution of the Corporation or a revocation
thereof, or amending the Bylaws of the Corporation. The designation of such
committees and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed by
law.
4.2 COMPENSATION. The members of any committee shall not receive any
stated salary for their services as such, but by resolution of the Board of
Directors a fixed reasonable
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sum or expenses of attendance, if any, or both, may be allowed for attendance
at each regular or special meeting of such committee. The Board of Directors
shall have power in its discretion to contract for and to pay to any member
of any committee, rendering usual or exceptional services to the Corporation,
special compensation appropriate to the value of such services.
ARTICLE V
OFFICERS
5.1 NUMBER. The Officers of the Corporation shall be a President, a
Treasurer, and a Secretary each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or
more offices may be held by the same person, except the offices of President and
Secretary. The Officers of a Corporation shall be natural persons of the age of
eighteen (18) years or older.
5.2 ELECTION AND TERM OF OFFICE. The Officers of the Corporation shall
be elected annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of Shareholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each Officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified or until his or her death or until he or she shall resign or
shall have been removed in the manner hereinafter provided.
5.3 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
5.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term.
5.5 PRESIDENT. The President shall be the principal executive officer
of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation. He or she shall preside at all
meetings of the Shareholders and of the Board of Directors. The President shall
have general supervision of all other officers, agents and employees of the
Corporation, and in any case when the duties of the officers, agents or
employees of the Corporation are not specifically prescribed by the Bylaws or by
Board resolution, they shall be supervised by the President. He or she may
sign, with the Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or other instruments, which
the Board of Directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by
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these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Board of Directors from time to time.
5.6 THE VICE-PRESIDENTS. If elected or appointed by the Board of
Directors, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election, or in the absence of any designation, then in the order of their
election) shall, in the absence of the President or in the event of his or her
death, inability or refusal to act, perform all duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the Corporation;
and shall perform such other duties as from time to time may be assigned to him
or her by the President or by the Board of Directors.
5.7 THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his or her duties in
such sum and with such surety or sureties as the Board of Directors shall
determine. He or she shall:
(a) Have charge and custody of and be responsible for all funds and
securities of the Corporation from any source whatsoever, and deposit all such
monies in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article
VI of these Bylaws; and
(b) In general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the President or by the Board of Directors.
5.8 THE SECRETARY. The Secretary shall:
(a) Keep the Minutes of the Shareholders' and of the Board of
Directors' meetings in one or more books provided for that purpose;
(b) See that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law;
(c) Be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all
certificates for shares prior to the issue thereof and to all documents, and
execution of which on behalf of the Corporation under its seal is duly
authorized in accordance with the provisions of these Bylaws;
(d) Keep a register of the post office address of each Shareholder
which shall be furnished to the Secretary by such Shareholder;
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(e) Sign with the President, or a Vice President, certificates for
shares of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors;
(f) Have general charge of the stock transfer books of the Corporation;
and
(g) In general perform all duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him or her by the
President or by the Board of Directors.
5.9 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine. The Assistant Secretaries as
thereunto authorized by the Board of Directors may sign with the President or a
Vice President certificates for shares of the Corporation, the issue of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers and Assistant Secretaries, in general, shall perform such
duties as shall be assigned to them by the Treasurer or the Secretary,
respectively, or by the President or the Board of Directors.
5.10 SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no Officer shall be prevented from receiving
such salary by reason of the fact that he or she is also a Director of the
Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
6.2 LOANS. No loans shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation, shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
6.4 DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
7.1 REGULATION. The Board of Directors may make such rules and
regulations as ft may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the Corporation, including the
appointment of transfer agents and registrars.
7.2 CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be respectively numbered serially for each class of shares, or
series thereof, as they are issued, shall be impressed with the corporate seal
or a facsimile thereof, and shall be signed by the President or a Vice President
and by the Secretary or an Assistant Secretary; provided that such signatures
may be facsimile if the certificate is countersigned by a transfer agent, or
registered by a registrar other than the Corporation itself or its employee.
Each certificate shall state the name of the Corporation, the fact that the
Corporation is organized or incorporated under the laws of the State of Wyoming,
the name of the person to whom issued, the date of issue, the class (or series
of any class), the number of shares represented thereby and the par value of the
shares represented thereby or a statement that such shares are without par
value. A statement of the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class shall be set forth in full or summarized on the face or back of the
certificates which the Corporation shall issue, or in lieu thereof, the
certificate may set forth that such a statement or summary will be furnished to
any Shareholder upon request without charge. Each certificate shall be
otherwise in such form as may be prescribed by the Board of Directors and as
shall conform to the rules of any stock exchange on which the shares may be
listed.
The Corporation shall not issue certificates representing fractional shares
and shall not be obligated to make any transfers creating a fractional interest
in a share of stock. The Corporation may, but shall not be obligated to, issue
scrip in lieu of any fractional shares, such scrip to have terms and conditions
specified by the Board of Directors.
7.3 CANCELLATION OF CERTIFICATES. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of shares
shall have been surrendered and canceled, except as herein provided with respect
to lost, stolen or destroyed certificates.
7.4 LOST, STOLEN OR DESTROYED CERTIFICATES. Any Shareholder claiming
that his or her certificate for shares is lost, stolen or destroyed may make an
affidavit or affirmation of that fact and lodge the same with the Secretary of
the Corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
Corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the Corporation), a
new certificate may be issued of the same tenor and representing the same
number, class and series of shares as were represented by the certificate
alleged to be lost, stolen or destroyed.
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7.5 TRANSFER OF SHARES. Subject to the terms of any Shareholder
agreement relating to the transfer of shares or other transfer restrictions
contained in the Articles of Incorporation or these Bylaws, shares of the
Corporation shall be transferable on the books of the Corporation by the holder
thereof in person or by his or her duly authorized attorney, upon the surrender
and cancellation of a certificate or certificates for a like number of shares.
Upon presentation and surrender of a certificate for shares properly endorsed
and payment of all taxes therefor, the transferee shall be entitled to a new
certificate or certificates in lieu thereof. As against the Corporation, a
transfer of shares can be made only on the books of the Corporation and in the
manner hereinabove provided, and the Corporation shall be entitled to treat the
holder of record of any share as the owner thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by the statutes of the State of Wyoming.
ARTICLE VIII
VOTING UPON SHARES OF OTHER CORPORATIONS
Unless otherwise ordered by the Board of Directors, the President shall
have full power and authority on behalf of the Corporation to vote either in
person or by proxy at any meeting of shareholders, and at any such meeting may
possess and exercise all of the rights and powers incident to the ownership of
such shares which, as the owner thereof, this Corporation might have possessed
and exercised if present. The Board of Directors may confer like powers upon
any other person and may revoke any such powers as granted at its pleasure.
ARTICLE IX
INDEMNIFICATION AND EXPENSES OF SUIT
9.1 GENERAL. The Corporation shall indemnify an individual made a
party to any proceeding because he or she is a director, officer, employee or
agent of this Corporation against liability incurred in the proceeding if:
(a) He or she conducted himself or herself in good faith; and
(b) He or she reasonably believed that his or her conduct was in or at
least not opposed to the best interest of this Corporation; and
(c) In the case of any criminal proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
9.2 BENEFIT PLANS. Indemnification shall also be provided for an
individual's conduct with respect to an employee benefit plan if the individual
reasonably believed his or her conduct to be in the best interests of the
participants in and beneficiaries of the plan.
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9.3 ADVANCE PAYMENTS. The Corporation shall pay for or reimburse the
reasonable expenses incurred by a director, officer, employee or agent of the
Corporation who is a party to a proceeding in advance of final disposition of
the proceeding if:
(a) The individual furnishes the Corporation with a written affirmation
of his or her good faith belief that he or she has met the standards of conduct
described herein;
(b) The individual furnishes this Corporation with a written
undertaking executed personally or on his or her behalf to repay the advance if
it is ultimately determined that he or she did not meet the standard of conduct;
and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under the law.
The undertaking required by this paragraph shall be an unlimited general
obligation but need not be secured and may be accepted without reference to
financial ability to make repayment.
9.4 NONEXCLUSIVE RIGHT. The indemnification and advance of expenses
authorized herein shall not be exclusive to any other rights to which any
director, officer, employee or agent may be entitled under any other agreement,
vote of the Corporation's Shareholders or disinterested members of the Board of
Directors, or otherwise. These Bylaws shall not be interpreted to limit in any
manner the indemnification or right to advancement for expenses of an individual
who would otherwise be entitled thereto. These Bylaws shall be interpreted as
mandating indemnification and advancement of expenses to the extent permitted by
law.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be such twelve-month period as
determined by the Board of Directors after consultation with the Corporation's
independent accountant.
ARTICLE XI
DIVIDENDS
The Board of Directors may from time to time, declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
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ARTICLE XII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these Bylaws or under the provisions of the Articles of Incorporation or
under the provisions of the law under which this Corporation is organized,
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XIII
AMENDMENTS
The power to alter, amend or repeal Bylaws and to adopt new Bylaws is
reserved to the Board of Directors, to be exercised by majority vote of the
Board of Directors.
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CERTIFICATE
I hereby certify that the foregoing Amended and Restated Bylaws consisting
of fifteen (15) pages, including this page, constitute the Bylaws of Canmax
Inc., adopted by the Board of Directors of the Corporation as of August 25,
1998.
-----------------------------
Secretary
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EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
ARDIS TELECOM & TECHNOLOGIES, INC.
FIRST: The name of the Corporation is ARDIS Telecom & Technologies, Inc.
(the "Corporation").
SECOND: The name and mailing address of the Incorporator of the
Corporation is William L. Rivers, c/o Arter & Hadden LLP, 1717 Main Street,
Suite 4100, Dallas, Texas 75201.
THIRD: The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle 19801. Its
registered agent at such address is The Corporation Trust Company.
FOURTH: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The aggregate number of shares of all classes of stock which the
corporation shall have authority to issue is Fifty-four Million One Hundred
Sixty-nine Thousand One Hundred (54,169,100) shares, consisting of (A)
Forty-four Million One Hundred Sixty-nine Thousand One Hundred (44,169,100)
shares of common stock, par value $0.001 per share (the "Common Stock"), and (B)
Ten Million (10,000,000) shares of preferred stock, par value $0.0001 per share
(the "Preferred Stock").
The designations, powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof with respect to the Common Stock and the Preferred Stock are as follows:
(A) COMMON STOCK.
Each holder of the Common Stock of the Corporation shall be entitled to one
vote for every share of Common Stock outstanding in his name on the books of the
Corporation. Except for and subject to those rights expressly granted to the
holders of the Preferred Stock or except as may be provided by the laws of the
State of Delaware, the holders of Common Stock shall have exclusively all other
rights of stockholders including, without limitation, (i) the right to receive
dividends, when and as declared by the Board of Directors out of assets legally
available therefor, and (ii) in the event of any distribution of assets upon
liquidation, dissolution or winding up of the Corporation or otherwise, the
right to receive ratably and equally with all holders of all Common Stock all
the assets and funds of the Corporation remaining after the payment to the
holders of the Preferred
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CERTIFICATE OF INCORPORATION - PAGE 1
(ARDIS TELECOM & TECHNOLOGIES, INC.)
<PAGE>
Stock of the specific amounts that they are entitled to receive upon such
liquidation, dissolution or winding up of the Corporation, if any.
(B) PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated in the resolution or resolutions
providing for the establishment of such series adopted by the Board of Directors
of the corporation as hereinafter provided. Except as otherwise expressly
stated in the resolution or resolutions providing for the establishment of a
series of Preferred Stock, any shares of Preferred Stock that may be redeemed,
purchased or acquired by the Corporation may be reissued except as otherwise
expressly provided by law. Different series of Preferred Stock shall not be
construed to constitute different classes of stock for the purpose of voting by
classes unless expressly provided in the resolution or resolutions providing for
the establishment thereof. The Board of Directors of the Corporation is hereby
expressly authorized to issue, from time to time, shares of Preferred Stock in
one or more series, and, in connection with the establishment of any such series
by resolution or resolutions, to determine and fix the number of shares
constituting that series and the distinctive designation of that series and to
determine and fix such voting powers, full or limited, or no voting powers, and
such other powers, designations, preferences and relative, participating,
optional and other rights, and the qualifications, limitations and restrictions
thereof, including, without limitation, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be stated in such
resolution or resolutions, all to the fullest extent permitted by the Delaware
General Corporation law (the "DGCL"). Without limiting the generality of the
foregoing, the resolution or resolutions providing for the establishment of any
series of Preferred Stock may, to the extent permitted by law, provide that such
series shall be superior to, rank equally with or be junior to the Preferred
Stock of any other series. Except as otherwise expressly provided in the
resolution or resoluions providing for the establishment of any series of
Preferred Stock, no vote of the holders of shares of Preferred Stock or Common
Stock shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of this
Certificate of Incorporation.
SEVENTH: In furtherance and not in limitation of the powers conferred on
it by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation.
EIGHTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director of the Corporation; PROVIDED, HOWEVER, that the
foregoing is not intended to eliminate or limit the liability of a director of
the Corporation for (i) any breach of a director's duty of loyalty to the
Corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional
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CERTIFICATE OF INCORPORATION - PAGE 2
(ARDIS TELECOM & TECHNOLOGIES, INC.)
<PAGE>
misconduct or a knowing violation of law, (iii) a violation of Section 174 of
the DGCL, or (iv) any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Article NINTH shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the DGCL, as that section may be amended and supplemented from time to
time, indemnify any director or officer of the Corporation (and any director,
trustee or officer of any corporation, business trust or other entity to whose
business the Corporation shall have succeeded) which it shall have power to
indemnify under that Section against any expenses, liabilities or other matter
referred to in or covered by that Section. The indemnification provided for in
this Article TENTH (a) shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any Bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (b) shall continue as to a person who has ceased to be a director or
officer and (c) shall inure to the benefit of the heirs, executors and
administrators of such a person. To assure indemnification under this Article
TENTH of all such persons who are determined by the Corporation or otherwise to
be or to have been "Fiduciaries" of any employee benefit plan of the Corporation
which may exist from time to time and which is governed by the Act of Congress
entitled "Employee Retirement Income Security Act of 1974," as amended from time
to time, such Section 145 shall, for the purposes of this Article, be
interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan; the Corporation shall be deemed to have requested a
person to serve an employee benefit plan where the performance by such person of
his duties to the Corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines;" and action taken or
omitted by a person with respect to an employee benefit plan in the performance
of such person's duties for a purpose reasonably believed by such person to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Corporation.
ELEVENTH: Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 66 2/3% of the
outstanding shares of the Common Stock of the Corporation shall be required to
amend or repeal Articles EIGHTH and TENTH of this Certificate of Incorporation
or to adopt any provision inconsistent therewith. Further, the affirmative vote
of at least 66 2/3% of the outstanding shares of the Common Stock of the
Corporation shall be required to amend or repeal the Bylaws of the Corporation,
if the stockholders of the Corporation are required by the DGCL, the Certificate
of Incorporation or the Bylaws to vote thereon. Except as provided herein, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein conferred
are granted subject to this reserved power.
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CERTIFICATE OF INCORPORATION - PAGE 3
(ARDIS TELECOM & TECHNOLOGIES, INC.)
<PAGE>
TWELFTH: Meetings of stockholders may be held within or without the State
of Delaware as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware General Corporation Law)
outside the State of Delaware at such place or places as may be designated form
time to time by the Board of Directors or in the Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of
December, 1998, and affirm the statements contained therein as true under
penalties of perjury.
/s/ William L. Rivers
-----------------------------
WILLIAM L. RIVERS
INCORPORATOR
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CERTIFICATE OF INCORPORATION - PAGE 4
(ARDIS TELECOM & TECHNOLOGIES, INC.)
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
ARDIS TELECOM & TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1.1. The registered office of the Corporation shall be in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held at such place within or
without the State of Delaware, and at such hour of the day as the Board of
Directors shall determine, on the third Tuesday in January in each year (or if
such date shall be a legal holiday the Board of Directors may, in its
discretion, fix the date for such meeting on the next succeeding day).
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by order of the President, and shall
be called by the President or Secretary at the request in writing of a majority
of the Board of Directors, the whole Executive Committee or stockholders holding
together at least one-fifth of all shares of the Corporation entitled to vote at
the meeting. Special meetings of the stockholders shall be held at such place
within or without the State of Delaware, on such date, and at such time as may
be designated by the person or persons calling the meeting.
SECTION 2.3. NOTICE OF MEETINGS. Written notice of every meeting of
stockholders, stating the time, place and purposes thereof, shall be given
personally or by mail at least ten (10), but not more than sixty (60), days
(except as otherwise provided by law) before the
<PAGE>
date of such meeting to each person who appears on the stock transfer books
of the Corporation as a stockholder and who is entitled to vote at such
meeting. If such notice is mailed, it shall be directed to such stockholder
at his address as it appears on the stock transfer books of the Corporation.
SECTION 2.4. QUORUM. At any meeting of the stockholders the holders of
a majority of the shares of the Corporation entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum for all
purposes, except where otherwise provided by law or in the Certificate of
Incorporation. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum and the votes present may
continue to transact business until adjournment, provided that any action (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 2.5. ADJOURNMENTS. If at any meeting of stockholders a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or by proxy and entitled to vote at such meeting may
adjourn the meeting from time to time until a quorum shall attend, and thereupon
any business may be transacted which might have been transacted at the meeting
as originally called. Notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, provided, however, that if the adjournment is for more than thirty (30)
days or if after the adjournment a new record date is fixed, notice of the
adjourned date shall be given.
SECTION 2.6. ORGANIZATION. The Chairman of the Board, if one is
elected, and in his absence the President, and in their absence the Vice
President, shall call meetings of the stockholders to order and shall act as
chairman thereof. The Secretary or an Assistant Secretary of the Corporation
shall act as secretary at all meetings of the stockholders when present, and, in
the absence of both, the presiding officer may appoint any person to act as
secretary. The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as he may deem appropriate in
his discretion.
SECTION 2.7. VOTING. At each meeting of the stockholders, each holder
of the shares of Common Stock shall be entitled to one vote on such matter for
each such share and may exercise such voting right either in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or his duly
authorized attorney. No such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. Voting need
not be by ballot. All elections of directors shall be decided by a plurality
vote and all questions decided and actions authorized by a majority vote, except
as otherwise required by law.
SECTION 2.8. INSPECTORS. At any meeting of stockholders, inspectors of
election may be appointed by the presiding officer of the meeting for the
purpose of opening and closing the polls, receiving and taking charge of the
proxies, and receiving and counting the ballots or the vote of stockholders
otherwise given. The inspectors shall be appointed by the presiding officer of
the meeting, shall be sworn to faithfully perform their duties, and shall in
writing certify to the returns. No candidate for election as director shall be
appointed or act as inspector.
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<PAGE>
SECTION 2.9. STOCKHOLDER LIST. At least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of such stockholder,
shall be prepared and held open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours for said ten (10)
days either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
SECTION 2.10. INFORMAL ACTION. Any action that may be taken at any
annual or special meeting of the stockholders of the Corporation, may be taken
without a meeting, without prior notice, and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, provided that a consent must
bear the date of each stockholder's signature and no consent will be effective
unless written consents received by a sufficient number of stockholders to take
the contemplated action are delivered to the Corporation within sixty days of
the date that the earliest consent is delivered to the Corporation. Prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing. In the event that the action which is consented to is
such as would have required the filing of a certificate under any section of
Delaware law, if such action had been voted on by stockholders at a meeting
thereof, the certificate filed under such other section shall state, in lieu of
any statement required by such section concerning any vote of stockholders, that
written consent and that written notice have been given in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
ARTICLE III
DIRECTORS
SECTION 3.1. FUNCTIONS AND NUMBER. The property, business and affairs
of the Corporation shall be managed and controlled by a board of directors, who
need not be stockholders, citizens of the United States or residents of the
State of Delaware. The number of members which shall constitute the Board of
Directors shall be determined by resolution of the Board of Directors or by the
stockholders at an annual or special meeting held for that purpose, but no
decrease in the Board of Directors shall have the effect of shortening the term
of an incumbent director. The first Board of Directors shall consist of one (1)
member, such number to constitute the first whole Board of Directors. The use
of the phrase "whole Board" herein refers to the total number of directors which
the Corporation would have if there were no vacancies. Except as otherwise
provided by law or in these Bylaws or in the Certificate of Incorporation, the
directors shall be elected by the stockholders entitled to vote at the annual
meeting of stockholders of the Corporation, and shall be elected to serve until
the next annual meeting of stockholders and until their successors shall be
elected and shall qualify.
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<PAGE>
SECTION 3.2. REMOVAL. Any director may be removed, with or without
cause, by the affirmative vote of the holders of a majority of the then
outstanding shares of Common Stock.
SECTION 3.3. VACANCIES. Unless otherwise provided in the Certificate
of Incorporation or in these Bylaws, vacancies among the directors, whether
caused by resignation, death, disqualification, removal, an increase in the
authorized number of directors or otherwise, may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director.
SECTION 3.4. PLACE OF MEETING. The directors may hold their meetings
and may have one or more offices and keep the books of the Corporation (except
as otherwise may at any time be provided by law) at such place or places within
or without the State of Delaware as the Board may from time to time determine.
SECTION 3.5. ANNUAL MEETING. The newly elected Board may meet for the
purpose of organization, the election of officers and the transaction of other
business, at such time and place within or without the State of Delaware as
shall be fixed as provided in Section 3.7 of this Article for special meetings
of the Board of Directors.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place within or without the State of
Delaware as the Board of Directors shall from time to time by resolution
determine and no notice of such regular meetings shall be required.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the direction of the President or of
one-third of the directors then in office. The Secretary or some other officer
or director of the Corporation shall give notice to each director of the time
and place of each special meeting by mailing the same at least five (5) days
before the meeting or by telexing, telegraphing or telephoning the same not
later than the day before the meeting, at the residence address of each director
or at his usual place of business. Special meetings of the Board shall be held
at such place within or without the State of Delaware as shall be specified in
the call for the meeting. Unless expressly required by statute, by the
Certificate of Incorporation or by the Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting of the Board of Directors
need be specified in the notice of a meeting.
SECTION 3.8. QUORUM. Except as otherwise provided by law or in the
Certificate of Incorporation, a majority of the directors in office shall
constitute a quorum for the transaction of business. A majority of those
present at the time and place of any regular or special meeting, if less than a
quorum be present, may adjourn from time to time without notice, until a quorum
be had. The act of a majority of directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors, except as may be
otherwise provided by law or in the Certificate of Incorporation.
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<PAGE>
SECTION 3.9. COMPENSATION. The Board of Directors shall have the
authority to fix by resolution the compensation of directors.
SECTION 3.10. ORGANIZATION. At all meetings of the Board of Directors,
the President, or in his absence the Vice President if he is a member of the
Board, or in their absence, a chairman chosen by the directors shall preside.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary at all meetings of the Board of Directors when present, and, in the
absence of both, the presiding officer may appoint any person to act as
secretary.
SECTION 3.11. TELEPHONE MEETINGS. Any member of the Board of Directors
may participate in any meeting of such Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in any meeting pursuant to
this provision shall constitute presence in person at such meeting.
SECTION 3.12. INFORMAL ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors, or any committee thereof, may
be taken without a meeting if all the members of the Board consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board.
ARTICLE IV
COMMITTEES
SECTION 4.1. EXECUTIVE COMMITTEE. The Board of Directors, by a
resolution passed by a vote of a majority of the whole Board, may appoint an
Executive Committee of one or more directors, which to the extent permitted by
law and in said resolution shall, during the intervals between the meetings of
the Board of Directors, in all cases where special directions shall not have
been given by the Board, have and exercise the powers of the Board of Directors,
including those powers enumerated in these Bylaws which are not specifically
reserved to the Board of Directors, in the management of the property, business
and affairs of the Corporation; provided, however, that the Executive Committee
shall not have any power or authority to amend the Certificate of Incorporation,
to adopt any agreement of merger or consolidation, to recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, to recommend to the stockholders a
dissolution of the Corporation or a revocation of dissolution, to amend the
Bylaws of the Corporation, to declare a dividend, to authorize the issuance of
stock or to adopt a certificate of ownership and merger. The Executive
Committee shall have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. The Board of Directors shall
appoint the Chairman of the Executive Committee. The members of the Executive
Committee shall receive such compensation and fees as from time to time may be
fixed by the Board of Directors.
