U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NO. 1-13760
The Network Connection, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Georgia 58-1712432
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
222 North 44th Street
Phoenix, Arizona 85034
----------------------------------------
(Address of Principal Executive Offices)
(602) 629-6200
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at February 7, 2000
----- -------------------------------
Common Stock, $.001 par value 12,401,906 shares
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE>
THE NETWORK CONNECTION, INC.
INDEX
PART I . FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements Page
----
Condensed Consolidated Balance Sheets as of December 31, 1999
(unaudited) and June 30, 1999 (audited)............................ 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months
Ended December 31, 1999 and 1998 (unaudited)....................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1999 and 1998 (unaudited)....................... 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 16
Item 2. Changes in Securities................................................ 16
Item 6. Exhibits and Reports on Form 8-K..................................... 16
SIGNATURES................................................................... 17
<PAGE>
THE NETWORK CONNECTION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 860,211 $ 2,751,506
Restricted cash 462,819 446,679
Short-term investments -- 302,589
Accounts receivable 1,031,726 75,792
Notes receivable from related parties 78,932 98,932
Inventories, net of allowance of $7,837,595 3,751,153 1,400,000
Prepaid expenses 214,478 169,429
Assets held for sale -- 800,000
Due from affiliate 11,222 --
Other current assets 100,750 173,999
------------ ------------
Total current assets 6,511,291 6,218,926
Note receivable from related party 78,000 75,000
Property and equipment, net of accumulated
depreciation of $948,392 and $683,029, respectively 1,200,421 1,338,580
Intangibles, net of accumulated
amortization of $443,386 and $74,981, respectively 6,796,980 7,119,806
Other assets 43,900 150
------------ ------------
Total assets $ 14,630,592 $ 14,752,462
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,418,007 $ 1,663,411
Accrued liabilities 761,727 989,342
Deferred revenue 2,108,151 365,851
Accrued product warranties 144,750 --
Dividends payable 80,000 --
Notes Payable 9,121 42,751
Notes payable to related parties 44,694 68,836
------------ ------------
Total current liabilities 4,566,450 3,130,191
Notes payable -- 3,467,045
Other liabilities 1,037,289 1,220,340
Due to affiliate -- 1,647,692
------------ ------------
Total liabilities 5,603,739 9,465,268
------------ ------------
Commitments and contingencies
Stockholders' equity:
Series B preferred stock par value $0.01 per share,
1,500 shares authorized issued and outstanding 15 15
Series C preferred stock par value $0.01 per share,
1,600 shares authorized 0 and 800 shares issued and
outstanding respectively -- 8
Series D preferred stock par value $0.01 per share,
2,495,400 authorized, issued and outstanding 24,954 24,954
Common stock par value $0.001 per share, 40,000,000
shares authorized; 12,314,513 and 6,339,076 issued
and outstanding respectively 12,314 6,339
Additional paid-in capital 93,424,987 88,316,945
Accumulated other comprehensive income:
Net unrealized loss on investment securities -- (526)
Accumulated deficit (84,435,417) (83,060,541)
------------ ------------
Total stockholders' equity 9,026,853 5,287,194
------------ ------------
Total liabilities and stockholders' equity $ 14,630,592 $ 14,752,462
============ ============
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
THE NETWORK CONNECTION, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Equipment sales $ 46,759 $ -- $ 5,597,319 $ 89,028
Service income -- 143,740 59,827 389,037
----------- ----------- ------------ ------------
46,759 143,740 5,657,146 478,065
----------- ----------- ------------ ------------
Costs and expenses:
Cost of equipment sales 34,534 -- 3,454,915 283,714
Cost of service income 6,523 480 15,103 736
General and administrative expenses 1,312,312 1,411,270 2,574,808 6,019,218
Non-cash compensation expense 221,882 -- 306,882 --
Provision for doubtful accounts -- 28,647 -- 28,647
Special charges -- -- -- (190,000)
Depreciation and amortization expense 323,722 61,720 640,017 383,099
----------- ----------- ------------ ------------
1,898,973 1,502,117 6,991,725 6,525,414
----------- ----------- ------------ ------------
Operating loss (1,852,214) (1,358,377) (1,334,579) (6,047,349)
Other:
Interest expense (3,859) (1,866) (139,508) (4,256)
Interest income 36,954 47,945 77,374 78,659
Other expense (16,100) (564,689) (8,830) (567,317)
----------- ----------- ------------ ------------
Net loss (1,835,219) (1,876,987) (1,405,543) (6,540,263)
Cumulative dividend on preferred stock (14,000) -- (60,000) --
----------- ----------- ------------ ------------
Net loss attributable to common stockholders $(1,849,219) $(1,876,987) $ (1,465,543) $ (6,540,263)
=========== =========== ============ ============
Basic and diluted net loss per common share $ (0.27) $ (1.78) $ (0.22) $ (6.20)
=========== =========== ============ ============
Weighted average number of shares outstanding,
basic and diluted 6,893,790 1,055,475 6,591,491 1,055,475
=========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE NETWORK CONNECTION, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss $(1,405,543) $(6,540,263)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 640,017 383,099
Special charges -- (190,000)
Loss on sale of assets held for sale 37,893
Loss on disposal of equipment -- 1,008,953
Non cash compensation expense 306,884 --
Changes in net assets and liabilities,
net of effect of acquisition:
Increase in accounts receivable (955,934) (4,878,997)
Payments due from affiliate 477,416 --
(Increase) decrease in inventories (2,351,153) 107,959
(Increase) decrease in prepaid expenses (45,049) 105,664
Decrease in other current assets 73,249 315,236
(Increase) decrease in other assets (43,750) 66,695
Decrease in accounts payable (286,724) (402,497)
Decrease in accrued liabilities (279,092) (804,607)
Increase in deferred revenue 1,742,300 4,483,870
Increase (decrease) in accrued product
warranties 144,750 (1,316,046)
----------- -----------
Net cash used in operating activities $(1,944,738) $(7,660,934)
----------- -----------
Cash flows from investing activities:
Purchases of investment securities (542) --
Sale of investment securities 303,131
Purchases of property and equipment (127,204) (10,676)
Proceeds from sale of equipment -- 9,366
Proceeds from sale of assets held for sale 762,107 --
Increase in restricted cash (16,140) (437,503)
----------- -----------
Net cash provided by (used in)
investing activities $ 921,352 $ (438,813)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (738,260) --
Payments received on notes receivable 17,000 --
Payments to affilate (188,399) --
Capital contribution -- 8,163,300
Employee stock option exercises 41,750 --
Payments on capital lease obligations -- (62,849)
----------- -----------
Net cash provided by (used in)
financing activities $ (867,909) $ 8,100,451
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,891,295) 704
Cash and cash equivalents at beginning of period 2,751,506 111,418
----------- -----------
Cash and cash equivalents at end of period $ 860,211 $ 112,122
=========== ===========
See accompanying notes to financial statements.
5
<PAGE>
THE NETWORK CONNECTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PART I. FINANCIAL INFORMATION
BASIS OF PRESENTATION
(1) PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of The
Network Connection, Inc. and its wholly-owned subsidiary TNCi UK Limited (the
"Company" or "TNCi"). All significant intercompany accounts have been
eliminated.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
which are necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant to such
rules and regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto for the eight-month transition period ended June 30, 1999,
included in the Company's Annual Report on Form 10-KSB.
The results of operations for the three months and six months ended
December 31, 1999 are not necessarily indicative of the results to be expected
for the entire fiscal year. Certain reclassifications have been made to the
amounts in the June 30, 1999 balance sheet to conform with the December 31, 1999
presentation.
On May 18, 1999, Global Technologies, Ltd. ("Global") received from the
Company 1,055,745 shares of its Common Stock and 2,495,400 shares of its Series
D Convertible Preferred Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of Global's Interactive
Entertainment Division ("IED"), as defined in the Asset Purchase and Sale
Agreement dated April 30, 1999, as amended (the "Transaction"). The Transaction
has been accounted for as a reverse merger whereby, for accounting purposes,
Global is considered the accounting acquiror, and although the legal capital
structure carries forward, the Company is treated as the successor to the
historical operations of IED. Accordingly, the historical financial statements
of the Company, which previously have been reported to the Securities and
Exchange Commission ("SEC") on Forms 10-KSB, and 10-QSB, among others, as of and
for all periods through March 31, 1999, will be replaced with those of IED.
The financial statements as of and for the three months and six months
ended December 31, 1998, reflect the historical results of Global's IED as
previously included in Global's consolidated financial statements. The
Transaction date for accounting purposes was May 1, 1999. As of December 31,
1999, the Company is an 81% owned subsidiary of Global whose ownership is
represented by 1,500 shares of the Company's Series B 8% Convertible Preferred
Stock, 2,495,400 shares of the Company's Series D Convertible Preferred Stock
and 6.8 million shares of the Company's Common Stock. The historical financial
statements of the Company up to the date of the Transaction as previously
reported will no longer be included in future filings of the Company.
6
<PAGE>
(2) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(3) NOTES PAYABLE
Prior to the Transaction, the Company entered into a Secured Promissory
Note with Global in the principal amount of $750,000, bearing interest at a rate
of 9.5% per annum, and a related security agreement granting Global a security
interest in its assets (the "Promissory Note"). The Promissory Note was
convertible into shares of the Company's Series C 8% Convertible Preferred Stock
("Series C Stock") at the discretion of Global. The Note had an original
maturity of May 14, 1999 but had been extended until September 2001.
In July and August 1999, Global purchased all of the Series A and E notes
and the Series D notes of the Company, respectively, from the holders of such
notes (the "Series Notes"). Concurrent with such purchase by Global, the Company
executed the allonges to the Promissory Note which cancelled such Series Notes
and rolled the principal balance, plus accrued but unpaid interest, penalties
and redemption premiums on the Series Notes into the principal balance of the
Promissory Note. Subsequent to May 18, 1999, Global had also advanced working
capital to the Company in the form of intercompany advances. In August 1999, the
Company executed an allonge to the Promissory Note which rolled the intercompany
advances into the principal balance of the Promissory Note and granted Global
the ability to convert the Promissory Note directly into shares of the Company's
Common Stock as an administrative convenience.
On August 24, 1999, the Board of Directors of Global approved the
conversion of the Promissory Note into shares of the Company's Common Stock.
Such conversion, to the extent it exceeded approximately one million shares of
the Company's Common Stock on August 24, 1999, was contingent upon receiving
shareholder approval to increase the authorized share capital of the Company.
This increase in authorized share capital was subsequently approved at the
September 17, 1999 Special Meeting of the Company's shareholders. Accordingly,
in December 1999, the Company issued to Global 4,802,377 shares of its Common
Stock based on the conversion date of August 24, 1999. Separately from the
Promissory Note, the Company issued 886,140 shares of its Common Stock to Global
upon conversion of the Series C Stock held by Global.
Also on August 24, 1999, the Global Board of Directors approved a $5
million secured revolving credit facility by and between Global and the Company
(the "Facility"). The Facility provides that the Company may borrow up to $5
million for working capital and general corporate purposes at the prime rate of
interest plus 3%. The Facility matures in September 2001. The Company paid an
origination fee of $50,000 to Global and will pay an unused line fee of 0.5% per
annum. The Facility is secured by all of the assets of the Company and is
convertible, at Global's option, into shares of the Company's Common Stock at a
price equal to the lesser of 66.7% of the trailing five-day average share price
of the preceding 20 days, $1.50 per share or any lesser amount at which Common
Stock has been issued to third parties. Pursuant to Nasdaq rules, Global may not
convert borrowings under the Facility into shares of Common Stock in excess of
19.99% of the number of shares of Common Stock outstanding as of August 24,
1999, without shareholder approval. As of December 31, 1999, no amounts were
outstanding under the Facility. As of December 31, 1999, Global did not have
sufficient cash for the Company to borrow the full $5 million under the
Facility. Should the Company draw on the Facility, Global would have to obtain
financing or sell assets to meet its obligations under the Facility.
In September 1999, the Company sold one of its two buildings in Alpharetta,
Georgia. The net proceeds from the sale, plus cash of approximately $80,000 was
used by the Company to repay a Note payable due April 19, 2001 in the principal
amount of $470,000. The sale of the second building occurred in November 1999.
The net proceeds of approximately $367,000 from sale were used to retire a Note
payable due 2009 in the principal amount of $217,000.
7
<PAGE>
In October 1999, a note payable in the principle amount of $400,000 due
September 5, 1999 was converted into 200,000 shares of the Company's Common
Stock.
(4) WARRANTS
In December 1999, the Company issued common stock purchase warrants to
purchase 25,000 shares of the Company's Common Stock at $6.50 per share to Emden
Consulting Corp. in exchange for advisory services. The exercise period of the
warrants expires in December 2004. Non-cash compensation expense of $110,941 was
recorded in the current period.
In December 1999, the Company issued common stock purchase warrants to
purchase 25,000 shares of the Company's Common Stock at $6.50 per share to
Waterton Group LLC in exchange for advisory services. The exercise period of the
warrants expires in December 2004. Non-cash compensation expense of $110,941 was
recorded in the current period.
In December 1999, the Company issued common stock purchase warrants to
purchase 100,000 shares of the Company's Common Stock at prices ranging from $6
to $10 per share to Continental Capital & Equity Corp. in exchange for public
relations and advisory services. The warrants vest over a period of 270 days and
the exercise period of the warrants expires in February 2002. Non-cash
compensation expense will be recognized over the 12 months of the agreement.
(5) OPTION GRANTS
In October 1999, the Compensation Committee of the Board of Directors of
the Company recommended option grants to purchase up to 500,000 shares of the
Company's Common Stock to Mr. Irwin L. Gross, Chairman and Chief Executive
Officer of the Company. Such recommendation was adopted and approved by the
Board of Directors. One quarter of these options vested immediately and one
quarter vest over three years. The remainder vest on the sixth anniversary of
the date of grant, subject to acceleration to a three-year schedule in the event
certain performance milestones are achieved. Exercise price of the options is
equal to the closing market price of the Company's Common Stock on the day prior
to grant, and the options expire in October 2009.
(6) SEGMENT INFORMATION
Through December 31, 1999 the Company operated principally in one industry
segment; development, manufacturing and marketing of computer-based
entertainment and data networks. Historically, the Company's principal revenues
have been derived from European customers.
For the six months ended December 31, 1999 and 1998, respectively, one
customer accounted for approximately 96% and a separate customer accounted for
almost 100% of the Company's sales. Outstanding receivables from these two
customers were $9,576 and $5,278,545, respectively, at December 31, 1999 and
December 31, 1998.
(7) COMMITMENTS AND CONTINGENCIES
(a) LAWSUIT
Swissair/MDL-1269, IN RE AIR CRASH NEAR PEGGY'S COVE, NOVA SCOTIA. This
multi-district litigation, which is being overseen by the United States District
Court for the Eastern District of Pennsylvania, relates to the crash of Swissair
Flight No. 111 on September 2, 1998. The Swissair MD-11 aircraft involved in the
crash was equipped with an entertainment network system that had been sold to
Swissair by Global Technologies, Ltd. ("Global" formerly known as Interactive
Flight Technologies, Inc.). Estates of the victims of the crash have filed
lawsuits throughout the United States against Swissair, Boeing, Dupont and
various other parties, including Global. TNCi has been named in some of the
lawsuits filed by families of victims on a successor liability theory. TNCi
denies all liability for the crash. TNCi is being defended by the aviation
insurer for Global.
8
<PAGE>
FEDERAL EXPRESS CORPORATION V. THE NETWORK CONNECTION, INC., State Court of
Forsyth County, State of Georgia, Civil Action File No. 99-V51560685. This
lawsuit was served on the Company on or about July 22, 1999 by Federal Express
Corporation and relates to charges incurred by prior management. The suit
alleges the Company owes Federal Express approximately $110,000 for past
services rendered. The Company is currently discussing settlement with Federal
Express.
BRYAN R. CARR V. THE NETWORK CONNECTION, INC. AND GLOBAL TECHNOLOGIES,
LTD., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the
Company's former Chief Operating and Financial Officer, and a former Director
filed a claim on November 24, 1999 alleging a breach of his employment
agreement. Mr. Carr claims that he is entitled to the present value of his base
salary through October 31, 2001, a share of any "bonus pool," the value of his
stock options and accrued vacation time. The Company is currently defending the
claim.
The Company is subject to other lawsuits and claims arising in the ordinary
course of its business. In the Company's opinion, as of December 31, 1999, the
effect of such matters will not have a material adverse effect on the Company's
results of operations and financial position.
(b) CARNIVAL AGREEMENT
In September 1998, the Company entered into a Turnkey Agreement (the
"Carnival Agreement") with Carnival Corporation ("Carnival") for the purchase,
installation and maintenance of its advanced cabin entertainment and management
system for the cruise industry ("CruiseView(TM)") on a minimum of one Carnival
Cruise Lines ship. During the four-year period commencing on the date of the
Carnival Agreement, Carnival has the right to designate an unspecified number of
additional ships for the installation of CruiseView(TM). The cost per cabin for
CruiseView(TM) purchase and installation on each ship is provided for in the
Carnival Agreement. In December 1998, Carnival ordered the installation of
CruiseView(TM) on one Carnival Cruise Lines "Fantasy" class ship which has been
in operational use since August 1999. In August 1999, Carnival ordered the
installation of CruiseView(TM) on one Carnival Cruise Lines "Destiny" class ship
which has been in operational use since October 1999. Under the terms of the
agreement, the Company receives payment for 50% of the sales price of the system
in installments through commencement of operation of the system. Recovery of the
remaining sales price of the system is to be done through the receipt of the
Company's 50% share of revenues generated by the system over future periods.
The terms of the Carnival Agreement provide that Carnival may return the
CruiseView(TM) system within the acceptance period, as defined in the Carnival
Agreement. The acceptance period for the Fantasy and Destiny class ships are
twelve months and three months, respectively. As of December 31, 1999, the
Company recorded deferred revenue of $2,108,151, reflecting amounts paid by
Carnival towards the purchase price of CruiseView(TM) aboard these ships. As of
December 31, 1999, the Company had not recognized any revenue in association
with the Carnival Agreement. In January 2000, the systems installed aboard the
Fantasy and Destiny class ships were accepted by Carnival.
The Company has concluded that the cost of building and installing
CruiseView(TM) systems in carnival ships pursuant to the agreement with Carnival
may exceed the revenue earned in connection therewith. Carnival's continuing to
exercise its option for building and installing CruiseView(TM) on additional
ships under the agreement may prove unprofitable and therefore have a negative
effect on the Company's working capital. The company is currently endeavoring to
renegotiate the terms of the agreement with Carnival.
(8) SUBSEQUENT EVENTS -- LETTER OF INTENT FOR CONVERTIBLE PREFERRED DEBENTURES
In January 2000, the Company entered into a Letter of Intent relating to
the issuance of Subordinated Convertible Debenture (the "Debenture") and
warrants to purchase shares of the Company's Common Stock for net proceeds to
the Company of $5.8 million. The letter provides that over the 24-month term, of
the Debenture, it will accrue interest at an annual rate equal to the prime
interest rate. Under the terms of the letter, the Company shall provide a Letter
of Credit equal to 50% of the outstanding principle balance of the Debenture and
that the Company shall register the shares of Common Stock into which the
Debenture and warrants are convertible or exercisable, as the case may be. The
letter of credit requirement shall be reduced to 35% of the outstanding
principal balance of the Debenture 45 days after the effective date of the
registration statement.
9
<PAGE>
Beginning on the funding date, the holder of the Debenture shall be
permitted each month to convert a pro rata portion (according to a 12-month term
payment schedule) of principal amount of the Debenture plus accrued interest
into shares of Common Stock at a conversion price equal to the lesser of (i)
130% of the average closing price of the Company's Common Stock for the 10
consecutive trading days prior to the funding date, or (ii) 100% of the average
three low daily trades selected by the holder of the Debenture for the 12 days
prior to the submission of the conversion notice. The letter also provides the
Company with certain prepayment and forced conversion rights.
Additionally, the holder of the Debenture is to receive 120,000 warrants to
purchase Common Stock of the Company at a price equal to 130% of the average
closing price of Common Stock for the five consecutive trading days prior to the
funding date. The warrants are callable under certain circumstances and expire
five years from date of issue. Proceeds from this transaction will be used to
fund general operations of the Company.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Condensed Consolidated Financial Statements
and the Notes thereto appearing elsewhere herein. Historical results are not
necessarily indicative of trends in operating results for any future period.
DESCRIPTION OF BUSINESS
The Network Connection, Inc. (the "Company") is engaged in the design,
manufacture, installation and maintenance of advanced, high-end,
high-performance computer servers and interactive, broad-band information and
entertainment systems, and procuring and providing the content available through
the systems. These all-digital systems deliver an on-demand, multimedia
experience via high-speed, high-performance Internet protocol networks. These
systems are designed to provide users access to information, entertainment and a
wide array of service options, such as shopping for goods and services, computer
games, access to the World Wide Web and on-line gambling where permitted by
applicable law. The service options available are customized for each
installation and generally vary depending on the environment in which the system
is installed. The Company's targeted markets for these products are hotels and
time-share properties, cruise ships, educational institutions and corporate
training, and passenger trains.
BASIS OF PRESENTATION
On May 18, 1999, Global Technologies, Ltd. ("Global") received from the
Company 1,055,745 shares of its Common Stock and 2,495,400 shares of its Series
D Convertible Preferred Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of Global's Interactive
Entertainment Division ("IED"), as defined in the Asset Purchase and Sale
Agreement dated April 30, 1999, as amended (the "Transaction"). The Transaction
has been accounted for as a reverse merger whereby, for accounting purposes,
Global is considered the accounting acquiror, and although the legal capital
structure carries forward, and the Company is treated as the successor to the
historical operations of IED. Accordingly, the historical financial statements
of the Company, which previously have been reported to the Securities and
Exchange Commission ("SEC") on Forms 10-KSB, and 10-QSB, among others, as of and
for all periods through March 31, 1999, will be replaced with those of IED.
The financial statements as of and for the three months and six months
ended December 31, 1998 reflect the historical results of Global's IED as
previously included in Global's consolidated financial statements. The
Transaction date for accounting purposes was May 1, 1999. As of December 31,
1999, the Company is an 81% owned subsidiary of Global whose ownership is
represented by 1,500 shares of the Company's Series B 8% Convertible Preferred
Stock, 2,495,400 shares of the Company's Series D Preferred Stock and 6.8
million shares of the Compny's Common Stock. The historical financial statements
of the Company up to the date of the Transaction as previously reported will no
longer be included in future filings of the Company.
10
<PAGE>
RESULTS OF OPERATIONS
REVENUES.
Revenue for the quarter ended December 31, 1999 was $46,759, a decrease of
$96,981 (or 67%) compared to revenue of $143,740 for the corresponding period of
the previous fiscal year. Revenue for the six months ended December 31, 1999 was
$5,657,146, an increase of $5,179,081 (or 1,083%) compared to revenue of
$478,065 for the corresponding period of the previous fiscal year. Equipment
sales generated during six months ended December 31, 1999 were principally from
the sale of 195 of the Company's Cheetah(TM) video servers in connection with
the Georgia Metropolitan Regional Education Services Agency ("MRESA") Net 2000
project. Service income of $59,827 for the six months ended December 31, 1999
was generated from system design services provided to ALSTOM Transport LTD
("Alstom"). The Company provided these services to Alstom, but expects no
further business from Alstom as they plan to create a subsidiary that would
compete with the Company in the passenger rail market. Equipment sales of
$89,028 during the six-month period ended December 31, 1998 were generated from
the sale of spare parts needed for the entertainment networks installed
previously on three Swissair aircraft. Service income of $143,740 and $389,037
for the three months and six months ended December 31, 1998, respectively, was
principally generated from programming services provided to Swissair, the
Company's share of gaming profits generated by the Swissair systems and revenue
earned under the Swissair extended warranty contract.
COST OF SALES.
