As filed with the Securities and Exchange Commission on December 17, 1999
Registration No. 333-
=============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LMKI, INC.
(Name of small business issuer in its charter)
Nevada 4813 33-0662114
(State Or Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation Classification Code Number) Identification No.)
or Organization)
1720 East Garry Avenue, Suite 201
Santa Ana, California 92705
(949) 475-4500
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
---------------------------
William J. Kettle, Chairman
1720 East Garry Avenue, Suite 201
Santa Ana, California 92705
(949) 475-4500
(Name, Address and Telephone Number of Agent For Service)
---------------------------
Copy To:
Robert C. Weaver, Jr., Esq.
721 Devon Court
San Diego, CA 92109-8007
(858) 488-4433
---------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined
by market conditions and other factors.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class Amount to be Price Per Offering Registration
of Securities Registered Share (2)(3) Price Fee
Common Stock, (1) 2,514,706 $10.50 $26,404,412 $ 6,970.76
$.001 par value
(1) Represents a presently indeterminate number of shares of our Common
Stock issuable upon conversion of preferred stock and exercise of warrants
and that may be offered by Selling Security Holders. See "SELLING SECURITY
HOLDERS and DESCRIPTION OF SECURITIES."
(2) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee. Based on the average of the bid and asked prices per share
of our common stock as reported on the OTC Bulletin Board on December 10,
1999.
(3) In accordance with Rule 457(g), the registration fee for these shares is
calculated upon a price which represents the highest of (i) the price at
which the warrants or options may be exercised; (ii) the offering price of
securities of the same class included in this registration statement; or
(iii) the price of securities of the same class, as determined pursuant to
Rule 457(c).
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
PART I - INFORMATION REQUIRED IN PROSPECTUS
LMKI, INC.
Cross-Reference Sheet
Showing Location in the Prospectus of
Information Required by Items of Form SB-2
Form SB-2 Item Number and Caption Location In Prospectus
1. Front of Registration Statement and
Outside Front Cover of Prospectus....... Outside Front Cover
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page
3. Summary Information and Risk Factors..... Summary; Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... +
6. Dilution................................. +
7. Selling Security Holders................. Selling Security Holders
8. Plan of Distribution..................... Plan of Distribution
9. Legal Proceedings........................ Business - Legal
Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons........... Management
11. Security Ownership of Certain
Beneficial Owners and Management........ Principal Security Holders
12. Description of Securities................ Description of Securities
13. Interest of Named Experts and Counsel.... Legal Matters, Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Management -
Indemnification
15. Organization Within Last Five Years...... Certain Transactions
16. Description of Business.................. Business
17. Management's Discussion and Analysis
or Plan of Operation.................... Management's Discussion
and Analysis of Financial
Condition and Results of
Operations
18. Description of Property.................. Business - Facilities
19. Certain Relationships and Related
Transactions............................ Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters..................... Market for Common Equity
And Related Stockholder
Matters
21. Executive Compensation................... Executive Compensation
22. Financial Statements..................... Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.............................. *
_________
(*) None or Not Applicable
The information in this Prospectus is not complete and may be changed. The
Selling Security Holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This Prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER ___, 1999 PROSPECTUS
LMKI, INC.
2,514,706 Shares of Common Stock
All of these shares are being offered for resale by existing security
holders.
These shares consist of 1,176,471 shares issuable on conversion of our Series
B preferred stock and 750,000 shares issuable on exercise of our warrants.
The number of shares issuable on conversion of the Series A preferred stock
and the warrants is subject to adjustment.
The Selling Security Holders may sell their shares at various times in usual
brokerage transactions at the market price at the time of sale, at prices
related to market price or at negotiated prices. The Selling Security Holders
and any agents, broker-dealers or underwriters who act with or for the
Selling Security Holders in the distribution of the shares may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, and any
commission received by them and any profit on the resale of the common stock
may be deemed underwriting discounts or commissions under the Securities Act
of 1933.
We will not receive any proceeds from the conversion of the preferred shares
but we will receive $3,187,500 if all the warrants are exercised. We agreed
to pay all expenses of registration of these shares, but we will not pay the
Selling Security Holders' selling and brokerage expenses.
Our Common Stock is traded on the OTC Bulletin Board under the symbol "LMKI".
On December 14, 1999, the closing bid and asked prices were $11.125 and
$11.625.
Investing in our common stock involves risks. You should not purchase our
common stock unless you can afford to lose your entire investment. See "RISK
FACTORS" beginning on page XX of this prospectus.
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission, nor have those organizations
determined that this prospectus is accurate or complete. Any representation
otherwise is a criminal offense.
The date of this prospectus is ______, 1999
LMKI, INC.
1720 East Garry Avenue, Suite 201
Santa Ana, California 92705
(949) 475-4500
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (90 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to unsold
allotments or subscriptions.
TABLE OF CONTENTS
Page
Summary...................................................................
Risk Factors..............................................................
Use of Proceeds...........................................................
The Market for Our Stock and Other
Stockholder Matters..................................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................................................
Business..................................................................
Management................................................................
Executive Compensation....................................................
Certain Transactions......................................................
Principal Security Holders................................................
Description of Securities.................................................
Selling Security Holders..................................................
Plan of Distribution......................................................
Legal Matters.............................................................
Experts...................................................................
Where You Can Find Additional Information.................................
Index to Consolidated Financial Statements.for
fiscal year ended September 30, 1999................................F-1
Consolidated Financial Statements for quarter
ended November 30, 1999.............................................F-
SUMMARY
This summary highlights information we present more fully elsewhere in this
prospectus. You should read this entire prospectus carefully.
About Us
LMKI, Inc. delivers broadband communications solutions including high-speed
Internet access, data, voice and video services over a revolutionary national
network to a wide spectrum of business customers. Additionally, we offer
application development, network integration and systems management services
to businesses worldwide. Through strategic alliances and cost-effective
network planning, we provide superb performance and service.
Our Industry
According to TeleChoice, a telecommunications consulting firm, the market for
digital subscriber lines (DSL) has charted growth of 300% for the first half
of 1999, well beyond analysts' expectations. Positioning itself to give cable
modem competition a good run, DSL is a technology that uses digital coding to
push up to 99% more information through a regular copper phone line. The
result is that the line can transmit data using a higher frequency, and
simultaneous voice and fax using a lower frequency. DSL services the "last
mile"- the area stretching from the central phone exchange to the customer -
that has proven such a challenge in providing fast connections to businesses.
Laurie Falconer, DSL analyst at TeleChoice, expects market growth for DSL to
speed up, and competition to increase. "There's a lot of demand for it," she
says. Falconer claims a main factor to separate the market leaders and losers
will be the viability of the targeted market. We are only aiming to attract
multi-location businesses to our product.
Published figures and projections about growth of the Internet vary, but
agreement about rapid expansion is standard. A new study of the Internet
telephony business by Killen & Associates, a telecommunications research and
consultant group in Palo Alto, Ca. Forecasts an $8 Billion market by the year
2003 for providers of IP services offering voice, fax and video capabilities.
Recent mergers of telephone and cable companies, and acquisitions of Internet
technology companies predict that broadband access is the future of the online
world.
The Internet's increasingly pivotal role in business via Web content, e-
commerce and virtual private networks (VPNs), combined with the lack of
affordable, high-speed access solutions for small businesses, have created a
large niche for DSL services. Although the market is still nascent, Morgan
Stanley Dean Witter & Co. of New York estimates the U.S. DSL service market
for access alone will reach $7 billion to $9 billion by 2002.
Although local phone companies are in the best position to offer DSL because
they own the core infrastructure that supports it, until very recently, they
were reluctant to market these services to business customers. According to
New York-based Bank of America Securities LLC senior analyst Michael Renegar,
ILECs ("Incumbent Local Exchange Carriers") won't aggressively sell DSL
services to businesses. "DSL will cannibalize existing T1 service, for which
ILECs typically charge $1,000 a month," he says. "It would reduce margins
considerably."
Our Business Strategy
We intend to capitalize on the enormous public attention focused on the
Internet and the need for increased bandwidth by increasing our telemarketing
sales and technical support staff, targeting our advertising to our core
audience, and by providing the most efficient, lowest-cost high speed
Internet service in our service corridor.
Corporate Information
We were incorporated under Nevada law on March 31, 1997.
Our executive offices are at 1720 East Garry Avenue, Suite 201, Santa Ana,
California 92705. Our telephone number is (949) 475-4500. Our fax number is
(949) 475-4518.
This Offering
Securities Offered.................... 2,514,706 Shares Of Common
Stock At Various Times By The
Selling Security Holders.
Common Stock Outstanding...............36,115,666 Shares As Of
November 30, 1999.
Use Of Proceeds........................We Will Receive None Of The
Proceeds Of The Conversion of
Preferred Stock Into 1,176,471
Underlying Shares Of Common Stock.
We Will Receive $3,187,500
Upon The Exercise Of The Warrants
into 750,000 Underlying Shares
Of Common Stock.
We Will Use Any Proceeds
For General Corporate Purposes.
OTC Electronic Bulletin Board
Symbol........................"LMKI"
Risk Factors
Turn to the Risk Factors section of this prospectus for information on some
of the risk factors that should be considered before investing in the common
stock.
Summary Financial And Operating Information
This summary financial information below is from and should be read with the
financial statements, and the notes to the financial statements, elsewhere in
this Prospectus. All numbers are in thousands, except for share and per share
amounts.
Statement of Operations Data:
Year Ended August 31 Three Months ended
November 30
1999 1998 1999 1998
Revenues 1,598,076 397,363 1,505,053 40,881
Gross Profit 675,487 345,362 795,666 37,707
Loss before income taxes (656,632) (11,019) (115,939) (62,362)
Net Loss (427,532) (11,119) (115,939) (62,362)
Basic and diluted
loss per share: (2) (0) (0) (0) (0)
Basic and Diluted
Weighted average (1) (0) (0) (0) (0)
Number of shares
outstanding: 36,115,666 19,986,666 36,115,666 19,986,666
Balance Sheet Data:
As of August 31, 1999 As of November 30,
1999
Working capital (deficiency) 121,920 1,928,230
Total assets 1,947,793 4,743,584
Total liabilities 2,033,558 2,667,188
Stockholders equity (deficit) (85,765) 2,076,396
(1) Net Loss per Common Share: Stock options and warrants outstanding are
not considered common stock equivalents, as the affect on net loss per share
would be anti-dilutive.
RISK FACTORS
An investment in our Common Stock involves a high degree of risk and should
only be made by investors who can afford to lose their entire investment.
You should carefully consider the risks and uncertainties described below and
other information in this Prospectus before deciding to invest in our Common
Stock. The risks described herein are intended to highlight risks that are
specific to us and are not the only ones we face. Additional risks and
uncertainties, such as those that generally apply to our industry may also
impair our business operations. Risks and uncertainties, in addition to those
we describe below, that are presently not known to us or that we currently
believe are not material, may subsequently become material and may also
impair our financial condition.
If any of the following risks actually occur, our business, results of
operations and financial condition could be materially, adversely affected.
This could cause the trading price of our Common Stock to decline and a loss
of part or all of any investment in our Common Stock.
FORWARD LOOKING STATEMENTS. The words "may," "will," "expect," "anticipate,"
"believe," "continue," "estimate," "project," "intend," and similar
expressions used in this Prospectus are intended to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which speak only as of the date made. We undertake no obligation
to publicly release the result of any revision of these forward-looking
statements to reflect events or circumstances after the date they are made or
to reflect the occurrence of unanticipated events. You should also know that
such statements are not guarantees of future performance and are subject to
risks, uncertainties and assumptions. Should any of these risks or
uncertainties materialize, or should any of our assumptions prove incorrect,
actual results may differ materially from those included within the forward-
looking statements.
Financial Risks
OUR EXTREMELY LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS. We only recently began to market our major service,
DSL lines. We began offering commercial service in 1999. Accordingly, you
have limited information about our company with which to evaluate our
business, strategies and performance and an investment in our common stock.
FLUCTUATIONS IN OPERATING RESULTS. Our operating results could vary from
period to period as a result of our inability to increase continuously our
number of customers. An economic recession, downturn in consumer optimism or
other factors may trigger an economic environment that could negatively
influence potential customers and may affect our sales effort.
LOSSES. We have incurred losses and have experienced negative operating cash
flow to date and expect our losses and negative operating cash flow to
continue. If our revenue does not grow as expected or capital and operating
expenditures exceed our plans, our business, prospects, financial condition
and results of operations will be materially adversely affected. We cannot
be certain if or when we will be profitable or if or when we will generate
positive operating cash flow. We expect our operating expenses to increase
significantly as we expand our business. In addition, we expect to make
significant additional capital expenditures during 2000 and in subsequent
years. We also expect to substantially increase our operating expenditures,
particularly network and operations and sales and marketing expenditures, as
we implement our business plan. However, our revenue may not increase despite
this increased spending.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE. We have funded operations
primarily through operating funds, loans from shareholders, and private sales
of equity securities, borrowings from third parties and capitalized leases.
Our capital requirements depend on numerous factors, including the rate of
market acceptance of our services, our ability to maintain and expand our
customer base, the rate of expansion of our network infrastructure and
potential acquisitions. We cannot accurately predict the timing and amount of
our capital requirements. If our capital requirements vary materially from
our plans, we may require additional financing sooner than anticipated.
We have no commitments for additional financing other than a $2.5 million
commitment to invest in our Series A 6% Convertible Preferred Stock under
certain conditions, and a $35 million commitment to invest in our Common
Stock under certain conditions.
Any additional equity financing may be dilutive to our stockholders, and debt
financing, if available, may involve restrictions on our financing and
operating activities. If we are unable to obtain additional financing as
needed, we may be required to reduce the scope of our operations or
anticipated expansion.
Industry Risks
TECHNOLOGY TRENDS COULD RENDER OUR BANDWIDTH OR TECHNOLOGY OBSOLETE. Our
products and services are targeted toward users of the Internet, which has
experienced rapid growth. The Internet services market is characterized by
rapidly changing technology, evolving industry standards; changes in customer
needs and frequent new service and product introductions. Our future success
depends, in part, on our ability to use leading technologies effectively, to
develop our technical expertise, to enhance our existing services and to
develop new services that meet changing customer needs on a timely and cost-
effective basis. In particular, we must provide customers with the
appropriate products, services, and guidance to best take advantage of the
rapidly evolving Internet. Our failure to respond in a timely and effective
manner to new and evolving technologies (such as those offering greater
bandwidth services, among others) could have a negative impact on our
business and financial results.
We cannot assure that we will be successful in responding to changing
technology or market trends. In addition, services or technologies developed
by others may render our services or technologies uncompetitive or obsolete.
Furthermore, changes to our services in response to market demand may require
the adoption of new technologies that could likewise render many of our
assets technologically uncompetitive or obsolete. As we accept bandwidth from
IXC and our other existing global network suppliers or acquire bandwidth or
equipment from other suppliers that may better meet our needs than existing
bandwidth or equipment, many of our assets could be determined to be obsolete
or excess. The disposition of obsolete or excess assets could have a material
adverse effect on our business, financial condition and results of
operations.
Even if we do respond successfully to technological advances and emerging
industry standards, the integration of new technology may require substantial
time and expense, and we cannot assure you that we will succeed in adapting
our network infrastructure in a timely and cost-effective manner.
The high-speed data communications industry is in the early stages of
development and is subject to rapid and significant technological change.
Since this industry is new and because the technologies available for high-
speed data communications services are rapidly evolving, we cannot accurately
predict the rate at which the market for our services will grow, if at all,
or whether emerging technologies will render our services less competitive or
obsolete. If the market for our services fails to develop or grows more
slowly than anticipated, our business, prospects, financial condition and
results of operations could be materially adversely affected. Many providers
of high-speed data communication services are testing products from numerous
suppliers for various applications, and these suppliers have not broadly
adopted an industry standard. In addition, certain industry groups are in the
process of trying to establish standards which could limit the types of
technologies we could use. Certain critical issues concerning commercial use
of DSL technology for Internet access, including security, reliability, ease
and cost of access and quality of service, remain unresolved and may impact
the growth of these services.
OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET. Our future success
substantially depends on continued growth in the use of the Internet.
Although we believe that Internet usage and popularity will continue to grow
as it has in the past, we cannot be certain that this growth will continue or
that it will continue in its present form. If Internet usage declines or
evolves away from our business, our growth will slow or stop and our
financial results will suffer.
OTHER TECHNOLOGIES FOR THE HIGH-SPEED CONNECTIVITY MARKET WILL COMPETE WITH
OUR SERVICES. Our services are competing with a variety of different high-
speed Internet connectivity technologies, including cable modem, satellite
and other wireless technologies. Many of these technologies will compete
effectively with our services. If any technology competing with our
technology is more reliable, faster, less expensive, reaches more customers
or has other advantages over DSL technology, then the demand for our products
and services and our revenues and gross margins may decrease.
WE FACE A HIGH LEVEL OF COMPETITION IN THE COMMUNICATION SERVICES INDUSTRY.
The market for high bandwidth communications connectivity and related
services is extremely competitive. We anticipate that competition will
continue to intensify as the use of the Internet grows. The tremendous growth
and potential market size of the Internet access market has attracted many
new start-ups as well as established businesses from different industries.
Our current and prospective competitors include other national, regional and
local ISPs, long distance and local exchange telecommunications companies,
cable television, direct broadcast satellite, wireless communications
providers and on-line service providers. We believe that our network,
products and customer service distinguish us from these competitors. However,
some of these competitors have significantly greater market presence, brand
recognition and financial, technical and personnel resources than we do.
We compete with all of the major long distance companies, also known as
inter-exchange carriers, including AT&T, MCIWorldCom, Sprint and Cable &
Wireless/IMCI, which also offer Internet access services. The recent sweeping
reforms in the federal regulation of the telecommunications industry have
created greater opportunities for local exchange carriers, including the
regional Bell operating companies, to enter the Internet connectivity market.
We believe that there is a move toward horizontal integration through
acquisitions of, joint ventures with, and the wholesale purchase of
connectivity from ISPs to address the Internet connectivity requirements of
the current business customers of long distance and local carriers. The
WorldCom/MFS/UUNet consolidation, the WorldCom/MCI merger, the ICG/NETCOM
merger, Cable & Wireless' purchase of the internet MCI assets, the
Intermedia/DIGEX merger, GTE's acquisition of BBN, Global Crossing's recently
announced plans to acquire Frontier Corp. (and Frontier's prior acquisition
of Global Center), Qwest Communication's recently announced plans to acquire
US West and AT&T's purchase of IBM's global communications network are
indicative of this trend. Accordingly, we expect to experience increased
competition from the traditional telecommunications carriers. Many of these
telecommunications carriers may have the ability to bundle Internet access
with basic local and long distance telecommunications services. This bundling
of services may have an adverse effect on our ability to compete effectively
with the telecommunications providers and may result in pricing pressure on
us that could have a material adverse effect on our business, financial
condition and results of operations.
Many of the major cable companies have announced that they are exploring the
possibility of offering Internet connectivity, relying on the viability of
cable modems and economical upgrades to their networks. Several announcements
also have recently been made by other alternative service companies
approaching the high bandwidth connectivity market with various wireless
terrestrial and satellite-based service technologies.
The predominant on-line service providers, including America Online and
Microsoft Network, have all entered the Internet access business by
engineering their current proprietary networks to include Internet access
capabilities. We compete to a lesser extent with these on-line service
providers. However, America Online's acquisition of Netscape Communications
Corporation and related strategic alliance with Sun Microsystems will enable
it to offer a broader array of Internet protocol-based services and products
that could significantly enhance its ability to appeal to the business
marketplace and, as a result, compete more directly with us. Other
Internet service providers, such as Concentric Network and Flashcom, have
also begun to develop high-speed access capabilities to leverage their
existing products and services.
Recently, there have been several announcements regarding the planned
deployment of broadband services for high speed Internet access by cable and
telephone companies. These services would include new technologies such as
cable modems and xDSL. These providers have initially targeted the
residential consumer. However, it is likely that their target markets will
expand to encompass business customers, which is our target market. This
expansion could adversely affect the pricing of our service offerings.
Moreover, there has recently been introduced a number of free ISP services,
particularly in non-U.S. markets, and some ISPs are offering free personal
computers to their customers. These trends could have a material adverse
effect on our business, financial condition and results of operations.
These providers of DSL-based services including Network Access Solutions,
NorthPoint and Rhythms NetConnections;
As a result of the increase in the number of competitors and the vertical and
horizontal integration in the industry, we currently encounter and expect to
continue to encounter significant pricing pressure and other competition.
Advances in technology as well as changes in the marketplace and the
regulatory environment are constantly occurring, and we cannot predict the
effect that ongoing or future developments may have on us or on the pricing
of our products and services. Increased price or other competition could
result in erosion of our market share and could have a material adverse
effect on our business, financial condition and results of operations. We
cannot assure you that we will have the financial resources, technical
expertise or marketing and support capabilities to continue to compete
successfully.
Many of our current and potential competitors have longer operating
histories, greater brand name recognition, larger customer bases and
substantially greater financial, technical, marketing, management, service
support and other resources than we do. Therefore, they may be able to
respond more quickly than we can to new or changing opportunities,
technologies, standards or customer requirements.
Operational Risks
WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS TO
CONNECT OUR NETWORK. We rely on traditional telecommunications carriers to
transmit our traffic over local and long distance networks. These networks
may experience disruptions that are not easily remedied. In addition, we
depend on certain suppliers of hardware and software. If our suppliers fail
to provide us with network services, equipment or software in the quantities,
at the quality levels or at the times we require, or if we cannot develop
alternative sources of supply, it will be difficult, if not impossible, for
us to provide our services.
Our success depends on negotiating and entering into strategic partner
interconnection agreements with providers of communications bandwidth. We
must enter into and renew interconnection agreements with providers of
communications bandwidth in each of our target markets in order to provide
service in that market. These agreements govern, among other things, the
price and other terms regarding our location of equipment in the offices of
providers of communications bandwidth which house telecommunications
equipment and from which local telephone service is provided, known as
central offices, and our lease of copper telephone lines that connect those
central offices to our customers. Delays in obtaining interconnection
agreements would delay our entrance into target markets and could have a
material adverse effect on our business and prospects. Our interconnection
agreements generally have limited terms of one to two years and we cannot
assure you that new agreements will be negotiated or that existing agreements
will be extended on terms favorable to us.
WE COMPETE WITH THE STRATEGIC PARTNERS ON WHOM WE DEPEND. Many of our
strategic partners are providing communications bandwidth to our potential
customers and to our competitors. Consequently, these companies have certain
incentives to delay: our entry into, and renewals of, interconnection
agreements with them, our access to their central offices to install our
equipment and provide our services, providing acceptable transmission
facilities and copper telephone lines, and our introduction and expansion of
our services. Any such delays would negatively impact our ability to
implement our business plan and harm our competitive position, business and
prospects.
WE PRIMARILY USE STRATEGIC PARTNERS TO INSTALL NECESSARY EQUIPMENT AND WIRING
IN THE CENTRAL OFFICES OF TRADITIONAL TELEPHONE COMPANIES AND AT OUR
CUSTOMERS PREMISES. These installations must be completed on a timely basis
and in a cost-efficient manner. Failure of our strategic partners to install
the equipment and wiring or failure to complete these installations on a
timely, cost-efficient basis could materially delay our growth or damage our
reputation, our business and prospects and results of operations. If we are
unable to retain our partners to provide these services, we will have to
complete these installations ourselves, with a diversion of our management
attention and delays in installations, increased costs and lower quality.
WE FACE RISKS ASSOCIATED WITH OUR ACQUISITIONS OF BANDWIDTH FROM NETWORK
SUPPLIERS. We acquire our bandwidth through our strategic alliances with
Covad Communications Group, Inc. and Qwest Communications International, Inc.
We are dependent upon their ability to satisfy their obligations to us. If
they cannot, we will incur significant expenses to utilize other sources of
bandwidth. We also have risks attendant with their ability to build-out
their networks under construction and our access to that bandwidth. We are
subject to a variety of risks relating to our recent acquisitions of fiber-
based telecommunications bandwidth from our various global network suppliers,
including our strategic alliance with Level 3, and the delivery, operation
and maintenance of such bandwidth. Such risks include, among other things,
the following:
the risk that financial, legal, technical and/or other matters may
adversely affect such suppliers' ability to perform their respective
operation, maintenance and other services relating to such bandwidth, which
may adversely affect our use of such bandwidth;
the risk that we will not have access to sufficient additional capital
and/or financing on satisfactory terms to enable us to make the necessary
capital expenditures to take full advantage of such bandwidth;
the risk that such suppliers may not continue to have the necessary
financial resources to enable them to complete, or may otherwise elect not to
complete, their contemplated build-out of their respective fiber optic
telecommunications systems; and
the risk that such build-out may be delayed or otherwise adversely
affected by presently unforeseeable legal, technical and/or other factors.
We cannot assure that we will be successful in overcoming these risks or any
other problems encountered in connection with our acquisition of sufficient
bandwidth.
WE MAY BE SUBJECT TO RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. We may
acquire complementary businesses, although we have no definitive agreements
to do so at this time. An acquisition may not produce the revenue, earnings
or business synergies that we anticipate, and an acquired business might not
perform as we expect. If we pursue any acquisition, our management could
spend a significant amount of time and effort in identifying and completing
the acquisition and may be distracted from the operation of our business. If
we complete an acquisition, we would probably have to devote a significant
amount of management resources to integrating the acquired business with our
existing operations, and that integration may not be successful.
RELIANCE UPON OPERATING MANAGEMENT. Our success is dependent substantially
upon the efforts of certain key personnel. No person should purchase the
securities offered herein unless they are willing to entrust all aspects of
the Company to those persons. The loss of any of such key personnel could
adversely affect our business and prospects. We may not be able to replace
or add to such key personnel.
OUR RAPID GROWTH MAY STRAIN OUR OPERATIONS. Our rapid growth will continue
to cause a significant strain on our managerial, operational, financial, and
information systems resources. To accommodate our increasing size and manage
our growth, we must continue to implement and improve these systems and
expand, train and manage our employees. Although we are taking steps to
manage our growth effectively, we may not succeed. If we fail to successfully
manage our growth, our ability to maintain and increase our customer base
will be impaired, and as a result, our business may suffer.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY ADVERSELY AFFECT
OUR BUSINESS. We rely on unpatented trade secrets and know-how to maintain
our competitive position. Our inability to protect these secrets and know-how
could have a material adverse effect on our business and prospects. We
protect our proprietary information by entering into confidentiality
agreements with employees and consultants and potential business partners.
These agreements may be breached or terminated. In addition, third parties,
including our competitors, may assert infringement claims against us. Any
such claims, could result in costly litigation, divert management's attention
and resources, require us to pay damages and/or to enter into license or
similar agreements under which we would be required to pay license fees or
royalties.
A BREACH OF OUR NETWORK SECURITY COULD RESULT IN LIABILITY TO US AND DETER
CUSTOMERS FROM USING OUR SERVICES. Our network may be vulnerable to
unauthorized access, computer viruses and other disruptive problems. Any of
the foregoing problems could result in liability to us and deter customers
from using our service. Unauthorized access could jeopardize the security of
confidential information stored in the computer systems of our customers.
Eliminating computer viruses and alleviating other security problems may
require interruptions, delays or cessation of service to our customers, cause
us to incur significant costs to remedy the problem, and divert management
attention. We can provide no assurance that the security measures we have
implemented will not be circumvented or that any failure of these measures
will not have a material adverse effect on our ability to obtain and retain
customers. Any of these factors could have a material adverse effect on our
business and prospects.
YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY. Many existing computer
programs use only two digits to identify a year. These programs were designed
and developed without addressing the impact of the upcoming change in the
century. If not corrected, many computer software applications could fail or
create erroneous results by, at or beyond the year 2000. We utilize software,
computer technology and other services internally developed and provided by
third-party vendors that may fail due to the year 2000 phenomenon.
We have assessed our proprietary software and internal systems and determined
them to be year 2000 compliant. We anticipate that our systems, including
components thereof provided by third-party vendors, will be year 2000
compliant by 2000. The failure of our software and computing systems and of
our third-party vendors to be year 2000 compliant could have a material
adverse effect on us.
Regulatory Risks
GOVERNMENT REGULATION. Our services are subject to federal, state and local
regulation and changes in laws or regulations could adversely affect the way
we operate our business.
The facilities we use and the services we offer are subject to varying
degrees of regulation at the federal, state and/or local levels. Changes in
applicable laws or regulations could, among other things, increase our costs,
restrict our access to the central offices of the traditional telephone
companies, or restrict our ability to provide our services. For example, the
1996 Telecommunications Act, which, among other things, requires traditional
telephone companies to un-bundle network elements and to allow competitors to
locate their equipment in the telephone companies' central offices, is the
subject of ongoing proceedings at the federal and state levels, litigation in
federal and state courts, and legislation in federal and state legislatures.
In addition, FCC rules governing pricing standards for access to the networks
of the traditional telephone companies are currently being challenged in
federal court. We cannot predict the outcome of the various proceedings,
litigation and legislation or whether or to what extent these proceedings,
litigation and legislation may adversely affect our business and operations.
In addition, decisions by the FCC and state telecommunications regulators
will determine some of the terms of our relationships with traditional
telecommunications carriers, including the terms and prices of
interconnection agreements, and access fees and surcharges on gross revenue
from interstate and intrastate services. State telecommunications regulators
determine whether and on what terms we will be authorized to operate as a
competitive local exchange carrier in their state. In addition, local
municipalities may require us to obtain various permits, which could increase
the cost of services or delay development of our network. Future federal,
state and local regulations and legislation may be less favorable to us than
current regulations and legislation and may adversely affect our businesses
and operations.
We provide Internet services through data transmissions over public telephone
lines and cable networks. These transmissions are governed by the Federal
Communications Commission ("FCC"). As an Internet access provider, we are not
subject to direct regulation by the FCC or any other governmental agency,
other than regulations applicable to businesses generally. However, we could
become subject to FCC or other regulatory agency regulation especially as
Internet services and telecommunication services converge. Changes in the
regulatory environment could decrease our revenues and increase our costs.
TELEMARKETING REGULATIONS. Our marketing depends primarily on the
telemarketing sale channel. Telemarketing sales practices are regulated both
federally, and at the state level including the time telephone solicitations
can be made to residences, prohibiting use of automated telephone dialing
equipment, maintaining "do not call lists", and prohibiting misrepresentation.
We train and supervise our telephone service representatives to comply with
these rules, however there can be no assurance that such rules are not
violated. In the event such rules are violated we may be subject to fines and
penalties.
UNCERTAIN TAX AND OTHER SURCHARGES. Telecommunications providers are subject
to a variety of federal and state surcharges and fees on their gross revenues
from interstate and intrastate services. These surcharges and fees may be
increased and other surcharges and fees not currently applicable to our
services could be imposed on us. In either case, the cost of our services
would increase and that could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Market Risks
THE VALUE OF STOCKS IS VOLATILE. Stock markets experience periods of extreme
volatility. Many times these periods are unrelated to the operating
performance of common stock or to public announcements concerning the issuers
of the stock. Our common stock is not actively traded. The bid and asked
prices have fluctuated significantly. In the past two fiscal years, the stock
traded from a high of $18.375 to a low of $0.02. The following factors
could affect the price of the stock:
general market price declines,
market volatility (especially for low priced securities), and
factors related to the general economy or our company.
All of the shares registered for sale on behalf of the Selling Security
Holders are "restricted securities" as that term is defined in Rule 144 under
the Securities Act. We filed a Registration Statement of which this
prospectus is a part to register these restricted shares for sale into the
public market by the Selling Security Holders. The effect of this
registration statement is to increase the number of unrestricted shares. A
sudden increase in the amount of unrestricted shares may cause the price of
the stock to go down and also could affect our ability to raise equity
capital. Any outstanding shares not sold by the Selling Security Holders
pursuant to this prospectus will remain "restricted shares" in the hands of
the holder, except for those held by non-affiliates, for a period of one
year, calculated pursuant to SEC Rule 144.
OUR COMMON STOCK COULD BECOME A "PENNY STOCK" AND, IF IT DOES, IT COULD BE
HARDER TO SELL IN THE SECONDARY MARKET. If our stock price dropped and there
were certain adverse changes to our net tangible assets and revenues, our
common stock might be subject to certain rules, called penny stock rules.