SECTION 4.2. ALTERNATES AND VACANCIES. The Board of Directors may
designate one or more directors as alternate members of the Executive Committee
who may replace any absent or disqualified member at any meeting of the
Executive Committee. In the absence or disqualification of a member of the
Executive Committee, the member or members thereof present
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<PAGE>
at any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or
disqualified member. All other vacancies in the Executive Committee shall be
filled by the Board of Directors in the same manner as original appointments
to such Committee.
SECTION 4.3. COMMITTEES TO REPORT TO BOARD. The Executive Committee
shall keep regular minutes of its proceedings and all action by the Executive
Committee shall be reported to the Board of Directors at its meeting next
succeeding such action.
SECTION 4.4. PROCEDURE. The Executive Committee shall fix its own
rules of procedure, and shall meet where and as provided by such rules or by
resolution of the Board of Directors. The presence of a majority of the then
appointed number of each committee created pursuant to this Article IV shall
constitute a quorum and in every case an affirmative vote by a majority of the
members of the committee present and not disqualified from voting shall be the
act of the committee.
SECTION 4.5. OTHER COMMITTEES. From time to time the Board of
Directors by a resolution adopted by a majority of the whole Board may appoint
any other committee or committees for any purpose or purposes, to the extent
lawful, which shall have such powers as shall be determined and specified by the
Board of Directors in the resolution of appointment.
SECTION 4.6. TERMINATION OF COMMITTEE MEMBERSHIP. In the event any
person shall cease to be a director of the Corporation, such person shall
simultaneously therewith cease to be a member of any committee appointed by the
Board of Directors, or any subcommittee thereof.
ARTICLE V
OFFICERS
SECTION 5.1. EXECUTIVE OFFICERS. The executive officers of the
Corporation may consist of a Chairman of the Board, a President and Chief
Executive Officer, one or more Vice Presidents, a Treasurer and a Secretary, all
of whom shall be elected annually by the Board of Directors. Unless otherwise
provided in the resolution of election, each officer shall hold office until the
next annual election of directors and until his successor shall have been
qualified. Any two of such offices may be held by the same person.
SECTION 5.2. SUBORDINATE OFFICERS. The Board of Directors may appoint
one or more Assistant Secretaries, one or more Assistant Treasurers and such
other subordinate officers and agents as it may deem necessary or advisable, for
such term as the Board of Directors shall fix in such appointment, who shall
have such authority and perform such duties as may from time to time be
prescribed by the Board.
SECTION 5.3. COMPENSATION. The Board of Directors shall have the power
to fix the compensation of all officers, agents and employees of the
Corporation, which power, as to other than elected officers, may be delegated as
the Board of Directors shall determine.
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<PAGE>
SECTION 5.4. REMOVAL. All officers, agents and employees of the
Corporation shall be subject to removal, with or without cause, at any time by
affirmative vote of the majority of the whole Board of Directors whenever, in
the judgment of the Board of Directors, the best interests of the Corporation
will be served thereby. The power to remove agents and employees, other than
officers or agents elected or appointed by the Board of Directors, may be
delegated as the Board of Directors shall determine.
SECTION 5.5. CHAIRMAN OF THE BOARD. If a Chairman of the Board is
elected, he shall be chosen from among the members of the Board of Directors and
shall preside at all meetings of the directors and the stockholders of the
Corporation. The Chairman of the Board shall, in general, have supervisory
power over the President and all other officers of the Corporation.
SECTION 5.6. THE PRESIDENT. The President shall be the chief operating
officer of the Corporation and shall have the general powers and duties of
supervision and management of the Corporation. The President shall also be the
chief executive officer of the Corporation and, in the absence of the Chairman
of the Board, shall preside at all meetings of the stockholders and directors at
which he is present. The President shall also perform such other duties as may
from time to time be assigned to him by the Board of Directors.
SECTION 5.7. VICE PRESIDENTS. Each Vice President shall perform such
duties and shall have such authority as from time to time may be assigned to him
by the Board of Directors or the President.
SECTION 5.8. THE TREASURER. The Treasurer shall have the general care
and custody of all the funds and securities of the Corporation which may come
into his hands and shall deposit the same to the credit of the Corporation in
such bank or banks or depositaries as from time to time may be designated by the
Board of Directors or by an officer or officers authorized by the Board of
Directors to make such designation, and the Treasurer shall pay out and dispose
of the same under the direction of the Board of Directors. He shall have
general charge of all securities of the Corporation and shall in general perform
all duties incident to the position of Treasurer.
SECTION 5.9. THE SECRETARY. The Secretary shall keep the minutes of
all proceedings of the Board of Directors and the minutes of all meetings of the
stockholders and also, unless otherwise directed by such committee, the minutes
of each standing committee, in books provided for that purpose, of which he
shall be the custodian; he shall attend to the giving and serving of all notices
for the Corporation; he shall have charge of the seal of the Corporation, of the
stock certificate books and such other books and papers as the Board of
Directors may direct; and he shall in general perform all the duties incident to
the office of Secretary and such other duties as may be assigned to him by the
Board of Directors.
SECTION 5.10. VACANCIES. All vacancies among the officers for any cause
shall be filled only by the Board of Directors.
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<PAGE>
SECTION 5.11. BONDING. The Board of Directors shall have power to
require any officer or employee of the Corporation to give bond for the faithful
discharge of his duties in such form and with such surety or sureties as the
Board of Directors may deem advisable.
ARTICLE VI
STOCK
SECTION 6.1. FORM AND EXECUTION OF CERTIFICATES. The shares of stock
of the Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors; provided that the Board of Directors of the
Corporation may provide by resolution that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation; and, notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and every holder of uncertificated shares shall be entitled to a
certificate or certificates representing his shares upon delivery of a written
request therefor to the Secretary of the Corporation. The certificates shall
be signed by the President or the Vice President and the Treasurer or the
Secretary or an Assistant Treasurer or Assistant Secretary, except that where
any such certificates shall be countersigned by a transfer agent and by a
registrar, the signatures of any of the officers above specified, and the seal
of the Corporation upon such certificates, may be facsimiles, engraved or
printed. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of its issue.
SECTION 6.2. REGULATIONS. The Board of Directors may make such rules
and regulations consistent with any governing statute as it may deem expedient
concerning the issue, transfer and registration of certificates of stock and
concerning certificates of stock issued, transferred or registered in lieu or
replacement of any lost, stolen, destroyed or mutilated certificates of stock.
SECTION 6.3. FIXING OF RECORD DATE. For the purpose of determining the
stockholders entitled to notice of, and to vote at, any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination of stockholders, and all persons who are stockholders of record on
the date so fixed, and no others, shall be entitled to notice of, and to vote
at, such meeting or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or to take any other
lawful action, as the case may be. Such record date shall not be more than
sixty (60) days nor less than ten (10) days before the date of any such meeting,
nor more than sixty (60) days prior to any other action, provided that any
record date established by the Board of Directors may not
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<PAGE>
precede the date of the resolution establishing the record date. The record
date for determining stockholders entitled to consent to corporate actions in
writing shall not be more than ten (10) days after the date upon which the
resolution fixing the record date was adopted. If no record date is
established prior to an action undertaken by consent, the record date shall
be, if no action of the Board of Directors is required, the first date on
which a signed written consent setting forth the action taken is delivered to
the corporation. If action by the Board of Directors is required, the record
date shall be the close of business on the day the board adopts the
resolution taking the prior action.
SECTION 6.4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent or transfer agents and a registrar or registrars for
any or all classes of the capital stock of the Corporation, and may require
stock certificates of any or all classes to bear the signature of either or
both.
ARTICLE VII
SEAL
SECTION 7.1. SEAL. The seal of the Corporation shall be circular in
form and contain the name of the Corporation, the year of its organization, and
the words "CORPORATE SEAL, DELAWARE", which seal shall be in charge of the
Secretary to be used as directed by the Board of Directors.
ARTICLE VIII
FISCAL YEAR
SECTION 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be
the calendar year unless otherwise fixed by resolution of the Board of
Directors.
ARTICLE IX
WAIVER OF NOTICE
SECTION 9.1. WAIVER OF NOTICE. Any person may waive any notice
required to be given by law, in the Certificate of Incorporation or under these
Bylaws by attendance in person, or by proxy if a stockholder, at any meeting,
except when such person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, or by a writing signed by the person
or persons entitled to said notice, whether before or after the time stated in
said notice, which waiver shall be deemed equivalent to such notice. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, directors, or members of a committee appointed by
the Board of Directors need be specified in any written waiver of notice.
ARTICLE X
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<PAGE>
CHECKS, NOTES, DRAFTS, CONTRACTS, VOTING OF SECURITIES, ETC.
SECTION 10.1. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 10.2. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation, to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 10.3. PROVISION REGARDING CONFLICTS OF INTERESTS. No contract
or transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 10.4. VOTING OF SECURITIES OWNED BY THE CORPORATION. Subject
always to the specific directions of the Board of Directors, any share or shares
of stock or other securities issued by any other corporation and owned or
controlled by the Corporation may be voted, whether by written consent as set
forth hereinbelow or at any meeting of such other corporation, by the President
of the Corporation, or in the absence of the President, by any Vice President of
the Corporation who may be present at such meeting or available to sign such
written consent. Whenever in the judgment of the President, or in his absence,
of any Vice President, it shall be desirable for the Corporation to execute a
proxy or give a consent with respect to any share or
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<PAGE>
shares of stock or other securities issued by any other corporation and owned
by the Corporation, such proxy or consent shall be executed in the name of
the Corporation by the President or one of the Vice Presidents of the
Corporation without necessity of any authorization by the Board of Directors.
Any person or persons so designated as the proxy or proxies of the
Corporation shall have full right, power and authority to vote the share or
shares of stock or other securities issued by such other corporation and
owned by the Corporation.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1. INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action suit or proceeding, whether civil, criminal or investigative
(a "proceeding"), by reason of the fact that he or a person for whom he is the
legal representative is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, trustee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans) whether the basis of such proceeding is
alleged action in his official capacity as a director, officer, employee or
agent, or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the Delaware General Corporation Law against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
special excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to require
advancement by the Corporation of attorneys' fees and other expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses incurred by a director or officer of
the Corporation in his capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, shall be made by the
Corporation only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amount so advanced if it should
be determined ultimately that such director or officer is not entitled to be
indemnified under this section or otherwise.
SECTION 11.2. INDEMNIFICATION NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by this Article XI shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under the Certificate of Incorporation, any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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<PAGE>
SECTION 11.3. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans) against any liability
assessed against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article XI.
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<PAGE>
EXHIBIT 4.3
THIS DOCUMENT CONSTITUTES PART
OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933.
AMENDED AND RESTATED
CANMAX INC.
STOCK OPTION PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INTERPRETATION
<S> <C> <C>
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
PURPOSE AND PARTICIPATION
2.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Notification of Award. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Copy of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
3.1 Board to Allot Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Term of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Termination of Option. . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Assignment of Options. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
EXERCISE OF OPTION
4.1 Exercise of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Issue of Share Certificates. . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Condition of Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V
ADMINISTRATION
5.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Prospective Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Retrospective Amendment. . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE>
STOCK OPTION PLAN
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
As used herein, unless anything in the subject matter or context is inconsistent
therewith, the following terms shall have the meanings set forth below:
a) "Administrator" means, initially, the secretary of the Issuer and
thereafter shall mean such director or other senior officer or employee
of the Issuer as may be designated as Administrator by the Board from
time to time;
b) "Award Date" means the date on which the Board awards a particular
Option;
c) "Board" means the board of directors of the Issuer;
d) "Director" means any individual holding the office of director of the
Issuer;
e) "Employee" means any individual regularly employed on a full-time or
part-time basis by the Issuer or other persons who either perform
services for the Issuer on an ongoing basis or who have provided, or are
expected to provide, a service of value to the Issuer;
f) "Exercise Notice" means the notice respecting the exercise of an Option,
in the form set out as Schedule "B" hereto, duly executed by the Option
Holder;
g) "Exercise Period" means the period during which a particular Option may
be exercised and is the period from and including the Award Date through
to and including the Expiry Date;
h) "Exercise Price" means the price at which an Option may be exercised as
determined in accordance with paragraph 3.5;
i) "Expiry Date" means the date determined in accordance with paragraph 3.3
and after which a particular Option cannot be exercised;
j) "Issuer" means Canmax Inc.
k) "Market Value" means the closing price of the Issuer's Shares on the date
the Issuer's shared traded through the facilities of NASDAQ SmallCap
Market immediately preceding the Award Date, unless the Shares did not
trade through the facilities of NASDAQ SmallCap Market on that day in
which case it is the closing price of the Issuer's Shares the last day
they traded through the facilities of NASDAQ SmallCap Market;
l) "Option" means an option to acquire Shares, awarded to a Director or
Employee pursuant to the Plan;
m) "Option Certificate" means the certificate, in the form set out as
Schedule "A" hereto, evidencing an Option;
n) "Option Holder" means a Director or Employee, or former Director or
Employee, who holds an unexercised and unexpired Option or, where
applicable, the Personal Representative of such person;
o) "Plan" means this Canmax Inc. Stock Option Plan;
p) "Personal Representative" means:
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<PAGE>
i. in the case of a deceased Option holder, the executor or
administrator of the deceased duly appointed by a court or public
authority having jurisdiction to do so; and
ii. in the case of an Option Holder who for any reason is unable to
manage his or her affairs, the person entitled by law to act on
behalf of such Option Holder; and
q) "Sale Transaction" means any of the following events:
i. any consolidation or merger of the Issuer in which the Issuer is
not the continuing or surviving company or pursuant to which
shares of common stock of Issuer would be converted into cash,
securities or other property, other than a merger of the Issuer
in which the holders of the common stock of the Issuer
immediately prior to the merger have the same proportion of
ownership of common stock of the surviving company immediately
after the merger or which would result in the voting securities
of the company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least fifty percent of the total voting power represented by the
voting securities of the Issuer or such surviving entity
outstanding immediately following such merger or consolidation;
or
ii. any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of in excess of fifty
percent of the assets of the Issuer.
r) "Share" or "Shares" means, as the case may be, one or more common shares
without par value in the capital of the Issuer.
1.2 CHOICE OF LAW
The Plan is established under and the provisions of the Plan shall be
interpreted and construed in accordance with the laws of the State of Texas.
1.3 HEADINGS
The headings used herein are for convenience only and are not to affect the
interpretation of the Plan.
ARTICLE II
PURPOSE AND PARTICIPATION
2.1 PURPOSE
The purpose of the Plan is to provide the Issuer with a share-related mechanism
to attract, retain and motivate qualified Directors and Employees, to reward
such of those Directors and Employees as may be awarded Options under the Plan
by the Board from time to time for their
2
<PAGE>
contributions toward the long term goals of the Issuer and to enable and
encourage such Directors and Employees to acquire Shares as long term
investments.
2.2 PARTICIPATION
The Board shall, from time to time, in its sole discretion determine those
Directors and Employees, if any, to whom Options are to be awarded. If the
Board elects to award an Option to a Director, the Board shall, in its sole
discretion but subject to paragraph 3.2, determine the number of Shares to be
acquired on the exercise of such Option. If the Board elects to award an Option
to an Employee, the number of Shares to be acquired on the exercise of such
Option shall be determined by the Board in its sole discretion, taking into
account the following criteria:
a) the annual salary of the Employee as at the Award Date in
relation to the total annual salaries payable by the Issuer to
all of its Employees as at the Award Date;
b) the length of time that the Employee has been employed by the
Issuer; and
c) the quality of work performed by the Employee.
2.3 NOTIFICATION OF AWARD
Following the approval by the Board of the awarding of an Option, the
Administrator shall notify the Option Holder in writing of the award and shall
enclose with such notice the Option Certificate representing the Option so
awarded.
2.4 COPY OF PLAN
Each Option Holder, concurrently with the notice of the award of the Option,
shall be provided with a copy of the Plan. A copy of any amendment to the shall
be promptly provided by the Administrator to each Option Holder.
2.5 LIMITATION
The Plan does not give any Option Holder that is a Director the right to serve
or continue to serve as a Director of the Issuer nor does it give any Option
Holder that is an Employee the right to be or to continue to be employed by the
Issuer.
ARTICLE III
TERMS AND CONDITIONS OF OPTION
3.1 BOARD TO ALLOT SHARES
The shares to be issued to Option Holders upon the exercise of Options shall be
allotted and authorized for issuance by the Board prior to the exercise thereof.
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<PAGE>
3.2 NUMBER OF SHARES
The Issuer shall not grant Options under the Plan which will, when exercised,
exceed 2,300,000 shares of Common Stock and shall not grant Options to any one
individual Director or Employee which will, when exercised, exceed five percent
(5%) of the issued and outstanding Shares of the Issuer.
If any Option expires or otherwise terminates for any reason without having been
exercised in full, the number of Shares in respect of which Option expired or
terminated shall again be available for the purposes of the Plan.
3.3 TERM OF OPTION
Subject to paragraph 3.4, the Expiry Date of an Option shall be the date so
fixed by the Board at the time the particular Option is awarded, provided that
such date shall not be later than the tenth anniversary of the Award Date of
such Option.
3.4 TERMINATION OF OPTION
An Option Holder may exercise an Option in whole or in part at any time or from
time to time during the Exercise Period provided that, with respect to the
exercise of part of an Option, the Board may at any time and from time to time
fix a minimum or maximum number of Shares in respect of which an Option Holder
may exercise part of any Option held by such Option Holder. Any Option or part
thereof not exercised within the Exercise Period shall terminate and become
null, void and of no effect as of 5:00 p.m. local time in Irving, Texas on the
Expiry Date. The Expiry Date of an Option shall be the earlier of the date so
fixed by the Board at the time the Option is awarded and the date established,
if applicable, in sub-paragraphs (a) to (c) below;
a) DEATH
In the event that the Option Holder should die while he or she is still a
Director (if he or she holds his or her Option as Director) or Employee
(if he or she holds his or her Option as Employee), the Expiry Date shall
be the first anniversary of the Option Holder's date of death; or
b) CEASING TO HOLD OFFICE
In the event that the Option Holder holds his or her Option as Director
of the Issuer and such Option Holder ceases to be a Director of the
Issuer other than by reason of death, the Expiry Date of the Option shall
be the 30th day following the date the Option Holder ceases to be a
Director of the Issuer as a result of:
i. ceasing to meet the qualifications set forth in Wyoming
legislation; or
ii. a special resolution having been passed by the members of the
Company or;
iii. by order of any regulatory body having jurisdiction to so order,
4
<PAGE>
in which case the Expiry Date shall be the date the Option Holder ceases
to be a Director of the Issuer; or
c) CEASING TO BE EMPLOYED
In the event that the Option Holder holds his or her Option as an
Employee of the Issuer and such Option Holder ceases to be an Employee of
the Issuer other than by reason of death or a Sale Transaction, the
Expiry Date of the Option shall be the 30th day following the date the
Option Holder ceases to be an Employee of the Issuer unless the Option
Holder ceases to be an Employee of the Issuer as a result of:
i. termination for cause; or
ii. by the order of any regulatory body having jurisdiction to so
order,
in which case the Expiry Date shall be the date the Option Holder ceases
to be an Employee of the Issuer.
d) SALE TRANSACTION
In the event that the Option Holder holds his or her Option as an
Employee of the Issuer and such Option Holder becomes an employee of the
party (the "Acquiror") continuing or surviving any merger or acquiring a
material portion of the assets of the Company in a Sale Transaction, the
Expiry Date shall be the second anniversary of the date of consummation
of the Sale Transaction.
3.5 EXERCISE PRICE
The price at which an Option Holder may purchase a Share upon the exercise of an
Option shall be the Market Value as of the Award Date.
3.6 ASSIGNMENT OF OPTIONS
Options may not be assigned or transferred, provided however that the Personal
Representative of an Option Holder may, to the extent permitted by paragraph
4.1, exercise the Option within the Exercise Period.
3.7 ADJUSTMENTS
If prior to the complete exercise of any Option the Shares are consolidated,
subdivided, converted, exchanged or reclassified or in any way substituted for
(collectively the "Event"), an Option, to the extent that it has not been
exercised, shall be adjusted by the Board in accordance with such Event in the
manner the Board deems appropriate. No fractional Shares shall be issued upon
the exercise of the Options and accordingly, if as a result of the Event, an
Option Holder would become entitled to a fractional share, such Option Holder
shall have the right to purchase
5
<PAGE>
only the next lowest whole number of shares and no payment or other
adjustment will be made with respect to the fractional interest so
disregarded.
ARTICLE IV
EXERCISE OF OPTION
4.1 EXERCISE OF OPTION
An Option may be exercised only by the Option Holder or the Personal
Representative of any Option Holder. An Option Holder or the Personal
Representative of any Option Holder may exercise an Option in whole or in part
at any time or from time to time during the Exercise Period up to 5:00 p.m.
local time in Irving, Texas on the Expiry Date by delivering to the
Administrator an Exercise Notice, the applicable Option Certificate and a
certified check or bank draft payable to Canmax Inc. in an amount equal to the
aggregate Exercise Price of the Shares to be purchased pursuant to the exercise
of the Option.
4.2 ISSUES OF SHARE CERTIFICATES
As soon as practicable following the receipt of the Exercise Notice, the
Administrator shall cause to be delivered to the Option Holder a certificate for
the Shares so purchased. If the number of Shares so purchased is less than the
number of Shares subject to the Option Certificate surrendered, the
Administrator shall forward a new Option Certificate to the Option Holder
concurrently with delivery of the aforesaid share certificate for the balance of
Shares available under the Option.
4.3 CONDITION OF ISSUE
The issue of Shares by the Issuer pursuant to the exercise of an Option is
subject to this Plan and compliance with the laws, rules and regulations of all
regulatory bodies applicable to the issuance and distribution of such Shares and
to the listing requirements of any stock exchange or exchanges on which the
shares may be listed. The Option Holder agrees to comply with all such laws,
rules and regulations and agrees to furnish to the Issuer any information,
report and/or undertakings required to comply with and to fully cooperate with
the Issuer in complying with such laws, rules and regulations.
ARTICLE V
ADMINISTRATION
5.1 ADMINISTRATION
The Plan shall be administered by the Administrator on the instructions of the
Board. The Board may make, amend and repeal at any time and from time to time
such regulations not inconsistent with the Plan as it may deem necessary or
advisable for the proper administration and operation of the Plan and such
regulations shall form part of the Plan. The Board may delegate to the
Administrator or any Director, officer or employee of the Issuer such
administrative duties and powers as it may see fit.
6
<PAGE>
5.2 INTERPRETATION
The interpretation by the Board of any of the provisions of the Plan and any
determination by it pursuant thereto shall be final and conclusive and shall not
be subject to any dispute by any Option Holder. No member of the Board or any
person acting pursuant to authority delegated by it hereunder shall be liable
for any action or determination in connection with the Plan made or taken in
good faith and each member of the Board and each such person shall be entitled
to indemnification with respect to any such action or determination in the
manner provided for by the Issuer.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 PROSPECTIVE AMENDMENT
The Board may from time to time amend the Plan and the terms and conditions of
any Option thereafter to be granted and, without limiting the generality of the
foregoing, may make such amendment for the purpose of meeting any changes in any
relevant law, rule or regulation applicable to the Plan, any Option or the
Shares, or for any other purpose which may be permitted by all relevant laws,
rules and regulations provided always that any such amendment shall not alter
the terms or conditions of any Option or impair any right of any Option Holder
pursuant to any Option awarded prior to such amendment.
6.2 RETROSPECTIVE AMENDMENT
The Board may from time to time retrospectively amend the Plan and, with the
consent of the affected Option Holders, retrospectively amend the terms and
conditions of any Options which have been theretofore granted.
6.3 TERMINATION
The Board may terminate the Plan at any time provided that such termination
shall not alter the terms or conditions of any Option or impair any right of any
Option Holder pursuant to any Option awarded prior to the date of such
termination and notwithstanding such termination the Issuer, such Options and
such Option Holders shall continue to be governed by the provisions of the Plan.
6.4 AGREEMENT
The Issuer and every person to whom an Option is awarded hereunder shall be
bound by and subject to the terms and conditions of the Plan.
7
<PAGE>
THIS DOCUMENT CONSTITUTES PART
OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933.
SCHEDULE "A"
STOCK OPTION PLAN
TO: The Administrator, Stock Option Plan
c/o Canmax Inc.
