-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QdBHWOXnt2d2eJ1B3l238gDPXgdmnfarQTvU957bTYPxSbuGixuuIePpCko+ybX5 wkRt99c1+0uL4/+f/VKg2Q== 0000950153-00-000044.txt : 20000202 0000950153-00-000044.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950153-00-000044 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUTUREONE INC /NV/ CENTRAL INDEX KEY: 0001059838 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 841383677 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-30336 FILM NUMBER: 507081 BUSINESS ADDRESS: STREET 1: 4250 E CAMALBACK RD K-192 CITY: PHEONIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 6023853386 MAIL ADDRESS: STREET 1: 4250 E CAMALBACK RD K-192 CITY: PHEONIX STATE: AZ ZIP: 85018 10SB12G/A 1 10SB12G/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 FUTUREONE, INC. ----------------------------------------------------------------- (Name of Small Business Issuer in its Charter) Nevada 84-1383677 ------ ---------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 4250 E. Camelback Rd., Suite K-192, Phoenix, Arizona 85018-2751 - ----------------------------------------------------- --------------- (Address of principal executive offices) (Zip Code) (602) 852-9725 -------------------------------------------- (Issuer's Telephone Number) Securities to be registered under Section 12(b) of the Act: None Securities to be registered under Section 12(g) of the Act: Common Stock, par value $.001 per share 2 EXPLANATORY NOTE The Company is filing this Form 10-SB Registration Statement on a voluntary basis in order to comply with recently enacted rules of the National Association of Securities Dealers, Inc., which require, among other things, the Company to become registered with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, in order for the Company to remain eligible for listing on the Over-the-Counter Bulletin Board. FUTURE ONE & DESIGN(R), PrimeServ(R) and NeighborComm(TM) are trademarks and trade names of the Company. Some trademarks and trade names included in this Registration Statement are the property of third parties and the use thereof does not imply a direct or indirect endorsement of the Company by such third parties. SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This Form 10-SB contains express or implied forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission, in its press releases, quarterly conference calls or otherwise. The words "believes," "expects," "anticipates," "intends," "forecasts," "projects," "plans," "estimates" and similar expressions identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and financial performance or operations and speak only as of the date the statements are made. Such forward-looking statements involve risks and uncertainties and readers are cautioned not to place undue reliance on forward-looking statements. The Company's actual results may differ materially from such statements. Factors that cause or contribute to such differences include, but are not limited to, the Company's limited operating history, unpredictability of operating results, intense competition in various aspects of its business, the risks of rapid growth, the Company's dependence on key personnel, uncertainty of product acceptance, changes in laws and regulations, changes in economic conditions and an inability to obtain financing, as well as those discussed elsewhere in this Form 10-SB. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in such forward-looking statements will be realized. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved. The Company undertakes no obligation to publicly update, review or revise any forward-looking statements to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements is based. ITEM 1. DESCRIPTION OF BUSINESS. GENERAL FutureOne, Inc. was incorporated in Nevada on March 22, 1994 as World's Fare, Inc. World's Fare, Inc. acquired FutureOne, Inc., an Arizona corporation, which was incorporated December 26, 1996, and the entities were combined in a reverse merger under an Exchange Agreement dated February 20, 1998, which became effective March 30, 1998. In August 1998, World's Fare, Inc. changed its name to FutureOne, Inc. When used in this registration statement, unless the context requires otherwise, the terms "Company" and "FutureOne" refer to FutureOne, Inc., a Nevada corporation (formerly World's Fare, Inc.), and all of FutureOne's subsidiaries. The Company's principal offices are located at 4250 E. Camelback Rd., Suite K-192, Phoenix, Arizona 85018-2751, telephone (602) 852-9725 and web site www.futureone.com. FutureOne believes it offers a diverse portfolio of communications solutions to its customers, and that by selling communications equipment and services, including broadband convergence technology solutions, local and long distance telephone services, Internet e-business solutions, advertising and graphic design services, and underground cable engineering and construction services, it is in a position to serve the many varied communications needs of its customers. The Company intends to focus first on the development of its convergence technology and telecommunications services, next on the expansion of its broadband communications engineering and construction services and finally on the expansion of its e-business division. The Company does not plan to -2- 3 further expand its communications equipment sales operations. The Company's resources will be allocated to its various lines of business according to these business development priorities. Currently, FutureOne's business consists of the following: - - CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES. NeighborComm(TM). FutureOne is developing broadband convergence technology solutions for residential and commercial applications. FutureOne intends to ultimately provide bundled communication services that include voice, video and data services through a single high-speed fiber-optic cable linked directly to residential developments or business and industrial complexes. The Company also anticipates that its NeighborComm communities will also include an Intranet designed specifically for the community it serves. This technology is marketed under the name NeighborComm (Neighborhood Communications Systems). The Company's efforts to open its first NeighborComm community have been focused on a community known as Stetson Hills in Colorado Springs, Colorado. The Company has installed the wiring to accommodate NeighborComm and the vault to hold the necessary equipment in the Stetson Hills community. In order begin fully providing NeighborComm services, the Company must implement the following technology: - Install and connect communications hardware. The Company has engaged Lucent Technologies, Inc. to supply the necessary equipment, a portion of which has been delivered, and engineer, install and test the required networks, which is expected to be completed in April 2000; - Build and install a server for each community, which can serve approximately 10,000 customers; - Install network internal security consisting of firewalls for internal networks, which also prevent outside access to customer systems; - Establish a source for providing video feeds; and - Install customer premise equipment and the Company's proprietary Intranet software in each customer's home or business. The Company has a strategic relationship with a real estate developer in Colorado Springs, Colorado who is developing lots for sale to large homebuilders. The developer is committed to installing NeighborComm facilities into projects where approximately 25,000 homes are anticipated to be built over the next several years. The Company anticipates reaching agreements with schools, government agencies and local businesses to link to the Company's Intranet, but no written agreements have been obtained to date. The Company expects to be providing telephone connections to a limited number of customers prior to January 31, 2000, and to add high speed Internet service in the second quarter of fiscal year 2000. The Company is currently seeking a video source and intends to add video services at a later date, however, no specific timeframe has been established. The Company is also preparing to provide NeighborComm services in metropolitan areas of other western states. The Company is considering whether to offer NeighborComm services to additional communities in Colorado and plans to offer NeighborComm services in Arizona in fiscal year 2000. The Company also anticipates expanding its services into New Mexico, Nevada and Utah. The Company has obtained the necessary PUC authority to provide telephone services in Colorado, is presently applying for PUC authority in Arizona and expects to apply for the necessary permits and licenses in other western states in the future. At the present time, no licenses or permits are necessary to provide Internet access in any state, however, the Company will be required to obtain authority to provide cable TV in various states and local jurisdictions or to resell the services of other providers that have such authority. -3- 4 The Company estimates that the cost of equipment for the first community, and each new major market, will be approximately $1.25 million. Equipment that may serve approximately 1,000 customers, has been delivered and is expected to be installed by April 2000, and will replace the temporary equipment that will be used by the Company to provide customers with services until the new equipment is installed. The Company plans to acquire all of its facilities' equipment through operating leases. The engineering, set up and testing of the equipment is projected to cost approximately $250,000 and operations for the first year, including sales and marketing, legal fees and licenses, and direct operating costs are estimated at $470,000. These costs are anticipated to provide for the first community, as well as, expansion into other markets. Telephone Services. As part of its NeighborComm services, the Company, through its wholly-owned subsidiary AMCOM LLC, expects to begin providing local and long distance telephone service to a small number of customers in Colorado prior to January 31, 2000. - - BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES. FutureOne is an engineering and underground cable installation company and offers horizontal drilling, boring and cable splicing services for all types of underground construction. - - INTERNET SERVICES. The Company will be a high speed Internet access provider and is currently a complete e-business solutions provider. Individual and business Internet subscribers will be supported through the Company's network of Internet service access sites, which will be established as part of the Company's NeighborComm network. Web site development and business solutions are designed to include web-based vector animation and sound and supported with on-line and off-line advertising, including, traditional print advertising, interactive CD-ROM design, digital video production and music and sound production. The Company sold substantially all of its assets relating to its Internet access business operations, including equipment and all of its personal and business Internet access customers, on November 19, 1999. Even though the Company has sold substantially all of its assets relating to its Internet access business operations, the Company expects to provide high-speed Internet access to subscribers of the Company's NeighborComm services. - - COMMUNICATION EQUIPMENT SALES. The Company sells communications equipment, including complete lines of name brand communications products. Effective June 15, 1999, the Company sold its retail computer operations and now is only engaged in wholesale communications equipment sales. INDUSTRY The Company expects to primarily compete in the convergence technology and telecommunications services industry, but because of the unique lines of business in which it has historically and is presently engaged, it is also involved on a smaller scale in other industries, such as Internet services, communication equipment sales and underground cable construction. CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES The Company believes that the trend in the communications industry is toward supplying broadband communications to consumers. Such services are also known as convergence technology and/or bundled communications services and are designed to deliver voice, video and data to consumers through a single cable or wireless connection. The Company believes that the telecommunications industry will continue to develop and implement varied forms of broadband convergence technology. Recently, large companies such as Microsoft Corporation, AT&T Corp. and Sprint Corporation have announced their intentions to develop and test practical solutions to provide voice, video and data as bundled services. The Company anticipates that customer demand for higher speed Internet capabilities, as well as increasing demand for video communications and teleconferencing, will require new services. In addition, customer demand for applying the technology of the Internet to their everyday lives on a local basis will require many new applications. Many organizations, large and small, are attempting to develop products and solutions to meet these customer demands and, as a result, the industry is very competitive. -4- 5 The Company also believes that local and long distance telephone services will continue to be offered by numerous large and small companies. Extreme competition may continue to push basic prices for telephone services to lower levels, but the Company believes there will continue to be a market for such services to be supplied by small providers, such as the Company, which will be bundled with other unique services or technology to attract customers. BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES The underground cable construction industry is also growing rapidly and demand for qualified contractors is high. Major companies such as U S WEST Communications, Inc. ("U S WEST"), NextLink Communications, Inc., MCI WorldCom, Inc. and Cox Communications, Inc. have announced capital expenditure programs to upgrade their networks to include fiber-optic cable and the National Cable Television Association has recognized the necessity of rebuilding the nation's cable system with fiber-optic cable. INTERNET SERVICES The Internet services industry is changing rapidly as the Internet becomes more widely accepted by the public and more customers become experienced users. Most users are still connecting via traditional telephone connections such as those offered by America Online, Inc., EarthLink Network, Inc., MSN Network and most major telecommunications companies. These access services are generally cheaper than high speed connections, with monthly fees generally ranging from free access to $20 per month, however, some users are switching to higher speed connections that are provided by cable modems, xDSL, wireless connections and broadband convergence technology. These high speed access services generally are more expensive, with monthly access fees of approximately $30 per month. In addition, set-up charges and necessary special equipment for these high speed access services can cost hundreds of dollars. Commercial use of the Internet is increasing and traditional web sites created for businesses are being upgraded. There is a growing demand for web sites that are more appealing and are effectively marketed to drive traffic to the site. E-commerce sites are increasing in number and are gaining greater commercial acceptance as businesses understand and utilize the Internet as a sales tool. Businesses are now seeking web sites that can (i) distinguish themselves from their competitors, (ii) attract customers to their site and (iii) keep customers at their site by creatively utilizing animation, music and video. Businesses are still experimenting with the most cost-effective way to attract customers to their e-commerce sites, however, most businesses are still using traditional