Those rules impose additional sales practice requirements on broker-dealers
who sell those securities. For any transaction involving a penny stock, the
rules require, among other things, the delivery, prior to the transaction, of
a disclosure schedule required by the SEC relating to the market for penny
stocks. The broker-dealer also must disclose the commission payable to both
the broker-dealer and its registered representative, and current quotations
for the securities. Finally, monthly statements must be sent disclosing
recent price information for the penny stocks held in the customer's account.
Although we believe that our common stock is not penny stock, in the event
our common stock subsequently becomes characterized as a penny stock, our
market liquidity could be severely affected. If that happens, the regulations
relating to penny stocks could limit the ability of broker-dealers to sell
our common stock in the secondary market.
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY. Prior to this offering, there has been no public market for our
common stock. After this offering, an active trading market in our stock
might not develop or continue. If you purchase shares of our common stock in
this offering, you will pay a price that was not established in a competitive
market. Rather, you will pay a price that we negotiated with the
representatives of the underwriters. The price of our common stock that will
prevail in the market after this offering may be higher or lower than the
price you pay.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A
SIGNIFICANT PERCENTAGE OF OUR COMPANY AND WILL BE ABLE TO EXERCISE
SIGNIFICANT INFLUENCE OVER OUR COMPANY. After this offering, our executive
officers, directors and principal stockholders and their affiliates will
together control approximately 61.4% of our outstanding common stock. As a
result, these stockholders, if they act together, will be able to control all
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions, and will continue to have
significant influence over our affairs. This concentration of ownership may
have the effect of delaying, preventing or deterring a change in control,
could deprive our stockholders of an opportunity to receive a premium for
their common stock as part of a sale and might affect the market price of our
common stock.
THE MARKET PRICE OF OUR COMMON STOCK MAY DROP SIGNIFICANTLY WHEN THE
RESTRICTIONS ON RESALE BY OUR EXISTING SECURITYHOLDERS LAPSE. Following this
offering, we will have approximately 59,700,000 shares of common stock
outstanding. Approximately 50,100,000 shares, or 83.9%, of our outstanding
common stock will be subject to restrictions on resale under U.S. securities
laws. Holders of a majority of these shares have agreed not to sell these
shares for at least 180 days following the date of this prospectus although
Deutsche Bank Securities Inc. can waive this restriction at any time. As
these restrictions on resale end beginning in April 2000, the market price of
our common stock could drop significantly if holders of these shares sell
them or are perceived by the market as intending to sell them. These sales
also may make it difficult for us to sell equity securities in the future at
a time and price that we deem appropriate.
DISAPPOINTING QUARTERLY REVENUE OR OPERATING RESULTS COULD CAUSE THE PRICE OF
OUR COMMON STOCK TO FALL. Our quarterly revenue and operating results are
difficult to predict and may fluctuate significantly from quarter to quarter.
If our quarterly revenue or operating results fall below the expectations of
investors or security analysts, the price of our common stock could fall
substantially. Our quarterly revenue and operating results may fluctuate as a
result of a variety of factors, many of which are outside our control,
including:
The rate at which we are able to attract customers within our target
markets and our ability to retain these customers at sufficient aggregate
revenue levels;
The ability to deploy our networks on a timely basis;
The availability of financing to continue our expansion;
The technical difficulties or network downtime; and
The introduction of new services or technologies by our competitors and
resulting pressures on the pricing of our service.
LACK OF DIVIDENDS. We have never declared any cash dividends on our common
stock. If we were to become profitable, we expect that all earnings would be
retained to support the business of our company. Accordingly, we do not
anticipate paying cash dividends on our common stock in the foreseeable
future.
WE RESERVED SOME OF OUR UNISSUED SHARES FOR FUTURE SALE. On November 30,
1999, we had 13,514,706 shares of common stock reserved for exercise of
options and warrants as follows:
(a) Our 1999 Stock Plan has reserved 3,000,000 common shares, grants
have been made for 1,515,440 shares and 1,484,560 remain ungranted;
(b) There are 8,000,000 shares reserved for exercise of options held by
senior management and counsel;
(c) There are 2,514,706 common shares reserved for issuance under this
offering; and
(d) There are 490,000 shares of common stock reserved for issuance
pursuant to a commitment warrant.
Our Series A 6% Convertible Preferred Stock is convertible into shares of
common stock at a conversion rate of $1,000 per share divided by the lower of
(i) $4.25 or (ii) 80% of the average closing bid price for the common stock
for the twenty five trading days immediately before the conversion date.
Since there is no minimum conversion price on either the Series A Preferred
Stock, a reduction of bid price could require us to issue a great amount of
common stock on conversion of the Series A Preferred Stock.
Our warrants have reset provisions that allow the holders to receive
additional shares if certain adjustments need to be made pursuant to the
warrant provisions.
When large amounts of common stock are sold or become available for sale in
the public market, it could lower the market price of the common stock and
hurt our ability to raise additional capital by selling our equity
securities.
USE OF PROCEEDS
We will not receive any proceeds from the conversion of the preferred shares
into common stock by the Selling Security Holders. We will receive
$3,187,500 on the exercise of all of the warrants and we will use it for
general corporate purposes.
We will bear the expenses of the registration of the shares of common stock
offered herein and estimate that these expenses will be approximately
$20,000.
THE MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock has been traded in the over-the-counter market since 1995. It
is currently is traded in the over-the-counter market and is quoted on the OTC
Electronic Bulletin Board (symbol "LMKI") maintained by NASDAQ. The market for
our Common Stock has often been sporadic and limited.
The following table sets forth the high and low bid prices for our Common
Stock as reported by NASDAQ during the past two years and current year. The
prices reflect inter-dealer quotations, without retail markup, markdown or
commissions and may not represent actual transactions.
Quarter Ended High Bid Low Bid
11/30/97 0.063 0.01
2/28/98 0.0625 0.03125
5/31/98 0.03125 0.03125
8/31/98 0.03125 0.03125
11/28/99 0.03125 0.03125
2/29/99 0.09 0.02
5/31/99 1.00 0.05
8/31/99 9.125 0.4375
Period
9/1/99 to 11/30/99 5.875 2.625
12/1/99 to 12/14/99 18.375 5.50
On or about December 15, 1999, we filed an application for listing on the
NASDAQ National Market ("NNM"). We believe we qualify for such listing based
on meeting the market capitalization requirements set forth in NNM Alternative
3, however there can be no assurance that our application will be approved.
Holders
As of December 14, 1999 the closing bid price of our Common Stock was $11.125.
As of August 31, 1999, the end of our fiscal year, there were 428 registered
holders of record of our shares.
Dividends
No dividends have been declared with respect to our Common Stock since
inception. We are not likely to pay any dividends in the foreseeable future.
We intend to reinvest any earnings in its operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto, as well as the other information included
elsewhere in this prospectus. Our discussion contains forward-looking
statements based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations, and intentions.
Our actual results and the timing of certain events could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors," "Business"
and elsewhere in this prospectus.
Three Months Ended November 30, 1999 and November 30, 1998
Results of Operations
Our operating results have fluctuated in the past due to on again, off again
General Telephone & Equipment Corporation ("GTE") sales promotions. As of
January of 1999 we canceled our contract with GTE and focused all our
attention on the DSL and broadband business. Since we started selling T-1
services last year we were working closely Mobilenetics Corporation and as of
June 1, 1999, we purchased all of the outstanding stock of Mobilenetics. The
management and employees of Mobilenetcis provided the needed technical
expertise to further our goal of being a leader in the DSL and broadband
market.
We have formed strategic partnerships with Covad, Level Three and Quest, to
bring high speed internet connectivity to the marketplace. These
partnerships' provide us with a nation-wide footprint in which we plan to
aggressively market our products. With these partners, and InterNap, we will
be a technological leader in the high speed internet connectivity marketplace.
In connection with our expansion in to a nation-wide provider, we expect to
significantly increase our capital expenditures, as well our sales and
marketing expenditures, to deploy our networks and support our customers.
Accordingly, we expect to incur substantial losses for at least the next two
years.
Revenue. Our revenue totaled approximately $1,505,053 for the three month
period ended November 30, 1999, a 3,582% increase over revenue of $40,881 for
the three month period ended November 30, 1998. The results of sales in the
first quarter of FY 1998-1999 is reflective of the lack of a GTE sales
promotion that quarter. The results of this year's quarter clearly
demonstrates why we stopped selling GTE services and switched to selling DSL
and broadband services. Sales for this quarter are over 25% greater than the
prior quarters results partly from the compounding effects of recurring
revenue sales from DSL and Broadband services and from the continued
broadening of our customer base.
Cost of Sales. Our cost of sales consists primarily of installation, usage
and equipment charges from Covad, access charges from local exchange carriers,
backbone and Internet access costs, equipment sold to customers and labor
directly to the implementation and maintenance of our services. Cost of sales
for the three month period ended November 30, 1999 was $709,387, and the cost
of sales for the three month period ended November 30, 1998 was $3,173, an
increase of 22,257%. This increase is attributable to the shift from reselling
GTE and T-1 services exclusively to transforming into a DSL, ISP, Broadband
provider. We expect our cost of sales to continue to increase in
dollar amount, while declining as a percentage of revenue as we expand our
customer base.
Sales Expense. Our sales expense consists primarily of personnel expenses,
including salary and commissions, and costs of for customer support functions.
The marketing and sales expense was approximately $259,897 for the three month
period ended November 30, 1999 and $72,589 for the three month period ended
November 30, 1998. The $208,175 increase reflects an expansion of the sales
organizations necessary to support our shift from reselling GTE services to
selling DSL, T-1, broadband and co-location services. This increase also
reflects a growth in subscriber acquisition costs, related to both increased
direct marketing efforts as well as commissions paid sales staff. Sales
expense as a percentage of revenue decreased to 17% for the three month period
ended November 30, 1999 from 177% in the year earlier period as a result of
our product shift and tremendous increase in sales. We expect sales
expenditures to continue to increase in dollar amount, decline slightly as a
percentage of revenue.
General and Administrative Expense. General and administrative expense
consists primarily of personnel expense, rent, professional fees,
depreciation, amortization and utilities. General and administrative expense
was $625,225 for the three month period ended November 30, 1999 and $25,463
for the three month period ended November 30, 1998. This higher level of
expense reflects increases in all categories, and was necessary to manage the
financial, legal and administrative aspects of our business. The total full
time employees have grown from ten as of November 30, 1998 to 80 as of
November 30, 1999. General and administrative expense as a percentage of
revenue declined to 62% for the three month period ended November 30, 1999
from 35% in the year earlier period as a result of our increased
revenue. We expect general and administrative expenses to increase
in dollar amount, reflecting its growth in operations, but to decline as a
percentage of revenue.
Net Income (Loss) Attributable to Common Stockholders. Our net loss
attributable to common stockholders was approximately $115,939 for the three
month period ended November 30, 1999 as compared to net income approximately
$62,362 for the three month period ended November 30, 1998.
We expect to focus in the near term on building and increasing its revenue
base, which will require us to significantly increase our expenses for
personnel, marketing, network infrastructure and the development of new
services, and may adversely impact our short term operating results. As a
result, we believe that we will incur losses in the near term and we cannot
assure you that we will be profitable in the future.
Financial Condition
To date, we have satisfied our cash requirements primarily through debt
financings and capitalized lease financings. In late November of 1999 we
received $2,278,100 from an equity placement. Our principal
uses of cash are to fund working capital requirements, acquisition of
additional DSL lines and capital expenditures, and to service our capital
lease and debt financing obligations. Net cash provided by operations for the
three month periods ended November 30, 1999 and 1998 was approximately
$186,014 and $1,063, respectively. Cash provided by operating activities in
the period ending November 30, 1999 was primarily affected by the net loss
from operations and the increases of accounts receivable and accounts payable
as we were expanding our market share and improving our infrastructure. The
net cash provided from operations for the period ending November 30, 1997 was
the result of a decrease in accounts receivable.
Net cash used by investing activities for the three month period ended
November 30, 1999 was $805,343 for the purchase of equipment. No cash was
either used or provided by investing activities in the three month period
ending November 30, 1998. DSL routers located at client sites represented
$235,000, Cisco routers in support of broadband sales represented $428,000,
deposits of $80,000 for software and $62,000 for miscellaneous equipment.
Net cash used for financing activities for the three month period ending
November 30, 1998 was for repayment of capitalized leases. During November
1999, we closed the placement of the initial tranche of 2,500 shares
of Series A 6% Convertible Preferred Stock, $.001 par value (the "Series A
Preferred Stock"), to one purchaser (the "Purchaser") for an aggregate
purchase price of $2.5 million (less $221,900 placement fees and
commissions). Net cash provided by financing activities for the period
ending November 30, 1999 came from an increase in notes payable to officer of
$317,848 and sale of preferred stock for a net proceeds of $2,278,100.
The net cash increase for the three month period ended November 30, 1999 was
$1,928,230 as compared to a net cash decrease for the three month period ended
November 30, 1998 of $3,369.
At November 30, 1999, we had cash and cash equivalents of approximately
$2,053,922, and positive working capital of $1,726,226.
Fiscal Years Ended August 31, 1999 and August 31, 1998
Results of Operations.
Our operating results have fluctuated in the past due to on again
off again GTE sales promotions. As of January of 1999 LMKI canceled its
contract with GTE and focused all of its attention on its DSL and broadband
business. Since we started selling T-1 services last year it has
been working closely the Mobilenetics Inc. and as of June 1, 1999 LMKI
purchased all of the outstanding stock of Mobilenetics Inc. The management
and employees of Mobilenetcis provided the needed technical expertise to
further its goal in being a leader DSL and broadband market. LMKI has also
formed strategic partnerships with Covad, Level Three and Quest, to bring high
speed internet connectivity to the marketplace. These partnerships' provide
LMKI with a nation-wide foot print in which we plan to aggressively
market our products.
LMKI has created strategic partnerships with Covad, Level Three, and Quest to
be the technological leader in the high speed internet connectivity
marketplace. We plan to leverage these partnerships and others in
order to become a nation-wide provider of DSL and broadband services.
In connection with our expansion in to a nation-wide provider, we expect to
significantly increase our capital expenditures, as well our sales and
marketing expenditures, to deploy our networks and support our customers.
Accordingly, we expect to incur substantial losses for at least the next two
years.
Revenue
During the last half FYE August 31, 1999, LMKI entered the DSL and broadband
Internet market and increased its sales from $397,363 in 1998 to $1,598,076, a
402% increase. Two thirds of the sales were booked in the last quarter. This
increase is attributable to the switch to the DSL and broadband business, the
rapid growth in customers in both Los Angeles/Orange metro and San Francisco
Bay areas. We expect revenues to increase in future period as we expand our
network within existing regions, and enter in to new regions and increase our
sales and marketing efforts in all of our target markets.
Cost of Sales. We recorded network and product costs of $52,001 for the year
ended August 31, 1998 and $922,589 for the year ended August 31, 1999. This
increase is attributable to the expansion our DSL and broadband network and
increased orders resulting from our sales and marketing efforts. We expect
network and product costs to increase significantly in future periods due to
the increased sales activity and expected revenue growth.
Sales, Marketing, General and Administrative Expenses
Sales, marketing, general and administrative expenses consist primarily of
salaries, expenses for the development of our business, the development of
corporate identification, promotional and advertising costs, expenses for the
establishment of our management team, and sales commissions. These expenses
increased from $350,538 for the fiscal year ended August 31, 1998 to
$1,313,383 for the fiscal year ended August 31, 1999. This increase is
attribute to the growth in headcount in all areas of our company as we
expanded our sales and marketing efforts, expanded our networks and broadband
capabilities, and built our operating infrastructure. Sales, marketing,
general and administrative expenses are expected to increase significantly as
we continue to expand our business.
Deferred Compensation and Intangible Asset Amortization
We account for our stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and Related Interpretations. Since December of 1997, we have
granted stock options with exercise prices equal to the fair value of the
underlying Common Stock, as determined by our Board of Directors and based on
our sales of stock to third parties and based on quoted market prices.
Accordingly, we have not recorded compensation expense related to the granting
of stock options in 1997 and 1998.
In June of 1999 we recorded intangible assets of $443,709 for the issuance of
common stock for the acquisition of Mobilenetics. Annual amortization of this
asset will be approximately $89,000 in each of the next four years and
approximately $44,000 in the fifth subsequent year.
Financial Condition
To date, we have satisfied its cash requirements primarily through the
debt financings, capitalized lease financings and loans from shareholder. The
Company's principal uses of cash are to fund working capital requirements and
capital expenditures, to service its capital lease and debt financing
obligations, and to finance and fund acquisitions. Net cash used by operations
for the year ended August 31, 1999 was approximately $626,970 and the cash
used by operations for the year ended August 31, 1998 was approximately
$40,925. Cash used for operating activities in the year ending August 31, 1998
was primarily affected by the net loss from operations and the increase of
accounts receivable as we were expanding our market share and
improving our infrastructure.
Net cash provided by investing activities for the years ended August 31, 1999
and 1998 was approximately $3,512 and $0, respectively.
Net cash provided by financing activities for the years ended August 31, 1999
and 1998 was approximately $745,348 and $29,431. The primary source of
financing for 1999 was from one shareholder.
The net cash increase for the year ended August 31, 1999 was $3,772 as
compared to a net cash increase for the year ended August 31, 1998 of $5,408.
At August 31, 1999, we had cash and cash equivalents of
approximately $125,692, and positive working capital of $25,689. We
anticipates that we will require additional financing on a continuing basis.
We will be required to raise such additional funds through public or
private financing, strategic relationships or other arrangements. We cannot
assure you that such additional funding, if needed, will be available on terms
attractive to us, or at all.
Qualitative and Quantitative Disclosures About Market Risk
Interest Rate Sensitivity
We maintain our portfolio of cash equivalents and short-term investments
primarily in a portfolio comprised of commercial paper, money market funds
and short-term debt securities. As of September 30, 1999, all of our
investments mature in less than three months. Accordingly, we do not believe
that our investments have significant exposure to interest rate risk.
Exchange Rate Sensitivity
We operate primarily in the United States, and all sales to date have been
made in U.S. dollars. Accordingly, we have had no material exposure to
foreign currency rate fluctuations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133
establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Because we do not currently hold any derivative instruments and do not engage
in hedging activities, we expect that the adoption of FAS No. 133 will not
have a material impact on our financial position or results of operations.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of normal business activities. We have reviewed
our products and services, as well as our internal management information
systems in order to identify and modify those products, services and systems
that are not year 2000 compliant.
Based on our assessment to date, we have determined that our
internally developed software, including all of its operational, financial and
management information systems software is year 2000 compliant. Our
operational, financial and management information systems software which have
not been internally developed have been certified as year 2000 compliant by
the third party vendors who have supplied the software.
The equipment and software that runs our data centers are supplied
by Microsoft, Cisco Systems, and Intel Corporation. We have
implemented software patches supplied by Microsoft so that the Microsoft
software in these data centers no longer contains any material year 2000
deficiencies. we implemented similar patches for the software
supplied by Cisco Systems at the end of 1998. We are building a new
communications network, and, as such, we do not have a technology
infrastructure comprised of legacy software and systems. In building its
communications network, we have adopted a strategy to select
technology vendors and suppliers that provide products that are represented by
such vendors and suppliers to be Year 2000 Ready. In negotiating its vendor
and supplier contracts, we secured Year 2000 representations and
warranties that address the Year 2000 Readiness of the applicable product(s).
To date, we have exclusively used equipment from Cisco Systems within
our network backbone, and Customer Premises Equipment (CPE) from both Cisco
Systems and Flowpoint / Cabletron. Both companies have provided us
with sufficient Year 2000 readiness information and test results for the
equipment that we have purchased from these vendors. We have tested
and validated the Year 2000 Readiness of the company Network and select
external systems, products, and facilities that are essential components in
our delivery of the Services by engaging in a product delivery
system tests. These system tests have been performed in a controlled, defined
laboratory environment utilizing procedures to replicate the end-to-end
delivery of Services. We do not separately track internal costs
incurred to assess and remedy deficiencies related to the year 2000 problem,
however, such costs are principally the payroll costs for its information
systems group. We do not have and is not developing a contingency
plan in the event its systems fail as a result of year 2000 related problems.
However, despite testing by us and our vendors, our
products, services and systems may contain undetected errors or defects
associated with year 2000 date functions. In the event any material errors or
defects are not detected and fixed or third parties cannot timely provide
us with products, services or systems that meet the year 2000
requirements, our operating results could be materially adversely
affected. Known or unknown errors or defects that affect the operation of
our products, services or systems could result in delay or loss of
revenue, interruption of network services, cancellation of customer contracts,
diversion of development resources, damage to our reputation, and
litigation costs. There can be no assurance that these or other factors
relating to year 2000 compliance issues will not have a material adverse
effect on our business, operating results or financial condition.
BUSINESS
Overview
LMKI Inc., formerly Landmark International, Inc., delivers broadband
communications solutions including high-speed Internet access, data, voice
and video services over a revolutionary national network to a wide spectrum
of business customers. Additionally, we offer application development,
network integration and systems management services to businesses worldwide.
Through strategic alliances and cost-effective network planning, we provide
our customers with high performance and service. We provide both of the
elements critical to the success of any business interested in utilizing the
Internet: Access and Communications Applications. We offer various cost-
effective broadband connectivity options to businesses of all scope and size.
Our broadband access offerings range from DSL to DS3 service. Additionally,
we offer Network Development solutions and Internet Utility solutions. With
our extensive knowledge and experience we are able to deliver VPN (Virtual
Private Networking) solutions, RPN (Real Private Networking) solutions, Co-
location (place our equipment in their facility), VOIP integration (Voice
over Internet Protocol) and Inter/Intra/Extra/net application development.
Furthermore, the design and deployment of these solutions takes full
advantage of the speed and reliability provided by our broadband Internet
connections.
Our fully integrated, cost-effective solution approach gives businesses
little reason to search elsewhere for the same solution that would be
delivered by 2 to 3 different companies, each specializing in one facet to
the whole solution. Because our network is smarter than the competition and
we have extensive experience in deploying multi-faceted Internet solutions,
our plan is to brand LMKI as the clear market leader in delivering solid,
complete and cost-effective network solutions to businesses that need to
integrate the utility of the Internet into their operations.
We are also an Internet Service Provider (ISP), offering small, medium, and
large-sized businesses the lowest-cost entry-level connection to the Internet
via high speed DSL, the newest and fastest communications technology. Our
proprietary product, the Zip-DSL, allows all businesses to participate in the
full range of Internet services.
We are customer-driven, providing subscribers 24-hours-a-day, seven-days-a-
week personal service. Partnership agreements with Covad (NASDAQ:COVD), Qwest
Communications (NASDAQ:QWST), and Level Three Communications (NASDAQ:LVLT)
guarantee technical support and field service for near-perfect network
reliability for our growing infrastructure.
Currently we have a large number of customers that come from a wide range of
industries in the marketplace. With favorable partnering and peering
agreements ranging from backbone providers such as Level 3 and Qwest to DSL
providers such as Covad, we have been able to grow at an accelerated pace.
These strategic partnerships have allowed us to deliver dynamic solutions to
corporations such as Xerox Corporation, IBM, CarsDirect.com, Southern
California Automobile Association, Kanakaris.com and many others.
Industry Background
DSL MARKET EXPANSION. Technological developments and regulatory changes
have caused DSL technology to emerge as a commercially available, cost-
effective means of providing high-speed data transmission. According to
TeleChoice, a telecommunications consulting firm, the market for digital
subscriber lines (DSL) has charted growth of 300% for the first half of 1999,
well beyond analysts' expectations. Positioning itself to give cable modem
competition a good run, DSL is a technology that uses digital coding to push
more information through a regular copper phone line than previous
technology. The result is that the line can transmit data using a higher
frequency, and simultaneous voice and fax using a lower frequency. DSL
services the "last mile"- the area stretching from the central phone exchange
to the customer - that has proven such a challenge in providing fast
connections to businesses. Laurie Falconer, DSL analyst at TeleChoice,
expects market growth for DSL to speed up, and competition to increase.
"There's a lot of demand for it," she says. Falconer claims a main factor to
separate the market leaders and losers will be the viability of the targeted
market. LMKI is only aiming to attract multi-location businesses to its
product.
The deployment of DSL-based solutions by competitive telecommunications
companies has been facilitated by changes in the regulatory framework in
recent years. Under the 1996 Telecommunications Act, traditional telephone
companies are generally required to lease telephone lines to competitive
telecommunications companies on a wholesale basis through resale or
unbundling and to allow these competitive telecommunications companies to
locate certain of their equipment in the traditional telephone companies'
central offices. By using existing facilities and copper lines, DSL providers
avoid the considerable up-front fixed costs necessary to deploy alternative
high-speed digital communications technologies, such as cable, wireless and
satellite networks. As a result, a significant portion of the investment in a
DSL network is incurred only as customers order the service. In addition, we
anticipate that continued advances in DSL technologies and transmission
speeds, as well as advances in DSL equipment manufacturing efficiencies, will
further reduce the cost of deploying a DSL-based network.
Recent mergers of telephone and cable companies, and acquisitions of Internet
technology companies predict that broadband access is the future of the
online world.
Published figures and projections about growth of the Internet vary, but
agreement about rapid expansion is standard. A new study of the Internet
telephony business by Killen & Associates, a telecommunications research and
consultant group in Palo Alto, Ca. Forecasts an $8 Billion market by the year
2003 for providers of IP (Internet Protocol) services offering voice, fax and
video capabilities.
BUSINESS BROADBAND. Data Competitive Local Exchange Carriers (CLECs) have
built their business models around the small and medium-size markets for
local broadband services, and it's easy to see why. International Data Corp.
(IDC) of Framingham, Massachusetts estimates that as of year-end 1998, 3.9
million of the 7.4 billion small businesses in the United States had Internet
access. Nearly 3.3 million of these small businesses were using dial-up
services. According to John Stormer, NorthPoint's Vice President of
marketing, converting small business dial-up customers to DSL "defines a big
part of the market opportunity."
The Internet's increasingly pivotal role in business via Web content, e-
commerce and virtual private networks (VPNs), combined with the lack of
affordable, high-speed access solutions for small businesses, have created a
large niche for DSL services. Although the market is still nascent, Morgan
Stanley Dean Witter & Co. of New York estimates the U.S. DSL service market
for access alone will reach $7 billion to $9 billion by 2002.
For a number of reasons, data CLECs have chosen to use DSL to reach their
target market instead of other access media. One factor is that competing
access technologies are not currently well positioned for small businesses.
ISDN, for example, is a relatively slow broadband service with many hidden
charges. Broadband wireless has technology glitches to fix, and any business
deployments of cable modems would require further network build-outs and
upgrades to two-way high-speed service.
DSL, on the other hand, takes advantage of unused spectrum in existing copper
telephone wires, the same basic wiring used to supply a home or office with
regular telephone service. According to Peter Meade, a senior analyst with
market researcher Cahners In-Stat Group, Newton, Massachusetts, DSL is a
great solution for small businesses, remote offices and telecommuters. "T1 [a
leased line connection] is too expensive for this segment, dial-up is too
slow, and ISDN [offered by ILECs] adds per-minute online charges to their
base monthly price," Meade says.
J.P. Morgan's Langner agrees: "DSL is a dedicated service, and that makes it
much more attractive to business than cable, dial-up and ISDN. It is becoming
a viable T1 competitor on price."
Although local phone companies are in the best position to offer DSL because
they own the core infrastructure that supports it, until very recently, they
were reluctant to market these services to business customers. According to
New York based Bank of America Securities LLC senior analyst Michael Renegar,
ILECs won't aggressively sell DSL services to businesses. "DSL will
cannibalize existing T1 service, for which ILECs typically charge $1,000 a
month," he says. "It would reduce margins considerably."
Business Strategy
We intend to capitalize on the enormous public attention focused on the
Internet by increasing its telemarketing sales and technical support staff,
targeting its advertising to its core audience, and by providing the most
efficient, lowest-cost high speed Internet service in its corridor.
Our Competitive Advantages
OUR KNOWLEDGEABLE AND GROWING SALES FORCE AND TECHNICAL STAFF. We are making
sure that the sales force is trained on the "high-end" networking elements in
which we deal so they will be able to service the needs of their customers.
OUR BUSINESS MODEL OPTIMIZES COST, EFFICIENCY AND FLEXIBILITY. We have
addressed the largest cost factor in their methodology for deploying their
network through a leasing strategy rather than a building strategy. This
keeps start-up costs as low as possible.
OUR EFFICIENCY. We harness a network comprised of highly intelligent and
functional network elements (such as their application of MPLS meshed with
the backbones of L3 and Qwest and the last mile services of Covad). We can
focus on support systems that use the carrier's distributed intelligence and
are developed faster and leaner.
WE CHANGE OUR NETWORK WITH KEYSTROKES RATHER THAN FORKLIFTS. Our business
model optimizes network flexibility due to strategic relationships with
multiple carriers. This allows us to use the latest network and software
technologies focused on meeting the business plan. This advantage over
embedded network elements and operation support systems cannot be overstated
and is the key to successful competition.
OUR LOWEST COST STRATEGY. Our pricing enables small and medium- sized
businesses that need to compete with and survive against larger companies.
OUR STRATEGIC PARTNER STRENGTH. Partnerships with Covad, Qwest, Level 3, and
others, give us the ability to deliver connectivity solutions faster and at a
lower cost than the competition.
INTEGRATION. We can seamlessly integrate all of the different connectivity
solutions and custom applications development. We use different strategic
partners to tailor the optimum solution for our customer.
AUTOMATION AND ADVANCED TELECOMMUNICATIONS TECHNOLOGY. Our Network
Management tools are automated which leads to less downtime, and lower labor
costs. We use the latest equipment, work closely with strategic partners
that are forerunners in their fields, and are not hampered by existing legacy
infrastructures.
OUR CUSTOMIZED CUSTOMER APPROACH. We emphasize direct relationships with our
customers. These relationships enable us to learn information from our
customers about their needs and preferences and help us expand our service
offerings to include additional value-added services based on customer
demand. We believe that these customer relationships increase customer
loyalty and reduce turnover. In addition, our existing customers have
provided customer referrals and we believe strong relationships will result
in customer referrals in the future.
Our success depends upon careful planning and the selection of partners. We
can meet the customer's needs more efficiently with entrenched procedures.
This enables us to excel at customer service.
Our Products
IP TECHNOLOGY. The cutting edge technology in the telecommunications
industry moving forward to the future is based on the IP (Internet Protocol).
IP technology is able to realize the convergence of traditional voice type
applications plus current and future data/internet type applications. IP
provides operational efficiency when managing a single platform that can
carry any type of service application. At an early stage, we recognized this
potential and deployed a worldwide IP network. The Virtual Private Network
(VPN), and Real Private Network (sm) (RPN), qualify as Cisco Powered
Networks, and are a major step in materializing converged networks. Our main
focus in deploying and managing the VPN and RPN is to maintain and guarantee
the highest quality and reliability standards. The non-use of the public
Internet, has given us a competitive edge, therefore we can ensure a better
than Carrier Grade quality. The Real Private Network (sm) service
incorporates the speed, security and versatility of DSL (Digital Subscriber
Line) technology with the wide geographical coverage of Qwest's and Level
Three's fiber networks. By combining multiple connectivity options with a
homogenous, managed network, business customers that do not yet have DSL
available in their area can take advantage of our RPN services through
dedicated OC-n (Optical Carrier-n), T3 (Time Division Multiplexing at 44.736
Mbps), T1 (Time Division Multiplexing at 1.544 Mbps), ATM (Asynchronous
Transfer Mode), Frame Relay, ISDN (Integrated Services Digital Network) and
dial up connectivity services. Using these multiple technologies gives us a
differential advantage over the competition. No competitor offers the same
full service solution as we do for the price we charge. Other competitors
can offer a solution, but at a much higher price, without the speed and
reliability we offer.
REAL PRIVATE NETWORK. A RPN is a unique service that securely links together
each of an organization's sites to create a private wide area network without
touching the Internet. By meshing together cutting edge technology such as,
DSL, ISDN, Frame Relay and Point to Point dedicated circuits, we deliver a
cost-effective alternative to deploying an internal network. Offering the
features, performance, and security that business information requires, a
Real Private Network includes pre-configured hardware, network management,
and security services, yet costs much less than traditional WAN solutions.
OUR PROPRIETARY PRODUCTS:
Offer the benefits of private networking without the burden of network
management, investment in Internet-access, expensive hardware, and obsolete
equipment.
Provide optional mediated access to the public Internet in conjunction
with private site-to-site connectivity.