150 West John Carpenter Freeway Irving, Texas 75039
The undersigned hereby irrevocably gives notice, pursuant to Canmax Inc. (The
"Company") Stock Option Plan (the "Plan"), of the exercise of the Option to
acquire and hereby subscribes for (cross out inapplicable item):
(a) all of the Shares; or
(b) of the Shares, which are the subject of the Option Certificate
attached hereto.
The undersigned tenders herewith a certified check or bank draft (circle one)
payable to Canmax Inc. in an amount equal to the aggregate Exercise Price of the
aforesaid shares and directs the Company to issue the certificate evidencing
said shares in the name of the undersigned to be mailed to the undersigned at
the following address:
------------------------------
------------------------------
------------------------------
DATED the ___________ day of ______________, 19___.
---------------------------------------
Signature of Option Holder
---------------------------------------
Name of Option Holder
(Print)
8
<PAGE>
EXHIBIT 10.19
PORTIONS OF THIS EXHIBIT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE
MARKED BY [ ] AND THE PAGES ON WHICH THEY APPEAR CONTAIN AN * IN THE UPPER
RIGHT HAND CORNER. THE CONFIDENTIAL INFORMATION OMITTED HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
DEBIT TELECOMMUNICATIONS SERVICES AGREEMENT
This Debit Telecommunication Services Agreement (the "Agreement") dated
this 4th day of August, 1998 (the "Effective Date"), is made by and among Canmax
Telecom Inc., a Texas corporation ("Customer") and Canmax Inc., a Wyoming
corporation ("Guarantor") both having their principal office at 150 West
Carpenter Freeway, Irving, Texas 75039 ("Customer") and PT-1 Communications,
Inc., a New York corporation, having its principal office at 30-50 Whitestone
Expressway, Flushing, New York 11354.
W I T N E S S E T H:
WHEREAS, PT-1 is in the business of providing long distance
telecommunications services on a wholesale and retail basis including through
the sale of long distance prepaid calling cards ("Prepaid Cards");
WHEREAS, Customer desires to begin marketing and selling long distance
prepaid calling cards;
WHEREAS, the parties desire to enter into this Agreement pursuant to which
PT-1 will provide certain telecommunication services to Customer relating to
Prepaid Cards and Guarantor will guarantee certain obligations of Customer
hereunder.
A G R E E M E N T S
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants herein contained, the parties hereto hereby agree as follows:
1. SERVICES TO BE PROVIDED BY PT-1
a. GENERAL DESCRIPTION. Customer intends to produce, market and sell (or
provide on a promotional basis) various applications of fixed dollar
Prepaid Cards ("Dollar Cards") and minute based Prepaid Cards ("Minute
Cards"). PT-1 agrees to provide a Customer certain long distance
telephone services in connection with Prepaid Cards. Specifically,
PT-1 will provide a toll free telephone access number for each
application of Prepaid Cards, a Personal Identification Number ("PIN")
for each Prepaid Card and act as the long distance provider for users
of the Prepaid Cards. These services will permit users of a Minute
Card to place
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domestic long distance telephone calls and users of a Dollar Card to
place domestic and international telephone long distance calls as
long as their PIN number is still valid by dialing the toll free
access number and entering the assigned PIN number. Dollar Cards
may also include Prepaid Cards that are used to originate long
distance telephone service abroad. Exhibit A sets forth the
applications of Prepaid Cards for which PT-1 initially will provide
the foregoing services. During the term of this Agreement,
Customer and PT-1 mutually may agree to add additional Prepaid Card
applications to Exhibit A. Customer acknowledges that references
herein to "toll free" access numbers are intended to mean "800",
"888" or similar numbers as currently in effect. PT-1's obligation
shall not change in the event the FCC or any governmental body
requires users of payphones to make payments in order to access
such numbers at payphones.
b. MINUTE CARDS. In the case of Minute Cards, PT-1 will debit the face
value of the Minute Card by the number of minutes of the call made by
the Minute Card user. When the total minutes subtracted from a
particular Minute Card equal to the face amount of Minute Card, the
PIN will cease to be valid and no further call attempts with such
Minute Card will be completed. PT-1 will determine the rounding rules
for fractional minutes of calls. Initially, calls will be rounded up
to a full minute for Minute Cards. The expiration dates for the
various applications of Minute Cards are set forth in Exhibit A.
c. DOLLAR CARDS. In the case of Dollar Cards, PT-1 will debit the face
value of the Dollar Card by the amount of each call's charges, based
upon the rate schedule for the particular application set forth in
Exhibit B attached herein (the "Dollar Card Rates"). Exhibit B sets
forth the rate per minute, any additional first minute charge, any
monthly or other service charge, additional charges for payphone use
and rounding rules for each application of Dollar Cards. PT-1 will
determine the rounding rules for fractional minutes of calls.
Initially, calls will be rounded up to a full minute for Dollar Cards.
The expiration dates for the various applications of Dollar Cards are
set forth in Exhibit A. When the call charges subtracted from a
particular Dollar Card's PIN amount to the total predetermined value
of that Dollar Card or an amount which leaves an insufficient balance
to complete a call, that PIN will cease to be valid and no further
call attempts with such Dollar Card/PIN will be completed. PT-1, in
its sole discretion, may modify the Dollar Card Rates for any
application of Dollar Cards upon providing 5 business days notice to
Customer and, in such event, any modification shall apply to all such
application including Dollar Cards that have already been sold to end
users but continue to have outstanding PIN balances.
2. PURCHASE PRICE PAID BY CUSTOMER; PAYMENT FOR PINS
a. PURCHASE PRICE, PINS FOR MINUTE CARDS. For each PIN that is issued
and activated by PT-1 for use on a Minute Card, Customer shall pay to
PT-1 an amount equal to the per minute rate set forth in Exhibit C
attached hereto ("Minute Card Rate") multiplied by the face of the
Minute Card. PT-1 may
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change the Minute Card Rate at any time, in its sole discretion,
upon five business days notice to Customer.
b. PURCHASE PRICE, PINS FOR DOLLAR CARDS. For each PIN that is issued
and activated by PT-1 for use on a Dollar Card, Customer shall pay to
PT-1 an amount equal to the discount percentage set forth in Exhibit D
attached hereto ("Dollar Card Discount") multiplied by the face amount
of the Dollar Card. PT-1 may change the Dollar Card Discount at any
time, in its sole discretion, upon provision of five business days
notice to Customer. Notwithstanding PT-1's right to change the Dollar
Card Discount and its right pursuant to Section 1(c) to change the
Dollar Card Rates, Customer shall have the following rights
(hereinafter, referred to as the "Option Rights"): (i) with respect
to any application of Dollar Cards used to originate long distance
calls in the United States that are accessed by a toll free number,
Customer shall have the right to require PT-1 to adjust the Dollar
Card Rates and Dollar Card Discounts for such application to be
identical to those that PT-1 applies to the Selected US Dollar Card
(as defined herein). This right may be exercised by Customer no more
frequently than once every 90 days upon 7 days written notice to PT-1;
and (ii) with respect to any application of Dollar Cards used to
originate long distance calls in Europe that are accessed by a toll
free number, Customer shall have the right to require PT-1 to adjust
the Dollar Card Rates and Dollar Card Discount for such application to
be identical to those that PT-1 applies to the Selected European
Dollar Card (as defined herein). This right may be exercised by
Customer no more frequently than once every 90 days upon 7 days
written notice to PT-1. For purposes of the foregoing, if Customer
desires to exercise such right: (i) it may designate, as the Selected
US Dollar Card, any specific application of Dollar Card that
originates calls in the US with a toll free access number that is then
being marketed by PT-1 for which PT-1 has had sales for the prior
month to excess of $1 million; and (ii) it may designate, as the
Selected European Dollar Card, any specific application of Dollar Card
that originates calls in Europe with a toll free access number that is
then being marketed by PT-1 for which PT-1 has had sales for the prior
month in excess of $1 million. Upon Customer's reasonable request,
PT-1 will provide Customer with the rates and prices for those Prepaid
Cards that qualify to be selected as either the Selected US Dollar
Card or the Selected European Dollar Card. Information set forth in
the prior sentence shall be treated as Confidential Information
pursuant to Section 8 of this Agreement.
c. CREDIT AMOUNT, TIMING OF PAYMENTS. Section 3 below sets forth the
process pursuant to which PINs will be issued by PT-1 and the manner
in which the PINs would be activated. In general, payment for PINs
(including the applicable Federal excise tax thereon) will be due
prior to the time of activation. PT-1 will have no obligation to
activate PINs for which payment (as well as the Federal excise tax
thereon) has not been previously received. Notwithstanding the
foregoing, in PT-1's sole discretion, it may extend to Customer a
credit line not to exceed a specified maximum outstanding balance and
require that credit extended be fully repaid within a specific number
of days of the date the credit is extended.
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PT-1 shall have no obligation to provide long distance telephone
service with respect to a PIN unless payment is received hereunder.
Provided that Customer remains in compliance with all provisions
of this Agreement and that there is no adverse change in the
financial condition of Customer or Guarantor, PT-1 will extend the
following credit terms to Customer: (i) Customer will be extended
credit for purchases up to an aggregate of $250,000 provided that
each extension of credit for a purchase is repaid within 7 calendar
days of the date the credit is extended and the total amount of
credit outstanding at any time does not exceed $250,000; and (ii)
in addition, Customer will be extended additional credit for
purchases up to an aggregate of $300,000 provided that each such
extension of credit for a purchase is repaid within 21 days and
such extension of credit will only apply in the case of purchase of
PINs by Customer for Prepaid Cards which are resold by Customer to
certain distributors specifically designated by PT-1, in its sole
discretion. Further, the total amount of credit outstanding at any
time pursuant to this subsection (ii) may not exceed $300,000. In
addition, with regard to all of the foregoing extensions of credit,
as determined appropriate by PT-1, PT-1 may require Customer and
Guarantor to execute promissory notes or security agreements
pledging their interest in the PINs, Prepaid Cards and any
receivables from their purchasers. Further, Guarantor hereby
unconditionally and irrevocably guarantees the prompt and timely
payment by Customer of all amounts due hereunder including any
obligation pursuant to Section 13. In the event of a default by
Customer hereunder, PT-1, in its discretion, may proceed directly
against Guarantor without first taking any action against or
exhausting remedies with respect to Customer. Guarantor agrees
that Customer's insolvency, bankruptcy or other inability to pay
shall in no way constitute a defense for Guarantor.
3. DELIVERY OF PINS, CARD PRODUCTION
a. During the term of this Agreement, each time Customer desires for PT-1
to issue PINs, Customer will deliver in writing to PT-1: (1) the
application(s) for which the PINS are requested; (2) the number of
PINs requested; and (3) the denomination of the Prepaid Cards for the
respective requested PINs. Any such request shall be for a minimum of
at least 1,000 PINs. Provided that Customer is otherwise in
compliance with this Agreement, that the PINs are requested for
applications set forth on Exhibit A for which PT-1 has set end user
rates pursuant to Section 1(b) or (c) herein, PT-1 will make
reasonable efforts to deliver to Customer by E-mail or disk (sent in
overnight mail), within two business days after such request, the
requested PINs, in an inactive status. At such time as Customer
desires for PT-1 to activate PINs that have been previously issued
pursuant to this Section 3(a), Customer will deliver in writing to
PT-1: (1) the PINs and respective control numbers requested to be
activated; (2) the applications to which the PINs and control numbers
related; and (3) the denomination of the Prepaid Cards for the
respective PINs and control numbers. Any such request shall be for a
minimum of at least 1,000 PINs. Provided that Customer is otherwise
in compliance with this Agreement, has paid all amounts
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required under Section 2(c) above and that the PINs requested for
activation are for applications under Exhibit A for which PT-1 has
set end user rates pursuant to Sections 1(b) and (c), PT-1 will
make reasonable efforts to activate such PINs within two business
days after notification by the Customer. Customer acknowledges
that Customer has an obligation to maintain security and management
control of all PINs issued by PT-1, regardless of whether
activated, the files containing them, and all Prepaid Cards bearing
a PT-1 PIN throughout the production, printing, shipping and
distribution process. Customer understands and agrees that PT-1
has no obligation to provide any telephone service with respect to
PINs that are not activated. Any printer used by Customer to print
the Prepaid Cards shall be subject to the prior approval of PT-1
but, notwithstanding the foregoing, Customer shall be responsible
for all errors by Customer's printer and any theft, loss or
fraudulent use of PINs or Prepaid Cards that occurs at any time
after the inactive PINs are initially issued by PT-1. All title to
and risk of loss with respect to PINs passes to Customer upon the
initial issuance of the inactive PINs by PT-1 to Customer and
Customer accepts all title to and risk of loss with respect to PINs
upon the deliver of the inactive PINs.
b. All orders for PINs placed by Customer are subject to PT-1's
acceptance, to be given in PT-1's sole discretion. PT-1 will not be
liable for any late penalties, liquidated, consequential, special,
incidental or other damages or other liabilities of any kind relating
to late issuance of activation of PINs.
4. PT-1'S RESPONSIBILITIES
a. Following its issuances of a PIN to Customer, PT-1 shall have no
liability to Customer, any user of a Prepaid Card or any third party
for any claims that a Prepaid Card or its PIN, whether or not
activated, has been lost, stolen or fraudulently used.
b. PT-1 shall be responsible for complying with all Federal and state
regulations regarding long distance telephone service including all
provisions regarding tariffs and certifications. PT-1 shall collect
from Customer, in accordance with Section 2 (c), the Federal excise
tax. Such Federal excise tax shall be added to the invoiced amount
for the PIN. Provided current Federal laws and regulations remain in
effect, if and to the extent applicable, PT-1 will be responsible for
any Federal Universal Service Fund Charges or Payphone Compensation
Charges that may apply to the use of the Prepaid Cards by end users
(subject to PT-1's right to adjust end user rates and discount to
obtain reimbursement for such charges). With respect to individual
state sales taxes, Customer shall furnish PT-1 with a resale
exemption certificate so that PT-1 will not be required to collect
state sales tax from Customer.
c. PT-1 will use reasonable efforts to be responsible to Customer's end
users' complaints and inquiries regarding substantiated malfunctions
of activated PINs. PT-1 reserves the right, in its sole discretion,
to determine resolution of all
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complaints regarding use of Customer's Prepaid Cards. PT-1's
customer service operations will be open during normal business
hours at least five days per week to handle inquiries regarding
malfunctions of activated PINs. On a monthly basis, PT-1 will
provide to Customer those reports described in Exhibit E attached
hereto.
5. CUSTOMER'S RESPONSIBILITIES
Customer shall have the following responsibilities, at no cost to PT-1:
a. Customer shall have sole responsibility for all aspects of the
production, printing, packaging, shipping and distribution of its
Prepaid Cards, notwithstanding however, the content of the Prepaid
Card and all art and copy related thereto shall be subject to the
prior written approval of PT-1. Customer shall have sole
responsibility and liability for any errors by its printer including
the printer's failure to print the correct PIN, toll free access
number or logos on the Prepaid Card or the printing of duplicate PINs.
Customer shall have sole responsibility for any lost, stolen or
fraudulently used PINs, whether or not activated, or Prepaid Cards
that occurs at any time after PT-1's initial issuance of the inactive
PIN.
b. Customer shall be responsible for producing all advertising materials,
sales scripts, broadcast materials, rate sheets and any other
promotional or point of sale materials regarding its Prepaid Cards,
all subject to the prior written approval of PT-1. Customer
represents and warrants shall all such advertising, rate, promotional
and point of sale materials, written or oral, will accurately, fully
and fairly set forth the Prepaid Card's pricing and use and be in
compliance with all state and Federal consumer and advertising laws.
c. Customer agrees that all Prepaid Cards for which PT-1 issues PINs
shall bear PT-1's name and its logo and shall refer to PT-1 as the
long distance provider for such Prepaid Cards. PT-1's prior written
approval shall be required for any use of PT-1-'s name or logo by
Customer.
d. Customer shall afford PT-1 and its representatives access to its
premises during regular business hours to conduct unannounced
inspection visits to ensure compliance with this Agreement.
e. Customer will operate its business in a reputable manner in compliance
with all applicable laws and will not engage in any conduct that would
disparage the reputation of PT-1 or subject PT-1 to any liability to
any third party.
6. EXCLUSIVITY
a. Nothing in this Agreement shall limit or restrict PT-1's right to sell
or provide PINs, Prepaid Cards or other products or services to any
distributors, retailers or other customers.
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b. During the term of this Agreement, Customer agrees that it and its
affiliates will not singly, jointly or as a partner, member, agent,
stockholder, investor, independent contractor or in any other
capacity, directly, indirectly or beneficially (including by owning,
managing, operating or participating in the ownership, management,
operation or control of another entity) sell, distribute product or
otherwise market Prepaid Cards or other prepaid products that relate
to the provision of telecommunications services except through PT-1
pursuant to this Agreement. Notwithstanding the foregoing, Customer
shall be permitted to continue to collect revenues from calling cards
issued across the switch operated by USCommunications Services, Inc.;
provided that no new calling cards may be issued by Customer which
utilizes such network. In addition, notwithstanding the foregoing,
Customer may acquire all of the outstanding stock or assets of any
unaffiliated company ("Target") which, at the time of such
acquisition, is subject to a binding agreement with a third party to
obtain from such third party telecom services. In such event,
following such acquisition, Target may continue to comply with the
agreement with such third party, but the amount of telecom services
obtained from such third party shall not be increased above the
annualized amount of telecom services obtained by Target from such
third party (based upon the monthly average during the three month
period prior to the acquisition). In addition, notwithstanding the
foregoing, Customer may acquire ownership of a switch to implement its
own least cost routing and, upon seven business advance notice to
PT-1, Customer shall be permitted to obtain long distance carrier
service, in connection with its sale of Prepaid Cards, from another
third party carrier ("Third Party Carrier") to the extent that Third
Party Carrier offers to provide better rates than are being provided
to Customer by PT-1 provided that, in such event: (i) Customer must
offer to PT-1 the right for PT-1 to acquire the capacity at the
identical rates then being offered by Third Party Carrier; and (ii)
thereafter, Customer shall no longer be entitled to the Option Rights
pursuant to Section 2(b) hereunder.
7. INTENT OF AGREEMENT
a. Customer is an independent contractor and is not PT-1's employee or
agent for any purpose. Customer shall have no authority whatsoever,
whether express or implied, to assume, create or incur any obligation
or liability whatsoever on behalf or in the name of PT-1, and shall
not in any way misrepresent PT-1's services or quote any prices not in
PT-1's most current price list for any Prepaid Card for which a PIN is
issued pursuant to this Agreement.
b. PT-1 shall incur no responsibility or obligation to employees,
independent contractors or other parties utilized by Customer to
perform its obligations hereunder.
c. Customer is responsible for all sales and marketing expenses and
obligations incurred by it as a result of its efforts hereunder and
shall not be entitled to any
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reimbursement for such expenses unless previously agreed to otherwise
in writing.
8. CONFIDENTIALITY, TRADE SECRETS
a. During the term of this Agreement and for five years thereafter, each
party shall regard and preserve as confidential all information
related to the business of the other party or its parent,
subsidiaries, or affiliated companies it receives as a result of this
Agreement including the terms of this Agreement ("Confidential
Information"). Each party agrees not to disclose any such
Confidential Information without first obtaining the other party's
prior written consent. Confidential Information does not include
information that (a) becomes generally available to the public other
than as a result of a disclosure in breach of this agreement by any of
the parties receiving such information or their respective agents, (b)
was available on a non-confidential basis prior to its disclosure by
the party to which it relates, (c) becomes available to a party on a
non-confidential basis from a source other than the party to which it
relates who is not bound by a confidentiality agreement with such
party, or (d) is required to be disclosed by applicable law, provided,
however that in the event such disclosure is required, the parties
shall cooperate to seek confidential treatment of such information, if
available. Nothing in this Section 8 shall be deemed to restrain
either party from disclosing such Confidential Information to the
extent necessary in connection with any filings by either party or any
affiliate thereof with the Securities and Exchange Commission.
Notwithstanding the foregoing, neither party shall disclose in any
press release or filing (other than a regulatory filing by PT-1) any
of the rate or discount information set forth in the exhibits to this
Agreement.
b. Each party agrees to use the Confidential Information only for the
purposes of fulfilling its obligations under this Agreement. No other
rights or licenses to trademarks, inventions, copyrights, or patents,
are implied or granted under this Agreement. Each party shall use the
same care to avoid disclosure or any unauthorized use of the
Confidential Information as it provides to protect its own
Confidential Information. It is agreed that access to all
Confidential Information shall be limited to only such employees or
agents who need to know such information for purposes of fulfilling
obligations required by this Agreement.
c. All Confidential Information shall remain the property of the party
releasing it, and shall be returned to such party or destroyed after
the need for it has expired, upon request and, in any event, upon
termination of this Agreement.
9. TRADEMARKS, SERVICE MARKS, TRADE NAMES, OTHER INTELLECTUAL PROPERTY
a. Customer hereby recognizes the exclusive ownership and right of PT-1
in and to all trademarks, service marks, trade names, brand names,
copyrights, software proprietary systems, telecommunications networks
and patents used by PT-1 (the "PT-1 Intellectual Property"), and
further acknowledges that Customer acquires
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no right, title or interest in or to such PT-1 Intellectual
Property, except for the express rights granted by this Agreement.
Customer's use of the PT-1 Intellectual Property inures solely to
the benefit of PT-1 and any and all right, title and interest in
and to any rights deemed to have been acquired by Customer in such
PT-1 Intellectual Property relating to the Cards and Products owned
by PT-1, or its subsidiaries or affiliates are, by this Agreement
and without further request by PT-1, properly and completely
conveyed to PT-1.
b. Customer agrees that upon termination of the Agreement by either party
for any reason whatsoever, Customer shall immediately discontinue use
of any and of the PT-1 Intellectual Property and any and all materials
relating thereto, including, but not limited to, any printed matter,
printing blocks, advertising materials, name places, business card,
catalogs, price lists, signs, displays and similar materials that
bears the name PT-1 or its logo; and, in the event of failure to do
so, PT-1 may itself remove such articles at Customer expense.
c. Customer shall immediately report to PT-1 any infringement by third
parties of such Intellectual Property whenever any such infringement
shall become known to Customer and shall cooperate fully with PT-1 in
any claim relating to or arising from such infringement. Customer
agrees that it will not obliterate, remove, conceal or modify any
proprietary mark of PT-1 appearing on the Prepaid Cards nor will it
append any additional marks thereto without the prior written consent
of PT-1.
d. PT-1 hereby recognizes the exclusive ownership and right of Customer
in and to all trademarks, service marks, trade names, and brand names
that bear Customer's names (the "Customer Intellectual Property") and
further acknowledges that PT-1 acquires no right, title or interest in
or to such Customer Intellectual Property, except for the express
rights granted by this Agreement.
10. TERM OF AGREEMENT, TERMINATION
a. This Agreement shall remain in full force and effect for an initial
period (the "Initial Period") beginning on the Effective Date and
ending on the date that is three years from the Effective Date (the
"Termination Date"), and shall automatically renew for successive one
year periods unless either party, upon at least 90 days written notice
to the other prior the end of the Initial Period and any one year
renewal period elects to terminate this Agreement.
b. Upon the occurrence and continuation of any of the following events of
default, PT-1 shall have the right to cancel and terminate this
Agreement upon written notice to Customer.
i. if Customer shall commit a material breach of this Agreement
after notice thereof and failure of Customer to remedy such
breach within ten (10)
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days of receipt of such notice if such breach is capable of
being remedied; or
ii. if Customer shall fail to pay any amount when due hereunder,
or fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder; or
iii. if Customer shall (i) apply for or consent to the appointment
of a receiver, trustee or liquidator, (ii) be unable, or admit
in writing its inability, to pay its debts as they mature,
(iii) make an assignment for the benefit of creditors, (iv)
have a bankruptcy petition filed against it, (v) file a
voluntary petition in bankruptcy or a petition or any answer
seeking reorganization or an arrangement with creditors or to
take advantage of any insolvency proceedings or (vi) liquidate
or dissolve; or
iv. if there shall be sold, assigned, or transferred, directly or
indirectly, a majority of the capital stock or other ownership
interests in Customer, or beneficial ownership thereof unless
agreed to in advance by PT-1.
c. Notwithstanding Section 10(b), any violation of Section 6(b) will
result in an IMMEDIATE termination of this Agreement in PT-1's sole
discretion.
d. Customer shall have the right to cancel and terminate this Agreement
upon written notice to PT-1 if PT-1 shall commit a material breach of
this Agreement and fail to cure such breach within ten days after
receiving notice of such breach.
e. The expiration or termination, for any reason, of this Agreement shall
be without prejudice to the rights of either party against the other
and shall not relieve either party of any obligations hereunder which
survive the termination hereof.