Cost of equipment sales and service income for the quarter ended December
31, 1999 were $41,057, an increase of $40,577 over cost of equipment sales and
service income of $480 for the corresponding quarter of the previous fiscal
year. Cost of equipment sales and service income for the six months ended
December 31, 1999 were $3,470,018, an increase of $3,185,568 or (1,120%) over
cost of equipment sales and service income of $284,450 for the corresponding
period of the previous fiscal year. Cost of equipment sales for the six months
ended December 31, 1999 was comprised principally of material costs and
estimated warranty costs for the 195 video servers for the Georgia schools
project. Cost of equipment sales for the corresponding period ended December 31,
1998 was comprised of material, installation and maintenance costs, as well as
estimated warranty costs and costs of upgrades to the entertainment networks
installed in Swissair aircraft.
GENERAL AND ADMINISTRATIVE.
General and administrative expenses for the quarter ended December 31, 1999
were $1,312,312, a decrease of $98,958 (or 7%) compared to expenses of
$1,411,270 for the corresponding quarter of the previous fiscal year. General
and administrative expenses for the six months ended December 31, 1999 were
$2,574,808, a decrease of $3,359,410 (or 56%) compared to expenses of $6,019,218
for the corresponding period of the previous fiscal year. The decrease in
expenses during the six months ended 1999 over 1998 is principally attributed to
a $3.1 million severance payment recorded September 1998 for three former
executives of the former IED. Significant components of general and
administrative expenses include payroll costs and legal and professional fees.
NON-CASH COMPENSATION
A non-cash charge of $221,882 of compensation expense related to the
issuance of warrants in exchange for services in the three and six months ended
December 31, 1999, and $85,000 related to non-cash compensation to a former
employee as part of a severance package in the 6 months ended December 31, 1999.
DEPRECIATION AND AMORTIZATION.
Depreciation and amortization expense for the quarter ended December 31,
1999 was $323,722, an increase of $262,002 (or 425%) compared to depreciation
and amortization expense of $61,720 for the corresponding period ended December
31, 1998. Depreciation and amortization expense for the quarter ended December
31, 1999 is comprised of property, plant and equipment depreciation of $133,207
and intangible amortization of $190,515. Depreciation and amortization expense
for the corresponding period ended December 31, 1998 was comprised of property,
plant and equipment depreciation of $61,720. There was no intangible
amortization expense for the 1998 period. Depreciation and amortization expense
for the six months ended December 31, 1999 was $640,017, an increase of $256,918
(or 67%) compared to depreciation and amortization expense of 407,056 for the
corresponding period ended December 31, 1998. Depreciation and amortization
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expense for the six months ended December 31, 1999 is comprised of property,
plant and equipment depreciation of $265,362 and intangible amortization of
$374,655. Depreciation and amortization expense for the corresponding period
ended December 31, 1998 is comprised of property, plant and equipment
depreciation of $383,099. There was no intangible amortization for the 1998
period. The decrease in property, plant and equipment depreciation in the
current six-month period is a result of equipment write-offs of $1,006,532
during October 1998 partially offset by depreciation of assets acquired during
May 1999 as a result of the merger.
SPECIAL CHARGES.
There were no special charges for the quarter ended December 31, 1999 or
for the corresponding period ended December 31, 1998. Special charges for the
six months ended December 31, 1999 were zero compared to a credit of $190,000
during the corresponding period ended December 31, 1998. A recovery of $190,000
was recognized during September 1998 as a result of a reduction in the number of
entertainment networks installed in Swissair aircraft requiring maintenance.
PROVISION FOR DOUBTFUL ACCOUNTS.
There were no provisions for doubtful accounts for the three and six months
ended December 31, 1999 compared to $28,647 for the corresponding periods of the
previous fiscal year. The provisions in the previous fiscal year resulted from
entertainment programming services provided to Swissair for which the Company
has not been paid.
INTEREST EXPENSE.
Interest expense for the quarter ended December 31, 1999 was $3,859
compared to $1,866 for the corresponding period ended December 31, 1998.
Interest expense for the six months ended December 31, 1999 was $139,508
compared to $4,256 for the corresponding period ended December 31, 1998.
Interest expense for the six-month period of the current fiscal year can be
attributed principally to long-term debt obligations of the Company, whereas
interest expense for the corresponding period of the previous fiscal year is
attributable to the Company's capital leases for furniture which expired in
September 1999.
INTEREST INCOME.
Interest income was $36,954 and $77,374 for the three and six months ended
December 31, 1999 compared to $47,945 and $78,659 for the three and six months
ended December 31, 1998, respectively. Interest income for the three and
six-month period ended December 31, 1999 was principally generated from
short-term investments of working capital, whereas interest income for the
corresponding period ended December 31, 1998 is attributable to Swissair
extended warranty billings.
OTHER EXPENSE.
Other expense of $16,100 and $8,830 for the three and six months ended
December 31, 1999, respectively, represent a loss on the buyout of a capital
lease for furniture as well as losses incurred on the sale of two buildings
located in Alpharetta, Georgia. Other expense of $564,689 and $567,317 for the
three and six-month period ended December 31, 1998, respectively, resulted from
furniture and equipment write-offs of $1,006,532 during October 1998, partially
offset by the recovery of furniture and equipment written off in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of approximately
$1,945,000. Prior to June 30, 1999, the Company's primary source of funding had
been through contributed capital from Global. In August 1999, the Company
received an order for $5.3 million for the manufacture, delivery and
installation of 195 of the Company's Cheetah(TM) multimedia video servers in
connection with the Georgia MRESA Net 2000 project; and a service order under an
agreement with Carnival Cruise Lines for installation of a second CruiseView(TM)
system. In addition, as of the date hereof, the Company had received orders for
installation of its InnView(TM) system in one hotel in California and one hotel
in Arizona. The Company has received the full payment of $5.3 million in
connection with the Net 2000 project. The Company received an installment
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payment from Carnival in August 1999. Working capital will continue to decrease
as the Company continues to invest in inventory for orders under the agreement
with Carnival and the two hotel orders, invests in business development, and to
the extent it is successful in generating additional orders for sales of its
systems, which are longer term by nature.
During the six months ended December 31, 1999, the Company used $1,944,738
of cash for operating activities, a decrease of $5,716,196 from the $7,660,934
of cash used for the corresponding period of 1998. The cash utilized in
operations during the six months ended December 31, 1999, resulted primarily
from the net loss, increases in accounts receivable and in inventories, as well
as decreases in accounts payable and accrued liabilities, partially offset by
increases in deferred revenue and accrued product warranties.
Cash flows provided by investing activities were $921,352 during the six
months ended December 31, 1999. The increase in cash resulted primarily from the
sale of investment securities in the quarter ended December 31, 1999 and
proceeds from the sale of two buildings held for sale (one in the first quarter,
and one in the second quarter), offset by purchases of property and equipment in
first quarter.
During the six months ended December 31, 1999, cash used in financing
activities of $867,909 resulted primarily from payments made on notes payable,
as well as payments made to an affiliate.
In October 1999, a note payable in the principle amount of $400,000 due
September 5, 1999 was converted into 200,000 shares of the Company's Common
Stock.
Prior to the Transaction, the Company entered into a secured promissory
note with Global in the principal amount of $750,000, bearing interest at a rate
of 9.5% per annum, and a related security agreement granting Global a security
interest in its assets (the "Promissory Note"). The Promissory Note is
convertible into shares of the Company's Series C 8% Convertible Preferred Stock
("Series C Stock") at the discretion of Global. The Note had an original
maturity of May 14, 1999 but has been extended until September 2001.
In July and August 1999, Global purchased all of the Series A and E notes
and the Series D notes, respectively, from the holders of such notes (the
"Series Notes"). Concurrent with such purchase by Global, the Company executed
the allonges to the Promissory Note which cancelled such Series Notes and rolled
the principal balance, plus accrued but unpaid interest, penalties and
redemption premiums on the Series Notes into the principal balance of the
Promissory Note. Subsequent to May 18, 1999, Global had also advanced working
capital to the Company in the form of intercompany advances. In August 1999, the
Company executed an allonge to the Promissory Note which rolled the intercompany
advances into the principal balance of the Promissory Note and granted Global
the ability to convert the Promissory Note directly into shares of the Company's
Common Stock as an administrative convenience.
On August 24, 1999, the Board of Directors of Global approved the
conversion of the Promissory Note into shares of the Company's Common Stock.
Such conversion, to the extent it exceeded approximately one million shares of
the Company's Common Stock on August 24, 1999, was contingent upon receiving
shareholder approval to increase the authorized share capital of the Company.
This increase in authorized share capital was subsequently approved on September
17, 1999 at the September 17, 1999 Special Meeting of the Company's
shareholders. Accordingly, in December 1999, the Company issued to Global
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4,802,377 shares of its Common Stock based on the conversion date of August 24,
1999. Separately from the Promissory Note, the Company issued 886,140 shares of
Common Stock to Global upon conversion of the the Company's Series C 8%
Convertible Preferred Stock ("Series C Stock") held by Global.
On August 24, 1999, the Global Board of Directors approved a $5 million
secured revolving credit facility by and among Global and the Company (the
"Facility"). The Facility provides that the Company may borrow up to $5 million
for working capital and general corporate purposes at the prime rate of interest
plus 3%. The Facility matures in September 2001. The Company paid an origination
fee of $50,000 to Global and will pay an unused line fee of 0.5% per annum. The
Facility is secured by all of the assets of the Company and is convertible, at
Global's option, into shares of the Company's Common Stock at a price equal to
the lesser of 66.7% of the trailing five-day average share price, $1.50 per
share, or any lesser amount at which Common Stock has been issued to third
parties. Pursuant to Nasdaq rules, Global may not convert borrowings under the
Facility into shares of Common Stock in excess of 19.99% of the number of shares
of Common Stock as of August 24, 1999, without shareholder approval. As of
December 31, 1999, no amounts were outstanding under the Facility. As of
December 31, 1999, Global did not have sufficient cash for the Company to borrow
the full $5 million under the Facility. Should the Company draw on the Facility,
Global would have to obtain financing or sell assets to meet its obligations
under the Facility.
In September 1999, the Company sold one of its two buildings in Alpharetta,
Georgia. The net proceeds from the sale, plus cash of approximately $80,000 was
used by the Company to repay a Note payable due April 19, 2001 in the principal
amount of $470,000. The sale of the second building occurred in November 1999.
The net proceeds of approximately $367,000 from sale were used to retire a Note
payable due 2009 in the principal amount of $217,000.
The terms of the agreement with Carnival (the "Carnival Agreement") provide
that Carnival may return any CruiseView(TM) system within the Acceptance Period,
as defined in the Carnival Agreement. For the "Fantasy" class ship on which
CruiseView(TM) was installed in December 1998, the acceptance period is 12
months. The acceptance period for the system installed in October 1999 on the
"Destiny" class ship was three months. As of December 31, 1999, the Company
recorded deferred revenue of $2,108,151, reflecting amounts paid by Carnival for
installations on two Carnival ships to date. As of December 31, 1999, the
Company had not recognized any revenue in association with the Carnival
Agreement. In January 2000, the systems installed aboard the Fantasy and Destiny
Class ships were accepted by Carnival.
The Company has concluded that the cost of building and installing
CruiseView(TM) systems in carnival ships pursuant to the agreement with Carnival
may exceed the revenue earned in connection therewith. Carnival's continuing to
exercise its option for building and installing CruiseView(TM) on additional
ships under the agreement may prove unprofitable and therefore have a negative
effect on the Company's working capital. The company is currently endeavoring to
renegotiate the terms of the agreement with Carnival.
January 2000, the Company entered into a Letter of Intent relating to the
issuance of Subordinated Convertible Debenture (the "Debenture") and warrants to
purchase shares of the Company's Common Stock for net proceeds to the Company of
$5.8 million. The letter provides that over the 24-month term, of the Debenture,
it will accrue interest at an annual rate equal to the prime interest rate.
Under the terms of the letter, the Company shall provide a Letter of Credit
equal to 50% of the outstanding principle balance of the Debenture and that the
Company shall register the shares of Common Stock into which the Debenture and
warrants are convertible or exercisable, as the case may be. The letter of
credit requirement shall be reduced to 35% of the outstanding principal balance
of the Debenture 45 days after the effective date of the registration statement.
Beginning on the funding date, the holder of the Debenture shall be
permitted each month to convert a pro rata portion (according to a 12-month term
payment schedule) of principal amount of the Debenture plus accrued interest
into shares of Common Stock at a conversion price equal to the lesser of (i)
130% of the average closing price of the Company's Common Stock for the 10
consecutive trading days prior to the funding date, or (ii) 100% of the average
three low daily trades selected by the holder of the Debenture for the 12 days
prior to the submission of the conversion notice. The letter also provides the
Company with certain prepayment and forced conversion rights.
Additionally, the holder of the Debenture is to receive 120,000 warrants to
purchase Common Stock of the Company at a price equal to 130% of the average
closing price of Common Stock for the five consecutive trading days prior to the
funding date. The warrants are callable under certain circumstances and expire
five years from date of issue. Proceeds from this transaction will be used to
fund general operations of the Company.
The Company believes that its current cash balances plus interest received
on such balances, the $5 million Facility with Global, (which as of December 31,
1999, Global had insufficient cash to fund, and would have to obtain financing
or sell assets to meet funding obligations under the Facility), and the proceeds
from the Debenture are sufficient to meet the Company's currently anticipated
cash requirements for at least the next twelve months.
The Company is currently using its working capital to finance inventory
purchases and other expenses associated with the delivery and installation of
Company products, and general and administrative costs.
INFLATION AND SEASONALITY
The Company does not believe that it is significantly impacted by
inflation. The Company's operations are not seasonal in nature, except to extent
fluctuations in quarterly operating results occur due to the cyclical nature of
government funding obtained in connection with education programs with which the
Company may become involved. The Company is not currently involved with any such
program and gives no assurance that it will be in the future.
YEAR 2000
Many currently installed computer systems and software products were coded
to accept only two digit year entries in the date code field. Consequently,
subsequent to December 31, 1999, many of these systems became subject to failure
or malfunction. Although we are not aware of any material Year 2000 issues a
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this time, Year 2000 problems may occur or be made known to us in the future.
Year 2000 issues may possibly affect software solutions developed by us or
third-party software incorporated into our solutions. We generally do not
guarantee that the software licensed from third-parties by our clients is Year
2000 compliant, but we sometimes do warrant that solutions developed by us are
Year 2000 compliant.
FORWARD-LOOKING INFORMATION
This Report contains certain forward-looking statements and information
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could
adversely impact revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include the
following: the Company's success in procuring and providing compelling content
for its systems; the Company's success in obtaining new contracts; the volume
and type of work orders that are received under such contracts; the accuracy of
the cost estimates for the projects; the Company's ability to complete its
projects on time and within budget; levels of, and ability to, collect accounts
receivable; availability of trained personnel and utilization of the Company's
capacity to complete work; competition and competitive pressures on pricing; and
economic conditions in the United States and in other regions served by the
Company.
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PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Bryan R. Carr v. The Network Connection, Inc. and Global Technologies,
Ltd., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the
Company's former Chief Operating and Financial Officer, and a former Director
filed a claim on November 24, 1999 alleging a breach of his employment
agreement. Mr. Carr claims that he is entitled to the present value of his base
salary through October 31, 2001, a share of any "bonus pool," the value of his
stock options and accrued vacation time. The Company is currently defending the
claim.
Eric Schindler v. Interactive Flight Technologies, Inc., et al., State
Court for Fulton County, Georgia, Case No. 99-V51560685. On August 18, 1999,
Eric Schindler served a lawsuit on Global (formerly Interactive Flight
Technologies, Inc.), naming Global and TNCi as defendants. The Complaint alleged
that TNCi and Global failed to pay severance pay pursuant to a written
employment contract following Schindler's resignation as an employee and vice
president of TNCi in May 1999. Specifically, the Complaint alleged (1) breach of
contract (against TNCi), (2) conspiracy and interference with contract rights
(against TNCi and Global), and (3) interference with contract rights (against
Global). Mr. Schindler sought $85,000 in severance pay on the contract claims,
unspecified damages for loss of stock options, punitive damages of at least
$450,000, attorneys' fees and costs. TNCi and Mr. Schindler entered into a
settlement agreement in October 1999, whereby TNCi paid $50,000 to Mr. Schindler
and all claims have been dropped.
The Company is subject to other lawsuits and claims arising in the ordinary
course of its business. In the Company's opinion, as of December 31, 1999, the
effect of such matters will not have a material adverse effect on the Company's
results of operations and financial position.
ITEM 2 -- CHANGES IN SECURITIES
UNREGISTERED ISSUANCES
In October 1999, the Company issued 200,000 shares of Common Stock of the
Company upon conversion of a note payable in the principle amount of $400,000 in
a transaction exempt under Section 4(2) of the Securities Act.
On November 10, 1999, the Company granted Irwin L. Gross an option to
purchase up to 500,000 shares of its Common Stock at an exercise price per share
of $2.00, the closing price of a share of stock as reported on the Nasdaq
SmallCap Market for November 10, 1999. One quarter of the options vested on the
date of grant and one quarter vest in equal installments on each of the first
three anniversaries of the date of grant. The remaining half of the options vest
on the sixth anniversary of the date of grant, subject to acceleration to a
three-year vesting schedule in the event of the achievement of certain
performance milestones. These options were granted in a transaction exempt from
the registration provisions of the Securities Act pursuant to Section 4(2)
thereof.
In November 1999, the Board of Directors approved the issuance of 79,091
shares of the Company's Common Stock to Coche Capital in connection with an
April 1999 financing agreement. This transaction is exempt under Section 4(2) of
the Securities Act.
In December 1999, the Company issued 4,802,377 million and 886,000 shares
of its Common Stock to Global Technologies, Ltd. (Global) in connection with
Global's conversion of its Secured Promissory Note and Series C Stock,
respectively. These transactions are exempt under Section 4(2) of the Securities
Act.
In December 1999, the Company issued stock purchase warrants to purchase
25,000 shares of Common Stock at $6.50 per share to Emden Consulting Corp. in
exchange for advisory services. The exercise period of the warrants expires in
December 2004. This issuance is exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
In December 1999, the Company issued stock purchase warrants to purchase
25,000 shares of Common Stock at $6.50 per share to Waterton Group LLC in
exchange for advisory services. The exercise period of the warrants expires in
December 2004. This issuance is exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
On December 27, 1999, the Company entered into an agreement to issue 29,500
shares of its Common Stock to Continental Capital & Equity Corp. ("CCEC"). In
addition, the Company will issue a warrant covering 100,000 shares of Common
Stock to CCEC. The warrants are exercisable at prices ranging from $6.00 to
$10.00 per share of Common Stock and vest over a period of 270 days from
issuance. The warrants expire in February 2002. These issues were made in
consideration of public relations and advisory services to be provided by CCEC
and are exempt from the registration provisions of the Securities Act under
Section 4(2) thereof.
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ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
No. Description Reference
- ------- ----------- ---------
3.1 Articles of Amendment to the Second Amended and Restated (1)
Articles of Incorporation of The Network Connection, Inc.
dated October 6, 1999 and filed October 25, 1999 (re:
increase of authorized shares).
3.2 Articles of Amendment to the Second Amended and Restated (1)
Articles of Incorporation of The Network Connection, Inc.
dated October 6, 1999 and filed October 25, 1999 (re:
increase in shares of Series C Preferred).
10.1 Agreement between Carnival Corporation and The Network *
connection, Inc.
10.2 Service Agreement between The Network Connection, Inc. and *
Stephen J. Ollier.
10.3 Option Grant Agreement between The Network Connection, Inc. *
and Irwin L. Gross.
10.4 Agreement between Embassy Suites and The Network Connection. *
10.5 Agreement between Radison Resort and The Network Connection. *
27 Financial Data Schedule. *
- ------------
* Filed herewith.
(1) Filed as an exhibit with the Company's Quarterly Report 10-QSB for the
quarter ended September 30, 1999 filed with the Securities and Exchange
Commission on November 16, 1999, File No. 1-13760.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1999.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 14, 2000 THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
------------------------------------
Irwin L. Gross
Chief Executive Officer
By: /s/ Morris C. Aaron
------------------------------------
Morris C. Aaron
Executive Vice President &
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
No. Description Reference
- ------- ----------- ---------
3.1 Articles of Amendment to the Second Amended and Restated (1)
Articles of Incorporation of The Network Connection, Inc.
dated October 6, 1999 and filed October 25, 1999 (re:
increase of authorized shares).
3.2 Articles of Amendment to the Second Amended and Restated (1)
Articles of Incorporation of The Network Connection, Inc.
dated October 6, 1999 and filed October 25, 1999 (re:
increase in shares of Series C Preferred).
10.1 Agreement between Carnival Corporation and The Network *
connection, Inc.
10.2 Service Agreement between The Network Connection, Inc. and *
Stephen J. Ollier.
10.3 Option Grant Agreement between The Network Connection, Inc. *
and Irwin L. Gross.
10.4 Agreement between Embassy Suites and The Network Connection. *
10.5 Agreement between Radison Resort and The Network Connection. *
27 Financial Data Schedule. *
TURNKEY AGREEMENT
This Turnkey Agreement ("Agreement"), dated September 14, 1998 is made by
and between THE NETWORK CONNECTION, INC., a Georgia corporation with a place of
business at 1324 Union Hill Road, Alpharetta, Georgia 30004 ("TNC"), and
CARNIVAL CORPORATION, a Panamanian corporation with a place of business at 3655
N.W. 87th Avenue, Miami, Florida 33178 ("Carnival").
WHEREAS, Carnival is in the business of offering cruise vacations to its
passengers;
WHEREAS, TNC has developed a computer hardware and software system, known
collectively as "Cruiseview," for the delivery of interactive television
services on board cruise ships; and
WHEREAS, TNC desires to provide to Carnival Cruise Lines (a division of
Carnival), and Carnival Cruise Lines desires to obtain from TNC, the
aforementioned interactive television system for use aboard the M/S Triumph (the
"Initial Ship") and such other cruise vessels owned or operated from time to
time by Carnival Cruise Lines, as from time to time may be designated by
Carnival Cruise Lines (all such cruise vessels, collectively, the "Ships" and
individually, a "Ship").
NOW, THEREFORE, in consideration of the foregoing recitals and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged the parties hereto, intending to. be legally bound hereby, agree as
follows:
1. DEFINITIONS.
(a) "Acceptance Date" shall mean, with respect to each Ship, the date on
which Carnival notifies TNC in writing that the System has met all of
the acceptance criteria set forth in Exhibit "E" attached hereto,
provided that Carnival shall provide such notification, or shall
notify TNC that such criteria have not been met, no later than the
last day of the applicable Acceptance Period.
(b) "Critical Design Review" or "CDR" means a review process undertaken by
TNC and Carnival to ascertain whether TNC's design of the System meets
Carnival's requirements, to resolve questions and to give direction as
required. CDR shall take place at a date set forth in the Milestone
Schedule attached hereto and incorporated herein as Schedule "D" (the
"Milestone Schedule").
(c) "Equipment" means hardware and related documentation sold by TNC to
Carnival in accordance with the terms and conditions of this
Agreement.
(d) "Licensed Software" means computer programs or firmware (embedded
software) proprietary to TNCi or its suppliers and licensed to
Carnival in accordance with this Agreement, including all manuals and
documentation related thereto.
<PAGE>
(e) "Ship Survey" or "SS" means a review process undertaken by TNC and
Carnival prior to Critical Design Review to determine TNC's design of
the System to meet Carnival's requirements, as determined by Carnival
in Its sole discretion. The written System design document resulting
from SS and agreed to in writing by the parties shall be attached
hereto and incorporated herein as Exhibit I to Schedule "C." SS shall
take place at the date set forth in the Milestone Schedule.
(f) "Product(s)" means Equipment and Licensed Software sold and/or
licensed to Carnival and set forth in Schedule "A" attached hereto and
incorporated herein by this reference.