Enable users to access files and applications from any location on the
RPN as if the network were a LAN; workers and workgroups anywhere can more
efficiently share information and collaborate on computer-based projects.
Provide service guarantees that assure the performance and reliability
needed for high priority information.
Let the client give customers and business partners secure controlled
access to their internal resources for strategic and tactical advantage.
Quicken the delivery of internal e-mail, file transfers, and other
internal traffic by avoiding the public Internet.
Strategic Alliances
We have created strategic alliances with Covad Communications Group, Inc.
(NASDAQ:COVD), Level 3 Communications, Inc. (NASDAQ:LVLT), Quest
Communications International, Inc. (NASDAQ:QWST), and InterNap Network
Services Corporation (NASDAQ: INAP) to be the technological leader in the
high-speed Internet connectivity marketplace.
Covad is a packet-based CLEC that provides high-speed digital communications
services using Digital Subscriber Line (DSL) technology to our customers.
Covad sells speed to users hooked on LANs. Covad provides remote access to
LANs and the Internet, with speeds of up to 1.5 megabits per second (25 times
faster than most modems). Covad's use of existing copper phone lines allows
it to offer lower rates and 24-hour local connectivity. Covad, which installs
the lines, configures the equipment, and designs networks in 22 regions.
Other Covad clients include Cisco Systems, Oracle, and Sprint.
The backbone of our nationwide network has been outsourced to nationwide
exchange carriers Qwest and Level 3. We were the first customer to co-locate
with Level 3. By using the network infrastructure of Qwest and Level 3, we
avoid all of the costs and pitfalls of implementing our own infrastructure,
yet we are able to take advantage of the economies of scale and the
redundancy that only multi-billion dollar companies such as Qwest and Level 3
can afford. The result: our network is faster, and can be re-tooled, re-
configured and tuned to match the changing needs of the market without the
man-power, overhead, and capital that our competitors have to spend on their
legacy networks. This keeps us growing and evolving as the market place
changes, while the competition is trying to gain ground on our previous
accomplishments. We can focus our resources on delivering value-added
services and quality network access, rather than on backbone technology that
changes constantly.
Qwest is a telecommunications based company that encompasses an 18,800-mile
fiber-optic network connecting approximately 500 US cities, and 90 countries.
Qwest offers local and long-distance telephone, Internet, and multimedia
services to businesses and consumers over its Internet protocol-based network
- -- 12,500 miles of which are active. The fourth largest US long-distance
provider, Quest is also building networks to serve Mexico (1,400 miles) and
Europe (9,100 miles, in a joint venture with Dutch phone company KPN). Qwest
has network capacity on three transatlantic cables and is helping to
construct a transpacific cable. Recently, Qwest has agreed to merge with
Baby Bell US WEST.
Level 3 is a telecommunications and information services company that plans
to build an advanced, international facilities-based communications network
based on Internet Protocol (IP) technology. It is building an international
fiber-optic network, in which entities, like Nextel and Nextlink, are
investing in return for network capacity. Level 3 offers local, long-distance
and Internet service over leased network capacity in 15 cities in the US and
two in Europe. It also offers computer operations outsourcing and owns
stakes in telecom providers RCN and Commonwealth Telephone Enterprises.
InterNap Network Services Corporation, is a leading provider of fast,
reliable and centrally managed Internet connectivity services targeted at
businesses seeking to maximize the performance of mission-critical Internet-
based applications. Customers connected to one of our Private-
Network Access Points ("P-NAPs") have their data optimally routed to and from
destinations on the Internet in a manner that minimizes the use of congested
public network access points and private peering points. This optimal routing
of data traffic over the multiplicity of networks that comprise the Internet
enables higher transmission speeds, lower instances of packet loss and
greater quality of service.
Customers
We have close to 2000 business clients, including:
Southern California Automobile Association (CSAA) with approximately 300
DSL and 250 ISDN connections in a private network;
Xerox with a private network;
CarsDirect.com with broadband web hosting.
Sales and Marketing
Our marketing professionals have developed a methodology to identify the
businesses that would benefit from our services. Once we identify businesses
in a target market, we employ a targeted local marketing strategy utilizing
telemarketing personnel.
Using targeted business lists and referrals, our telemarketers initiate
contact with potential customers. Our sales personnel are trained in
customer oriented, solution-based sales techniques and product knowledge.
We have a sales unit that focuses on the larger customers that have a longer
buying cycle. This unit develops business prospects from market research,
referrals from telemarketers and referrals from other customers.
Customer Support and Operations
Our customer support team works to maximize the simplicity and convenience of
data communications and network access for our customers. They provide our
customers with a single point of contact for implementation, maintenance and
operations support.
IMPLEMENTATION. We manage the implementation of our service for each
customer. We work together with our strategic partners to ensure that lines
are installed, tested, and in good working order from all customer offices
throughout the network.
MAINTENANCE. Our network operations center provides network surveillance for
all equipment in our customers' network. We are able to detect and correct
many of our customers' maintenance problems remotely, often before our
customer is aware of the problem. Customer-initiated maintenance and repair
requests are managed and resolved primarily through our help desk. Our
information management system, which generates reports for tracking
maintenance problems, allows us to communicate maintenance problems from the
customer service center to our network operations center 24 hours a day,
seven days a week.
OPERATIONS SUPPORT SYSTEMS. We are in the process of expanding our
operations support systems that will allow us to double our marketing staff
and develop the capacity to handle our expansion goals.
Competition
We face competition from many companies with significantly greater financial
resources, well-established brand names and large installed customer bases.
Although we believe competition in many second and third tier cities is less
intense than competition in larger cities, we expect the level of competition
in our markets to intensify in the future.
We expect significant competition from:
OTHER DSL PROVIDERS. Certain competitive carriers, including Network Access
Solutions, NorthPoint and Rhythms NetConnections, offer DSL-based services.
The 1996 Telecommunications Act specifically grants competitive
telecommunications companies, including other DSL providers, the right to
negotiate interconnection agreements with traditional telephone companies,
including interconnection agreements which may be identical in all respects
to, or more favorable than, our agreements. Several of the large
telecommunications companies and computer companies, such as Microsoft and
Intel, have made investments in DSL service providers.
INTERNET SERVICE PROVIDERS. Several national and regional Internet service
providers, including America Online, Concentric Network, Flashcom,
Mindspring, PSINet and Verio, have begun developing high-speed access
capabilities to leverage their existing products and services. These
companies generally provide Internet access to residential and business
customers over the traditional telephone companies' networks at higher
speeds. However, some Internet service providers have begun offering DSL-
based access using another carrier's DSL service or, in some cases, building
their own DSL networks. Some Internet service providers combine their
significant and even nationwide marketing presence with strategic or
commercial alliances with DSL-based competitive telecommunications companies.
TRADITIONAL LOCAL TELEPHONE COMPANIES. Many of the traditional local
telephone companies, including Bell Atlantic, BellSouth and SBC
Communications, are conducting technical or market trials or have begun
deploying DSL-based services. These companies have established brand names
and reputations for high quality in their service areas, possess sufficient
capital to deploy DSL equipment rapidly, have their own copper telephone
lines and can bundle digital data services with their existing voice services
to achieve a competitive advantage in serving customers. We believe that the
traditional telephone companies have the potential to quickly deploy DSL
services. In addition, these companies also offer high-speed data
communications services that use other technologies. We depend on these
traditional local telephone companies to enter into agreements for
interconnection and to provide us access to individual elements of their
networks. Although the traditional local telephone companies are required to
negotiate in good faith in connection with these agreements, future
interconnection agreements may contain less favorable terms and result
in a competitive advantage to the traditional local telephone companies.
NATIONAL LONG DISTANCE CARRIERS. National long distance carriers, such as
AT&T, MCI WorldCom, Qwest and Sprint, have deployed large-scale data
networks, sell connectivity to businesses and residential customers, and have
high brand recognition. They also have interconnection agreements with many
of the traditional telephone companies and are beginning to offer competitive
DSL services.
OTHER FIBER-BASED CARRIERS. Companies such as Allegiance, ChoiceOne, e.spire,
Intermedia and Williams have extensive fiber networks in many metropolitan
areas, primarily providing high-speed data and voice circuits to small and
large corporations. They also have interconnection agreements with the
traditional telephone companies under which they have acquired collocation
space in many large markets.
CABLE MODEM SERVICE PROVIDERS. Cable modem service providers, such as At Home
and its cable partners, are offering or preparing to offer high-speed
Internet access over cable networks to consumers. @Work, a division of At
Home, has positioned itself to do the same for businesses. Where deployed,
these networks provide high-speed local access services, in some cases at
speeds higher than DSL service. They typically offer these services at lower
prices than our services, in part by sharing the capacity available on their
cable networks among multiple end users.
WIRELESS AND SATELLITE DATA SERVICE PROVIDERS. Several new companies,
including Advanced Radio Telecom, Teligent and WinStar Communications, are
emerging as wireless data service providers. In addition, other companies,
including Motorola Satellite Systems and Hughes Communications, are emerging
as satellite-based data service providers. These companies use a variety of
new and emerging technologies to provide high-speed data services.
We may be unable to compete successfully against these competitors. The most
significant competitive factors include: transmission speed, service
reliability, breadth of product offerings, cost for performance, network
security, ease of access and use, content bundling, customer support, brand
recognition, operating experience, capital availability and exclusive
contracts with customers, including Internet service providers and businesses
with multiple offices. We believe our services compete favorably within our
service markets with respect to transmission speed, service reliability,
breadth of product offerings, cost for performance, network security, ease of
access and use, content bundling, customer support, and operating experience.
Many of our competitors enjoy competitive advantages over us based on their
brand recognition and exclusive contracts with customers.
Intellectual Property
We regard our products, services and technology as proprietary and attempt to
protect them with copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. There can be no assurance these methods will be
sufficient to protect our technology and intellectual property. We also may
enter into confidentiality agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our products, services or
technology without authorization, or to develop similar technology
independently. Effective patent, copyright, trademark and trade secret
protection may be unavailable or limited in certain foreign countries, and
the global nature of the Internet makes it virtually impossible to control
the ultimate destination of our proprietary information. There can be no
assurance that the steps we have taken will prevent misappropriation or
infringement of our technology. In addition, litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, operating
results and financial condition. In addition, some of our information,
including our competitive carrier status in individual states and our
interconnection agreements, is a matter of public record and can be readily
obtained by our competitors and potential competitors, possibly to our
detriment.
Government Regulation
A significant portion of the services that we offer will be subject to
regulation at the federal and/or state levels. The Federal Communications
Commission, or FCC, and state public utility commissions regulate
telecommunications common carriers, which are companies that offer
telecommunications services to the public or to all prospective users on
standardized rates and terms. Our data transport services are common carrier
services.
The FCC exercises jurisdiction over common carriers, and their facilities and
services, to the extent they are providing interstate or international
communications. The various state utility commissions retain jurisdiction
over telecommunications carriers, and their facilities and services, to the
extent they are used to provide communications that originate and terminate
within the same state. The degree of regulation varies from state to state.
In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state
legislatures have passed laws seeking to foster greater competition in
telecommunications markets. The FCC and state commissions have adopted many
new rules to implement those new laws and to encourage competition. These
changes, which are still incomplete, have created new opportunities and
challenges for us and our competitors. Certain of these and other existing
federal and state regulations are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which this industry operates.
Neither the outcome of these proceedings nor their impact upon the
telecommunications industry or us can be predicted at this time. Indeed,
future federal or state regulations and legislation may be less favorable to
us than current regulations and legislation and therefore have a material and
adverse impact on our business and financial prospects by undermining our
ability to provide DSL services at competitive prices. In addition, we may
expend significant financial and managerial resources to participate in
proceedings setting rules at either the federal or state level, without
achieving a favorable result.
FEDERAL REGULATION AND LEGISLATION. Through our strategic partners, we must
comply with the requirements of a common carrier under the Communications Act
of 1934, as amended, to the extent we provide regulated interstate services.
These requirements include an obligation that our charges, terms and
conditions for communications services must be "just and reasonable" and that
we may not make any "unjust or unreasonable discrimination" in our charges or
terms and conditions. The FCC also has jurisdiction to act upon complaints
against common carriers for failure to comply with their statutory
obligations. We are not currently subject to price cap or rate of return
regulation at the federal level and are not currently required to obtain FCC
authorization for the installation, acquisition or operation of our
facilities.
The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic carriers, only the large traditional local
telephone companies are classified as dominant carriers and all other
providers of domestic common carrier service, including us, are classified as
non- dominant carriers. As a non-dominant carrier, we are subject to less FCC
regulation than are dominant carriers.
In October 1998, the FCC ruled that DSL and other advanced data services
provided as dedicated access services in connection with interstate services
such as Internet access are interstate services subject to the FCC's
jurisdiction. Accordingly, we could offer DSL services without state
regulatory authority, so long as we do not also provide local or intrastate
telephone services via our network. This decision allows us to provide our
DSL services in a manner that potentially reduces state regulatory
obligations. This decision is currently subject to reconsideration and
appeal.
Comprehensive changes to the Communications Act were made by the 1996
Telecommunications Act, enacted on February 8, 1996. It represents a
significant milestone in telecommunications policy by establishing
competition in local telephone service markets as a national policy. The 1996
Telecommunications Act removes many state regulatory barriers to competition
and forecloses state and local governments from creating laws preempting or
effectively preempting competition in the local telephone service market.
The 1996 Telecommunications Act places substantial interconnection
requirements on the traditional local telephone companies.
Traditional local telephone companies are required to provide physical
collocation, which allows companies such as us and other interconnectors to
install and maintain their own network termination equipment in the central
offices of traditional local telephone companies, and virtual collocation
only if requested or if physical collocation is demonstrated to be
technically infeasible. This requirement is intended to enable us and other
competitive carriers to deploy our equipment on a relatively convenient and
economical basis.
Traditional local telephone companies are required to unbundle
components of their local service networks so that other providers of local
service can compete for a wide range of local service customers. This
requirement is designed to provide us flexibility to purchase only the
equipment we require to deliver our services.
Traditional local telephone companies are required to establish
"wholesale" rates for their services to promote resale by competitive local
exchange carriers and other competitors.
Traditional local telephone companies are required to establish number
portability, which allows a customer to retain its existing phone number if
it switches from the traditional local telephone companies to a competitive
local service provider.
Traditional local telephone companies are required to establish dialing
parity, which ensures that customers will not detect a quality difference in
dialing telephone numbers or accessing operators or emergency services of
local competitive service providers.
Traditional local telephone companies are required to provide
nondiscriminatory access to telephone poles, ducts, conduits and rights- of-
way. In addition, the 1996 Telecommunications Act requires traditional local
telephone companies to compensate competitive carriers for traffic originated
by them and terminated on the competitive carrier's network.
The 1996 Telecommunications Act in some sections is self-executing. The FCC
issues regulations interpreting the 1996 Telecommunications Act that impose
specific requirements upon which our competitors and we rely. The outcome of
various ongoing FCC rulemaking proceedings or judicial appeals of such
proceedings could materially affect our business and financial prospects by
increasing the cost or decreasing our flexibility in providing DSL services.
The FCC prescribes rules applicable to interstate communications, including
rules implementing the 1996 Telecommunications Act, a responsibility it
shares in certain respects with the state regulatory commissions. As part of
its effort to implement the 1996 Telecommunications Act, the FCC issued an
order governing interconnection in August 1996. A federal appeals court for
the Eighth Circuit, however, reviewed the initial rules and overruled some of
their provisions, including some rules on pricing and nondiscrimination. In
January 1999, the United States Supreme Court reversed elements of the Eighth
Circuit's ruling, finding that the FCC has broad authority to interpret the
1996 Telecommunications Act and issue rules for its implementation,
specifically including authority over pricing methodology. The Supreme Court
upheld the FCC's directive to the traditional local telephone companies to
combine individual elements for competitors, and to allow competitors to pick
and choose among provisions in existing interconnection agreements. The
Supreme Court also found that the FCC's interpretation of the rules for
establishing individual elements of a network system was not consistent with
standards prescribed in the 1996 Telecommunications Act, and required the FCC
to reconsider and better justify its delineation of individual elements. The
pick and choose rule permits a competitive carrier to select individual
provisions of existing interconnection agreements yet still tailor its
interconnection agreement to its individual needs by negotiating the
remaining provisions. The FCC implemented a public rulemaking seeking comment
on these issues, including particularly, which network elements should be
offered on an unbundled basis by traditional local telephone companies, and a
decision is expected later this year. Although the FCC has tentatively
concluded that local copper telephone lines should continue to remain
available as an unbundled element, there is no certainty as to the FCC's
outcome on this issue or as to other network elements which the traditional
local telephone companies will be required to unbundle. Moreover, this
proceeding, as well as a companion FCC rulemaking, addresses related issues
of significant importance to us, including:
the manner in which copper telephone lines should be subject to
unbundling;
compatibility among DSL services and between DSL and non-DSL services;
and
the sharing of copper telephone lines between DSL data services offered
by one provider and voice services offered by another provider.
In addition, some traditional telephone companies may take the position that
they have no obligation to provide individual elements of their network
systems, including copper telephone lines, until the FCC issues new rules,
which could adversely affect our ability to expand our network in accordance
with our roll-out plan and therefore adversely affect our business.
In March 1998, several traditional local telephone companies petitioned the
FCC for relief from certain regulations applicable to the DSL and other
advanced data services that they provide, including their obligations to
provide copper telephone lines and resold DSL services to competitive
carriers. In August 1998, the FCC concluded that DSL services are
telecommunications services and, therefore, the traditional local telephone
companies are required to allow interconnection of their facilities and
equipment used to provide data transport functionality, unbundle local
telecommunications lines and offer for resale DSL services. In the same
proceeding, the FCC issued a notice of proposed rulemaking seeking comments
on its tentative conclusion that traditional local telephone companies should
be permitted to create separate affiliates to provide the DSL services. Under
the separate affiliate proposal, traditional local telephone companies would
be required to provide wholesale service to other DSL carriers at the same
rates, terms and conditions that it provided to its separate affiliate. The
outcome of this proceeding remains uncertain. Any final decision in this
proceeding that alters our relationship with the traditional local telephone
companies could adversely affect our ability to provide DSL services at a
competitive price.
In March 1999, the FCC adopted regulations that require the traditional local
telephone companies to permit other carriers to collocate all equipment
necessary for interconnection. This requirement includes equipment that we
use to provide DSL data services. The FCC also adopted limits on the
construction standards and other conditions for collocation that may be
imposed by traditional local telephone companies. These rules should reduce
our collocation costs and expedite our ability to provide service to new
areas. There is no guarantee that these new rules will be implemented fully
by the traditional local telephone companies. Therefore, the benefits of
these rules may be delayed pending interpretation and enforcement by state
and federal regulators. These rules are currently subject to appeal by
several traditional local telephone companies.
The 1996 Telecommunications Act also directs the FCC, in cooperation with
state regulators, to establish a universal service fund that will provide
subsidies to carriers that provide service to individuals that live in rural,
insular, and high-cost areas. A portion of carriers' contributions to the
universal service fund also will be used to provide telecommunications
related facilities for schools, libraries and certain rural health care
providers. The FCC released its initial order in this context in June 1997,
which requires all telecommunications carriers to contribute to the universal
service fund. The FCC's implementation of universal service requirements
remains subject to judicial and additional FCC review. Additional changes to
the universal service regime, which could increase our costs, could have an
adverse affect on us.
STATE REGULATION. In October 1998, the FCC deemed data transmission to the
Internet as interstate services subject only to federal jurisdiction.
However, this decision is currently subject to reconsideration and appeal.
Also, some of our services that are not limited to interstate access
potentially may be classified as intrastate services subject to state
regulation. All of the states where we operate, or intend to operate, require
some degree of state regulatory commission approval to provide certain
intrastate services and maintain ongoing regulatory supervision. In most
states, intrastate tariffs are also required for various intrastate services,
although our services are not subject to price or rate of return regulation.
Actions by state public utility commissions could cause us to incur
substantial legal and administrative expenses and adversely affect our
business.
To date, we have been able to obtain authorizations to operate as a
competitive local exchange carrier in 41 states and the District of Columbia,
and we have filed for competitive local exchange carrier status in the
remaining states. Although we expect to obtain certifications in all states,
there is no guarantee that these certifications will be granted or obtained
in a timely manner.
LOCAL GOVERNMENT REGULATION. In certain instances, our strategic partners
may be required to obtain various permits and authorizations from
municipalities, such as for use of rights-of-way, in which we operate local
distribution facilities. Whether various actions of local governments over
the activities of telecommunications carriers such as ours, including
requiring payment of franchise fees or other surcharges, pose barriers to
entry for competitive local exchange carriers that violate the 1996
Telecommunications Act or may be preempted by the FCC is the subject of
litigation. While we are not a party to this litigation, we may be affected
by the outcome. If municipal governments impose conditions on granting
permits or other authorizations or if they fail to act in granting such
permits or other authorizations, the cost of providing DSL services may
increase or negatively impact our ability to expand our network on a timely
basis and adversely affect our business.
TELEMARKETING REGULATIONS. Our marketing depends primarily on the
telemarketing sale channel. Telemarketing sales practices are regulated both
federally, and at the state level. The Federal Telephone Consumer Protection
Act of 1991 (the TCPA) prohibits telemarketing firms from imitating telephone
solicitations to residential telephone subscribers before 8:00 a.m. or after
9:00 p.m. local time, and prohibits the use of automated telephone dialing
equipment to call certain telephone numbers. In addition, the TCPA requires
telemarketing firms to maintain a list of residential customers that have
stated that they do not want to receive telephone solicitations and,
thereafter, to avoid making calls to such customers' telephone numbers.
The federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994
(the TCFAPA) broadly authorizes the Federal Trade Commission (the FTC) to
issue regulations prohibiting misrepresentation in telemarketing sales. In
August 1995, the e FTC issued new telemarketing sales rules. Generally, these
rules prohibit misrepresentation regarding the cost, terms, restrictions,
performance, or duration of products or services offered by telephone
solicitation and otherwise specifically address other perceived telemarketing
abuses in the offering of prizes and the sale of business opportunities or
investments. We train our telephone service representatives to
comply with the TCPA and programs its call management system to avoid
telephone calls during restricted hours or to individuals maintained on the
Company's "do not call" list.
A number of states have enacted or are considering legislation to regulate
telemarketing. For example, telephone sales in certain states cannot be final
unless a written contract is delivered to and signed by the buyer and may be
cancelled within three business days. Several states require telemarketers to
obtain licenses and post bonds. We do not process card payments for any of
our customers and does not currently operate in any states where these
requirements are imposed. From time to time, bills are introduced in
Congress, which, if enacted, would regulate the use of credit information. We
cannot predict whether this legislation will be enacted and what effect, if
any, it would have on the telemarketing industry.
Subsidiaries
We have one wholly owned subsidiary, Landmark Communications, Inc., a Nevada
Corporation doing business as Landmark Long Distance Inc. in the State of
California.
Employees
We employ eighty (80) full-time employees, including four (4) in executive
management, sixty seven (67) in sales, marketing and customer service, five
(5) in operations, and four (4) in finance and administration. We believe
that our future success will depend in part on our continued ability to
attract, hire and retain qualified personnel. Competition for such personnel
is intense, and we may be unable to identify, attract and retain such
personnel in the future. None of our employees is represented by collective
bargaining agreements and we consider relations with our employees to be
good.
Facilities
We rent approximately 5,000 square feet of commercial office space in Santa
Ana, California. The monthly rent is approximately $5,000. We are on a month
to month tenancy since our lease expired in November 1999. We are currently
looking in for new space to accommodate our rapid growth. We anticipate a
space requirement of 25,000 square feet and expect to pay between $1.20 to
$2.00 per square foot per month, depending upon what services are included.
We foresee no problem in obtaining such space in Orange County, where we are
located. The current landlord knows that we are likely to leave.
Legal Proceedings
We are not currently a party to any material legal proceedings.
MANAGEMENT
Executive Officers, Directors and Other Significant Employees
Name Age Title
William J. Kettle 69 Chief Executive Officer, Chairman, Director
Bryan Turbow 31 President, Chief Technical Officer, Director
Adela Maria Kettle 53 Vice President, Director
John W. Diehl, Jr. 45 Chief Financial Officer, Secretary, Director
William J. Kettle has been Chief Executive Officer and a Director of the
Company since October 1994. He became Chairman in June 1999 at the time when
he stepped down as President, a position he had held since October 1994. He
was President and Chairman of Thrifty Telecommunicaitons, Inc. ("Thrifty")
from 1988 until August 1994. Thrifty was engaged in the business of providing
discount long distance telephone services. Thrifty filed a petition in
Chapter 11 in 1994, after Mr. Kettle's disassociation. From 1981 to 1985, Mr.
Kettle served as Secretary, Treasurer and a director of Sierra College in Los
Angeles, California. From 1972 to 1981 he was President of Bauder College in
Sacramento, California. Mr. Kettle attended Kilgore College and the
University of Houston.
Bryan L. Turbow has been the President and Chief Technical Officer of the
Company since June 1999, when he merged MobileNetics Corporation with the
Company. He became a Director in October 1999. He started MobileNetics in
June 1986, and was the president, and sole shareholder until merging with the
Company. At MobileNetics he was responsible for telecommunications consulting
and systems integration.
Adela Maria Kettle has since September 1994 been Vice President of the
Company. From 1986 through August 1994 she was Executive Vice President of
Sales and Marketing at Thrifty Telecommunicaitons, Inc. From 1981 to 1985,
she was Vice President of Sales and Marketing at Sierra College in Los
Angeles, California. From 1970 to 1981 she was employed at Bauder College in
Sacramento, California, ending as Vice President of Sales and Marketing.
John W. Diehl, Jr. has since September 1994 been an independent accounting and
tax consultant with us. As of June of 1999 he has been our Chief
Financial Officer and Secretary. He is a Certified Public
Accountant with ten years of public accounting experience, six years in his
own practice and prior to that Director of Internal Audit for Memorial Health
Services, Long Beach for ten years and two years as Director of
Telecommunications after Director of Audit. He holds a BS in Business
Administration with emphasis in Accounting from the California State
University at Northridge and a Masters in Business Administration from the
University of La Verne.
Board of Directors
Our board of directors consists of six (6) authorized members and we
currently have four (4) directors and two (2) vacancies. The terms of the
Board of Directors will expire at the next annual meeting of stockholders.
No directors have been compensated for their activities as directors. In the
future, our non-employee directors may be reimbursed for expenses incurred in
connection with attending board and committee meetings and compensated for
their services as board or committee members. We may also grant non-employee
directors options to purchase our common stock pursuant to the terms of our
1999 Stock Plan. See "Executive Compensation--Stock Plans."
Executive Officers
Our officers are elected by the Board of Directors and hold office
at the will of the Board. Adela Maria Kettle is the wife of William J.
Kettle. There are no other family relationships among our directors and
officers.
Indemnification
Our articles of incorporation provide that we shall indemnify, to the full
extent permitted by Nevada law, any of our directors, officers, employees or
agents who are made, or threatened to be made, a party to a proceeding by
reason of the fact that he or she is or was one of our directors, officers,
employees or agents against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding
if specified standards are met. Although indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors,
officers and controlling persons under these provisions, we have been advised
that, in the opinion of the SEC, indemnification for liabilities arising
under the Securities Act of 1933 is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides information concerning the compensation of the
named executive officers for each of our last three completed
fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Other Securities
Name Annual Restricted Under- All Other
and Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) SARs (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Kettle 1999 $0 4,000,000 (1) 4,000,000 (2)
Chairman, Chief 1998 $0 4,000,000 (3) 4,000,000 (4)
Executive Officer 1997 $0
Bryan L. Turbow 1999 $36,174 $4,020 (6)
Vice President, 1998 $0
President, Chief 1997 $0
Technical Officer
Adela Maria Kettle 1999 $47,977
Secretary 1998 $33,099
1997 $0
John W. Diehl, Jr 1999 $41,300(5) 200,000 (5)
Chief Financial 1998 $3,800 (5)
Officer 1997 $7,950 (5)
</TABLE>
Footnotes
(1) Award granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
(2) Option granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
(3) Award granted as of 12-28-97 for 4,000,000 restricted common shares at
$.01 per share.
(4) Option granted as of 12-28-97 for 4,000,000 restricted common shares at
$.01 per share.
(5) Payment as an independent consultant.
(6) Other employee benefits.
Option/SAR Grants in Last Fiscal Year
The following table shows information regarding grants of stock options in
this last completed fiscal year to the executive officers named in the
Summary Compensation Table.
Individual Grants
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base Expiration
Name Granted (#) in Fiscal Year Price ($/Sh) Date
(a) (b) (c) (d) (e)
William J. Kettle 4,000,000 100% .01 12-28-2003
Footnotes
(1) Award granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
(2) Option granted as of 12-28-98 for 4,000,000 restricted common shares at
$.01 per share.
Aggregated Option/SAR Exercises And Fiscal Year-End Option/SAR Value
The following table shows information concerning each exercise of stock
options (or tandem SARs) and freestanding SARs during the last completed
fiscal year by each of the executive officers named in the Summary
Compensation Table and the fiscal year-end value of unexercised options and
SARs.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-The-Money Options/
Exercise Realized Options/SAR's at FY-End (#) SAR's at FY-End($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
William J. Kettle 0 0 8,000,000 0 39,200,000
</TABLE>
Footnotes
(1) FY-End Option/SAR Values based on exercise price of $.01 per share and
8-31-99 bid price of $4.91 per share.
Employment Agreements
None of our executive officers are subject to an employment agreement at this
time. We intend to enter into employment contracts with some of our
executive officers in the near future.
Stock Options
On December 28, 1997, we granted an option to William J. Kettle, Chairman, for
4,000,000 restricted common shares exercisable until December 28, 2002 at $.01
per share.
On December 28, 1998, we granted an option to William J. Kettle, Chairman, for
4,000,000 restricted common shares exercisable until December 28, 2003 at $.01
per share.
Stock Plans
1999 STOCK PLAN. Our Board of Directors adopted our 1999 stock plan in
November 1999 reserving 4,000,000 shares for issuance. As of November 30,
1999, options to purchase an aggregate of 1,515,440 shares were outstanding,
no shares of common stock had been purchased pursuant to exercises of stock
options and stock purchase rights, and 1,404,560 shares were available for
future grant.
Our 1999 Stock Plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 1999 stock plan may be administered
by different committees with respect to different groups of service
providers. Options granted as performance-based compensation within the
meaning of Section 162(m) are administered by a committee of two or more
outside directors. Option administration committees may make final and
binding determinations regarding the terms and conditions of the awards
granted, including the exercise prices, the numbers of shares subject to the
awards and the exercisability of the awards, forms of agreement for use under
the plan and interpretation of plan terms.
The exercise price of incentive stock options granted under the 1999 Stock
Plan must be at least equal to the fair market value of our common stock on
the date of grant. However, for any employee holding more than 10% of the
voting power of all classes of our stock, including the stock of any parent
or subsidiary of the Company, the exercise price will be no less than 110% of
the fair market value. The exercise price of nonstatutory stock options is
set by the administrator of the 1999 Stock Plan. The maximum term of options
granted under the 1999 stock plan is ten (10) years.
An optionee whose relationship with us or any related corporation ceases for
any reason, other than death or total and permanent disability, may exercise
options in the three-month period following such cessation, or such other
period of time as determined by the administrator, unless these options
terminate or expire sooner, or for nonstatutory stock options, later, by
their terms. The three-month period is extended to 12 months for terminations
due to death or total and permanent disability. In the event of a merger,
sale or reorganization of us into another corporation that results in a
change of control of us, options that would have become vested within 18
months after the closing date of the merger transaction will accelerate and
become fully vested upon the closing of the transaction. In the event of a
change of control transaction, either other outstanding options that are not
accelerated would be assumed by the successor company or an equivalent option
would be substituted by the successor company. If any of these options are
not assumed or substituted, they would terminate.
The 1999 Stock Plan will terminate in November 2009, unless sooner terminated
by the board of directors.
Our board of directors may also grant stock purchase rights to employees,
directors and consultants under the 1999 Stock Plan. These grants are made
pursuant to restricted stock purchase agreements, and the price to be paid
for the shares granted thereunder is determined by the administrator. We are
generally granted a repurchase option exercisable on the voluntary or
involuntary termination of the purchaser's employment with us for any reason,
including death or disability. The repurchase price must be the original
purchase price paid by the purchaser. The repurchase option lapses at a rate
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser will have the rights equivalent to those of a
stockholder.