11. RIGHTS AND OBLIGATIONS UPON TERMINATION
a. On termination of this Agreement by either party for any reasons
whatsoever, Customer shall promptly cease marketing, distributing or
selling any Prepaid Cards that have PINs issued by PT-1, and shall
promptly cease producing or distributing any materials that use the
PT-1 name or its logo or make reference to services to be provided by
PT-1.
b. Customer further agrees that on termination of this Agreement by
either party for any reason whatsoever, Customer shall discontinue the
use of PT-1's trade names, trademarks, labels, copyrights and other
advertising media and shall remove all sign and displays relating
thereto; and, in the event of failure to do so, PT-1 may itself remove
such articles at Customer's expense.
c. Notwithstanding any termination of this Agreement, PT-1 will continue
to provide the telecom services set forth herein with respect to
Prepaid Cards that
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already have been sold by Customer to unaffiliated third parties.
In such event, Customer shall provide substantiation to PT-1 that
such Prepaid Cards have been sold to unaffiliated third parties.
12. LIABILITY OF PT-1
PT-1's sole liability for PINs issued to Customer and activated which
cannot be used to access PT-1's long distance services or for any failure
whatsoever to complete long distance calls shall be to replace any PINs (or
increments thereof) that malfunction and PT-1 shall not be subject to any other
monetary liability or damages. This obligation is exclusive and is in lieu of
all other warranties, express or implied, including, but not limited to, any
warranty or merchantability or fitness for a particular purpose. In no event
shall PT-1 be liable for special damages, consequential damages, indirect
damages or incidental damages arising from this Agreement, the relationship or
the conduct of business contemplated herein. PT-1 endeavors to maintain the
technical infrastructure associated with the PINs throughout the term of this
Agreement but will not be liable to Customer for any failure associated with
this system, including without limitation, any special damages, consequential
damages, indirect damages or incidental damages.
13. INDEMNIFICATION
Customer shall indemnify, defend, and hold harmless PT-1 from and against
any and all losses, causes of action, liabilities, costs, damages and expenses
(including attorney's fees) resulting (i) from Customer's (or its employees,
agents or independent contractors) actions hereunder, including, but not limited
to, breach of any provision in this Agreement, misrepresentation of PT-1's
services or prices, or unauthorized or illegal acts of Customer, its employees,
agents or independent contractors, (ii) from claims by third parties that any
Prepaid Cards or their PINs, whether or not activated, have been lost, stolen or
fraudulently issued or used, or (iii) any errors, omissions, negligence or
willful act of Customer's printer including but not limited to the failure of
such printer to print the correct PIN or toll free number on a Prepaid Card, the
printing of false or erroneous PINs on any Prepaid Cards or the duplication of
any PINs.
14. EXCUSABLE DELAY
Neither party shall be deemed to be in default of any provision hereof, or
otherwise be liable to the other for any delay or failure in performance of any
part of this Agreement to the extent such delay or failure is caused by fire,
flood, explosion, accident, war, strike, embargo, governmental requirement,
civil or military authority, Act of God, inability to secure materials, labor or
transportation upon reasonable commercial terms, acts or omission of common
carriers or warehousemen, or any other causes beyond such party's reasonable
control; provided, however, that nothing in this Section 14 shall be construed
to excuse a party from failure to pay on time any monies due and owning
hereunder.
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15. ARBITRATION
Any disputes between the parties arising out of this Agreement shall upon
written notice by either party to the other, be resolved by arbitration in the
metropolitan New York City area, in accordance with the provisions of the
American Arbitration Association. Unless the parties otherwise agree, one
arbitrator shall be chosen within thirty (30) days following the giving of such
written notice. The arbitration decision shall be rendered within ninety (90)
days after the matter has been submitted to him and shall be binding on the
parties hereto, and judgment may be entered in any Court having jurisdiction
thereof. The losing party shall reimburse the prevailing party for all expenses
incurred by such prevailing party in connection with the arbitration, including
without limitation, attorneys' fees and expenses.
16. NOTICES
Any notice or communication by either party to the other shall be in
writing and shall be deemed to have been duly given if delivered personally, or
sent by facsimile transmission, overnight mail or prepaid registered mail,
addressed to the other party at the appropriate address stated above, or at such
other address as such party hereto may hereafter specify to the other party.
17. MISCELLANEOUS
a. Customer may not assign or transfer all or any part of its rights or
obligations under this Agreement, without the prior written consent of PT-1
which may be withheld in PT-1's sold discretion, provided that the assignee
agrees to be bound by the term of this Agreement. A direct or indirect transfer
of control in Customer shall constitute an assignment of this Agreement.
b. This Agreement may not be modified, supplemented or amended or default
hereunder waive except upon the execution and delivery of a written agreement
signed by both parties.
c. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its conflicts of laws
provisions.
d. This Agreement constitutes the final and full terms of understanding
between the parties and supersedes all previous agreements, understandings,
negotiations and promises, whether written or oral, between the parties with
respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed by their duly authorized representatives as of the day and year first
set forth above.
PT-1 COMMUNICATIONS, INC.
By: /s/ Samer Tawfik
-----------------------------------
Name: Samer Tawfik
Title: Chairman and CEO
CANMAX TELECOM INC.
By: /s/ Debbie L. Burgess
-----------------------------------
Name: Debbie L. Burgess
Title: Executive Vice President
CANMAX INC.
By: /s/ Debbie L. Burgess
-----------------------------------
Name: Debbie L. Burgess
Title: Executive Vice President
13
<PAGE>
EXHIBIT A
Card Applications: 1. Dollar Card-International Card: Expiration Date-Stated
expiration date (estimated at one year after
activation) or six months after first use, whichever
comes first.
2. Dollar Card-Domestic Card: Expiration Date-Stated
expiration date (estimated at one year after
activation) or six months after first use, whichever
comes first.
EXHIBIT A
<PAGE>
EXHIBIT B
1. Dollar Card-International Card-per minute rates attached hereto; in
addition, calls made from payphones are subject to an additional connection
fee of $.50 per call and a $.25 monthly service fee will apply 30 days
after first use. All calls rounded up to next full minute.
2. Dollar Card-Domestic Card per minute rates attached hereto; in addition,
calls made from payphones are subject to an additional connection fee of
$.50 per call and a $.25 monthly service fee will apply 30 days after first
use. All calls rounded up to next full minute.
EXHIBIT B
<PAGE>
<TABLE>
<CAPTION>
CANMAX PRICES FOR DOMESTIC CALLS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
USA 1 0.25 0.08 12am-5pm (EST)
- ----------------------------------------------------------------------------------------------
USA 1 0.25 0.08 5pm-12am (EST)
- ----------------------------------------------------------------------------------------------
Afghanistan 93 1.66 1.66
- ----------------------------------------------------------------------------------------------
Albania 355 0.99 0.99
- ----------------------------------------------------------------------------------------------
Algeria 213 0.89 0.89
- ----------------------------------------------------------------------------------------------
American Samoa 684 1.11 1.11
- ----------------------------------------------------------------------------------------------
Andorra 376 0.62 0.62
- ----------------------------------------------------------------------------------------------
Angola 244 1.11 1.11
- ----------------------------------------------------------------------------------------------
Anguilla 1264 1.59 0.59
- ----------------------------------------------------------------------------------------------
Antartica (Casey) 67212 0.99 0.99
- ----------------------------------------------------------------------------------------------
Antartica (Scott) 67210 0.99 0.99
- ----------------------------------------------------------------------------------------------
Antigua 1268 1.59 0.59
- ----------------------------------------------------------------------------------------------
Argentina 54 1.75 0.75
- ----------------------------------------------------------------------------------------------
Armenia 374 0.99 0.99
- ----------------------------------------------------------------------------------------------
Aruba 297 1.49 0.49
- ----------------------------------------------------------------------------------------------
Ascension Island 247 1.42 1.42
- ----------------------------------------------------------------------------------------------
Australia 61 0.35 0.35
- ----------------------------------------------------------------------------------------------
Austria 43 0.45 0.45
- ----------------------------------------------------------------------------------------------
Azerbaijani Republic 994 0.76 0.76
- ----------------------------------------------------------------------------------------------
Bahamas 1242 1.39 1.39
- ----------------------------------------------------------------------------------------------
Bahrain 973 0.99 0.99
- ----------------------------------------------------------------------------------------------
Bangladesh 880 1.25 1.25
- ----------------------------------------------------------------------------------------------
Barbados 1245 1.59 0.59
- ----------------------------------------------------------------------------------------------
Belarus 375 0.75 0.75
- ----------------------------------------------------------------------------------------------
Belgium 32 0.35 0.35
- ----------------------------------------------------------------------------------------------
Belize 501 1.11 1.11
- ----------------------------------------------------------------------------------------------
Benin 229 0.99 0.99
- ----------------------------------------------------------------------------------------------
Bermuda 1441 1.39 0.39
- ----------------------------------------------------------------------------------------------
Bhutan 975 1.42 1.42
- ----------------------------------------------------------------------------------------------
Bolivia 591 1.88 0.88
- ----------------------------------------------------------------------------------------------
Bosnia 387 0.83 0.83
- ----------------------------------------------------------------------------------------------
Botswana 267 1.11 1.11
- ----------------------------------------------------------------------------------------------
Brazil 55 1.59 0.59
- ----------------------------------------------------------------------------------------------
Brit. Virgin Islands 1284 1.39 0.39
- ----------------------------------------------------------------------------------------------
Brunei 673 0.89 0.89
- ----------------------------------------------------------------------------------------------
Bulgaria 359 0.71 0.71
- ----------------------------------------------------------------------------------------------
Burkina Faso 226 0.99 0.99
- ----------------------------------------------------------------------------------------------
Burundi 257 1.42 1.42
- ----------------------------------------------------------------------------------------------
Cambodia 855 2.14 1.14
- ----------------------------------------------------------------------------------------------
Cameroon 237 1.25 1.25
- ----------------------------------------------------------------------------------------------
Canada-Alberta 1403 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-British Columbia 1250 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Manitoba 1204 0.44 0.19
- ----------------------------------------------------------------------------------------------
1
<PAGE>
CANMAX PRICES FOR DOMESTIC CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Canada-New Brunswick 1606 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Newfoundland 1709 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Nova Scotia-PEI 1902 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Ontario-519 1619 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Ontario-613 1613 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Ontario-705 1705 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Ontario-807 1807 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Ontario-905 1905 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Ontario-Toronto 1416 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Quebec-418 1418 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Quebec-819 1819 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Quebec-Montreal 1514 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Saskatchewan 1306 0.44 0.19
- ----------------------------------------------------------------------------------------------
Canada-Yukon-NW 1867 0.44 0.19
- ----------------------------------------------------------------------------------------------
Cape Verde 238 0.89 0.89
- ----------------------------------------------------------------------------------------------
Cayman Islands 1345 1.49 0.49
- ----------------------------------------------------------------------------------------------
Central African Rep. 236 0.99 0.99
- ----------------------------------------------------------------------------------------------
Chad Republic 235 1.66 1.66
- ----------------------------------------------------------------------------------------------
Chile 56 1.49 0.49
- ----------------------------------------------------------------------------------------------
China 86 0.99 0.99
- ----------------------------------------------------------------------------------------------
Christmas Cocos 6724 0.99 0.99
- ----------------------------------------------------------------------------------------------
Colombia 57 1.49 0.49
- ----------------------------------------------------------------------------------------------
Comoros 269 1.42 1.42
- ----------------------------------------------------------------------------------------------
Congo Republic 242 1.42 1.42
- ----------------------------------------------------------------------------------------------
Cook Islands 682 1.99 1.99
- ----------------------------------------------------------------------------------------------
Costa Rica 506 1.88 0.88
- ----------------------------------------------------------------------------------------------
Croatia Republic 385 0.76 0.76
- ----------------------------------------------------------------------------------------------
Cuba 53 1.79 0.79
- ----------------------------------------------------------------------------------------------
Cyprus 357 1.64 0.64
- ----------------------------------------------------------------------------------------------
Czech Republic 420 1.49 0.49
- ----------------------------------------------------------------------------------------------
Denmark 45 0.54 0.29
- ----------------------------------------------------------------------------------------------
Diego Garcia 246 1.42 1.42
- ----------------------------------------------------------------------------------------------
Djibouti 253 1.42 1.42
- ----------------------------------------------------------------------------------------------
Dominics 1767 1.59 0.59
- ----------------------------------------------------------------------------------------------
Dominican Republic 1809 1.27 0.27
- ----------------------------------------------------------------------------------------------
Ecuador 593 1.69 0.69
- ----------------------------------------------------------------------------------------------
Egypt 20 1.11 1.11
- ----------------------------------------------------------------------------------------------
El Salvador 503 1.69 0.69
- ----------------------------------------------------------------------------------------------
Equator Guinea 240 1.66 1.66
- ----------------------------------------------------------------------------------------------
Eritrea 291 1.42 1.42
- ----------------------------------------------------------------------------------------------
Estonis 372 0.89 0.39
- ----------------------------------------------------------------------------------------------
Ethiopia 251 2.14 1.14
- ----------------------------------------------------------------------------------------------
Farge Islands 298 0.83 0.83
- ----------------------------------------------------------------------------------------------
Falkland Islands 500 1.42 1.42
- ----------------------------------------------------------------------------------------------
Fiji Islands 679 1.25 1.25
- ----------------------------------------------------------------------------------------------
Finland 358 0.41 0.41
- ----------------------------------------------------------------------------------------------
France 33 0.35 0.35
- ----------------------------------------------------------------------------------------------
French Antilles 596 0.99 0.99
- ----------------------------------------------------------------------------------------------
French Guyana 594 0.99 0.99
- ----------------------------------------------------------------------------------------------
2
<PAGE>
CANMAX PRICES FOR DOMESTIC CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
French Polynesia 689 1.11 1.11
- ----------------------------------------------------------------------------------------------
Gabon Republic 241 1.42 1.42
- ----------------------------------------------------------------------------------------------
Gambia 220 1.79 1.79
- ----------------------------------------------------------------------------------------------
Georgia 995 1.42 1.42
- ----------------------------------------------------------------------------------------------
Germany 49 0.35 0.35
- ----------------------------------------------------------------------------------------------
Ghana 233 1.75 0.75
- ----------------------------------------------------------------------------------------------
Gibraltar 350 0.71 0.71
- ----------------------------------------------------------------------------------------------
Greece 30 0.62 0.62
- ----------------------------------------------------------------------------------------------
Greenland 299 0.90 0.90
- ----------------------------------------------------------------------------------------------
Grenada 1473 1.59 0.59
- ----------------------------------------------------------------------------------------------
Guadeloupe 590 0.83 0.83
- ----------------------------------------------------------------------------------------------
Guam 671 0.58 0.58
- ----------------------------------------------------------------------------------------------
Guantanamo 539 0.89 0.89
- ----------------------------------------------------------------------------------------------
Guatemala 502 1.69 0.69
- ----------------------------------------------------------------------------------------------
Guinea 224 1.11 1.11
- ----------------------------------------------------------------------------------------------
Guinea Bissau 245 1.66 1.66
- ----------------------------------------------------------------------------------------------
Honduras 504 1.88 0.88
- ----------------------------------------------------------------------------------------------
Hong Kong 852 1.39 0.39
- ----------------------------------------------------------------------------------------------
Hugary 36 0.49 0.49
- ----------------------------------------------------------------------------------------------
Iceland 354 0.49 0.49
- ----------------------------------------------------------------------------------------------
India 91 1.89 0.89
- ----------------------------------------------------------------------------------------------
Indonesia 62 1.11 1.11
- ----------------------------------------------------------------------------------------------
Inmarset Atl E 871 9.99 9.99
- ----------------------------------------------------------------------------------------------
Inmarset Atl W 874 9.99 9.99
- ----------------------------------------------------------------------------------------------
Inmarset Ind O 873 9.99 9.99
- ----------------------------------------------------------------------------------------------
Inmarsat Pac O 872 9.99 9.99
- ----------------------------------------------------------------------------------------------
Iran 98 1.42 1.42
- ----------------------------------------------------------------------------------------------
Iraq 964 1.42 1.42
- ----------------------------------------------------------------------------------------------
Ireland 353 0.45 0.45
- ----------------------------------------------------------------------------------------------
Israel 972 0.83 0.83
- ----------------------------------------------------------------------------------------------
Italy 39 1.39 0.39
- ----------------------------------------------------------------------------------------------
Ivory Coast 225 1.25 1.25
- ----------------------------------------------------------------------------------------------
Jamaica 1876 1.69 0.69
- ----------------------------------------------------------------------------------------------
Japan 81 0.49 0.49
- ----------------------------------------------------------------------------------------------
Jordan 962 1.11 1.11
- ----------------------------------------------------------------------------------------------
Kazakhstan 73272 0.99 0.99
- ----------------------------------------------------------------------------------------------
Kenya 254 1.11 1.11
- ----------------------------------------------------------------------------------------------
Kirbatl 686 1.42 1.42
- ----------------------------------------------------------------------------------------------
Korea (North) 850 1.42 1.42
- ----------------------------------------------------------------------------------------------
Korea (South) 82 0.83 0.83
- ----------------------------------------------------------------------------------------------
Kuwait 965 1.11 1.11
- ----------------------------------------------------------------------------------------------
Kyrgzstan 995 0.99 0.99
- ----------------------------------------------------------------------------------------------
Laos 856 1.99 1.99
- ----------------------------------------------------------------------------------------------
Latvia 371 0.75 0.75
- ----------------------------------------------------------------------------------------------
Lebanon 961 1.11 1.11
- ----------------------------------------------------------------------------------------------
Lesotho 266 1.25 1.25
- ----------------------------------------------------------------------------------------------
Liberia 231 1.79 0.79
- ----------------------------------------------------------------------------------------------
Libya 218 0.71 0.71
- ----------------------------------------------------------------------------------------------
Liechtenstein 4175 0.45 0.45
- ----------------------------------------------------------------------------------------------
3
<PAGE>
CANMAX PRICES FOR DOMESTIC CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Lithunia 370 0.76 0.76
- ----------------------------------------------------------------------------------------------
Luxembourg 352 0.45 0.45
- ----------------------------------------------------------------------------------------------
Macao 853 0.99 0.99
- ----------------------------------------------------------------------------------------------
Macedonia 389 0.83 0.83
- ----------------------------------------------------------------------------------------------
Madagascar 261 1.25 1.25
- ----------------------------------------------------------------------------------------------
Malawi 265 0.88 0.88
- ----------------------------------------------------------------------------------------------
Malaysia 60 1.64 0.64
- ----------------------------------------------------------------------------------------------
Maldives 960 1.66 1.66
- ----------------------------------------------------------------------------------------------
Mali Republic 223 1.25 1.25
- ----------------------------------------------------------------------------------------------
Malta republic 356 0.76 0.76
- ----------------------------------------------------------------------------------------------
Mariana Island 670 1.52 0.52
- ----------------------------------------------------------------------------------------------
Marshall Islands 692 0.99 0.99
- ----------------------------------------------------------------------------------------------
Mauritania 222 0.99 0.99
- ----------------------------------------------------------------------------------------------
Mauritius 230 0.99 0.99
- ----------------------------------------------------------------------------------------------
Mayotte Island 2696 1.42 1.42
- ----------------------------------------------------------------------------------------------
Mexico Band 1 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 1 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 2 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 2 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 3 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 3 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 4 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Band 4 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 5 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 5 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 6 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 6 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 7 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 7 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 8 O 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico Brand 8 P 52 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico City O 525 1.49 0.49
- ----------------------------------------------------------------------------------------------
Mexico City P 525 1.49 0.49
- ----------------------------------------------------------------------------------------------
Micronesia 691 1.42 1.42
- ----------------------------------------------------------------------------------------------
Moldova 373 0.99 0.99
- ----------------------------------------------------------------------------------------------
Monaco 377 0.35 0.35
- ----------------------------------------------------------------------------------------------
Mongolia 976 1.49 1.49
- ----------------------------------------------------------------------------------------------
Montserrat 1664 1.59 0.59
- ----------------------------------------------------------------------------------------------
Morocco 212 1.75 0.75
- ----------------------------------------------------------------------------------------------
Mozambique 258 0.89 0.89
- ----------------------------------------------------------------------------------------------
Myanmar 95 1.66 1.66
- ----------------------------------------------------------------------------------------------
Namibia 264 1.25 1.25
- ----------------------------------------------------------------------------------------------
Nauru 674 1.66 1.66
- ----------------------------------------------------------------------------------------------
Nepal 977 1.25 1.25
- ----------------------------------------------------------------------------------------------
Netherland Antilles 599 1.49 0.49
- ----------------------------------------------------------------------------------------------
Netherlands 31 0.35 0.35
- ----------------------------------------------------------------------------------------------
Nevis-St. Kitts 1669 1.59 0.59
- ----------------------------------------------------------------------------------------------
New Caledonia 687 1.25 1.25
- ----------------------------------------------------------------------------------------------
New Zealand 64 0.45 0.45
- ----------------------------------------------------------------------------------------------
4
<PAGE>
CANMAX PRICES FOR DOMESTIC CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Nicaragua 505 1.11 1.11
- ----------------------------------------------------------------------------------------------
Niger Republic 227 1.25 1.25
- ----------------------------------------------------------------------------------------------
Nigeria 234 1.79 0.79
- ----------------------------------------------------------------------------------------------
Nlue Islands 683 1.99 1.99
- ----------------------------------------------------------------------------------------------
Norfold Island 672 0.99 0.99
- ----------------------------------------------------------------------------------------------
Norway 47 0.35 0.35
- ----------------------------------------------------------------------------------------------
Oman 968 1.42 1.42
- ----------------------------------------------------------------------------------------------
Pakistan 92 1.25 1.25
- ----------------------------------------------------------------------------------------------
Palsu 680 1.42 1.42
- ----------------------------------------------------------------------------------------------
Panama 507 1.69 0.69
- ----------------------------------------------------------------------------------------------
Papua New Guinea 675 0.89 0.89
- ----------------------------------------------------------------------------------------------
Paraguay 595 1.88 0.88
- ----------------------------------------------------------------------------------------------
Peru 51 1.88 0.88
- ----------------------------------------------------------------------------------------------
Philipines 63 1.69 0.69
- ----------------------------------------------------------------------------------------------
Poland 48 0.66 0.66
- ----------------------------------------------------------------------------------------------
Portugal 351 0.66 0.66
- ----------------------------------------------------------------------------------------------
Puerto Rico 1787 0.44 0.19
- ----------------------------------------------------------------------------------------------
Qatar 974 1.42 1.42
- ----------------------------------------------------------------------------------------------
Reunion Island 262 1.42 1.42
- ----------------------------------------------------------------------------------------------
Romania 40 1.69 0.69
- ----------------------------------------------------------------------------------------------
Russia 7 1.79 0.79
- ----------------------------------------------------------------------------------------------
Rwanda 250 0.99 0.99
- ----------------------------------------------------------------------------------------------
San Marino 378 0.71 0.71
- ----------------------------------------------------------------------------------------------
Sao Tome 239 1.65 1.65
- ----------------------------------------------------------------------------------------------
Saudi Arabia 966 1.99 0.99
- ----------------------------------------------------------------------------------------------
Senegal Rep. 221 1.49 1.49
- ----------------------------------------------------------------------------------------------
Seychelles Republic 248 1.66 1.66
- ----------------------------------------------------------------------------------------------
Sierra Leone 232 1.99 0.99
- ----------------------------------------------------------------------------------------------
Singapore 55 1.36 0.36
- ----------------------------------------------------------------------------------------------
Slovak Republic 421 0.59 0.59
- ----------------------------------------------------------------------------------------------
Slovania Republic 386 0.49 0.49
- ----------------------------------------------------------------------------------------------
Somalia 252 1.25 1.25
- ----------------------------------------------------------------------------------------------
South Africa 27 0.83 0.83
- ----------------------------------------------------------------------------------------------
Spain 34 0.58 0.58
- ----------------------------------------------------------------------------------------------
Sri Lanka 94 1.42 1.42
- ----------------------------------------------------------------------------------------------
St. Helena 290 1.42 1.42
- ----------------------------------------------------------------------------------------------
St. Lucia 1758 1.59 0.59
- ----------------------------------------------------------------------------------------------
St. Pierre 508 0.66 0.66
- ----------------------------------------------------------------------------------------------
St. Vincent 1784 1.69 0.69
- ----------------------------------------------------------------------------------------------
Sudan 249 0.99 0.99
- ----------------------------------------------------------------------------------------------
Suriname 597 1.42 1.42
- ----------------------------------------------------------------------------------------------
Swaziland 258 0.89 0.89
- ----------------------------------------------------------------------------------------------
Sweden 46 0.25 0.25
- ----------------------------------------------------------------------------------------------
Switzerland 41 0.35 0.35
- ----------------------------------------------------------------------------------------------
Syria 963 1.42 1.42