(g) "Services" means installation, testing and warranty period services as
well as post-warranty period maintenance services, if any, provided by
TNC hereunder.
(h) "Specifications" means the written system design document resulting
from CDR and agreed to in writing by the parties hereto. Upon such
mutual written agreement, the Specifications shall be attached hereto
and incorporated herein as Exhibit 2 to Schedule "C."
(i) "System" means the total integrated "Cruiseview" interactive
television system, including all Equipment, Licensed Software,
Services and any other item necessary to certify and operate the
Products in accordance with the Specifications.
(j) "Installation Date" shall mean, with respect to each Ship, the date on
which TNC shall have notified Carnival in writing that installation of
the System on the applicable Ship has been completed and the System
has been successfully tested by TNC.
2. RESPONSIBILITIES.
(a) Subject to the terms and conditions hereof, TNC shall:
(i) Provide, within four (4) years from the date first written
above, for each Ship designated by Carnival (including without
limitation the Initial Ship), and install on each such Ship at
its home port, at the total price per cab-in not to exceed that
set forth in Schedule "A," for a minimum of eight hundred (800)
cabins per Ship, the System, consisting of the Equipment and
Licensed Software described or listed on Schedule "A." The
installation of the System on the Ships, and the delivery of
documentation related thereto, will be in accordance with the
Milestone Schedule. TNC agrees to provide to Carnival written
progress reports regarding the status of the installation of the
System.
(ii) Provide, at no cost or expense to Carnival, all personnel
reasonably necessary and appropriate install the System on board
each Ship. TNC understands and acknowledges that, while on board
any Ship, its personnel will be subject to the authority of the
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Masterof that Ship and the officer(s) designated to oversee the
operation of the System, and all such personnel will at all
times while on board any Ship comply with the operations manual
of Carnival, in the form then in effect.
(iii) Train up to ten (10) personnel of one class per Ship of Carnival
at no additional charge, at Carnival headquarters in Miami,
Florida, in the operation and maintenance of the System.
Additional training can be provided at $___ per day. Additional
training shall be provided at a cost to Carnival of $___ per day
for up to 10 Carnival personnel per class plus expenses for
travel, lodging and subsistence at actual cost. Should training
be provided at TNC's location in Alpharetta, Georgia, Carnival
shall be responsible for travel, lodging and subsistence of
Carnival personnel to be trained.
(iv) Throughout the Warranty Period (as hereafter defined), at its
sole cost and expense, maintain the System in proper working
order and otherwise in accordance with the Specifications, as
more specifically set forth in Section 9 of this Agreement.
(v) Pay to Carnival, with respect to each System (or other
interactive television system similar to the System) or
component thereof and each application or module relating to the
System (or other interactive television system similar to the
System), regardless of whether any such application or module is
developed by or an behalf of TNC, Carnival or any third party,
which TNC provides to any party other than Carnival Cruise Lines
Ships for cruise vessel use, royalties in an amount equal to:
(A) __percent ( __%) of all payments received by TNC with
respect to the sale, rental, lease or other transfer of the
system, or of any application, module or other product relating
thereto (including, without limitation, the sales price of any
equipment and license fees in connection with any software), and
(B) ____ __percent (__ %) of all payments received by TNC (net
of direct costs) in excess of the transfer price defined in (A)
with respect to any revenue sharing or similar arrangement
entered into between TNC and such party relating to the system,
or any application, module or other product or service relating
thereto. All royalties due under the preceding sentence shall be
remitted by TNC to Carnival within thirty (30) days after TNC's
receipt of the applicable revenues, and shall be accompanied by
a written statement indicating, in reasonable detail, the source
of all such revenues and the calculation of Carnival's
proportionate share. In addition, in the event that TNC collects
any rental payments for which a royalty payment is due under
this paragraph, TNC shall provide to Carnival, within thirty
(30) days after each calendar quarter in which such rental
payments are received, a written report setting forth, with
respect to each applicable cruise vessel on which a System,
component, application or module is installed, the amount of
rent received by TNC during such quarter attributable to the
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vessel's operations in U.S. waters and the amount attributable
to the vessel's operations outside of U.S. waters. TNC shall
ensure that, with respect to any System, component, application
and module sold by TNC and for which a royalty payment will be
due under this paragraph, transfer of title shall occur outside
of the United States, and that each applicable purchase, rental
or other applicable agreement between TNC and a third party
recipient thereof shall provide that transfer of title will
occur outside of the United States. Carnival or its appointed
representative shall have the right, during regular business
hours and upon reasonable advance notice, to audit TNC's books
and records to verify the accuracy and completeness of the
payments made under this paragraph. As used in this paragraph,
the term "TNC" shall include any affiliates, subsidiaries,
parent companies, successors, assignees and transferees of TNC.
(vi) At no expense to Carnival, obtain a performance bond or standby
letter of credit in favor of Carnival, with a company and on
terms acceptable to Carnival, to secure its obligation to refund
the two initial installment payments required to be made by
Carnival pursuant to Schedule "A" upon the terms set forth
herein.
(b) Subject to the terms and conditions hereof, Carnival shall:
(i) Pay, with respect to the Initial Ship and any additional Ships
designated by Carnival, the applicable amount set forth in
Schedule "A", pursuant to the applicable payment schedule set
forth therein. In the event Carnival fails to make any such
payment when due, and such failure to pay continues for more
than thirty (30) days after Carnival's receipt of written notice
specifying such failure, Carnival shall be subject to a late
payment charge of 1% per month until paid, and TNC may decline
to make further Product or Service deliveries except upon
receipt of cash or satisfactory security. Carnival is
responsible for all sales, use and similar taxes arising from
the sale of products or services to Carnival hereunder, and
Carnival agrees to reimburse TNC for any such charges paid on
Carnival's behalf.
(ii) Make available to TNC, on any Ship upon which the System is
installed or is then to be installed, (A) reasonable access for
such TNC personnel as will be installing, testing, maintaining
or servicing the System, or otherwise providing Services
pursuant to this Agreement, and (B) appropriate accommodations
on-board such Ship, if necessary, for up to seven (7) TNC
personnel who are engaged in installing, testing, maintaining or
servicing the System on such Ship; provided, however, that none
of the foregoing activities of TNC shall unreasonably interfere
with the normal functions of such Ship or require displacement
of revenue guests, and that Carnival shall not be required to
provide such accommodations for any period in excess of the
number of days as defined in the Milestone Schedule, It is
understood that TNC personnel occupying such accommodations
shall, at all times while on-board such Ship, be subject to
Carnival's policies regarding on-board contractors, including
those concerning dress, decorum and personal behavior.
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(iii) Provide reasonable access to each Ship on which the System is
then installed, when such Ship is in port, for TNC personnel to
demonstrate the System to a reasonable number of prospective
customers, provided that Carnival is given at least seven (7)
days' prior notice of and approves the number of persons to
board and the date and time of each such demonstration. In
connection with making such demonstrations, TNC shall conform to
Carnival's procedures for approving on-board visitors, including
but not limited to making advance requests for boarding passes.
TNC shall be solely responsible and liable for any damage or
injury to persons or property arising out of or in connection
with any such demonstration.
3. TERM/EXTENSION TO OTHER SHIPS.
(a) Except as otherwise specifically provided herein with respect to
individual provisions of this Agreement, the respective rights and
obligations of the parties hereunder shall survive indefinitely.
(b) Carnival shall have the right, at any time during the four (4) year
period commencing on the date first written above, to designate Ships,
whether then existing or under construction, for System installation,
in addition to the Initial Ship, at the price per cabin set forth in
Schedule "A," provided that in the event of any decrease in TNC's
direct costs with respect to the System between the date of this
Agreement and the date that any such designation is made, TNC shall
pass along any such cost reductions in the price payable by Carnival,
on a dollar-for-dollar basis. TNC and Carnival shall establish a
mutually acceptable timetable for the installation of the System on
any such additional Ships, generally consistent with the schedule for
installation on the Initial Ship, as set forth in the Milestone
Schedule.
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4. ACCEPTANCE PERIOD.
Notwithstanding anything to the contrary contained in this Agreement, in
the event that the System fails to fully perform in accordance with the
Specifications and the System design document attached hereto, and to fully
meet the acceptance criteria set forth in Schedule "E" attached hereto, in
each case as determined by Carnival in its sole discretion, from the date
that TNC shall have notified Carnival in writing that installation of the
System on the applicable Ship has been completed and the System has been
successfully tested by TNC, Carnival shall have the right, exercisable upon
written notice to TNC at any time within the applicable period of time set
forth below (the "Acceptance Period"), to either (a) extend the Acceptance
Period for a term selected by Carnival, in which case TNC shall use its
best efforts to cause the System to fully meet the acceptance criteria
within such additional period, or (b) terminate this Agreement effective
immediately respect to such Ship, in which case TNC shall promptly, at its
sole cost and expense, and without causing damage to applicable Ship,
remove the System from such Ship, and refund any and all sums paid by
Carnival to TNC hereunder with respect to such Ship. In the event that
Carnival shall elect to extend the Acceptance Period pursuant to the
previous sentence, and TNC shall thereafter be unable to cause the System
to fully meet the acceptance criteria (as determined by Carnival in its
sole discretion) within such additional period, Carnival shall have the
same right to terminate this Agreement as described in subsection (b) of
the previous sentence. The Acceptance Period with respect to the Initial
shall be one (1) year, and with respect to any and all additional Ships
shall be ninety (90) days.
5. SHIPMENT, TITLE AND SECURITY INTEREST.
TNC shall effect delivery and installation of the System and/or Services on
each Ship within the time mutually agreed upon by TNC and Carnival (with
respect to the Initial Ship, as set forth in the Milestone Schedule), at
TNC's sole cost and expense. Title to and risk of loss and damage to the
Products sold shall pass to Carnival immediately upon the Acceptance Date
with respect to each such Product on board the applicable Ship. Carnival
hereby grants TNC a security interest in the Products sold hereunder and in
the proceeds therefrom, in accordance with the law applicable to the
Products, such security interest to continue until Carnival has made full
payment therefor. Carnival agrees that it will execute any UCC Statements
or other similar documents evidencing TNC's security interest in the
Products, upon request of TNC, at TNC's sole cost and expense. TNC agrees
that it shall file appropriate UCC termination statements or similar
documents, as applicable, evidencing the release of each such security
interest promptly upon payment in full by Carnival.
6. SOFTWARE.
(a) TNC hereby grants to Carnival a non-exclusive, perpetual, worldwide,
royalty-free license to use the Licensed Software (software and/or
firmware, as the case may be), including all documentation related
thereto, in connection with the System. Title to such Licensed
Software (but excluding the software described in subsection (b)
below) shall remain with TNC or its suppliers, as the case may be,
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notwithstanding anything to the contrary contained herein. TNC
represents and warrants that it has the authority to grant such a
license with respect to all of the Licensed Software. TNC further
represents and warrants that the System as delivered and installed by
TNC shall be fully operational and that no software other than the
Licensed Software shall be necessary to operate the System in
accordance with the Specifications.
(b) TNC acknowledges that, notwithstanding anything to the contrary
contained in this Agreement, all right, title and interest in and to
all software which interfaces or links the System and Carnival's
property management system (collectively, the "Interface Software") as
defined in Exhibit "I", shall be owned by Carnival. All Interface
Software produced by or on behalf of TNC shall be deemed "works made
for hire" within the meaning of the U.S. Copyright Act and any other
applicable laws relating to intellectual property, and TNC understands
and acknowledges that Carnival shall own all right, title and interest
in and to the Interface Software, including without limitation
copyright, patent and trademark rights. To the extent that any such
software shall not be deemed "works made for hire," TNC hereby assigns
all right, title and interest in and to such software, including
without limitation copyright, patent and trademark rights, to
Carnival, TNC shall execute and deliver to Carnival any additional
documents that may be reasonably required to evidence or perfect such
assignments. TNC shall not make any use of any Interface Software
other than as part of the System delivered to Carnival without the
prior written consent of Carnival.
(c) TNC acknowledges that Carnival may provide program content for the
System itself, or may procure such content from third parties, and TNC
represents and warrants that the use by Carnival of content or
software provided by Carnival or third parties in connection with the
System (including, without limitation, any Licensed Software) shall
not give rise to any claim of copyright infringement, or any similar
claim relating to intellectual property, by TNC or any licensor of TNC
based solely upon the use of content or software in combination with
the System.
7. CANCELLATION AND RESCHEDULING.
At any time prior to the scheduled date of installation, Carnival may
cancel the Products on order upon payment to TNC of all direct costs
incurred by TNC (time and materials, including non-recurring engineering
costs) (the "Cancellation Fee") as a result of TNC performing its
obligations hereunder.
TNC will allow Carnival to delay any scheduled installation dates for a
maximum of 60 days upon written notice of the new installation date
received by TNC at least 45 days in advance of the scheduled date of
installation. Any rescheduling to a date more than 60 days after the
original scheduled date of installation or received by TNC less than 45
days in advance of the scheduled date of installation, will be subject to a
reschedule charge of 5% of the price of the applicable Products purchased.
After the first rescheduling, Carnival will be subject to a reschedule
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charge of 5% of the price of the Products purchased for each subsequent
rescheduling (none of which may exceed 60 days) regardless of the length of
the rescheduling or period of notice. Failure by Carnival to schedule
installation to occur within 12 months after the initial agreed upon date
will be considered as a cancellation subject to the Cancellation Fee,
calculated as identified above. Any rescheduling to a date later than
identified on the Milestone Schedule shall effect all subsequent milestones
therein by a corresponding number of days.
8. TERMINATION.
(a) Either party may terminate this Agreement upon written notice to the
other party in the event of a material breach of this Agreement by
such other party, which breach shall have remained uncured for thirty
(30) or more days after receipt of written notice thereof.
(b) Without limiting any other right or remedy contained herein, Carnival
may terminate this Agreement with no further obligation to TNC, on
fifteen (15) days' written notice to TNC in the event the parties do
not successfully complete SS or CDF, or cannot agree on the
Specifications, within 30 days of their scheduled dates of completion,
as set forth in the Milestone Schedule. In addition, Carnival may
terminate this Agreement with no further obligation to TNC upon notice
to TNC at any time after the occurrence of any of the following
events:
(i) TNC shall have filed or initiated proceedings, or shall have had
proceedings filed or initiated against it, seeking liquidation,
reorganization or similar relief (including without limitation
the appointment of a trustee, receiver, custodian or other such
person) under any bankruptcy, insolvency or similar law;
(ii) TNC shall have purported to assign this Agreement (or any part
hereof) without having first obtained Carnival's prior written
consent, or
(iii) TNC shall not have had the power, right or authority to grant
any license contained in this Agreement with respect to any
Licensed Software, or any such power, right or authority shall
have been revoked or otherwise lost.
9. WARRANTY.
Except as set forth to the contrary in Schedule "B" attached hereto and
incorporated herein, TNC warrants to Carnival that:
(a) for a period commencing upon the Acceptance Date and continuing for
______(__) months thereafter (the "Warranty Period"), all Products
sold or licensed to Carnival hereunder shall be free from defects in
materials and workmanship and that the System shall perform in all
material respects in accordance with the Specifications;
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(b) the advent of the year 2000 shall not adversely affect the performance
of the System, or any component thereof. Without limiting the
generality of the foregoing, (1) all equipment, hardware, firmware,
middleware, custom or commercial software and other systems, including
all components thereof (collectively, "Materials"), which are
furnished pursuant to this Agreement shall accurately process date
data (including, but not limited to, calculating, comparing and
sequencing) from, into, and between the twentieth and twenty-first
centuries, and the years 1999 and 2000, including leap year
calculations, and (ii) no date data will cause any interruption or
other error in the operation of any such Materials. To the extent that
any Materials perform as a package or system, the foregoing warranty
shall apply to the Materials as a system, and to each Material
individually; and
(c) neither the delivery of the System to the Ships nor Carnival's use of
the System on the Ships will violate any export laws of the United
States.
TNC's obligation to perform pursuant to the warranties provided in
this Section 9 is limited to undertaking all reasonable efforts to
identify and correct any defects or other breaches (in accordance with
the terms and conditions set forth in Schedule "B") which prevent the
continued use of the Products in accordance with the Specifications
(including repairing or replacing Products, as appropriate) or, if TNC
is unable to so correct any such defects or otherwise remedy any
breach within a commercially reasonable period (but in no event to
exceed thirty (30) days) during the Warranty Period, to refund all
sums paid by Carnival to TNC hereunder with respect to the affected
Ship(s).
Upon the expiration of the Warranty Period, Carnival shall have the
option to extend the Warranty Period for up to four (4) additional
one-year terms (each an "Extended Warranty Period"). The cost for each
Extended Warranty Period shall be equal to an amount not to exceed
____ percent (__ %) of the cost to Carnival of the applicable Products
to be warranted during the Extended Warranty Period.
The foregoing warranties and commitments are for the benefit of and
apply only to Carnival. The warranties provided herein do not extend
and are not transferable to any subsequent end-users of the Products,
other than any subsidiary, affiliate or assignee of Carnival. Not
included under this warranty are Services or replacement Equipment
which are required due to (a) abuse, misuse, or abnormal conditions of
operation; (b) damage to the Equipment which is a result of the use of
unapproved, non-TNC mounting devices; (c) any damage to Carnival's
equipment or Equipment as a result of Carnival connecting components
which have not been purchased from TNC and/or inspected and approved
by TNC or TNC approved personnel for connection to the Equipment, (d)
unauthorized attempts by other than TNC personnel or TNC authorized
representatives to install, repair, maintain or modify the Equipment
or System; or (e) causes external to TNC-maintained Equipment, such as
power surges or force majeure events, as described in Section 22
hereof.
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10. GENERAL INDEMNIFICATION.
(a) TNC shall indemnify, defend and hold harmless Carnival and its
successors and assigns from and against any and all liabilities,
claims, suits, damages, judgments, awards, penalties, losses and other
liabilities (including all related reasonable attorneys' fees, costs
and expenses in connection therewith, whether at the trial or
appellate level) (collectively referred to hereinafter as "Losses")
suffered or incurred by Carnival by reason of, arising out of or in
connection with (i) any negligent, willful or intentional act or
omission of TNC (or an employee, agent or representative of TNC
committed or omitted, as the case may be, in the course of or in
connection with TNC's performance of the terms of this Agreement, or
(ii) any breach of this Agreement by TNC.
(b) Carnival shall indemnify, defend and hold harmless TNC and its
successors and assigns from and against any and all Losses suffered or
incurred by TNC by reason of, arising out of or in connection with (i)
any negligent, willful or intentional act or omission of Carnival (or
an employee, agent or representative of Carnival) committed or
omitted, as the case may be, in the course of or in connection `kith
Carnival's performance of the terms of this Agreement, or (ii) any
breach of this Agreement by Carnival.
11. INTELLECTUAL PROPERTY INDEMNIFICATION.
TNC shall defend, at its expense, and shall Indemnify Carnival against, any
claim, suit or other action brought against Carnival alleging that any
Product or other component of the System furnished hereunder infringes a
trademark, patent or copyright, or incorporates or is based upon any third
party's trade secret, and TNC shall pay all costs, expenses and damages
based on any such claim, suit or other action awarded or payable by
Carnival, if any, provided that Carnival gives TNC prompt written notice of
any such claim and gives TNC, at TNC's sole cost and expense, information,
reasonable assistance, and sole authority to defend or settle the claim. In
the defense or settlement of the claim, TNC may obtain for Carnival the
right to continue using the Products, replace or modify the Products so
that they become non-infringing or, if such remedies are not reasonably
available, grant Carnival a credit for the price paid to TNC with respect
to the applicable Products and accept their return (at TNC's sole expense),
provided, however, that any such remedy will permit the System to fully and
properly continue to operate as otherwise set forth in this Agreement. TNC
shall not have any liability if the alleged infringement is based solely
upon (i) the use or sale of the Products in combination with other products
or devices not furnished by TNC, or (ii) any unauthorized modification of
the Products by Carnival. This Section 11 sets forth TNC's sole obligation
and Carnival's sole remedy with regard to trademark, patent, copyright
and/or trade secret infringement claims.
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12. INSURANCE/WAIVER OF SUBROGATION.
TNC shall obtain and maintain, throughout the term of this Agreement, at
its own cost and expense:
(a) Worker's Compensation/Employer's Liability insurance covering its
employees. Said insurance shall include a Longshore and Harbor
Worker's Compensation Act Coverage Endorsement and a Maritime Coverage
Endorsement with no territorial limits. The coverage shall include
liability (if any) for (i) maintenance and cure as well as personal
injury or death claims asserted by TNC's employees or their estates,
and (ii) repatriation, loss of personal effects and other costs to
employees (including, without limitation, burial costs) in the event
of death, casualty or termination of a voyage.
(b) Comprehensive General Liability insurance, including product liability
coverage, covering claims of passengers or other third parties arising
out of or in connection with TNC's operations or the actions of TNC's
employees and/or its subcontractors. Said coverage shall be in an
amount of at least $__________.
(c) Automobile Liability insurance for bodily injury and property damage
in the amount of at least $__________.
All such insurance shall be in form, in amounts, with carriers and on terms
reasonably satisfactory to Carnival and shall name Carnival as an
additional insured party, and include a waiver of subrogation. Within
thirty (30) days of the execution of this Agreement and no less than
annually thereafter, TNC shall provide Carnival with a Certificate or
Certificates of Insurance evidencing such coverage.
13. LIMITATION OF LIABILITY.
TNC ASSUMES NO LIABILITY EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
AND IN NO EVENT SHALL TNC BE LIABLE WHETHER IN CONTRACT OR TORT FOR DAMAGES
RELATING TO LOSS OF MAGNETICALLY STORED COMPUTER PROGRAMS OR DATA. EXCEPT
FOR DAMAGES ARISING UNDER SECTION 11 HEREOF OR AS MAY BE AWARDED IN
CONNECTION WITH ANY CLAIM BROUGHT BY A THIRD PARTY AND SUBJECT TO A PARTY'S
INDEMNITY OBLIGATIONS AS SET FORTH UNDER SECTION 10 HIEREOF, NEITHER PARTY
SHALL BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES.
14. MATTERS RELATING TO TNC EMPLOYEES.
(a) TNC'S OBLIGATIONS. TNC's status under this Agreement is solely that of
an independent contractor, and TNC at all times has the obligation and
right to control all of the employees or other personnel engaged by
TNC to perform its obligations hereunder, and such persons are solely
the responsibility of TNC. As between any such person and TNC, TNC
hereby acknowledges that it is solely responsible for the payment of
all wages, vacation pay, benefits and repatriation expenses.
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(b) RESPONSIBILITY FOR PAYMENT OF CERTAIN EXPENSES. TNC shall be solely
responsible for the payment of any medical and subsistence expenses or
damages to TNC's employees and other personnel arising from accident
or illness, and TNC shall promptly reimburse Carnival for any such
expenses or damages incurred by Carnival.
(c) NO MARITIME LIENS. Except as specifically provided in Section 5
hereof, neither TNC nor any of its employees or other personnel shall
have maritime liens on a Ship for any payments due to them in
connection with this Agreement.
(d) JONES ACT. TNC's employees and other personnel are not entitled to
assert claims against
Carnival under the Jones Act, 46 U.S.C. 688.
(e) EMPLOYEE CONTRACTS. TNC will cause each of its employees and other
personnel who will serve or work on any Ship to sign a written
contract or other document, containing the following notice:
"Your employer is a concessionaire of Carnival Corporation, the owner
and/or operator of the Ship. You are subject to the control of your
employer. You are also subject to the authority of the Master for purposes
of health, safety and discipline. In your dealings with passengers you will
refer to yourself as a member of the interactive television system team, `
However, your employer is solely responsible for you, and neither the Ship
nor Carnival Corporation, is obligated to you for any payments. You are
required to comply with the terms of any agreement and/or policy now
existing, or hereafter entered into or adopted by Carnival Corporation,
with respect to the carrying on board the Ship and/or use on board the Ship
of any narcotics or other controlled substances that Carnival Corporation
may deem necessary or desirable in view of the laws, regulations and
policies of any governmental jurisdiction including, without limitation,
the zero tolerance policy of the government of the United States of
America."