advertising mediums such as print, billboards, radio and television to advertise their sites. Companies with large e-commerce sites can expect to spend approximately $300,000 in utilizing mass media to advertise their sites. COMMUNICATION EQUIPMENT SALES The communication equipment sales industry is also changing rapidly. There is constant demand for higher speed and more technologically advanced equipment. While many smaller organizations are finding it difficult to economically compete with larger organizations in the direct retail sales of communication equipment, many of these smaller organizations are finding niche markets by taking advantage of new developments in communications equipment, software and networking and providing additional services in connection with equipment sales. Other organizations are able to compete in the wholesale market by providing lower prices, not offering additional services or supplying specialty equipment not available from many large retail outlets. Wholesale sales of communication equipment are highly competitive and gross margins are small. National companies can traditionally offer more products at lower prices because of their purchasing power. Smaller companies are able to compete in this marketplace by accepting lower profit margins, operating at reduced costs, negotiating more favorable resale and distributor contracts and using creative marketing techniques. -5- 6 HISTORY CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES The Company has been pursuing a process of providing voice, video and data through a single connection for several years and has been assembling the equipment and technology and working toward obtaining the necessary regulatory approvals to allow it to provide such services. Other companies have recently entered this market known as broadband technology, convergence technology or bundled communications services. The Company's convergence technology services product is being marketed under the name NeighborComm (Neighborhood Communications Systems). There are many steps that the Company must take before revenues will be generated from this operation. See "General - Convergence Technology and Telecommunications Services." The Company expects revenues from its NeighborComm services, which the Company anticipates will include telephone services, including extra services, high speed Internet connection and video services, to average approximately $127 per residential customer per month. In order to enhance its NeighborComm solution, make the NeighborComm services a more complete communications package and separate the Company's NeighborComm offering from solutions provided by many competitors, the Company will also include a user friendly Intranet designed specifically for the community it serves. In conjunction with the Intranet, the Company is developing proprietary software to provide additional services to each community. The Company believes that its Intranet, when combined with its software, will allow a customer to use the Company's service to communicate within such customer's neighborhood. The Company anticipates that its Intranet and software will include features such as local chat groups; a community calendar for posting events by clubs, churches and other groups; apartment and homeowner management features; a local classified section; local news, weather and sports; and eventually local security cameras. In addition, the Company believes that its Intranet may also include links to schools, governmental agencies and local businesses. By January 31, 2000, the Company, through its wholly-owned subsidiary AMCOM LLC, expects to begin providing local and long distance telephone service in portions of the western United States. The Company is entering into this line of business through its arm's length acquisition of AMCOM LLC, a competitive telecommunications provider, which it acquired on August 11, 1999 in exchange for 121,212 shares of the Company's Common Stock valued at $279,030. AMCOM is a start-up company and currently has no revenue, facilities or customers, but holds (i) a Certificate of Public Convenience and Necessity to provide local exchange services and the authority to provide Emerging Competitive Telecommunications Services in Colorado, and (ii) authority to provide resold local exchange services in U S WEST's exchanges in Oregon. AMCOM has standard written agreements with Qwest Communications International, Inc., ICG Communications, Inc., Frontier Communications, Inc. and U S WEST to distribute or resell various telecommunications products and services. Before the Company can derive revenue from telephone services, AMCOM LLC must provide certain facilities and operational services for its customers. See "Products and Services - Convergence Technology and Telecommunications Services." The Company expects local and long distance telephone services, including extra services, to average approximately $32 per residential customer per month, most of which will be billed to customers as part of the Company's NeighborComm services. AMCOM is capable of providing telephone service under a Resale Agreement with U S WEST Communications, Inc. that covers the fourteen western states served by U S WEST. AMCOM has recently expanded its operating capabilities by becoming an authorized facilities-based provider in addition to a reseller of U S WEST products in Colorado. A reseller is allowed to resell U S WEST products using their existing cabling and typically earns a gross profit of approximately 15%. A facilities-based provider must attach to the national telephone backbone through an SS7 gateway and incur additional operating expenses such as complying with the 911 Mandate, but typically earns a gross profit of 30%. BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES The Company's underground cable engineering and construction operations are conducted by OPEC CORP., a Colorado corporation that is a wholly owned subsidiary of the Company, which was acquired by the Company in July 1998. The Company also provides horizontal drilling and boring services through Abcon, Inc., an -6- 7 Arizona corporation, which was acquired by the Company in April 1999. The Company acquired OPEC CORP. and Abcon, Inc. in arm's length transactions with individuals that were not related to the Company or any of its affiliates, as described below. See "Consolidated Financial Statements." - - On July 29, 1998, the Company acquired all of the issued and outstanding common stock of OPEC CORP. in exchange for 2,334,000 shares of the Company's common stock, $0.001 par value per share ("Common Stock"), valued at $6,200,000. OPEC CORP. is engaged in underground cable construction and has performed construction services for such companies as U S WEST and AT&T, and installs utility cable in the western United States. OPEC CORP. had annualized revenues of approximately $4,900,000 at the time of acquisition. OPEC is based in Colorado Springs, Colorado. - - On April 19, 1999, the Company acquired all of the issued and outstanding common stock of Abcon, Inc. in exchange for 94,118 shares of the Company's Common Stock valued at $216,660. Abcon, Inc. is an underground construction company specializing in horizontal drilling and boring. Abcon, Inc., which is based in Phoenix, Arizona, provides services for large and small telecommunications companies and had annualized revenues of approximately $1,503,000 at the time of acquisition. INTERNET SERVICES The Company's Internet services included personal and business dial up accounts, high speed frame relay, ISDN and T-1 connections, virtual telephone services, web site design, and custom software development. These services were provided primarily through FutureOne, Inc., an Arizona corporation, and Networld.com, Inc., an Arizona corporation, which was incorporated in November 1995 and is a subsidiary of FutureOne, Inc., an Arizona corporation. The Company expanded its product lines and geographic area of operations with respect to its Internet services through the following arm's length acquisitions. See "Notes to Consolidated Financial Statements." As described below, the Company sold its Internet access operations on November 19, 1999 and its virtual telephone service on December 6, 1999. - - On April 1, 1998, the Company acquired all of the issued and outstanding common stock of Lan Kaster, INC., an Arizona corporation, which has since been dissolved, in exchange for 215,385 shares of the Company's Common Stock valued at $269,231. LAN KASTER, INC. provided Internet service in Prescott, Arizona and its surrounding areas, and had annual revenues of approximately $175,000 at the time of acquisition. - - On May 11, 1998, the Company acquired all of the issued and outstanding common stock of CARNET COMPUTER SERVICES, INC., in exchange for 100,000 shares of the Company's Common Stock valued at $125,000. CARNET COMPUTER SERVICES, INC., which develops software solutions for small- to medium-sized businesses in varying industries, had annual revenues of approximately $21,000 at the time of acquisition. Major clients include the Robb Report, Magazine for the Luxury Lifestyle, and Barrett-Jackson: The World's Greatest Classic Car Auction. Its software products, Manna-Navigator, Claims Manager, Attendee and Patient Manager are distributed nationally. - - On July 15, 1998, the Company acquired certain assets, including all of the Internet customers of Interworldnet Partnership in exchange for 40,000 shares of the Company's Common Stock, valued at $50,000, and $3,841 in cash. Interworldnet Partnership provided Internet service to Lake Havasu City, Arizona and surrounding areas, and had annualized revenues of approximately $129,000 at the time of acquisition. - - On September 21, 1998, the Company acquired certain assets of PrimeServ Corp. ("PrimeServ"), including the PrimeServ trademark, in exchange for 33,333 shares of the Company's Common Stock, valued at $97,665, and $50,000 in cash. In addition, the Company issued 2,666 shares of Common Stock as commission on the transaction with an aggregate value of $7,813. PrimeServ provided a "virtual office" telephone solution by allowing subscribers to distribute a single telephone number, which could be programmed to ring simultaneously on telephones in multiple locations, including office, home and cellular telephones. The Company's virtual office telephone solution offered a call screening feature and included a complete messaging center that can be accessed from any phone and a fax message center that allows subscribers to direct faxes to -7- 8 any fax telephone number on demand. PrimeServ had annual revenues of approximately $30,000 at the time of acquisition. The Company sold substantially all of the assets relating to its virtual telephone services business on December 6, 1999. - - On November 12, 1998, the Company acquired the Internet services business of Globalkey, Inc. ("Globalkey"), in exchange for 50,000 shares of the Company's Common Stock valued at $146,500. Globalkey was a small Internet service provider in Colorado Springs, Colorado that had annualized revenues of approximately $28,000 at the time of acquisition. In January 1999, Globalkey's Internet access supplier terminated service to the Company due to prior payment disputes with Globalkey. Accordingly, the small number of customers acquired from Globalkey have been lost. - - On March 31, 1999, the Company acquired all of the outstanding limited liability company membership interests of Ubiquity Design, LLC - dba Rocket Science Creative ("Rocket Science"), in exchange for 100,000 shares of the Company's Common Stock valued at $230,200. Rocket Science is a graphic design and advertising agency that had annualized revenues of approximately $346,000 at the time of acquisition. Rocket Science produces custom advertising for several major companies in the Phoenix area and prior to its acquisition had been working with the Company's Internet division on larger web sites and e-business solutions. - - On July 16, 1999, the Company acquired all of the outstanding limited liability company membership interests of Progressive Media LLC, an Arizona limited liability company ("Progressive Media"), in exchange for 67,605 shares of the Company's Common Stock valued at $155,628. Progressive Media had annualized revenues of approximately $245,000 at the time of acquisition. and was acquired to provide enhanced media services, including web-based animation, interactive CD-ROM design, digital video production and postproduction, music and sound production, and digital and traditional commercial photography. - - On November 19, 1999, the Company sold substantially all of its assets relating to its Internet access business, which was operated by the Company's subsidiary, Networld.com, Inc., including all related equipment and personal and business Internet access customers in Phoenix, Flagstaff, Tucson, Lake Havasu City, Prescott, Florence, Wickenburg and Payson, Arizona to RMI.NET, INC. ("RMI.NET") pursuant to an Asset Purchase Agreement (the "RMI Agreement"). Pursuant to the RMI Agreement, the Company received approximately 353,000 shares (the "RMI Shares") of RMI.NET common stock worth approximately $2.75 million on the date of acquisition. Under the terms of the RMI Agreement, 50% of the RMI Shares were registered and immediately available for sale while the remaining RMI Shares are subject to a lockup agreement under which 20% of the RMI Shares will be available for sale six months from the date of the transaction and 20% of the RMI Shares will be available for sale one year from the date of the transaction, subject to certain registration rights. The remaining 10% of the RMI Shares will be held in escrow for 18 months from the date of the transaction to cover any adverse claim that could be made against the acquired assets. The purchase price is subject to adjustment depending on actual revenues achieved by RMI.NET during the three months following the date of the transaction compared to the annualized revenue base of $1.66 million. Any adjustment to the purchase price will be adjusted from the 20% of the RMI Shares that are restricted from sale for six months. The original cost of equipment transferred to RMI.NET, including the cost of equipment under operating leases, was approximately $1.5 million. - - On December 6, 1999, the Company sold substantially all of its assets relating to its virtual telephone service business operations, including related equipment and approximately 110 customers, for $47,800 with $17,800 paid in cash and the balance payable on a short-term note. This transaction did not include the Company's rights to its registered trademark PRIMESERV(R). The virtual telephone service business was originally purchased by the Company for $50,000 in cash and $97,665 in Common Stock. In addition, the Company issued 2,666 shares of Common Stock as commission on the transaction with an aggregate value of $7,813. The Company initially acquired the assets comprising its virtual telephone service business in order to offer an "add-on" service for the Company's Internet access customers. However, the Company was not successful in marketing its virtual telephone services and when the Company determined that the switching equipment owned by the Company to provide this service may require an additional investment to make it Year 2000 compliant, the Company decided to sell substantially all of the assets that comprised its virtual telephone service business operations. -8- 9 The Company has retained and will continue to operate its newly acquired e-business and advertising businesses. The Company will continue to operate as an e-business solutions provider, but will not participate in the retail ISP industry other than providing high-speed Internet access as part of its NeighborComm bundled communications solution. COMMUNICATION EQUIPMENT SALES The Company's communication equipment sales division makes direct sales of name brand computer and communications equipment at the wholesale level. The Company's retail computer sales and