- ----------------------------------------------------------------------------------------------
Taiwan 886 1.59 0.59
- ----------------------------------------------------------------------------------------------
Tajikistan 73772 0.99 0.99
- ----------------------------------------------------------------------------------------------
Tanzania 255 1.25 1.25
- ----------------------------------------------------------------------------------------------
Thailand 66 1.99 0.99
- ----------------------------------------------------------------------------------------------
5
<PAGE>
CANMAX PRICES FOR DOMESTIC CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Togo 228 1.42 1.42
- ----------------------------------------------------------------------------------------------
Tonga Island 676 1.42 1.42
- ----------------------------------------------------------------------------------------------
Trinidad & Tobago 1868 1.69 1.69
- ----------------------------------------------------------------------------------------------
Tunisia 216 1.79 0.79
- ----------------------------------------------------------------------------------------------
Turkey 90 1.69 0.69
- ----------------------------------------------------------------------------------------------
Turkmenistan 993 1.11 1.11
- ----------------------------------------------------------------------------------------------
Turks & Caico 1649 1.49 0.49
- ----------------------------------------------------------------------------------------------
Tuvalu 688 0.99 0.99
- ----------------------------------------------------------------------------------------------
Uganda 256 1.11 1.11
- ----------------------------------------------------------------------------------------------
Ukraine 380 1.79 0.79
- ----------------------------------------------------------------------------------------------
United Arab Emierates 971 0.99 0.99
- ----------------------------------------------------------------------------------------------
UK 44 0.69 0.19
- ----------------------------------------------------------------------------------------------
Uruguay 588 1.11 1.11
- ----------------------------------------------------------------------------------------------
US Virgin Islands 1340 0.44 0.19
- ----------------------------------------------------------------------------------------------
Uzbekistan 998 1.11 1.11
- ----------------------------------------------------------------------------------------------
Vanuatu Republic 678 1.42 1.42
- ----------------------------------------------------------------------------------------------
Vatican City 379 0.71 0.71
- ----------------------------------------------------------------------------------------------
Venezuela 58 1.37 0.37
- ----------------------------------------------------------------------------------------------
Vietnam, 84 1.42 1.42
- ----------------------------------------------------------------------------------------------
Wallis and Futuna 681 0.76 0.76
- ----------------------------------------------------------------------------------------------
Western Samoa 685 1.42 1.42
- ----------------------------------------------------------------------------------------------
Yemen 967 1.88 0.88
- ----------------------------------------------------------------------------------------------
Yugoslavia 381 1.59 0.59
- ----------------------------------------------------------------------------------------------
Zaire 243 0.99 0.99
- ----------------------------------------------------------------------------------------------
Zambia 260 0.99 0.99
- ----------------------------------------------------------------------------------------------
Zimbabwe 263 0.99 0.99
- ----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CANMAX PRICES FOR INTERNATIONAL CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USA 1 0.37 0.12 12am-5pm (EST)
- ----------------------------------------------------------------------------------------------
USA 1 0.39 0.14 5pm-12am (EST)
- ----------------------------------------------------------------------------------------------
Afghanistan 93 1.66 1.66
- ----------------------------------------------------------------------------------------------
Albania 355 1.39 0.39
- ----------------------------------------------------------------------------------------------
Algeria 213 1.47 0.47
- ----------------------------------------------------------------------------------------------
American Samoa 684 0.62 0.62
- ----------------------------------------------------------------------------------------------
Andorra 376 0.45 0.45
- ----------------------------------------------------------------------------------------------
Angola 244 1.47 0.47
- ----------------------------------------------------------------------------------------------
Anguilla 1264 1.52 0.52
- ----------------------------------------------------------------------------------------------
Antartica (Casey) 67212 0.79 0.79
- ----------------------------------------------------------------------------------------------
Antartica (Scott) 67210 0.79 0.79
- ----------------------------------------------------------------------------------------------
Antigua 1268 1.59 0.59
- ----------------------------------------------------------------------------------------------
Argentina 54 1.99 0.29
- ----------------------------------------------------------------------------------------------
Armenia 374 1.79 0.79
- ----------------------------------------------------------------------------------------------
Aruba 297 1.45 0.45
- ----------------------------------------------------------------------------------------------
Ascension Island 247 1.25 1.25
- ----------------------------------------------------------------------------------------------
Australia 61 1.13 0.13
- ----------------------------------------------------------------------------------------------
Austria 43 1.19 0.19
- ----------------------------------------------------------------------------------------------
Azerbaijani Republic 994 1.59 0.59
- ----------------------------------------------------------------------------------------------
Bahamas 1242 1.18 0.18
- ----------------------------------------------------------------------------------------------
Bahrain 973 1.88 0.88
- ----------------------------------------------------------------------------------------------
Bangladesh 880 1.99 0.99
- ----------------------------------------------------------------------------------------------
Barbados 1245 1.49 0.49
- ----------------------------------------------------------------------------------------------
Belarus 375 1.47 0.47
- ----------------------------------------------------------------------------------------------
Belgium 32 1.12 0.12
- ----------------------------------------------------------------------------------------------
Belize 501 1.88 0.88
- ----------------------------------------------------------------------------------------------
Benin 229 1.64 0.64
- ----------------------------------------------------------------------------------------------
Bermuda 1441 1.19 0.19
- ----------------------------------------------------------------------------------------------
Bhutan 975 1.19 1.19
- ----------------------------------------------------------------------------------------------
Bolivia 591 1.64 0.64
- ----------------------------------------------------------------------------------------------
Bosnia 387 1.33 0.39
- ----------------------------------------------------------------------------------------------
Botswana 267 1.47 0.47
- ----------------------------------------------------------------------------------------------
Brazil 55 1.99 0.36
- ----------------------------------------------------------------------------------------------
Brit. Virgin Islands 1284 1.34 0.34
- ----------------------------------------------------------------------------------------------
Brunei 673 0.79 0.79
- ----------------------------------------------------------------------------------------------
Bulgaria 359 1.47 0.47
- ----------------------------------------------------------------------------------------------
Burkina Faso 226 0.99 0.99
- ----------------------------------------------------------------------------------------------
Burundi 257 1.99 0.99
- ----------------------------------------------------------------------------------------------
Cambodia 855 1.42 1.42
- ----------------------------------------------------------------------------------------------
Cameroon 237 1.88 0.88
- ----------------------------------------------------------------------------------------------
Canada-Alberta 1403 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-British Columbia 1250 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Manitoba 1204 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-New Brunswick 1606 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Newfoundland 1709 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Nova Scotia-PEI 1902 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Ontario-519 1619 0.60 0.10
- ----------------------------------------------------------------------------------------------
7
<PAGE>
CANMAX PRICES FOR INTERNATIONAL CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Canada-Ontario-613 1613 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Ontario-705 1705 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Ontario-807 1807 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Ontario-905 1905 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Ontario-Toronto 1416 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Quebec-418 1418 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Quebec-450 1450 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Saskatchewan 1306 0.60 0.10
- ----------------------------------------------------------------------------------------------
Canada-Yukon-NW 1867 0.60 0.10
- ----------------------------------------------------------------------------------------------
Cape Verde 238 1.69 0.69
- ----------------------------------------------------------------------------------------------
Cayman Islands 1345 1.59 0.59
- ----------------------------------------------------------------------------------------------
Central African Rep. 236 1.99 0.99
- ----------------------------------------------------------------------------------------------
Chad Republic 235 1.56 1.56
- ----------------------------------------------------------------------------------------------
Chile 56 1.99 0.19
- ----------------------------------------------------------------------------------------------
China 86 1.99 0.45
- ----------------------------------------------------------------------------------------------
Christmas Cocos 6724 0.69 0.69
- ----------------------------------------------------------------------------------------------
Colombia 57 1.99 0.19
- ----------------------------------------------------------------------------------------------
Comoros 269 1.88 0.88
- ----------------------------------------------------------------------------------------------
Congo Republic 242 1.88 0.88
- ----------------------------------------------------------------------------------------------
Cook Islands 682 1.66 1.66
- ----------------------------------------------------------------------------------------------
Costa Rica 506 1.99 0.36
- ----------------------------------------------------------------------------------------------
Croatia Republic 385 1.39 0.39
- ----------------------------------------------------------------------------------------------
Cuba 53 1.99 0.69
- ----------------------------------------------------------------------------------------------
Cyprus 357 1.33 0.33
- ----------------------------------------------------------------------------------------------
Czech Republic 420 1.29 0.29
- ----------------------------------------------------------------------------------------------
Denmark 45 1.11 0.11
- ----------------------------------------------------------------------------------------------
Diego Garcia 246 1.25 1.25
- ----------------------------------------------------------------------------------------------
Djibouti 253 1.88 0.88
- ----------------------------------------------------------------------------------------------
Dominics 1767 1.59 0.59
- ----------------------------------------------------------------------------------------------
Dominican Republic 1809 1.99 0.15
- ----------------------------------------------------------------------------------------------
Ecuador 593 1.99 0.36
- ----------------------------------------------------------------------------------------------
Egypt 20 1.75 0.75
- ----------------------------------------------------------------------------------------------
El Salvador 503 1.99 0.29
- ----------------------------------------------------------------------------------------------
Equator Guinea 240 1.99 1.25
- ----------------------------------------------------------------------------------------------
Eritrea 291 1.99 1.39
- ----------------------------------------------------------------------------------------------
Estonis 372 0.39 0.39
- ----------------------------------------------------------------------------------------------
Ethiopia 251 1.88 0.88
- ----------------------------------------------------------------------------------------------
Farge Islands 298 0.45 0.45
- ----------------------------------------------------------------------------------------------
Falkland Islands 500 1.11 1.11
- ----------------------------------------------------------------------------------------------
Fiji Islands 679 1.99 0.99
- ----------------------------------------------------------------------------------------------
Finland 358 1.13 0.13
- ----------------------------------------------------------------------------------------------
France 33 1.99 0.07
- ----------------------------------------------------------------------------------------------
French Antilles 596 1.45 0.45
- ----------------------------------------------------------------------------------------------
French Guyana 594 1.45 0.45
- ----------------------------------------------------------------------------------------------
French Polynesia 689 1.69 0.69
- ----------------------------------------------------------------------------------------------
Gabon Republic 241 1.79 0.79
- ----------------------------------------------------------------------------------------------
Gambia 220 1.47 0.47
- ----------------------------------------------------------------------------------------------
Georgia 995 1.64 0.64
- ----------------------------------------------------------------------------------------------
Germany 49 1.99 0.07
- ----------------------------------------------------------------------------------------------
8
<PAGE>
CANMAX PRICES FOR INTERNATIONAL CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Ghana 233 1.99 0.49
- ----------------------------------------------------------------------------------------------
Gibraltar 350 1.39 0.39
- ----------------------------------------------------------------------------------------------
Greece 30 1.99 0.29
- ----------------------------------------------------------------------------------------------
Greenland 299 1.47 0.47
- ----------------------------------------------------------------------------------------------
Grenada 1473 1.69 0.69
- ----------------------------------------------------------------------------------------------
Guadeloupe 590 1.59 0.59
- ----------------------------------------------------------------------------------------------
Guam 671 1.12 0.12
- ----------------------------------------------------------------------------------------------
Guantanamo 539 1.59 0.59
- ----------------------------------------------------------------------------------------------
Guatemala 502 1.99 0.19
- ----------------------------------------------------------------------------------------------
Guinea 224 1.69 0.69
- ----------------------------------------------------------------------------------------------
Guinea Bissau 245 1.99 1.19
- ----------------------------------------------------------------------------------------------
Guyana 592 1.88 0.88
- ----------------------------------------------------------------------------------------------
Haiti 509 1.99 0.49
- ----------------------------------------------------------------------------------------------
Hungary 36 1.25 0.25
- ----------------------------------------------------------------------------------------------
Iceland 354 1.21 0.21
- ----------------------------------------------------------------------------------------------
India 91 1.75 0.75
- ----------------------------------------------------------------------------------------------
Indonesia 62 1.75 0.75
- ----------------------------------------------------------------------------------------------
Inmarset Atl E 871 8.25 8.25
- ----------------------------------------------------------------------------------------------
Inmarset Atl W 874 8.25 8.25
- ----------------------------------------------------------------------------------------------
Inmarset Ind O 873 8.25 8.25
- ----------------------------------------------------------------------------------------------
Inmarsat Pac O 872 8.25 8.25
- ----------------------------------------------------------------------------------------------
Iran 98 1.99 0.99
- ----------------------------------------------------------------------------------------------
Iraq 964 1.99 1.26
- ----------------------------------------------------------------------------------------------
Ireland 353 1.99 0.07
- ----------------------------------------------------------------------------------------------
Israel 972 1.99 0.10
- ----------------------------------------------------------------------------------------------
Italy 39 1.99 0.10
- ----------------------------------------------------------------------------------------------
Ivory Coast 225 1.85 0.85
- ----------------------------------------------------------------------------------------------
Jamaica 1876 1.99 0.49
- ----------------------------------------------------------------------------------------------
Japan 81 1.99 0.14
- ----------------------------------------------------------------------------------------------
Jordan 962 1.99 0.66
- ----------------------------------------------------------------------------------------------
Kazakhstan 73272 1.88 0.88
- ----------------------------------------------------------------------------------------------
Kenya 254 1.79 0.79
- ----------------------------------------------------------------------------------------------
Kirbatl 686 1.99 1.09
- ----------------------------------------------------------------------------------------------
Korea (North) 850 1.29 1.29
- ----------------------------------------------------------------------------------------------
Korea (South) 82 1.99 0.19
- ----------------------------------------------------------------------------------------------
Kuwait 965 1.88 0.88
- ----------------------------------------------------------------------------------------------
Kyrgzstan 995 1.79 0.79
- ----------------------------------------------------------------------------------------------
Laos 856 1.99 1.09
- ----------------------------------------------------------------------------------------------
Latvia 371 1.39 0.39
- ----------------------------------------------------------------------------------------------
Lebanon 961 1.99 0.66
- ----------------------------------------------------------------------------------------------
Lesotho 266 0.69 0.69
- ----------------------------------------------------------------------------------------------
Liberia 231 1.47 0.47
- ----------------------------------------------------------------------------------------------
Libya 218 1.47 0.47
- ----------------------------------------------------------------------------------------------
Liechtenstein 4175 0.31 0.31
- ----------------------------------------------------------------------------------------------
Lithunia 370 1.47 0.47
- ----------------------------------------------------------------------------------------------
Luxembourg 352 0.29 0.29
- ----------------------------------------------------------------------------------------------
Macao 853 0.79 0.79
- ----------------------------------------------------------------------------------------------
Macedonia 389 1.45 0.45
- ----------------------------------------------------------------------------------------------
Madagascar 261 1.99 0.99
- ----------------------------------------------------------------------------------------------
9
<PAGE>
CANMAX PRICES FOR INTERNATIONAL CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Malawi 265 0.69 0.69
- ----------------------------------------------------------------------------------------------
Malaysia 60 1.29 0.29
- ----------------------------------------------------------------------------------------------
Maldives 960 1.88 0.88
- ----------------------------------------------------------------------------------------------
Mali Republic 223 1.99 0.99
- ----------------------------------------------------------------------------------------------
Malta republic 356 1.29 0.29
- ----------------------------------------------------------------------------------------------
Mariana Island 670 0.79 0.79
- ----------------------------------------------------------------------------------------------
Marshall Islands 692 1.47 0.47
- ----------------------------------------------------------------------------------------------
Mauritania 222 1.69 0.69
- ----------------------------------------------------------------------------------------------
Mauritius 230 1.95 0.95
- ----------------------------------------------------------------------------------------------
Mayotte Island 2696 1.99 0.99
- ----------------------------------------------------------------------------------------------
Mexico Band 1 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 1 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 2 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 2 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 3 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 3 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 4 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Band 4 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 5 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 5 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 6 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 6 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 7 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 7 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 8 O 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico Brand 8 P 52 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico City O 525 1.99 0.19
- ----------------------------------------------------------------------------------------------
Mexico City P 525 1.99 0.19
- ----------------------------------------------------------------------------------------------
Micronesia 691 1.88 0.88
- ----------------------------------------------------------------------------------------------
Moldova 373 1.59 0.59
- ----------------------------------------------------------------------------------------------
Monaco 377 1.29 0.29
- ----------------------------------------------------------------------------------------------
Mongolia 976 1.99 1.19
- ----------------------------------------------------------------------------------------------
Montserrat 1664 1.69 0.69
- ----------------------------------------------------------------------------------------------
Morocco 212 1.45 0.45
- ----------------------------------------------------------------------------------------------
Mozambique 258 1.59 0.59
- ----------------------------------------------------------------------------------------------
Myanmar 95 1.99 1.28
- ----------------------------------------------------------------------------------------------
Namibia 264 1.47 1.47
- ----------------------------------------------------------------------------------------------
Nauru 674 1.42 1.42
- ----------------------------------------------------------------------------------------------
Nepal 977 1.99 0.99
- ----------------------------------------------------------------------------------------------
Netherland Antilles 599 1.29 0.29
- ----------------------------------------------------------------------------------------------
Netherlands 31 1.12 0.12
- ----------------------------------------------------------------------------------------------
Nevis-St. Kitts 1669 1.59 1.59
- ----------------------------------------------------------------------------------------------
New Caledonia 687 1.79 0.79
- ----------------------------------------------------------------------------------------------
New Zealand 64 1.15 0.15
- ----------------------------------------------------------------------------------------------
Nicaragua 505 1.99 0.33
- ----------------------------------------------------------------------------------------------
Niger Republic 227 1.88 0.88
- ----------------------------------------------------------------------------------------------
Nigeria 234 1.69 0.69
- ----------------------------------------------------------------------------------------------
Nlue Islands 683 1.99 1.33
- ----------------------------------------------------------------------------------------------
Norfold Island 672 0.99 0.99
- ----------------------------------------------------------------------------------------------
10
<PAGE>
CANMAX PRICES FOR INTERNATIONAL CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Norway 47 1.10 0.10
- ----------------------------------------------------------------------------------------------
Oman 968 1.99 1.19
- ----------------------------------------------------------------------------------------------
Pakistan 92 1.99 0.99
- ----------------------------------------------------------------------------------------------
Palsu 680 1.99 0.99
- ----------------------------------------------------------------------------------------------
Panama 507 1.59 0.59
- ----------------------------------------------------------------------------------------------
Papua New Guinea 675 1.69 0.69
- ----------------------------------------------------------------------------------------------
Paraguay 595 1.88 0.88
- ----------------------------------------------------------------------------------------------
Peru 51 1.99 0.39
- ----------------------------------------------------------------------------------------------
Philipines 63 1.99 0.33
- ----------------------------------------------------------------------------------------------
Poland 48 1.99 0.29
- ----------------------------------------------------------------------------------------------
Portugal 351 1.33 0.33
- ----------------------------------------------------------------------------------------------
Puerto Rico 1787 1.07 0.07
- ----------------------------------------------------------------------------------------------
Qatar 974 1.99 0.99
- ----------------------------------------------------------------------------------------------
Reunion Island 262 1.25 1.25
- ----------------------------------------------------------------------------------------------
Romania 40 1.45 0.45
- ----------------------------------------------------------------------------------------------
Russia 7 1.99 0.25
- ----------------------------------------------------------------------------------------------
Rwanda 250 1.99 1.09
- ----------------------------------------------------------------------------------------------
San Marino 378 0.64 0.64
- ----------------------------------------------------------------------------------------------
Sao Tome 239 1.99 1.49
- ----------------------------------------------------------------------------------------------
Saudi Arabia 966 1.79 0.79
- ----------------------------------------------------------------------------------------------
Senegal Rep. 221 1.99 0.99
- ----------------------------------------------------------------------------------------------
Seychelles Republic 248 1.53 1.53
- ----------------------------------------------------------------------------------------------
Sierra Leone 232 1.79 0.79
- ----------------------------------------------------------------------------------------------
Singapore 55 1.29 0.29
- ----------------------------------------------------------------------------------------------
Slovak Republic 421 1.39 0.39
- ----------------------------------------------------------------------------------------------
Slovania Republic 386 1.21 0.21
- ----------------------------------------------------------------------------------------------
Spain 34 1.23 0.23
- ----------------------------------------------------------------------------------------------
Sri Lanka 94 1.99 1.27
- ----------------------------------------------------------------------------------------------
St. Helena 290 1.25 1.25
- ----------------------------------------------------------------------------------------------
St. Lucia 1758 1.69 0.69
- ----------------------------------------------------------------------------------------------
St. Pierre 508 0.58 0.58
- ----------------------------------------------------------------------------------------------
St. Vincent 1784 1.79 0.79
- ----------------------------------------------------------------------------------------------
Sudan 249 1.55 0.55
- ----------------------------------------------------------------------------------------------
Suriname 597 1.99 1.25
- ----------------------------------------------------------------------------------------------
Swaziland 258 1.47 0.47
- ----------------------------------------------------------------------------------------------
Sweden 46 1.08 0.08
- ----------------------------------------------------------------------------------------------
Switzerland 41 1.15 0.15
- ----------------------------------------------------------------------------------------------
Syria 963 1.88 0.88
- ----------------------------------------------------------------------------------------------
Taiwan 886 1.29 0.29
- ----------------------------------------------------------------------------------------------
Tajikistan 73772 1.69 0.69
- ----------------------------------------------------------------------------------------------
Tanzania 255 1.79 0.79
- ----------------------------------------------------------------------------------------------
Thailand 66 1.64 0.64
- ----------------------------------------------------------------------------------------------
Togo 228 1.25 1.25
- ----------------------------------------------------------------------------------------------
Tonga Island 676 1.42 1.42
- ----------------------------------------------------------------------------------------------
Trinidad & Tobago 1868 1.99 0.49
- ----------------------------------------------------------------------------------------------
Tunisia 216 1.47 0.47
- ----------------------------------------------------------------------------------------------
Turkey 90 1.99 0.36
- ----------------------------------------------------------------------------------------------
Turkmenistan 993 1.25 1.25
- ----------------------------------------------------------------------------------------------
Turks & Caico 1649 1.59 0.59
- ----------------------------------------------------------------------------------------------
11
<PAGE>
CANMAX PRICES FOR INTERNATIONAL CALLS
- ----------------------------------------------------------------------------------------------
COUNTRY CODE 1ST MIN ADDL. MIN. TIME OF DAY
- ----------------------------------------------------------------------------------------------
Retail Sell Retail Sell
- ----------------------------------------------------------------------------------------------
Tuvalu 688 1.99 0.99
- ----------------------------------------------------------------------------------------------
Uganda 256 1.69 0.69
- ----------------------------------------------------------------------------------------------
Ukraine 380 1.47 0.47
- ----------------------------------------------------------------------------------------------
United Arab Emierates 971 1.64 0.64
- ----------------------------------------------------------------------------------------------
UK 44 1.07 0.07
- ----------------------------------------------------------------------------------------------
Uruguay 588 1.69 0.69
- ----------------------------------------------------------------------------------------------
US Virgin Islands 1340 0.69 0.69
- ----------------------------------------------------------------------------------------------
Uzbekistan 998 1.11 1.11
- ----------------------------------------------------------------------------------------------
Vanuatu Republic 678 1.42 1.42
- ----------------------------------------------------------------------------------------------
Vatican City 379 0.66 0.66
- ----------------------------------------------------------------------------------------------
Venezuela 58 1.99 0.25
- ----------------------------------------------------------------------------------------------
Vietnam, 84 1.99 0.99
- ----------------------------------------------------------------------------------------------
Wallis and Futuna 681 0.71 0.71
- ----------------------------------------------------------------------------------------------
Western Samoa 685 1.25 1.25
- ----------------------------------------------------------------------------------------------
Yemen 967 1.79 0.79
- ----------------------------------------------------------------------------------------------
Yugoslavia 381 1.59 0.59
- ----------------------------------------------------------------------------------------------
Zaire 243 1.64 0.64
- ----------------------------------------------------------------------------------------------
Zambia 260 1.89 0.89
- ----------------------------------------------------------------------------------------------
Zimbabwe 263 1.47 0.47
- ----------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
EXHIBIT C
Not applicable: no current Minute Cards.