(f) SHIP'S ARTICLES.
(i) TNC irrevocably appoints the Master of a Ship as its agent with
the power of overall supervision of TNC's employees and other
personnel on board the Ship for purposes of health, safety, and
discipline. The Master may delegate this supervisory power to
the Ship's Staff, Captain and/or Purser.
(ii) Only for purposes of health, safety and discipline and to
facilitate compliance with the immigration laws applicable in a
Ship's base port and other ports of call, TNC's employees and
other personnel will sign on ship's articles- but such adherence
to ship's articles will not in any way detract from or modify
the TNC's status as an independent contractor, and its
relationship or its right and obligation to control its
employees and other personnel, as described in Sections 14(a)
through 14(d), above. Carnival agrees to make all arrangements
for TNC's employees and other personnel to sign on and off
ship's articles.
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(g) HEALTH AND DOCUMENTATION.
(i) TNC will employ on-board the Ship only persons who, to the best
of TNC's knowledge, are of good moral character as well as good
health, and who hold valid passports, visas, and all other
permits required by any governmental authority having
jurisdiction, in order that they may enter and leave the base
port and other ports where the Ship may call.
(ii) TNC will at its own expense arrange for each of its employees
and other personnel to receive and pass a complete medical
examination including a chest x-ray and blood test, immediately
prior to serving on-board a Ship and periodically thereafter,
provided that the foregoing shall apply only to any person who
will be on board, for more than two (2) weeks during any
calendar year, any Ship which has entered service. The report of
such examination shall be forwarded to the Ship's doctor
indicating that the employee or other personnel is medically fit
for service on-board the Ship in accordance with standards
established by Carnival and applicable to its own crew.
(h) GROOMING. TNC's employees and other personnel will at all times keep
themselves neatly groomed, well spoken, and suitably attired in TNC
uniforms.
(i) REMOVAL. In his/her discretion, the Master of a Ship may require, when
he/she determines it necessary in his/her sole discretion to preserve
health, safety or discipline on board the Ship, that any employee or
other personnel of TNC remove himself/herself and his/her belongings
from a Ship at any time when the Ship is in port, and all repatriation
expenses, if any, will be for TNC's account. TNC shall be entitled to
appeal such removal by referring the matter to Carnival for final
determination, which determination shall be made in good faith.
(j) PROHIBITED ITEM. TNC's employees and other personnel are not
permitted:
(i) To carry or consume aboard a Ship any firearms or weapons,
narcotics, or other drugs which are prohibited in the Ship's
ports, except pursuant to a program of medical care under the
direct supervision of the Ship's doctor;
(ii) To consume alcoholic beverages aboard a Ship to the point of
intoxication or to the point where, during the subsequent
performance of their duties, such consumption could become
apparent to the passengers;
(iii) To board a Ship in an intoxicated state without the consent of
the Master;
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(iv) To engage in gambling aboard a Ship in the Ship's casino or
amongst themselves, or engage in any illegal activity;
(v) To sell any merchandise to passengers, or to purchase
merchandise from the interactive system for resale.
15. TNC'S OTHER GENERAL OBLIGATIONS.
(a) SAFE STOWAGE. Subject to the approval of the Master of the Ship, which
approval shall not be unreasonably withheld or delayed, TNC will
safely stow for sea and will maintain such safe stowage for sea all of
the System components and its other property, as well as all property
belonging to Carnival which TNC uses to perform its obligations
hereunder.
(b) UNSEAWORTHINESS. TNC will not knowingly or recklessly create an
unseaworthy condition in the performance of its obligations hereunder.
(c) CAREFUL OPERATIONS. TNC will care for the property of a Ship utilized
by TNC in performance of its obligations hereunder in a careful,
efficient and businesslike manner.
(d) COMPLIANCE WITH LAWS. TNC will comply with all laws and regulations of
all governmental authorities having jurisdiction relating to its
obligations or operations hereunder. Without limiting the generality
of the foregoing, TNC represents and warrants that delivery of the
System to the Ships will not violate any law, statute or regulation of
the United States of America, including without limitation any
applicable export laws or regulations. Carnival shall provide, at
TNC's sole cost and expense, reasonable assistance to TNC in acquiring
all necessary regulatory or other approvals for engaging in the sale,
delivery, connection and use of the Products and related power supply
transformers. All such approvals will, to the extent permitted by law,
be obtained in the name of and on behalf of TNC or a designated
representative of TNC.
(e) DAMAGED PROPERTY. Each party will, at its own expense, repair or
replace the other party's property which is damaged by the negligent
acts of such other party's employees, over and above normal wear and
tear.
16. CRUISE SCHEDULING.
Sailing and other cruise periods shall be scheduled at the sole discretion
of Carnival.
17. ESCROW AGREEMENT.
At the request of Carnival, on or prior to the Acceptance Date, TNC shall
enter into an escrow agreement, in substantially the form attached hereto
as Schedule "F", providing for TNC's escrow of the source code for the
Licensed Software (except for "off the shelf' third party software for
which TNC licenses from such third party with no rights to source code upon
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terms mutually agreeable to TNC and Carnival (including, without
limitation, the release of the source code to Carnival if TNC becomes
insolvent or if TNC fails to provide services under Section 9 herein) and
with Carnival as escrow agent, or with such other escrow agent as is
mutually acceptable TNC and Carnival. If a party other than Carnival acts
as the escrow agent, the fees and any other expenses payable to the escrow
agent shall be split equally by TNC and Carnival.
18. CONFIDENTIALITY.
(a) Each party agrees, during the term of this Agreement and thereafter,
to maintain the confidential nature of the terms and conditions of
this Agreement and of any proprietary information (collectively,
"Information") shared with it by the other party or obtained by a
party from the other party's books, records or computer systems, or by
reason of a party's access to the other party's business premises.
Each party shall retain all right, title, and interest in and to all
of its respective Information, including but not limited to any
intellectual property rights embodied or contained therein. Each party
shall (i) keep -in strictest confidence and trust all of the other
party's Information and not use or disclose any such Information
without the express prior written consent of such other party, except
as reasonably necessary for the installation, operation and/or
maintenance of the Products and/or the System, or to allow a party to
perform its obligations or enforce its rights under this Agreement,
and (ii) use its best reasonable efforts (but in no event less effort
than such party uses to protect its own confidential information) to
diligently protect all such Information against loss by inadvertent or
unauthorized disclosure or use.
(b) Notwithstanding anything to the contrary contained in subsection (a)
above, neither party shall have any obligation or liability with
respect to any Information of the other party, to the extent that such
Information (i) is or becomes publicly available other than as a
result of any act by such party in violation of subsection (a) of this
Section 18, (ii) is known to such party prior to disclosure by such
other party, or prior to such party's having access to such
Information pursuant to this Agreement, (iii) is or becomes available
to such party from a source that, to such party's knowledge, is not
bound by an obligation of confidentiality to such other party
prohibiting such disclosure, or (iv) is, on the advice of counsel,
required to be disclosed by law or legal process.
(c) Neither party shall, without the prior written consent of the other
party, publicly disclose any terms of this Agreement, or the fact that
this Agreement exists.
19. RIGHT TO MAKE AGREEMENT.
Each of the parties hereto represents and warrants to the other that it has
all necessary and appropriate power and authority to execute, deliver and
carry out the terms and provisions hereof and that its execution, delivery
and performance thereof will not constitute a default by it under any other
agreement to which it is a party.
15
<PAGE>
20. AGREEMENT APPROVAL.
Each party hereby represents and warrants that all necessary approvals for
this Agreement have been obtained, and the person whose signature appears
below has the authority necessary to execute and deliver this Agreement on
behalf of the party indicated.
21. NOTICES.
Any notices or other communication required by or relating to this
Agreement shall be writing, and shall be sufficient if given as follows:
(i) if delivered by hand or sent by facsimile, on the date of receipt, as
confirmed by the courier or by automatic facsimile confirmation; (ii) if
sent by reputable overnight delivery service, on the day following the day
of sending; (iii) if sent by certified or registered mail, return receipt
requested, in each case to the address set forth below, subject to any
address change provided by notice given in such manner.
If to TNC: If to Carnival:
The Network Connection, Inc. Carnival Cruise Lines
222 N. 44th St. 3655 N.W. 87th Avenue
Phoenix, AZ 85034 Miami, Florida 33178-2428
Attn: Contracts and Legal Affairs Attn:_____________________
Facsimile: (602) 629-6300 Facsimile:________________
with a copy to the attention of the
General Counsel, at the same address,
facsimile no _______________________
22. FORCE MAJEURE.
Neither party to this Agreement shall be liable for its failure to perform
or for delay in performing any of its obligations hereunder to the extent
that such performance is delayed or prevented by fire, flood, wind,
earthquake, war, embargo, strikes, explosions, riots or other such
catastrophic events, or by laws, rules or regulations of any governmental
authority, and all time periods for performance under this Agreement shall
be extended for an amount of time equal to the duration of such force
majeure event.
23. ASSIGNMENT.
This Agreement or any part hereof shall not be assigned or otherwise
transferred by any party without the prior written consent of the other
party which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, however, Carnival may assign or other-wise transfer its rights
and obligations under this Agreement to any entity with which Carnival
merges or to which it sells all or substantially all of its assets, or to
any entity that purchases or charters a Ship.
16
<PAGE>
24. MODIFICATIONS.
Except as expressly set forth herein to the contrary, no modification of
any of the terms and conditions of this Agreement shall be effective unless
such modification is expressed in writing and executed by each of the
parties hereto.
25. RELATIONSHIP OF PARTIES.
The parties are acting herein as independent contracting parties. Nothing
herein shall create or be construed as creating a partnership, joint
venture or agency relationship between the parties, and no party shall have
the authority to bind the other in any respect.
26. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
THE PARTIES AGREE THAT ANY LEGAL PROCEEDING ARISING UNDER THIS AGREEMENT
SHALL TAKE PLACE IN THE STATE OR FEDERAL COURTS LOCATED IN MIAMI-DADE
COUNTY, FLORIDA, AND EACH PARTY EXPRESSLY CONSENTS TO JURISDICTION IN SUCH
COURTS AND TO SERVICE OF PROCESS WITH RESPECT THERETO, AND WAIVES ANY
OBJECTIONS TO ANY PROCEEDING IN ANY SUCH COURT THAT IT MIGHT OTHERWISE HAVE
BASED ON IMSDICTION, VENUE, OR THE ADEQUACY OF EXTR-A-TERRITORIAL SERVICE
OF PROCESS.
27. SEVERABILITY.
The provisions of this Agreement are to be construed separately, and if any
one or more of the provisions hereof are not given legal effect by a court
of competent jurisdiction, such provision(s) shall be deemed deleted from
the Agreement and the Agreement shall be construed and enforced to most
closely reflect the intent of the parties hereto.
28. WAIVER.
Either party's failure to exercise any of its rights under this Agreement
shall not constitute a waiver of any past, present or future right or
remedy.
29. RETENTION OF RIGHTS.
Except as specifically provided herein, Carnival shall not obtain, by this
Agreement, any right, title or interest in or to the patent rights,
trademarks, service marks, and copyrights or any and all other intellectual
property rights embodied in the Products and sub-assemblies thereof
manufactured by, or on behalf of, TNC, nor shall this Agreement give
Carnival the right to use, refer to, or incorporate in any way or form such
intellectual -property rights.
17
<PAGE>
30. CAPTIONS.
The captions used in this Agreement are for convenience only and shall not
affect in any way the meaning or interpretation of the provisions set forth
herein.
31. SURVIVAL.
Sections 2(a)(v), 6, 9, 10, 11, 13, 14, 17, 18 and 21 through 32 of this
Agreement shall survive the expiration or termination, for any reason, of
this Agreement.
32. ENTIRE AGREEMENT.
This Agreement shall constitute the final, complete and exclusive written
expression of the intentions of the parties hereto and shall supersede all
previous communications, representations, agreements, promises or
statements, either oral or written, by either party. No other terms and
conditions, including without limitation any terms and conditions stated on
Carnival's purchase order or any document(s) accompanying such purchase
order, or TNC's invoice or packing slip or similar document(s), shall be
applicable, except upon the mutual written agreement of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been duly executed by the par-ties
hereto as of the date first above written.
THE NETWORK CONNECTION, INC. CARNIVAL CORPORATION
By: /s/ William L. Riner By: /s/ Brandon Corgen
---------------------------------- ------------------------------------
Name: William L. Riner Name: Brandon Corgon
-------------------------------- ---------------------------------
Title: Title:
------------------------------- --------------------------------
18
THE NETWORK CONNECTION INCORPORATED (1)
AND
STEPHEN JOSEPH OLLIER (2)
SERVICE AGREEMENT
<PAGE>
(1) "The Company" The Network Connection Incorporated of 222 N. 44th Street,
Phoenix, Arizona 85034, United States of America.
(2) "The Executive" Stephen Joseph Ollier of Westfield House 4 West Bank Avenue
Derby, United Kingdom, DE22 1AP.
1. EMPLOYMENT AND DURATION
1.1 The Company employs the Executive as Managing Director.
1.2 The employment of the Executive will commence on 20 September
1999 and will continue (subject to earlier termination in
accordance with the Agreement) until terminated by either party
giving to the other not less than 6 months prior notice in
writing.
2. HOURS OF WORK
2.1 The Executive's normal hours of work at 8:30 am. to 5:00 pm. Monday to
Thursday with a 45 minute break for lunch and 8:30 am. to 2:00 pm.
Friday with a 30 minute break for lunch.
2.2 The Executive will also work such additional hours as may be
reasonably necessary for the proper performance of his duties.
3. PLACE OF WORK AND RESIDENCE
3.1 The Executive will perform his duties a the Company's office in Derby
ad/or such other place as the Company reasonably requires whether
inside or outside the United Kingdom by the Company will not without
his prior consent require him to go to or reside anywhere outside the
Untied Kingdom except for visits in the ordinary course of his duties.
4. PAY
4.1 During his employment the Company will pay to the Executive:
4.1.1 a basic salary at the rate of $120,000 per year payable to a UK
Bank account nominated by the Executive by equal monthly
instalments in arrears on or before the last working day of each
month.
4.1.2 An annual bonus to be based on achieving agreed objectives
(determined in the light of the performance by the Executive of
his duties) up to a maximum of the Executive's basic salary
from time to time.
4.2 The Executive's basic salary will be reviewed by the Company in April
each year and may be increased by the Company with effect from that
date by such amount if any as it thinks fit.
5. SHARE OPTION SCHEME
5.1 The Company shall establish a share option scheme under which the
Executive shall be granted options for 120,000 Company shares or the
equivalent with an exercise price per option equal to the last sale
price of a Company share as reported by The Nasdaq Stock Market on
September 20, 1999. Options for 40,000 Company shares shall vest on
September 20, 2000. Options for the remaining 80,000 Company shares
will vest in 24 monthly instalments, each as nearly equal in number as
<PAGE>
possible to all others. The first such monthly instalment shall vest
on October 31, 1000, and each subsequent monthly instalment shall vest
on the last day of the month following the month in which the
preceding monthly instalment vested, for each of the following
twenty-three calendar months. Each option will have a six-year term
from the date on which it vests to be exercised. The options will best
subject to Executive's continued employment with the Company. The
options shall be evidenced by one or more written option agreements,
each of which shall contain the foregoing provisions or the terms of
the share option scheme, as the board of directors of the Company may
determine in its sole discretion.
6. PENSION
6.1 The Company has no Pension Scheme applicable to the Executive's
employment but the Company will make contributions on a monthly basis
to a Pension Scheme nominated by the Executive at a rate of 3% of the
Executive's monthly basic salary.
7. INSURANCE BENEFITS
7.1 The Company will bear the costs of the Executive being a member of a
reputable permanent health insurance scheme for himself, his spouse
and dependant children and a reputable private medical expenses
insurance scheme subject always to the rules of such schemes.
8. CAR
8.1 The Company will provide the Executive with a car of a make, model and
specification selected by the Executive (equivalent to a BMW 535I) for
business and private use by him and his family.
8.2 The Company will bear all expenses of the car.
8.3 The Executive will:
8.3.1 comply with all the Company's regulations with respect to
company cars;
8.3.2 notify the Company of any accidents involving his company car,
8.3.3 on the termination of his employment return his company car and
keys to the Company
8.3.4 keep the vehicle in good running order and in a clean and tidy
condition;
8.3.5 keep such records relating to its use as are necessary to
satisfy any Inland Revenue regulations.
9. EXPENSES
9.1 The Company will reimburse to the Executive all travelling, hotel,
entertainment and other expenses reasonably incurred by him in the
proper performance of his duties subject to the production to the
Company of such vouchers or other evidence of actual payment of the
expenses as the Company may reasonably require. The Executive will be
entitled to travel in Business or equivalent class.
9.2 The Company will pay the cost of the telephone rental in respect of
the Executive's home telephone and the cost of a mobile phone together
with the cost of all calls made in performing his duties under this
Agreement.
10. HOLIDAY
10.1 In addition to English statutory holidays the Executive is entitled to
25 working days paid holiday in each holiday year which runs from the
1st January to 31st December.
10.2 For the holiday year during which his employment commences or
terminates, the Executive is entitled to 2 working days holiday for
each complete calendar month of his employment during that holiday
year.
10.3 On the termination of his employment the Executive will be entitled to
pay in lieu of outstanding holiday entitlement or will be required to
repay to the Company any salary received for holiday taken in excess
of his actual entitlement.
10.4 For the purpose of calculating any holiday pay the days pay will be
the Executive's basic annual salary divided by 260.
11. CONFLICT OF INTEREST
11.1 During this Agreement the Executive will not (except with the prior
written consent of the Company) be directly or indirectly engaged
concerned or interested in any other business which is wholly or
partly in competition with the business carried on by the Company
provided that the Executive may hold any units of any authorised unit
trust and up to three per cent of the issued shares, debentures or
other securities of any class of any company whose shares are listed
on a Recognised Investment Exchange.
11.2 The Executive will not directly or indirectly receive or obtain any
gift discount rebate commission or other inducement (whether in cash
or kind) in respect of any sale or purchase of any goods or services
effected or other business transacted (whether or not by him) by or on
behalf of the Company. The Executive will immediately account to the
Company for any amount or inducement actually received by him.
12. SHARE DEALINGS
12.1 The Executive will comply with every rule of law, and of the Company
in relation to dealings in shares, debentures or other securities and
unpublished price sensitive information affecting the shares,
debentures or other securities of the Company. In relation to overseas
dealings the Executive will also comply with all laws of the state and
all regulations of the stock exchange, market or dealing system in
which such dealings take place.
13. CONFIDENTIALITY
13.1 The Executive will not either during his employment or at any time
after its termination:
13.1.1 Disclose any Confidential Business Information to any person or
persons (except in the proper performance of his duties or
as required by law);
13.1.2 Use any Confidential Business Information for his own purposes
or for any purposes other than those of the Company;
13.1.3 Through any failure to exercise all due care and diligence
cause any unauthorised disclosure of Confidential Business
Information.
<PAGE>
14. INCAPACITY
14.1 If the Executive is absent because of illness injury or other
incapacity he will notify the Company forthwith.
14.2 Immediately following his return to work the Executive will complete a
Self-Certification form detailing the reason for his absence.
14.3 If the Executive is so absent for seven or more consecutive days he
will provide a medical practitioner's statement on the eighth day and
weekly thereafter so that the whole period of absence is certified by
such statements.
14.4 If the Executive is absent from his duties hereunder due to illness
injury or other incapacity duly certified in accordance with the
provisions of sub-clause 14.1 hereof he will be paid:
14.4.1 His full remuneration hereunder (including bonus) for up to 130
working days absence in any period of 12 months;
14.4.2 one half his remuneration hereunder (including bonus) for up to
a further 65 working days absence in any period of 12 months;
14.4.3 thereafter such remuneration if any as the Company may in its
discretion from time to time determines. Provided such
remuneration will not be less than the proceeds received by the
Company in respect of the Executive under the Company's
permanent health insurance scheme (after paying pension
contributions) such remuneration shall be inclusive of any
Statutory Sick Pay or other benefits recoverable by the
Executive (whether or not recovered).
14.5 For Statutory Sick Pay purposes the Executive's qualifying days will
be his normal working days.
14.6 If the Executive shall receive any payment(s) from a third party
(including his own Insurance company) in respect of damages for
absence from employment due to incapacity, then any sum(s) paid by the
Company to him in respect of the same period of absence shall be
recoverable by the Company out of such damages as money due to the
Company.
15. OTHER EMPLOYMENT
15.1 The Executive will devote the whole of his time, attention and
abilities during his hours of work for the Company to his duties for
the Company. The Executive will not, whether directly or indirectly,
undertake any other duties, of whatever kind, during his hours of work
for the Company.
15.2 The Executive will not without the prior written consent of the
Company (which will not be unreasonably withheld) engage, whether
directly or indirectly, in any business or employment which is similar
to or in any way connected to or competitive with the business of the
Company in which the Executive works or which could or might
reasonably be considered by others to impair the ability of the
Executive to act at all times in the best interests of the Company.
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<PAGE>
16. TERMINATION OF AGREEMENT
16.1 IMMEDIATE DISMISSAL
The Company may terminate this Agreement with immediate effect if the
Executive:
16.1.1 commits any act of gross misconduct or repeats or continues
(after written warning) any other serious breach of his
obligations under this Agreement; or
16.1.2 is convicted of any criminal offence punishable with 6 months
or more imprisonment (excluding an offence under road traffic
legislation in the United Kingdom or elsewhere for which he is
not sentenced to any term of imprisonment whether immediate or
suspended); or
16.1.3 becomes bankrupt or makes any arrangement or composition with
his creditors generally.
16.2 TERMINATION PAYMENT
On the termination of this Agreement, other than by way of immediate
dismissal under clause 16.1 above, the Company will make a payment to the
Executive of a sum equivalent to the Executive's then basic annual salary
in addition to any other rights, statutory or otherwise, which the
Executive may have as a result of the termination of this Agreement.
17. NON SOLICITATION
17.1 After the termination of the Executive's employment for any reason the
Executive will not for a period of 3 months from such termination
either directly or indirectly on his own account or on behalf of any
other person, firm or company solicit custom from any person, firm or
corporation who or which was a customer of the Company and with whom
the Executive had dealings on behalf of the Company during the final
six months of the Executive's employment by the Company.
17.2 The Executive will not for a period of 3 months immediately following
the termination of his employment either directly or indirectly on his
own account or on behalf of any other person, firm or Company solicit
any person who is a senior employee of the Company on the date of the
termination of the Executive's employment to leave their employment
with the Company.
18. GENERAL
18.1 STATUTORY PARTICULARS
The further particulars of terms of employment not contained in the
body of this Agreement which must be given to the Executive in
compliance with Part 1 of the Employment Rights Act 1996 are given in
Schedule 1.
18.2 PRIOR AGREEMENTS
This Agreement sets out the entire agreement and understanding of the
parties.
18.3 PROPER LAW
The validity construction and performance of this Agreement will be
governed by English law.
18.4 ACCEPTANCE OF JURISDICTION
All disputes, claims or proceedings between the parties relating to
the validity, construction or performance of this Agreement will be
subject to the non-exclusive jurisdiction of the High Court of Justice
in England and Wales ("the High Court") to which the parties
irrevocably submit. Each party irrevocably consents to the award or
grant of any relief in any such proceedings before the High Court.
13
<PAGE>
19. ACCRUED RIGHTS
The expiration or termination of this Agreement however arising will not
operate to affect such of the provisions of this Agreement as are expressed
to operate or have effect after then and will be without prejudice to any
accrued rights or remedies of the parties.