services business line was introduced in February 1997 by FutureOne, Inc., an Arizona corporation. The Company discontinued its retail computer sales operations on June 15, 1999, and expanded its wholesale sales operation by adding personnel and facilities and entering into a reseller agreement (the "Lucent Agreement") with Lucent Technologies Internetworking Systems (formerly Ascend Communications, Inc.) ("Lucent Technologies") to become a Premier Value Added Reseller (PVAR). The Reseller Agreement is for a twelve (12) month term with automatic twelve(12) month renewal periods until terminated by either party. Pursuant to the Lucent Agreement, the Company is obligated to stock inventory of Lucent Technologies equipment. The Company has not been successful in marketing the inventory purchased from Lucent Technologies and is currently attempting to sell as much of the inventory as possible at cost and has reduced the staff in this division to two employees. The Company has established its product lines and geographic area of operations through the following arm's length transactions with individuals that were not related to the Company or any of its affiliates at the time of such transaction. See "Consolidated Financial Statements." - - On September 29, 1998, the Company acquired all of the issued and outstanding common stock of Sonoran Industries, Inc., an Arizona corporation, which included its Kachina International division in exchange for 92,308 shares of the Company's Common Stock valued at $270,462 and $66,759 cash. Because the Company intended only to acquire the Kachina International division and did not intend to acquire the remaining assets and liabilities of Sonoran Industries, Inc., the Company immediately sold all of the stock of Sonoran back to its original owner for a nominal amount. The Kachina International division sells data communications equipment primarily to schools, government agencies, Internet providers and value added resellers as a factory direct distributor for communications equipment and had annualized revenues of approximately $900,000 at the time of acquisition. Kachina International has developed a sophisticated data base of Internet-related businesses and is based in Phoenix, Arizona. - - On September 29, 1998, the Company acquired all of the issued and outstanding common stock of Priority Systems, Inc., an Arizona corporation, based in Lake Havasu City, Arizona, in exchange for 185,306 shares of the Company's Common Stock valued at $542,947. PRIORITY SYSTEMS, INC. has provided computer network systems nationwide since 1988 and had annualized revenues of approximately $1,260,000 at the time of acquisition. Priority Systems, Inc. is a provider of technology products and services such as computer systems, computer peripherals and network management solutions to business and individual consumers. Priority Systems, INC. had established a base of customers in Lake Havasu City, Arizona. The Company acquired Priority Systems, INC. with the intent to merge it with Kachina International and the Company's existing retail computer operation, and to expand its customer base in Phoenix Arizona. After several months of attempting to penetrate the Phoenix market, it became evident that the level of competition and the low profit margins on retail computer equipment made it difficult for this operation to become profitable. In June 1999, the Company divested itself from the operations by selling Priority Systems, INC. back to its founder, who had been retained by the Company to manage the PRIORITY SYSTEMS, INC. business operations while it was a subsidiary of the Company. The Company had acquired Priority Systems, INC. for $542,947 in its Common Stock and in turn sold it back to its original owner for $250,573 of the Company's Common Stock and a three-year promissory note for $50,000. During the nine months that Priority Systems, INC. was owned by the Company, it had revenues of $856,000, however, it sustained an operating loss of approximately $262,000 and the Company incurred a loss of approximately $317,000 on its sale. As a result of this sale, the Company will no longer compete in the retail market of computer sales and services. -9- 10 BUSINESS STRATEGY The Company's objective is to meet the changing communication needs of individuals and businesses. The Company intends to accomplish this objective through the development of comprehensive communications technology and products that are packaged to serve its customers' total communications needs. The Company also intends to offer a broad range of communications technology solutions for businesses. These solutions include communications equipment, high speed Internet access, I/P Telephony, converged networks, web site and e-commerce site development and other e-business solutions. The Company also plans to position itself as a leading provider of fiber-optic cable construction to leading telecommunications companies and national and regional developers. The Company has identified the following four major lines of business: - convergence technology and telecommunication services (including local and long distance telephone service and broadband convergence technology solutions (bundled voice, video and data)); - broadband communication engineering and construction services; - Internet services; and - communication equipment sales. The Company believes that these lines of business complement each other and allow the Company to offer its customers complete communications solutions. In addition, the Company has developed each of its lines of business to stand alone in order to decrease the negative effects on the Company if a particular line of business declines as a result of market conditions or other factors. In implementing its strategy, the Company has identified the following areas of emphasis: - - Introduce New Products. The Company believes that it must continue to offer its customers new products and technology to anticipate its customers' expectations and needs. The successful continued development of NeighborComm and the implementation of emerging technologies such as wireless communications are part of the Company's immediate strategy. - - Evaluate Acquisition Opportunities. The Company evaluates acquisition opportunities on an on-going basis and at any given time may be engaged in discussions with respect to possible acquisitions or other business combinations. At the present time, the Company is seeking a joint venture with or a strategic acquisition of a video content provider and a wireless communications provider that will complement its NeighborComm product, however, there are currently no firm commitments with any specific entity. - - Integrate Acquisitions. The Company believes it is successfully integrating the remaining entities and technologies it has acquired. Each of the remaining entities and operations provides a product or service that: - contributes to the development of NeighborComm, - stands alone with its own base of customers in its primary business and - enhances the ability of the Company's other operating entities to provide larger groups of products or services. -10- 11 Integrating many acquired entities into an overall operating company has provided many challenges which the Company believes it has successfully addressed, including: - Human resource constraints and implementation of coordinated employee policies and benefits. The Company has hired a Director of Human Resources to locate qualified applicants for the Company and its subsidiaries, and to develop and administer Company-wide employee policies and benefits, including group insurance programs, a 401K plan and an incentive stock option plan. - Obtaining sufficient office and operating space. The Company has consolidated all of its operations, other than its broadband communications engineering and construction business, in a single office complex in Phoenix, Arizona. The facilities for the Company's broadband communications engineering and construction business are now consolidated in two facilities in Colorado Springs, Colorado and Phoenix, Arizona. - Overcoming the logistics of operating in multiple cities and states. The Company has established an Internet based, internal communication system that allows all of the Company's operations to be in constant contact. The Company is also implementing a broad based accounting and financial controls system that will be applicable to all of the Company's operations. - - Divestiture of Uneconomical Products and Operations. The Company constantly monitors its products and services in terms of changes in technology and markets, overall contributions to the profitability of the Company and the total communications solutions that can be offered to customers. The Company has recently determined that certain of its products and services are unprofitable and/or do not contribute to the Company's overall business strategy, including retail computer sales and service, virtual telephone services and traditional Internet access provider services. Consequently, the Company has sold substantially all of its assets relating to the business operations of such products and services. Management believes this will allow the Company to focus on the development of NeighborComm and other products and services that the Company currently offers. PRODUCTS AND SERVICES CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES The Company believes the future of communications is changing to respond to consumer demand for high speed communications and bundled communication services that include voice, video and data, which is known as broadband convergence technology. Companies such as US Sprint, AT&T and Microsoft have recently announced their intentions to expand their operations into this new communications technology. The Company also believes a communications vehicle similar to the Internet is needed to connect residents, businesses and other organizations within a local community. The Company has been developing the NeighborComm system and has recently been working in cooperation with Lucent Technologies to install and test the infrastructure for the system. Construction and installation of the underground cable infrastructure has commenced at the Stetson Hills development in Colorado Springs, Colorado. This project is anticipated to be the first NeighborComm neighborhood communications system in operation, however, the Company has reached tentative verbal agreements with other developers in Colorado Springs to install the NeighborComm system in their developments. The Company anticipates that such agreements will provide for the developer to pay for the cable and the installation of the cable. The Company will reimburse the developer out of future profits from the NeighborComm system in each specific community for the cable, which will then be owned by the Company. In certain cases, the Company may allow the developer to participate in profits for a fixed period of time after the developer has received reimbursement for the cable. -11- 12 The NeighborComm communications system being developed by the Company is designed to ultimately allow for applications such as video conferencing and video monitoring for security purposes, and voice (telephone), video (cable) and data (Internet) service to consumers via one high-speed, fiber-optic connection directly to the home or business. When implemented, the high speed Internet connection will also be the source used for Voice over Internet Protocol, which allows for long distance phone and facsimile calls to be made over the Internet. The Intranet capabilities of the Company's NeighborComm system are based on the needs of the local community. The Company anticipates that community-based businesses, schools and local government agencies may be accessed through links on the NeighborComm start-up page and provisions are being made in the proprietary software being developed by the Company to allow for neighborhood chat lines, local want ads, community bulletin boards, landlord and homeowner association administration and other local use features. The Company believes it has positioned itself to supply the services required to support its NeighborComm system and to take advantage of the additional revenue sources that will be created by convergence technology in general. The Company believes that its construction division will supply services for the Company's projects and similar systems being installed by other companies. This new technology will create the need for communications equipment, which can be supplied by the Company's communications equipment division. The new technology will create a need for additional web sites and e-business services from local vendors that had no reason to attempt to reach customers via the world wide Internet, but may want to reach their local consumers via the Company's Intranet. The Company anticipates that these new users of the Intranet may create opportunities for the Company's advertising and e-business solutions division. On August 11, 1999, the Company acquired AMCOM, LLC, a competitive telecommunications provider capable of providing telephone service under a Resale Agreement with U S WEST Communications, Inc. that covers the fourteen western states served by U S WEST. AMCOM has recently expanded its operating capabilities by becoming authorized to be a facilities-based provider in addition to a reseller in Colorado. AMCOM, LLC is a start-up company and currently has no facilities or customers, but holds (i) a Certificate of Public Convenience and Necessity to provide local exchange services and the authority to provide Emerging Competitive Telecommunications Services in Colorado, and (ii) authority to provide resold local exchange services in U S West's exchanges in Oregon. AMCOM also enjoys considerations and arrangements with Qwest Communications International, Inc., ICG Communications, Inc., Frontier Communications, Inc. and others to distribute or resell various telecommunications products and services. The Company, through its wholly-owned subsidiary AMCOM, LLC, intends to enter the telecommunications service business by offering telephone services direct to consumers and within the context of the Company's NeighborComm business. In order to enter into the telecommunications business and provide local and long distance telephone service, the Company (through AMCOM, LLC) will need state regulatory approval in each state in which it intends to do business. The Company (through AMCOM, LLC) expects to file for operating authority in those states covered by the AMCOM-U S WEST Resale Agreement in which it currently does not have operating authority. In order to fully enter the telecommunications service business, the Company or a subsidiary must install equipment-based facilities, implement billing systems and establish a call center. The Company may remain a reseller and is not required to install facilities at the present time. However, when sufficient funding is available, the Company intends to install a SS7 gateway switch, which costs approximately $200,000. The Company believes that the installation of such switch will increase its gross profit on revenues from approximately 15% as a reseller to approximately 30% as a facilities-based provider. Initially, the Company intends to use existing internal billing software to provide customer billing. As the customer base grows and funding becomes available, the Company intends to purchase a telecommunications software program estimated to cost $75,000. The Company intends to outsource its call center support to a service provider that charges on a per-call basis. The Company believes these services are available immediately. -12- 13 BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES. The Company designs, engineers and installs copper, fiber and CATV distribution and feeder facilities for communications and real estate development companies in the western United States through its wholly owned subsidiaries, OPEC CORP. and Abcon, Inc. The Company offers a full range of underground construction