Under the 1999 Stock Plan, on November 26, 1999, we granted options to senior
management and counsel for an aggregate of 1,400,000, and restricted common
shares exercisable until November 26, 2004 at $4.0625 per share. At that
time, we also granted an aggregate of 115,440 shares of Common Stock at an
exercise price of $4.000 per share to our employees.
CERTAIN TRANSACTIONS
Vice President Adela Maria Kettle is the wife of our Chairman, William J.
Kettle.
In December 1997, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to our Chairman for services rendered. Also in December
1997, the Chairman was granted the option to purchase an additional 4,000,000
shares of our common stock, exercisable until December 2002.
In December 1998, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to our Chairman for services rendered. Also in December
1998, the Chairman was granted the option to purchase an additional 4,000,000
shares of our common stock, exercisable until December 2003.
During the calendar year of 1999, our majority shareholder and Chairman
advanced an aggregate of $1,081,680 for working capital purposes. The notes
payable bear interest at 10% per annum. The shareholder was paid
approximately $4,900 in interest during 1999.
The notes are repayable upon demand in cash or in our Common Stock at 50% of
the bid price on the date of the loan, or a combination thereof, at the
option of the shareholder. At this time, the shareholder intends to exchange
his notes for our common stock and has agreed not to demand
repayment before November 11, 2000.
The notes outstanding were issued as follows:
Date Amount
6/9/1999 $20,000
6/21/1999 $70,000
6/25/1999 $25,000
6/28/1999 $20,000
7/8/1999 $21,500
7/12/1999 $42,180
7/13/1999 $29,000
7/27/1999 $220,000
8/4/1999 $300,000
8/31/1999 $50,000
9/1/1999 $74,000
9/7/1999 $50,000
9/10/1999 $25,000
9/15/1999 $35,000
9/24/1999 $50,000
10/26/1999 $50,000
In November 1999, pursuant to the 1999 Stock Plan, the Board of Directors
authorized the grant of an aggregate of 1,225,000 shares of Common Stock at an
exercise price of $4.0625 per share to members of senior management and
counsel.
PRINCIPAL SECURITY HOLDERS
The following tables set forth information regarding the beneficial owners of
our securities, as of November 30, 1999, by the following individuals or
groups:
Each of our executive officers;
Each of our directors;
Each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock; and
All of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table is
c/o LMKI, Inc., 1720 East Garry Avenue, Suite 201, Santa Ana, California
92705. Except as otherwise noted, and subject to applicable community
property laws, to the best of our knowledge, the persons named in this table
have sole voting and investing power with respect to all of the shares of
common stock held by them.
Options, warrants, conversion and other rights to acquire shares of our
securities that are exercisable within 60 days of the table date are deemed
to be beneficially owned by the persons holding these options or warrants for
the purpose of computing percentage ownership of that person, but are not
treated as outstanding for the purpose of computing any other person's
ownership percentage or the total number of securities outstanding. As of
the table date we had 36,115,666 Common shares and 2,500 Series A Preferred
shares outstanding.
Title of Class: Common Stock
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Owner Ownership Class
William J. Kettle (1) 7,550,000 (2) 20.9
Bryan L. Turbow (1) 12,000,000 33.2
A. Maria Kettle (1) 7,070,000 (3) 19.6
John W. Diehl, Jr. (1) 200,000 (4) 0.6
Paul Gamberg 2,000,000 5.5
233 North Rampart
Los Angeles, CA 90026
Named Officers and 26,820,000 74.3
Directors As a Group
(1) Officer or Director.
(2) Does not include shares issuable upon exercise of options to purchase
7,000,000 shares as they are not presently exercisable.
(3) As Beneficiary of The Chapman Group. William J. Kettle is the Trustee of
The Chapman Group and disclaims beneficial ownership thereof. Adela Maria
Kettle is the wife of William J. Kettle.
(4) Does not include shares issuable upon exercise of options to purchase
500,000 shares as they are not presently exercisable.
Title of Class: Series A 6% Convertible Preferred Stock (1)
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Owner Ownership Class
Mesora Investors LLC 2,500 (1) 100%
c/o WEC Asset Management LLC
One World Trade Center,
Suite 4563
New York, New York 100048
(1) The Series A 6% Convertible Preferred Stock is not registered with the
Securities and Exchange Commission.
(2) Convertible into 588,235 shares of Common Stock which are included in
the shares registered in this offering. See "SELLING SECURITY HOLDERS."
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 50,000,000 shares of Common Stock, $.001 par
value, of which 36,115,666 shares were issued and outstanding as of November
30, 1999. All outstanding shares of our common stock are fully paid and
nonassessable and the shares of our common stock offered by this prospectus
will be, upon issuance, fully paid and nonassessable. The following is a
summary of the material rights and privileges of our common stock.
VOTING. Holders of our common stock are entitled to cast one vote for each
share held at all shareholder meetings for all purposes, including the
election of directors. The holders of more than 50% of the voting power of
our common stock issued and outstanding and entitled to vote and present in
person or by proxy, together with any preferred stock issued and outstanding
and entitled to vote and present in person or by proxy, constitute a quorum
at all meetings of our shareholders. The vote of the holders of a majority of
our common stock present and entitled to vote at a meeting, together with any
preferred stock present and entitled to vote at a meeting, will decide any
question brought before the meeting, except when Colorado law, our articles
of incorporation, or our bylaws require a greater vote and except when
Colorado law requires a vote of any preferred stock issued and outstanding,
voting as a separate class, to approve a matter brought before the meeting.
Holders of our common stock do not have cumulative voting for the election of
directors.
DIVIDENDS. Holders of our common stock are entitled to dividends when, as and
if declared by the board of directors out of funds available for
distribution. The payment of any dividends may be limited or prohibited by
loan agreement provisions or priority dividends for preferred stock that may
be outstanding.
PREEMPTIVE RIGHTS. The holders of our common stock have no preemptive rights
to subscribe for any additional shares of any class of our capital stock or
for any issue of bonds, notes or other securities convertible into any class
of our capital stock.
LIQUIDATION. If we liquidate or dissolve, the holders of each outstanding
share of our common stock will be entitled to share equally in our assets
legally available for distribution to our shareholders after payment of all
liabilities and after distributions to holders of preferred stock legally
entitled to be paid distributions prior to the payment of distributions to
holders of our common stock.
Preferred Stock
We are authorized to issue up to 10,000,000 shares of Preferred Stock, par
value $.001 per share, issuable from time to time in one or more series,
having such designation, rights, preferences, powers, restrictions and
limitations as may be fixed by the Board of Directors.
SERIES A 6% CONVERTIBLE PREFERRED STOCK. On November 23, 1999, we filed with
the Nevada Secretary of State a Certificate of Designations establishing the
Series A 6% Convertible Preferred Stock consisting of 5,000,000 shares. As
of November 30, 1999, 2,500 shares of our Series A Preferred Stock were
issued and outstanding. The following is a summary of the rights, privileges
and preferences of the Series A Preferred Stock.
Dividends. The cumulative non-compounded dividend on the Series A Preferred
Stock is 6% per annum based on the stated value of $1,000 per share, payable
as permitted by law and declared by the board of directors, or upon the
redemption or conversion of the Series A Preferred Stock into common stock.
We may not declare or pay any dividends on the common stock unless we first
declare and pay all unpaid dividends on the Series A Preferred Stock.
Conversion. Each share of the outstanding Series A Preferred Stock is
convertible, at the election of the holder thereof, into the number of shares
of our common stock equal to $1,000 plus the amount of any accrued and unpaid
dividends divided by the lesser of (1) $4.25 per share, or (2) 80% of the
average three lowest closing bid prices of the our common stock for the
twenty-five (25) trading days immediately preceding the election by the
holder to convert. At any time while any shares of the Series A Preferred
Stock are outstanding, we may not issue any classes or series of stock that
are senior to the Series A Preferred Stock in any respect, including
liquidation.
Voting. Each share of Series A Preferred Stock entitles the holder to the
number of votes equal to the number of shares of common stock into which it
is convertible. The holders of the common stock and the Series A Preferred
Stock vote as a single class on all matters on which our shareholders vote,
except where otherwise required by law. The holders of the Series A Preferred
Stock do not have cumulative voting for the election of directors.
Preemptive Rights. The holders of the Series A Preferred Stock do not have
preemptive rights to subscribe for any additional shares of any class of our
capital stock or for any issue of bonds, notes or other securities
convertible into any class of our capital stock.
Liquidation Preference. If we liquidate, dissolve or wind-up our business,
whether voluntary or otherwise, after we pay our debts and other liabilities,
the holders of the Series A Preferred Stock will be entitled to receive from
our remaining net assets, before any distribution to the holders of our
common stock, the amount of $1,000 per share of Series A Preferred Stock in
cash plus payment of all accrued but unpaid cumulative dividends. Holders of
the Series A Preferred Stock will not be entitled to receive any other
payments if we liquidate, dissolve or wind-up our business.
Redemption Rights. Should the Registration Statement of which this
Prospectus is a part is declared effective on or after May 21, 2000, or
should certain other events occur, we are required, at the option of the
holder, to redeem all outstanding Series A Preferred Stock at $1,250 per
share plus accrued and unpaid dividends.
Ownership Limitation. The investor in the Series A Preferred Stock and
warrants has a contractual limitation that stipulates that they will
beneficially own no more that 4.999% of our Common Stock at any one time.
However, the 4.999% limitation would not prevent such investor from acquiring
and selling in excess of 4.999% of shares of our Common Stock through a
series of acquisitions and sales under the warrants while never beneficially
owning more than 4.999% at any one time.
Warrants
We have outstanding a warrant to purchase up of 250,000 shares of our Common
Stock at an exercise price of $4.25 per share with anti-dilution provisions.
This warrant has piggyback registration rights, anti-dilution provisions, is
fully exercisable, and expires November 23, 2004. The Common Stock underlying
these warrants is subject to registration rights and is being registered in
this offering.
We have outstanding a conditional warrant to purchase up to 2,500 shares of
our Series A 6% Convertible Preferred Stock at an exercise price of $1000 per
share, and a warrant exercisable for five years to purchase up of 250,000
shares of Common Stock at an exercise price of $4.25 per share with anti-
dilution provisions. This conditional warrant is exercisable at our option
as long as our common stock bid price is more than $4.00 per share beginning
75 days after this offering goes effective and expires November 23, 2004. The
Common Stock issuable upon exercise of the conditional warrant and the
underlying warrants, and the conversion of the Preferred Stock, is subject to
registration rights and is being registered in this offering.
We have outstanding a commitment warrant to purchase 490,000 shares of our
Common Stock at an exercise price which is the lower of (1) $3.843 per share
or (2) the lowest price which is calculate as the average closing bid price
of our common stock for the 5 trading days prior to each successive six (6)
month dates beginning September 29, 1999. This warrant has piggyback
registration rights, anti-dilution provisions, is fully exercisable, and
expires October 4, 2004. Under the terms of a warrant side agreement, in the
event of a recapitalization, additional warrants may be issued to the holder.
We have outstanding a placement warrant to purchase 49,844 of our Common
Stock exercisable at an exercise price which is the lower of (1) $4.0125, or
(2) the lowest price which is calculate as the average closing bid price of
our common stock for the 5 trading days prior to each successive six (6)
month dates beginning from November 24, 1999. This warrant has piggyback
registration rights. anti-dilution provisions, is fully exercisable, and
expires November 24, 2004.
Lock-Up Agreements
Our officers and directors have agreed, for a period of 6 months after
November 23, 1999, not to offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of
an option to purchase or other sale or disposition) of any of their shares of
our Common Stock or other capital stock or any securities convertible into,
or exchangeable or exercisable for our Common Stock or other capital stock.
Transfer Agent
The transfer agent for our securities is Nevada Agency and Trust Company, 50
West Liberty, Suite 880, Reno, Nevada 89501; telephone 775-322-0626.
SELLING SECURITY HOLDERS
The securities offered by this Prospectus may be offered from time to time by
the Selling Security Holders. The Selling Security Holders are the purchaser
and placement agent of our Series A Preferred Stock and associated Warrants.
The Selling Security Holders have not held any position or office or had any
material relationship with us or any predecessors or affiliates within three
years of the date of this Prospectus.
Our agreement with the Selling Security Holders provide for us to reserve for
issuance 1.5 times the maximum amount of shares issuable under the initial
terms of conversion of the preferred stock and exercise of the warrants. The
actual number of shares of common stock issuable is subject to adjustment and
could be materially different than the amounts set forth in the table below,
depending on factors which we cannot predict at this time, including:
The number of shares issuable upon conversion of the preferred stock,
The number of shares issuable upon exercise of the warrants,
The potential increase in the number of shares issuable with respect to
the preferred stock if the conversion price declines due to a decline
in the market price for our common stock, and
Our right to not call for the exercise of the conditional warrant.
The following table sets forth, as of November 30, 1999 and upon completion
of this offering, information provided by the Selling Security Holders with
regard to their beneficial ownership of the our Common Stock. Unless
otherwise indicated in the footnotes, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
The number of shares of our common stock listed in the table below as being
beneficially owned by Mesora Investors LLC includes the shares of our common
stock that are issuable to it, subject to the 4.999% limitation, upon
exercise of the warrants. However, the 4.999% limitation would not prevent
Mesora Investors LLC from acquiring and selling in excess of 4.999% of shares
of our common stock through a series of acquisitions and sales under the
warrants while never beneficially owning more than 4.999% at any one time.
Common Shares
Number of Shares Number of Shares Percent
Selling Security Holder Prior to Sale After Sale After Sale
Mesora Investors LLC (1)(2) 2,464,862 -0- + (4)
c/o WEC Asset Management LLC
One World Trade Center,
Suite 4563
New York, New York 100048
Dunwoody Brokerage (3) 49,844 -0- + (4)
Services, Inc.
1080 Holcomb Bridge Road
Roswell, GA 30076
Total (4) 2,514,706 -0- + (4)
+ less than 1%.
(1) Holder of shares of common stock issuable upon (a) conversion of 2,500
shares of Series A 6% Convertible Preferred Stock convertible into 588,235
shares of common stock, and (b) exercise of warrants to purchase 250,000
shares of common stock.
(2) Holder of shares of common stock issuable upon (a) exercise of a
conditional warrant to purchase up to 2,500 shares of Series A 6% Convertible
Preferred Stock and a warrant exercisable for five years to purchase up to
250,000 shares of Common Stock, and (b) conversion of the preferred stock
into 588,235 shares of common stock, and exercise of the warrant to purchase
250,000 shares of common stock.
(3) Holder of shares of common stock issuable upon exercise of placement
warrants to purchase 49,844 shares of common stock. The actual number of
shares issuable is subject to adjustment.
(4) The actual number of shares issuable is subject to adjustment and is
estimated to be 2,514,706 common shares.
(5) Because the Selling Security Holders may offer all, some or none of
their Common Stock, no definitive estimate as to the number of shares thereof
that will be held by the Selling Security Holder after such offering can be
provided and the following table has been prepared on the assumption that all
shares of Common Stock offered under this Prospectus will be sold.
PLAN OF DISTRIBUTION
The Selling Security Holders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market, or trading facility on
which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. The Selling Security Holders may use any one
or more of the following methods when selling shares:
ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
an exchange distribution in accordance with the rules of the applicable
exchange;
privately negotiated transactions;
short sales;
broker-dealers may agree with the Selling Security Holders to sell a
specified number of such shares at a stipulated price per share;
a combination of any such methods of sale; and
any other method permitted pursuant to applicable law.
The Selling Security Holders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Security Holders may also engage in short sales against the box,
puts and calls and other transactions in our securities or in derivatives of
our securities and may sell or deliver shares in connection with these
trades. The Selling Security Holders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to time,
offer and sell the pledged shares.
Broker-dealers engaged by the Selling Security Holders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Security Holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser)
in amounts to be negotiated. The Selling Security Holders do not expect
these commissions and discounts to exceed what is customary in the types of
transactions involved.
The Selling Security Holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of
the shares, including fees and disbursements of counsel to the Selling
Security Holders. We have agreed to indemnify the Selling Security Holders
against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon for
us by Robert C. Weaver, Jr., Esq., San Diego, California. Robert C.
Weaver, Jr. is presently the holder of 100,000 shares of our Common Stock and
has options for an additional 700,000 shares of which 200,000 were granted
under the 1999 Stock Plan and 500,000 were assigned by William J. Kettle.
None of these shares are being offered herein.
EXPERTS
Our consolidated financial statements at August 31, 1999 and 1998, and for
each of the three years in the period ended August 31, 1999, appearing in
this Prospectus and Registration Statement have been audited by Timothy L.
Steers, CPA, LLC, independent auditor, as set forth in his report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, and other information with the
SEC. You may read and copy any document we file with the SEC at the SEC's
public reference room located at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's public reference rooms located at it's regional
offices in New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0300 for further information on the operation of public reference
rooms. You can also obtain copies of this material from the SEC's Internet
web site (http://www.sec.gov) that contains reports, proxy statements and
other information regarding registrants that file electronically with the
SEC.
Our common stock is quoted on the OTC Electronic Bulletin Board under the
symbol "LMKI".
This prospectus is a part of a registration statement on Form SB-2 filed by
us with the SEC under the Securities Act. This Prospectus omits certain
information contained in the registration statement, and we refer you to the
registration statement and to the exhibits to the registration statement for
additional information about the common stock and us.
LMKI, Inc.
(formerly Landmark International, Inc.)
Consolidated Financial Statements
with Report of Independent Auditors
For the Three Years in the Period Ended August 31, 1999
Contents
Page
Report of Independent Auditors 1
Consolidated Financial Statements:
Balance sheets 2
Statements of operations 3
Statements of changes in stockholders' equity (deficit) 4
Statements of cash flows 5
Notes to financial statement 6-12
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
LMKI, Inc.
We have audited the accompanying consolidated balance sheets of LMKI, Inc.
(formerly Landmark International, Inc.) as of August 31, 1999 and 1998, and
the related consolidated statements of operation, cash flows and changes in
stockholders' equity (deficit) for each of the three years in the period
ended August 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LMKI,
Inc. (formerly Landmark International, Inc.) as of August 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the three
years in the period ended August 31, 1999, in accordance with generally
accepted accounting principles.
Timothy L. Steers, CPA, LLC
Portland, Oregon
November 10, 1999
LMKI, Inc. 2
(formerly Landmark International, Inc.)
Consolidated Balance Sheets
August 31
1999 1998
ASSETS
Current assets:
Cash $ 125,692 $ 3,772
Accounts receivable 837,850 98,352
Deferred tax assets 242,750 13,650
Total current assets 1,206,292 115,774
Equipment less accumulated
depreciation and amortization
of $40,482 in 1999 ($3,897 in 1998) 262,067 143,161
Other assets:
Goodwill less accumulated
amortization of $23,353 in 1999 443,709 -
Deposits 35,725 -
479,434 -
$ 1,947,793 $ 258,935
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 999,319 $ 81,089
Accrued payroll and
related liabilities 133,749 8,089
Accrued interest to shareholder 3,112 -
Other accrued liabilities 7,133 2,000
Capitalized lease obligations
due within one year 37,290 39,182
Total current liabilities 1,180,603 130,360
Capitalized lease obligations 55,275 79,778
Notes payable to shareholder 797,680 -
Commitments
Stockholders' equity (deficit):
Common stock, $.001; shares authorized
50,000,000, shares issued and
outstanding 36,115,666 in 1999
(19,986,666 in 1998) 36,116 19,987
Additional paid-in capital 345,796 68,955
Retained deficit (467,677) (40,145)
Total stockholders' equity (deficit) (85,765) 48,797
$ 1,947,793 $ 258,935
See accompanying notes.
LMKI, Inc. 3
(formerly Landmark International, Inc.)
Consolidated Statements of Operations
Years ended August 31
1999 1998 1997
Net sales $ 1,598,076 $ 397,363 $ 285,200
Cost of sales 922,589 52,001 -
Gross profit 675,487 345,362 285,200
Selling expense 111,903 130,050 159,751
General and
administrative
expenses 1,201,480 220,488 188,200
Loss from operations (637,896) (5,176) (62,751)
Interest (income)
expense, net 18,736 5,843 (46)
Loss before provision
for income taxes (656,632) (11,019) (62,705)
Provision (benefit) for
income taxes (229,100) 100 (11,750)
Net loss $ (427,532) $ (11,119) $ (50,955)
Net loss per common share $ (.0162) $ (.0007) $ (.0043)
See accompanying notes.
LMKI, Inc. 4
(formerly Landmark International, Inc.)
Consolidated Statements of Changes in Stockholders Equity (Deficit)
For the period from September 1, 1996 through August 31, 1999
Additional Retained Total
Common stock paid-in equity stockholders'
Shares Amount capital (deficit) equity
(deficit)
Balance at
September 1, 1996 11,366,666 $ 11,367 $ 37,375 $ 21,929 $ 70,671
Shares issued in
exchange for
services 540,000 540 (540) - -
Net loss - - - (50,955) (50,955)
Balance at
August 31, 1997 11,906,666 11,907 36,835 (29,026) 19,716
Shares issued in
exchange for
equipment 4,000,000 4,000 36,200 - 40,200
Shares issued in
exchange for
services 4,080,000 4,080 (4,080) - -
Net loss - - - (11,119) (11,119)
Balance at
August 31, 1998 19,986,666 19,987 68,955 (40,145) 48,797
Shares issued in
exchange for
services 5,129,000 5,129 97,841 - 102,970
Shares issued in
exchange for
equipment 1,000,000 1,000 89,000 - 90,000
Shares issued for
purchase of
Mobilenetics
Corporation 10,000,000 10,000 90,000 - 100,000
Net loss - - - (427,532) (427,532)
Balance at
August 31, 1999 36,115,666 $ 36,116 $ 345,796 $(467,677) $(85,765)
See accompanying notes.
LMKI, Inc. 5
(formerly Landmark International, Inc.)
Consolidated Statements of Cash Flows
Years ended August 31
1999 1998 1997
Cash flows from operating activities:
Net loss $(427,532) $ (11,119) $(50,959)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 36,585 3,897 -
Amortization of goodwill 23,353 - -
Deferred income taxes (229,100) (1,900) (11,750)
Services exchanged for common stock 102,970 - -
Changes in assets and liabilities,
net of effects of purchase of
Mobilenetics Corporation:
Accounts receivable (676,509) (59,738) 77,975
Accounts payable 412,588 24,031 -
Accrued payroll related liabilities 125,660 2,000 -
Accrued interest to shareholder 3,112 - -
Other accrued liabilities 1,903 1,904 -
(626,970) (40,925) 15,266
Cash flows from investing activities:
Decrease in advances - 9,858 (9,858)
Cash paid for Mobilenetics
Corporation, net of cash acquired 3,512 - -
3,512 9,858 (9,858)
Cash flows from financing activities:
Repayments of capitalized lease
obligations (52,302) (10,769) -
Proceeds from common stock - 40,200 -
Proceeds from notes payable to
shareholder 797,680 - -
745,378 29,431 -
Net increase (decrease) in cash 121,920 (1,636) 5,408
Cash at beginning of year 3,772 5,408 -
Cash at end of year $ 125,692 $ 3,772 $ 5,408
Supplemental disclosure of
cash flow information-
Cash paid during the year
for interest $ 15,624 $ 5,843 $ -
Supplemental disclosure on noncash
investing and financing activities:
Equipment acquired under capitalized
lease agreements $ 49,085 $ 129,729 $ -
Equipment acquired in exchange for
common stock $ 90,000 $ - $ -
Common stock issued in exchange for
purchase of Mobilenetics Corporation $ 100,000 $ - $ -
See accompanying notes.
LMKI, Inc. 6
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business: LMKI, Inc. (formerly Landmark International, Inc.) (the
"Company") is a Nevada Corporation engaged in providing communication
services to individuals and businesses.
Basis of Consolidation: The consolidated financial statements include the
accounts of LMKI, Inc. and its wholly-owned subsidiary Mobilenetics
Corporation ("Mobilenetics") since the date of its acquisition. All
intercompany accounts and transactions have been eliminated.
Equipment: Equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable
assets, which range from three to seven years.
Equipment under capitalized lease obligations are carried at estimated fair
market value determined at the inception of the lease. Amortization is
computed using the straight-line method over the original term of the lease
or the estimated useful lives of the assets, whichever is shorter.
Goodwill: Goodwill represents the excess purchase price over the estimated
fair value of Mobilenetics. Goodwill is being amortized using the straight-
line method over five years.
Revenue Recognition: Fees for services are recognized at month-end as
services are completed and income earned.
Advertising: The Company expenses the cost of advertising as incurred as
selling expenses. Advertising expenses was approximately $10,500 for 1999
($2,000 for 1998; $3,300 for 1997).
Income Taxes: Income taxes are accounted for and reported using an asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the year
in deferred tax assets and liabilities.
LMKI, Inc. 7
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
1. Nature of Business and Summary of Significant Accounting policies
(continued)
Net Loss per Common Share: Net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common stock shares outstanding was
26,320,277 for 1999 (15,799,269 for 1998; 11,764,639 for 1997). Stock
options and warrants outstanding are not considered common stock equivalents,
as the affect on net loss per share would be anti-dilutive.
Concentration Risk: The Company grants credit to customers in the Southern
portion of the State of California. The Company's ability to collect
receivables is affected by economic fluctuations in the geographic areas
served by the Company.
Risks and Uncertainties: The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Management of the Company has made certain estimates
and assumptions regarding the collectibility of accounts receivable. Such
estimates and assumptions primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
2. Business Combination:
Effective June 1, 1999, LMKI, Inc. acquired Mobilenetics, a supplier of
communications equipment, in a business combination accounted for as a
purchase. The Company issued 10,000,000 shares of its common stock in
exchange for all of the outstanding shares of Mobilenetics. The value of the
shares issued for Mobilenetics was $100,000 ($.01 per share) which
approximated the bid price of the Company's common stock on the date of
exchange. The purchase price exceeded the fair market value of Mobilenetics
by $467,062.
Cash paid for Mobilenetics, net of cash acquired was as follows:
Fair value of the Company's common stock $100,000
Fair value Mobilenetics:
Accounts receivable 86,167
Equipment 16,406
Deposits 35,725
Cost in excess of fair value of net assets acquired 467,062
Accounts payable (508,872)
96,488
Cash Acquired $ 3,512
LMKI, Inc. 8
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
2. Business Combination (continued)
The results of operations of Mobilenetics are included in the accompanying
consolidated financial statements since the date of acquisition. The
following pro forma summary presents the consolidated financial position and
results of operations of the Company as if the business combination occurred
on September 1, 1998:
As of August 31, 1999:
Tangible current assets $ 963,542
Total assets 2,164,873
Current liabilities 1,180,603
Total liabilities 2,033,558
Total stockholders' equity 131,315
For the year ended August 31, 1999:
Net sales 2,289,208
Net loss (1,257,202)
Loss per common share (20.936)
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma financial position and
results of operations do not purport to be indicative of the results which
would have been obtained had the business combination occurred as of
September 1, 1998 or which may be obtained in the future.
3. Capitalized Lease Obligations:
The Company leases equipment under non-cancelable lease agreements.
Equipment under lease agreements aggregated at August 31, 1999 $107,540
($129,929 in 1998) less accumulated amortization at August 31, 1999 of
$18,042 ($3,443 in 1998).
Aggregate future minimum lease payments and the present value of minimum
lease payments are as follows:
Years ending August 31:
2000 $ 59,873
2001 40,097
2002 18,064
Total minimum lease payments 118,034
Less amount representing interest 25,469
Present value of minimum lease payments 92,565
Less amounts due within one year 37,290
Long-term capitalized lease obligations $ 55,275
LMKI, Inc. 9
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
Notes Payable to Shareholder
During 1999, the majority shareholder and Chairman of the Company, advanced
an aggregate of $797,680 for working capital purposes. The notes payable
bear interest at 10% per annum. The shareholder was paid approximately
$4,900 in interest during 1999.
The notes are repayable upon demand in cash or in common stock of the
Company, or a combination thereof, at the option of the shareholder. At this
time, the shareholder intends to exchange his notes for common stock of the
Company and has agreed not to demand repayment before November 11, 2000.
5. Income Taxes
The components of the provision (benefit) for income taxes are as follows for
the years ended August 31:
1999 1998 1997
Federal:
Current $ - $ 1,500 $ -
Deferred - net operating loss carryover (213,000) (1,600) (10,200)
(213,000) (100) (10,200)
State of California:
Current - 500 -
Deferred - net operating loss carryover (16,100) (300) (1,550)
(16,100) 200 (1,550)
Provision (benefit) for income taxes $(299,100) $ 100 $(11,750)
Reconciliation of income taxes computed at the federal statutory rate to the
provision (benefit) for income taxes is as follows for the years ended August
31:
1999 1998 1997
Tax at statutory rates $(223,255) $ (1,653) $(11,724)
Differences resulting from:
State tax, net of federal benefit (10,604) 159
Non-deductible and other items 4,759 1,594 (26)
Provision (benefit) for income taxes $(229,100) $ 100 $(11,750)
LMKI, Inc. 10
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
6. Common Stock
In December 1998, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to the Chairman of the Company for services rendered.
Also in December 1998, the Chairman of the Company was granted the option to
purchase an additional 4,000,000 share of the Company's common stock.
As of August 31, 1999, an aggregate of 8,000,000 shares of stock were
exercisable to the Chairman of the Company, of which 4,000,000 shares expire
in December 2002 and 4,000,000 shares expire in December 2003, if not
exercised. The options are exercisable at one cent per share and are
exercisable in whole or part. The Company has reserved 8,000,000 shares of
its common stock for issuance to the Chairman.
The following table summarizes stock option activity as of August 31:
1999 1998 1997
Options outstanding at beginning of year 4,000,000
Options granted 4,000,000 4,000,000
Options expired or canceled
Options exercised __________ __________ __________
Outstanding at end of year 8,000,000 4,000,000
Average price per share $.01 $.01 $.01
Options exercisable at end of year 8,000,000 4,000,000
Aggregate proceeds at end of year $80,000 $40,000
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options. Had compensation cost for the Company's stock options been
determined based on the fair value at the grant date for awards consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
common share would have been reduced to the pro forma amounts indicated
below:
1999 1998 1997
Net loss as reported $ (427,532) $ (11,119) $ (50,955)
Net loss pro forma $ (511,532) $ (95,119) $ (50,955)
Net loss per common share
as reported $ (.0162) $ (.0007) $ (.0043)
Net loss per common share
pro forma $ (.0194) $ (0006) $ (.0043)
LMKI, Inc. 11
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
6. Common Stock (continued)
In December 1998, the Board of Directors authorized the issuance of 500,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $18,500 ($.031 per share) which
represented the bid price of the common stock and the approximate value of
the services on the date of exchange. In March 1999, the Board of Directors
authorized the issuance of 400,000 shares of common stock to two individuals
in exchange for professional services. The common stock was valued at
$36,000 ($.090 per share) which represented the bid price of the common stock
and the approximate vale of the services on the date of exchange. In August
1999, the Board of Directors authorized the issuance of 100,000 shares of
common stock to an individual in exchange for professional services. The
common stock was valued at $10,000 ($.10 per share) which represented the
value of the services rendered and the approximate average bid price of the
common stock during the year prior to the acquisition of Mobilenetics.
In December 1997, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to the Chairman of the Company for services rendered.
Also in December 1997, the Chairman of the Company was granted the option to
purchase an additional 4,000,000 shares of the Company's common stock.
In December 1997, the Board of Directors authorized the issuance of 80,000
shares of common stock to two individuals in exchange for $100 and public
relation services.
In December 1996, the Board of Directors authorized the issuance of 20,000
shares of common stock to each employee of the Company at that time. The
shares were to be surrendered back to the Company in the event that any
employee who received shares terminated their employment with the Company, or
was terminated by the Company for cause. The Company issued an aggregate of
540,000 shares of its common stock to these employees.
7. Commitments
The Company leases certain equipment under non-cancelable operating lease
agreements which expire between the years 2001 and 2003. Aggregate minimum
future lease payments under these leases are as follows:
Years ending August 31:
2000 $ 63,490
2001 58,857
2002 6,644
2003 739
Total minimum lease payments $ 129,730
Equipment lease expense aggregated approximately $50,700 for the year ended
August 31, 1999.
LMKI, Inc. 12
(formerly Landmark International, Inc.)