20. INTERPRETATION AND DEFINITIONS
20.1 In this Agreement:
20.1.1 the headings to the clauses and the index are for convenience
only and have no legal effect; 20.1.2 the singular includes the
plural and vice versa;
20.1.3 the masculine includes the feminine and vice versa; 20.1.4
reference to any Act or statutory provision includes any
enactment modifying or replacing it.
20.2 "Confidential Business Information" means all and any Corporate
Information, Marketing Information, Technical Information and other
information (whether or not recorded in documentary form or on
computer disk or tape) to which the Company attaches level of
confidentiality commensurate to those forms of information or in
respect of which it owes an obligation of confidentiality to any Third
Party:
20.2.1 which the Executive will acquire at any time during his
employment by the Company but which does not form part of the
Executive's own stock in trade; and
20.2.2 which is not readily ascertainable to persons not connected
with the Company either at all or without significant
expenditure of labour, skill or money.
20.3 "Marketing Information" means all and any information (whether or not
recorded in documentary form or on computer disk or tape) relating to
the marketing or sales of any past, present or future product or
service of the Company including that limitation sales, targets and
statistics, market share and pricing statistics, marketing surveys and
plans, market research reports, sales technics, price lists, discount
structures, advertising and promotional material, the names,
addresses, telephone numbers, contact names and identities of
customers and prospective customers of and suppliers and potential
supplies to the Company, the nature of their business operations,
their requirements for any product or service sold to or purchased by
the Company and all confidential aspects of their business
relationship with the Company.
20.4 "Technical Information" means all and any trade secrets, secret
formulae, processes, inventions, designs, know how discoveries,
technical specifications and other technical information (whether or
not recorded in documentary form or on computer disk or tape) relating
to the creation, production or supply of any past, present or future
product or service of the Company.
21. NOTICES
Any notice to be given by a party under this Agreement must be in writing
and must be given by delivery at or sending by first class post or
facsimile transmission or other means of telecommunication in permanent
written form to the last know postal address or relevant telecommunications
number of the other party. Where notice is given by sending in a prescribed
manner it will be deemed to have been received when in the ordinary course
of the means of transmission it would be received by the addressee. To
prove the giving of a notice it will be sufficient to show it was
despatched. A notice will have effect from the sooner of its actual or
deemed receipt by the addressee.
<PAGE>
SCHEDULE 1
PART 1 EMPLOYMENT RIGHTS ACT 1996
The following information is given to supplement the information given in the
body of the Agreement in order to comply with the requirements of Part 1 of the
Act
1. The Executive's employment by the Company commenced on 20th September 1999.
2. No employment of the Executive with a previous employer counts as part of
the Executive's continuous employment with the company.
3. No Contracting Out Certificate pursuant to the provisions of the Pensions
Schemes Act 1993 is held by the Company in respect of the Executive's
employment.
4. The Executive is subject to the Company's Disciplinary Rules and
Disciplinary Procedures copies of which have been given to the Executive.
5. If the Executive has any grievance relating to his employment (other than
one relating to a disciplinary decision) he should refer such grievance to
the Board of the Company.
<PAGE>
SIGNED by /s/ STEPHEN J. OLLIER
the said Stephen Joseph Ollier
In the presence of:
WITNESS: Signature:
Name (block capitals):
Address:
Occupation:
SIGNED by /s/ IRWIN L. GROSS
duly authorised on behalf of The
Network Connection Incorporated
In the presence of
WITNESS: Signature: /s/ DAVID N. SHEVRIN
Name (block capitals):
Address:
Occupation:
STOCK OPTION
This STOCK OPTION is granted as of the 10th day of November 1999, by The
Network Connection, Inc., a Georgia corporation (the "Company"), to Irwin L.
Gross ("Grantee").
BACKGROUND
A. Grantee is the Chairman and Chief Executive Officer of Company.
B. In recognition and consideration of the contributions that Grantee has
made to the Company during the period from May 19, 1999 to the date of this
grant (the "Initial Period"), during which period of time Grantee received no
compensation from the Company, and in order to incentivize Grantee with respect
to the future success of the Company and to encourage him to perform at
increasing levels of effectiveness and use his best efforts to promote the
growth and profitability of the Company, and in consideration of services to be
performed, Company desires to afford Grantee an opportunity to purchase shares
of its common stock, par value $.001 per share ("Common Stock"), as hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto,
intending to be legally bound, agree as follows:
1. GRANT OF OPTION.
(a) In consideration of the contributions that Grantee has made to Company
during the Initial Period, the Company hereby irrevocably grants to Grantee the
right and option to purchase ("Option A") all or any part of an aggregate of One
Hundred Twenty-Five Thousand (125,000) shares of Common Stock (the "A Option
Shares"), at an exercise price equal to the closing sale price (or closing bid
if no sales were reported) of a share of Common Stock as reported by the Nasdaq
SmallCap Market on November 10, 1999 (or the next trading day in the event there
is no trading on such date) (the "Option Price"), during the Option Period (as
defined below) and subject to the conditions hereinafter set forth.
(b) In order to incentivize Grantee with respect to the future success of
the Company and to encourage him to perform at increasing levels of
effectiveness and use his best efforts to promote the growth and profitability
of the Company, the Company hereby irrevocably grants to Grantee the right and
option to purchase ("Option B") all or any part of an aggregate of One Hundred
Twenty-Five Thousand (125,000) shares of Common Stock (the "B Option Shares") at
the Option Price, during the Option Period (as defined below) and subject to the
conditions hereinafter set forth.
(c) In order to further incentivize Grantee with respect to the future
success of the Company and to further encourage him to perform at increasing
levels of effectiveness and use his best efforts to promote the growth and
profitability of the Company, the Company hereby irrevocably grants to Grantee
the right and option to purchase ("Option C") all or any part of an aggregate of
Two Hundred Fifty Thousand (250,000) shares of Common Stock (the "C Option
Shares") at the Option Price, during the Option Period (as defined below) and
subject to the conditions hereinafter set forth.
<PAGE>
(d) Option A, Option B and Option C shall be referred to collectively
hereinafter as the "Option" and the A Option Shares, B Option Shares and C
Option Shares shall be referred to collectively hereinafter as the "Option
Shares."
2. OPTION PERIOD. The Option may be exercised in accordance with the
provisions of Paragraphs 4 and 5 hereof during the Option Period, which shall
begin on the date hereof and shall end on the Option Expiration Date defined in
Paragraph 3 hereof. All rights to exercise the Option shall terminate on the
Option Expiration Date.
3. OPTION EXPIRATION DATE. The Option Expiration Date shall be October 8,
2009.
4. EXERCISE OF OPTION.
(a) The Option shall vest, and shall be exercisable as set forth in the
following table, provided that any portion of this Option which is exercisable
in any year, but not exercised, may be carried forward and exercised in any
future year during the term hereof:
Option A:
From and after: Number of Shares Exercisable
--------------- ----------------------------
November 10, 1999 125,000
Option B:
From and after: Number of Shares Exercisable
--------------- ----------------------------
November 10, 2000 41,667
November 10, 2001 41,666
November 10, 2002 41,666
Option C:
Option C shall vest in full on the sixth anniversary of the date
hereof; provided, however, that vesting of Option C shall be
accelerated in accordance with the three-year vesting schedule set
forth below in the event that the performance milestones set forth
below are achieved.
From and after: Number of Shares Exercisable
--------------- ----------------------------
November 10, 2000 83,334
November 10, 2001 83,333
November 10, 2002 83,333
2
<PAGE>
(b) The number of shares exercisable on each of the vesting dates set forth
above with respect to Option C shall be adjusted as follows:
(i) On each accelerated vesting date, a percentage of the total number
of Options scheduled to vest shall actually vest. This percentage shall be
determined on the basis of a sliding scale as follows:
(A) 100% of the Options scheduled to vest on a particular
accelerated vesting date shall actually vest in the event that the
Comparison Price (as defined below) on such vesting date is greater
than the Base Price (as defined below) for the preceding calendar year
by 30% or more, and this percentage shall decrease gradually to 0% in
the event that the Comparison Price on such vesting date is equal to
or less than the Base Price for such calendar year. In addition,
Grantee shall not vest with respect to any Options scheduled to vest
on a particular accelerated vesting date unless the Comparison Price
on that vesting date is greater than the Base Price for the preceding
calendar year by at least 15%, at which point 50% of the Options
scheduled to vest shall actually vest. The following example is
illustrative - Grantee would vest with respect to 50% of the 83,333
Options scheduled to vest on November 10, 2001 (i.e. 41,666.5
Options), in the event that the Comparison Price on such vesting date
was 15% greater than the Base Price for the preceding calendar year;
alternatively, Grantee would vest with respect to 75% of the 83,333
Options scheduled to vest on such vesting date (i.e. 62,499.75
Options) in the event that the Comparison Price on such vesting date
is 22.5% greater than the Base Price for the preceding calendar year.
Any fraction less than a half resulting from these calculations shall
be dropped and any fractions equal to or greater than a half resulting
from these calculations shall require rounding up to the next whole
number.
(B) The guidelines set forth in paragraph (A) above shall be
modified as follows for any of calendar years 2000, 2001 or 2002 in
the event that the S & P 500 Comparison Average (as defined below) for
any of such calendar years is less than the S & P 500 Comparison
Average for the preceding calendar year. In any calendar year in which
this occurs, vesting with respect to 50% of the aggregate number of
Options scheduled to vest in such calendar year shall be determined as
set forth in paragraph (A) above, and the balance of such Options
shall vest in the event that EVA (as defined below) is greater than
zero, or, in the event that EVA is less than or equal to zero, shall
not vest on an accelerated basis.
(ii) (A) "Base Price" means the average of the last sale prices of a
share of Common Stock (or the last bid on any such day on which there were no
sales) as reported by the Nasdaq SmallCap Market on each of the 31 days
consisting of the 15 trading days immediately preceding September 30, September
30 (regardless of whether or not it is a trading day), and the 15 trading days
immediately following September 30. "Comparison Price" means the last sale price
of a share of Common Stock as reported by the Nasdaq SmallCap Market on the
applicable vesting date (or the last bid if there were no sales on such date; or
the next trading day in the event that there was no trading on such date).
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(B) "S & P 500 Comparison Average" means the average of the
Standard & Poor's 500 Composite Index as of the close of business on
each of the 31 days consisting of the 15 trading days immediately
preceding September 30, September 30 (regardless of whether or not it
is a trading day) and the 15 trading days immediately following
September 30. "EVA" means Economic Value Added of the Company for the
fiscal year ending June 30 of the calendar year for which the S & P
500 Comparison Average is being calculated, calculated in accordance
with the memorandum provided to the Company's Compensation Committee
by David N. Shevrin on November 19, 1999 (a copy of which is attached
hereto as Exhibit "A").
(iii) Notwithstanding anything to the contrary contained in this
subparagraph (b), the failure of the Comparison Price on any accelerated vesting
date to be greater than the Base Price for the preceding calendar year by 30% or
more (a "Shortfall") can be made up (i.e. any percentage of Options not vesting
on the relevant accelerated vesting date because of a Shortfall would vest on
the subsequent accelerated vesting date on which the following condition is met)
if the compounded annual growth rate in the price of a share of Common Stock was
such that the Comparison Price on the next accelerated vesting date (or the
accelerated vesting date after that one, depending on which accelerated vesting
date is the one on which the Shortfall occurred) is greater than the Base Price
for the calendar year preceding the accelerated vesting date on which the
Shortfall occurred by 30% or more. For example, if the Comparison Price on
November 10, 2000 is greater than the Base Price for 1999 by 20% (resulting in a
Shortfall, i.e. only 66.67% of the Options scheduled to vest on such accelerated
vesting date would actually vest) and the Comparison Price on November 10, 2001
is greater than the Base Price for 1999 by at least 40.83%, then the Comparison
Price on November 10, 2001 would have increased with respect to the Base Price
for 1999 at a compounded annual growth rate of 30%. In this scenario, on
November 10, 2001, not only would 100% of the Options scheduled to vest on such
date actually vest, but also the 33.33% of the Options scheduled to vest on
November 10, 2000 that did not so vest because of the Shortfall would actually
vest.
(c) Notwithstanding anything to the contrary contained herein, Grantee may
purchase all or any portion of the unexercised balance of this Option
immediately prior to, or upon, the effective date of a Change of Control (as
defined in the following sentence). A "Change of Control" of the Company shall
mean any transaction or series of related transactions that results in a change
in the control of the Company, including, without limitation:
(i) a merger or consolidation of the Company into or with any other
entity when the Company is not the surviving entity of such merger or
consolidation;
(ii) the acquisition, directly or indirectly, by any individual,
entity or "group" (as defined in Section 13(d) of the Securities and Exchange
Act of 1934, as amended) (other than the Company, any subsidiary thereof, any
employee benefit plan of the Company or any subsidiary, or any entity holding
shares or other securities of the Company for or pursuant to the terms of such a
plan) (an "Acquirer"), of stock or options, or any combination thereof,
entitling the Acquirer to cast 25% or more of all votes (without consideration
of the rights of any class of stock to elect directors by a separate class vote)
entitled to be cast by all stockholders of the Company in an election of the
Board of Directors of the Company;
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(iii) the acquisition, directly or indirectly, by an Acquirer of a
majority of the total equity interest of the Company;
(iv) the sale or other disposition of all, or substantially all, of
the assets of the Company;
(v) the election to the Board of Directors of the Company of
individuals who would constitute a majority of the members of the Board elected
at any meeting of stockholders or by written consent (without consideration of
the rights of any class of stock to elect directors by a separate class vote),
where the election or the nomination for election by the Company's stockholders
of such directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election or nomination; or
(vi) the formation of a joint venture or partnership with the Company
for the purpose of effecting a transfer of control of, or a material interest
in, the Company (such merger, consolidation, sale or other transaction being
hereinafter referred to as a "Transaction"). There shall be excluded from the
foregoing any Transaction as a result of which (A) the holders of Common Stock
prior to the Transaction retain or acquire securities constituting a majority of
the outstanding voting common stock of the acquiring or surviving corporation or
other entity in substantially the same proportions that they owned Common Stock
in the Company prior to the Transaction, and (B) no single person or entity owns
more than half of the outstanding voting common stock of the acquiring or
surviving corporation or other entity. For purposes of this Paragraph 4, voting
common stock of the acquiring or surviving corporation or other entity that is
issuable upon conversion of convertible securities or upon exercise of warrants
or options shall be considered outstanding, and all securities that vote in the
election of directors (other than solely as the result of a default in the
making of any dividend or other payment) shall be deemed to constitute that
number of shares of voting common stock which is equivalent to the number of
such votes that may be cast by the holders of such securities.
5. MANNER OF EXERCISE. Exercise of the Option, or any portion thereof,
shall be by written notice to Company pursuant to Paragraph 11 hereof. The
notice shall be accompanied by payment in full in cash, stock of the Company, or
other property (including notes or other contractual obligations of Grantee to
make payment on a deferred basis, such as through "cashless exercise
arrangements," to the extent permitted by applicable law), or a combination
thereof, in an amount equal to the product obtained by multiplying the number of
Option Shares with respect to which the Option is then being exercised by the
Option Price. Upon receipt of such notice and payment, the Company shall deliver
a certificate or certificates representing the Option Shares purchased. The
certificate or certificates shall be delivered to or upon the written order of
the Grantee. Despite the fact that a certificate or certificates representing
the Option Shares purchased shall not have been issued, Grantee or his legal
representative, legatees or distributees, as the case may be, shall be deemed to
be a holder of any shares subject to this Option, provided that the written
notice and payment required by this Paragraph 5 have been delivered to Company.
The Option Shares that shall be purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
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6. RIGHTS IN EVENT OF DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT.
(A) DEATH. If Grantee dies while employed by the Company, then 50% of
any then unvested Options shall automatically vest (without any action on the
part of the Company) on the date of death. The 50% of the then unvested Options
that shall vest according to the preceding sentence shall be the 50% of the then
unvested Options that otherwise would have been the latest to vest of all then
unvested Options. The remainder of any then unvested Options shall continue to
vest according to the schedule set forth in Paragraph 4 above. Grantee's named
beneficiary shall have through the Option Expiration Date to exercise any
unexercised Options.
(B) DISABILITY. If Grantee is terminated from his employment with the
Company by reason of Disability (as such term is defined in Exhibit "B" hereto),
then 50% of any then unvested Options shall automatically vest (without any
action on the part of the Company) on the date of such termination. The 50% of
the then unvested Options that shall vest according to the preceding sentence
shall be the 50% of the then unvested Options that otherwise would have been the
latest to vest of all then unvested Options. The remainder of any then unvested
Options shall continue to vest according to the schedule set forth in Paragraph
4 above. Grantee shall have through the Option Expiration Date to exercise any
unexercised Options.
(C) CAUSE OR RESIGNATION. If Grantee is terminated from his employment
with the Company for Cause (as defined in Exhibit "B" hereto) or voluntarily
leaves the employ of the Company, then all unvested Options shall automatically
terminate and be cancelled (without any action on the part of the Company) on
the effective date of termination. In addition, Grantee shall have the
opportunity on the date of such termination for Cause or Grantee's voluntarily
leaving the employ of the Company to exercise all vested but unexercised
Options. All vested Options not exercised on such date shall thereafter
automatically expire (without any action on the part of the Company).
(D) WITHOUT CAUSE. If Grantee is terminated from his employment
without Cause or terminates his employment with Company for Good Reason (as
defined in Exhibit "B" hereto), then all unvested Options shall automatically
vest (without any action on the part of the Company) immediately prior to the
date of such termination. Grantee shall have through the Option Expiration Date
to exercise any unexercised Options.
7. OPTION SHARES TO BE PURCHASED FOR INVESTMENT. Unless Company has
notified Grantee pursuant to Paragraph 11 hereof that a registration statement
covering the Option Shares has become effective under the Securities Act of
1933, as amended (the "Act"), it shall be a condition to the exercise of the
Option that the Option Shares acquired upon such exercise be acquired for
investment and not with a view to distribution. If requested by the Company upon
advice of its counsel that the same is necessary or desirable, the Grantee
shall, at the time of purchase of the Option Shares, deliver to the Company
Grantee's written representation that Grantee (a) is purchasing the Option
Shares for his own account for investment, and not with a view to public
distribution or with any present intention of reselling any of the Option Shares
(other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act); (b) has been advised and understands that (i) the Option
Shares have not been registered under the Act and are subject to restrictions on
transfer and (ii) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Grantee any exemption from such registration; and (c) has been advised and
understands that such Option Shares may not be transferred without compliance
with all applicable federal and state securities laws.
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8. CHANGES IN CAPITAL STRUCTURE. The number of Option Shares covered by
this Option and the Option Price shall be equitably adjusted in the event (the
"Event") of (i) the payment of any dividend payable in, or the making of any
distribution of, Common Stock to holders of record of Common Stock, which
increases the outstanding Common Stock; (ii) any stock split, combination of
shares, recapitalization or other similar change; (iii) the merger or
consolidation of the Company into or with any other entity; or (iv) the
reorganization, dissolution, liquidation or winding up of the Company. Grantee
shall be entitled, upon the exercise of the Option, to receive such new,
additional or other shares of stock of any class, or other property (including,
without limitation, cash and/or securities of any successor entity), as Grantee
would have been entitled to receive as a matter of law in connection with such
Event had Grantee held the Option Shares on the record date set for such Event.
The Company shall have the authority to determine the adjustments to be made
under this Paragraph 8 and any such determination shall be final, binding and
conclusive.
9. LEGAL REQUIREMENTS. If the listing, registration or qualification of the
Option Shares upon any securities exchange or under any federal or state law, or
the consent or approval of any governmental regulatory body is necessary as a
condition of or in connection with the purchase of the Option Shares, the
Company shall not be obligated to issue or deliver the certificates representing
the Option Shares as to which the Option has been exercised unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained. This Option does not hereby impose on the Company a duty
to so list, register, qualify, or effect or obtain consent or approval. If
registration is considered unnecessary by the Company or its counsel, the
Company may cause a legend to be placed on the certificates for the Option
Shares being issued calling attention to the fact that they have been acquired
for investment and have not been registered, such legend to read as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED UNLESS THERE IS A REGISTRATION
STATEMENT IN EFFECT COVERING SUCH SECURITIES OR THERE IS
AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS."
10. NO OBLIGATION TO EXERCISE OPTION. The Grantee shall be under no
obligation to exercise the Option.
11. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given when personally delivered to
the party entitled to receive the notice or when sent by certified or registered
mail, postage prepaid, properly addressed to the party entitled to receive such
notice at the address stated below; or when sent via facsimile transmission with
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<PAGE>
confirmation of transmission or via electronic mail, provided that in both of
the foregoing situations a copy of the notice so transmitted is sent to the
party entitled to receive such notice via first-class mail, postage prepaid at
the address stated below:
If to Company: The Network Connection, Inc.
222 North 44th Street
Phoenix, Arizona 85034
Attention: President
Facsimile: (602) 629-6300
If to Grantee: Irwin L. Gross
722 Pine Street
Philadelphia, PA 19106
Either party hereto may change such party's address, facsimile number or
e-mail address by sending notice thereof to the other party by any of the
methods set out above, provided that such change shall not be deemed effective
as against the party to whom it is sent until the notice containing such change
is actually received by such party.
12. ADMINISTRATION. All questions of interpretation and application of this
Option shall be determined by the Company, and such determination shall be
final, binding and conclusive.
13. NOT AN EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Option shall be
construed as an agreement by the Company, express or implied, to employ Grantee
or contract for Grantee's services, to restrict the right of the Company to
discharge Grantee or cease contracting for Grantee's services or to modify,
extend or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between the Grantee and the
Company.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Delaware without regard to conflicts of laws
principles.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed by the parties.
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Frank E. Gomer
----------------------------------
Frank E. Gomer, President and COO
/s/ Irwin L. Gross
----------------------------------
Irwin L. Gross
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EXHIBIT "A"
See attached.
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EXHIBIT B
CERTAIN DEFINITIONS USED IN OPTION AGREEMENT
DISABILITY shall mean if Grantee becomes unable to perform his duties for the
Company due to partial or total disability or incapacity resulting from a mental
or physical illness, injury or any other cause.
CAUSE shall mean if Company discharges Grantee and thereby terminates his
employment hereunder for the following reasons:
(a) habitual intoxication;
(b) habitual illegal drug use or drug addition;
(c) conviction of a felony, materially adversely affecting Company where
such conviction significantly impairs Grantee's ability to perform his duties
hereunder;
(d) while acting in his capacity as an executive of Company, knowingly
engaging in any unlawful activity which could materially adversely affect the
Company;
(e) gross insubordination, gross negligence, or willful and knowing
violation of any expressed direction or regulation established by Company which
is materially injurious to the business or reputation of Company; or
(f) misappropriation of corporate funds or other acts of dishonesty.
GOOD REASON shall mean the occurrence after a Change in Control (as defined
below) of any of the following events without Grantee's express written consent:
(a) any change in Grantee's title, authorities, responsibilities (including
reporting responsibilities), which represent a demotion from his status, title,
position or responsibilities (including reporting responsibilities) as in effect
immediately prior to the Change in Control; the assignment to him of any duty or
work responsibilities which, in his reasonable judgment, are inconsistent with
such status, title, position or work responsibilities; or any removal of Grantee
from or failure to appoint or reelect him to any of such positions, except in
connection with the termination of his employment for Disability, retirement or
Cause, as a result of Grantee's death or by him other than for Good Reason; or
(b) a reduction by the Company in Grantee's annual base salary as in effect
on the date hereof or as the same may be increased from time to time, in the
event he is now or in the future ever receives a salary.
CHANGE IN CONTROL shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A issued under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") as in effect as of the date hereof, or if Item 6(e) is no longer in
effect, any subsequent regulation issued under the Exchange Act for a similar
purpose, whether or not the Company is subject to such reporting requirements;
provided that, without limitation, such a change in control shall be deemed to
have occurred if:
(a) any "person" is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities;
(b) during any period of two consecutive years (not including any period
prior to the date hereof), individuals who at the beginning of such period
constitute the Board of Directors, and any new director, whose election by the
Board or nomination or election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for elections was previously approved, cease for any reason to constitute a
majority of the Board; or
(c) the business of the Company is disposed of by the Company pursuant to a
liquidation, sale of assets of the Company, or otherwise.