services, including the installation of underground cable in various terrains. The Company owns the equipment necessary for trenching, plowing, drilling and directional boring and can splice copper and fiber cable. The Company directs its construction services from Phoenix, Arizona and Colorado Springs, Colorado. The Company generally engages in contracts ranging from several thousand dollars to approximately $2,000,000, but recently was awarded general construction contracts with U S WEST for all of Iowa, Nebraska and Wyoming and parts of Arizona and Colorado. Although there is no specific amount of work authorized under the contracts, these contracts authorize OPEC to act as a general construction and maintenance contractor and to provide engineering and cable installation services for U S WEST in the specified areas, during the term of the contracts. INTERNET SERVICES INTERNET SERVICES. Through its subsidiary, Networld.com Inc., the Company offered a complete selection of Internet access services, in both monthly and fixed-term packages, designed to meet the varied needs of its customers. These services varied from competitive residential dial-up services to high speed, continuous Internet access services for businesses, such as Frame Relay and Point-to-Point circuits. The Company previously offered local dial-up access from Phoenix, Flagstaff, Tucson, Lake Havasu City, Prescott, Florence and Payson, Arizona, and provided a local dial-up access to Wickenburg, Arizona through a franchise agreement. On November 19, 1999, the Company sold substantially all of its assets relating to its Internet access business, which was operated by the Company's subsidiary, Networld.com, Inc., including equipment and its personal and business Internet access customers in Phoenix, Flagstaff, Tucson, Lake Havasu City, Prescott, Florence, Wickenburg and Payson, Arizona to RMI.NET, Inc. ("RMI.NET") pursuant to an Asset Purchase Agreement (the "RMI Agreement"). Pursuant to the RMI Agreement, the Company received approximately 353,000 shares (the "RMI Shares") of RMI.NET common stock worth approximately $2.75 million on the date of transaction. Under terms of the RMI Agreement, 50% of the RMI Shares were registered and immediately available for sale while the remaining RMI Shares are subject to a lockup agreement in which 20% of the RMI Shares will be available for sale six months from the date of the transaction and 20% of the RMI Shares will be available for sale in one year from the date of the transaction, subject to certain registration rights. The remaining 10% of the RMI Shares will be held in escrow for 18 months from the date of the transaction to cover any adverse claim that could be made against the acquired assets. The purchase price is subject to adjustment depending on actual revenues achieved by RMI.NET during the three months following the date of the transaction compared to the annualized revenue base of $1.66 million. Any adjustment to the purchase price will be adjusted from the 20% of the RMI Shares that are restricted from sale for six months. The original cost of equipment transferred to RMI.NET, including the cost of equipment under operating leases, was approximately $1.5 million. The Company expects to provide high-speed Internet access as part of its NeighborComm bundled communications solution. VIRTUAL TELEPHONE SERVICE. The Company offered a custom telephone service, under the trade name of PrimeServ(R), which created a "virtual office" telephone solution by allowing subscribers to use a single phone number, which can be programmed to ring simultaneously on several telephones, including office, home and cellular telephones. Each telephone call was screened to announce the caller and the subscriber could decide whether to answer the call on any of the telephones to which such call was directed. In addition, the system had a complete messaging center that could be accessed from any phone and a fax message center that allowed subscribers to direct faxes to any fax telephone number on demand. On December 6, 1999, the Company sold substantially all of its assets relating to its virtual telephone service business operations, including the approximately 110 customers and equipment to service these customers, for $47,800 with $17,800 paid in cash and the balance payable on a short-term note. Such transaction did not include the Company's rights to its registered trademark PRIMESERVE(R). The business was originally purchased by the Company for $50,000 in cash and $97,665 in Common Stock. In addition, the Company issued 2,666 shares -13- 14 of Common Stock as commission on the transaction with an aggregate value of $7,813. The Company initially acquired the assets comprising its virtual telephone service business in order to offer an "add-on" service for the Company's Internet access customers. However, the Company was not successful in marketing these services and when it was determined that the switching equipment owned by the Company to provide this service may require an additional investment to make it Year 2000 compliant, the Company decided to sell substantially all of the assets that comprised its virtual telephone service business operations. OTHER INTERNET SERVICES. After the sale of the Company's Internet access customers and related equipment, the Company continues to offer a complete selection of web site development, e-business development services, customized Internet client/server applications and Internet-based applications for a number of industries. - WEB SITE DEVELOPMENT. The Company offers a complete series of web site design and development services for both business and personal customers. The Company currently offers the following services: project management; developing requirements; design services; and web site construction. The Company's products include multi-media skills, such as video streaming, audio and advanced animation capabilities, Internet search engine registration and Internet marketing services. - E-BUSINESS DEVELOPMENT. The Company offers several e-business programs directed at those businesses that are selling products or services over the Internet. The Company's e-business offerings range from low-end, entry level e-commerce development services to the most sophisticated solutions required by large Internet merchants. Using Microsoft's Site Server and advanced encryption capabilities as the basis for its sophisticated solutions, the Company also possesses the project management skills and technical design capabilities to link e-business solutions with enterprise-wide, legacy databases as required. - CUSTOMIZED INTERNET CLIENT/SERVER APPLICATIONS. As the business community has accepted the Internet as a major marketplace, and has acquired more experience with Internet-based products and services, the demand for more complex Internet-based client/server solutions has grown. The Company offers services to customers to create simple or complex Internet-based client/server solutions and mainframe architectures. These solutions are prepared on both a fixed bid and traditional time and materials basis. - ADVERTISING, GRAPHIC DESIGN AND OTHER. In order to enhance and complement traditional web site and e-business solutions, the Company also provides traditional advertising and graphic design to assist clients in reaching customers in traditional ways and to promote their web sites. Electronic marketing and advertising are offered as part of the Company's interactive promotional services. Both electronic and print media placement services are also offered. The Company also offers enhanced media productions including, web-based animation, interactive CD-ROM design, digital video production and postproduction, music and sound production and digital and traditional commercial photography. - INTERNET-BASED APPLICATIONS FOR VERTICAL MARKETS. The Company has built a number of specialized Internet applications for business customers in different industries. In some cases, the Company has retained the ownership rights to the software, while in other cases the Company has negotiated with customers to obtain the ability to "re-sell" these applications in the future. COMMUNICATION EQUIPMENT SALES FutureOne is a factory direct distributor of data communications products to Internet service providers, schools, government agencies and other value added resellers. The Company has preferred value added reseller or distributor agreements with Lucent Technologies, Nortel Networks Corporation, Cisco Systems, Inc. and Multi-Tech Systems, Inc., and distributes other name brand products under various supplier agreements. -14- 15 CUSTOMERS CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES The Company's convergence technology customers consist of developers in Colorado and Arizona with whom the Company currently has verbal agreements and commitments. The Company and these developers are currently negotiating contracts, which the Company expects will formalize the Company's relationship with such developers and finalize the magnitude of the projects to be undertaken by the Company. The projects covered by the verbal commitments consist of approximately 25,000 units, which will be built over the next several years. The Company anticipates that such agreements will provide for the developer to pay for the installation of the cable. The Company will reimburse the developer for the cable out of future profits from the NeighborComm system in each specific community, which will be owned by the Company. In certain cases, the Company may allow the developer to participate in profits for a fixed period of time after the developer has received reimbursement for the cable. There is no assurance that the Company will be able to formalize these commitments or that it will recognize revenue from such services in the amounts that it currently anticipates. Although the Company has commitments from developers, its ultimate customers will be the home buyers in the developments. The Company anticipates that when it begins providing residents with a complete package of voice, video, and data services, Company revenues may average approximately $127 per month per household. BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES The Company's communications engineering and construction services operations serve major customers such as U S WEST, Lucent Technologies, NextLink Communications, Inc. and U.S. Home Corporation and also provide services to small companies and developers. During 1998, approximately 15% of the Company's revenues were derived from Century Cable, and in 1999 approximately 10% of the Company's revenues were derived from Santa Fe Ranch POA. These revenues were derived from construction contracts that are non-recurring. INTERNET SERVICES The Company markets its Internet e-business and advertising services to a wide variety of businesses and customers including businesses such as real estate developers, a concert promoter, and audio equipment sales and sporting goods companies. Services are provided on a direct hourly fee, fixed fee or time and materials basis. COMMUNICATION EQUIPMENT SALES The Company markets its communications equipment primarily to a variety of local business customers and a nationwide base of resellers, Internet Service Providers, Competitive Local Exchange Carriers, government agencies and educational institutions. SUPPLIERS CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES Although the Company presently has no contracts for Internet access or video content, the Company will be dependent on third party suppliers for Internet access and bandwidth and various other services, including video content to be provided as part of the Company's NeighborComm product. Internet services and bandwidth are available from many sources including, Qwest, ICG Frontier, AT & T, U S WEST and RMI.NET. The Company is also dependent on third party suppliers for its local and long distance telephone service which is obtained under reseller and facilities contracts with U S WEST, Qwest and ICG Frontier. BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES The Company does not rely on any material third party suppliers in connection with its communications engineering and construction services. -15- 16 INTERNET SERVICES The Company does not rely on any material third-party suppliers in connection with its e-business or advertising services. COMMUNICATION EQUIPMENT SALES The Company purchases communications equipment from authorized distributors or manufacturers of communications equipment products and software such as Tech Data, Pinacor and Ingram Mirco. The Company does not maintain on-going contracts with these suppliers. The Company purchases other communications equipment directly from manufacturers such as Lucent Technologies, Nortel Networks Corporation, Cisco Systems, Inc. and Multi-Tech Systems, Inc. or distributors authorized to warehouse such data communication equipment for the manufacturers under resale contracts. SALES AND MARKETING CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES The Company's convergence technology solution, NeighborComm, is sold directly to large regional and national residential and commercial developers. To date it has only been sold by key management of the Company. Sales literature has been produced for a direct mail distribution and the Company intends to market at home builder trade shows. After the NeighborComm system is installed in a development, the Company will provide various on-site sales materials to encourage home buyers in the development to obtain their communications services from FutureOne. The Company plans to sell its telecommunications products and services as a part of NeighborComm, which is anticipated to include regular local and long distance telephone services. The Company also anticipates that its telecommunications products and services will be offered to customers in all states where the Company obtains operating authority. BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES The Company attempts to grow and further develop this line of business by selling to existing customers, applying to bid lists and responding to public notifications of potential contracts and referrals. INTERNET SERVICES The Company markets its Internet services through its own direct sales force consisting of one salesperson, Company management and the Company's web sites. COMMUNICATION EQUIPMENT SALES The Company markets its communication equipment through a direct sales force, consisting of four salespersons, telemarketing, direct mail campaigns, media advertising, catalogs, weekly fax blasts, trade shows and conventions. COMPETITION The markets for all of the Company's products and services are extremely competitive and it is expected that competition will intensify in the future. The Company's ability to compete successfully depends on a number of factors both within and outside its control, including the pricing policies of its competitors and suppliers, the introduction of new products and services by others, the availability of additional financing and general economic trends in the industry. -16- 17 CONVERGENCE TECHNOLOGY AND TELECOMMUNICATIONS SERVICES The telecommunications industry is highly competitive. The Company believes the principal competitive factors affecting its business are customer service, accurate billing, variety of services and, to a lesser extent, pricing levels and clear pricing policies. The ability of the Company to compete effectively depends upon its ability to maintain high quality, market-driven services at prices generally equal to or below those charged by its competitors. To be competitive, the Company believes it must be in a position to reduce its prices in order to meet reductions in rates, if any, by others. Any such reductions could adversely affect the Company. Many of the Company's current and potential competitors have financial, personnel and other resources, including brand name recognition, substantially greater than those of the Company, as well as other competitive advantages over the