Notes to Consolidated Financial Statements
August 31, 1999
8. Significant Customer
The Company has entered into a Dedicated Access Service Agreement ("Service
Agreement") with a customer to provide them with communication services
through July 2000. The Service Agreement is renewable for an additional one
year.
The customer accounted for approximately 25% of net sales in 1999.
Management does not believe that the Company is economically dependent upon
any single customer.
The Company's policy is to perform on-going credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
9. Subsequent Event
In September 1999, the Company entered into an irrevocable Investment
Agreement for a "private equity line" of up to $35,000,000. Under the
Investment Agreement an investment banking company has made a firm commitment
to purchase the Company's common stock and resale the securities in an
offering under Regulation D of the United States Securities and Exchange
Commission.
Subject to an effective registration statement and ending 36 months from the
initial subscription date, the Company at its discretion may "Put" common
stock to the investment banking company. The purchase price per share will
equal 92% of the lowest closing bid price of the common stock during the 20
business days following each Put, subject to a minimum price specified by the
Company as defined in the Investment Agreement. The amount of each Put sold
to the investment banking company may be up to $2,000,000, but the number of
shares sold may generally not exceed 15% of the aggregate trading volume of
the Company's common stock during the 20 business days following each Put.
The investment banking company shall receive warrants to purchase 10% of the
number of shares of the Company it purchases under each Put. The warrants
are exercisable at a price equal to 110% of the market price for each Put.
In consideration of the Investment Agreement, the Company granted the
investment banking company warrants to purchase 490,000 shares of its common
stock. The warrants are exercisable upon the successful completion of
certain tasks and at a price equal to the lowest closing bid price for the 5
days prior to the exclusion of the Investment Agreement or the 5 days
following its execution, whichever price is lower.
Consolidated Financial Statements
Unaudited
For the Three Months Ended November 30, 1999 and 1998
LMKI, Inc.
(formerly Landmark International Inc.)
Balance Sheet
(Unaudited)
For the periods ended as indicated
Aug. 31 Nov. 30
ASSETS 1999 1999
Cash 125,692 2,053,922
Accounts Receivable 837,850 946,855
Deferred tax assets 242,750 242,750
Total Current Assets 1,206,292 3,243,527
Equipment 302,549 1,027,417
Accumulated Depreciation (40,482) (63,916)
Total Equipment less
Accumulated depreciation 262,067 963,501
Goodwill 467,062 467,062
Accumulated Amortization (23,353) (46,706)
Deposits 35,725 116,200
Total Other Assets 479,434 536,556
Total Assets 1,947,793 4,743,584
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable 999,319 1,356,343
Accrued payroll and related liabilities 133,749 113,954
Accrued interest to shareholder 3,112 0
Other accrued liabilities 7,133 37,187
Capitalized lease obligations due
within one year 37,290 9,817
Total current liabilities 1,180,603 1,517,301
Capitalized Lease LT 55,275 34,359
Loans from officers 797,680 1,115,528
Stockholders' equity
Common stock 36,116 36,116
Preferred stock 0 2,500,000
Paid in capital 345,796 123,896
Retained Earnings (467,677) (467,677)
Current Years Earnings (115,939)
Total Stockholders Equity (85,765) 2,076,396
Total Stockholders Equity and
Liabilities 1,947,793 4,743,584
See accompanying notes.
LMKI, Inc.
(formerly Landmark International, Inc.)
Statement of Operations
(Unaudited)
For the periods ended as indicated
Three Months
Ended Nov. 30
1998 1999
Sales 40,881 1,505,053
Cost of Sales 3,173 709,387
Gross Profit 37,707 795,666
Selling Expense 72,589 259,897
General and administrative expense 25,463 625,225
Gain or (loss) from operations (60,345) (89,456)
Interest, net 2,018 26,483
Gain or (loss) before
Provision for income
Taxes (62,362) (115,939)
Provision for income taxes 0 0
Net gain or (loss) (62,362) (115,939)
See accompanying notes.
LMKI, Inc.
(formerly Landmark International, Inc.)
Statement of Cash Flows
Unaudited)
For the periods ended as indicated
Three Months
Cash flows from operating activities: Ended Nov. 30
1998 1999
Net gain or (loss) (62,362) (115,939)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation 2,922 23,434
Amortization of goodwill 0 23,353
Changes in assets and liabilities
Accounts Receivable 83,652 (109,005)
Employee Advances (304) 0
Accounts Payable (24,735) 383,966
Accrued payroll related liability 1,890 (19,795)
Accrued income taxes 0 0
1,063 186,014
Cash flows from investing activities
Purchase of capital equipment 0 (805,343)
Cash flows from financing activities
Repayment of capitalized lease obligation (4,432) (48,389)
Proceeds from preferred stock 0 2,278,100
Proceeds from notes payable to shareholder 0 317,848
(4,432) 2,547,559
Net increase (decrease) in cash (3,369) 1,928,230
Cash at beginning of periods 3,772 125,692
Cash at end of periods 403 2,053,922
See accompanying notes.
LMKI, Inc.
(formerly Landmark International, Inc.)
Notes to Financial Statements
(Unaudited)
For the Three Months Ended November 30, 1999
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business: LMKI, Inc. (formerly Landmark International, Inc.)(the
"Company") is a Nevada Corporation engaged in providing communication services
to individuals and businesses.
Equipment: Equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable
assets, which range from three to seven years.
Equipment under capitalized lease obligations are carried at estimated fair
market value determined at the inception of the lease. Amortization is
computed using the straight-line method over the original term of the lease or
the estimated useful lives of the assets, whichever is shorter.
Goodwill: Goodwill represents the excess purchase price over the estimated
fair value of Mobilenetics. Goodwill is being amortized using the straight-
line method over five years.
Revenue Recognition: Fees for services are recognized at month-end as services
are completed and income earned.
Advertising: The Company expenses the cost of advertising as incurred as
selling expenses. Advertising expenses was approximately $22,526 for the
three months ended November 30, 1999 ($404 for 1998).
Income Taxes: Income taxes are accounted for and reported using an asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the year
in deferred tax assets and liabilities.
Net loss per common share: Net loss per share is computed by dividing net loss
by the weighted average number of common shares outstanding during the period.
The weighted average number of common stock shares outstanding was 36,115,666
for the three month period ending November 30, 1999 (26,320,277 for 1998).
Stock options outstanding are not considered to be common stock equivalents,
as the affect on net loss per common share would be anti-dilutive.
Concentration Risk: The Company grants credit to customers in the Southern
portion of the State of California. The Company's ability to collect broker
fees and to fund borrower's transactions are affected both by economic
fluctuations in the geographic areas served by the Company.
Risks and Uncertainties: The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Management of the Company has made certain estimates
and assumptions regarding the collectibility of accounts receivable. Such
estimates and assumptions primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
2. Business Combination:
Effective June 1, 1999, the Company acquired Mobilenetics Corporation
("Mobilenetics"), a supplier of communications equipment, in a business
combination accounted for as a purchase. The Company issued 10,000,000 shares
of its common stock in exchange for all of the outstanding shares of
Mobilenetics. The value of the shares issued for Mobilenetics was $100,000
($.01 per share) which approximated the bid price of the Company's common
stock on the date of exchange. The purchase price exceeded the fair market
value of Mobilenetics by $467,062.
Cash paid for Mobilenetics, net of cash acquired was as follows:
Fair value of the Company's common stock $100,000
Fair value Mobilenetics:
Accounts receivable 86,167
Equipment 16,406
Deposits 35,725
Cost in excess of fair value of net assets acquired 467,062
Accounts payable (508,872)
96,488
Cash Acquired $ 3,512
The results of operations of Mobilenetics are included in the accompanying
consolidated financial statements since the date of acquisition. The
following proforma summary presents the consolidated financial position and
results of operations of the Company as if the business combination occurred
on September 1, 1998:
As of August 31, 1999:
Tangible current assets $ 963,542
Total assets 2,164,873
Current liabilities 1,180,603
Total liabilities 2,033,558
Total stockholders' equity 131,315
For the year ended August 31, 1999:
Net sales 2,289,208
Net loss (1,257,202)
Loss per common share (20.936)
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma financial position and results
of operations do not purport to be indicative of the results which would gave
been obtained had the business combination occurred as of September 1, 1998 or
which may be obtained in the future.
3. Capitalized Lease Obligations:
The Company leases equipment under non-cancelable lease agreements. Equipment
under lease agreements aggregated at November 30, 1999 $107,540 less
accumulated amortization at November 30, 1999 of $5,377.
Aggregate future minimum lease payments and the present value of minimum lease
payments are as follows:
Years ending August 31:
2000 $ 59,873
2001 40,097
2002 18,064
Total minimum lease payments 118,034
Less amount representing interest 25,469
Present value of minimum lease payments 92,565
Less amounts due within one year 37,290
Long-term capitalized lease obligations $ 55,275
4. Notes Payable to Shareholder
During the calendar year of 1999, the majority shareholder and Chairman of the
Company, advanced an aggregate of $1,081,680 for working capital purposes.
The notes payable bear interest at 10% per annum. The shareholder was paid
approximately $4,900 in interest during 1999.
The notes are repayable upon demand in cash or in common stock of the Company,
or a combination thereof, at the option of the shareholder. At this time, the
shareholder intends to exchange his notes for common stock of the Company and
has agreed not to demand repayment before November 11, 2000.
5. Income Taxes
The components of the provision (benefit) for income taxes are as follows for
the years ended August 31:
1999 1998 1997
Federal:
Current $ - $ 1,500 $ -
Deferred net operating loss carryover (213,000) (1,600) (10,200)
(213,000) (100) (10,200)
State of California:
Current - 500 -
Deferred net operating loss carryover (16,100) (300) (1,550)
(16,100) 200 (1,550)
Provision (benefit) for income taxes $(299,100) $ 100 $(11,750)
Reconciliation of income taxes computed at the federal statutory rate to the
provision (benefit) for income taxes is as follows for the years ended August
31:
1999 1998 1997
Tax at statutory rates $(223,255) $ (1,653) $(11,724)
Differences resulting from:
State tax, net of federal benefit (10,604) 159
Non-deductible and other items 4,759 1,594 (26)
Provision (benefit) for income taxes $(229,100) $ 100 $(11,750)
6. Common Stock
In December 1998, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to the Chairman of the Company for services rendered.
Also in December 1998, the Chairman of the Company was granted the option to
purchase an additional 4,000,000 shares of the Company's common stock
As of November 30, 1999, an aggregate of 8,000,000 shares of stock were
exercisable to the Chairman of the Company or assignee, of which 4,000,000
shares expire in December 2002 and 4,000,000 shares expire in December 2003,
if not exercised. The Company has reserved 8,000,000 shares of its common
stock for issuance to the Chairman.
In November 1999, the Company's Board of Directors approved the 1999 Stock
Plan providing for the issuance of up to 4,000,000 shares of the Company's
Common Stock to attract and retain the best available personnel. The Plan is
administered by the Board of Directors or a committee thereof. Options
granted under the Plan would be either incentive stock options or non-
qualified stock options which would be granted to employees, officers,
directors and other persons who perform services on behalf of the Company.
Option vesting, exercise period, and exercise price are determined at the
time of grant.
In November 1999, pursuant to the 1999 Stock Plan, the Board of Directors
authorized the grant of an aggregate of 1,400,000 shares of Common Stock at an
exercise price of $4.0625 per share to members of senior management and
counsel. The Board of Directors authorized the grant of an aggregate of
115,440 shares of Common Stock at an exercise price of $4.000 per share to
employees of the company.
The following table summarizes stock option activity as of:
November August August
30, 1999 31, 1999 31, 1998
Options outstanding at
the beginning of year 8,000,000 4,000,000 0
Options granted 1,515,440 4,000,000 4,000,000
Options expired or canceled 0 0 0
Options exercised 0 0 0
Outstanding at end of period 9,515,440 8,000,000 4,000,000
Average price per share $ .65 $ .01 $ .01
Options exercisable at
end of period 9,515,440 8,000,000 4,000,000
Aggregate proceeds at
end of period $6,229,260 $ 80,000 $ 40,000
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options. Had compensation cost for the Company's stock options been
determined based on the fair value at the grant date for awards consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
common share would have been reduced to the pro forma amounts indicated below:
Nov. 30 Aug. 31 Aug. 31
1999 1998 1998
Net loss-as reported $(115,938) $(427,532) $( 11,119)
Net loss-pro forma $(115,938) $(511,532) $( 95,119)
Net loss per common share-as reported $ (.0032) $ (.0162) $ (.0007)
Net loss per common share-pro forma $ (.0032) $ (.0194) $ (.0007)
In December 1998, the Board of Directors authorized the issuance of 500,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $18,500 ($.031 per share) which
represented the bid price of the common stock and the approximate value of the
services on the date of exchange.
In March 1999, the Board of Directors authorized the issuance of 400,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $36,000 ($.090 per share) which
represented the bid price of the common stock and the approximate value of the
services on the date of exchange.
In August 1999, the Board of Directors authorized the issuance of 100,000
shares of common stock to an individual in exchange for professional services.
The common stock was valued at $10,000 ($.10 per share) which represented the
value of the services rendered and the approximate average bid price of the
common stock during the year prior to the acquisition of Mobilenetics.
In December 1997, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to the Chairman of the Company for services rendered.
Also in December 1997, the Chairman of the Company was granted the option to
purchase an additional 4,000,000 shares of the Company's common stock.
In December 1997, the Board of Directors authorized the issuance of 80,000
shares of common stock in exchange for $100 and public relation services.
In December 1996, the Board of Directors authorized the issuance of 20,000
shares of common stock to each employee of the Company at that time. The
shares were to be surrendered back to the Company in the event that any
employee who received shares terminated their employment with the Company, or
was terminated by the Company for cause. The Company issued an aggregate of
540,000 shares of its common stock to these employees.
7. Commitments
The Company leases certain equipment under non-cancelable operating lease
agreements that expire between the years 2001 and 2003. Aggregate minimum
future lease payments under these leases are as follows:
Years ending August 31:
$34,125
29,492
6,644
739
Total minimum lease payments $71,000
Equipment lease expense aggregated approximately $12,700 for the three months
ended November 30, 1999.
8. Significant Customer
The Company has entered into a Dedicated Access Service Agreement ("Service
Agreement") with a customer to provide them with communication services
through July 2000. The Service Agreement is renewable for an additional one
year.
The customer accounted for approximately 25% of net sales in 1999. Management
does not believe that the Company is economically dependent upon any single
customer.
The Company's policy is to perform on-going credit evaluations for its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
9. Significant Events
In September 1999, the Company entered into an irrevocable Investment
Agreement for a "private equity line: of up to $35,000,000. Under the
Investment Agreement an investment banking company has made a firm commitment
to purchase the Company's common stock and resale the securities in an
offering under Regulation D of the United States Securities an Exchange
Commission.
Subject to an effective registration statement and ending 36 months from the
initial subscription date, the Company at its discretion may "Put" common
stock to the investment banking company. The purchase price per share will
equal 92% of the lowest closing bid price of the common stock during the 20
business days following each Put, subject to a minimum price specified by the
Company as defined in the Investment Agreement. The amount of each Put sold
to the investment banking company may be up to $2,000,000, but the number of
shares sold may generally not exceed 15% of the aggregate trading volume of
the Company's common stock during the 20 business days following each Put.
The investment banking company shall receive warrants to purchase 10% of the
number of shares of the Company it purchases under each Put. The warrants are
exercisable at a price equal to 110% of the market price for each Put.
In consideration of the Investment Agreement, the Company granted the
investment banking company warrants to purchase 490,000 shares of its common
stock. The warrants are exercisable upon the successful completion of certain
tasks and at the price equal to the lowest closing bid price for the 5 days
prior to the exclusion of the Investment Agreement or the 5 days following its
execution, whichever price is lower.
During November 1999, the Company closed the placement of 2,500 shares of
Series A 6% Convertible Preferred Stock, $.001 par value (the "Series A
Preferred Stock"), to one purchaser (the "Purchaser") at a purchase price of
$1,000 per share or an aggregate purchase price of $2.5 million, pursuant to
a Securities Purchase Agreement (the "Purchase Agreement"). As part of its
entry into the Purchase Agreement, the Company entered into a Registration
Rights Agreement (the "Registration Agreement") and a Warrant Agreement.
Concurrently with the closing of this sale, the Company issued warrants to
the Purchaser for the purchase of 250,000 shares of the Company's Common
Stock at an exercise price of $4.25 per share, subject to customary anti-
dilution provisions, expiring on May 5, 2002. The Company also issued
warrants for the purchase of 49,844 shares of Common Stock to the placement
agent, exercisable at $4.0125 per share for five (5) years. On the date of
issuance, the Company determined these warrants had a value of $2,492.
Subject to an effective registration statement and certain other conditions,
under the Securities Purchase Agreement, the Company may require the
Purchaser to purchase up to an additional 2,500 shares of Series A Preferred
Stock at $1,000 per share, at which time it would issue up to 250,000
additional warrants exercisable at $4.25 per share, subject to anti-dilution
provisions, for five (5) years.
The Series A Preferred Stock is immediately convertible into shares of the
Company's Common Stock at a conversion rate equal to $1,000 divided by the
lower of (i) $4.25 or (ii) 80% of the average closing bid price for the
Common Stock for the twenty five (25) trading days immediately preceding the
conversion date.
There is no minimum conversion price. Should the bid price of the Common
Stock fall substantially prior to conversion, the holders of the Series A
Preferred Stock could obtain a significant portion of the Common Stock upon
conversion, to the detriment of the then holders of the Common Stock.
The Series A Preferred Stock has a liquidation preference of $1,000 per
share, plus any accrued and unpaid dividends, and provides for an annual
dividend equal to 6% of the liquidation preference, which may be paid at the
election of the Company in cash or shares of its Common Stock.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Nevada Revised Statutes Section 78.7502, 78.751, and 78.752 allow us to
indemnify our officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by Nevada law. We may enter into
agreements with our directors and executive officers that require us, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors and executive officers to the
fullest extent permitted by Delaware law. We have also purchased directors
and officers liability insurance, which provides coverage against certain
liabilities including liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, all of which are to be paid
by the Registrant, are as follows:
Registration Fee $ 6,970.76
Legal Fees and Expenses................................... 5,000.00
Accounting Fees and Expenses.............................. 2,000.00
Printing.................................................. 1,000.00
Miscellaneous Expenses.................................... 2,029.24
Total............................................ $17,000.00
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) The following is a summary of our transactions during the last three
years preceding the date hereof involving sales of our securities that were
not registered under the Securities Act.
In December 1996, the Board of Directors authorized the issuance of 20,000
shares of common stock to each of our employees at that time. The shares were
to be surrendered back to us in the event that any employee who received
shares terminated their employment with us, or was terminated by us for cause.
We issued an aggregate of 40,000 shares of its common stock to these
employees.
In December 1996, the Board of Directors authorized the issuance of 4,000,000
shares of common stock in exchange for $100 and the provision of equipment
under a leasing arrangement.
In December 1997, the Board of Directors authorized the issuance of 80,000
shares of common stock in exchange for $100 and public relation services.
In December 1997, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to our Chairman for services rendered.
The common stock was valued at $.01 per share.
In December 1998, the Board of Directors authorized the issuance of 500,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $18,500 ($.031 per share) which
represented the bid price of the common stock and the approximate value of the
services on the date of exchange.
In December 1998, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to our Chairman for services rendered.
The common stock was valued at $.01 per share.
In March 1999, the Board of Directors authorized the issuance of 400,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $36,000 ($.090 per share) which
represented the bid price of the common stock and the approximate value of the
services on the date of exchange.
Effective June 1, 1999, we acquired Mobilenetics Corporation
("Mobilenetics"), a supplier of communications equipment, in a business
combination accounted for as a purchase. We issued 10,000,000 shares
of its common stock in exchange for all of the outstanding shares of
Mobilenetics. The value of the shares issued for Mobilenetics was $100,000
($.01 per share) which approximated the bid price of our common
stock on the date of exchange.
In August 1999, the Board of Directors authorized the issuance of 100,000
shares of common stock to an individual in exchange for professional services.
The common stock was valued at $10,000 ($.10 per share) which represented the
value of the services rendered and the approximate average bid price of the
common stock during the year prior to the acquisition of Mobilenetics.
During November 1999, we closed the placement of 2,500 shares of
Series A 6% Convertible Preferred Stock, $.001 par value (the "Series A
Preferred Stock"), to one purchaser at a purchase price of $1,000 per share
or an aggregate purchase price of $2.5 million.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(2) of the Securities Act, Regulation D promulgated
thereunder or Rule 701 promulgated under Section 3(b) of the Securities Act,
as transactions by an issuer not involving any public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transactions. All recipients had adequate access, through
their relationship with us to information about us.
(b) There were no underwritten offerings employed in connection with any
of the transactions set forth in Item 26(a).
ITEM 27. EXHIBITS.
Index of Exhibits
Number Description
2.1 Merger Agreement Acquisition of Mobilenetics Corporation (3)
3.1.1 Articles Of Incorporation (1)
3.1.2 Name change pursuant to NRS 78.185 filed 8/27/1998 (*)
3.1.3 Certificate of Amendment to the Articles Of Incorporation
filed 7/23/1999 (*)
3.2 By-Laws (1)
4.1 Specimen of Common Stock Certificate (1)
4.2 Investment Agreement - Swartz (5)
4.3 Registration Rights Agreement - Swartz (5)
4.4 Warrant To Purchase Common Stock Of LMKI Inc. - Swartz (5)
4.5 Commitment Warrant - Swartz (5)
4.6 Agreement (With Respect To Commitment Warrants) - Swartz (5)
4.7 Securities Purchase Agreement - West End (6)
4.8 Certificate Of Designations Of Series A 6% Convertible
Preferred Stock Of LMKI Inc. - West End (6)
4.9 Warrant To Purchase Common Stock Of LMKI Inc. - West End (6)
4.10 Conditional Warrant To Purchase 6% Convertible Series A
Preferred Stock And Warrants To Purchase Common Stock
- West End (6)
4.11 Registration Rights Agreement - West End (6)
4.12 Form Of Lock-Up Agreement - West End (6)
4.12 Placement Warrant - Dunwoody (*)
5.1 Opinion of Robert C. Weaver, Jr., Esq. (**)
10.1 Agreement For Payment Of Tax Obligations (2)
10.2 Equipment Lease Agreement (2)
10.3+ Options Outstanding (4)
10.4 Form of Note Payable to William J. Kettle (4)
10.5+ 1999 Stock Plan and form of agreements thereunder (*)
10.6 Form of Indemnification Agreement between
directors and officers and certain agents (*)
10.7 Covad Master Reseller Agreement (*)
10.8 Level 3 General Terms And Conditions For
Delivery Of Service (*)
21.1 List of subsidiaries (*)
23.1 Consent Of Expert (*)
23.2 Consent of Counsel (see Exhibit 5.1 of this filing) (*)
24.1 Power of Attorney (see page II-5 of this filing) (*)
- ------------------------------
(*) Filed herewith.
(**) To be filed by amendment.
+ Indicates a management contract or any compensatory plan, contract or
arrangement.
(++) The Registrant will request confidential treatment with respect to
certain portions of this exhibit. The omitted portions will be
separately filed with the Commission.
(1) Previously filed in the original registration statement on Form 10-SB.
(2) Previously filed in Form 10-KSB for the year ended 8/31/1998.
(3) Previously filed in Form 10-QSB for the quarter ended 5/31/1999.
(4) Previously filed in Form 10-KSB for the year ended 8/31/1999.
(5) Previously filed in Form 8k on 12/2/1999.
(6) Previously filed in Form 8k on 12/3/1999.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as express in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by
a director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication such issue.
(5) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(6) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby appoints
William J. Kettle as their attorney-in-fact, with full power to act alone, to
sign in the name and in behalf of the Registrant and any such person,
individually and in each capacity stated below, any and all amendments,
including post-effective amendments, to this Registration Statement.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Santa Ana, State of California, on December ___, 1999.
LMKI, INC. (Registrant)
By:/s/_______________________________
William J. Kettle
Chairman, Chief Executive Officer
Date: 12/17/99
By:/s/_______________________________
John W. Diehl, Jr.
Chief Financial Officer, Secretary
Date:
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated:
Signature Title Date
/s/_______________________________ 12/17/99
William J. Kettle Chairman, Director,
Chief Executive Officer
/s/_______________________________ 12/17/99
Bryan L. Turbow President, Director
/s/_______________________________ 12/17/99
Adela Maria Kettle Vice President, Director
/s/_______________________________ 12/17/99
John W. Diehl, Jr. Chief Financial Officer,
Secretary
(Name change pursuant to NRS 78.185 filed 8/27/1998)
Application for Reinstatement
This application authorizes the office of the secretary of state of Nevada to
reinstate Landmark International, Inc. (old name) under the name of:
Genesis Communications (new name).
This application is accompanied with the sixty-day list or annual list, the
designation of the resident agent, and all fees and penalties.
/s/William J. Kettle
7/30/98
If a corporation, this application shall be signed by an officer
If a limited partnership, application shall be signed by a general partner.
If a limited-liability company, this application shall be signed by a manager
or member.
If a limited-liability partnership, this application shall be signed by a
managing partner.
(filed 7/23/1999)
Certificate Of Amendment To Articles Of Incorporation
1. Name of corporation: Genesis Communications.
2. The articles have been amended as follows (provide article numbers, if
available):
We are doing a name change to LMKI, Inc.
3. The undersigned declare that they constitute at least two-thirds of the
incorporators (check) ____ or of the board of directors (check) ___
4. The date upon which the original articles of incorpoation were filed with
the Secretary of State: 10/10/1994
5. The undersigned affirmatively declare that to the date of this
certificate, no stock of the corporation has been issued.
6. Signatures (all signatures must be acknowledged):
/s/ William J. Kettle
July 20, 1999
STATE OF CALIFORNIA}
COUNTY OF ORANGE }
This instrument was acknowledge before me on July 20, 1999 by William Kettle
(Name of Person) as CEO as designated to sign this certificate of Genesis
Communications (name on behalf of whom instrument was executed).
/s/Robin Elaine Smith
Commission #1078699
Notary Public - California
Orange County
My Comm Expires Jan 12, 2000
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
________ shares
Warrant to Purchase Common Stock
of
LMKI INC.
THIS CERTIFIES that Dunwoody Brokerage Services, Inc. or any subsequent
holder hereof pursuant to Section 8 hereof ("Holder"), has the right to
purchase from LMKI INC., a Nevada corporation (the "Company"), up to 49,844
fully paid and nonassessable shares of our common stock, $.001 par
value per share ("Common Stock"), subject to adjustment as provided herein,
at a price equal to the Exercise Price as defined in Section 3 below, at any
time beginning on the Date of Issuance (defined below) and ending at 5:00
p.m., New York, New York time the date that is five (5) years after the Date
of Issuance (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company(this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set
forth herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on November 24, 1999 ("Date
of Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may
be exercised as to all or any lesser number of full shares of Common Stock
covered hereby (the "Warrant Shares") upon surrender of this Warrant, with
the Exercise Form attached hereto as Exhibit A (the "Exercise Form") duly
completed and executed, together with the full Exercise Price (as defined
below) for each share of Common Stock as to which this Warrant is exercised,
at the office of the Company, Attention: William Kettle or John Diehl, 1720
E. Garry Ave. #201, Santa Ana, CA 92705; (949) 475-4500, Facsimile: (949)
475-4511, or at such other office or agency as the Company may designate in
writing, by overnight mail, with an advance copy of the Exercise Form sent to
the Company and its Transfer Agent by facsimile (such surrender and payment
of the Exercise Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed
Exercise Form is sent by facsimile to the Company, provided that the original
Warrant and Exercise Form are received by the Company as soon as practicable
thereafter. Alternatively, the Date of Exercise shall be defined as the date
the original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of
Exercise, Holder shall be entitled to receive Common Stock for the number of
shares purchased upon such Exercise of this Warrant, and if this Warrant is
not exercised in full, Holder shall be entitled to receive a new Warrant
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder
of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of the Common Stock purchased upon the
Exercise of this Warrant. Nothing in this Warrant shall be construed as
conferring upon Holder any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price per share ("Exercise Price") shall initially equal
(the "Initial Exercise Price") the average Closing Bid Price for the five (5)
trading days immediately preceding November 24, 1999 (which is $4.0125). If
the Date of Exercise is more than six (6) months after the Date of Issuance,
the lesser of (i) the Exercise Price then in effect, or (ii) the "Lowest
Reset Price," as that term is defined below. The Company shall calculate a
"Reset Price" on each six-month anniversary date of the Date of Issuance
which shall equal one hundred percent (100%) of the average Closing Bid Price
of the Company's Common Stock for the five (5) trading days ending on such
six-month anniversary date of the Date of Issuance. The "Lowest Reset Price"
shall equal the lowest Reset Price determined on any six-month anniversary
date of the Date of Issuance preceding the Date of Exercise, taking into
account, as appropriate, any adjustments made pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction under this subsection (ii) if and
only if, on the Date of Exercise, there is not then in effect a current
registration statement that covers the resale of the shares of Common Stock
to be issued upon exercise of this Warrant . In order to effect a Cashless
Exercise, the Holder shall surrender of this Warrant at the principal office
of the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using
the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of this
Section 3(ii), the "Market Price" shall be defined as the average Closing Bid
Price of the Common Stock for the five (5) trading days prior to the Date of
Exercise of this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities Dealers Automated
Quotation System ("Nasdaq") Small Cap Market, or if the Common Stock is not
traded on the Nasdaq Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the Average Closing
Price on such exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not traded during the
five (5) trading days prior to the Date of Exercise, then the closing price
for the last publicly traded day shall be deemed to be the closing price for
any and all (if applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the the Nasdaq Small Cap Market, the National Market
System ("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, or
if no longer traded on the Nasdaq Small Cap Market, the National Market
System ("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board,
the "Closing Bid Price" shall equal the closing price on the principal
national securities exchange or the over-the-counter system on which the
Common Stock is so traded and, if not available, the mean of the high and low
prices on the principal national securities exchange on which the Common
Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed
to have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise
transaction shall be deemed to have commenced on the date this Warrant was
issued.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in
whole or in part, in person or by attorney, upon surrender of this Warrant
properly completed and endorsed. This Warrant shall be canceled upon such
surrender and, as soon as practicable thereafter, the person to whom such
transfer is made shall be entitled to receive a new Warrant or Warrants as to
the portion of this Warrant transferred, and Holder shall be entitled to
receive a new Warrant as to the portion hereof retained.
(b) Registrable Securities. In addition to any other registration
rights of the Holder, if the Common Stock issuable upon exercise of this
Warrant is not registered for resale at the time the Company proposes to
register (including for this purpose a registration effected by the Company
for stockholders other than the Holders) any of its Common Stock under the
Act (other than a registration relating solely for the sale of securities to
participants in a Company stock plan or a registration on Form S-4
promulgated under the Act or any successor or similar form registering stock
issuable upon a reclassification, upon a business combination involving an
exchange of securities or upon an exchange offer for securities of the issuer
or another entity)(a "Piggyback Registration Statement"), the Company shall
cause to be included in such Piggyback Registration Statement ("Piggyback
Registration") all of the Common Stock issuable upon the exercise of this
Warrant ("Registrable Securities") to the extent such inclusion does not
violate the registration rights of any other securityholder of the Company
granted prior to the date hereof. Nothing herein shall prevent the Company
from withdrawing or abandoning the Piggyback Registration Statement prior to
its effectiveness.
(c) Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would
interfere with the successful marketing of the securities proposed to be
registered by the Company, then the number of such Registrable Securities to
be included in the Piggyback Registration Statement, to the extent such
Registrable Securities may be included in such Piggyback Registration
Statement, shall be allocated among all Holders who had requested Piggyback
Registration pursuant to the terms hereof, in the proportion that the number
of Registrable Securities which each such Holder seeks to register bears to
the total number of Registrable Securities sought to be included by all
Holders. If required by the managing underwriter of such an underwritten
public offering, the Holders shall enter into a reasonable agreement limiting
the number of Registrable Securities to be included in such Piggyback
Registration Statement and the terms, if any, regarding the future sale of
such Registrable Securities.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then Holder, upon Exercise of
this Warrant after the record date for the determination of holders of Common
Stock entitled to receive such dividend, shall be entitled to receive upon
Exercise of this Warrant, in addition to the number of shares of Common Stock
as to which this Warrant is exercised, such additional shares of Common Stock
as such Holder would have received had this Warrant been exercised
immediately prior to such record date and the Exercise Price will be
proportionately adjusted.