THE NETWORK CONNECTION, INC. (TNCI)
INTERACTIVE GUEST SYSTEM SERVICE AGREEMENT
EMBASSY SUITES
Phoenix, Arizona
THIS Interactive Guest System Service Agreement, hereafter referred to as
"Agreement," is entered into by and between The Network Connection, Inc. (TNCi),
a Georgia corporation with principal offices at 222 North 44th Street, Phoenix,
Arizona 85034, and the Hotel entity set forth in EXHIBIT A of this agreement,
and its successors and assigns, hereafter referred to as the "Hotel."
WHEREAS, TNCi is engaged in the business of providing interactive guest
services, such as on-demand movies and music videos, concierge information and
reservations, guest messaging, guest surveys, in-room folio review and express
check out, interactive shopping, interactive games, and promotion of hotel
events, restaurants, and stores, as well as other interactive services that may
be negotiated, such as Internet access via the in-room TV, hereafter referred to
as "Interactive Programming," to hotels and to time share resort properties and
their guests on a pay-per-view or pay-per-use basis, by means of a TNCi
interactive guest system, hereafter referred to as the "System." This System is
supplied, maintained, and supported by TNCi.
WHEREAS, in exchange for these services, TNCi shall receive revenues from
the Hotel for guest use of the Interactive Programming content.
WHEREAS, a separate agreement (the "Base Services Agreement") must be
negotiated with the Hotel for the free-to-guest premium and broadcast television
channels provided by a third-party service provider, (the "Base Services
Provider"), and distributed over the Hotel's Master Antenna Cable Television
(MATV) System (the "Base Services" or "MATV System"). TNCi will ensure that the
remote control equipment it provides will allow the guests to access the
free-to-guest premium and broadcast television channels that are provided by the
Base Services Provider and are available at the Hotel over the MATV system.
WHEREAS, the Hotel operates a lodging facility, consisting of private rooms
and suites, identified in EXHIBIT A and;
WHEREAS, the Hotel is equipped with a combination of a Category 3 and
Category 5 cable network for installation of the interactive guest system and;
WHEREAS, TNCi desires to provide interactive, on-demand guest services on
an exclusive basis (except as otherwise set forth herein) to the premises over a
Category 5 cable network for viewing and use by the Hotel's guests under the
terms and conditions set forth below, and the Hotel desires to receive TNCi
interactive programming content;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, and for other good and valuable considerations,
the receipt and sufficiency of which is hereby acknowledged, the parties,
intending to be legally bound hereby, mutually agree as follows;
1. TNCI INTERACTIVE GUEST SYSTEM
As used herein, the term "System" shall refer to an interactive guest
information and entertainment system designed by TNCi, whereby guests in
separate rooms at the Hotel may independently access, on demand, interactive
programming content on television receiving sets (TVS). On these same TVS, via
remote control devices provided by TNCi, guests will be able to access the Base
Services (i.e., the free-to-guest premium and broadcast television programs that
are available at the Hotel over the MATV system), which will be covered under
the Base Services Agreement with the Base Services Provider thereof. As used in
this Agreement, the term "Rooms" shall mean separate, private rooms and suites
in the Hotel which are customarily available for overnight sleeping
accommodations; a suite shall be considered one (1) Room. The System hosts a
specified number of pre-recorded movie and music video selections, along with
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other interactive content described below. The System includes all necessary
server, computer, switching, and remote control equipment to deliver and access
the interactive guest services and to access the free-to-guest television
channels provided by the MATV system. The TNCi System does not include necessary
power, wiring, connections, or cooling facilities, which are to be provided by
Hotel. However, TNCi will provide engineering and specifications for necessary
signal wiring and distribution at no cost to Hotel.
2. AGREEMENT TERM
TNCi will design, construct and provide to Hotel a System for operation in
the number of Rooms of the Hotel, with on-demand access to the interactive guest
services selected by the Hotel. The date of contract commencement is that date
when the TNCi Interactive Guest System is first fully installed and operational.
It is termed the "commencement of term date." The System and services provided
in connection therewith shall be of a quality at least comparable with industry
standards for similar systems currently installed in comparable hotel properties
in similar geographic regions; provided, however, that in no event shall the
foregoing standard be deemed to require TNCi to provide hardware or software
upgrades or enhancements to the System.
This Agreement shall continue for an initial term of _______ (___) years
from the commencement of term date (the "Scheduled Term"), unless terminated
sooner pursuant to the provisions of Section 2, 3 or Section 15 and will
automatically renew and extend for a successive two (2) year additional term,
unless at least (90) days prior to the end of any respective termination date,
including any extensions, either party gives written notice to the other of its
desire not to renew this agreement. TNCi shall inform Hotel 90 days prior to
expiration date.
If Hotel shall fail to perform any material obligation under this Agreement
(a "Hotel Failure"), such Hotel Failure shall constitute a default hereunder if
not remedied within thirty (30) days, following receipt of written notice of
such Hotel Failure to Hotel, thereby entitling TNCi to: (a) terminate this
Agreement by written notice to Hotel; and/or (b) exercise any other right or
remedy available under this Agreement or applicable law, subject to any
limitations thereon set forth in this Agreement.
If TNCi shall fail to perform any material obligation under this Agreement
(a "TNCi Failure"), then and provided that Hotel provides TNCi with reasonable
access and cooperation in remedying such failure, and provided further that such
failure is the fault of TNCi, such TNCi Failure shall constitute a default
hereunder (a "Default"): (a) if continuing and if not remedied within ten (10)
business days following receipt of written notice as to the first Recurring TNCi
Failure (as herein defined) occurring within a trailing ninety (90) day period;
(b) if continuing and not remedied within thirty (30) business days following
receipt of written notice as to any TNCi Failure other than a Recurring TNCi
Failure; and (c) if more than one (1) recurring TNCi Failure has occurred within
a trailing ninety (90) day period, irrespective of whether remedied by TNCi. In
the event of a Default, Hotel shall be entitled to: (a) terminate this Agreement
by written notice to TNCi; and/or (b) exercise any other right or remedy
available under this Agreement or applicable law, subject to any limitations
thereon set forth in this Agreement. "Recurring TNCi Failure" shall mean any of
the following to the extent that such failure is the fault of TNCi and provided
TNCi is not prevented by Hotel from (and that Hotel does not reasonably
cooperate with TNCi in connection with) remedying such failure : (1) continuous
material interruption of Premium Services (as herein defined) to ten percent
(10%) of the Suites for seventy-two (72) hours; (2) continuous material
interruption of Services (as herein defined) to one particular suite for twenty
(20) days; (3) continuous material interruption of Services for five (5) or more
Suites for ten (10) days or more; (4) ten percent (10%) or more of the Suites
experience five (5) or more breakdowns in Services within any trailing thirty
(30) day period; or (6) individual Suites experience an aggregate of one
thousand six hundred (1,600) hours of material interruption in Services (for
example, sixteen (16) Suites each have one hundred (100) hours of interruption
in Services) within any trailing thirty (30) day period. "Premium Services"
shall mean all "pay-per-view" Services provided by TNCi. "Services" shall mean
all interactive guest services and remotes (to the extent to be provided and
serviced by TNCi pursuant to this Agreement), but shall exclude any breakdown of
television sets except to the extent, if any, the responsibility of TNCi
pursuant to this Agreement.
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In the event that the Hotel is a defaulting party and fails to cure any
default within the applicable period, TNCi shall be entitled, in addition to any
and all other available legal and/or equitable remedies, including specific
performance, the same being expressly reserved by TNCi, to a system removal
charge of $50 per installed guest room. The system removal charge shall be
additional to all other legal remedies available or damages sustained, including
without limitation the cost reimbursements set forth in Section 13.5 which Hotel
shall pay to TNCi. The non-defaulting party shall be entitled to recover from
the other its reasonable attorneys' fees, costs and expenses, including
collection agency fees incurred in enforcing this agreement or for a collection
of the amounts due and payable hereunder. Notwithstanding any provision to the
contrary, in no event shall either party be liable to the other or any of its or
their prospective employees, licensees, contractors, or Agents for
consequential, punitive or exemplary damages.
The term of this Agreement will not be affected in any way by any change to
the status of the Hotel's affiliation with Promus Hotel Corporation or its
successor-in-interest ("Promus"). If required by Promus, Hotel shall have the
right to terminate this Agreement in the event that the System ceases to satisfy
the uniform standards required by Promus; PROVIDED, HOWEVER, that such
termination shall constitute a Termination pursuant to Section 13.5 hereof and
Hotel shall pay to TNCi the payments referenced therein.
3. INSTALLATION OF TNCI INTERACTIVE GUEST SYSTEM
3.1 Hotel shall permit TNCi personnel to conduct a technical inspection and
survey of the combined Category 3 and Category 5 cable network presently
installed at the Hotel to determine its adequacy and compatibility for
delivering broadband multimedia content, including digital video streaming, with
the TNCI system.
3.2 If it is determined that the combined Category 3 and Category 5 cable
network is adequate for installation of the System, TNCi will install System
under the terms and conditions identified in Exhibit B of the Agreement.
In the event TNCi determines that the combined Category 3 and Category 5
cable network is inadequate for delivering broadband multimedia content,
including digital video streaming, TNCi will notify the Hotel in writing of all
deficiencies and will upgrade the combined Category 3 and Category 5 cable
network at the Hotel at no cost to the Hotel. The Base Services equipment is not
considered a part of the Category 5 cable network upgrade.
After completion of the initial installation any modifications to said
System shall be made only by TNCi, but at Hotel's expense if the modifications
are the result of any action, modification, expansion or remodeling undertaken
by the Hotel.
3.3 Hotel will make available to TNCi a secure air-conditioned, non-public
area for its head-end equipment. The room shall provide at least 10 by 6 feet,
with a 20 amp dedicated electrical circuit. Hotel shall also provide an
appropriate area near the cashier's desk for the installation of TNCi monitoring
unit and printer.
TNCi will begin installation of TNCi System on the Hotel premises as soon
as practical after TNCi's receipt and signed acceptance of the signed Agreement
from the Hotel and the completed combined Category 3 and Category 5 cable
network inspection. TNCi will use its best efforts to complete installation of
the System pursuant to the schedule attached as Exhibit E.
TNCi, at its expense, shall repair, restore and replace all portions of the
premises after installation of its equipment and restore the premises to its
original condition, reasonable wear and tear excluded.
TNCi shall, in the exercise of its obligations for installation, not
unreasonably interfere with the Hotel's operation.
3.4 TNCi shall at its cost install all equipment necessary to provide
interactive guest programming in all guest rooms, unless otherwise stated in
this agreement.
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3.5 TNCi represents and warrants to Hotel that (i) TNCi is authorized to
enter into this Agreement and to perform its obligations hereunder, including to
install and operate the System; (ii) that the services (including support and
maintenance) provided hereunder will be provided in a good and workmanlike
manner consistent with industry practice; (iii) that all software in the System
will be Y2K Compliant (as hereinafter defined) and (iv) TNCi has obtained all
required licenses and approvals to perform its obligations hereunder without
violating or infringing upon any law, agreement or other arrangement by which it
is bound. As used herein, "Y2K Compliant" shall mean that the use by the System
of dates on or after January 1, 2000, will not adversely affect the System's
performance regarding date-dependent data, computations, output or other
functions and that the System will create, store, process and output information
related to or including dates on or after January 1, 2000, without error or
omissions and at no additional cost to Hotel.
4. TNCI INTERACTIVE PROGRAMMING
TNCi agrees to provide interactive programming content for viewing and use
in the Hotel's guest rooms. This interactive programming content, includes
on-demand movies and music videos, concierge information and reservations, guest
messaging, guest surveys, in-room folio review and express check out,
interactive shopping, interactive games, and promotion of hotel events,
restaurants, and stores.
4.1 TNCi will provide Hotel with its proprietary digital movie delivery
System, through which guests may select any movie, on-demand, from a collection
of movie titles, available 24 hours per day and which shall start immediately
after purchase. The movies in all cases shall be appropriate for viewing in a
first-class hotel and be current release Hollywood features. The movie
programming should be classified G, PG, PG-13 or R by the Motion Picture
Association of America. At its discretion, TNCi may offer independent adult
features.
4.2 TNCi may delete any programming at any point in time for legal or other
reasonable purposes and elect to substitute other programming at equal quality
or content.
4.3 TNCi may elect to provide special promotional programming or multimedia
advertisements and entertainment sponsors that maximize guest enjoyment of the
System and revenue sharing between TNCi and the Hotel.
5. OPERATION OF TNCI INTERACTIVE GUEST SYSTEM
During the term of this Agreement and any extension thereof, Hotel
acknowledges and agrees that all interactive content presented to guests and all
associated graphical components of the System shall remain under the exclusive
control of TNCi. Hotel shall assure the availability of TNCi programming to all
guest rooms at all times with the exception of guest requested blocking of
specific programming.
5.1 Hotel shall at no cost to TNCi provide electrical power and cooling
necessary to operate the TNCi System.
5.2 Hotel shall be responsible for posting to the guest invoices the
billing charges as reported by the TNCi system.
5.3 In addition to interactive promotional features inherent in the
operation of the System, TNCi will supply to Hotel, at no cost to the Hotel,
suitable advertising and promotional materials about interactive programming and
other guest services available through the TNCi System, as may be reasonably
determined by TNCi. Hotel shall ensure that such material is placed and
displayed in rooms at all times after Hotel approval of the materials.
5.4 TNCi shall supply to Hotel 110% of all the television remote control
units needed to operate the System in each room in the Hotel (including any
upgraded or additional remotes required by changes in the System by TNCi). In
the event more spares are needed, the Hotel agrees to purchase additional spares
for $25 per unit.
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6. MAINTENANCE AND SUPPORT OF TNCI INTERACTIVE GUEST SYSTEM
TNCi will maintain the System in a reasonably satisfactory operational
condition and, subject to Section 6.3 hereof, make all necessary repairs or
replacements to maintain the System, provided, however, that TNCi shall not be
responsible for the loss or interruption of signals or data beyond the control
of TNCi. Moreover, should poor quality or loss of signals or data result from a
fault of the Hotel, TNCi will advise Hotel and at Hotel's expense promptly
repair this fault.
6.1 Hotel shall assign a "key person" to the day to day operation of the
System.
6.2 The key person shall, at no cost to TNCi, replace any failed remote
control units with spare units provided. If a technical problem arises beyond
the replacement of in-room remote control units, the key person shall contact
TNCi within 12 hours of discovery. If necessary, TNCi will dispatch a technician
to make appropriate repairs.
6.3 Any repairs to the System made necessary by willful or grossly
negligent acts, including vandalism, by the Hotel, any of its employees,
contractors, agents, or guests will be performed by TNCi, provided the Hotel
reimburses TNCi for these costs.
6.4 To the extent that TNCi shall determine to make upgrades or
enhancements to the System, any equipment upgrades (including remotes), shall be
at TNCi's expense; provided, however, that TNCi shall have no requirement to
make any upgrades or enhancements.
7. TRAINING
Upon installation, TNCi will provide Hotel personnel with reasonably
adequate initial training on the System at no cost to the Hotel. TNCi will also
provide additional training information and training manuals to Hotel and will
make available to Hotel, TNCi training personnel as negotiated between the
parties. If TNCi determines to upgrade the System, TNCi will provide Hotel with
appropriate additional initial training with respect thereto, at no cost to
Hotel.
8. INTERACTIVE GUEST SYSTEM FEES
8.1 Hotel shall charge and collect in trust from its guests the programming
fees reasonably similar to other providers for like services for like properties
as established by TNCi for the privilege of viewing or using the interactive
programming provided by TNCi.
The usage of the System subject to charge and collection shall be based on
the transaction information collected by the TNCi System. All interactive
programming fees charged and collected by Hotel, shall be held, in trust, by the
Hotel, for the benefit of TNCi, and shall be made payable to TNCi under the
terms and conditions identified in Section 9 below. TNCi shall have the right to
change programming fees from time to time, provided the revised fees comply with
Section 8.1. In such an event, TNCi shall inform Hotel 30 days in advance of a
rate change, unless a shorter time period is agreed to by both parties.
8.2 In addition to collecting the programming fees, Hotel shall also
collect from guests all Federal, State, and local taxes (but excluding income
taxes payable by TNCi) applicable to programming fees, and Hotel shall directly
remit the same to the applicable taxing authority as required by law.
9. ACCOUNTING PROCEDURES AND HOTEL COMPENSATION
9.1 As described herein, gross receipts applicable to the use of the System
for any period shall mean the programming fees, based on the transaction
information provided by System during such period, excluding any taxes collected
by Hotel pursuant to Section 8.2.
9.2 On a daily basis, Hotel shall enter disputed buys or adjustments into
TNCi monitoring unit. As soon as practical following the end of each calendar
month, TNCi will furnish Hotel with a statement of System funds held in trust by
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Hotel, setting forth the gross receipts, net of itemized adjustments entered by
Hotel and approved by TNCi (not to be unreasonably withheld), as generated by
System for the preceding calendar month. Hotel shall use its diligent efforts to
notify TNCi and resolve any discrepancies within two (2) working days of receipt
of such a statement from TNCi. Thereafter, TNCi will transmit to the Hotel a
final statement of System funds held in trust by the Hotel, setting forth the
adjusted amount of gross receipts and the commission payable to the Hotel in
accordance with Section 9.3.
9.3 No later than 15 days after Hotel's receipt of the final statement from
TNCi or, if earlier and reasonably consistent with ordinary course of business
of the Hotel, Hotel's first accounts payable cycle following receipt of such
statement, Hotel shall pay to TNCi the total gross receipts for the preceding
calendar month, as specified in the final statement, less an amount equal to
____% of the gross movie receipts, as specified in the final statement, as Hotel
commission.
9.4 The Hotel commission shall be deemed a fee earned by Hotel for its
services rendered, provided however that Hotel is in material compliance with
all provisions of this Agreement. If the Hotel is not in material compliance,
then Hotel will not earn any Hotel commission or be entitled to retain any
percentage of gross receipts for that period. Payments not received by the due
date shall bear interest at the rate of 1.5 percent per month or the maximum
rate allowed by law.
9.5 To assist TNCi in evaluating the System performance, Hotel shall, on or
about the fifth day of each month, furnish TNCi with Hotel occupancy and other
related demographic information for the previous month. Any Hotel data reported
will be held in strictest confidence.
9.6 The Books and records of the Hotel which are pertinent to the gross
pay-per-view and pay-per-use receipts for any month during the term of this
Agreement shall be open to reasonable inspection and audit by an authorized
representative of TNCi upon seven (7) days notice to Hotel. It is understood
that TNCi's right to audit the Books and records of the Hotel shall not extend
beyond three (3) years from an expiration of the calendar year to be audited.
10. OWNERSHIP AND ACCESS RIGHTS
10.1 Notwithstanding the fact that parts of the System may be affixed to
the Hotel premises, TNCi System equipment shall not become the property of the
Hotel and shall remain the exclusive property of TNCi. Hotel agrees that any
encumbrances upon Hotel's property shall exclude System equipment. The Hotel
further agrees to execute and deliver to TNCi such documents and instructions
and take other actions and permit TNCi to take such actions as TNCi may deem
necessary or appropriate to give public notice of TNCi's ownership of the System
and to protect TNCi's ownership against third parties, including without
limitation filing any UCC-1 financing statements.
10.2 In granting TNCi the right of use and access to the locations
specified in Section 3.3 and to those areas of the premises necessary to
inspect, install, maintain, and operate the System pursuant to Section 3.4,
Hotel intends only to confer a license and does not confer perpetual access
rights to the premises.
10.3 Hotel agrees that the interactive programming provided by TNCi over
the System is subject to certain copyright agreements, as well as other
restrictions. Hotel therefore agrees to allow only guests to view or use the
interactive programming and not to allow any copying of programming, or viewing
or using of the programming outside of guest rooms. Hotel shall not allow any
taping or copying of any System programming or content under any circumstances
whatsoever.
10.4 Upon termination of this Agreement, TNCi shall use best efforts to
remove its equipment within 90 days after the effective termination date. No
rental or storage charges shall be made to TNCi during this period. If the
equipment is not removed within the 90 day period (and provided that TNCi has
not been delayed by the Hotel in removing its equipment or is otherwise
prohibited from removing the equipment), then upon five (5) business days
following receipt of prior written notice the Hotel may dispose of such
equipment. Except for the foregoing, failure of TNCi to remove its equipment
does not constitute forfeiture.
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11. EXCLUSIVITY
Hotel hereby grants to TNCi during the term of this Agreement, including
any extension hereof, the exclusive right to supply in-room on-demand video
entertainment and interactive guest services on the Hotel premises, excepting
Guest Link services which will require two channels on the Coaxial MATV system.
Notwithstanding the foregoing, TNCi acknowledges that Hotel is a party to those
agreements set forth on Exhibit F hereto and agrees that Hotel's performance of
its obligations thereunder does not violate this Section 11.
12. INDEMNIFICATION AND COMPLIANCE WITH APPLICABLE LAWS
12.1 TNCi shall secure and maintain, with Hotel's cooperation, if
necessary, such licenses, permits and approvals required by governmental
authorities having jurisdiction over the installation, operation and removal of
the TNCi System, as well as necessary distribution rights, patents, copyrights,
licenses, releases, waivers and other necessary consents of third parties as are
reasonably required for TNCi to provide the System and its interactive content
without infringement of third party US patent rights.
12.2 TNCi will hold the Hotel responsible and Hotel will indemnify TNCi for
any loss or damage to the property of TNCi located on the Hotel premises except
to the extent caused by TNCi. TNCi will indemnify Hotel for any loss or damage
to the Hotel property caused by the gross negligence or wilful misconduct of
TNCi, except to the extent caused by the Hotel.
12.3 TNCi shall maintain, during the term of this agreement, at its own
expense, adequate comprehensive general liability insurance with an aggregate
and per occurrence limit of Two Million Dollars against any liability arising
out of injury or death of any person or damage to property in any way connected
with the installation, maintenance, operation, removal or replacement of the
TNCi System. If requested by Hotel, TNCi shall provide proof of Insurance
Coverage within 30 days after receipt of request.
12.4 The distribution of and guest access to TNCi interactive programming
content and the installation and maintenance of the System equipment shall
conform to proper safety standards and procedures and any regulations or
ordinances of any applicable government agency.
12.5 TNCi shall indemnify and hold harmless Hotel from and against any
claims, including reasonable legal fees and expenses, based upon infringement of
any United States patent by the System. Customer agrees to notify Licensor of
any such claim promptly in writing and to allow Licensor to control the
proceedings. Customer agrees to cooperate fully with Licensor during such
proceedings arising out of the foregoing. In the event or such infringement,
TNCi may replace, in whole or in part, any part of the System with a
substantially compatible and functionally equivalent replacement or modify the
System to avoid the infringement.
13. ASSIGNMENT
Except as set forth below, neither party may assign this Agreement. Subject
to the foregoing, this Agreement binds and inures to the benefit of the parties,
their successors and assigns, except as limited herein.