Company. FutureOne is a recent entrant in the telecommunications services industry and will not achieve and does not expect to achieve a significant market share for any of its services in larger markets. In particular, local telephone companies have long-standing relationships with their customers and have financial, technical and marketing resources substantially greater than those of the Company. Many of those companies have the potential to subsidize competitive services with revenue from a variety of businesses and currently benefit from some existing regulations that favor these ILECs over FutureOne in some respects. The Company also faces, and expects to continue to face, competition from other current and potential market entrants, including long distance carriers seeking to enter, reenter or expand entry into the local exchange market such as AT&T, MCI/WorldCom, GTE and US Sprint. Competition also comes from other CLECs, resellers of local exchange services, competitive access providers ("CAPs"), cable television companies, electric utilities, microwave carriers, wireless telephone system operators and private networks built by large end users. In addition, a continuing trend toward consolidation and strategic alliances of telecommunications companies, as well as the development of new technologies, could give rise to significant new competitors to the Company, putting FutureOne at a competitive disadvantage. The Telecommunications Act includes provisions which impose certain regulatory requirements on all LECs, including the Company, while granting the FCC expanded authority to reduce the level of regulation applicable to any or all telecommunications carriers, including ILECs. The manner in which these provisions of the Telecommunications Act are implemented and enforced could have a material adverse effect on the Company's ability to compete successfully against ILECs and other telecommunications service providers. The change in the Telecommunications Act radically altered the market opportunity for traditional CAPs and CLECs. Because most existing CAPs and CLECs initially entered the market providing dedicated access in the pre-1996 era, these companies had to build infrastructure before offering services. Since passage of the Telecommunications Act, many CAPs have added switches to become CLECs to take advantage of the opening of the local market. With the Telecommunications Act requiring unbundling of the LEC installing switches and leasing trunk and loop capacity until traffic volume justifies building facilities, newer CLECs, including competitors that FutureOne may encounter in some markets, will not have to replicate existing facilities and can be more opportunistic in designing and implementing networks. Although the Company is presently seeking a source or ability to provide wireless communications services, there is no assurance that the Company will be successful in being able to provide wireless services. Many of the Company's competitors are already offering wireless services and, as a result, may gain a competitive advantage over the Company. The Company believes that recent announcements by several large telecommunications companies indicate that such companies are positioning themselves to provide convergence technology solutions (bundled communications solutions), to existing telephone and cable subscribers, as well as, installing convergence technology in new developments. New telecommunications hardware solutions are being tested and developed that may allow the Company to provide their bundled communication services through existing infrastructure to existing communities, however, based on the Company's existing technology, the Company will be limited to providing its bundled communications services only to developments currently under construction. The Company believes it is able to compete in this market because it intends to offer unique services such as its Intranet and proprietary software as a value added service, which are expected to attract additional customers. The Company also has the capability of installing its own network and connections directly to structures so that -17- 18 customers will purchase services directly from the provider. Since the Company also intends to own the connections to the structures, competitors normally will pay the Company to use the Company's facilities if a customer should choose a competitors services rather than install new facilities. The Company also believes that it can offer competitive prices for most basic services which are competitively set by general market conditions. BROADBAND COMMUNICATIONS ENGINEERING AND CONSTRUCTION SERVICES. The Company competes with regional firms and national companies such as Fischel Companies, Burnup and Sims, Inc., Henkel & McCoy and numerous other smaller contractors. The Company must obtain work through competitive bids. The Company has acquired specialized construction equipment, such as large boring and drilling machines, to be competitive in obtaining projects with the requirements or portions of jobs requiring these specialties. In order to be competitive, the Company must have access to a sufficiently mobile labor force, equipment and financial reserves to accept jobs in various parts of the western United States. The Company is at a disadvantage in competing against larger companies that have more personnel, equipment and financial resources than the Company. The Company believes that it is able to compete in this market because it owns certain specialty equipment, such as horizontal drilling and boring equipment, which is in high demand. In addition, the Company is able to engineer telephone systems for subdivisions and complete real estate developments, a service which is not provided by most competitors, and the Company is now recognized as a general contractor by major communications companies, such as U S West. This general contractor status and the ability to provide unique services gives the Company access to more projects than are usually available to subcontractors. The Company also obtains much of its work through competitive bids and has been able to consistently obtain jobs in successful bids against competitors. INTERNET SERVICES The competition for web site development and e-business solutions is intense and large companies such Microsoft, U S WEST and AT&T offer such services to larger customers. In order to attract monthly hosting customers, some companies are offering these services for free. There are also numerous individuals and small companies that design web sites for businesses at extremely low prices, with which the Company cannot economically compete. As a result, the Company must attract larger customers that have more sophisticated needs. There are many companies competing for these sophisticated customers and the available technology is constantly changing. This requires the Company to consistently invest in new software tools and training for its staff in order to develop and offer leading edge technological solutions to attract customers. The Company believes it will be able to compete in this market because it offers cutting edge technology solutions that are currently in high demand and are not available from most of its competitors. Since these services are only available from limited sources, they are not as price sensitive as traditional services in the same industry. The Company also has the ability to combine e-commerce solutions with traditional advertising mediums such as print, billboards, radio and television to provide a complete advertising solution for clients which is a service most e-business providers cannot provide. COMMUNICATION EQUIPMENT SALES The competition for sales of communications equipment is also intense, and the gross profit margins are often minimal. On the wholesale level, the Company competes with large national companies that offer more products and occasionally lower prices because of their sales volume and purchasing power. As a result, the Company must be willing to accept lower profit margins, maintain lower operating costs, negotiate favorable resale and distributor contracts or find unique marketing and advertising programs to continually market products to new customers and its existing customer base in order to achieve and maintain a competitive position in the marketplace. The Company believes it can compete in this market because it receives leads directly from suppliers, maintains a large inventory to supply customers with products and has negotiated favorable supplier contracts which allow the Company to buy on favorable terms to be able to sell at competitive prices. -18- 19 GOVERNMENT REGULATION The Company's telecommunications facilities and services will be subject to varying degrees of federal, state and local regulation. The 1934 Communications Act, as amended (the "Act"), and the regulations promulgated by the Federal Communications Commission ("FCC") thereunder, as well as the applicable laws and regulations of the various states and state regulatory commissions all govern the provision of telecommunications services. The FCC exercises jurisdiction under Title II of the Act over all facilities of, and services offered by, telecommunications common carriers to the extent such services involve jurisdictionally interstate common carrier communications, including international communications originating from or terminating in the United States. State regulatory authorities retain jurisdiction over jurisdictionally intrastate communications. Local governments sometimes impose franchise or licensing requirements on local service competitors and/or facilities companies. The government regulations described below directly impact the Company's operations. Changes to the regulatory environment in which the Company operates can have significant ramifications, both positive and negative, for the Company's operations. Accordingly, the Company must continuously monitor regulatory developments and implement internal procedures to ensure full regulatory compliance. These monitoring and compliance activities impose direct costs on the Company. In addition to these direct costs, the Company can incur indirect costs arising from the need in many cases to obtain regulatory approval prior to taking action. For example, tariff changes often must be approved by a regulatory agency before new rates, terms and conditions of service can be offered. Similarly, prior regulatory approval often is required before certain changes in the ownership of the Company or the sale or acquisition of assets can take place. Such prior approval requirements impose time delays that represent indirect costs to the Company's operations. The following summary of regulatory developments does not purport to describe all present and proposed federal, state and local regulations affecting the telecommunications industry. 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 on the telecommunications industry or the Company, can be predicted at this time. FEDERAL REGULATION The Telecommunication Act of 1996 ("Telcom Act") substantially revised the Act and, among other things, established a dual federal-state regulatory framework for the introduction of local competition throughout the United States. In passing the Telecom Act, Congress sought to increase local competition from newer competitors such as long distance carriers, cable TV companies and public utility companies. Entities that provide local telephone services in competition with the existing, incumbent local exchange companies ("ILECs") are known as competitive local exchange companies, or CLECs. The FCC imposes extensive regulations on common carriers such as ILECs that have some degree of market power. The FCC imposes less regulation on CLEC common carriers without market power, such as the Company. The FCC permits these non-dominant carriers to provide domestic interstate services (including long distance services) without prior authorization; but it requires carriers to receive an authorization to construct and operate telecommunications facilities, and to provide or resell telecommunications services, between the United States and international points. If the Company decides to provide international telecommunications services, it will need to obtain prior FCC authorization. The Company will be required to file tariffs for its interstate and international long distance services with the FCC before providing such services. The Telecom Act establishes several means by which a CLEC, such as the Company, can offer local telephone services in competition with the ILECs. A CLEC may choose to build its own local facilities, resell the local services of the ILECs, lease unbundled network elements from ILECs, or employ a combination of these options. The Telecom Act imposes on ILECs certain obligations to interconnect their services and facilities with those of the CLECs. It also specifically requires all local exchange carriers, including ILECs and CLECs, not to prohibit or unduly restrict resale of their services, to establish number portability, dialing parity and reciprocal compensation arrangements for the transport and termination of telecommunications, and to provide non-discriminatory access to telephone poles, ducts, conduits and rights-of-way. It also makes competitive entry into other service or geographic markets more attractive to Regional Bell Operating Companies ("RBOCs"), other -19- 20 ILECs, long distance carriers and other companies and likely will increase the level of competition the Company faces. The FCC has significant responsibility in the manner in which the Telecom Act will be implemented. The Telecom Act contemplates that states will apply the federal regulations and oversee the implementation of all aspects of interconnection not subject to FCC jurisdiction. The states also are tasked with overseeing interconnection negotiations between ILECs and their new CLEC competitors. On August 8, 1996, the FCC released an order which established a framework of minimum, national rules enabling state commissions and the FCC to begin implementing many of the local competition provisions of the Telecom Act. Among other things, the order prescribed certain minimum points of interconnection, adopted a minimum list of unbundled network elements that ILECs must make available to competitors, and adopted a methodology for states to use when setting prices for unbundled network elements and for wholesale resale services. In July 1997, the U.S. Court of Appeals for the Eighth Circuit struck down certain of the rules (including the provisions establishing pricing methodologies and default rates for resold services and unbundled network elements). The appeals court concluded that the Telecommunications Act granted the states the authority to set the rates for interconnection, unbundled network elements and resold services and that the FCC therefore lacked jurisdiction to issue the pricing rules or to preempt state pricing rules. In October 1997, the Eighth Circuit issued an order clarifying that the RBOCs were not required to rebundle unbundled network elements that competing carriers had purchased separately. The FCC, numerous IXCs and various other parties filed petitions for certiorari with the U.S. Supreme Court, expressing concern, among other things, about the lack of uniformity in pricing that may result from the Eighth Circuit's rejection of national pricing. On January 25, 1999, the Supreme Court issued a decision upholding the authority of the FCC to issue regulations - both pricing and non-pricing - in implementing the local competition provisions of the Telecommunications Act, rather than placing pricing authority at the state level. In its decision, the Supreme Court, however, invalidated the FCC's current list of the network elements that ILECs must make available on an unbundled basis. This, in turn, could affect whether the FCC requires ILECs to provide certain other facilities used in providing broadband services to competitors such as the Company on an unbundled basis. The FCC is