EXHIBIT C
<PAGE>
*
EXHIBIT D
Discount Rates:
International Card - [ ]% discount prior to application of 3% Federal Excise
Tax ([ ]% net price inclusive of Federal Excise Tax.)
Domestic Card - [ ]% discount prior to application of 3% Federal Excise Tax
([ ]% net price inclusive of Federal Excise Tax.)
EXHIBIT D
<PAGE>
EXHIBIT E
Monthly reports in the attached form.
[THE ATTACHED FORM HAS BEEN OMITTED AS IT DOES NOT CONTAIN ANY MATERIAL
INFORMATION]
EXHIBIT E
<PAGE>
EXHIBIT 10.20
COMMERCIAL LEASE AGREEMENT
JACKSON-SHAW/JETSTAR TRISTAR LIMITED PARTNERSHIP
Landlord
to
CANMAX, INC.
Tenant
COMMERCIAL LEASE AGREEMENT -Page 1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. BASE RENT AND SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . 2
6. ADDITIONAL RENTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. TENANT REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . 5
8. LANDLORD'S REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. UTILITY SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10. SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
11. USAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. RELOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
14. COMPLIANCE WITH LAWS, RULES AND REGULATIONS. . . . . . . . . . . . . . 8
15. ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . . . . 8
16. ALTERATIONS AND IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . 9
17. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
18. FIRE AND CASUALTY. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
19. CASUALTY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 11
20. WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . . . 12
21. HOLD HARMLESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
22. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
23. LANDLORD'S RIGHT OF ENTRY. . . . . . . . . . . . . . . . . . . . . . . 12
24. ASSIGNMENT OF LANDLORD'S INTEREST IN LEASE . . . . . . . . . . . . . . 12
COMMERCIAL LEASE AGREEMENT -Page 2
<PAGE>
25. LANDLORD'S LIEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
26. DEFAULT BY TENANT. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
27. REMEDIES FOR TENANT'S DEFAULT. . . . . . . . . . . . . . . . . . . . . 13
28. TERMINATION OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 15
29. WAIVER OF DEFAULT OR REMEDY. . . . . . . . . . . . . . . . . . . . . . 15
30. CHOICE OF LAW; VENUE; ATTORNEY'S FEES. . . . . . . . . . . . . . . . . 15
31. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
32. RIGHTS OF MORTGAGEE. . . . . . . . . . . . . . . . . . . . . . . . . . 16
33. ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . 16
34. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
35. REAL ESTATE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . 17
36. DEFAULT BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . . . 17
37. MECHANIC'S LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
38. HAZARDOUS WASTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
39. ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES. . . . . . . . . . . . . 18
40. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 18
41. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
42. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
43. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
44. LIMITATION ON TENANT'S DAMAGES . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
COMMERCIAL LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into by and between:
1. LANDLORD: JACKSON-SHAW/JETSTAR TRISTAR LIMITED PARTNERSHIP
2. TENANT: CANMAX, INC.
COMMERCIAL LEASE AGREEMENT -Page 3
<PAGE>
3. LEASED PREMISES: In consideration of the rents, terms and covenants of this
Commercial Lease Agreement (this "Lease"), Landlord hereby leases to Tenant
certain premises (the "Leased Premises") consisting of approximately 13,163
square feet within the 28,000 square foot building (the "Building") located at
8100 Jetstar Dr., Suite_____ , Irving, Texas together with the non-exclusive
right to use, in common with other tenants, the common areas of the Project,
which are all areas neither exclusively leased to another tenant nor expressly
reserved to or by Landlord. The land upon which the Building is located is
described in the attached Exhibit A and, together with the Building,
landscaping, parking and driveway areas, sidewalks, and other improvements
thereon, shall be referred to in this Lease as the "Project."
4. TERM:
(a) The term of this Lease shall be 60 months commencing on March 1, 1999,
the "Commencement Date" and terminating on the last day of February in the fifth
(5th) year following the Commencement Date (the "Termination Date"). This
Commencement Date may be subject to change, however, pursuant to Paragraph 4(c)
below.
(b) Tenant acknowledges that it accepts the Leased Premises as suitable
for Tenant's purposes subject only to Paragraph 4(c) below, if applicable. If
this Lease is executed before the Leased Premises become available for
occupancy, or if Landlord cannot acquire possession of the Leased Premises prior
to the Commencement Date stated above, Tenant agrees to accept possession of the
Leased Premises at such time as Landlord is able to tender the same, which date
shall then be the Commencement Date of the Lease term.
(c) Landlord agrees to install at its cost and expense the improvements,
if any, described in the plans and specifications described in Exhibit B. If
such improvements are not completed and the Leased Premises are not ready for
occupancy on the Commencement Date stated above, other than as a result of the
omission, delay or default by Tenant or anyone acting under or on behalf of
Tenant, the rent under this Lease shall not commence until substantial
completion of the work described in said plans and specifications, and the
Commencement Date of the Lease term shall be the date of such substantial
completion. Landlord shall notify Tenant in writing as soon as such
improvements are substantially completed and ready for occupancy. If Tenant
believes that such improvements have not been substantially completed as
aforesaid, Tenant shall notify Landlord in writing of its objections within
three (3) days after receipt of the completion notice from Landlord. Landlord
shall have a reasonable time after receipt of such notice (but in no event more
than 10 days) in which to commence such corrective action as may be necessary
and shall notify Tenant in writing as soon as it deems such corrective action
has been completed so that the Leased Premises are completed and ready for
occupancy. In the event of any dispute as to substantial completion or work
performed or required to be performed by Landlord, the certificate of a
registered architect shall be conclusive and binding on all parties.
(d) Tenant acknowledges that no representations or promises regarding
construction, repairs, alterations, remodeling, or improvements to the Leased
Premises have been made by Landlord, its agents, employees, or other
representatives, unless such are expressly set forth in this Lease or any
Exhibit hereto. Tenant is solely responsible for applying for and obtaining a
Certificate of Occupancy for the Leased Premises and will satisfy itself as to
the business park restrictions and all zoning and similar restrictions and
regulations prior to commencement of any construction. Failure of Tenant to
provide written notice of such objections prior to commencement of construction
shall be deemed acceptance by Tenant. Tenant agrees that if its occupancy of
the Leased Premises is delayed under the circumstances described in Paragraphs
4(b) and (c) above, this Lease shall nonetheless continue in full force and
effect. Adjustment of the rent commencement date as above provided shall
constitute full settlement of all claims by Tenant against
COMMERCIAL LEASE AGREEMENT -Page 4
<PAGE>
Landlord by reason of any such delay in possession of the Leased Premises.
Tenant's taking possession of the Leased Premises shall conclusively
establish that the improvements, if any, to be made by Landlord under the
terms of this Lease have been completed in accordance with the plans and
specifications therefor and that the Leased Premises are in good and
satisfactory condition as of the date of Tenant's possession, unless Tenant
notifies Landlord in writing specifying any bona fide deficiencies after
taking possession. Landlord shall use reasonable diligence to repair promptly
such items but Tenant shall have no claim for damages or rebate or abatement
of rent by reason thereof. In conjunction with, or at any time after, the
Commencement Date, Tenant shall, upon demand, execute and deliver to Landlord
an Estoppel letter (as referred to in paragraph 33 herein) to acknowledge the
Commencement Date.
5. BASE RENT AND SECURITY DEPOSIT:
(a) Tenant agrees to pay to Landlord the following rental amounts
(sometimes referred to in this Lease as the "Base Rent" or "Base Rental"):
MONTHS 1 THROUGH 60, $123,084.00 PER YEAR PAYABLE IN MONTHLY INSTALLMENTS OF
$10,257.00 EACH. Payment of rent is subject to proration for partial months and
to adjustment for early or delayed occupancy under the terms hereof, and, if the
area of the Leased Premises is, on the Commencement Date, different than the
area stated in Paragraph 3 above, then Base Rent shall be adjusted to reflect
$9.35 per square foot. Upon the date Tenant executes the Lease Agreement the
first month's Base Rent shall be payable. All subsequent payments shall be made
to Landlord monthly, in advance, without demand, deduction or offset, in lawful
money of the United States of America at the address stated below. All
installments of Base Rent shall be due and payable on or before the first (1st)
day of each month during the Lease term.
(b) Upon the date Tenant executes the Lease Agreement, there shall be due
and payable by Tenant a Security Deposit in the amount of $10,257.00. Such
deposit shall be held by Landlord (without any obligation to pay interest
thereon or segregate such money from Landlord's general funds except as may be
required by applicable law) as security for the performance of Tenant's
obligations under this Lease. Tenant agrees to increase such Security Deposit
from time to time so that it is at all times equal to one monthly Base Rental
installment plus the average monthly additional rentals arising pursuant to
Paragraph 6 below. Tenant shall deposit cash with Landlord in an amount
sufficient so to increase the Security Deposit to such amount within five (5)
days after written demand by Landlord. It is expressly understood that the
Security Deposit is not an advance payment of rental or a measure of Landlord's
damages in the event of Tenant's default under this Lease. Upon the occurrence
of any event of default by Tenant under this Lease, Landlord may, from time to
time, without prejudice to any other remedy provided herein or provided by law,
use, apply, or retain all or part of the Security Deposit for the payment of (i)
any Base Rent, (ii) additional rentals arising under Paragraph 6 below, and
(iii) other sums due hereunder, including without limitation any amount which
Landlord may spend or become obligated to spend by reason of Tenant's default or
to compensate Landlord for any damage, injury, expense or liability caused to
Landlord by such default or breach (all of which items (i), (ii) and (iii) are
sometimes referred to in the aggregate as "Rent"). If any portion of the
Security Deposit is so used or applied, Tenant shall, within five (5) days after
written demand thereof, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to the amount required by this Paragraph. Tenant's
failure to do so shall be an event of default under this Lease. The balance of
the Security Deposit shal be returned by Landlord to Tenant at such time after
termination of this Lease that all of Tenant's obligations have been fulfilled.
(c) Other remedies for nonpayment of Rent notwithstanding, if the monthly
Base Rental payment is not received by Landlord on or before the tenth (10th)
day of the month for which such rent is due, or if any other Rent payment due
Landlord by Tenant hereunder is not received by Landlord within ten (10) days of
the due date, a service charge of two hundred ($200.00) dollars shall be
additionally due and payable by Tenant as an administrative charge for the
excess efforts necessitated by such tardiness in payment. Such
COMMERCIAL LEASE AGREEMENT -Page 5
<PAGE>
service charge shall be cumulative of any other remedies Landlord may have
for nonpayment of Rent and other sums payable under this Lease.
(d) If three (3) consecutive monthly Base Rental payments or any ten (10)
[in total, cumulative from the beginning of the Lease term] monthly Base Rental
payments during the Lease term (or any renewal or extension thereof) are not
received by Landlord within ten (10) days of the due date, the Base Rent
hereunder shall automatically become due and payable by Tenant in advance in
quarterly installments equal to three (3) months' Base Rent each. The first of
such quarterly Base Rent payments shall be due and payable on the first day of
the next succeeding month and on the first day of every third (3rd) month
thereafter. This remedy shall be cumulative of any other remedies of Landlord
under this Lease for nonpayment of Rent.
6. ADDITIONAL RENTAL:
(a) TAXES AND INSURANCE:
(1) "Tax and Insurance Costs" shall mean all of the following paid or
payable by Landlord with respect to the Project or any portion thereof: (i) all
federal, state and local sales, use, ad valorem, rental, value added, and other
taxes (other than Landlord's income or franchise taxes) and special assessments
and other governmental charges; and (ii) all insurance premiums, including,
without limitation, public liability, casualty, rental and property damage
insurance.
(2) Landlord shall pay all Tax and Insurance Costs; however, Landlord
may in its discretion defer such payment to the extent permitted by applicable
laws so long as contested by Landlord in good faith and so long as Tenant's
occupancy of the Premises is not lawfully disturbed.
(3) For each calendar year of the term of this Lease, Tenant shall
pay to Landlord as additional Rent hereunder its "pro rata portion" of the Tax
and Insurance Costs computed by multiplying the Tax and Insurance Costs by a
fraction, the numerator of which is the number of rentable square feet in the
Leased Premises, and the denominator of which is the number of rentable square
feet in the Building.
(4) Along with the Base Rent Tenant shall pay one-twelfth of its pro
rata portion of Tax and Insurance Costs as estimated from time to time by
Landlord, during the term of this Lease. As soon as available after the
expiration of each calendar year during the term of this Lease, Landlord shall
submit a reconciliation statement to Tenant setting forth (i) Tenant's pro rata
portion of the Tax and Insurance Costs due from Tenant for the preceding
calendar year, (ii) the amount of Tax and Insurance Costs paid by Tenant during
such calendar year, and (iii) the amount, if any, either overpaid or remaining
due from Tenant to Landlord. Within (10) days after receipt of such statement,
Tenant shall remit to Landlord the amount said statement shows to be due from
Tenant or, if Tenant has overpaid, Landlord shall credit the amount overpaid to
Tenant's pro rata portion of Tax and Insurance Costs next due. If Tenant is not
in default and this Lease terminated at the end of such prior year, Landlord
shall refund such overpayment to Tenant.
(5) For the calendar years in which this Lease commences and
terminates, Tenant's liability for its pro rata portion of the Tax and Insurance
Costs for such partial calendar years shall be subject to pro rata adjustment
based upon the number of days of the term elapsing during such partial year.
Where the applicable charges are not available prior to the end of the term
hereof, then the aforesaid adjustment shall be made between Landlord and Tenant
after Landlord shall have received the charges for such period, it being
specifically agreed that Landlord's and Tenant's obligations under this
Paragraph shall survive the expiration of the term of this Lease.
COMMERCIAL LEASE AGREEMENT -Page 6
<PAGE>
(6) The failure of Landlord to exercise its rights hereunder to
estimate Tax and Insurance Costs and require payment of same as additional Rent
shall not constitute a waiver of such rights which rights may be exercised from
time to time at Landlord's discretion.
(b) COMMON AREA MAINTENANCE:
(1) "Common Area Maintenance Expenses" shall mean any and all
expenses (other than the Tax and Insurance Costs described above) arising from
the maintenance, repair, replacement and operation of, and modifications and
improvements to comply with governmental mandate to, the Project's common areas
and any portions of the Project for which Landlord is responsible hereunder
(excluding only expenses associated with structural integrity of the roof,
foundation, and exterior walls) including, but not limited to, management fees,
utility expenses (if furnished by Landlord), wages and fringe benefits payable
to employees of Landlord whose duties are connected with the operation and
maintenance of the Project, amounts paid to contractors or subcontractors for
work or services performed in connection with the operation and maintenance of
the Project, including without limitation common areas and parking areas and
roof, exterior wall and foundation work that is not related to structural
integrity. Any capitalized expenditures included within the foregoing (together
with reasonable finance charges) will be amortized for purposes of this
Paragraph over a three (3) year period.
(2) The term "Common Area Maintenance Expenses" shall not include
repair, restoration or other work occasioned by fire, windstorm or other
casualty with respect to which Landlord actually receives insurance proceeds,
income and franchise taxes of Landlord, expenses incurred in leasing to or
procuring of tenants, leasing commissions, advertising expenses, expenses for
the renovating of space for new tenants, interest or principal payments or any
mortgage or other indebtedness of Landlord, compensation paid to any employee of
Landlord above the grade of building superintendent, or depreciation allowance
or expense.
(3) Tenant agrees to pay as additional Rent its pro rata portion (as
defined in Paragraph 6(a)(3) above) of the Common Area Maintenance Expenses.
Along with the Base Rent Tenant shall pay one-twelfth of its pro rata portion of
Common Area Maintenance Expenses as estimated from time to time by Landlord,
during the term of this Lease. As soon as available after the expiration of each
calendar year during the term of this Lease, Landlord shall submit a statement
to Tenant setting forth (i) Tenant's pro rata portion of the Common Area
Maintenance Expenses due from Tenant for the preceding calendar year, (ii) the
amount of Common Area Expenses paid by Tenant during such calendar year, and
(iii) the amount, if any, either overpaid or remaining due from Tenant to
Landlord. Within ten (10) days after receipt of such statement, Tenant shall
remit to Landlord the amount said statement shows to be due from Tenant or, if
Tenant has overpaid, Landlord shall credit the amount overpaid to Tenant's pro
rata portion of Common Area Maintenance Expenses next due. If Tenant is not in
default and this Lease terminated at the end of such prior year, Landlord shall
refund such overpayment to Tenant.
(4) For the calendar years in which this Lease commences and
terminates, Tenant's liability for its pro rata portion of the Common Area
Maintenance Expenses for such partial calendar years shall be subject to pro
rata adjustment based upon the number of days of the term elapsing during such
partial year. Where the applicable expenses are not available prior to the end
of the term hereof, then the aforesaid adjustment shall be made between Landlord
and Tenant after Landlord shall have received all of the expenses for such
period, it being specifically agreed that Landlord's and Tenant's obligations
under this Paragraph shall survive the expiration of the term of this Lease.
COMMERCIAL LEASE AGREEMENT -Page 7
<PAGE>
(5) The failure of Landlord to exercise its rights hereunder to
estimate expenses and require payment of same as additional Rent shall not
constitute a waiver of such rights which rights may be exercised from time to
time at Landlord's discretion.
(c) In any event, Tenant shall be responsible for insuring and paying all
taxes upon Tenant's furniture, machinery, goods, supplies, fixtures, Alterations
(below defined) or other improvements, and other property on the Project.
7. TENANT REPAIRS AND MAINTENANCE:
(a) Tenant shall maintain all parts of the Leased Premises and their
appurtenances (except those for which Landlord is expressly responsible under
this Lease) in good, clean and sanitary condition, at its own expense. Tenant
shall promptly make all necessary repairs and replacements to the Leased
Premises, including but not limited to electric light lamps or tubes, windows,
glass and plate glass, interior and exterior doors, any special office entry,
interior walls and finish work, floors and floor coverings, downspouts, gutters,
heating and air conditioning systems, fire sprinkler systems, dock boards, truck
doors, dock bumpers, and plumbing work and fixtures. Replacement and repair
parts, materials and equipment shall be of quality equivalent to those initially
installed within the Leased Premises, and repair and maintenance work shall be
done in a good and workmanlike manner and in accordance with existing laws,
rules, regulations and ordinances.
(b) Tenant shall not damage or disturb the integrity, structural
integrity, or support of any wall, roof, or foundation of the Building. Any
damage to these areas caused by Tenant or Tenant's Representatives (defined in
Paragraph 7(g)) shall be promptly repaired by Tenant at its sole cost and
expense.
(c) Landlord shall have the right to coordinate any repairs, maintenance
and replacement of any rail tracks serving or to serve the Project, and if
Tenant uses such rail tracks, Tenant shall reimburse Landlord from time to time
upon demand for a share of the cost of such repairs, maintenance and replacement
and any other sums specified in any agreement to which Landlord is a party
respecting such tracks. Tenant's share of such costs shall be additional Rent
and shall reflect a proration based on the ratio that Tenant's use, in number of
cars, bears to the total rail use, in number of cars, by all rail users in the
Project.
(d) Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance service contract with a maintenance contractor
for servicing all heating, ventilation and air conditioning systems and
equipment within, and any other equipment or machinery installed by Landlord in,
or to serve, the Leased Premises. The maintenance contractor and the contract
are subject to Landlord approval which shall not be unreasonably withheld. The
service contract must include all services suggested by the equipment
manufacturer within the operation/maintenance manual and must become effective
(and a copy delivered to Landlord) within thirty (30) days of the date Tenant
takes possession of the Leased Premises. If Tenant fails to enter into such
service contract as required, Landlord shall have the right to do so on Tenant's
behalf, and Tenant agrees to pay Landlord the cost and expense of same upon
demand, and such amount shall be considered additional Rent.
(e) Tenant shall at its own expense keep the Leased Premises pest-free and
pay all charges for pest control and extermination within the Leased Premises.
(f) At the termination of this Lease, Tenant shall deliver the Leased
Premises "broom clean" to Landlord in the same good order and condition as
existed at the Commencement Date of this Lease, ordinary wear, natural
deterioration beyond the control of Tenant, and damage by fire, tornado or other
COMMERCIAL LEASE AGREEMENT -Page 8
<PAGE>
casualty excepted. Tenant shall give written notice to Landlord at least thirty
(30) days prior to vacating the Leased Premises and shall arrange to meet with
Landlord for a joint inspection of the Leased Premises prior to vacating. In
the event of Tenant's failure to give such notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the Leased
Premises shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
(g) Not in limitation on the foregoing, it is expressly understood that
Tenant shall repair and pay for all damage caused by the negligence of Tenant,
Tenant's employees, officers, directors, partners, agents, invitees, licensees,
contractors, representatives, or others for whom Tenant is legally responsible
(all such persons and entities being herein collectively referred to as
"Tenant's Representatives") or caused by Tenant's default hereunder.
(h) If Landlord shall give Tenant written notice of defects or need for
repairs for which Tenant is responsible under this Lease, and if Tenant shall
fail to make same within 30 days of Landlord's notification or such shorter time
as is reasonable if expedited repair is needed to avoid injury or damage,
Landlord shall have the option to cure said defect or repair, and Tenant shall
pay to Landlord all costs and expenses incurred on demand.
8. LANDLORD'S REPAIRS:
(a) Landlord shall be responsible, at its expense, for, but only for, the
structural integrity of the roof, foundation and exterior walls of the Building.
In further limitation on Landlord's responsibilities hereunder, (i) any repair
to the roof, foundation or exterior walls occasioned by the act of omission of
Tenant or Tenant's Representatives shall be the responsibility of Tenant; (ii)
the term "walls" as used in this Paragraph 8 shall not include windows, glass or
plate glass, interior doors, special store fronts, office entries or exterior
doors; and (iii) Landlord's liability with respect to any defects, repairs or
maintenance for which Landlord is responsible at its expense under this Lease
shall be limited to the cost of such repairs or maintenance or the curing of
such defect. Tenant shall promptly give Landlord written notice of defects or
need for repairs, after which Landlord shall have 30 days to commence to repair
or cure such defect.
(b) Landlord shall perform the work which gives rise to Common Area
Maintenance Expenses, subject to payment therefor by Tenant pursuant to the
provisions of Paragraph 6(b) above. If the need for any such work shall come to
the attention of Tenant, Tenant will promptly so notify Landlord in writing.
9. UTILITY SERVICE: Tenant shall pay the cost of all utility services
including, but not limited to, initial connection charges and deposits and all
charges for gas, water, trash disposal, sewer, telephone or other
telecommunications, and electricity used on the Leased Premises. Tenant shall
pay all costs caused by Tenant introducing excessive pollutants into the
sanitary or storm sewer system, including permits, fees, assessments, and
charges levied by any governmental subdivision for any pollutants or solids
other than ordinary human waste.
10. SIGNS: No sign, door plaques, advertisement, or notice shall be displayed,
painted or affixed by Tenant on any part of the Project, Building, parking
facilities, or Leased Premises without prior written consent of Landlord. The
color, size, character, style, material, placement and location and method of
attachment to the Building shall be subject to Landlord's approval, and to any
applicable governmental laws, ordinances, regulations, project specifications,
and other requirements. Signs, if approved by Landlord, shall be placed by a
contractor approved by Landlord and paid for by Tenant. Tenant shall remove all
such signs at the termination of this Lease. Such installations and removals
shall be made in such manner as to avoid injury or defacement of the Project and
other improvements, and Tenant, at its sole expense, shall repair any injury or
defacement, including, without limitation, any discoloration caused by
COMMERCIAL LEASE AGREEMENT -Page 9
<PAGE>
such installation and/or removal. Landlord may erect a sign or signs on the
Leased Premises indicating that the Leased Premises are for lease during the
six (6) month period prior to the expiration of this Lease.
11. USAGE: Tenant warrants and represents to Landlord that the Leased Premises
shall be used and occupied only for the purpose of general office and operations
software and phone card provider. Any change in the stated usage purposes shall
be subject to the prior written approval of Landlord. Tenant shall occupy the
Leased Premises, conduct its business, and control Tenant's Representatives in a
lawful and reputable way and as not to create any nuisance. Tenant shall not
commit, or allow to be committed, any waste on the Leased Premises or the
Project. Tenant may not use the Leased Premises for the use, storage, or
distribution of hazardous or environmentally offensive substances, for
underground storage, or for any unlawful purposes.