13.1 TNCi acknowledges Hotel will install and use the System in connection
with the Stonecreek Embassy Suites Hotel, located at 4415 East Paradise Village
Parkway, Phoenix, Arizona (the "Project"), with Hotel having already encumbered
the Project with financing, and likely in the future to refinance that financing
("Project Financing"), each through third party lender(s) ("Lender(s)"). In
connection with Project Financing, a Lender may require Hotel to collateralize
Hotel's interest under this Agreement as additional security for Project
Financing ("Hotel Collateralization"). TNCi agrees to reasonably cooperate with
Hotel, in connection with any Hotel Collateralization requested by a Lender,
including but not limited to: (a) providing estoppel certificates to Lender
confirming the status of this Agreement; (b) modifying any UCC-1 Financing
Statements or other evidences of this Agreement to confirm TNCi's interest
hereunder is limited to the System, and does not otherwise encumber the Project;
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(c) TNCi agreeing to be bound by a reasonable form of Hotel Collateralization,
including the right of Lender, in connection with any default, and enforcement
of its rights, under the Hotel Financing, to succeed to the rights and
obligations of Hotel under this Agreement; and (d) the right of Lender to
receive notice of, and to cure, any default by Hotel under this Agreement;
provided, that TNCi will not be obligated to: (1) incur any material costs in
connection with the Hotel Collateralization; or (2) in any way subordinate, or
adversely affect, any of TNCi's rights or Hotel's obligations under this
Agreement or in and to the System.
13.2 In the event that the person or entity executing this agreement as
Hotel, for purposes hereof deemed the Transferor, intends to sell or otherwise
transfer management or ownership of the premises, as the case may be, to another
person or entity, deemed the Transferee, then the Transferor, as soon as
practicable, but in no event, less than 30 days prior to the effective date of
such transfer, shall provide written notice of the same to TNCi. Such notice
shall provide information regarding the date of the proposed transfer and
whether the Transferee intends to assume all of the obligations of the
Transferor under this Agreement. If the Transferee, by execution prior to the
transfer date of a written assumption agreement reasonably satisfactory to TNCi,
assumes all obligations of the Transferor under this Agreement and Transferee
meets TCNi's credit standards, which shall be customary and reasonable industry
credit standards, then Transferor shall have no further obligations hereunder
except as to previously accrued matters. In the event that Hotel shall transfer
ownership (voluntarily or otherwise) without the assumption by such Transferee
of this Agreement, Hotel shall be deemed to have terminated this Agreement other
than as a result of a Default within the meaning of Section 13.5 hereof.
13.3 Notwithstanding the transfer of ownership or management of the Hotel
premises, Transferor shall be and remain liable for any and all amounts at
whatsoever time owing to TNCi for services provided hereunder, unless and until
the Agreement has been effectively assumed or terminated as herein provided. Any
Transferee who, with notice of the existence of this Agreement, has not executed
an assumption Agreement as provided herein, shall not be entitled to receive
TNCi interactive guest services or any Hotel commission. Therefore, provided
however, that in such event TNCi at TNCi's sole option may continue to provide
interactive guest services to the Hotel premises, which shall be deemed an offer
to provide such services to Transferee in accordance with all the terms and
conditions of this Agreement, which offer may be accepted by Transferee either
in writing or by its receipt and retention of any Hotel commission hereunder.
13.4 TNCi or its assignees may, without Hotel's consent, assign its
interest in this Agreement to any party. If such party, by execution of a
written assumption agreement reasonably satisfactory to Hotel, assumes all
obligations of TNCi and meets reasonable and customary credit standards, then
TNCi shall have no further obligations hereunder except as to previously accrued
matters.
13.5 Hotel shall provide TNCi with a copy of the fully executed transfer
documents evidencing assignment and acceptance of this Agreement. In the event
the Hotel terminates this Agreement prior to the expiration of the Scheduled
Term other than as a result of a Default as permitted under Section 2 hereof, or
if the Hotel is unable to assign this Agreement to the new ownership entity
("Terminate"), then prior to the Termination or the transfer of the ownership of
the Hotel, Hotel agrees to pay for the complete removal and return of TNCi's
equipment to TNCi, as provided in Section 2, and pay TNCi the amounts set forth
on the schedule attached as Exhibit G.
14. FORCE MAJEURE
Neither party shall have any liability for the failure to perform or a
delay in performing any of its obligations hereunder, if such failure or delay
is the result of any legal restriction, labor dispute, strike, boycott, flood,
fire, public emergency, revolution, insurrection, riot, war, unavoidable
mechanical failure, interruption in the supply of electrical power or any other
cause beyond the reasonable control of that party.
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15. GENERAL PROVISIONS
15.1 Unless otherwise provided herein, all notices which are to be given
under the terms of this Agreement shall be given in writing and shall be deemed
given, when deposited in the U.S. Mail with postage prepaid, certified, or
registered mail, return receipt requested, addressed to the applicable party at
the address set forth at the end of the Agreement. Either party hereto may
change the address for notices hereunder by giving notice of such change to the
other party in the manner provided above.
15.2 This Agreement is made in the state in which the TNCi headquarters are
located - Arizona. This agreement shall be governed in every respect by the laws
of the state, except that the parties' respective rights and obligations shall
be subject to specific provisions of Federal law or regulation including,
without limitation, the provisions of the Federal Communications Act and any
appropriate application of the Federal Communications Commission.
15.3 This Agreement shall not be modified, waived, or amended except by an
instrument in writing executed by the parties to this Agreement.
15.4 If any part or subpart of this Agreement is found or held to be
invalid or unenforceable, such unenforceability shall not affect the
enforceability and binding nature of any other part of this Agreement, unless
such remaining portion or portions are not reasonably adequate to accomplish the
basic purpose and intent of the parties. The parties hereto will negotiate in
good faith to replace any invalid or unenforceable provision with one or more
valid provisions that accomplish the original intent of the parties.
15.5 This Agreement, together with any exhibits or amendments or other
information which are expressly incorporated herein and made an integral part
hereof, is the complete understanding of the parties hereto, with respect to the
subject matter hereof, and no other representations or agreements shall be
binding upon the parties hereto, or shall be effective to interpret, change or
restrict the provisions hereof.
15.6 Each person or individual executing this Agreement in a representative
capacity, by his or her execution hereof represents and warrants that such
person or individual is fully authorized to do so on behalf of the respective
party hereto and, with respect to the Hotel, if executed by or on behalf of any
entity other than the owner of the premises, as the duly authorized agent for
such owner, and that no further action or consent on the part of the Party for
whom such signatory is acting is required for the effectiveness and
enforceability of this agreement against such party or such owner as the case
may be, following such execution.
15.7 This Agreement may be executed in multiple counterparts, all of which
shall constitute one and the same instrument. In making proof of this Agreement
it shall not be necessary to produce more than one fully executed counterpart.
Facsimile signatures shall be deemed as originals as between parties.
15.8 This Agreement shall be effective upon execution by all parties to the
Agreement or Commencement of installation services by TNCi, whichever shall
first occur.
15.9 Time shall be of Essence in the performance of this Agreement.
15.10 TNCi will provide: (a) connections to Hotel's AS400 and new System 21
("PMS") for automatic posting of the pay-per-view or pay-per-use fees charged to
the guest and for other interactive guest services at the time of installation;
and compatible interface software at no cost to Hotel (together, "System 21
Compatibility"). If (i) TNCi has not received by February 15, 2000 from the
vendor the interface definitive or (ii) System 21 Compatibility is not completed
thirty (30) days following receipt by TNCi from the vendor of the interface
definition required by TNCi to perform its obligations hereunder. Hotel will
have the right to terminate this Agreement upon written notice to TNCi given at
any time within five (5) days following such date. Hotel is responsible for
purchase and maintenance of any additional vendor hardware and software that may
be required by the PMS vendor to complete the interface.
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15.11 Hotel shall receive any or all of the following interactive guest
services, which consist of Express Check Out, Guest Folio Review, and Guest
Survey, provided the PMS system is capable of supporting these functions. The
fee for the provision of these interactive guest services is hereby waived. The
costs or fees associated with the development and implementation of other Hotel
specific promotions or guest services will be negotiated between the parties.
15.12 TNCi will install the System in both rooms of a suite, provided both
TVS are compatible with the System.
15.13 TNCi will provide Interactive, PC based Games operated by the TNCi
supplied remote control. Hotel shall within ten (10) days of the end of each
month remit to TNCi an amount equal to ___% of all Rental Fees collected by the
Hotel ("TNCi Revenue Share") for said Interactive Games for the prior month and
retain ___% as an administrative fee ("Hotel Revenue Share").
15.14 TNCi shall provide promptly all maintenance, repairs and replacement
of materials and equipment necessary to ensure satisfactory operation of the
System, including satisfactory signal quality, throughout the term of the
Agreement. Technical personnel representing TNCi will respond within twelve (12)
hours of receipt of electronic e-mail or telephone notice throughout the Term in
the event of a System failure involving 10% or more of the Rooms or interactive
programming selections served by the System (a "Significant Failure"). If TNCi
fails to respond within twelve (12) hours following receipt of such notification
that a Significant Failure has occurred, the Hotel may upon twelve (12) hours
additional prior telephonic or email notification, effective upon receipt,
utilize outside technicians to perform basic remedial activities and services.
Upon notice, and within a reasonable period of time from said notice, TNCi shall
repair all other failures. Such maintenance and technical assistance will be
provided free of charge except as occasioned by a breach by Hotel of Hotel's
obligations or as otherwise provided herein.
15.15 TNCi shall have the option, at any time during the initial term of
this Agreement or any extension thereof, to terminate this Agreement or any
installed interactive guest service and remove all the System from the Hotel, at
no cost to the Hotel, if TNCi, in its sole discretion, determines that the
economic feasibility of the continuation of the Agreement or interactive guest
service is, for any reason, adversely different than that contemplated by TNCi
on the term commencement date. Notice must be given 90 days prior to removal of
system. The Hotel will retain the Fiber backbone which was initially installed
at TNCi's expense, as well as the upgrades performed by TNCi to the CAT5
network. TNCi shall assist in transition services.
16. SPECIAL WARRANTIES AND COVENANTS OF HOTEL
Hotel agrees, confirms and covenants the following.
16.1 Interactive guest services will be available in all Rooms, and not in
the public rooms and public areas (including lobbies, hallways, restaurants,
bars, meeting rooms, etc.) of Hotel; and shall not be exhibited other than in
accordance with this Agreement or by any other means of transmission of any kind
whatsoever. However, if Free-to-guest programming is provided by TNCi,
exhibition thereof shall be permitted in accordance with the separately
negotiated contract.
16.2 Equipment comprising part of the System shall not be removed from
Hotel for any purpose whatsoever other than by TNCi, except: (a) in the case of
any emergency where such removal is necessary to ensure safety of such equipment
or guests, and Hotel uses reasonable efforts to notify TNCi of such removal by
telephone; or (b) as otherwise expressly permitted by this Agreement.
16.3 Hotel shall notify TNCi as soon as is reasonably possible, but not
later than 24 hours upon actual notice of any unauthorized use, access, theft,
damage or malfunction of or to the System or any other equipment of TNCi.
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16.4 Hotel shall use reasonable efforts to ensure that only registered
guests of the Hotel and their invitees may view the interactive programming and
content.
16.5 The servers, containing the interactive programming and content, will
be kept under lock and key and will not be accessible to hotel staff without
TNCi's prior consent. There shall be no unauthorized use, exhibition or viewing
of any program by any person other than on the System on the terms set forth
herein. Hotel shall not permit any person under its control to duplicate
programs or content or make alterations of any kind to the servers. Hotel shall
promptly report to TNCi any unauthorized use of the servers as soon as Hotel
becomes aware of such use.
16.6 Hotel warrants and represents that it is the owner of the Hotel; that
it has full legal power and authority to enter into this Agreement and to
perform all of its obligations hereunder; that this Agreement is within Hotel's
authority as operator of the Hotel; and that Hotel shall cause the staff and
employees of the Hotel to adhere to its obligations hereunder. If Hotel is a
corporation, Hotel further warrants and represents that all necessary corporate
action has been taken to authorize Hotel to enter into this Agreement and
perform its obligations hereunder.
16.7 Hotel shall indemnify and hold harmless TNCi against any and all
claims, damages, liabilities, costs and expenses, arising out of any intentional
breach by Hotel of any of the warranties and covenants made by Hotel.
16.8 Hotel warrants that it owns or controls the combined Category 3 and
Category 5 cable network within the hotel and that there are not restrictions
placed by other parties on the use of this network.
16.9 During the term of the Agreement, Hotel will not install or allow to
be installed any service which is not compatible with the transmissions or
services of the TNCi system, provided, the foregoing shall not apply to the
Existing Agreements. Hotel further agrees not to install any service which will
compete with the TNCi interactive guest system, including but not limited to the
installation of video tape players or recorders (subject to the requirements of
the Existing Agreements listed on Exhibit F hereto). The parties agree that
on-site slide or video presentations by Hotel describing the Hotel, its
facilities and environs shall not be deemed "competitive" for such purpose.
Hotel shall be entitled to provide interactive services in meeting rooms.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, by
their duly authorized signatories, on the day and year first above written.
THE NETWORK CONNECTION, INC., UP STONECREEK, INC.,
A GEORGIA CORPORATION AN ARIZONA CORPORATION
By By
----------------------------- ------------------------------------
Ted Racz, Sr. Vice President Title
Its Authorized Representative --------------------------------
Address: Address:
222 North 44th Street -------------------------------
Phoenix, Arizona 85034
-------------------------------
602-629-6218 Telephone:
-----------------------------
Date: Date:
--------------------------- ---------------------------------
<PAGE>
EXHIBIT A
TNCI SERVICE AGREEMENT
HOTEL INFORMATION
Name:
Address:
City/State/Zip:
Telephone:
Site Contact:
Title of Contact:
Number of Rooms:
OWNERSHIP ENTITY
Name:
Address:
City/State/Zip:
Telephone:
Site Contact:
Title of Contact:
<PAGE>
EXHIBIT B
TERMS AND CONDITIONS OF THE AGREEMENT
TNCi will provide a $______ per Room (per suite) payment to the Hotel for
the purchase of compatible television sets. If not paid within sixty (60) days
following the commencement date, Hotel will have the right to either: (i) cancel
the Agreement or (ii) withhold the revenue until paid and/or charge 1 1/2% per
month interest on the unpaid TNCi sums due.
At TNCi's cost, TNCi shall provide one (1) remote control unit for each
television set. Initial 10% sparing of remote control units also will be
provided. Any additional remote control units may be purchased from TNCi at a
price of $25.00 per remote.
TNCi shall timely program the individual television sets in each room, at
no cost to the Hotel. o
Hotel will be responsible for maintenance of all televisions, except to the
extent of damage caused by TNCi or its contractors.
Hotel shall retain an amount equal to ___% of all gross movie receipts and
___% of all interactive game usage fees collected by the Hotel ("Hotel Revenue
Share").
In the event that Adjustments exceed 3% of monthly gross movie receipts,
the Hotel Revenue Share shall be reduced by the same amount as the percentage of
non-technical denials in excess of 3%. In the event that Adjustments are below
3%, the Hotel Revenue Share shall be increased by one-half of that amount. In
any event that any movie denials are caused by verifiable failure of the TNCi
systems, those same denials will not be counted against the 3% adjustment limit.
<PAGE>
EXHIBIT C
THIRD PARTY SERVICE PROVIDER FREE-TO-GUEST PREMIUM
AND BROADCAST TELEVISION PROGRAMMING
The Base Services Provider will enter into the Base Services Agreement with
Hotel and will provide Hotel with free-to-guest premium and broadcast television
programming, which may include ______________________
____________________________________________. The parties agree that the Base
Services will initially cost the Hotel US$_____ per room per month.
In the event of a Base Services Provider of Base Services, TNCi shall have
the right to review and approve such programming, not to be unreasonably
withheld.
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EXHIBIT D
SAMPLE HOTEL INFORMATION SHEET
PROPERTY DATA: GUEST PROFILE:
Number of Rooms _________RMS -Business____________%
Average Daily Room Rate $ ________ -Convention__________%
Average Occupancy Per Year _______% -Tourist_____________%
Age of Property _____________YRS -Destination__________%
TOTAL 100%
Type of Televisions:
Make/Model of TV's_______
Remote Control Yes No
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EXHIBIT E
Time Lines - Embassy Suites
<PAGE>
EXHIBIT F
EXISTING AGREEMENTS
(1) [Reference Guest Link Agreement].
(2) [Reference Starview Agreement].
(3) Base Services Agreement.
(4) Any addition to or extension of, or
replacement of (1), (2) or (3) above,
provided that the scope of services shall
not exceed that previously provided for in
(1), (2) or (3) above.
<PAGE>
EXHIBIT G
TERMINATION PAYMENT SCHEDULE
Term Commencement Date - March 1, 2000
Payback Amount
Mar. 1, 2000 - Jun. 1, 2000
Jun. 2, 2000 - Sep. 1, 2000
Sep. 2, 2000 - Dec. 1, 2000
Dec. 2, 2000 - Mar. 1, 2001
Mar. 2, 2001 - Jun. 1, 2001
Jun. 2, 2001 - Sep. 1, 2001
Sep. 2, 2001 - Dec. 1, 2001
Dec. 2, 2001 - Mar. 1, 2002
Mar. 2, 2002 - Jun. 1, 2002
Jun. 2, 2002 - Sep. 1, 2002
Sep. 2, 2002 - Dec. 1, 2002
Dec. 2, 2002 - Mar. 1, 2003
Mar. 2, 2003 - Jun. 1, 2003
Jun. 2, 2003 - June 1, 2006
Jun. 2, 2006 - Sept. 1, 2006
Sept. 2, 2006 - Dec. 1, 2006
Dec. 2, 2006 - Mar. 1, 2007
Mar. 2, 2007 - June 1, 2007
June 2, 2007 - Sep. 1, 2007
Sep. 2, 2007 - Dec. 1, 2007
Dec. 2, 2007 - Mar. 1, 2008
THE NETWORK CONNECTION, INC. (TNCI)
INTERACTIVE GUEST SYSTEM SERVICE AGREEMENT
RADISSON RESORT - KNOTTS BERRY FARM
7675 Crescent Ave.
Buena Park, CA 90620
THIS Interactive Guest System Service Agreement, hereafter referred to as
"Agreement," is entered into by and between The Network Connection, Inc. (TNCi),
a Georgia corporation with principal offices at 222 N. 44th Street, Phoenix, AZ
85034, and the Hotel entity set forth in Exhibit A of this agreement, and its
successors and assigns, hereafter referred to as the "Hotel."
WHEREAS, TNCi is engaged in the business of providing interactive guest
services, such as on-demand movies and music videos, concierge information and
reservations, guest messaging, guest surveys, in-room folio review and express
check out, interactive shopping, interactive games, and promotion of hotel
events, restaurants, and stores, as well as other interactive services that may
be negotiated, such as Internet access via the in-room TV, hereafter referred to
as "Interactive Programming," to hotels and to time share resort properties and
their guests on a pay-per-view or pay-per-use basis, by means of a TNCi
interactive guest system, hereafter referred to as the "System." This System is
supplied, maintained, and supported by TNCi.
WHEREAS, in exchange for these services, TNCi shall receive revenues from the
Hotel for guest use of the Interactive Programming content.
WHEREAS, a separate agreement has been negotiated with the Hotel for the
free-to-guest premium and broadcast television channels provided by a
third-party service provider and distributed over the Hotel's Master Antenna
Cable Television (MATV) System. TNCi will ensure that the remote control
equipment it provides will allow the guests to access the free-to-guest premium
and broadcast television channels that are provided by the local cable
television operator and are available at the Hotel over the MATV system.
WHEREAS, the Hotel operates a lodging facility, consisting of private rooms and
suites, identified in Exhibit A and;
WHEREAS, the Hotel is equipped with a combination of a Category 3 and Category 5
cable network for installation of the interactive guest system and;
WHEREAS, TNCi desires to provide interactive, on-demand guest services on an
exclusive basis to the premises over a Category 5 cable network for viewing and
use by the Hotel's guests under the terms and conditions set forth below, and
the Hotel desires to receive TNCi interactive programming content;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, and for other good and valuable considerations,
the receipt and sufficiency of which is hereby acknowledged, the parties,
intending to be legally bound hereby, mutually agree as follows;
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1. TNCI INTERACTIVE GUEST SYSTEM
As used herein, the term "System" shall refer to an interactive guest
information and entertainment system designed by TNCi, whereby guests in
separate rooms at the Hotel may independently access, on demand, interactive
programming content on television receiving sets (TVs). On these same TVs, via
remote control devices provided by TNCi, guests will be able to access the
free-to-guest premium and broadcast television programs that are available at
the Hotel over the MATV system, which will be covered under separate agreement.
As used in this Agreement, the term "Rooms" shall mean separate, private rooms
and suites in the Hotel which are customarily available for overnight sleeping
accommodations; a suite shall be considered one (1) Room. The System hosts a
specified number of pre-recorded movie and music video selections, along with
other interactive content described below. The System includes all necessary
server, computer, switching, and remote control equipment to deliver and access
the interactive guest services and to access the free-to-guest television
channels provided by the MATV system. The TNCi System does not include necessary
power, wiring, connections, or cooling facilities, which are to be provided by
Hotel. However, TNCi will provide engineering and specifications for necessary
signal wiring and distribution at no cost to Hotel.
2. AGREEMENT TERM
TNCi will design, construct and provide to Hotel a System for operation in the
number of Rooms of the Hotel, with on-demand access to the interactive guest
services selected by the Hotel. The date of contract commencement is that date
when the TNCi Interactive Guest System is first fully installed and operational.
It is termed the "commencement of term date."
This Agreement shall continue for an initial term of ______ (____) years from
the commencement of term date, unless terminated sooner pursuant to the
provisions of Section 3 or Section 14 and will automatically renew and extend
for a successive _______ (___) year additional term, unless at least (90) days
prior to the end of any respective termination date, including any extensions,
either party gives written notice to the other of its desire not to renew this
agreement. TNCi shall inform Hotel 90 days prior to expiration date.
If either party shall fail to perform any material obligation under this
Agreement, or there shall have occurred and be continuing an event of default
under any other written agreement between Hotel and TNCi, such failure or
default shall constitute a default hereunder if not remedied within _________
(____) days, and within _______ (___) days in the case of payment default
following written notice of such default to the defaulting party, the non
defaulting party may terminate this agreement.
In the event that the Hotel is a defaulting party and fails to cure any default
within the applicable period, TNCi shall be entitled, in addition to any and all
other available legal and/or equitable remedies, including specific performance,
the same being expressly reserved by TNCi to a system removal charge of $____
per installed guest room. The system removal charge shall be additional to all
other legal damages sustained. The non defaulting party shall be entitled to
recover from the other its attorneys' fees, costs and expenses, including
collection agency fees incurred in enforcing this agreement or for a collection
of the amounts due and payable hereunder. Notwithstanding any provision to the
contrary, in no event shall either party be liable to the other or any of its or
their prospective employees, licensees, contractors, or Agents for
consequential, punitive or exemplary damages.
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3. INSTALLATION OF TNCI INTERACTIVE GUEST SYSTEM
3.1 Hotel shall permit TNCi personnel to conduct a technical inspection and
survey of the combined Category 3 and Category 5 cable network presently
installed at the Hotel to determine its adequacy and compatibility for
delivering broadband multimedia content, including digital video streaming, with
the TNCI system.
3.2 If it is determined that the combined Category 3 and Category 5 cable
network is adequate for installation of the System, TNCi will install System
under the terms and conditions identified in Exhibit B of the Agreement.
In the event TNCi determines that the combined Category 3 and Category 5 cable
network is inadequate for delivering broadband multimedia content, including
digital video streaming, TNCi will notify the Hotel in writing of all
deficiencies and will upgrade the combined Category 3 and Category 5 cable
network at the Hotel at no cost to the Hotel, up to $________ per room, if
necessary. The free-to-guest equipment is not considered a part of the Category
5 cable network upgrade. If TNCi advises Hotel that the upgrade work will cost
over $________ per room, the Hotel will have the option to: (i) pay TNCi the
difference between the actual cost and the maximum allowance; or (ii) deduct the
cost from the Hotel's revenue share.
After completion of the initial installation any modifications to said System
shall be made only by TNCi, but at Hotel's expense if the modifications are the
result of any action, modification, expansion or remodeling undertaken by the
Hotel.