expected to issue a notice proposing a new list of network elements shortly. The Eighth Circuit decisions and their recent reversal by the Supreme Court perpetuate continuing uncertainty about the rules governing the pricing, terms and conditions of interconnection agreements. Given this uncertainty, the Company cannot guarantee that it will be able to obtain or enforce acceptable interconnection terms or interconnection terms consistent with its business plans. The Telecom Act has already resulted in comprehensive changes in the regulatory environment for the telecommunications industry as a whole, and will have a material impact on the local exchange industry and the competitive environment in which the Company operates. Nevertheless, the concept of competitive local exchange services is a relatively new development in the telecommunications industry, and the Company cannot predict how the relevant provisions of the Telecom Act will be interpreted and implemented by the FCC, state regulators, courts and the ILECs. Although passage of the Telecom Act has resulted in increased opportunities for companies that are competing with the ILECs, no assurance can be given that changes in current or future regulations adopted by the FCC or state regulators or other legislative or judicial initiatives relating to the telecommunications industry would not have a material adverse effect on the Company's financial condition, results of operations or cash flow. To the extent that the Company expects to offer interstate long distance services, it will be treated by the FCC as a so-called "nondominant" carrier. The FCC subjects nondominant carriers to minimal regulation. However, interstate carriers offering services to the public must comply with the federal statutory and regulatory requirements of common carriage under the Act, must file various reports and pay various fees and assessments, and remain subject to the FCC's complaint jurisdiction. Among other things, interstate common carriers must offer service on a non-discriminatory basis at just and reasonable rates. Nondominant carriers need not obtain specific prior FCC approval to initiate or expand domestic interstate services, although they must file a tariff with the FCC containing the currently effective rates, terms and conditions of service for its long distance services. Although the FCC has issued regulations eliminating this tariffing requirement for all interstate non-dominant carriers, those regulations have been stayed on appeal by third parties, and the Company currently will be required to file tariffs with the FCC. -20- 21 If the FCC order becomes effective, nondominant interexchange carriers will need to find new means of providing notice to customers of prices, terms and conditions on which they offer their interstate services. In 1997, the FCC released an order establishing a significantly expanded federal universal service subsidy regime which established new universal service funds to support telecommunications and information services provided to qualifying schools, libraries and rural health care providers, and expanded the federal subsidies for local telephone services provided to low-income consumers. The FCC collects money to fund this expanded regime from interstate carriers and certain other entities. To the extent that the Company provides intrastate, interstate or international telecommunications service, it will be required to contribute to these programs. The Company's payments for the schools and libraries and rural health care fund will depend on estimated quarterly intrastate, interstate and international gross end-user telecommunications revenues. Contribution factors vary quarterly and the FCC bills carriers on a monthly basis. Contribution factors for 1999 ranged from 3.08 to 3.19% for the high cost and low income funds (interstate and international revenues), and 0.72 to 0.76% for the schools, libraries, and rural health care funds (intrastate, interstate and international revenues). Because the contribution factors vary quarterly, the Company cannot currently accurately determine the annualized impact on its annual performance. As a telecommunications carrier, the Company will also be required to comply with the Federal digital wiretapping regulations administered by the U.S. Department of Justice and the FCC. The Communications Assistance to Law Enforcement Act ("CALEA"), enacted in 1994, requires telecommunications carriers such as Company to make available certain telecommunications capabilities to U.S. law enforcement officials to permit those authorities to continue to intercept communications involving advanced technologies such as digital and wireless transmission communications. Under CALEA, courts may impose fines of up to $10,000 per day on telecommunications carriers that fail to meet the required capability functions, as determined by industry standards. The FCC recently extended the compliance date for the CALEA capability requirements to June 30, 2000 to permit manufacturers sufficient time to develop CALEA compliant equipment. The Company cannot predict the nature and extent of the impact the CALEA requirements will have on its operations. The FCC may address regulatory non-compliance with a variety of enforcement mechanisms, including monetary forfeitures, refund orders and injunctive relief. The telecommunications industry varies substantially from state to state and continues to change rapidly. Moreover, as deregulation at the federal level occurs, some states are reassessing the level and scope of regulation applicable to carriers. Regulators or third parties could raise material issues with regard to Company's compliance or non-compliance with applicable regulations. Future regulatory, judicial or legislative activities could have a material adverse effect on the Company's financial condition, results of operations or cash flow. STATE REGULATION The local and intrastate long distance telecommunications operations of the Company will be subject to various state laws and regulations. Most states regulate entry into the intrastate telecommunications markets, and states' regulation of competitive telecommunications providers vary in their regulatory intensity. The majority of the states mandate that companies seeking to provide intrastate services apply for and obtain from a state public utility commission ("PUC") certificates of public convenience and necessity or file a registration with the PUC. This authorization process generally requires the carrier to demonstrate that it has sufficient financial, technical and managerial capabilities and that granting the authorization will serve the public interest. The Company, through its wholly owned subsidiary AMCOM LLC, is authorized by the appropriate PUCs in the states of Colorado and Oregon and expects to file for approval in other states. It cannot guarantee that it will be able to successfully obtain such approvals. In most states, the Company must also file and obtain prior regulatory approval of tariffs for intrastate services. In addition, the Company must update or amend the tariffs and, in some cases, the certificates of public convenience and necessity, when rates are adjusted or new products are added to the local and long distance services offered by the Company. In addition, most states impose tariff requirements on carriers and require that common carriers charge just and reasonable rates and not discriminate among similarly situated customers. Some states also require the filing of periodic reports, the payment of various regulatory fees and surcharges, and compliance with service standards and consumer protection rules. States often require prior approvals or notifications for certain transfers of assets (such as fiber optic cable or other telecommunications facilities), customers or ownership. Some -21- 22 states also require approval or notice for the issuance of securities or debt or for name changes. States generally retain the right to sanction a carrier or to revoke its operating authority if a carrier violates relevant laws and/or regulations. If any state regulatory agency concluded that the Company provided intrastate service without the appropriate authority, or that it was not otherwise in compliance with state PUC rules, that agency could initiate enforcement actions, potentially including the imposition of fines, the disgorging of revenues, or the refusal to grant the regulatory authority necessary for the future provision of intrastate telecommunications services. LOCAL GOVERNMENT REGULATION The Company expects to own telecommunications facilities that may be subject to certain local government requirements. In particular, facilities-based companies must generally obtain street use and construction permits and licenses and/or franchises to install and expand fiber-optic networks using municipal rights of way. In some municipalities carriers must pay license or franchise fees based on a percentage of gross revenues or on a per linear foot basis, as well as post performance bonds or letters of credit. The Company cannot guarantee that it can obtain or retain franchises or that franchise fees will remain at their current levels. While regulation of municipal rights of way generally remains a matter under local jurisdiction, some states have enacted or are considering enacting measures that affect the ability of local governments to impose certain types of restrictions on franchisees or to require certain types of concessions from carriers seeking franchise agreements. INTERNET REGULATION In so far as the Internet is a relatively new medium, the legal obligations and First Amendment rights of service providers and participants in the Internet are not well defined and are evolving. Currently, Internet access and online services are not subject to direct regulation in the United States, but changes in the regulatory environment relating to the telecommunications and media industry could have an effect on the Company's business. For example, FCC regulatory review and rulemaking could result in regulation of the Internet and online services industry, which could result in increased telecommunications costs for participants in the Internet industry, including the Company. The Company cannot predict whether, or to what extent, any such new rulemaking will occur, or what effect any such rulemaking would have on the Company. Certain provisions of the 1996 Telecommunications Act relating to indecent communication over the Internet, generally referred to as the Communications Decency Act of 1996, were held unconstitutional by the United States Supreme Court in June 1997. These provisions had generally made it illegal, subject to certain defenses, for persons to knowingly use an interactive computer service to send or display "indecent" communications to minors. In October 1998, Congress enacted the Children's Online Protection Act ("COPA") which creates criminal penalties for content on the Internet that may be deemed "harmful to minors" (as defined in various court decisions) and requires that such material be restricted. This law is currently being challenged in federal district court. On February 1, 1999, a U.S. District Court judge issued a preliminary injunction against enforcement of portions of that Act and the U.S. Department of Justice has appealed that decision. The Company has not changed any of its plans or policies as a result of the enactment of COPA, and does not believe its current plans or policies violate this statute. The Company cannot predict whether additional federal or similar state legislation will be enacted in the future, whether any such future legislation would be upheld, how courts would interpret any such future legislation or what effect, if any, such legislation would have on the Company. There also are laws that make it illegal to traffic in obscene or child pornographic materials, including by a computer, and accordingly the Company will subscribe to a newsgroup service who's servers do not host certain newsgroups that it believes traffic in child pornography. While the Company does not believe that its activities will violate any of these laws, it cannot predict how a court would interpret these laws in the Internet context or whether a court would hold that the Company has a duty to monitor material being transmitted or, if notified that illegal material is being transmitted, to attempt to stop or restrict such transmissions. In addition, the applicability to FutureOne of existing laws governing issues such as intellectual property ownership, defamation and personal privacy is uncertain. Courts have indicated that, under certain circumstances, online service providers and Internet Service Providers could be held responsible for the publication of defamatory material or for failure to prevent the distribution of material that infringes copyrights owned by others. The Company does not edit or otherwise monitor the content accessed by subscribers to its Internet services. In addition, the Company plans to subscribe to a newsgroup service that meets certain criteria indicating they do not carry child -22- 23 pornography. Future interpretations by the courts of online defamation, privacy, copyright infringement and other legal issues is also uncertain. It is possible that in the future laws and regulations could be adopted which address matters such as user privacy, copyrights, pricing and the characteristics and quality of Internet services, among other areas. Internet-related legislation and regulatory policies are continuing to develop and the Company could be subject to increased regulation in the future. Laws or regulations could be adopted in the future that may decrease the growth and expansion of the Internet's use, increase the Company's cost of doing business, or otherwise adversely affect the Company's business. On April 5, 1999, U S WEST filed a petition with the FCC asking the FCC to find that Internet Protocol ("IP") telephony services are telecommunications services, not enhanced services or information services, and therefore should be subject to access charge and universal service obligations. The Company cannot predict how the FCC will rule on U S WEST's petition. If the FCC does ultimately determine that IP telephony is subject to the FCC's access charge and universal service regimes, such a ruling would likely substantially increase the Company's costs of providing IP telephony. U S WEST filed similar requests before the Nebraska Public Service Commission and the Colorado PUC. The FCC may also issue new regulations governing the treatment of calls to ISPs for the purposes of universal service obligations. In a recent report to Congress, the FCC clarified that carriers must consider revenues earned from the transmission services supplied to ISPs when calculating universal service obligations. The FCC plans to address in the future the contribution obligations, if any, of ISPs using their own facilities and ISPs providing phone-to-phone IP telephony. The Company cannot predict the outcome of these proceedings or their potential effect on its operations. TRADEMARKS The Company has two registered trademarks, one for Future One & DESIGN and one for PrimeServ. The Company has applied for a registered trademark with the U.S. Patent and Trademark Office for NeighborComm. Such application is currently pending, although there can be no assurances regarding when such registration will be issued, if at all. The Company does not own any patents. EMPLOYEES As of December 15, 1999, the Company had 178 full-time employees, of whom 37 had executive or managerial responsibilities. None of the Company's employees are represented by a union. The Company considers its relations with its employees to be good. The Company's growth continues to place significant demands on its managerial resources. The success of the Company's business is substantially dependent on the services of its senior management team, and the services of Earl J. Cook, Alan P. Hald, Donald D. Cannella, Bruce A. Robson and R. Tucker Woodbury. The