(b) Recapitalization or Reclassification.
(i) Stock Split. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger number of shares (a "Stock Split"), then upon the
effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be
increased in direct proportion to the increase in the number of shares of
Common Stock by reason of such recapitalization, reclassification or similar
transaction, and the Exercise Price shall be proportionally decreased.
(ii) Reverse Stock Split. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then
upon the effective date thereof, the number of shares of Common Stock which
Holder shall be entitled to purchase upon Exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be proportionally
increased. The Company shall give Holder the same notice it provides to
holders of Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for
no consideration to holders of Common Stock cash, evidences of indebtedness
or other securities or assets (other than cash dividends or distributions
payable out of earned surplus or net profits for the current or preceding
years) then, in any such case, Holder shall be entitled to receive, upon
Exercise of this Warrant, with respect to each share of Common Stock issuable
upon such exercise, the amount of cash or evidences of indebtedness or other
securities or assets which Holder would have been entitled to receive with
respect to each such share of Common Stock as a result of the happening of
such event had this Warrant been exercised immediately prior to the record
date or other date fixing shareholders to be affected by such event (the
"Determination Date") or, in lieu thereof, if the Board of Directors of the
Company should so determine at the time of such distribution, a reduced
Exercise Price determined by multiplying the Exercise Price on the
Determination Date by a fraction, the numerator of which is the result of
such Exercise Price reduced by the value of such distribution applicable to
one share of Common Stock (such value to be determined by the Board of
Directors of the Company in its discretion) and the denominator of which is
such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or another class or
classes of stock or securities or other assets of the Company or another
entity or there is a sale of all or substantially all the Company's assets (a
"Corporate Change"), then this Warrant shall be exerciseable into such class
and type of securities or other assets as Holder would have received had
Holder exercised this Warrant immediately prior to such Corporate Change;
provided, however, that Company may not affect any Corporate Change unless it
first shall have given thirty (30) days notice to Holder hereof of any
Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section
3 of this Warrant, until the occurrence of an event stated in subsection (a),
(b) or (c) of this Section 5, and thereafter shall mean said price as
adjusted from time to time in accordance with the provisions of said
subsection. No such adjustment under this Section 5 shall be made unless
such adjustment would change the Exercise Price at the time by $.01 or more;
provided, however, that all adjustments not so made shall be deferred and
made when the aggregate thereof would change the Exercise Price at the time
by $.01 or more.
(f) Adjustments: Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities
or assets; and thereafter the number of such shares and/or other securities
or assets shall be subject to adjustment from time to time in a manner and
upon terms as nearly equivalent as practicable to the provisions of this
Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock.
If, on Exercise of this Warrant, Holder would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon exercise shall be the next higher number of
shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number
of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to preemptive rights, rights of
first refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act
by virtue of Regulation D and exempt from state registration under applicable
state laws. The Warrant and the Common Stock issuable upon the Exercise of
this Warrant may not be pledged, transferred, sold or assigned except
pursuant to an effective registration statement or unless the Company has
received an opinion from the Company's counsel to the effect that such
registration is not required, or the Holder has furnished to the Company an
opinion of the Holder's counsel, which counsel shall be reasonably
satisfactory to the Company, to the effect that such registration is not
required; the transfer complies with any applicable state securities laws;
and, if no registration covering the resale of the Warrant Shares is
effective at the time the Warrant Shares are issued, the Holder consents to a
legend being placed on certificates for the Warrant Shares stating that the
securities have not been registered under the Securities Act and referring to
such restrictions on transferability and sale.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part.
Holder shall deliver a written notice to Company, substantially in the form
of the Assignment attached hereto as Exhibit B, indicating the person or
persons to whom the Warrant shall be assigned and the respective number of
warrants to be assigned to each assignee. The Company shall effect the
assignment within ten (10) days, and shall deliver to the assignee(s)
designated by Holder a Warrant or Warrants of like tenor and terms for the
appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy
or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Nevada,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to
or on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed,
until another address is designated in writing by the Company, to the
Attention: William Kettle or John Diehl, 1720 E. Garry Ave. #201, Santa Ana,
CA 92705; (949) 475-4500, Facsimile: (949) 475-4511 Notices or demands
pursuant to this Warrant to be given or made by the Company to or on Holder
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to the address of
Holder set forth in the Company's records, until another address is
designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
24th day of November, 1999.
LMKI INC.
By: ________________________________
William Kettle, CEO
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: LMKI INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of LMKI INC..
a Nevada corporation (the "Company"), evidenced by the attached warrant (the
"Warrant"), and herewith makes payment of the exercise price with respect to
such shares in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be
issued free of any restrictive legend, if appropriate, and a warrant
representing any unexercised portion hereof be issued, pursuant to the
Warrant in the name of the undersigned and delivered to the undersigned at
the address set forth below:
Dated: _________
________________________________________________________________________
Signature
_______________________________________________________________________
Print Name
________________________________________________________________________
Address
_______________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of LMKI INC.,
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
LMKI, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time
of grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan in accordance with Section 4
hereof.
(b) "Applicable Laws" means the requirements relating to
the administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed
by the Board in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means LMKI, INC., a Nevada corporation.
(h) "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory
services to such entity.
(i) "Director" means a member of the Board of Directors
of the Company.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. A Service Provider shall not cease to be an Employee in the case
of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. For purposes of Incentive Stock Options, no
such leave may exceed ninety days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held
by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall
be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(m) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on
such exchange or system for the last market trading day prior to the time
of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by
a recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day
of determination; or
(iii) In the absence of an established market
for the Common Stock, the Fair Market Value thereof shall be determined in
good faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code.
(o) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the
Plan.
(r) "Option Agreement" means a written or electronic
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Option grant. The Option Agreement is subject
to the terms and conditions of the Plan.
(s) "Option Exchange Program" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to
an Option or a Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option
or Stock Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1999 Stock Plan.
(x) "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of a Stock Purchase Right under Section 11
below.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange
Act. (aa) "Service Provider" means an Employee, Director
or Consultant.
(bb) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 below.
(cc) "Stock Purchase Right" means a right to purchase
Common Stock pursuant to Section 11 below.
(dd) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
12 of the Plan, the maximum aggregate number of Shares that may be subject
to option and sold under the Plan is 4,000,000 Shares. The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). However, Shares that have actually
been issued under the Plan, upon exercise of either an Option or Stock
Purchase Right, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan
may be administered by different Committees with respect to different
groups of Service Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted
hereunder as "performance-based compensation,, within the meaning of
Section 162(m) of the Code, the Plan shall be administered by a Committee
of two or more "outside directors,, within the meaning of Section 162(m) of
the Code.
(iii) Rule 16b-3. To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) Other Administration. Other than as
provided above, the Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the
provisions of the Plan and, in the case of a Committee, the specific duties
delegated by the Board to such Committee, and subject to the approval of
any relevant authorities, the Administrator shall have the authority in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom
Options and Stock Purchase Rights may from time to time be granted
hereunder;
(iii) to determine the number of Shares to be
covered by each such award granted hereunder;
(iv) to approve forms of agreement for use
under the Plan;
(v) to determine the terms and conditions, of
any Option or Stock Purchase Right granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or Stock Purchase Right or the Common Stock relating thereto, based
in each case on such factors as the Administrator, in its sole discretion,
shall determine;
(vi) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(e)
instead of Common Stock;
(vii) to reduce the exercise price of any
Option to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option has declined since the date the
Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating
to sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding
tax obligations by electing to have the Company withhold from the Shares to
be issued upon exercise of an Option or Stock Purchase Right that number of
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by Optionees to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted
only to Employees.
(b) Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year (under all plans of the Company and any Parent or Subsidiary)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall
be taken into account in the order in which they were granted. The Fair
Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase
Right shall confer upon any Optionee any right with respect to continuing
the Optionee's relationship as a Service Provider with the Company, nor
shall it interfere in any way with his or her right or the Company's right
to terminate such relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption
by the Board. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. In the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted,
owns stock representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term
of the Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be
issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value
per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock
Option, the per Share exercise price shall be determined by the
Administrator. In the case of a Nonstatutory Stock Option intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, the per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options
may be granted with a per Share exercise price other than as required above
pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall
be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant). Such consideration may
consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which
(x) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six months on the date of surrender,
and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which such Option shall be
exercised, (5) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, or
(6) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms hereof
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder to Officers and Directors
shall be tolled during any unpaid leave of absence. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option
Agreement and the Plan. Shares issued upon exercise of an Option shall be
issued in the name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. Until the Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Shares, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the
Option is exercised.
(b) Termination of Relationship as a Service Provider. If
an Optionee ceases to be a Service Provider, such Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three
(3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be
a Service Provider as a result of the Optionee's Disability, the Optionee
may exercise his or her Option within such period of time as is specified
in the Option Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a
Service Provider, the Option may be exercised within such period of time as
is specified in the Option Agreement to the extent that the Option is
vested on the date of death (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement) by the
Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, at the time of death, the
Optionee is not vested as to the entire Option, the Shares covered by the
unvested portion of the Option shall immediately revert to the Plan. If the
Option is not so exercised within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer is
made.
10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will
or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically of the
terms, conditions and restrictions related to the offer, including the
number of Shares that such person shall be entitled to purchase, the price
to be paid, and the time within which such person must accept such offer.
The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator
determines otherwise, the Restricted Stock purchase agreement shall grant
the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's service with the Company for any
reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock purchase agreement shall be
the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option
shall lapse at such rate as the Administrator may determine.
(c) Other Provisions. The Restricted Stock purchase
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its
sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase
Right is exercised, the purchaser shall have rights equivalent to those of
a shareholder and shall be a shareholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of the
Company. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date the Stock Purchase Right is
exercised, except as provided in Section 12 of the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset
Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common
Stock covered by each outstanding Option or Stock Purchase Right, and the
number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option or Stock Purchase Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Stock
Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt
of consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to
an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify the Optionee at least fifteen (15) days prior to such proposed
action. To the extent it has not been previously exercised, the Option or
Stock Purchase Right shall terminate immediately prior to the consummation
of such proposed action.
(c) Merger. In the event of a merger, sale or
reorganization of the Company with or into any other corporation or
corporations or a sale of all or substantially all of the assets or
outstanding stock of the Company, in which transaction the Company's
stockholders immediately prior to such transaction own immediately after
such transaction less than 50% of the equity securities of the surviving
corporation or its parent, all Options that have not been terminated in
accordance with the Stock Option Agreement that will become vested within
18 months of the closing date of such merger, sale or reorganization will
be accelerated. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such
successor corporation or a parent or subsidiary of such successor
corporation. If, in such event, an Option or Stock Purchase Right is not
assumed or substituted, the Option or Stock Purchase Right shall terminate
as of the date of the closing of the merger. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger, the Option or Stock Purchase Right confers the
right to purchase or receive, for each Share of Optioned Stock subject to
the Option or Stock Purchase Right immediately prior to the merger, the
consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on
the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of
a majority of the outstanding Shares). If such consideration received in
the merger is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise
of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of
the successor corporation or its Parent equal in fair market value to the
per share consideration received by holders of Common Stock in the merger.
13. Non-Transferability of Options and Stock Purchase Rights.
Unless determined otherwise by the Administrator, an Option or Stock
Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option or
Stock Purchase Right transferable, such Option or Stock Purchase Right
shall contain such additional terms and conditions as the Administrator
deems appropriate.
14. Time of Granting Options and Stock Purchase Rights. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be
the date on which the Administrator makes the determination granting such
Option or Stock Purchase Right, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Service
Provider to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain
shareholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights
of any Optionee, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply with Applicable Laws and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the
exercise of an Option, the Administrator may require the person exercising
such Option to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel
for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this
Plan, shall at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months after the date
the Plan is adopted. Such shareholder approval shall be obtained in the
degree and manner required under Applicable Laws.
LMKI, INC.
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1999 Stock
Plan shall have the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
NAME
--------
The undersigned Optionee has been granted an Option to purchase
Common Stock of the Company, subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
Date of Grant
Vesting Commencement Date ________VCD~
Exercise Price per Share
Total Number of Shares Granted ________Number of shares~
Total Exercise Price ________Total price~
Type of Option: Incentive Stock Option
________
________ Nonstatutory Stock
Option
Term/Expiration Date:
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to
the following vesting schedule:
___% of the Shares subject to the Option shall vest as of the
Vesting Commencement Date, and 1/___ of the Shares subject to the Option
shall vest each month thereafter, subject to Optionee's continuing to be a
Service Provider on such dates.
Termination Period:
This Option shall be exercisable for one month after Optionee ceases
to be a Service Provider. Upon Optionee's death or Disability, this Option
may be exercised for one year after Optionee ceases to be a Service Provider.
In no event may Optionee exercise this Option after the Term/Expiration Date
as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the number of Shares set forth in the
Notice of Grant, at the exercise price per Share set forth in the Notice of
Grant (the "Exercise Price"), and subject to the terms and conditions of the
Plan, which is incorporated herein by reference. Subject to Section 14(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and this Option Agreement, the terms and conditions of the Plan shall
prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be
treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of
Grant and with the applicable provisions of the Plan and this Option
Agreement.
(b) Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the
"Exercise Notice") which shall state the election to exercise the Option, the
number of Shares with respect to which the Option is being exercised, and
such other representations and agreements as may be required by the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver
to the Company his or her Investment Representation Statement in the form
attached hereto as Exhibit B and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during
the 180-day period (or such other period as may be requested in writing by
the Managing Underwriter and agreed to in writing by the Company) (the
"Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction
shall apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on
behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any
Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
8. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the
date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercise of NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to
the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If Optionee is an Employee or a former
Employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and
refuse to deliver Shares if such withholding amounts are not delivered at the
time of exercise.
(b) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares transferred pursuant to the Option are held for
at least one year after exercise and of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within one year after exercise or two years
after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the sale
price of the Shares. Any additional gain will be taxed as capital gain,
short-term or long-term depending on the period that the ISO Shares were
held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the
internal substantive laws but not the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY
(NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING
SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR
AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents
that he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
and fully understands all provisions of the Option. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the
residence address indicated below.
OPTIONEE LMKI, INC.
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Signature By
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Print Name Title
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Residence Address
EXHIBIT A
1999 STOCK PLAN
EXERCISE NOTICE
LMKI, INC.
1720 East Garry Avenue, Suite 201
Santa Ana, California 92705
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of LMKI, INC.
(the "Company") under and pursuant to the 1999 Stock Plan (the "Plan") and
the Stock Option Agreement dated ________, 19__ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. The Shares
shall be issued to the Optionee as soon as practicable after the Option is
exercised. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date of issuance except as provided in
Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not
less than all, of the Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or
by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands
of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the
provisions of this Section. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock
of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by the Company or
by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR
ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be
restricted by Section 260.141.11 of the Rules of the California Corporations
Commissioner, a copy of which is attached to Exhibit B, the Investment
Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Exercise Notice or (ii) to
treat as owner of such Shares or to accord the right to vote or pay dividends
to any purchaser or other transferee to whom such Shares shall have been so
transferred.
8. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this Exercise
Notice shall inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Exercise Notice shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on all parties.
10. Governing Law; Severability. This Exercise Notice is governed by
the internal substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Exercise Notice, the Plan, the Option Agreement and
the Investment Representation Statement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee
with respect to the subject matter hereof, and may not be modified adversely
to the Optionee's interest except by means of a writing signed by the Company
and Optionee.
Submitted by: Accepted by:
OPTIONEE LMKI, INC.
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Signature By
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Print Name Title
Address: Address:
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--------------------------------
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Date Received
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: ________Name
COMPANY: LMKI, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities.
Optionee is acquiring these Securities for investment for Optionee's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities, or for a period of one
year or any other fixed period in the future. Optionee further understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the Securities. Optionee understands that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company, a legend prohibiting their transfer without the consent of the
Commissioner of Corporations of the State of California and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the
Optionee, the exercise will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including:
(1) the resale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month
period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
the resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by
an affiliate of the Company, within the meaning of Rule 144; and, in the case
of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk. Optionee
understands that no assurances can be given that any such other registration
exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of
the Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with
respect to such restriction, a copy of which is attached.
Signature of Optionee:
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Date: , 19
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ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
(a) The issuer of any security upon which a restriction on
transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or
260.534 shall cause a copy of this section to be delivered to each issuee or
transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to
consummate a sale or transfer of such security, or any interest therein,
without the prior written consent of the Commissioner (until this condition
is removed pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or
any custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge
of the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for
which the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided
that no order under Section 25140 or subdivision (a) of Section 25143 is in
effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111,
25112 or 25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of another
state; or
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted under
this rule, (ii) delivers to each purchaser a copy of this rule, and (iii)
advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer
does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in
an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject
to such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
LMKI, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
____________, 1999 by and between LMKI, Inc., a Nevada corporation (the
"Company"), and _________________________________________("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and
its related entities;
WHEREAS, in order to induce Indemnitee to continue to provide
services to the Company, the Company wishes to provide for the
indemnification of, and the advancement of expenses to, Indemnitee to the
maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued
difficulty in obtaining liability insurance for the Company's directors,
officers, employees, agents and fiduciaries, the significant increases in the
cost of such insurance and the general reductions in the coverage of such
insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been
severelylimited; and
WHEREAS, the Company and Indemnitee desire to continue to have in
place the additional protection provided by an indemnification agreement,
with such changes as are required to conform the existing agreement to Nevada
law and to provide indemnification and advancement of expenses to the
Indemnitee to the maximum extent permitted by Nevada law;
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
a. "Change in Control" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock
of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing more than 50% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by
the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
b. "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
c. References to the "Company" shall include, in addition to
LMKI, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which LMKI, Inc. (or
any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee
is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, agent or fiduciary
of another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, Indemnitee shall stand in the same position under
the provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
d. "Covered Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
e. "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties
and amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld) of any Claim
and any federal, state, local or foreign taxes imposed on the Indemnitee as a
result of the actual or deemed receipt of any payments under this Agreement.
f. "Expense Advance" shall mean a payment to Indemnitee
pursuant to Section 3 of Expenses in advance of the settlement of or final
judgement in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation which constitutes a Claim.
g. "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(d)
hereof, who shall not have otherwise performed services for the Company or
Indemnitee within the last three years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other
Indemnitees under similar indemnity agreements).
h. References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed
on Indemnitee with respect to an employee benefit plan; and references to
"serving at the request of the Company" shall include any service as a
director, officer, employee, agent or fiduciary of the Company which imposes
duties on, or involves services by, such director, officer, employee, agent
or fiduciary with respect to an employee benefit plan, its participants or
its beneficiaries; and if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
i. "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder
and under applicable law, which may include a member or members of the
Company's Board of Directors, Independent Legal Counsel or any other person
or body not a party to the particular Claim for which Indemnitee is seeking
indemnification.
j. "Section" refers to a section of this Agreement unless
otherwise indicated.
k. "Voting Securities" shall mean any securities of the
Company that vote generally in the election of directors.
2. Indemnification.
a. Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to
the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, any Claim (whether by reason of
or arising in part out of a Covered Event), including all interest,
assessments and other charges paid or payable in connection with or in
respect of such Expenses.
b. Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a
written opinion, in any case in which Independent Legal Counsel is the
Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder
under applicable law, (i) the Company shall have no further obligation under
Section 2(a) to make any payments to Indemnitee not made prior to such
determination by such Reviewing Party, and (ii) the Company shall be entitled
to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company)
for all Expenses theretofore paid to Indemnitee to which Indemnitee is not
entitled hereunder under applicable law; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court
of competent jurisdiction to secure a determination that Indemnitee is
entitled to be indemnified hereunder under applicable law, any determination
made by any Reviewing Party that Indemnitee is not entitled to be indemnified
hereunder under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any Expenses theretofore paid in
indemnifying Indemnitee until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for
any Expenses shall be unsecured and no interest shall be charged thereon.
c. Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is
not entitled to be indemnified hereunder in whole or in part under applicable
law, Indemnitee shall have the right to commence litigation seeking an
initial determination by the court or challenging any such determination by
such Reviewing Party or any aspect thereof, including the legal or factual
bases therefor, and, subject to the provisions of Section 15, the Company
hereby consents to service of process and to appear in any such proceeding.
Absent such litigation, any determination by any Reviewing Party shall be
conclusive and binding on the Company and Indemnitee.
d. Selection of Reviewing Party; Change in Control. If there
has not been a Change in Control, any Reviewing Party shall be selected by
the Board of Directors, and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such
Change in Control), any Reviewing Party with respect to all matters
thereafter arising concerning the rights of Indemnitee to indemnification of
Expenses under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in effect, or
under any other applicable law, if desired by Indemnitee, shall be
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee
as to whether and to what extent Indemnitee would be entitled to be
indemnified hereunder under applicable law and the Company agrees to abide by
such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the employment of
separate counsel by one or more Indemnitees has been previously authorized by
the Company in writing, or (ii) an Indemnitee shall have provided to the
Company a written statement that such Indemnitee has reasonably concluded
that there may be a conflict of interest between such Indemnitee and the
other Indemnitees with respect to the matters arising under this Agreement.
e. Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
a. Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts
if it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified therefore by the Company hereunder under applicable law, the
Company shall make Expense Advances to Indemnitee.
b. Form of Undertaking. Any obligation to repay any Expense
Advances hereunder pursuant to a written undertaking by the Indemnitee shall
be unsecured and no interest shall be charged thereon.
c. Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has
made written demand to the Company in accordance with this Agreement, all
Expenses included in such Expense Advance that are certified by affidavit of
Indemnitee's counsel as being reasonable shall be presumed conclusively to be
reasonable.
4. Procedures for Indemnification and Expense Advances.
a. Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee
pursuant to this Agreement shall be made to the fullest extent permitted by
law as soon as practicable after written demand by Indemnitee therefor is
presented to the Company, but in no event later than thirty (30) business
days after such written demand by Indemnitee is presented to the Company,
except in the case of Expense Advances, which shall be made no later than ten
(10) business days after such written demand by Indemnitee is presented to
the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company
notice in writing as soon as practicable of any Claim made against Indemnitee
for which indemnification will or could be sought under this Agreement.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). In
addition, Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
c. No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by this Agreement or applicable law. In addition, neither the
failure of any Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by any Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to
the commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under this Agreement
under applicable law, shall be a defense to Indemnitee's claim or create a
presumption that Indemnitee has not met any particular standard of conduct or
did not have any particular belief. In connection with any determination by
any Reviewing Party or otherwise as to whether the Indemnitee is entitled to
be indemnified hereunder under applicable law, the burden of proof shall be
on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such Claim in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense
Advances with respect to the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with
counsel approved by Indemnitee (which approval shall not be unreasonably
withheld) upon the delivery to Indemnitee of written notice of the Company's
election to do so. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees or expenses of
separate counsel subsequently retained by or on behalf of Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right
to employ Indemnitee's separate counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of separate counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's separate counsel shall be Expenses for which
Indemnitee may receive indemnification or Expense Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Nevada corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded
by such change. In the event of any change in any applicable law, statute or
rule which narrows the right of a Nevada corporation to indemnify a member of
its board of directors or an officer, employee, agent or fiduciary, such
change, to the extent not otherwise required by such law, statute or rule to
be applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder except as set forth in Section
10(a) hereof.
b. Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any
rights to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Nevada,
or otherwise. The indemnification and the payment of Expense Advances
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
subsequent thereto Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable
hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be
required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy
to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are provided to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key
employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement:
a. Excluded Actions or Omissions. To indemnify or make
Expense Advances to Indemnitee with respect to Claims arising out of acts,
omissions or transactions for which Indemnitee is prohibited from receiving
indemnification under applicable law.
b. Claims Initiated by Indemnitee. To indemnify or make
Expense Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or
crossclaim, except (i) with respect to actions or proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Covered Events, (ii) in specific cases if the Board of Directors has approved
the initiation or bringing of such Claim, or (iii) as otherwise required
under Section 145 of the Nevada General Corporation Law, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, Expense Advances, or insurance recovery, as the case may be.
c. Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by the Indemnitee with respect to any action instituted (i)
by Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each
of the material assertions made by the Indemnitee as a basis for such action
was not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each
of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous.
d. Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs
and personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as a director, officer, employee, agent or fiduciary (as
applicable) of the Company or of any other enterprise at the Company's
request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee
under this Agreement or under any liability insurance policies maintained by
the Company to enforce or interpret any of the terms hereof or thereof,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee with respect to such action (including without limitation
attorneys' fees), regardless of whether Indemnitee is ultimately successful
in such action, unless as a part of such action a court having jurisdiction
over such action makes a final judicial determination (as to which all rights
of appeal therefrom have been exhausted or lapsed) that each of the material
assertions made by Indemnitee as a basis for such action was not made in good
faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee in defense of such action (including without limitation costs and
expenses incurred with respect to Indemnitee's counterclaims and cross-claims
made in such action), unless as a part of such action a court having
jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each
of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two year period; provided,
however, that if any shorter period of limitations is otherwise applicable to
any such cause of action, such shorter period shall govern.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and signed for by the party addressed, on the date of
such delivery, or (ii) if mailed by domestic certified or registered mail
with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Nevada
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agree that any action instituted under
this Agreement shall be commenced, prosecuted and continued only in the Court
of Chancery of the State of Nevada in and for New Castle County, which shall
be the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including without limitation each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Nevada
as applied to contracts between Nevada residents entered into and to be
performed entirely in the State of Nevada without regard to principles of
conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by both the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed to be or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall
such waiver constitute a continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
LMKI, INC.
1720 East Garry Avenue, Suite 201
Santa Ana, California 92705
By:_______________________________
William J. Kettle, Chairman
AGREED TO AND ACCEPTED
INDEMNITEE:
__________________________________
(Signature)
__________________________________
Name
__________________________________
__________________________________
Address
COVAD
Master Reseller/Distri Telecomm, Inc.
Digital Subscriber Line Agreement
1. Definitions. As used herein: "Services" are services using digital
subscriber line
("DSL") technology to provide high-speed telecommunications data services
identified in the attached Price Schedule(s)(which may include business-grade
Business DSL and Business DSL Remote Services and consumer-grade Residential
DSL Services) to Customer's Internet and network access customers ("End
User"),
that Master Reseller/Distri makes available at its discretion; "End User
Circuit" is a
digital data telecommunications service that consists of one permanent virtual
circuit to an End User's premise utilizing DSL technology. An End User Circuit
provides upstream and downstream maximum throughput rates that range from
144Kbps up to 1.5Mbps (depending on what Customer orders for that End User).
Provision of an End User Circuit does not include any Internet access service;
"Customer Circuit" is a backhaul circuit between Master Reseller/Distri's
regional
data center or hub and Customer's point-of-presence in a particular region,
that is
generally required before Master Reseller/Distri can provide Services in that
region.
Customer must order a Customer Circuit from Master Reseller/Distri.
2. Provision of Services. Subject to payment of all applicable fees, Master
Reseller/Distri will use reasonable commercial efforts to supply the Services
that
Customer may order from time to time through the Web Site. All Services will
be
supplied in accordance with the Agreement, these Terms and Conditions, and the
then current standard Customer Policies. Customer shall purchase Services for
each
End User for an initial term of one (1) year, two (2) years, or three (3)
years ("End
User Term"), and shall maintain each Customer Circuit for a minimum one (1)
year
term ("Customer Term"), after which Master Reseller/Distri shall continue to
provide Services to such Customer on a monthly basis, subject to continuing
payment of applicable fees and Customer's compliance of terms and conditions
requested by Master Reseller/Distri. Master Reseller/Distri reserves the sole
and
exclusive right to determine the expansion of its service area, and the right
to
maintain, reconfigure, or discontinue any Service. Customer understands that
Master Reseller/Distri's performance is dependent in part on third party
actions,
including, without limitation, Customer and its End Users. Accordingly, any
performance to be rendered by Master Reseller/Distri hereunder shall be
appropriately waived or delayed to account for such actions or inactions.
Customer
shall provide Master Reseller/Distri with all information reasonably requested
(including, without limitation, information about each End User) in connection
with
each order placed.
3. Customer Circuits. Customer must order, and Master Reseller/Distri must
provide, a Customer Circuit before Master Reseller/Distri can supply any End
User
Circuits or Services through such Customer Circuit. All one-time fees ("One-
time
Fees") including all fees referred to as Non Recurring Fees will be due, and
all
monthly fees will start, for each Customer Circuit upon Master
Reseller/Distri's
notification to Customer that the Customer Circuit is complete.
4. End User Circuits. Customer must order, and Master Reseller/Distri must
successfully provide, an End User Circuit for each End User before Master
Reseller/Distri can supply any Services for that End User. Master
Reseller/Distri
and Customer agree that an End User Circuit shall be successfully provided if
the
maximum throughput of such End User Circuit is 80% of the ordered Service. If
Master Reseller/Distri is unable to successfully provide an End User Circuit
for the
ordered service, Master Reseller/Distri will offer the End User the maximum
available throughput rate and available Service. Master Reseller/Distri will
notify
Customer if End User declined the Circuit, or at what throughput rate the End
User
accepted the Circuit. All One-time Fees will be due, and all monthly fees will
start,
for each End User Circuit upon Master Reseller/Distri's notification to
customer of
successfully providing of such End User Circuit.
5. Equipment. Customer may choose to have Master Reseller/Distri supply and
configure the necessary equipment for an End User Circuit and Services at the
End
User premises. Customer is responsible for changes to any End User premise
equipment, software and configuration after Master Reseller/Distri completes
its
service setup. Master Reseller/Distri will bill any equipment charges to
Customer as
part of the One-time Fees for the End User Circuit. Master Reseller/Distri
shall
have no obligation or liability in connection with any equipment not purchased
through Master Reseller/Distri and configured by Master Reseller/Distri, or
for any
abuse or misuse of any equipment by any party other than Master
Reseller/Distri.
Master Reseller/Distri shall pass through to Customer, to the extent that
Master
Reseller/Distri is legally entitled to do so, any warranties from the
manufacturers of
equipment that Master Reseller/Distri installs at Customer's or an End User's
premises. Master Reseller/Distri shall have no obligation to repair or
maintain any
equipment, and Customer shall be responsible for seeking warranty and other
service directly from the manufacturer. However, Master Reseller/Distri may be
able to provide replacement End User premise equipment. If Customer purchases
End User premise equipment directly from Master Reseller/Distri, it can be
returned
to Master Reseller/Distri only if the equipment is in original working
condition and
in its original packing within thirty (30) days from Master Reseller/Distri's
original
shipment date. A 25% equipment handling and restocking charge will be charged
to
the Customer by Master Reseller/Distri. Customer should call Master
Reseller/Distri DSL Customer Service to receive a Return Materials
Authorization
(RMA) number and to ship the equipment back to Master Reseller/Distri (the
Customer shall pay all shipping charges associated with this return).
6. Fees and Payment Terms. Customer shall pay Master Reseller/Distri the One-
time Fees, monthly fees and other fees shown in the applicable Pricing
Schedule(s)
for the setup, operation and providing of Services, Customer Circuits, End
User
Circuits and other services obtained from Master Reseller/Distri. The monthly
fees
billed to the customer for End User Circuits shall not change during the term
for
which the End User DSL Circuit is ordered once such End User DSL Circuit order
has been accepted by Master Reseller/Distri. Other than revising monthly fee
charges for End User Circuits during the End User Circuit term, Master
Reseller/Distri shall be free to revise all charges at any time upon notice to
customer. Master Reseller/Distri shall invoice Customer once a month. Master
Reseller/Distri's invoices shall bill Customer for Services one month in
advance.
For new End Users, setup during a month, Master Reseller/Distri's invoice will
reflect all One-time Fees, prorated monthly fees for such month and the
advance
monthly fees. Customer shall pay all invoiced fees no later than thirty days
from
invoice date. Late payments will accrue interest at a rate of one and one-half
percent (1 1/2%) per month, or the highest rate allowed by applicable law,
whichever is lower, and Customer shall pay all collection costs incurred by
Master
Reseller/Distri (including, without limitation, reasonable attorney's fees).
In certain
situations, Master Reseller/Distri may require Customer to deposit funds with
Master Reseller/Distri to secure payment of fees owed by Customer hereunder.