12. INSURANCE:
(a) Tenant shall not permit the Leased Premises to be used in any way
which would be hazardous or which would in any way increase the cost of or
render void any insurance on the improvements, and Tenant shall immediately, on
demand, cease any use which violates the foregoing or to which Landlord's
insurer or any governmental or regulatory authority objects. If at any time
during the term of this Lease Tenant's use or vacancy shall cause an increase in
premiums, and in particular, but without limitation, if the State Board of
Insurance or other insurance authority disallows any of Landlord's sprinkler
credits or imposes an additional penalty or surcharge in Landlord's insurance
premiums because of Tenant's original or subsequent placement or use of storage
racks or bins or method of storage or because of the nature of Tenant's
inventory or any other act of Tenant, Tenant agrees to pay as additional Rent
the increase in Landlord's insurance premiums.
(b) Tenant, at its sole cost and expense, shall procure and maintain
throughout the term of this Lease a policy or policies of insurance insuring
Landlord, Landlord's management company and lender, and Tenant against all
claims for property damages, personal injury or death of others occurring on or
in connection with: (i) the Leased Premises; (ii) the condition of the Leased
Premises; (iii) Tenant's operations in and maintenance and use of the Leased
Premises; (iv) Tenant's and Tenant's Representatives' use of the common areas of
the Project, and (v) Tenant's liability assumed under this Lease. The limits of
such policy or policies shall be not less than $ 2,000,000.00 combined single
limit coverage per occurrence for injury to persons (including death) and/or
property damage or destruction, including loss of use.
(c) All such policies shall be procured by Tenant from insurance companies
satisfactory to Landlord naming the following as co-insureds: (i) Landlord; (ii)
Landlord's management company, JACKSON-SHAW COMPANY; and, (iii) Landlord's
mortgage holder, if any. Certified copies of such policies together with
receipt for payment of premiums, shall be delivered to Landlord prior to the
Commencement Date of this Lease. Not less than fifteen (15) days prior to the
expiration date of any such policies, certified copies of renewal policies and
evidence of the payment of renewal premiums shall be delivered to Landlord. All
such original and renewal policies shall provide for at least thirty (30) days
written notice to Landlord before such policy may be canceled or changed to
reduce insurance coverage provided thereby. Upon request of Landlord, Tenant
further agrees to complete and return to Landlord an insurance questionnaire
(such form to be provided by Landlord) regarding Tenant's insurance coverage and
intended use of the Leased Premises. Tenant warrants and represents that all
information contained in such questionnaire shall be true and correct as of the
date thereof and shall be updated by Tenant from time to time upon Landlord's
request.
COMMERCIAL LEASE AGREEMENT -Page 10
<PAGE>
13. RELOCATION: Prior to the commencement of the Tenant Improvements,
Landlord reserves the right to move Tenant to another location in the Building,
provided such new space will have as many windows if not more than the original
space.
14. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Tenant shall comply with all
applicable laws, ordinances, orders, rules and regulations of state, federal,
municipal, or other agencies or bodies relating to the use, condition and
occupancy of and business conducted on the Leased Premises, including without
limitation, the Americans with Disabilities Act, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response Act, and the rules,
regulations and directives of the U.S. Environmental Protection Agency.
15. ASSIGNMENT AND SUBLETTING: The Tenant agrees not to assign, transfer, or
mortgage this Lease or any right or interest therein or sublet the Leased
Premises or any part thereof, without the prior written consent of Landlord. No
assignment or subletting shall relieve Tenant of its obligations hereunder, and
Tenant shall continue to be liable as a principal (and not as a guarantor or
surety) to the same extent as though no assignment or subletting had been made.
Consent by Landlord to any one assignment or subletting shall not be construed
to be consent to any additional assignment or subletting. Each such successive
act shall require similar consent of Landlord. Landlord shall be reimbursed by
Tenant for any costs or expenses incurred as a result of Tenant's request for
consent to any such assignment or subletting, including legal costs. In the
event Tenant subleases the Leased Premises, or any portion thereof, or assigns
this Lease with the consent of the Landlord at an annual Base Rental exceeding
that stated herein, such excess shall be paid by Tenant to Landlord as
additional Rent hereunder within ten (10) days after receipt by Tenant. Upon
the occurrence of an "event of default" as defined below, if all or any part of
the Leased Premises is then assigned or sublet, Landlord may, in addition to any
other remedies provided by this Lease or provided by law, collect directly from
the assignee or subtenant all rents due to Tenant. Landlord shall have a
security interest in all property on the Leased Premises to secure payment of
such sums. Any collection directly by Landlord from the assignee or subtenant
shall not be construed, however, to constitute a novation or a release of Tenant
from the further performance of its obligations under this Lease.
Notwithstanding the foregoing, it is expressly agreed that if this Lease is
assigned to any person or entity pursuant to the provisions of the Bankruptcy
Code, 11 U.S.C. Sec. 101 et seq, as amended (the "Bankruptcy Code"), any and all
monies or other considerations payable or otherwiseto be delivered in connection
with such assignment shall be paid or delivered to Lessor, shall be and remain
the exclusive property of Landlord and shall not constitute property of Tenant
or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and
all monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and be promptly paid or delivered to Landlord. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed without further act or deed to have assumed
all of the obligations arising under this Lease on and after the date of such
assignment. Any such assignee shall upon demand execute and deliver to Landlord
an instrument confirming such assumption.
16. ALTERATIONS AND IMPROVEMENTS:
(a) Tenant shall not make or perform, or permit the making or performance
of, any initial or subsequent tenant finish work or any alterations,
installations, decorations, improvements, additions or other physical changes in
or about the Leased Premises that are structural in nature or exceed $2,500.00
in costs (referred to collectively as "Alterations") without Landlord's prior
consent. Landlord shall be under no obligation to allow Alterations of any kind
and may withhold its consent without cause. Notwithstanding the foregoing
provisions or Landlord's consent to any Alterations, all Alterations shall be
made and performed in conformity with and subject to the following provisions:
All Alterations shall be made and performed at Tenant's sole cost and expense in
a good and workmanlike manner. Alterations shall be made
COMMERCIAL LEASE AGREEMENT -Page 11
<PAGE>
only by contractors or mechanics approved by Landlord, such approval not to
be unreasonably withheld. Tenant shall submit to Landlord detailed plans and
specifications (including architectural layout, mechanical and structural
drawings) for each proposed Alteration and shall not commence any such
Alteration without first obtaining Landlord's written approval of such plans
and specifications. Prior to the commencement of each proposed Alteration,
Tenant shall furnish to Landlord a certificate evidencing worker's
compensation insurance coverage for all persons to be employed in connection
with such Alterations, including those to be employed by all contractors and
subcontractors, and of comprehensive public liability insurance (including
property damage coverage) in which Landlord, its agents, and any lessor under
any ground or underlying lease, and any mortgagee of the Building shall be
named as parties insured, which policies shall be issued by companies and
shall be in form and amounts satisfactory to Landlord and shall be maintained
by Tenant until the completion of such Alteration. Tenant shall cause its
contractor and each subcontractor to provide Landlord with a Certificate of
Completin of the Alterations and a Bills Paid Affidavit and full Lien Waiver.
Tenant shall, if required by Landlord at the time of Landlord's consent to
the Alterations, agree to restore the Leased Premises at the termination of
this Lease to their condition prior to making such Alterations. All permits,
approvals and certificates required by all governmental authorities shall be
timely obtained by Tenant and submitted to Landlord. Notwithstanding
Landlord's approval of plans and specifications for any Alterations, all
Alterations shall be made and performed in full compliance with all
applicable laws, orders, rules, standards and regulations of Federal, State,
County, and Municipal authorities, including, without limitation, all
directions, pursuant to law, of all public officers, and with all applicable
rules, orders, regulations and requirements of the local Board of Fire
Underwriters or any similar body ("Applicable Laws"). Landlord's approval
shall not in any way be considered an indication that the plans and
specifications comply with Applicable Laws. All materials and equipment to
be incorporated in the Leased Premises as a result of all Alterations shall
be new and first quality. No such materials or equipment shall be subject to
any lien, encumbrance, chattel mortgage or title retention or security
agreement. Whether such Alterations are being performed by Tenant in
connection with Tenant's initial occupancy of the Leased Premises or
subsequently, Tenant agrees to make proper application for, and obtain, a
Building Permit and a Certificate of Occupancy from the city in which the
Leased Premises are located. Tenant shall furnish copies of such permit and
certificate to Landlord promptly after issuance of same.
(b) All appurtenances, fixtures, improvements, and other property attached
to or installed in the Leased Premises, whether by Landlord or Tenant or others,
and whether at Landlord's expense or Tenant's expense, or the joint expense of
Landlord and Tenant, shall be and remain the property of Landlord, except that
any such fixtures, improvements, additions, and other property which have been
installed at the sole expense of Tenant and which are removable without material
damage to the Leased Premises shall be and remain the property of Tenant. If no
event of default has occurred, Tenant may, and if Landlord so elects Tenant
shall, remove any property belonging to Tenant at the end of the term hereof,
and Tenant shall repair or, at Landlord's option, shall pay to Landlord the cost
of repairing any damage arising from such removal. Any replacements of any
property of Landlord, whether made at Tenant's expense or otherwise, shall be
and remain the property of Landlord.
17. CONDEMNATION:
(a) If, during the term (or extension or renewal) of this Lease, all or a
substantial part of the Leased Premises are taken for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of eminent
domain or by private purchase in lieu thereof, and the taking would prevent or
materially interfere with the then current use of the Leased Premises, this
Lease shall terminate and the Rent shall be prorated during the unexpired
portion of this Lease effective on the date physical possession is taken by the
condemning authority.
COMMERCIAL LEASE AGREEMENT -Page 12
<PAGE>
(b) If a portion of the Leased Premises is taken and this Lease is not
terminated as provided in Paragraph 17(a) above, if condemnation proceeds are
sufficient and if restoration is feasible, Landlord may, at its option restore
the Project (other than Alterations) in order to make it reasonably tenantable
and suitable for Tenant's approved use. During such restoration, Rent shall be
reduced by the amount of business or rent interruption insurance proceeds
actually received by Landlord. Upon completion of such restoration, the Rent
payable under this Lease during the unexpired portion of the term shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances.
(c) In the event of such taking or private purchase in lieu thereof,
Tenant may seek a separate award for any loss of improvements made or paid for
by Tenant, its personal property, and its moving expenses (so long as no such
claim diminishes Landlord's claim or award), but all other claims of any nature
shall belong to Landlord. In the event Tenant does not receive such a separate
award, Landlord shall be entitled to receive any and all sums awarded for the
taking.
(d) Notwithstanding anything herein to the contrary, if the holder of any
indebtedness secured by a mortgage or deed of trust covering the Building and/or
Project requires that the condemnation proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is imposed. All rights and obligations under this Lease shall then cease. If
Landlord does not receive condemnation proceeds sufficient for restoration (such
as when its mortgagee does not allow the proceeds to be used for such purposes)
and if restoration is economically reasonably feasible, Tenant will have the
option of supplementing available proceeds to allow restoration, and Tenant's
actual costs will be reimbursed through a monthly prorata credit against rent
beginning after Landlord's mortgage has been paid in full.
18. FIRE AND CASUALTY:
(a) If the Building should be damaged or destroyed by fire, tornado, or
other casualty, Tenant shall give immediate verbal and written notice thereof to
Landlord.
(b) If the Building should be totally destroyed by fire, tornado, or other
casualty, or if it should be so damaged thereby that rebuilding or repairs
cannot reasonably be completed within one hundred eighty (180) days after the
date on which Landlord is notified by Tenant of such damage, at the option of
either Landlord or Tenant, this Lease shall terminate, and the Rent shall be
abated during the unexpired portion of this Lease effective upon the date of
occurrence of such damage.
(c) If the Building should be damaged by any peril that will be wholly
compensated (subject to deductibles) by the insurance maintained by Landlord or
if Landlord, in its sole discretion, so chooses notwithstanding a deficiency in
such proceeds, and if rebuilding or repairs can reasonably be completed within
one hundred eighty (180) days after the date on which Landlord is notified by
Tenant of such damage, this Lease shall not terminate, and Landlord shall then
proceed with reasonable diligence to rebuild and repair the Building to
substantially the same condition in which it existed prior to such damage.
Landlord shall not be required, however, to rebuild, repair, or replace Tenant's
furniture, fixtures, Alterations, inventory or other personal property. If the
Leased Premises are untenantable in whole or in part during restoration, the
Rent payable hereunder during the period in which they are untenantable shall be
reduced by the amount of business or rent interruption insurance proceeds
actually received by Landlord. If Landlord should fail to complete such repairs
and rebuilding within one hundred eighty (180) days after the date on which
Landlord is notified by Tenant of such damage, Tenant may terminate this Lease
by delivering written notice of termination to Landlord. Such termination shall
be Tenant's exclusive remedy and all rights and obligations of the parties under
the Lease shall then cease. Notwithstanding the foregoing provisions of this
Paragraph 18(c), Tenant agrees that if the Leased Premises, the Building and/or
Project
COMMERCIAL LEASE AGREEMENT -Page 13
<PAGE>
are damaged by fire or other casualty caused by the fault or negligence of
Tenant or Tenant's Representatives, Tenant shall have no option to terminate
this Lease even if the damage cannot be repaired within one hundred eighty
(180) days, and the Rent shall not be abated or reduced before or during the
repair period.
(d) Notwithstanding anything herein to the contrary, if the holder of any
indebtedness secured by a mortgage or deed of trust covering the Building and/or
Project requires that the insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is imposed. All rights and obligations under this Lease shall then cease. If
Landlord does not receive insurance proceeds sufficient for restoration (such as
when its mortgagee does not allow the proceeds to be used for such purposes) and
if restoration is economically reasonably feasible, Tenant will have the option
of supplementing available proceeds to allow restoration, and Tenant's actual
costs will be reimbursed through a monthly prorata credit against rent beginning
after Landlord's mortgage has been paid in full.
19. CASUALTY INSURANCE: Landlord shall at all times during the term of this
Lease maintain a policy or policies of business or rental interruption insurance
and a policy or policies of insurance insuring the Building against eighty
percent (80%) of full replacement cost for loss or damage by fire, explosion,
and other customary hazards. Such policies will not insure any personal
property (including, but not limited to any furniture, machinery, goods, or
supplies) of Tenant or which Tenant may have in the Leased Premises or any
fixtures installed by or paid for by Tenant upon or within the Leased Premises
or any Alterations or other improvements which Tenant may construct or install
on the Leased Premises or any signs identifying Tenant's business located on the
exterior of the Building, insurance for all of which shall be Tenant's
responsibility.
20. WAIVER OF SUBROGATION: To the extent that Landlord or Tenant receives
casualty insurance proceeds, such recipient hereby waives and releases any and
all rights, claims, demands and causes of action such recipient may have against
the other on account of any loss or damage occasioned to such recipient or its
businesses, real and personal properties, the Leased Premises, the Building, the
Project, or its contents, arising from any risk or peril covered by any
insurance policy carried by either party and for which such proceeds are
actually received. Inasmuch as the above mutual waivers will preclude the
assignment of any such claim by way of subrogation (or otherwise) to an
insurance company (or any other person), each party hereto agrees immediately to
give to its respective insurance companies written notice of the terms of such
mutual waivers and to have their respective insurance policies properly
endorsed, if necessary, to prevent the invalidation of such insurance coverages
by reason of such waivers. This provision shall be cumulative of Paragraph 21
below.
21. HOLD HARMLESS: Landlord shall not be liable to Tenant, Tenant's
Representatives, or any other person for any injury to person or damage to
property on or about the Leased Premises or the Project caused by the negligence
or misconduct of Tenant, Tenant's Representatives, or any other persons entering
upon the Leased Premises or the Project. Tenant agrees to indemnify and hold
Landlord harmless from any and all loss, attorney's fees, expenses, or claims
arising out of any such damage, loss or injury. Tenant shall not be liable to
Landlord, Landlord's employees, agents, invitees, licensees or visitors for any
injury to person or damage to property on or about the Leased Premises or the
Project caused by the negligence or misconduct of Landlord, its agents,
employees, agents, invitees, licensees or visitors. Landlord agrees to
indemnify and hold Tenant harmless from any and all loss, attorney's fees,
expenses, or claims arising out of any such damage, loss or injury.
22. QUIET ENJOYMENT: Landlord warrants that it has full right to execute and
to perform this Lease and to grant the estate demised herein and that Tenant,
upon payment of the required Rent and performance
COMMERCIAL LEASE AGREEMENT -Page 14
<PAGE>
of the covenants and agreements contained in this Lease, shall peaceably and
quietly have, hold, and enjoy the Leased Premises during the full term of
this Lease, including any extensions or renewals thereof.
23. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right to enter the
Leased Premises for the following reasons: inspection, cleaning or making
repairs, making such alterations or additions as Landlord may deem necessary or
desirable; installation of utility lines servicing the Leased Premises or any
other space in the Building; determining Tenant's use of the Leased Premises, or
for determining if any event of default under this Lease has occurred. Landlord
shall attempt to give twenty-four (24) hours verbal notice to Tenant prior to
such entry, except in cases of emergency or when an event of default has
occurred in which cases Landlord may enter the Leased Premises at any time and
without prior notice. During the period that is six (6) months prior to the end
of the Lease term, Landlord and Landlord's agents and representatives shall have
the right to enter the Leased Premises at any reasonable time during business
hours, without notice, for the purpose of showing the Leased Premises and shall
have the right to erect on the Leased Premises a suitable sign indicating the
Leased Premises are available for lease.
24. ASSIGNMENT OF LANDLORD'S INTEREST IN LEASE: Landlord shall have the right
to transfer and assign, in whole or in part, its rights and obligations with
respect to the Project, the Leased Premises, and this Lease, including Tenant's
Security Deposit. Upon and after such transfer, Landlord shall be released from
any further obligation under this Lease and Tenant agrees to look solely to
Landlord's successor for the performance of such obligations.
25. LANDLORD'S LIEN: In addition to any statutory lien for Rent in Landlord's
favor, Landlord shall have, and Tenant hereby grants to Landlord, a continuing
security interest for all Rent and other sums of money becoming due under this
Lease from Tenant upon all goods, wares, equipment, fixtures, furniture,
inventory, accounts, contract rights, and other personal property of Tenant
situated on or arising from the Leased Premises. Such property shall not be
removed without the consent of Landlord which consent may be withheld by
Landlord until all of Tenant's duties and obligations have been performed in
full. In the event of a default under this Lease, Landlord shall have, in
addition to any other remedies provided in this Lease or by law, all rights and
remedies under the Texas Uniform Commercial Code, including without limitation
the right to sell the property described in this Paragraph at public or private
sale upon five (5) days notice to Tenant. Tenant hereby agrees to execute such
financing statements and other instruments necessary or desirable in Landlord's
discretion to perfect the security interest hereby created.
26. DEFAULT BY TENANT: The following shall be events of default by Tenant
under this Lease:
(a) Tenant's failure to pay, within ten (10) days after it is due, any
installment of Rent or other payment required pursuant to this Lease;
(b) Tenant's abandonment or vacation of any part of the Leased Premises,
whether or not Tenant is in default of the Rent payments due under this Lease;
(c) Tenant's failure to comply with any term, provision or covenant of
this Lease, other than the defaults listed in the other subparagraphs of this
Paragraph 26, and the failure is not cured within ten (10) days after written
notice thereof to Tenant;
(d) Tenant's filing of a petition or adjudication as a debtor or bankrupt
insolvent under the Bankruptcy Code or any similar law or statute of the United
States or any state; or appointment of a receiver or trustee for all or
substantially all of the assets of Tenant; or Tenant's transfer in fraud of
creditors or assignment for the benefit of creditors of all or substantially all
of Tenant's assets;
COMMERCIAL LEASE AGREEMENT -Page 15
<PAGE>
(e) Tenant doing or permitting to be done any act which results in a lien
being filed against the Leased Premises and the same is not removed within sixty
(60) days after Landlord's notice thereof to Tenant.
27. REMEDIES FOR TENANT'S DEFAULT: Upon the occurrence of any event of
default, Landlord shall have the option to pursue any one or more of the
following remedies without any prior notice or demand:
(a) Landlord may terminate this Lease, in which event Tenant shall
immediately surrender the Leased Premises to Landlord, and if Tenant fails to do
so, Landlord may, without prejudice to any other remedy which it may have, enter
upon and take possession of the Leased Premises, and expel or remove Tenant and
any other person who may be occupying all or any part of the Leased Premises.
Landlord shall not be liable for prosecution or any claim for damages as a
result of such actions. Tenant agrees to pay on demand the amount of all
losses, costs, expenses, deficiencies, and damages, including, without
limitation, reasonable reconfiguration expenses, rental concessions and other
inducements to new tenants, advertising expenses and broker's commissions, which
Landlord may incur or suffer by reason of Tenant's default or the termination of
this Lease under this subparagraph, whether through inability to rent the Leased
Premises on satisfactory terms or otherwise. Tenant acknowledges that its
obligation to pay Base Rent and all additional Rent hereunder is not only
compensation for use of the Leased Premises but also compensation for sums
already expended and/or being expended by Landlord with respect to its
obligations hereunder and with respect to the Leased Premises, and Tenant
acknowledges that Tenant's default in timely payment of all sums due hereunder
shall constitute significant financial loss to Landlord. Tenant further
acknowledges that any failure to pay any sum due hereunder shall evidence
Tenant's inability to meet its debts as they become due. In such event, in
addition to Landlord's other remedies hereunder, Landlord shall be entitled to
accelerate all Base Rental remaining unpaid hereunder, the entirety of which
shall at the option of Landlord be immediately due and payable to the extent
allowed by law.
(b) Without termination of this Lease, Landlord may enter upon and take
possession of the Leased Premises and expel or remove Tenant and any other
person who may be occupying all or any part of the Leased Premises (without
being liable for prosecution or any claim for damages therefor) and relet the
Leased Premises on behalf of Tenant and receive directly the rent from the
reletting. Tenant agrees to pay Landlord on demand any deficiency that may
arise by reason of any reletting of the Leased Premises and to reimburse
Landlord on demand for any losses, costs, and expenses, including without
limitation, reconfiguration expenses, rental concessions and other inducements
to new tenants, advertising costs or broker's commissions, which Landlord may
incur or suffer as a result of Tenant's default or in reletting the Leased
Premises. In the event Landlord is successful in reletting the Leased Premises
at a rental in excess of that agreed to be paid by Tenant pursuant to this
Lease, Tenant agrees that Tenant shall not be entitled, under any circumstances,
to such excess rental, and Tenant does hereby specifically waive any claim to
such excess rental.
(c) Without terminating this Lease, Landlord may enter upon the Leased
Premises (without being liable for prosecution or any claim for damages
therefor) and do whatever Tenant is obligated to do under the terms of this
Lease. Tenant agrees to reimburse Landlord on demand for any losses, costs and
expenses which Landlord may incur in effecting compliance with Tenant's
obligations under this Lease. Tenant further agrees that Landlord shall not be
liable for any damages resulting to Tenant from effecting compliance with
Tenant's obligations under this subparagraph, whether caused by the negligence
of Landlord or otherwise.
(d) With respect to Landlord's entry upon the Leased Premises under the
provisions of subparagraphs (a), (b), and (c) above, no restriction of, or
obligation imposed upon Landlord by, Texas
COMMERCIAL LEASE AGREEMENT -Page 16
<PAGE>
Property Code Section 93.002 shall apply, such Section being superseded
hereby. In particular, but without limitation, Landlord will have no duty or
responsibility to Tenant to tender a key in the event of a change of locks,
and Tenant will have no further right of possession except as otherwise
expressly agreed by Landlord in writing.
(e) Landlord may pursue any remedy provided at law or in equity.
(f) Landlord shall have no duty to relet the Premises, and the failure of
Landlord to do so shall not release or affect Tenant's liability for Rent and
other charges due hereunder or for damages.
(g) No re-entry or reletting of the Premises or any filing or service of
an unlawful detainer action or similar action shall be construed as an election
by Landlord to terminate this Lease unless a written notice of such intention is
given by Landlord to Tenant. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
and Tenant's right to possession hereunder.
(h) To the extent allowed by law, Tenant hereby waives the protections and
rights provided by Texas Property Code Section 93.002.