3.3 Hotel will make available to TNCi a secure air-conditioned, non-public area
for its head-end equipment. The room shall provide at least 10 by 6 feet, with a
20 amp dedicated electrical circuit. Hotel shall also provide an appropriate
area near the cashier's desk for the installation of TNCi monitoring unit and
printer.
TNCi will begin installation of TNCi System on the Hotel premises as soon as
practical after TNCi's receipt and signed acceptance of the signed Agreement
from the Hotel and the completed combined Category 3 and Category 5 cable
network inspection. TNCi will use its best efforts to complete installation of
the System within 90 days.
TNCi, at its expense, shall repair, restore and replace all portions of the
premises after installation of its equipment and restore the premises to its
original condition to the extent practical, reasonable wear and tear excluded.
TNCi shall, in the exercise of its obligations for installation, not
unreasonably interfere with the Hotel's operation.
3.4 TNCi shall install all equipment necessary to provide interactive guest
programming in all guest rooms, unless otherwise stated in this agreement.
3.5 During the installation period, Hotel shall provide complementary guest
rooms for two nights to installation personnel.
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4. TNCI INTERACTIVE PROGRAMMING
TNCi agrees to provide interactive programming content for viewing and use in
the Hotel's guest rooms. This interactive programming content, which is defined
more fully in Amendment 1, includes on-demand movies and music videos, Internet
access via the in-room TV, concierge information and reservations, guest
messaging, guest surveys, in-room folio review and express check out,
interactive shopping, interactive games, and promotion of hotel events,
restaurants, and stores.
4.1 TNCi will provide Hotel with its proprietary digital movie delivery System,
through which guests may select any movie, on-demand, from a collection of movie
titles, available 24 hours per day and which shall start immediately after
purchase. The movies in all cases shall be appropriate for viewing in a
first-class hotel and be current release Hollywood features. The movie
programming should be classified G, PG, PG-13 or R by the Motion Picture
Association of America. At its discretion, TNCi may offer independent adult
features.
4.2 TNCi may delete any programming at any point in time for legal or other
reasonable purposes and elect to substitute other programming at equal quality
or content.
4.3 TNCi may elect to provide special promotional programming or multimedia
advertisements and entertainment sponsors that maximize guest enjoyment of the
System and revenue sharing between TNCi and the Hotel.
5. OPERATION OF TNCI INTERACTIVE GUEST SYSTEM
During the term of this Agreement and any extension thereof, Hotel acknowledges
and agrees that all interactive content presented to guests and all associated
graphical components of the System shall remain under the exclusive control of
TNCi. Hotel shall assure the availability of TNCi programming to all guest rooms
at all times with the exception of guest requested blocking of specific
programming.
5.1 Hotel shall at no cost to TNCi provide electrical power and cooling
necessary to operate the TNCi System.
5.2 Hotel shall be responsible for posting to the guest invoices the billing
charges as reported by the TNCi system.
5.3 In addition to interactive promotional features inherent in the operation of
the System, TNCi will supply to Hotel, at no cost to the Hotel, suitable
advertising and promotional materials about interactive programming and other
guest services available through the TNCi System, as may be reasonably
determined by TNCi. Hotel shall ensure that such material is placed and
displayed in rooms at all times after Hotel approval of the materials.
5.4 TNCi shall supply to Hotel 110% of all the television remote control units
needed to operate the System in each room in the Hotel. In the event more spares
are needed, the Hotel agrees to purchase additional spares for $25 per unit.
6. MAINTENANCE AND SUPPORT OF TNCI INTERACTIVE GUEST SYSTEM
TNCi will maintain the System in a reasonably satisfactory operational condition
and, subject to Section 6.3 hereof, make all necessary repairs or replacements
to maintain the System, provided, however, that TNCi shall not be responsible
for the loss or interruption of signals or data beyond the control of TNCi.
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Moreover, should poor quality or loss of signals or data result from a fault of
the Hotel, TNCi will advise Hotel and at Hotel's expense promptly repair this
fault.
6.1 Hotel shall assign a "key person" to the day to day operation of the System.
6.2 The key person shall, at no cost to TNCi, replace any failed remote control
units with spare units provided. If a technical problem arises beyond the
replacement of in-room remote control units, the key person shall contact TNCi
within 12 hours of discovery. If necessary, TNCi will dispatch a technician to
make appropriate repairs.
6.3 Any repairs to the System made necessary by willful or grossly negligent
acts, including vandalism, by the Hotel, any of its employees, contractors,
agents, or guests will be performed by TNCi, provided the Hotel reimburses TNCi
for these costs.
7. TRAINING
TNCi will provide training information and training manuals to Hotel and will
make available to Hotel, TNCi training personnel as negotiated between the
parties. Initial training will be at no cost to the Hotel.
8. INTERCTIVE GUEST SYSTEM FEES
8.1 Hotel shall charge and collect in trust from its guests the programming fees
established by TNCi for the privilege of viewing or using the interactive
programming provided by TNCi.
The usage of the System subject to charge and collection shall be based on the
transaction information collected by the TNCi System. All interactive
programming fees charged and collected by Hotel, shall be held, in trust, by the
Hotel, for the benefit of TNCi, and shall be made payable to TNCi under the
terms and conditions identified in Section 9 below. TNCi shall have the right to
change programming fees from time to time as determined by its sole discretion.
In such an event, TNCi shall inform Hotel 30 days in advance of a rate change,
unless a shorter time period is agreed to by both parties.
8.2 In addition to collecting the programming fees, Hotel shall also collect
from guests all Federal, State, and local taxes applicable to programming fees,
and Hotel shall directly remit the same to the applicable taxing authority as
required by law.
9. ACCOUNTING PROCEDURES AND HOTEL COMPENSATION
9.1 As described herein, gross receipts applicable to the use of the System for
any period shall mean the programming fees, based on the transaction information
provided by System during such period, excluding any taxes collected by Hotel
pursuant to Section 8.2.
9.2 On a daily basis, Hotel shall enter disputed buys or adjustments into TNCi
monitoring unit. As soon as practical following the end of each calendar month,
TNCi will furnish Hotel with a statement of System funds held in trust by Hotel,
setting forth the gross receipts, net of itemized adjustments entered by Hotel
and approved by TNCi, as generated by System for the preceding calendar month.
Hotel shall use its best efforts to notify TNCi and resolve any discrepancies
within two (2) working days of receipt of such a statement from TNCi.
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Thereafter, TNCi will transmit to the Hotel a final statement of System funds
held in trust by the Hotel, setting forth the adjusted amount of gross receipts
and the commission payable to the Hotel in accordance with Section 9.3.
9.3 No later than 15 days after Hotel's receipt of the final statement from TNCi
or, if earlier, Hotel's first accounts payable cycle following receipt of such
statement, Hotel shall pay to TNCi the total gross receipts for the preceding
calendar month, as specified in the final statement, less an amount equal to
_____% of the net movie receipts, as specified in the final statement, as Hotel
commission.
9.4 The Hotel commission shall be deemed a fee earned by Hotel for its services
rendered, provided however that Hotel is in material compliance with all
provisions of this Agreement. If the Hotel is not in compliance, then Hotel will
not earn any Hotel commission or be entitled to retain any percentage of gross
receipts for that period. Payments not received by the due date shall bear
interest at the rate of 1.5 percent per month or the maximum rate allowed by
law.
9.5 To assist TNCi in evaluating the System performance, Hotel shall, on or
about the fifth day of each month, furnish TNCi with Hotel occupancy and other
related results for the previous month. Any Hotel data reported will be held in
strictest confidence.
9.6 The Books and records of the Hotel which are pertinent to the gross
pay-per-view and pay-per-use receipts for any month during the term of this
Agreement shall be open to inspection and audit by an authorized representative
of TNCi upon seven (7) days notice to Hotel. It is understood that TNCi's right
to audit the Books and records of the Hotel shall not extend beyond three (3)
years from an expiration of the calendar year to be audited.
10. OWNERSHIP AND ACCESS RIGHTS
10.1 Notwithstanding the fact that parts of the System may be affixed to the
Hotel premises, TNCi System equipment shall not become the property of the Hotel
and shall remain the exclusive property of TNCi. Hotel agrees that any
encumbrances upon Hotel's property shall exclude System equipment. The Hotel
further agrees to execute and deliver to TNCi such documents and instructions
and take other actions and permit TNCi to take such actions as TNCi may deem
necessary to give public notice of TNCi's ownership of the System and to protect
TNCi's ownership against third parties.
10.2 In granting TNCi the right of use and access to the locations specified in
Section 3.3 and to those areas of the premises necessary to inspect, install,
maintain, and operate the System pursuant to Section 3.4, Hotel intends only to
confer a license and does not confer perpetual access rights to the premises.
10.3 Hotel agrees that the interactive programming provided by TNCi over the
System is subject to certain copyright agreements, as well as other
restrictions. Hotel therefore agrees to allow only guests to view or use the
interactive programming and not to allow any copying of programming, or viewing
or using of the programming outside of guest rooms. Hotel shall not allow any
taping or copying of any System programming or content under any circumstances
whatsoever.
10.4 Upon termination of this Agreement, TNCi shall use best efforts to remove
its equipment within 90 days after the effective termination date. No rental or
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storage charges shall be made to TNCi during this period, however, a reasonable
rental and storage charge shall be charged if the equipment is not removed
within the 90 day period and TNCi has not been delayed by the Hotel in removing
its equipment. Failure of TNCi to remove its equipment does not constitute
forfeiture.
11. EXCLUSIVITY
Hotel hereby grants to TNCi during the term of this Agreement, including any
extension hereof, the exclusive right to supply in-room on-demand video
entertainment and interactive guest services on the Hotel premises.
12. INDEMNIFICATION AND COMPLIANCE WITH APPLICABLE LAWS
12.1 TNCi shall secure and maintain, with Hotel's cooperation, if necessary,
such licenses, permits and approvals required by governmental authorities having
jurisdiction over the installation, operation and removal of the TNCi System, as
well as necessary distribution rights, patents, copyrights, licenses, releases,
waivers and other necessary consents of third parties with respect to the System
and its interactive content.
12.2 TNCi will hold the Hotel responsible and Hotel will indemnify TNCi for any
loss or damage to the property of TNCi located on the Hotel premises.
12.3 TNCi shall maintain, during the term of this agreement, at its own expense,
adequate comprehensive general liability insurance against any liability arising
out of injury or death of any person or damage to property in any way connected
with the installation, maintenance, operation, removal or replacement of the
TNCi System. If requested by Hotel, TNCi shall provide proof of Insurance
Coverage within 30 days after receipt of request.
12.4 The distribution of and guest access to TNCi interactive programming
content and the installation and maintenance of the System equipment shall
conform to proper safety standards and procedures and any regulations or
ordinances of any applicable government agency.
13. ASSIGNMENT
This Agreement binds and inures to the benefit of the parties, their successors
and assigns, except as limited herein.
13.1 In the event that the person or entity executing this agreement as Hotel,
for purposes hereof deemed the Transferor, intends to sell or otherwise transfer
management or ownership of the premises, as the case may be, to another person
or entity, deemed the Transferee, then the Transferor, as soon as practicable,
but in no event, less than 30 days prior to the effective date of such transfer,
shall provide written notice of the same to TNCi. Such notice shall provide
information regarding the date of the proposed transfer and whether the
Transferee intends to assume all of the obligations of the Transferor under this
Agreement. If the Transferee, by execution prior to the transfer date of a
written assumption agreement satisfactory to TNCi, assumes all obligations of
the Transferor under this Agreement and Transferee meets TNCi's customary credit
standards, then Transferor shall have no further obligations hereunder except as
to previously accrued matters.
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13.2 Notwithstanding the transfer of ownership or management of the Hotel
premises, Transferor shall be and remain liable for any and all amounts at
whatsoever time owing to TNCi for services provided hereunder, unless and until
the Agreement has been effectively assumed or terminated as herein provided. Any
Transferee who, with notice of the existence of this Agreement, has not executed
an assumption Agreement as provided herein, shall not be entitled to receive
TNCi interactive guest services or any Hotel commission. Therefore, provided
however, that in such event TNCi at TNCi's sole option may continue to provide
interactive guest services to the Hotel premises, which shall be deemed an offer
to provide such services to Transferee in accordance with all the terms and
conditions of this Agreement, which offer may be accepted by Transferee either
in writing or by its receipt and retention of any Hotel commission hereunder.
13.3 TNCi or its assignees may, without Hotel's consent, assign its interest in
this Agreement to any party without liability except as to previously accrued
matters.
13.4 Hotel shall provide TNCi with a copy of the fully executed transfer
documents evidencing assignment and acceptance of this Agreement. In the event
the Hotel terminates this Agreement within the first three years of the
contract, other than for cause, or if the Hotel is unable to assign this
Agreement to the new ownership entity, then prior to transfer of the ownership
of the Hotel, Hotel agrees to pay for the complete removal and return of TNCi's
equipment to TNCi, and repay TNCi the full $_______ installation investment. If
the Hotel terminates this Agreement after year three of the contract, other than
for cause, or if the Hotel is unable to assign this Agreement to the new
ownership entity, then prior to transfer of the ownership of the Hotel, Hotel
agrees to pay for the complete removal and return of TNCi's equipment to TNCi
and to repay TNCi the installation investment on a pro-rated basis of _____ of
the total installation investment per month of the remaining months of the
contract.
14. FORCE MAJEURE
Neither party shall have any liability for the failure to perform or a delay in
performing any of its obligations hereunder, if such failure or delay is the
result of any legal restriction, labor dispute, strike, boycott, flood, fire,
public emergency, revolution, insurrection, riot, war, unavoidable mechanical
failure, interruption in the supply of electrical power or any other cause
beyond the control of that party.
15. GENERAL PROVISIONS
15.1 All notices which are to be given under the terms of this Agreement shall
be given in writing and shall be deemed given, when deposited in the U.S. Mail
with postage prepaid, certified, or registered mail, return receipt requested,
addressed to the applicable party at the address set forth at the end of the
Agreement. Either party hereto may change the address for notices hereunder by
giving notice of such change to the other party in the manner provided above.
15.2 This Agreement is made in the state in which the TNCi headquarters are
located - Arizona. This agreement shall be governed in every respect by the laws
of the state, except that the parties' respective rights and obligations shall
be subject to specific provisions of Federal law or regulation including,
without limitation, the provisions of the Federal Communications Act and any
appropriate application of the Federal Communications Commission.
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15.3 This Agreement shall not be modified, waived, or amended except by an
instrument in writing executed by the parties to this Agreement.
15.4 If any part or subpart of this Agreement is found or held to be invalid or
unenforceable, such unenforceability shall not affect the enforceability and
binding nature of any other part of this Agreement, unless such remaining
portion or portions are not reasonably adequate to accomplish the basic purpose
and intent of the parties. The parties hereto will negotiate in good faith to
replace any invalid or unenforceable provision with one or more valid provisions
that accomplish the original intent of the parties.
15.5 This Agreement, together with any exhibits or amendments or other
information which are expressly incorporated herein and made an integral part
hereof, is the complete understanding of the parties hereto, with respect to the
subject matter hereof, and no other representations or agreements shall be
binding upon the parties hereto, or shall be effective to interpret, change or
restrict the provisions hereof.
15.6 Each person or individual executing this Agreement in a representative
capacity, by his or her execution hereof represents and warrants that such
person or individual is fully authorized to do so on behalf of the respective
party hereto and, with respect to the Hotel, if executed by or on behalf of any
entity other than the owner of the premises, as the duly authorized agent for
such owner, and that no further action or consent on the part of the Party for
whom such signatory is acting is required for the effectiveness and
enforceability of this agreement against such party or such owner as the case
may be, following such execution.
15.7 This Agreement may be executed in multiple counterparts, all of which shall
constitute one and the same instrument. In making proof of this Agreement it
shall not be necessary to produce more than one fully executed counterpart.
Facsimile signatures shall be deemed as originals as between parties.
15.8 This Agreement shall be effective upon execution by all parties to the
Agreement or Commencement of installation services by TNCi, whichever shall
first occur.
15.9 Time shall be of Essence in the performance of this Agreement.
15.10 TNCi will provide connections to Hotel's "Fidelio" Property Management
System ("PMS") for automatic posting of the pay-per-view or pay-per-use fees
charged to the guest and for other interactive guest services at the time of
installation. TNCi will provide its interface software at no cost to Hotel.
Hotel is responsible for purchase and maintenance of any additional hardware and
software that may be required by the PMS vendor to complete the interface.
15.11 Hotel may receive any or all of the following interactive guest services,
which consist of Express Check Out, Guest Folio Review, and Guest Survey,
provided the PMS system is capable of supporting these functions. The fee for
the provision of these interactive guest services is hereby waived. The costs or
fees associated with the development and implementation of other Hotel specific
promotions or guest services will be negotiated between the parties.
15.12 TNCi will install the System in both rooms of a suite, provided both TVs
are compatible with the System.
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15.13 TNCi will provide Interactive, PC based Games operated by the remote
control to the Hotel. Hotel shall within ten (10) days of the end of each month
remit to TNCi an amount equal to ____% of all Rental Fees collected by the Hotel
("TNCi Revenue Share") for said Interactive Games for the prior month and retain
___% as an administrative fee ("Hotel Revenue Share").
15.14 TNCi shall provide promptly all maintenance, repairs and replacement of
materials and equipment necessary to ensure satisfactory operation of the
System, including satisfactory signal quality, throughout the term of the
Agreement. Technical personnel representing TNCi will respond within twelve (12)
hours throughout the Term in the event of a System failure involving 10% or more
of the Rooms or interactive programming selections served by the System. Upon
notice, and within a reasonable period of time from said notice, TNCi shall
repair all other failures. Such maintenance and technical assistance will be
provided free of charge except as occasioned by a breach by Hotel of Hotel's
obligations.
15.15 TNCi shall have the option, at any time during the initial term of this
Agreement or any extension thereof, to terminate this Agreement or any installed
interactive guest service and remove all or part of the System from the Hotel,
at no cost to the Hotel, if TNCi, in its sole discretion, determines that the
economic feasibility of the continuation of the Agreement or interactive guest
service is, for any reason, adversely different than that contemplated by TNCi
on the term commencement date. Notice must be given 90 days prior to removal of
system.
16. SPECIAL WARRANTIES AND COVENANTS OF HOTEL
Hotel agrees, confirms and covenants the following.
16.1 Interactive guest services will be available in all Rooms, and not in the
public rooms and public areas (including lobbies, hallways, restaurants, bars,
meeting rooms, etc.) of Hotel; and shall not be exhibited other than in
accordance with this Agreement or by any other means of transmission of any kind
whatsoever. However, if Free-to-guest programming is provided by TNCi,
exhibition thereof shall be permitted in accordance with the separately
negotiated contract.
16.2 Equipment comprising part of the System shall not be removed from Hotel for
any purpose whatsoever other than by TNCi, except in the case of any emergency
where such removal is necessary to ensure safety of such equipment or guests,
and Hotel uses reasonable efforts to notify TNCi of such removal by telephone.
16.3 Hotel shall notify TNCi as soon as is reasonably possible, but not later
than 24 hours upon actual notice of any unauthorized use, access, theft, damage
or malfunction of or to the System or any other equipment of TNCi.
16.4 Hotel shall use reasonable efforts to ensure that only registered guests of
the Hotel and their invitees may view the interactive programming and content.
16.5 The servers, containing the interactive programming and content, will be
kept under lock and key and will not be accessible to hotel staff without TNCi's
prior consent. There shall be no unauthorized use, exhibition or viewing of any
program by any person other than on the System on the terms set forth herein.
10
<PAGE>
Hotel shall not permit any person under its control to duplicate programs or
content or make alterations of any kind to the servers. Hotel shall promptly
report to TNCi any unauthorized use of the servers as soon as Hotel becomes
aware of such use.
16.6 Hotel warrants and represents that it is the owner of the Hotel; that it
has full legal power and authority to enter into this Agreement and to perform
all of its obligations hereunder; that this Agreement is within Hotel's
authority as operator of the Hotel; and that Hotel shall cause the staff and
employees of the Hotel to adhere to its obligations hereunder. If Hotel is a
corporation, Hotel further warrants and represents that all necessary corporate
action has been taken to authorize Hotel to enter into this Agreement and
perform its obligations hereunder.
16.7 Hotel shall indemnify and hold harmless TNCi against any and all claims,
damages, liabilities, costs and expenses, arising out of any intentional breach
by Hotel of any of the warranties and covenants made by Hotel.
16.8 Hotel warrants that it owns or controls the combined Category 3 and
Category 5 cable network within the hotel and that there are not restrictions
placed by other parties on the use of this network.
16.9 During the term of the Agreement, Hotel will not install or allow to be
installed any service which is not compatible with the transmissions or services
of the TNCi system. Hotel further agrees not to install any service which will
compete with the TNCi interactive guest system, including but not limited to the
installation of video tape players or recorders. The parties agree that on-site
slide or video presentations by Hotel describing the Hotel, its facilities and
environs shall not be deemed "competitive" for such purpose.
11
<PAGE>
EXHIBIT A
TNCI/RADISSON RESORT SERVICE AGREEMENT
HOTEL INFORMATION
Name:
Address:
City/State/Zip:
Telephone:
Site Contact:
Title of Contact:
Number of Rooms:
OWNERSHIP ENTITY
Name:
Address:
City/State/Zip:
Telephone:
Site Contact:
Title of Contact:
12
<PAGE>
EXHIBIT B
TERMS AND CONDITIONS OF THE AGREEMENT
* TNCi will provide a $______ per Room payment to the Hotel for the purchase
of compatible television sets.
* At TNCI's cost, TNCi shall provide one (1) remote control unit for each
television set. Initial 10% sparing of remote control units also will be
provided. Any additional remote control units may be purchased from TNCi at
a price of $25.00 per remote.
* Hotel will be responsible for maintenance of all televisions.
* Hotel may retain an amount equal to ___% of all net movie receipts and ___%
of all interactive game usage fees collected by the Hotel ("Hotel Revenue
Share").
* In the event that Adjustments exceed 3% of monthly gross movie receipts,
the Hotel Revenue Share shall be reduced by the same amount as the
percentage of non-technical denials in excess of 3%. In the event that
Adjustments are below 3%, the Hotel Revenue Share shall be increased by
one-half of that amount.
13
<PAGE>
EXHIBIT C
SAMPLE HOTEL INFORMATION SHEET
PROPERTY DATA: GUEST PROFILE:
Number of Rooms RMS Business %
-------------------- -------------------
Average Daily Room Rate $ Convention %
---------- -----------------
Average Occupancy Per Year % Tourist %
--------- -------------------
Age of Property YRS Destination %
-------------------- ----------------
TOTAL 100%
Type of Televisions:
Make/Model of TV's __________________
Remote Control Yes No
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, by
their duly authorized signatories, on the day and year first above written.
THE NETWORK CONNECTION, INC.
---------------------------------
(Legal Name of Hotel Entity)
By By
--------------------------------- ------------------------------
Ted Racz, Sr. Vice Title
President ---------------------------
Its Authorized Representative
Address: Address:
222 N. 44th St.
Phoenix, AZ 85034 ---------------------------------
602-629-6218 Telephone:
Date: Date:
------------------------------ ---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-QSB FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 860,211
<SECURITIES> 0
<RECEIVABLES> 1,031,726
<ALLOWANCES> 0
<INVENTORY> 3,751,153
<CURRENT-ASSETS> 6,511,291
<PP&E> 2,148,813
<DEPRECIATION> 948,392
<TOTAL-ASSETS> 14,630,592
<CURRENT-LIABILITIES> 4,565,450
<BONDS> 0
0
24,969
<COMMON> 12,314
<OTHER-SE> 8,989,570
<TOTAL-LIABILITY-AND-EQUITY> 14,630,592
<SALES> 5,597,319
<TOTAL-REVENUES> 5,657,146
<CGS> 3,454,915
<TOTAL-COSTS> 3,470,018
<OTHER-EXPENSES> 3,521,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,508
<INCOME-PRETAX> (1,405,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,405,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,405,543)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