If
Customer has a bone fide dispute with any of the amounts on an invoice
("Disputed
Amounts"), Customer must pay all amounts not in dispute as set forth above,
and
provide Master Reseller/Distri with a written request for billing adjustment
together
with all supporting documentation within sixty (60) days from the date of the
invoice or customers right to billing adjustment shall be waived. In the event
of a
billing dispute the parties shall promptly resolve the dispute by mutual
agreement or
by arbitration. Unless otherwise specified by Master Reseller/Distri all
payments
shall be made to Master Reseller/Distri Telecomm, Inc and mailed to Accounts
Receivable Dept., Master Reseller/Distri Telecomm, Inc., 4210 Coronado,
Stockton, CA 95204. Customer shall be responsible for all applicable Federal,
state,
and local mandated, required or approved surcharges, fees, user's fees,
universal
service contributions and taxes applicable under this Agreement.
7. Cancellation and Disconnection. Customer shall give thirty (30) days
written
notice to Master Reseller/Distri to disconnect a Customer Circuit. All End
User
Circuits served by a Customer Circuit must be disconnected by Customer at the
same time or before disconnecting such Customer Circuit. If Customer
disconnects
a Customer Circuit during the Customer Term for that Customer Circuit,
Customer
shall incur fees for the balance of the Customer Term. If Customer disconnects
Services for an End User during the End User Term, Customer shall incur the
lesser
of the fees for the balance of the End User Term or the Disconnect Fee set
forth in
the Pricing Schedule. In any case, Customer will be obligated to pay Service
Setup
fees and will not be entitled to a refund of any fees at any time. If Customer
cancels
an End User Circuit prior to setup of such End User Circuit, Customer shall
incur
the End User Cancellation Fee as set forth in the Price Schedule.
8. Support and Maintenance. Customer shall provide all first-level support for
all
End Users. Master Reseller/Distri shall use reasonable commercial efforts to
provide second-level support for the Customer Circuits, End User Circuits and
Services. Customer understands that Master Reseller/Distri may, from time to
time,
need to interrupt Services for maintenance and other operational reasons, and
that
Customer shall not receive any compensation for such interruptions. Master
Reseller/Distri will give Customer reasonable advance notice of all such
interruptions.
9. Year 2000 Warranty. Master Reseller/Distri warrants to Customer, and only
Customer, that the Services, provided they are used correctly and provided
Master
Reseller/Distri is supplied by Customer with dates in proper format, will be
capable
of processing dates before and after the year 2000. Customer acknowledges that
the
Services are dependent on third party equipment, software, and systems,
including,
without limitation, those of local telephone companies and other carriers.
Master
Reseller/Distri makes no representations and will not be liable with respect
to Year
2000 compliance of such equipment, software, systems and third parties. Master
Reseller/Distri's sole obligation for a failure of the Services to comply with
the
foregoing warranty is to use its reasonable efforts to correct such a failure.
10. Warranty Disclaimer. EXCEPT FOR THE WARRANTIES SET OUT IN
SECTION 9, THE SERVICES, CUSTOMER CIRCUITS, AND END-USER
CIRCUITS, AND ALL OTHER PRODUCTS AND SERVICES HEREUNDER
ARE PROVIDED ON AN "AS IS" BASIS, AND CUSTOMER'S AND END
USER'S USE THEREOF IS AT ITS OWN RISK. MASTER RESELLER/DISTRI
DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER
EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED
TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE, AND ANY
WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR
TRADE PRACTICE. MASTER RESELLER/DISTRI DOES NOT WARRANT
THAT THE SERVICES, CUSTOMER CIRCUITS, AND END-USER CIRCUITS
WILL PERFORM AT A PARTICULAR SPEED, OR WILL BE
UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE.
11. Customer Representations and Warranties. Customer represents and warrants
that: (i) Master Reseller/Distri has informed Customer that the Services
constitute
telecommunications or telecommunications services ("Telecommunication
Services") as defined by federal law, and as a result, Master Reseller/Distri
will
assume the obligations of providing such Telecommunications Services,
including,
billing, collecting and remitting to governmental authorities the applicable
taxes
such as the universal service tax (collectively, "Telecommunication
Obligations").
In the event Customer chooses to use the Services to provide Telecommunication
Services, Customer will provide Master Reseller/Distri thirty (30) days prior
written
notice so that Master Reseller/Distri may discontinue such Telecommunication
Obligations and Customer will assume such Telecommunication Obligations
thereafter); (ii) it shall not, in the ordinary course of its business, when
using
Services, be able to identify, and distinguish between, packet data
transmissions
that originate and terminate within the same state (intrastate transmissions),
and
those packet data transmissions that originate and terminate in different
states
(interstate transmissions), and states that it is impractical to identify,
distinguish and
measure its intrastate and interstate transmissions on Master
Reseller/Distri's
network; (iii) Customer estimates in good faith that more than ten percent
(10%) of
all data packets transmitted through Services will consist of interstate
transmissions;
and, (iv) it will inform all End Users that Services do not include 911 or
other
emergency and ancillary services conventionally available from incumbent local
phone companies.
12. Term and Termination. This Agreement shall remain in effect until
terminated
as set forth in this Section. The initial term of this Agreement as set forth
on the
cover page of this agreement shall be one (1) year (the "Initial Term"). After
the
Initial Term, either party may terminate this Agreement with thirty (30) days
written notice to the other party. After ten (10) business days of non-payment
from
any due date, Master Reseller/Distri may suspend Services. After thirty (30)
days of
nonpayment from any due date, Master Reseller/Distri may terminate the
Services,
and/or this Agreement. Customer shall remain responsible for all fees accrued
prior
to the date of termination. In addition, either party may terminate this
Agreement if
the other party materially breaches any term or condition of this Agreement
and
fails to cure such breach within thirty (30) days after receipt of written
notice of the
same. If service to the customer is terminated under this agreement for non
payment
or material breach by customer, Master Reseller/Distri shall have the right to
provide service directly to customer's end users, including the right to
subcontract
all or any portion of said service to third parties, and shall be relieved of
any
confidentiality requirements associated with Master Reseller/Distri's
providing such
service. Customer agrees not to interfere with Master Reseller/Distri's right
to
provide service under these circumstances.
13. Effect of Termination. Upon expiration or termination of this Agreement,
Master Reseller/Distri will continue to maintain all existing Customer
Circuits and
End User Circuits, and provide Services pursuant to the terms hereof, provided
that
Customer continues to pay all applicable fees therefor and complies with any
additional terms and conditions requested by Master Reseller/Distri. Any
accrued
rights to payment, any remedies, and Sections 1, 6, 7, 8, 10, 11, 13, 14, 15,
16 and
17 will survive any expiration or termination of this Agreement.
14. Limitations of Liability. IN NO EVENT WILL MASTER RESELLER/DISTRI
BE LIABLE TO CUSTOMER, ANY END-USER, OR ANY THIRD PARTY FOR
ANY CLAIMS ARISING OUT OF OR RELATED TO CUSTOMER'S
BUSINESS, CUSTOMERS RELATIONSHIP WITH ITS END-USERS, OR
OTHERWISE. MASTER RESELLER/DISTRI SHALL NOT BE LIABLE FOR
ANY DAMAGES ASSOCIATED WITH THE INTERRUPTION OR LOSS OF
USE OF SERVICES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. MASTER RESELLER/DISTRI'S MAXIMUM AGGREGATE
LIABILITY TO CUSTOMER RELATED TO A CLAIM ARISING UNDER THIS
AGREEMENT, UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY, WILL BE LIMITED TO THE TOTAL
AMOUNT PAID BY CUSTOMER TO MASTER RESELLER/DISTRI FOR THE
SERVICES GIVING RISE TO SUCH CLAIM IN THE SIX (6) MONTHS PRIOR
TO THE OCCURRENCE OF SUCH CLAIM. NEITHER PARTY WILL BE
LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY FOR ANY LOST REVENUE, LOST PROFITS,
INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT.
15. Indemnity. Customer shall defend, indemnify, and hold harmless Master
Reseller/Distri, its officers and directors, employees, and agents from and
against
any and all lawsuits, claims, demands, penalties, losses, fines, liabilities,
damages,
and expenses (including attorney's fees) of any kind and nature (including
damage
to Master Reseller/Distri's property and injury to its employees), without
limitation whatsoever, in connection with Customers operations, installation
or
maintenance of equipment and facilities contemplated by this agreement, or
otherwise arising out of or in any way connected with customers provision of
service or performance under this agreement, provided that this section shall
not
apply to the extent that any injury, loss, or damage is caused by the gross
negligence or willful misconduct on the part of Master Reseller/Distri.
Master Reseller/Distri hereby indemnifies and holds harmless Customer and its
End
Users from any physical injuries to person or property caused by Master
Reseller/Distri or its agents during the course of providing or maintaining
the End
User Circuits or any End User premise equipment; provided, however, that such
indemnity shall not be available if the cause of such damage is due to
Customer's or
End User's willful or negligent acts or omissions.
16. Force Majeure. Neither party hereto shall be responsible for any failure
to
perform its obligations under this Agreement (other than obligations to pay
money)
if such failure is caused by acts of God, war, strikes, revolutions,
earthquake, lack
or failure of transportation facilities, laws or governmental regulations or
other
causes that are beyond the reasonable control of such party.
17. Miscellaneous. This agreement may not be assigned by Customer except to a
wholly-owned subsidiary or affiliate held under common control with the
Customer, without prior written consent of Master Reseller/Distri which shall
not
be unreasonably withheld. Notwithstanding the foregoing, Customer may assign
this agreement to a company that acquires Customer or into which Customer is
merged, subject to Master Reseller/Distri's prior approval of the acquiring or
surviving company's credit and increase of an existing, or imposition of a
new,
deposit or guarantee requirement, at Master Reseller/Distri's exclusive
option.
Master Reseller/Distri may subcontract the performance of Services to third
parties.
The parties agree that they are independent contractors and that this
Agreement and
relations between Master Reseller/Distri and Customer hereby established do
not
constitute a joint venture, agency or contract of employment between them, or
any
other similar relationship. Neither party has the right or authority to assume
or
create any obligation or responsibility on behalf of the other. This agreement
and all
of the non-tariffed rates, terms, conditions, and other information herein,
are
confidential and shall not be disclosed by either party to any other person,
except as
may be required by a court or government agency acting in accordance with its
jurisdiction. Furthermore, Master Reseller/Distri may transmit one or more
copies
of this agreement to the appropriate state Public Utilities Commission, the
Federal
Communication Commission, or Public Services Commission for filing on a
confidential basis. If either party discloses such information to a person
within said
party's company on a need to know basis, such person will be advised of the
confidential and non-disclosable nature of said information and required to
abide
thereby. All confidential information shall remain confidential for a period
of three
(3) years after the termination of this agreement.. Any notice required or
permitted
to be given under this agreement by a party shall be in writing and shall be
delivered by hand, mail, national overnight courier service or by fax if
confirmed
by telephone to the other party at the address or phone numbers shown herein
or at
such other address or phone numbers as shall be designated from time to time.
No
failure or delay in exercising any right hereunder will operate as a waiver
thereof,
nor will any partial exercise of any right or power hereunder preclude further
exercise. If any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be unenforceable or invalid, that provision shall be
limited
or eliminated to the minimum extent necessary so that this Agreement shall
otherwise remain in full force and effect and enforceable. This Agreement
shall be
deemed to have been made in, and shall be construed pursuant to the laws of
the
State of California and the United States without regard to conflicts of laws
provisions thereof. Any waivers or amendments shall be effective only if made
in
writing. This Agreement is the complete and exclusive statement of the mutual
understanding of the parties and supersedes and cancels all previous written
and
oral agreements and communications relating to any of the subject matter of
this
Agreement. This Agreement will be governed by and construed in accordance with
the laws of the State of California. The venue for enforcement of this
Agreement is
San Joaquin County. Each party waives the right to a trial by jury in any suit
based
on or arising out of this agreement.
Volume Commitment Schedule
Volume Commitment Pricing
If Customer has committed to a specified Volume Level ("Volume Commitment
Level") as set forth on the cover page of the Agreement, then Customer will
receive the
applicable pricing as of the Effective Date of the Agreement ("Volume
Commitment Pricing"). For example, if Customer commits to a 1000+ Volume
Level, all End User
DSL Circuits will be billed at the Volume Level Price for 1,000+ circuits. In
order to maintain such Volume Commitment Pricing, Customer agrees to meet the
following
Volume Milestones:
Volume Milestone Schedule
In the event that the Customer fails to meet each of the above Volume
Milestones, pricing will revert to the standard Volume Level Pricing FOR ALL
END USER
CIRCUITS, BOTH EXISTING AND NEW CIRCUITS. In this event, Customer would be
required to pay the End User DSL Monthly Charges corresponding to Customer's
actual order volume as of the respective Volume Milestone (i.e., 3 months, 6
months, etc.).
For example, if Customer has a Volume Commitment of 1000+ Circuits, within 6
months of the applicable Effective Date, Customer must have at least 350 End
User DSL
Circuits invoiced. Assuming that at the six month Volume Milestone, Customer
has only 300 End User DSL Circuits invoiced, then the Customer is obligated to
pay the
monthly charges associated with the <1,000 Volume Level (e.g., A: Business
144-$81.70; Business 384-$105.80; etc.) for the subsequent month(s) FOR ALL
END USER
CIRCUITS. The Customer would pay the End User DSL Monthly Charges associated
with its actual order volume FOR ALL END USER CIRCUITS BOTH EXISTING
AND NEW CIRCUITS until Customer satisfies its subsequent Volume Milestone. If
at the nine month Volume Milestone, Customer has met or exceeded its Volume
Milestone (e.g. 650 End User DSL Circuits invoiced), then Customer will
receive Volume Commitment Pricing for future End User DSL Circuits.
One-Time Service Setup Charges
As part of Customer's Volume Commitment, Service Setup charges for services
are billed at the level of Customer's commitment, as long as Customer is
within the
milestones established above. One-time Service Setup charges are listed in the
Price Schedule for Business and Residential services. For example, if Customer
has a volume
commitment of 1,000+ Circuits, Customer will be billed for Service Setup
charges of $225 for all Business DSL circuits, starting with the first
circuit, as long as Customer
meets the Milestones listed above.
Price Schedule - DSL Services
Description of DSL Services
DSL Services Volume and Contract Level Pricing
The following are the monthly charges for End User DSL Circuits based on the
Information Server Access Services Agreement that Customer has signed with
Master
Reseller/Distri. The total of all of the Customer's End User Circuits in all
regions are counted in determining the applicable Volume Level Price.
End User DSL Circuit Monthly Charges
Service
Residential
384
Residential
768
Business
144*
Business
192*
Business
384*
Business
768*
Business
1.1m*
Business
1.5m*
Preferred Monthly Recurring Charges - 1 Year DSL Agreement
3 year Contract 1000+
3 year Contract < 1000
2 year Contract
Month to Month
Standard - 1 Year DSL Agreement
Month to Month or 2 year
Month to Month DSL Agreement
Mo. to Mo. DSL Agreement
End User DSL Circuit Order and Other One-time Charges
Service Setup
Residential
384
Residential
768
Business
144*
Business
192*
Business
384*
Business
768*
Business
1.1m*
Business
1.5m*
Preferred Non-Recurring Charges
NRC 1000+ Circuits.
NRC <1000 Circuits.
Standard
NRC
Month to Month DSL Agreement
Mo. to Mo. DSL Agreement
Residential Non-Recurring Charges (NRC) and Customer Premise Equipment (CPE)
prices are after rebates to the end user. The current price for NRC
and CPE for the Preferred Residential service is $348 and the end user will
receive a rebate (currently $150) which will reduce the cost of the equipment
and installation to the net $198 price. From time to time the cost of the
installation and equipment to the ISP and the rebate to the end user may
change. If
the net cost is more than the price listed here we will provide the advance
notification as required by our agreement.
Customer Premise Equipment
E.N.* 5250 SDSL Modem
F.P.** 144 IDSL Router
F.P.** 2200 SDSL Router
F.P.** 2100 ADSL Router
* E.N. Efficient Networks
** F.P. FlowPoint
Service Order Charges
One-Time Charge
Inside Wiring from RJ45 Wall Jack to NID (optional)
$ 88.00*
Field Technician Dispatch (during normal business hours)
$ 88.00*
* First Hour/Minimum Charge. For each additional 15 minutes: $20.
Field Technician Dispatch (other hours: after hours, weekends, holidays)
$ 110.00**
** First Hour/Minimum Charge. For each additional 15 minutes: $25.
Other Service Charges
One-Time Charge
Upgrade/downgrade of End User DSL Service (Involves a dispatch of FT)
$199.00
Upgrade/downgrade of End User DSL Service (no dispatch of FT)
$99.00
End User Circuit Disconnect Fee (per circuit)
$250.00
End User Circuit Cancellation Fee (per circuit)
$49.00
Missed Appointment ( i.e., End user no-show) Charge
$99.00
AS A CONDITION OF MASTER RESELLER/DISTRI MAKING RESIDENTIAL SERVICES AVAILABLE
TO CUSTOMER, CUSTOMER AGREES TO FOLLOW
ALL MASTER RESELLER/DISTRI PROCEDURES RULES AND REGULATIONS INCLUDING THE USE
OF ANY MASTER RESELLER/DISTRI PROVIDED WEB
INTERFACE FOR ORDER ENTRY, PROVISIONING, AND OR MAINTENANCE REQUEST AND
RESOLUTION. CUSTOMER AGREES TO USE
COMMERCIALLY REASONABLE EFFORTS TO ENSURE THAT RESIDENTIAL LINES ARE INSTALLED
AT RESIDENTIAL ADDRESSES ONLY. MASTER
RESELLER/DISTRI RESERVES THE RIGHT TO BILL CUSTOMER FOR SERVICES AT APPLICABLE
BUSINESS SERVICES PRICES FOR ANY RESIDENTIAL
CIRCUITS INSTALLED AT LOCATIONS DEEMED TO BE NON-RESIDENTIAL.
CUSTOMER AGREES TO USE COMMERCIALLY REASONABLE EFFORTS TO FULLY DISCLOSE TO
END USERS THE FEATURES AND LIMITATIONS OF
RESIDENTIAL SERVICES PRIOR TO ORDERING RESIDENTIAL SERVICES FOR SUCH END USER.
Description of DSL Remote Services
DSL Remote Service is an additional service to Master Reseller/Distri's
standard DSL Service offerings. DSL Remote provides long-distance connectivity
for DSL End Users
located in distant metropolitan areas.
DSL Remote Service - Monthly Recurring Service Charge (per End User)
Distance Between End User Metro
Area and Customer Metro Area
DSL Remote 144
Monthly Charge
DSL Remote
192 Monthly
Charge
DSL Remote
384 Monthly
Charge
DSL Remote
768 Monthly
Charge
DSL Remote 1.1
Monthly Charge
DSL Remote 1.5
Monthly Charge
Less than 500 miles
Greater than 500 miles
In addition to the other charges for DSL Services, Customer shall pay the
applicable DSL Remote Monthly Charges set forth above. If DSL Remote is
ordered at the same
time as the DSL End User Circuit, then no additional one-time order charges
apply. Additional service charges may apply if DSL Remote Service is added to
or removed
from an installed End User DSL Circuit. DSL Remote Services are not included
for purposes of determining whether Customer has met its Volume Commitment
Level.
For Customer to order DSL Remote Services, such service must be available in
both the metropolitan area where the End User DSL Circuit will be ordered and
the
metropolitan area where the Customer maintains a Customer Circuit. Standard
DSL Services may be available within a metropolitan area before DSL Remote
Service is
available.
Region
Metro Areas within 500 miles
Atlanta, Georgia
Raleigh, NC
Austin, Texas
Dallas, TX; Houston, TX
Baltimore, Maryland/Washington, D.C. *
Boston, MA; New York, NY; Philadelphia, PA; Raleigh, NC; Detroit, MI
Boston, Massachusetts
New York, NY; Philadelphia, PA; Baltimore, MD; Washington, DC
Chicago, Illinois
Detroit, MI; Minneapolis, MN
Dallas, Texas
Austin, TX; Houston, TX
Denver, Colorado
- none -
Detroit, Michigan
Chicago, IL; Philadelphia, PA; Baltimore, MD; Washington, D.C.
Houston, Texas
Dallas, TX; Austin, TX
Los Angeles, California
San Diego, CA; San Francisco, CA; Sacramento, CA; Phoenix, AZ
Miami, Florida
- none -
Minneapolis, Minnesota
Chicago, IL; Detroit, MI
New York, New York
Boston, MA; Philadelphia, PA; Baltimore, MD; Washington, D.C.; Raleigh, NC
Portland, Oregon
Seattle, WA
Philadelphia, Pennsylvania
Boston, MA; New York, NY; Baltimore, MD; Washington, D.C.; Raleigh, NC;
Detroit, MI
Phoenix, Arizona
San Diego, CA; Los Angeles, CA
Raleigh, North Carolina
Atlanta, GA; New York, NY; Philadelphia, PA; Baltimore, MD; Washington, DC
Sacramento, California
San Diego, CA; San Francisco, CA; Los Angeles, CA
San Diego, California
San Francisco, CA; Los Angeles, CA; Phoenix, AZ
Seattle, Washington
Portland, OR
San Francisco, California
San Diego, CA; Sacramento, CA; Los Angeles, CA
* The Baltimore, MD and Washington, D.C metro areas are considered the same
metropolitan region for purpose of DSL Remote.
(Initials) ______ISP 5 of 5 ________(Master
Reseller/Distri Telecomm, Inc.) 10/04/99
Level 3 Communications, LLC
GENERAL TERMS AND CONDITIONS
FOR DELIVERY OF SERVICE
These Terms and Conditions for Delivery of Service are applicable to Customer
Orders executed by Customer for
Services delivered by Level 3 Communications, LLC ("Level 3"), and are
incorporated into each Customer Order. The
Terms and Conditions include these General Terms and Conditions for Delivery
of Service and all terms and conditions
attached hereto which relate to any Service provided by Level 3 to Customer.
These Terms and Conditions are
applicable to sales of Services originating or terminating in the United
States.
DEFINITIONS
Confidential Information: Licensed Software, and all
source code, source documentation, inventions, know-
how, and ideas, updates and any documentation and
information related to the Licensed Software, and any
non-public information regarding the business of a party
provided to either party by the other party where such
information is marked or otherwise communicated as
being "proprietary" or "confidential" or the like, or where
such information is, by its nature, confidential.
Committed Data Rate: A commitment made by
Customer (where applicable) obligating it to order and
pay for a minimum amount of a Level 3 Service
expressed in Megabits per second (Mbps).
Customer: The person, firm or corporation so named on
the Customer Order.
Customer Order: A request for Level 3 Service
submitted by the Customer for acceptance by Level 3.
Facilities: Any and all devices supplied by Level 3 used
to deliver Services, including but not limited to all
terminal and other equipment, wires, lines, circuits,
ports, routers, switches, channel service units, data
service units, cabinets, racks, private rooms and the like.
Facilities shall not include any such devices sold to
Customer by Level 3 and paid for by Customer or owned
by Customer or any third party.
Licensed Software: Computer software, in object code
format only, the use of which is required for use of
Service ordered by Customer.
Premises: The location(s) occupied by Customer or its
end users to which Service will be delivered by Level 3.
Premises does not include Space as defined below.
Revenue Commitment: A commitment made by
Customer obligating it to order and pay for a minimum
volume of Services during an agreed term.
Service: A service offered by Level 3 pursuant to a
Customer Order.
Space: The location(s) within Level 3 gateways into
which Customer is permitted to colocate
telecommunications or internet equipment pursuant to a
colocation Customer Order accepted by Level 3.
Target Install Date: A written communication from
Level 3 to Customer indicating the date upon which it is
anticipated that Services will be available to Customer.
SECTION 1. CUSTOMER ORDERS
1.1 Submission of Customer Orders. To order any
Service, Customer may submit to Level 3 an order form
for Services, completed with Level 3's assistance
("Customer Order") requesting the provision of Service.
Level 3's delivery of a Target Install Date respecting
such Service shall constitute Level 3's acceptance of the
Customer Order. The Customer Order and its backup
detail shall set forth the Service, the Premises and/or
Space, the prices to be charged for Services and any
applicable term and/or Revenue Commitment.
1.2 Undertaking of Level 3. If Level 3 issues a Target
Install Date respecting Services, Level 3 will furnish such
Services in accordance with the Terms and Conditions
and any Customer Orders.
SECTION 2. BILLING AND PAYMENT
2.1 Payment of Bills. Level 3 bills all charges incurred
by Customer on a monthly basis. Level 3 bills in advance
for all Services to be provided during the ensuing month,
except for charges which are dependent upon usage of
Service, which are billed in arrears. Billing for partial
months will be prorated based on a Calendar month. All
bills are due upon receipt, and become past due thirty
(30) days later. The unpaid balance of any past due
balance which is not reasonably disputed under Section
2.4 hereof shall bear interest at a rate of 1.5% per month
(prorated on a daily basis beginning on the past due
date), or the highest rate allowed by law, whichever is
less.
To the extent Customer orders any service designated
as "Burstable," the following billing method shall apply:
Customer will be billed as set forth above for its
Committed Data Rate. In addition, over each month,
Customer's usage of the Service will be sampled by
Level 3 in five minute inbound and outbound averages.
At the end of the month, the top ten percent of the
inbound and outbound averages shall be discarded.
The highest of the resulting ninetieth percentile for
inbound and outbound traffic will be compared to the
Committed Data Rate. If the ninetieth percentile of
either inbound or outbound traffic is higher than the
Committed Data Rate, Customer will, in addition to being
billed for its Committed Data Rate, be billed for its
utilization of the Service that exceeds their Committed
Data Rate, which shall be billed at the contracted-for
price per Mbps.
In the event the Services ordered by Customer involve a
local loop, Customer may arrange, through a local
exchange carrier colocated in Level 3's gateway Space,
for its own local loop, or it may have Level 3 provide the
same. In the event Customer provides for its own local
loop, Customer must provide to Level 3 all circuit facility
assignment information, firm order commitment
information and the design layout records necessary to
enable Level 3 to make the necessary cross-connection
between the Services and Customer's designated local
exchange carrier. Level 3 may charge Customer a non-
recurring cross-connect fee to make such connection,
and an additional non-recurring charge may apply in the
event that Customer requests and Level 3 permits
Customer to change its Service installation date. In the
event Customer provides for its own local loop, Level 3's
billing for the Services will commence once it has
installed and tested the Services up to the Level 3 side
of the cross-connect circuit. Otherwise, Level 3's billing
for the Services will commence once the Services are
installed and tested.
2.2 Taxes and Fees. Except for taxes based on Level
3's net income and ad valorem, personal and real
property taxes imposed on Level 3's property, Customer
shall be responsible for payment of all sales, use, gross
receipts, excise, access, bypass, franchise or other
local, state and federal taxes, fees, charges, or
surcharges, however designated, imposed on or based
upon the provision, sale or use of the Services.
2.3 Regulatory and Legal Changes. In the event of
any change in applicable law, regulation, decision, rule
or order that materially increases the costs or other
terms of delivery of Service, Level 3 and Customer
agree to negotiate regarding the rates to be charged to
Customer to reflect such increase in cost and, in the
event that the parties are unable to reach agreement
respecting new rates within thirty (30) days after Level
3's delivery of written notice requesting renegotiation,
then (a) Level 3 may pass such increased costs through
to Customer, and (b) Customer may terminate the
affected Customer Order without termination liability
upon sixty (60) days' prior written notice.
2.4 Disputed Bills. In the event that Customer
disputes any portion of a Level 3 bill, Customer must pay
the undisputed portion of the bill and submit a written
claim for the disputed amount. All claims must be
submitted to Level 3 within sixty (60) days of receipt of
billing for those Services. Customer acknowledges that
it is able to and that it is reasonable to require Customer
to dispute bills within that time, and Customer therefore
waives the right to dispute charges not disputed within
the time frame set forth above.
2.5 Credit Approval and Deposits. Customer shall
provide Level 3 with credit information as requested, and
delivery of Service is subject to credit approval. Level 3
may require Customer to make a deposit (which will not
exceed Customer's estimated charges for two months'
Service) as a condition to Level 3's acceptance of any
Customer Order, or as a condition to Level 3's
continuation of Service, which deposit shall be held by
Level 3 as security for payment of Customer's charges.
At such time as the provision of Service to Customer is
terminated, the amount of the deposit will be credited to
Customer's account and any credit balance which may
remain will be refunded.
2.6 Fraudulent Use of Services. Customer is
responsible for all charges attributable to Customer
incurred respecting the Services, even if incurred as the
result of fraudulent or unauthorized use of the Services,
unless Level 3 has actual knowledge of the same and
fails to notify Customer thereof. Level 3 may, but is not
obligated to, detect or report unauthorized or fraudulent
use of Services.
SECTION 3. DISCONTINUANCE OF CUSTOMER
ORDERS
3.1 Discontinuance of Customer Order by Level 3.
Level 3 may terminate any Customer Order and
discontinue Service without liability:
A. If Customer fails to pay a past due balance for
Services: (i) usage based and billed in arrears, provided
the same is not paid within three (3) days of written
notice thereof provided by Level 3; or (ii) flat rated and
billed in advance, provided the same is not paid within
fourteen (14) days of written notice thereof provided by
Level 3;
B. If Customer violates any law, rule, regulation or
policy of any government authority having jurisdiction
over the Services; if Customer makes a material
misrepresentation in any submission of information in a
Customer Order or other submission of information to
Level 3; if Customer engages in any fraudulent use of
the Services; or if a court or other government authority
having jurisdiction over the Services prohibits Level 3
from furnishing the Services;
C. If Customer fails to cure its breach of any provision of
these Terms and Conditions or any Customer Order
within thirty (30) days written notice thereof provided by
Level 3;
D. If Customer files bankruptcy, for reorganization, or
fails to discharge an involuntary petition therefore within
sixty (60) days;
E. If Customer's use of the Services materially exceeds
Customer's credit limit, unless within fourteen (14) days
written notice thereof by Level 3, Customer provides
adequate security for payment for the Services.
3.2 Effect of Discontinuance. Upon Level 3's
discontinuance of Service to Customer, Level 3 may, in
addition to all other remedies that may be available to
Level 3 at law or in equity, assess and collect from
Customer any applicable termination charge.
3.3 Resumption of Service. If Service has been
discontinued by Level 3 and Customer requests that
Service be restored, Level 3 shall have the sole and
absolute discretion to restore such Service.
Nonrecurring charges, with the exception of any charges
for the build-out of Colocation Space already paid by
Customer, may apply to restoration of Service.
3.4 Discontinuance of Customer Order by
Customer. Customer shall have the right to terminate
any Customer Order and discontinue Service prior to the
end of the agreed term with respect to which a Customer
Order has been executed without payment of any
applicable termination charge if: (i) such Service is
Unavailable (as defined below) on two or more separate
occasions of more than eight (8) hours each in any 30
day period, and (ii) following written notice thereof from
Customer to Level 3, Level 3 has an Unavailability event
of more than 12 hours at any time within the 12 month
period immediately following said notice. For purposes
of the foregoing, Unavailability shall mean the period of
time beginning when Customer reports an outage in its
Service to the Level 3 Customer Service and Support
Organization (1-877-4LEVEL3) and shall end when the
Service is operative. Unavailability shall not apply to any
outage which is caused by Customer, Customer's end
users or any third party, which results from failure of
power or equipment provided by Customer or others,
which occurs or continues during any period in which
Level 3 is not given access to the Premises or the
Space, or which results from maintenance events.
Customer must exercise its right to terminate under this
Section, in writing, no later than thirty (30) days after the
Unavailability event giving rise to a right of termination
hereunder.
SECTION 4. DELIVERY OF SERVICES
4.1 Level 3 Access to Premises and Space.
Customer shall allow Level 3 access to the Premises to
the extent reasonably determined by Level 3 for the
installation, inspection and scheduled or emergency
maintenance of Facilities relating to the Service. Level 3
shall notify Customer two (2) business days in advance
of any regularly scheduled maintenance that will require
access to the Premises. Level 3 retains the right to
access any Space for any legitimate business purpose.
4.2 Level 3 Facilities. Level 3 will use reasonable
efforts to provide and maintain the Facilities in good
working order. Customer shall not and shall not permit
others to rearrange, disconnect, remove, attempt to
repair, or otherwise tamper with any of the Facilities. If
the same occurs without first obtaining Level 3's written
approval, in addition to being a breach by Customer of
Customer's obligations hereunder, Customer shall (1)
pay Level 3 the cost to repair any damage to the
Facilities caused thereby; and (2) be responsible for the
payment of service charges in the event that
maintenance or inspection of the Facilities is required as
a result of Customer's breach of this Section. In no event
shall Level 3 be liable to Customer or any other person
for interruption of Service or for any other loss, cost or
damage caused or related to improper use or
maintenance of the Facilities, unless the same is caused
by the negligence of Level 3, and then only to the extent
of Section 5.2
4.3 Title and Power. Title to all Facilities (except as
otherwise agreed) shall remain with Level 3. The electric
power consumed by such Facilities on the Premises
shall be provided by and maintained at the expense of
Customer. Electric power to the Space shall be provided
by Level 3.