28. TERMINATION OF OPTIONS: If there exist any options or special rights which
Landlord may have granted Tenant under this Lease including, but not limited to,
options or rights regarding extensions of the term, expansion of the Leased
Premises, or acquisition of any other interest in the Leased Premises, the
Building, or the Project, then all such options and rights are independent of
the leasehold estate hereby granted to Tenant by Landlord. Landlord and Tenant
agree and acknowledge that the negotiated consideration for any such options or
special rights is Tenant's entry into this Lease and that no portion of any sums
due and payable by Tenant to Landlord hereunder is attributable thereto. In
addition to, and not in lieu of, the above remedies of Landlord for Tenant's
default, any and all such options or special rights shall be automatically
terminated upon the occurrence of the following events:
(a) Tenant shall have failed to pay when due any installment of Rent or
other sums payable under this Lease for any three (3) consecutive months during
the Lease term or any renewal or extension thereof, or for any ten (10) months
during the Lease term or any renewal or extension thereof, whether or not said
defaults are cured by Tenant; or
(b) Tenant shall have received two (2) or more notices of default under
Paragraph 26(c) within any one calendar year with respect to any other covenant
of this Lease, whether or not such default(s) is/are cured; or
(c) Tenant shall have committed or suffered to exist any other event of
default described under Paragraph 26 above, whether or not such default is cured
by Tenant.
29. WAIVER OF DEFAULT OR REMEDY: Failure of Landlord to declare a default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not be a waiver of the default. Landlord shall
have the right to declare the default at any time and take such action as its
lawful or authorized under this Lease. Pursuit of any one or more of the
remedies set forth in Paragraphs 27 or 28 above shall not preclude pursuit of
any one or more of the other remedies provided therein or elsewhere in this
Lease or as provided by law, nor shall pursuit of any remedy be a forfeiture or
waiver of any Rent or damages accruing to Landlord by reason of the violation of
any of the terms of this Lease. Failure by Landlord to enforce one or more of
its remedies upon an event of default shall not be construed as a waiver of the
default or of any other violation or breach of any of the terms contained in
this Lease.
COMMERCIAL LEASE AGREEMENT -Page 17
<PAGE>
30. CHOICE OF LAW; VENUE; ATTORNEY'S FEES: It is specifically stipulated that
this Lease shall be interpreted and construed according to the laws of the State
in which the Leased Premises are located, and any suit brought on this Lease
shall be maintained in the county in which the Leased Premises are located.
Further, the prevailing party in any such litigation between the parties shall
be entitled to recover, as a part of its judgment, reasonable attorney's fees
and costs and expenses incurred therein.
31. HOLDING OVER: Tenant will, at the termination of this Lease by lapse of
time or otherwise, surrender immediate possession to Landlord. If Landlord
agrees in writing that Tenant may hold over after the expiration or termination
of this Lease and if the parties do not otherwise agree, the hold over tenancy
shall be subject to termination by Landlord at any time upon not less than five
(5) days advance written notice, or by Tenant at any time upon not less than
thirty (30) days advance written notice. Further, all of the terms and
provisions of this Lease shall be applicable during the hold over period, except
that Tenant shall pay Landlord from time to time upon demand, as Base Rent for
the period of any hold over, an amount equal to one and one-half times (1-1/2)
the Base Rent in effect on the date of termination, computed on a daily basis
for each day of the hold over period, plus all additional Rent and other sums
due hereunder. If Tenant shall fail immediately to surrender possession of the
Leased Premises to Landlord upon termination of this Lease, by lapse of time or
otherwise, and Landlord has not agreed to such continued possession, as above
provided, then, until Landlord can dispossess Tenant under the terms hereof or
otherwise, Tenant shall pay Landlord from time to time upon demand, as Base Rent
for the period of any such hold over, an amount equal to twice the Base Rent in
effect on the date of termination, computed on a daily basis for each day of the
hold over period, plus all additional Rent and other sums due hereunder. No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly agreed by the
parties. The preceding provisions of this Paragraph shall not be construed as
Landlord's consent for Tenant to hold over.
32. RIGHTS OF MORTGAGEE: Tenant accepts this Lease subject and subordinate to
any recorded mortgage, deed of trust or other lien (a "Mortgage") presently
existing or hereafter to exist with respect to the Leased Premises. Further,
but without limiting the preceding sentence, Landlord is hereby irrevocably
vested with full power and authority to subordinate and/or to evidence such
subordination of Tenant's interest under this Lease to any Mortgage hereafter
placed on the Leased Premises, and Tenant agrees upon demand to execute such
additional instruments subordinating this Lease, and further defining the terms
of such subordination, as well as the attornment discussed below, as Landlord or
the holder of any such Mortgage, may require. Tenant agrees to provide to the
holder of any such Mortgage, whose name and address have been provided to Tenant
(a "Mortgagee"), a copy of each notice to Landlord which alleges any act,
omission, or condition that might constitute a default by Landlord hereunder and
Mortgagee, in its sole discretion, shall have all rights of Landlord hereunder
to cure any such default. If the interests of Landlord under this Lease shall
be transferred by reason of foreclosure or other proceedings for enforcement of
any Mortgage on the Leased Premises, at the election of the transferee
(sometimes called the "Purchaser") Tenant shall be bound to the Purchaser under
the terms and conditions of this Lease for the balance of the remaining Lease
term, including any extensions or renewals, with the same force and effect as if
the Purchaser were Landlord under this Lease; provided, however, that such
Purchaser shall not be liable or bound to Tenant (i) for any act or omission of
any prior landlord, (ii) for any offsets or defenses which Tenant might have
against any prior landlord, (iii) for or by any Rent which Tenant might have
paid for more than the current month, (iv) by any amendment or modification of,
or consensual termination agreement with respect to, the Lease made without the
Mortgagee's consent, (v) for any Securiy Deposit given by Tenant to a prior
landlord unless such deposit is actually received by such Purchaser, (vi) for
any repairs or replacements required by this Lease arising prior to the date
Purchaser takes possession of the Leased Premises, or (vii) for any moving,
relocation or refurbishment allowance or any construction of or payment or
allowance for tenant improvements to the Leased Premises or any part thereof for
the benefit of Tenant except as set forth in this Lease. Tenant further agrees
at the election of the Purchaser to attorn to
COMMERCIAL LEASE AGREEMENT -Page 18
<PAGE>
the Purchaser, including the Mortgagee if it be the Purchaser, as its
Landlord. Such attornment shall be effective without the execution of any
further instruments upon the Purchaser's succeeding to the interest of
Landlord under this Lease. The respective rights and obligations of Tenant
and the Purchaser upon the attornment, to the extent of the then remaining
balance of the term of this Lease and any extensions and renewals, shall be
and are the same as those set forth in this Lease, but Tenant agrees upon
demand to execute such additional instruments defining the terms of such
attornment as Landlord or the Purchaser may require. Each such Mortgagee and
each such Purchaser shall be a third-party beneficiary of the provisions of
this Paragraph.
33. ESTOPPEL CERTIFICATES: Tenant agrees to furnish on the Commencement Date
of this Lease and from time to time within ten (10) days of request by Landlord
or Landlord's mortgagee, a statement certifying that the Tenant is in possession
of the Leased Premises; the Leased Premises are acceptable; this Lease is in
full force and effect; this Lease is unmodified; Tenant claims no present
charge, lien, or claim of offset against Rent; the Rent is paid for the current
month but is not paid and will not be paid for more than one month in advance
(except estimated additional Rent under Paragraph 6); there is no existing
default under this Lease; and such other matters as may be reasonably required
by Landlord or Landlord's mortgagee.
34. SUCCESSORS: This Lease shall be binding upon and inure to the benefit of
Landlord and Tenant and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should
Landlord's interest in the Leased Premises cease to exist for any reason during
the term of the Lease, then notwithstanding the happening of such event, at the
election of Landlord's successor herein, this Lease shall nevertheless remain
unimpaired and in full force and effect and Tenant hereunder agrees to attorn to
the then owner of the Leased Premises.
35. REAL ESTATE COMMISSION: Tenant represents and warrants that is has dealt
with no other broker, agent, or other person in connection with this transaction
other than Grubb & Ellis, and that no other broker, agent, or other person
brought about this transaction. Landlord and Tenant each agree to indemnify and
hold the other harmless from and against any claims by any other broker, agent,
or other person claiming a commission or other form of compensation by virtue of
having dealt with Tenant or Landlord respectively with regard to this
transaction. The provisions of this Paragraph shall survive the termination of
this Lease.
36. DEFAULT BY LANDLORD: Landlord shall not be in default, and Tenant shall
have no right to any remedy at law or in equity, unless the act, omission, or
condition allegedly giving rise to such default shall have continued uncured or
unabated for a period of thirty (30) days following written notice to Landlord
(with a copy to any Mortgagee as provided in Paragraph 32 above) or, if such
cure or abatement cannot be accomplished within said 30-day period, then, so
long as Landlord or Mortgagee has commenced such cure or abatement within such
30-day period and diligently pursues same, such period shall be extended a
reasonable time to allow completion of the cure or abatement.
37. MECHANIC'S LIENS: Tenant shall have no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind, the interest of Landlord in the Leased Premises or the
Project or to charge the Rent payable hereunder for any claim in favor of any
person dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs. Each such claim shall affect, and each
such lien shall attach to, if at all, only the leasehold interest granted to
Tenant by this Lease. Tenant covenants and agrees that it will pay or cause to
be paid all sums legally due and payable by it on account of any labor performed
or materials furnished in connection with any work performed on the Leased
Premises on which any lien is or can be validly and legally asserted against its
leasehold interest in the Leased Premises or the improvements thereon. Tenant
COMMERCIAL LEASE AGREEMENT -Page 19
<PAGE>
further agrees to save and hold Landlord harmless from any and all loss, cost,
or expense based on or arising out of claims or liens asserted by parties by
virtue of their dealings with Tenant and encumbering the leasehold estate or the
right, title and interest of the Landlord in the Leased Premises or the Project.
Under no circumstances shall Tenant be or hold itself out to be the agent or
representative of Landlord with respect to any Alterations of the Leased
Premises whether or not consented to or approved by Landlord hereunder.
38. HAZARDOUS WASTE: The term "Hazardous Substances," as used in this Lease
shall mean petroleum and petroleum products and by-products, crude oil,
pollutants, contaminants, toxic or hazardous wastes, or any other substances,
the use of which is regulated, restricted, prohibited or penalized, or the
removal or disposal of which is required, by any "Environmental Laws," which
term shall mean any and all federal, state or local law, ordinance or other
statute of a governmental or quasi-governmental authority relating to the
pollution or protection of the environment. Tenant hereby agrees that (i) no
activity will be conducted on the Leased Premises that will produce any
Hazardous Substances; (ii) the Leased Premises will not be used in any manner
not in compliance with local and federal laws for the storage of any Hazardous
Substances; (iii) no portion of the Leased Premises will be used as a landfill
or a dump; (iv) Tenant will not install any underground tanks of any type; (v)
Tenant will not allow any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute, a public
or private nuisance; and (vi) Tenant will not permit any Hazardous Substances to
be brought onto the Leased Premises, and if so brought thereon, then the same
shall be stored and used in compliance with all local and federal laws regarding
same. Landlord or Landlord's representative shall have the right but not the
obligation to enter the Leased Premises for the purpose of ensuring compliance
with all Environmental Laws. If Tenant in any manner contaminates the Leased
Premises, then Tenant shall promptly and diligently institute proper and
thorough clean-up procedures at Tenant's sole cost. Landlord hereby agrees to
defend, indemnify and hold Tenant, its employees, partners, agents, contractors,
officers and directors and their heirs, successors, and assigns harmless from
any and all costs (including costs of litigation), reasonable attorneys' fees,
expenses, liabilities, claims, damages or judgements arising or alleged to
occur, and that result, or are alleged to result from the actual, or threatened
discharge, dispersal, disposal, release or escape of Hazardous Substances or
other wastes or pollutants (including, but not limited to asbestos, solid,
liquid, gaseous or thermal irritants or contaminants, smoke, vapor, soot, fumes,
acids, alkalis, chemicals, and water materials to be recycled, reconditioned or
reclaimed), but only as the same are a direct result of any act or omission of
Landlord or its agents, employees, contractors or subcontractors. Tenant
hereby agrees to defend, indemnify and hold Landlord, its employees, agents,
partners, contractors, officers and directors and their heirs, successors, and
assigns harmless from any and all costs (including costs of litigation),
reasonable attorneys' fees, expenses, liabilities, claims, damages or judgements
arising or alleged to occur, and that result, or are alleged to result from the
actual, or threatened discharge, dispersal, disposal, release or escape of
Hazardous Substances or other wastes or pollutants (including, but not limited
to asbestos, solid, liquid, gaseous or thermal irritants or contaminants, smoke,
vapor, soot, fumes, acids, alkalis, chemicals, and water materials to be
recycled, reconditioned or reclaimed), but only as the same are a direct result
of any act or omission of Tenant or Tenant's Representatives.
39. ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES: It is expressly agreed by
Tenant, as a material consideration for the execution of this Lease, that this
Lease is the entire agreement of the parties and that there are and were no
verbal representations, warranties, understandings, stipulations, agreements, or
promises pertaining to this Lease not incorporated in this Lease. Tenant
expressly agrees that there are and shall be no implied warranties of
merchantability, fitness, habitability, or of any other kind and that Tenant's
acceptance of the Leased Premises shall be "as is". It is likewise agreed that
this Lease may not be altered, waived, amended, or extended except by an
instrument in writing signed by both Landlord and Tenant. Not in limitation
upon the foregoing, Landlord agrees that to the extent assignable, all
warranties, if any shall exist, from contractors or suppliers with respect to
the improvements to the
COMMERCIAL LEASE AGREEMENT -Page 20
<PAGE>
Leased Premises hereunder are hereby partially assigned to Tenant to the
extent necessary to avail Tenant of the benefits thereof with respect to its
leasehold estate and property located at the Leased Premises.
40. FINANCIAL STATEMENTS: From time to time Landlord may need to obtain
financing or renew financing on the Project, or perform calculations for various
reasons regarding the value of the Project. Tenant hereby agrees to provide to
Landlord financial statements on its business when requested, but not more than
once annually, indicating the most current year end and quarterly financial
status of the business. Landlord will not deliver such financial statement to
any third party except in confidence and only as required by Landlord's lenders
or in conjunction with appraisals of the Project.
41. FORCE MAJEURE:
(a) Landlord shall not be required to perform any covenant or obligation
of this Lease or be liable in damages to Tenant for that time period during
which the performance or non-performance of the covenant or obligation is
delayed, caused by, or prevented by Tenant or Tenant's Representatives or by an
act of God or force majeure.
(b) Except with respect to the payment of Rent or any other sum due
hereunder, Tenant shall not be required to perform any covenant or obligation of
this Lease or be liable in damages to Landlord for that time period during which
the performance or non-performance of the covenant or obligation is delayed,
caused by, or prevented by Landlord or Landlord's Representatives or by an act
of God or force majeure.
(c) An "act of God" or "force majeure" is defined for purposes of this
Lease as strikes, lockouts, sit-downs, material or labor restrictions by any
governmental authority, riots, floods, washouts, explosions, earthquakes, fire,
storms, acts of the public enemy, wars, insurrections and any other similar
cause not reasonably within the control of Landlord and which by the exercise of
due diligence Landlord is unable, wholly or in part, to prevent or overcome.
42. MISCELLANEOUS:
(a) Words of any gender used in this Lease shall be held and construed to
include any other gender; and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(b) Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization and power of such
party to enter into this Lease and the empowerment and authority of the
individual signing below to bind his or her principal.
(c) The captions inserted in this Lease are for convenience only and in no
way define, limit, or otherwise describe the scope or intent of this Lease or
any provision hereof, or in any way affect the interpretation of this Lease.
(d) If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby; and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid, or unenforceable there be added as a
part of this Lease a clause as similar in terms to such illegal, invalid, or
unenforceable clause or provision as may be possible and be legal, valid, and
enforceable.
(e) Intentionally deleted.
COMMERCIAL LEASE AGREEMENT -Page 21
<PAGE>
(f) All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this Lease.
(g) In the event that Tenant shall fail to perform any duty or obligation
hereunder, whether maintenance, repair or replacement of the Leased Premises,
maintenance of insurance, or otherwise, then Landlord may, but shall in no event
be obligated to, without notice of any kind, take such actions as Landlord deems
necessary or appropriate to remedy such Tenant failure, and any sums expended by
Landlord together with fair and just compensation for the time and effort of
Landlord in such efforts shall be deemed additional Rent hereunder due and
payable by Tenant on demand.
(h) If Tenant shall fail to pay, when the same is due and payable, any
Rent or any other sum due hereunder, such unpaid amount shall bear interest from
the due date thereof to the date of remittance at the rate of the lesser of 18%
per annum and the maximum rate allowed by law.
(i) Landlord does not in any way or for any purpose become a partner with
Tenant in the conduct of its business or otherwise, nor a member of a joint
venture with Tenant.
(j) Tenant shall not record this Lease without the prior written consent
of Landlord. However, upon the request of either party hereto, the other party
shall join in the execution of a memorandum or so-called "short form" of this
Lease for the purposes of recordation.
(k) Time is of the essence in the performance of all the covenants,
conditions, and agreements contained in this Lease.
(l) Any duty, obligation, or debt and any right or remedy arising
hereunder and not otherwise consummated and/or extinguished by the express terms
hereof at or as of the time of termination of this Lease, whether at the end of
the term hereof or otherwise, shall survive such termination as continuing
duties, obligations, and debts of the obligated party to the other or continuing
rights and remedies of the benefitted party against the other.
(m) This Agreement may be executed in one or more counterparts, each of
which counterpart shall for all purposes be deemed to be an original; but all
such counterparts together shall constitute but one instrument.
(n) Attached hereto, marked Exhibit "A" through Exhibit "E", are certain
exhibits to this Lease all of which are hereby incorporated herein by reference.
43. NOTICE:
(a) All Rent and other payments required to be made by Tenant to Landlord
shall be payable to Landlord at the address set forth below or any other address
that Landlord may specify from time to time by written notice delivered to
Tenant.
(b) All payments, if any, required to be made by Landlord to Tenant shall
be payable to Tenant at the address set forth below or at any other address that
Tenant may specify from time to time by written notice delivered to Landlord.
(c) Any notice or document required or permitted to be delivered by this
Lease shall be deemed to be delivered (whether or not actually received) when
deposited in the United States Mail, postage prepaid,
COMMERCIAL LEASE AGREEMENT -Page 22
<PAGE>
certified mail return receipt requested, addressed to the parties at the
respective addresses set forth below or such other address as hereinafter
specified by notice given in accordance with this paragraph.
44. LIMITATION ON TENANT'S DAMAGES: Tenant agrees that any liability of
Landlord under this Lease shall be limited solely to Landlord's interest in the
Project, and no other assets of Landlord shall be subject to levy or execution.
Executed by Landlord and Tenant as of this _______ day of ________, 1998.
LANDLORD TENANT
Jackson-Shaw/Jetstar Tristar Canmax, Inc.
Limited Partnership 8100 Jetstar Drive
4890 Alpha Road, Suite 100 Suite _________
Dallas, Texas 75244 Irving, TX 75063
By: Jackson-Shaw Texas, By: ______________________,
General Partner Its: ______________________
By : __________________
J. Michael Bray
Its: __________________
COMMERCIAL LEASE AGREEMENT -Page 23
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
COMMERCIAL LEASE AGREEMENT -Page 24
<PAGE>
EXHIBIT "B"
TENANT IMPROVEMENTS
Landlord agrees to provide a construction allowance of $236,934.00 ($18.00 PSF)
to be used to install the tenant improvements as approved by Landlord. Should
the construction cost exceed $236,934.00 ($18.00 PSF), Tenant shall pay any
excess costs to Landlord prior to commencement of construction.
COMMERCIAL LEASE AGREEMENT -Page 25
<PAGE>
EXHIBIT "E"
RENEWAL OPTION
Tenant is granted the option to extend the term of this Lease for one (1)
extended term of five (5) years, provided no event of default exists at the time
of exercise of the option and no condition exists which with the giving of
notice or the passage of time or both would constitute an event of default, and
Tenant gives written notice of its exercise of the option at least one hundred
eighty (180) days prior to the expiration of the original term. The extension
term shall be upon the same terms and conditions as set forth herein, except
Tenant shall have no further right of renewal after the extension term
prescribed above, and the Base Rental will be equal to the then prevailing rate
for comparable space for a comparable term.
COMMERCIAL LEASE AGREEMENT -Page 26
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations............................. $ (2,621,071) $ -- $ --
------------- ------------ ------------
Gain (loss) from discontinued operations............................... (103,091) 87,331 142,614
------------- ------------ ------------
Net earnings (loss).................................................... $ (2,724,162) $ 87,331 $ 142,614
------------- ------------ ------------
------------- ------------ ------------
Per share data:
Basic earnings per share
Continuing operations................................................ $ (0.37) $ -- $ --
Discontinued operations.............................................. (0.01) 0.01 0.03
------------- ------------ ------------
$ (0.38) $ 0.01 $ 0.03
------------- ------------ ------------
------------- ------------ ------------
Dilutive earnings per share
Continuing operations................................................ $ (0.37) $ -- $ --
Discontinued operations.............................................. (0.01) 0.01 0.02
------------- ------------ ------------
Net earnings (loss).................................................. $ (0.38) $ 0.01 $ 0.02
------------- ------------ ------------
------------- ------------ ------------
Shares used in the calculation of per share amounts:
Basic common shares.................................................. 7,095,937 5,827,262 4,983,011
Shares issued upon assumed exercise of dilutive stock options and
warrants........................................................... -- 1,181,590 2,448,269
Shares assumed repurchased........................................... -- (353,887) (580,132)
------------- ------------ ------------
Diluted common shares................................................ 7,095,937 6,654,965 6,851,148
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Diluted earnings per share of common stock includes the impact of
outstanding dilutive stock options for the years ended October 31, 1997 and
1996. There were no dilutive options during the year ended October 31, 1998.
<PAGE>
EXHIBIT 21.1
CANMAX INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------------------- -------------------
<S> <C>
Canmax Retail Systems, Inc. Texas
Canmax Telecom, Inc. Texas
ARDIS Telecom & Technologies, Inc. Delaware
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-23313) pertaining to the Canmax Inc. Stock Option Plan and
the Registration Statement (Form S-3 No. 333-33523) pertaining to 863,364
shares of Canmax, Inc. common stock, of our report dated January 20, 1999,
with respect to the consolidated financial statements of Canmax Inc. included
in the Annual Report (Form 10-K) for the year ended October 31, 1998.
/s/ King Griffin & Adamson P.C.
King Griffin & Adamson P.C.
Dallas, Texas
January 29, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-23313) pertaining to the Canmax Inc. Stock Option Plan and
the Registration Statement (Form S-3 No. 333-33523) pertaining to 863,364
shares of Canmax, Inc. common stock, of our report dated December 18, 1997,
with respect to the consolidated financial statements of Canmax Inc. included
in the Annual Report (Form 10-K) for the year ended October 31, 1997.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
January 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS, AND
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AS OF AND FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1998 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 207,609
<SECURITIES> 0
<RECEIVABLES> 296,087
<ALLOWANCES> 4,001
<INVENTORY> 229,672
<CURRENT-ASSETS> 3,241,716
<PP&E> 2,950,472
<DEPRECIATION> 2,366,484
<TOTAL-ASSETS> 5,290,579
<CURRENT-LIABILITIES> 4,080,038
<BONDS> 0
0
0
<COMMON> 24,858,809
<OTHER-SE> 23,794,961
<TOTAL-LIABILITY-AND-EQUITY> 5,290,579
<SALES> 2,189,113
<TOTAL-REVENUES> 2,189,113
<CGS> 2,154,962
<TOTAL-COSTS> 1,399,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,155,385
<INTEREST-EXPENSE> 100,783
<INCOME-PRETAX> (2,621,071)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,621,071)
<DISCONTINUED> (103,091)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,724,162)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS, AND
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AS OF AND FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1997 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 128,871
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,102,244
<PP&E> 3,694,924
<DEPRECIATION> 2,732,749
<TOTAL-ASSETS> 4,707,478
<CURRENT-LIABILITIES> 2,309,437
<BONDS> 0
0
0
<COMMON> 23,290,733
<OTHER-SE> 21,070,799
<TOTAL-LIABILITY-AND-EQUITY> 4,707,478
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 87,331
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,331
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