4.4 Customer-Provided Equipment. Level 3 may
install certain Customer provided communications
equipment upon installation of Service and the Facilities,
but unless otherwise agreed by Level 3 in writing, Level
3 shall not thereafter be responsible for the operation or
maintenance of any Customer provided communication
equipment. Level 3 shall not be responsible for the
transmission or reception of signals by Customer-
provided equipment or for the quality of, or defects in,
such transmission.
4.5 Removal of Facilities. Customer agrees to allow
Level 3 to remove all Facilities from the Premises:
A. after termination of the Service in connection with
which the Facilities were used; and
B. for repair, replacement or otherwise as Level 3 may
determine is necessary, but Level 3 shall use reasonable
efforts to minimize disruptions to the Service caused
thereby.
At the time of such removal, the Facilities shall be in the
same condition as when installed, normal wear and tear
excepted. Customer shall reimburse Level 3 for the
depreciated cost of any Facilities not in such condition.
4.6 Service Subject to Availability. The furnishing of
Service is subject to the availability thereof, on a
continuing basis, and is limited to the capacity of Level 3
to provide the Service as well as the capacity which
Level 3 may obtain from other carriers to furnish Service
from time to time as required at the sole discretion of
Level 3. Nothing in these Terms and Conditions shall be
construed to obligate Customer to submit, or Level 3 to
accept, Customer Orders. In the event Service becomes
unavailable pursuant to this paragraph 4.6, Customer
shall have the rights set forth in Section 3.4 of these
Terms and Conditions.
SECTION 5. OBLIGATIONS AND LIABILITY
LIMITATION
5.1 Obligations of the Customer. Customer shall be
responsible for:
A. The payment of all charges applicable to the Service;
B. Damage or loss of the Facilities installed on the
Premises or in the Space (unless caused by the
negligence or willful misconduct of the employees or
agents of Level 3);
C. Providing the level of power, heating and air
conditioning necessary to maintain the proper
environment on the Premises for the provision of
Service;
D. Providing a safe place to work and complying with all
laws and regulations regarding the working conditions on
the Premises;
E. Granting Level 3 or its employees access to the
Premises as set forth in Section 4.1 of these Terms and
Conditions; and
F. Keeping Level 3's Facilities located on Premises free
and clear of any liens or encumbrances.
5.2 Liability. Except as provided in Section 8.4, the
liability of Level 3 for damages arising out of the
furnishing of or the failure to furnish Service, including
but not limited to mistakes, omissions, interruptions,
delays, tortious conduct, representations, errors, or other
defects, whether caused by acts of commission or
omission, shall be limited to the extension of credit
allowances or refunds due under any applicable Service
Level Agreement. Except as provided in Section 8.4, the
extension of such credit allowances or refunds shall be
the sole remedy of Customer and the sole liability of
Level 3.
5.3 No Special Damages. Notwithstanding any other
provision hereof, neither party shall be liable for any
indirect, incidental, special, consequential, exemplary or
punitive damages (including but not limited to damages
for lost profits or lost revenues), whether or not caused
by the acts or omissions or negligence of its employees
or agents, and regardless of whether such party has
been informed of the possibility or likelihood of such
damages.
5.4 Disclaimer of Warranties. LEVEL 3 MAKES NO
WARRANTIES OR REPRESENTATIONS, EXPRESS
OR IMPLIED, EITHER IN FACT OR BY OPERATION
OF LAW, STATUTORY OR OTHERWISE, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR USE, EXCEPT THOSE
EXPRESSLY SET FORTH IN ANY APPLICABLE
SERVICE LEVEL AGREEMENT.
SECTION 6. SOFTWARE TERMS
6.1 License. If and to the extent that Customer
requires the use of Licensed Software in order to use the
Service supplied under any Customer Order, Customer
shall have a nonexclusive, nontransferable (except
pursuant to paragraph 8.2 hereof) license to use such
Licensed Software only and solely to the extent required
to permit delivery of the Service. Customer may not
claim title to or any ownership interest in any Licensed
Software (or any derivations or improvements thereto),
and Customer shall execute any documentation
reasonably required by Level 3 to memorialize Level 3's
existing and continued ownership of the Licensed
Software.
6.2 Restrictions. Customer agrees that it shall not:
A. copy the Licensed Software except for emergency
backup purposes or as permitted by the express written
consent of Level 3;
B. reverse engineer, decompile or disassemble the
Licensed Software;
C. sell, lease, license or sublicense the Licensed
Software; or
D. create, write or develop any derivative software or
any other software program based on the Licensed
Software.
SECTION 7. CONFIDENTIAL INFORMATION
7.1 Disclosure and Use. Any Confidential Information
disclosed by either party shall be kept by the receiving
party in strict confidence and not disclose to any third
party (except as authorized by these Terms and
Conditions) without the disclosing party's express written
consent. Each party agrees to treat all Confidential
Information of the other in the same manner as it treats
its own proprietary information, but in no case will the
degree of care be less than reasonable care.
7.2 Restricted Use. Each party agrees:
A. to use Confidential Information only for the purposes
of performance of any Customer Order or as otherwise
expressly permitted by these Terms and Conditions;
B. not to make copies of Confidential Information or any
part thereof except for purposes consistent with these
Terms and Conditions; and
C. to reproduce and maintain on any copies of any
Confidential Information such proprietary legends or
notices (whether of disclosing party or a third party) as
are contained in or on the original or as the disclosing
party may otherwise reasonably request.
7.3 Exceptions. Notwithstanding the foregoing, each
party's confidentiality obligations hereunder shall not
apply to information which:
A. is already known to the receiving party;
B. becomes publicly available without fault of the
receiving party;
C. is rightfully obtained by the receiving party from a
third party without restriction as to disclosure, or is
approved for release by written authorization of the
disclosing party;
D. is developed independently by the receiving party
without use of the disclosing party's Confidential
Information;
E. is required to be disclosed by law.
7.4 Publicity. This agreement grants no right to use any
party's or its affiliates' trademarks, service marks or
trade names or to otherwise refer to the other party in
any marketing, promotional or advertising materials or
activities. Neither party shall issue any publication or
press release relating to, or otherwise disclose the
existence of, or the terms and conditions of any
contractual relationship between Level 3 and Customer,
except as may be required by law.
7.5 Remedies. Notwithstanding any other section of
these Terms and Conditions, the non-breaching party
shall be entitled to seek equitable relief to protect its
interests, including but not limited to preliminary and
permanent injunctive relief. Nothing stated herein shall
be construed to limit any other remedies available to the
parties.
7.6 Survival. The obligations of confidentiality and
limitation of use shall survive the termination of any
applicable Customer Order.
SECTION 8. GENERAL TERMS
8.1 Force Majeure. Neither party shall be liable, nor
shall any credit allowance or other remedy be extended,
for any failure of performance or equipment due to
causes beyond such party's reasonable control,
including but not limited to: acts of God, fire, flood or
other catastrophes; any law, order, regulation, direction,
action, or request of any governmental entity or agency,
or any civil or military authority; national emergencies,
insurrections, riots, wars; unavailability of rights-of-way
or materials; or strikes, lock-outs, work stoppages, or
other labor difficulties. In the event any of the foregoing
occur and Level 3 is unable to deliver the Service for
fourteen (14) consecutive days, Customer shall not be
obligated to pay Level 3 for the affected Service for so
long as Level 3 is unable to deliver them, provided,
however, that the term of the Customer Order respecting
those Services shall be extended for a period of time
equal to the period of time for which Level 3 was unable
to provide and Customer was not required to pay for the
affected Service.
8.2 Assignment or Transfer. Except with respect to a
merger or sale of substantially all of Customer's assets,
Customer may not transfer, sublease or assign the use
of Service without the express prior written consent of
Level 3, and then only when such transfer or assignment
can be accomplished without interruption of the use or
location of Service. Level 3 will not unreasonably
withhold its consent. These Terms and Conditions shall
apply to any transferees or assignees. Customer shall
remain liable for the payment of all charges due under
each Customer Order.
8.3 Notices. Notices hereunder shall be deemed
properly given when delivered, if delivered in person, or
when sent via facsimile, overnight courier, electronic
mail or when deposited with the U.S. Postal Service, (a)
with respect to Customer, the address listed on any
Customer Order, or (b) with respect to Level 3, to:
Contracts Management, Level 3 Communications, LLC,
1025 Eldorado Boulevard, Broomfield CO 80021.
Customer shall notify Level 3 of any changes to its
addresses listed on any Customer Order.
8.4 Indemnification by Level 3. Level 3 shall
indemnify, defend and hold Customer harmless from any
claim, loss, damage, expense or liability (including
attorney's fees and court costs) (hereinafter "Claims")
made against Customer for property damage,
infringement of third party proprietary rights or personal
injury caused by Level 3's negligence or willful
misconduct.
8.5 Indemnification by Customer. Customer shall
indemnify, defend and hold Level 3 harmless from
Claims (including Claims for infringement of third party
proprietary rights) (i) made against Level 3 by any end
user of Customer in connection with the delivery or
consumption of Service, (ii) made against Level 3 arising
out of any commission or negligent omission by
Customer in connection with the Service, or (iii) arising
from Customer's negligence or willful misconduct.
8.6 Application of Tariffs. Level 3 may elect or be
required to file with the appropriate regulatory agency
tariffs respecting the delivery of certain Service. In the
event that such tariffs are filed respecting Service
ordered by Customer, then (to the extent such provisions
are not inconsistent with the terms of a Customer Order)
the terms set forth in the applicable tariff shall govern
Level 3's delivery of, and Customer's consumption or
use of, such Service.
8.7 Contents of Communications Level 3 does not
monitor and shall have no liability or responsibility for the
content of any communications transmitted via the
Service, and Customer shall hold Level 3 harmless from
any and all claims (including claims by governmental
entities seeking to impose penal sanctions) related to
such content attributable to Customer or its agents,
employees or end users.
8.8 Entire Understanding These Terms and
Conditions, including any Customer Orders executed
hereunder, constitute the entire understanding of the
parties related to the subject matter hereof. In the event
of any conflict between these Terms and Conditions and
the terms and conditions of any Customer Order, these
Terms and Conditions shall control. These Terms and
Conditions shall be governed and construed in
accordance with the laws of the state of Colorado.
8.9 No Waiver. No failure by either party to enforce any
rights hereunder shall constitute a waiver of such
right(s).
ADDITIONAL TERMS AND CONDITIONS
FOR PRIVATE LINE SERVICE
The following additional terms and conditions are applicable where, pursuant
to a Customer Order, Customer orders
metropolitan (local), city to city (within the United States) and
international (from the United States to another country)
private line, non-switchable circuits (the "Private Line Services").
1. Any state or federal tariffs applicable to the Private
Line Services to be delivered under any Customer Order
are incorporated into the terms thereof. Level 3's pricing
to Customer for Private Line Services may, if required,
be subject to PUC or other regulatory approval.
2. The nonrecurring charges and monthly recurring
rates for the Private Line Services provided by Level 3
shall be set forth in each Customer Order.
3. The rates and other charges set forth in each
Customer Order are established in reliance on the term
commitment made therein, and Customer shall pay the
same in accordance therewith. In the event that
Customer terminates Services ordered in any Customer
Order which is accepted by Level 3 or in the event that
the delivery of Services is terminated due to a failure of
Customer to satisfy the requirements set forth in these
Terms and Conditions prior to the end of the agreed
term, Customer shall (unless Customer has made a
Revenue Commitment) pay a termination charge equal
to the percentage of the monthly recurring charges for
the terminated Private Line Services calculated as
follows:
a. 100% of the monthly recurring charge that would
have been incurred for the Private Line Service for
months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would
have been incurred for the Private Line Service for
months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would
have been incurred for the Private Line Service for
months 25 through the end of the agreed term.
In the event that a Revenue Commitment is made and is
then being satisfied by Customer, Customer may
terminate, rearrange or reconfigure the Private Line
Services ordered under a Customer Order without
payment of the termination charge specified above;
PROVIDED, HOWEVER, that Customer shall be
responsible for payment of Level 3's then-current
standard nonrecurring charges applicable to such
termination, rearrangement or reconfiguration.
4. Level 3 makes the Service Level Agreements as
attached respecting Private Line Service.
ADDITIONAL TERMS AND CONDITIONS
FOR COLOCATION
The following additional terms and conditions are applicable
where, pursuant to a Customer Order, Customer orders the
use of space within Level 3 gateways to be used for the
purpose of colocating telecommunications equipment or
equipment used for connection to the internet (the "Space").
1. Customer is granted the right to occupy the Space
identified in a Customer Order. Customer shall be
permitted reasonable access to the Space subject to any
and all rules, regulations and access requirements
imposed by Level 3 governing such access. Customer
may submit multiple Customer Orders requesting use of
different Space, each of which shall be governed by the
terms hereof.
2. Customer shall be permitted to use the Space only
for placement and maintenance of communications
equipment. The nonrecurring and monthly recurring
charges for the Space and any Services ordered by
Customer shall be set forth in each Customer Order.
Customer hereby agrees, within six (6) months of
ordering such Space, to use the Space for placement
and maintenance of telecommunications or internet
access equipment. In the event Customer fails to fill
said Space as set forth herein, Level 3 has the right to
reclaim the proportion of Space not being used
exclusively as indicated above, if the same is not cured
within forty-five (45) days' prior notice thereof to
Customer. Customer agrees to immediately vacate such
recaptured Space and Level 3 shall reduce the
Colocation fees allocated to such recaptured Space.
Customer further agrees that no refunds shall be made
to Customer regarding such recaptured Space.
3. Level 3 shall perform such janitorial services,
environmental systems maintenance, power plant
maintenance and other actions as are reasonably
required to maintain the gateway in which the Space is
located in a condition which is suitable for the placement
of telecommunications and internet access equipment.
Customer shall maintain the Space in an orderly and
safe condition, and shall return the Space to Level 3 at
the conclusion of the term set forth in the Customer
Order in the same condition (reasonable wear and tear
excepted) as when such Space was delivered to
Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR
IN ANY CUSTOMER ORDER, THE SPACE SHALL BE
DELIVERED AND ACCEPTED "AS IS" BY CUSTOMER, AND
NO REPRESENTATION HAS BEEN MADE BY LEVEL 3 AS
TO THE FITNESS OF THE SPACE FOR CUSTOMER'S
INTENDED PURPOSE.
4. The term of use of the Space shall begin on the later
to occur of the date requested by Customer or the date
that Level 3 completes the build-out of the Space.
Customer's use of the Space beyond the initial term
shall be on a month-to-month basis, unless Customer
and Level 3 have agreed in writing to a renewal of the
right to use such Space. Customer hereby agrees to pay
for the Space and any related Services for the term of
this Agreement. The rates and other charges set forth in
each Customer Order are established in reliance on the
term commitment made therein. In the event that
Customer terminates a Customer Order for Space which
is accepted by Level 3 or in the event that the Customer
Order is terminated due to a failure of Customer to
satisfy the requirements set forth herein or in the
Customer Order prior to the end of the agreed term,
Customer shall pay a termination charge equal to the
costs incurred by Level 3 in returning the Space to a
condition suitable for use by other parties, plus the
percentage of the monthly recurring fees for the
terminated Space calculated as follows:
a. 100% of the monthly recurring fees that would
have been charged for the Space for months 1-12 of the
agreed term; plus
b. 75% of the monthly recurring fees that would
have been charged for the Space for months 13-24 of
the agreed term; plus
c. 50% of the monthly recurring fees that would
have been charged for the Space for months 25 through
the end of the agreed term.
In the event that a Revenue Commitment is made and is
then being satisfied by Customer, Customer may
terminate the Space ordered pursuant to a Customer
Order without payment of the termination charge
specified above; PROVIDED, HOWEVER, that
Customer shall be responsible for payment of Level 3's
then-current standard nonrecurring charges applicable to
such termination.
5. Level 3 shall use reasonable efforts to complete the
build-out and make the Space available to Customer on
or before the date requested by Customer. In the event
that Level 3 fails to complete the build-out within sixty
(60) days of the date requested by Customer, then
Customer may terminate its rights to use such Space
and receive a refund of any fees paid for the use or
build-out of such Space.
6. Customer shall abide by any posted or otherwise
communicated rules relating to use of, access to, or
security measures respecting the Space. Customer's
use of the Space will be immediately terminated in the
event Customer or any of its agents or employees is
found in Level 3's gateway with any firearms, drugs,
alcohol or is found engaging in any criminal activity,
eavesdropping, foreign intelligence, card selling or
slamming. Persons found engaging in any such activity
or in possession of the aforementioned prohibited items
will be immediately escorted from the gateway. In the
event that unauthorized parties gain access to the Space
through access cards, keys or other access devices
provided to Customer, Customer shall be responsible for
any damages incurred as a result thereof. Customer
shall be responsible for the cost of replacing any security
devices lost or stolen after delivery thereof to Customer.
In addition, Level 3 shall have the right to terminate
Customer's use of the Space or the Services in the
event that: (a) Level 3's rights to use the facility within
which the Space is located terminates or expires for any
reason; (b) Customer has violated the terms hereof or of
any Customer Order submitted hereunder; (c) Customer
makes any material alterations to the Space without first
obtaining the written consent of Level 3; (d) Customer
allows personnel or contractors to enter the Space who
have not been approved by Level 3 in advance; or (e)
Customer violates any posted or otherwise
communicated rules relating to use of or access to the
Space. With respect to items (b), (c), (d) and (e)
immediately above, unless the same interferes or has
the potential to interfere with other Level 3 Colocation
customers, Level 3 shall provide Customer a written
notice of the foregoing and a 10-day opportunity to cure
the same before terminating Customer's rights to the
Space.
7. Customer may sublease the Space under the
following conditions: i) all proposed sublessees must be
approved, in writing, by Level 3 in Level 3's sole
discretion; ii) Customer hereby guarantees that all
Sublessees shall abide by all terms and conditions set
forth between Customer and Level 3; iii) Customer shall
indemnify, defend and hold Level 3 harmless from all
claims brought against Level 3 arising from any act or
omission of any subcontractor and iv) any sublessee
shall be considered customer's agent and all of
sublessees' acts and omissions and usage of the Space
or Services hereunder shall be attributable to Customer
for the purposes of these Terms and Conditions.
8. Level 3 reserves the right to change the location or
configuration of the Space, provided, however, that
Level 3 shall not arbitrarily or discriminatorily require
such changes. Level 3 and Customer shall work in good
faith to minimize any disruption in Customer's services
that may be caused by such changes in location or
configuration of the Space.
9. Prior to occupancy and during the term of use of any
Space, Customer shall procure and maintain the
following minimum insurance coverage: (a) Workers'
Compensation in compliance with all applicable statutes
of appropriate jurisdiction. Employer's Liability with limits
of $500,000 each accident; (b) Commercial General
Liability with combined single limits of $1,000,000 each
occurrence; and (c) "All Risk" Property insurance
covering all of Customers personal property located in
the Space. Customer's Commercial General Liability
policy shall be endorsed to show Level 3 (and any
underlying property owner, as requested by Level 3) as
an additional insured. All policies shall provide that
Customer's insurers waive all rights of subrogation
against Level 3. Customer shall furnish Level 3 with
certificates of insurance demonstrating that Customer
has obtained the required insurance coverages prior to
occupancy of the Space. Such certificates shall contain
a statement that the insurance coverage shall not be
materially changed or cancelled without at least thirty
(30) days prior written notice to Level 3. Customer shall
require any contractor entering the Space on its behalf to
procure and maintain the same types, amounts and
coverage extensions as required of Customer above.
10. Customer may order and pay for Level 3 to perform
certain limited ("remote hands") maintenance services
on Customer's equipment within the space, which shall
be performed in accordance with Customer's directions.
"Remote hands" maintenance services includes power
cycling equipment. Level 3 shall in no event be
responsible for the repair, configuration or tuning of
equipment, or for installation of Customer's equipment
(although Level 3 will provide reasonable assistance to
Customer in such installation).
11. Level 3 makes the Service Level Agreement as
attached respecting Colocation Services.
ADDITIONAL TERMS AND CONDITIONS FOR
DEDICATED INTERNET ACCESS AND RAPID ACCESS
The following additional terms and conditions are
applicable where, pursuant to a Customer Order, Customer
orders Dedicated Internet Access and Rapid Access
(the "Internet Access Services").
1. Any state or federal tariffs applicable to the
Internet Access Services to be delivered under any
Customer Order are incorporated into the terms thereof.
The Internet Access Services shall at all times be used
in compliance with Level 3's then-current Acceptable Use
Policy and Privacy Policy, as amended by Level 3 from
time to time and which are available through Level 3's
web site.
2. The nonrecurring charges and monthly recurring
rates for the Internet Access Services provided by Level
3 to Customer are set forth in each Customer Order.
3. The rates and other charges set forth in each
Customer Order are established in reliance on the term
and/or volume commitment made therein, and Customer
agrees to pay the same. In the event that Customer
terminates Internet Access Services ordered in any
Customer Order which is accepted by Level 3 or in the
event that the delivery of Internet Access Services is
terminated due to a failure of Customer to satisfy the
requirements set forth herein or in the Customer Order
prior to the end of the agreed term, Customer shall
(unless Customer has made a Revenue Commitment)
pay a termination charge equal to the percentage of the
monthly recurring charges for the terminated Internet
Access Services calculated as follows:
a. 100% of the monthly recurring charge that would
have been incurred for the Internet Access Service for
months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would
have been incurred for the Internet Access Service for
months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would
have been incurred for the Internet Access Service for
months 25 through the end of the agreed term.
Customer may, in the event that a Revenue
Commitment is made and is then being satisfied by
Customer, terminate, rearrange or reconfigure the
Internet Access Services ordered under a Customer
Order without payment of the termination charge
specified above; PROVIDED, HOWEVER, that
Customer shall be responsible for payment of Level 3's
then-current standard nonrecurring charges applicable to
such termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3
does not operate or control the information, services,
opinions or other content of the Internet. Customer
agrees that it shall make no claim whatsoever against
Level 3 relating to the content of the Internet or
respecting any information, product, service or software
ordered through or provided by virtue of the Internet.
5. If Customer orders Burstable Dedicated Internet
Access Services pursuant to a Customer Order, the
Customer shall be permitted to make two (2) changes to
its Committed Data Rate each contract year, provided
that such change be to a higher Committed Data Rate.
6. Level 3 makes the following Service Level
Agreements as attached respecting Dedicated Internet
Access and Rapid Access Service.
ADDITIONAL TERMS AND CONDITIONS FOR
MANAGED MODEM -- DEDICATED, QUICKSTART AND TRANSIT SERVICES
The following additional terms and conditions are
applicable where, pursuant to a Customer Order Customer
orders services required to allow access to "Dedicated
Services," "Dedicated Service with QuickStart" and
"Transit Services" as offered by Level 3 (the "Managed
Modem Services") ordered by Customer under
any Customer Order.
1. Any state or federal tariffs applicable to the Managed
Modem Services to be delivered under any Customer
Order are incorporated into the terms thereof. The
Managed Modem Services shall at all times be used in
compliance with Level 3's then-current Acceptable Use
Policy and Privacy Policy, as amended by Level 3 from
time to time and which are available through Level 3's
web site.
2. In the event Customer orders "Dedicated Service,"
end user traffic will be routed through and aggregated in
Level 3's facility, sent to the Customer's Premises via a
dedicated circuit, and then routed to its final destination
by Customer. In the event that Customer orders "Transit
Services," End User traffic will be routed to Level 3's
facility and then routed to its final destination by Level 3
via the Internet. Dedicated Service with "QuickStart" will
initially be provisioned to the Customer in the same
fashion as Transit Services, until such time as Level 3
has provisioned the dedicated circuit to send end user
traffic from Level 3's facility to the Customer's Premises.
QuickStart will then be migrated to standard Dedicated
Service. Customers ordering Dedicated Services will be
required to make a portion of the Premises available to
Level 3 for the placement of equipment necessary to
provide such Dedicated Services. For Dedicated
Service, all Customer CPE as well as the private line
necessary to support this service will be ordered,
installed and managed by Level 3. Level 3 cannot and
does not guarantee the availability of any port ordered
for installation greater than 90 days from the date of the
order. Any telephone numbers used in providing the
Managed Modem Services shall be released to
Customer upon expiration or termination hereof to the
extent that it is technically feasible for Level 3 to port
packet switched telephone numbers and then only if
Customer is in compliance with all of the terms
contained herein and in the General Terms and
Conditions.
3. Section 1.1 of the General Terms and Conditions for
Delivery of Service notwithstanding, a Customer order
for Managed Modem Service shall be accepted by Level
3 once Level 3 has provisioned and tested the ports.
Customer's billing respecting said ports shall commence
once tested and found to be functioning properly by
Level 3 notwithstanding Customer's: i) refusal to accept
the ports or ii) Customer's refusal to acknowledge
communications by Level 3 to Customer respecting the
ports. In the event Customer moves an installation date
provided by Level 3 more than ten (10) business days
out from the original requested date, Level 3 will begin
billing for Managed Modem Service eleven (11) business
days after the initial requested installation date whether
or not the Service is installed.
4. The nonrecurring charges and monthly recurring
rates for the Managed Modem Services provided by
Level 3 to Customer shall be set forth in each Customer
Order. Level 3 will dedicate the specified number of
ports to Customer in the Level 3 facilities as identified in
each Customer Order.
Customer shall have the option to purchase twenty
percent (20%) port overage from Level 3. If ordered,
Level 3 shall provision an additional twenty percent
(20%) of ports over the number of ports actually ordered
by Customer to accept Customer traffic in the event
Customer's traffic bursts and its usage exceeds the
capacity of the ports actually ordered. In the event
Customer chooses not to purchase twenty percent
(20%) port overage from Level 3, if the Customer's traffic
bursts as set forth above, Customer will get a busy
signal in the event its ordered capacity is exceeded. In
the event that Customer purchases 20% port overage,
Customer will be responsible for additional monthly
charges to the extent it utilizes any additional capacity
provided by Level 3.
5. Customer must utilize all Managed Modem ports
provisioned hereunder at no less than fifty percent (50%)
of the capacity of such port. Customer agrees to allow
Level 3 to monitor Customer's utilization of the ports
provisioned herein. In the event Customer is Under-
Utilizing (as defined below) such ports, Level 3 retains
the right to reclaim such ports after which Customer shall
have no further right to use the ports Under-Utilized.
Termination liability shall apply to any ports reclaimed
pursuant to this paragraph.
For the purpose of this Section, "Under-Utilization" shall
mean the use of less than fifty percent (50%) of the
capacity of any given port for any sixty (60) day period
as determined by Level 3. Under-Utilization shall not be
applicable to the first sixty (60) day period immediately
following the provisioning of any Managed Modem port.
6. The rates and other charges set forth in each
Customer Order are established in reliance on the term
commitment made therein, and Customer agrees to pay
the same. In the event that Customer terminates
Managed Modem Services ordered in any Customer
Order which is accepted by Level 3 or in the event that
the delivery of Managed Modem Services is terminated
due to a failure of Customer to satisfy the requirements
set forth herein or in the Customer Order prior to the end
of the agreed term, Customer shall (unless Customer
has made a Revenue Commitment) pay a termination
charge equal to the percentage of the monthly recurring
charges for the terminated Managed Modem Services
calculated as follows:
a. 100% of the monthly recurring charge that would
have been incurred for the Managed Modem Service for
months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would
have been incurred for the Managed Modem Service for
months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would
have been incurred for the Managed Modem Service for
months 25 through the end of the agreed term.
Customer may, in the event that a Revenue
Commitment is made and is then being satisfied by
Customer, terminate, rearrange or reconfigure the
Managed Modem Services ordered under a Customer
Order without payment of the termination charge
specified above; PROVIDED, HOWEVER, that
Customer shall be responsible for payment of Level 3's
then-current standard nonrecurring charges for such
termination, rearrangement or reconfiguration.
7. Level 3 provides only access to the Internet; Level 3
does not operate or control the information, services,
opinions or other content of the Internet. Customer
agrees that it shall make no claim whatsoever against
Level 3 relating to the content of the Internet or
respecting any information, product, service or software
ordered through or provided by virtue of the Internet.
8. Level 3 makes the Service Level Agreement as
attached respecting Managed Modem Services.
ADDITIONAL TERMS AND CONDITIONS FOR
IP CROSSROADS
The following additional terms and conditions are
applicable where, pursuant
to a Customer Order, Customer orders
IP CrossRoads Services.
1. Any state or federal tariffs applicable to the
IP CrossRoads Services to be delivered under any
Customer Order are incorporated into the terms thereof.
The IP CrossRoads Services shall at all times be used in
compliance with Level 3's then-current Acceptable Use
Policy and Privacy Policy, as amended by Level 3 from
time to time and which are available through Level 3's
web site.
2. The nonrecurring charges and monthly recurring
rates for the IP CrossRoads Services provided by
Level 3 to Customer are set forth in each Customer
Order.
3. The rates and other charges set forth in each
Customer Order are established in reliance on the term
and/or volume commitment made therein, and Customer
agrees to pay the same. In the event that Customer
terminates IP CrossRoads Services ordered in any
Customer Order which is accepted by Level 3 or in the
event that the delivery of IP CrossRoads Services is
terminated due to a failure of Customer to satisfy the
requirements set forth herein or in the Customer Order
prior to the end of the agreed term, Customer shall
(unless Customer has made a Revenue Commitment)
pay a termination charge equal to the percentage of the
monthly recurring charges for the terminated
IP CrossRoads Services calculated as follows:
a. 100% of the monthly recurring charge that would
have been incurred for the IP CrossRoads Service for
months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would
have been incurred for the IP CrossRoads Service for
months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would
have been incurred for the IP CrossRoads Service for
months 25 through the end of the agreed term.
Customer may, in the event that a Revenue
Commitment is made and is then being satisfied by
Customer, terminate, rearrange or reconfigure the
IP CrossRoads Services ordered under a Customer
Order without payment of the termination charge
specified above; PROVIDED, HOWEVER, that
Customer shall be
responsible for payment of Level 3's then-current
standard nonrecurring charges applicable to such
termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3
does not operate or control the information, services,
opinions or other content of the Internet. Customer
agrees that it shall make no claim whatsoever against
Level 3 relating to the content of the Internet or
respecting any information, product, service or software
ordered through or provided by virtue of the Internet.
5. If Customer orders IP CrossRoads Services pursuant
to a Customer Order, the Customer shall be permitted to
make two (2) changes to its Committed Data Rate each
contract year, provided that such change be to a higher
Committed Data Rate.
6. Level 3 reserves the right, but does not undertake the
obligation, to provide any Customer or potential
customer bound by a Nondisclosure Agreement access
to a list of (i) Level 3's Customers which are connected
to the IP CrossRoads Intra-Gateway Exchange Network
Platform; and/or (ii) Autonomous Systems Internet
Networks connected to the IP CrossRoads On-Net
Transport Network Platform. By this Agreement,
Customer consents to such disclosures.
Level 3 makes no guarantee of any Customer's
willingness to exchange Internet traffic with any other
customer. Level 3 will, however, use reasonable efforts
to arrange an introduction between customers or
prospective customers bound by a Nondisclosure
Agreement to facilitate an agreement between them
respecting the exchange of Internet traffic.
Level 3 undertakes no obligations and accepts no
liability for the configuration, management, performance
or any other issue relating to Customer's routers or other
customer provided equipment used for access to or the
exchange of traffic in connection with Level 3's
IP CrossRoads Service.
7. Level 3 makes the Service Level Agreement as
attached respecting IP CrossRoads Service.
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1. Wholly owned subsidiary, Landmark Communications, Inc., a Nevada
Corporation doing business as Landmark Long Distance Inc. in the State of
California.
- CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this 1999 Annual Report on
Form SB-2 of LMKI, Inc. of our report dated November 10, 1999 relating to
the consoldiated balance sheets of LMKI, Inc. as of August 31, 1999 and
1998 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period
then ended.
TIMOTHY L. STEERS, CPA, LLC
Portland, Oregon
November 10,1999