Company has employment agreements with all five of its senior managers, however, the loss of their services or the services of the Company's other officers and key technical personnel could have a material adverse effect on the Company. To address these risks, the Company must, among other things, continue to attract, retain and motivate qualified personnel. While the Company, like other technology companies, has experienced some difficulty in attracting and retaining qualified personnel, it has been successful in attracting qualified personnel to date. There can be no assurance that the Company will be successful in attracting or retaining qualified personnel in the future. INSURANCE The Company maintains general liability, automobile liability, workmens' compensation and umbrella coverage insurance in amounts which it believes are customary for a company of its size engaged in a comparable industry. However, there can be no assurance that the Company will not be subject to claims in the future that its insurance may not cover or as to which its coverage limits may be inadequate. -23- 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. Except for historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, but are not limited to, statements regarding future events and the Company's plans and expectations. The Company's actual results could differ materially from those discussed herein. Readers are cautioned not to place undue reliance on the forward-looking statements that relate to the Company's future performance. See "Special Note on Forward-Looking Statements." OVERVIEW The Company was incorporated in Nevada on March 22, 1994 as World's Fare, Inc. World's Fare, Inc.'s original business purpose was to engage in the business of providing real time language translation services, however, no operations commenced prior to the reverse merger of the Company and FutureOne, Inc., an Arizona corporation which became effective March 30, 1998. In August 1998, World's Fare, Inc. changed its name to FutureOne, Inc. The Company believes that it is a full service communications provider by (i) entering the convergence technology and telecommunications markets; (ii) providing high speed Internet access instead of traditional dial-up access; (iii) concentrating on communications products sales instead of retail computer equipment sales and service and (iv) entering the e-business solutions market. The Company was formed as an Internet Service Provider and began providing Internet services including personal and business dial up accounts, high speed frame relay connections and web site design in November 1995. In February 1997, the Company entered into the retail computer sales and services market. In 1998 and 1999, the Company expanded its product lines and geographic area of operations through several strategic acquisitions. Since that time the Company has divested its retail computer sales and services operations, its virtual telephone service and its Internet access business. The Company is currently engaged in convergence technology and telecommunications, broadband communications engineering and construction services, e-business development, advertising and graphic design and wholesale communication equipment sales. The Company's ISP operations began facing the traditional problems of the industry, including intense competition for customers which causes high customer turnover rates and the demand for higher speed services, which requires additional capital expenditures in the face of lower prices. Most of the Company's growth in personal ISP customers came through acquisitions as this was determined to be the most economical way of obtaining additional customers. The Company recently concluded that it should concentrate its efforts on developing new Internet access technology through its NeighborComm product and divest itself of the older dial-up technology that was incurring operating losses. In order to concentrate on NeighborComm's high speed access and to provide additional funds for development of it's NeighborComm product the Company made the decision to sell its Internet access operations. On November 19, 1999, the Company sold substantially all of the assets relating to its Internet access business, including equipment and all of its approximately 7,300 personal and business Internet access customers in Phoenix, Flagstaff, Tucson, Lake Havasu City, Prescott, Florence, Wickenburg and Payson, Arizona to RMI.NET, Inc. for approximately $2.75 million in RMI.NET, Inc. common stock. The Company will no longer participate in the retail ISP industry, however, it will be providing high-speed Internet access as part of its NeighborComm bundled communications services. On December 6, 1999, the Company sold substantially all of the assets relating to its virtual telephone service business operations, including equipment and approximately 110 customers for $47,800 of which $17,800 was paid in cash and the balance is payable on a short-term note. The business was originally purchased by the Company in September 1998 in order to offer an "add-on" service for the Company's Internet access customers. The Company was not successful in marketing its virtual telephone service business. The Company decided to divest itself of its virtual telephone service business operations upon determining that the switching equipment necessary for providing the virtual telephone service may require additional investment to be made Year 2000 compliant. -24- 25 The Company has retained and will continue to operate its newly acquired e-business and advertising businesses where the demand for Internet services is continuing to expand as more businesses are learning to use the Internet to reach more customers. As a result, businesses are requiring more sophisticated e-commerce sites and e-business applications. See "History - Internet Services." Since the Company entered the retail computer market in 1997, intense competition with large retail chains and manufacturers selling direct to customers lowered profit margins and absorbed a large portion of the computer equipment market. As a result, the Company changed its focus and, in June 1999, divested itself of its retail computer sales and service operations by selling Priority Systems, Inc., a wholly owned subsidiary of the Company, whose sole area of operation was retail computer sales and services, back to the original owner of PRIORITY SYSTEMS, INC. for $250,573 of the Company's Common Stock, or 108,850 shares, and a three-year promissory note in the amount of $50,000. As a result of its sale of PRIORITY SYSTEMS, INC., the Company will no longer compete in the retail computer sales and services market. The sale of Priority Systems, INC. allowed the Company to expand its wholesale communications equipment division, which sells to resellers, Internet Service Providers, Competitive Local Exchange Carriers, schools, government agencies and resellers. The expansion of the Company's wholesale products division has come primarily through an acquisition and expansion of its product lines. See "History - Communication Equipment Sales." The Company entered the broadband communications engineering and construction services market to provide new and advanced fiber, copper and CATV systems for existing and emerging communications companies and for its own use to facilitate its entrance into the convergence technology market. The Company entered the broadband communications engineering and construction services market primarily through strategic acquisitions. See "History - Broadband Communications Engineering and Construction Services." Because of the acquisitions made by the Company, intangible assets associated with these acquisitions comprise a significant portion of the assets of the Company. Net intangible assets made up 58.0% and 36.7% of the Company's total assets as of September 30, 1998 and 1999, respectively. Amortization of these intangible assets will adversely impact earnings for the next five to ten years and possible writedowns or adjustments in any period could significantly adversely impact operating results in that period. The Company's discontinued operations had the following impact on historic operations of the Company, in terms of revenues and losses, that are no longer included in historic operating results and will no longer be realized by the Company, as indicated in the chart below:
------------------------------------------------------------------------------ Operation Revenues for the Year ended Operating Loss for September 30, 1999 year ended September 30, 1999 ------------------------------------------------------------------------------ Discontinued Operations ------------------------------------------------------------------------------ Virtual telephone service $ 45,000 $ 42,000 ------------------------------------------------------------------------------ Internet access 1,555,000 1,091,000 ------------------------------------------------------------------------------
The Company also had $856,000 of revenues from retail computer sales during the year ended September 30, 1999 that will not recur due to the sale of its PRIORITY SYSTEMS, INC. subsidiary. The Company has taken steps to reduce its operating losses through divestiture of certain non-performing or underperforming business operations. In addition, the Company believes that both the e-business and broadband construction divisions are in a position to operate at break even or profitable levels beginning fiscal year 2000, excluding the amortization of intangible assets that affects both divisions. The Company anticipates that the communications products sales division will continue to operate at a loss next year, because it is a new distributor of certain products and the Company has been unsuccessful in developing profitable markets for these products. The Company has taken steps to reduce staff and facilities costs in this division to reduce losses. The convergence technology and telecommunications service division is anticipated to have losses for at least the next three years as it currently has no revenues and expenditures must be made to obtain regulatory approvals in new market areas, sales -25- 26 and marketing expenses will be incurred in existing and planned market areas and certain fixed operating costs must be incurred to support even a minimal customer base. The Company plans to spend approximately $720,000 on such expenses in fiscal year 2000. Corporate overhead, which includes executive and management salaries, facilities cost, legal, accounting and audit and other non-allocated expenses is expected to remain at approximately $1,500,000 during fiscal year 2000. The Company anticipates that these expenses will be paid from the proceeds of the sale of the Internet access operations and equity and debt financing. In general the Company's revenues and results of operations are not subject to seasonal fluctuations, except for broadband construction operations that can be affected by adverse weather conditions primarily in Colorado. RESULTS OF OPERATIONS The following table sets forth the percentage of total revenues represented by specific expense and income items for continuing operations, for the years indicated. The prior year revenues and related items have been adjusted for the effects of reclassifying the revenues and associated costs of the Internet access operations and virtual telephone services that have now been recorded as discontinued operations in 1998 and 1999. See Footnote 3 to the "Financial Statements," which indicates the amounts from each category that were reclassified to discontinued operations.
YEAR ENDED SEPTEMBER 30 ----------------------- 1998 1999 -------- ------- REVENUES: Internet Services......................................... 3.2% 3.7% Communication Equipment Sales............................. 12.5 18.5 Broadband Communications Engineering and Construction Services................................... 84.3 77.8 ----- ----- TOTAL REVENUES................................... 100.0 100.0 ----- ----- COSTS OF SALES AND OPERATING EXPENSES: Internet Services......................................... 5.8 3.9 Communication Equipment Sales............................. 10.9 19.4 Broadband Communications Engineering and Construction Services................................... 68.5 63.6 General and Administrative................................ 30.2 36.5 Depreciation and Amortization............................. 7.5 8.5 Unusual Items............................................. - 2.9 ----- ----- TOTAL OPERATING EXPENSES......................... 122.9 134.8 ----- ----- LOSS FROM OPERATIONS............................. (22.9) (34.8) OTHER INCOME (LOSS), NET................................... (1.6) (1.8) DISCONTINUED OPERATIONS.................................... (35.3) (10.8) ----- ----- LOSS BEFORE INCOME TAXES................................... (59.8) (47.4) PROVISION FOR INCOME TAXES................................. - - ----- ----- NET LOSS......................................... (59.8)% (47.4)% ====== ======
The Company's operating loss was $460,000 and $3,873,000 and its net loss was $1,202,000 and $5,275,000 for the years ended September 30, 1998 and 1999, respectively. -26- 27 The following table sets forth comparative cash flows of the Company for the periods indicated:
YEAR ENDED SEPTEMBER 30 ----------------------- 1998 1999 ---- ---- Net Cash Used in Operating Activities....... $(533,000) $(3,048,000) Net Cash Provided by (Used) in Investing Activities................................ 54,000 (2,091,000) Net Cash Provided by Financing Activities... 1,030,000 4,729,000 Ending Cash Balance......................... 571,000 160,000 Working Capital Deficit..................... (342,000) (1,984,000)
YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1998 REVENUES Total revenues, excluding revenues attributable to discontinued operations, were $11,132,000 for the year ended September 30, 1999, an increase of 454% from 2,010,000 for the year ended September 30, 1998. Internet services revenues increased $348,000, or 552%, from $63,000 in the year ended September 30, 1998 to $411,000 in the year ended September 30, 1999. This increase is primarily attributable to additional web service revenues resulting from the acquisition of an advertising and e-commerce company in March and July 1999. See "History - Internet Services." Communications equipment sales and services revenues increased $1,807,000, or 720%, from $251,000 in the year ended September 30, 1998 to $2,058,000 in the year ended September 30, 1999. The Company's acquisitions of a retail computer sales and service company and a wholesale communications equipment company at the end of fiscal 1998 are directly responsible for this increase in revenues. The wholesale division added revenues of $1,202,000 and the retail computer division revenues were $856,000. The retail computer division was sold effective June 15, 1999. See "History - Communication Equipment Sales." The Company's broadband communications engineering and construction services revenue was $8,663,000 in the year ended September 30, 1999 compared to $1,695,000 for the year ended September 30, 1998. The 1998 revenues represented two months of operating results subsequent to the acquisition of the related business. Including the ten months prior to being acquired by the Company, these operations had pro forma revenues of $4,984,000 during the twelve month period ending September 30, 1998. The Company believes that the increase in broadband communications engineering and construction services revenue is primarily attributable to the Company obtaining additional large contracts to provide underground construction services and the Company's expansion of its underground construction services into Arizona. See "History - Broadband Communications Engineering and Construction Services." COSTS OF REVENUES Cost of sales in the Internet services division includes the direct cost of labor for programmers, supplies and contract services. Cost of sales increased $317,000, or 271%, from $117,000 in the year ended September 30, 1998 to $434,000 in the year ended September 30, 1999. This increase is attributable to acquisitions of an advertising and e-commerce company in March and July 1999, which resulted in increased revenues. Cost of sales in the communication equipment sales, which includes cost of parts and direct labor to assemble parts and provide service labor, increased by $1,943,000, or 887%, from $219,000 in the year ended September 30, 1998 to $2,162,000 in the year ended September 30, 1999. This increase is directly attributable to increase in revenues from this division. Gross margins decreased from 13% in the year ended September 30, 1998 to a negative 5% (a positive 10% when excluding the provision for loss on disposal of inventory discussed below) in the year ended September 30, 1999. The Company believes that this decline is primarily attributable to increased competition from large retailers and manufacturers and increased sales at the wholesale level. The Company believes that gross margins will further -27- 28 decline and that in order to sell its remaining inventory of Lucent Technologies products that it will be required to sell inventory at or below cost, accordingly a provision of $304,000 for losses that may be incurred in liquidating the inventory has been made at September 30, 1999 and is included in cost of sales. Cost of sales for the Company's underground construction operations, which includes materials, direct labor costs and depreciation, was $7,083,000 during the year ended September 30, 1999 compared to $1,376,000 for the year ended September 30, 1998. The 1998 costs represented two months of operating results subsequent to the acquisition of the related business. Including the ten months prior to being acquired by the Company, these operations had pro forma cost of sales of approximately $3,370,000 for the twelve months ended September 30, 1998. The increase is attributable to additional revenues being earned by this division. Gross margins have declined for this division, from 32% for the year prior to the acquisition to 18% for the year ended September 30, 1999, as a result of the Company focusing its resources on larger projects and the requirements for additional equipment, equipment rentals and subcontractors on larger projects. The Company anticipates that this division will continue to operate at these lower gross profit levels for the foreseeable future. GENERAL AND ADMINISTRATIVE General and administrative expenses increased $3,452,000, or 569%, from $607,000 in the year ended September 30, 1998 to $4,059,000 in the year ended September 30, 1999. Approximately $2,030,000 is directly related to acquisitions that were made in 1998, $342,000 to Internet services, $626,000 to the communication products sales division and $1,062,000 to the broadband communications engineering and construction services operations. Other increased expenses are the result of additional professional fees, which totaled $408,000, management personnel, which totaled $463,000, and facilities, which totaled $103,000, all due to increased growth. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased from $151,000 in the year ended September 30, 1998 to $951,000 in the year ended September 30, 1999. This increase is attributable to acquisitions made by the Company and reflects additional depreciation from fixed assets and amortization of the intangible assets resulting from the acquisitions. UNUSUAL ITEMS In June 1999, management of the Company determined that it was no longer economically feasible to remain in the retail computer equipment sales and service industry. As a result, the Company sold Priority Systems, Inc. back to its former owner effective June 15, 1999. The result of this transaction was a loss to the Company of $317,000. LIQUIDITY AND CAPITAL RESOURCES The Company had net cash used in operating activities of $3,048,000 for the year ended September 30, 1999 compared to $533,000 for the year ended September 30, 1998. Net cash used in operating activities was less than the net loss by $2,227,000 during the year ended September 30, 1999 primarily due to $1,400,000 of non-cash charges for depreciation and amortization and an additional $410,000 for stock compensation arrangements. The Company's investment activities required $2,091,000 and provided $54,000 during 1999 and 1998, respectively. The primary reason for the cash used from investing activities in 1999 was the purchase of equipment, which aggregated to $2,109,000. Financing activities provided $4,729,000 in 1999 and $1,030,000 in 1998. Approximately $2,250,000 in 1999 and $1,151,000 in 1998 related to the sale of the Company's Common Stock and $2,475,000 in 1999 and $(122,000) in 1998 was attributable to net debt proceeds (payments). The Company has commitments for equipment and expenses related to its convergence technology and telecommunications operations of approximately $250,000 to engineer, install and test equipment. The Company has a further commitment for an additional $100,000 of equipment in addition to the approximately $1,250,000 of equipment that is expected to be obtained by the Company under operating leases. The Company believes that expenditures not covered by operating leases will be obtained from the proceeds of certain equity or debt financings -28- 29 and the sale of the RMI.NET, Inc. common stock obtained by the Company in consideration for substantially all of the Company's assets relating to its Internet access business. The Company believed that cash on hand at September 30, 1999 was not sufficient to meet the Company's working capital demands for the next six months and accordingly the Company obtained cash through the sale of its ISP and other loans, some of which has been obtained and others which are anticipated to be obtained, all as described below, which the Company anticipates will provide sufficient working capital through March 31, 2000. The Company also plans to continue to expand its business operations in fiscal 2000, which will require more resources than are currently available to the Company. In the event the Company is unable to obtain additional financing, the Company will not be able to fully undertake its business expansion and will attempt to reduce costs to permit existing sources of capital to finance the operations of the Company until such time additional sources become available. The Company has an existing line of credit with a bank that was in place prior to the Company's acquisition of OPEC CORP. in July 1998. The amount available under this line of credit is $480,000, which has been fully drawn by the Company as of September 30, 1999. This line of credit extends until February 15, 2000, however, the Company is currently seeking to renew and raise this line of credit. There is no assurance that the Company will be successful in extending or raising this credit line. The Company's business plan includes pursuing additional debt and equity financing with financial institutions or strategic partners. In August 1999, OPEC obtained a loan for $1,000,000, which bears interest at the rate of 15% per annum and is due September 17, 2001. The note evidencing the loan is convertible into shares of the Company's Common Stock at $2.25 per share at the option of the holder. Proceeds from the loan have been used for working capital for OPEC to further expand its underground construction business. OPEC has also refinanced a substantial amount of their equipment debt with a loan from a bank in the amount of $848,000, which bears interest at the rate of 8.73% per annum and is payable in monthly installments through August 2002 and has replaced higher interest rate loans and capital leases of an equal amount. In October 1999, the Company obtained a bridge loan in the amount of $250,000. Such loan bears interest at a rate of 15% per annum and the principal and interest due thereunder is payable February 8, 2000. The Company also obtained a second bridge loan in October 1999 in the amount of $500,000. Such loan bears interest at a rate of 12% per annum and the principal and interest are due and payable on April 22, 2000. The note is convertible into shares of the Company's Common Stock at $1.00 per share at the option of the holder. The Company anticipates obtaining further bridge loans in the aggregate amount of $1,000,000 by January 31, 2000. There is no assurance that the Company will receive all or any additional portion of the funds in a timely manner if at all. The Company also plans to sell the registered shares of RMI.NET, Inc. common stock received in consideration of substantially all of the Company's assets relating to its Internet access business. As of December 15, 1999, the Company had sold approximately 152,000 of the 176,000 shares available. This is expected to provide the Company with funds in the amount of approximately $1,500,000, which will be used for working capital and payment of $518,000 related to leases for a portion of the equipment that was sold in the transaction with RMI.NET, Inc. The Company also has a stock purchase agreement with Blackwater Capital Partners, L.P. Under the terms of this agreement, Blackwater must purchase shares of the Company's Common Stock in sufficient amounts to provide funding to the Company in equal traunches of $2,500,000, as requested by the Board of Directors of the Company. Alternatively, Blackwater has the right to provide funding for the remaining $7,000,000 through a public offering of the Company's Common Stock. There is no assurance that Blackwater will provide additional funding beyond the approximately $3,000,000 that has been received prior to September 30, 1999. See "Certain Relationships And Related Transactions." Although the Company has obtained additional funds from the sale of substantially all of the assets of its internet access business and certain bridge and working capital loans, FutureOne is still dependent upon additional capital resources to enable it to carry out its business plan and obtain profitability. This lack of profitable operations and the need for additional capital have resulted in the report of independent auditors for the years ended -29- 30 September 30, 1998 and 1999, containing an uncertainties paragraph with respect to the ability of FutureOne to continue as a going concern. YEAR 2000 COMPLIANCE The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two digit calendar year is commonly referred to as the "Year 2000 Compliance" issue. Prior to December 31, 1999, the Company had installed all updates and patches to software currently used by the Company and completed testing of its internal operating systems. The Company had also evaluated the year 2000 readiness of its material vendors and facilities with respect to IT, as well as non-IT, assets because the Company is dependent on outside vendors for basic necessities such as power, communications and processing financial transactions. The Company had received year 2000 compliance statements from its material vendors, which indicate that all are year 2000 compliant. The Company's development of products and services is accomplished through in-house development, and acquisition or license from third parties. The Company has assessed all of its internally developed and third-party developed products and services for year 2000 readiness, and believes that all of such products have been designed to satisfy the Company's year 2000 specifications. In the event that any of the Company's developed or acquired products or technology are not year 2000 compliant in a timely manner, the Company's sales may decline materially, customers and those with whom they do business may assert product liability and other claims, and the Company's business, results of operations and financial condition would be materially and adversely affected. As of January 1, 2000, after the rollover of time, all of the Company's internal systems are functioning properly, all services from vendors upon which the Company depends are being supplied without interruption. In addition, the Company has yet to be notified by any of its customers that the Company's software is not functioning properly as a result of the Year 2000 date change. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS This Form 10-SB contains "forward-looking statements" relating to, without limitation, future economic performance, plans and objectives of the Company for future operations and projections of revenue and other financial items, that are based on the beliefs or, assumptions made by and information currently available to the Company. The words "expect," "estimate," "anticipate," "believe," "intend," "plan," and similar expressions and variations thereof are intended to identify forward-looking statements. The cautionary statements in this "Factors that May Affect Future Operating Results" section and elsewhere in this Form 10-SB identify important factors with respect to such forward-looking statements, including risks and uncertainties, that could cause actual result to differ materially from those expressed in or implied by such forward-looking statements. THE COMPANY HAS A SHORT OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO PREDICT ITS SUCCESS. The Company was incorporated on March 22, 1994, as World's Fare, Inc., but did not begin to generate meaningful revenue until October 1996 and has not generated an operating profit to date. Although the Company has experienced revenue growth in recent periods, in view of the Company's short operating history and the rapidly changing nature of the telecommunications market and the related construction industry, such growth may not be sustainable and should not be considered indicative of future operating results. The Company's results of operations may become increasingly unpredictable from quarter to quarter as a result of numerous factors, including market acceptance of the Company's current or future products, fluctuations in the development and growth of the NeighborComm, the award and completion of construction contracts, the timing of orders and shipments of products, the Company's ability to introduce new products, or the introduction or the announcement of competitive products. The Company's current expense levels are based in part on its expectations of future revenue and, as a result, net income (loss) for a given period could be disproportionately affected by any reduction in revenue. There can be no assurance that the Company will be able to achieve significant revenue from sales of products in the future. -30- 31 THE COMPANY HAS A HISTORY OF NET OPERATING LOSSES AND EXPECTS TO INCUR ADDITIONAL NET OPERATING LOSSES. The Company has incurred substantial and increasing net operating losses and experienced negative cash flow since our inception. The Company lost approximately $5,275,000 in 1999 and $1,202,000 in 1998, which includes discontinued operations. As of September 30, 1999, the Company had an accumulated deficit of approximately $6.84 million. The Company intends to increase its capital expenditures and operating expenses in order to expand its communications services to expected end-users in existing and future markets and to market and provide its services to a growing number of potential end-users in current and additional geographic regions. As a result, the Company expects to incur substantial additional net operating losses and substantial negative cash flow for at least the next two years. Although the Company has obtained additional funds from the sale of substantially all of the assets relating to its Internet access business and certain bridge and working capital loans, FutureOne is dependent upon additional capital resources to enable it to carryout its business plan and attain profitability. This lack of profitable operations and the need for additional capital have resulted in the report of independent auditors for the years ended September 30, 1998 and 1999 containing an uncertainties paragraph with respect to the ability of FutureOne to continue as a going concern. FUTUREONE'S BUSINESS MAY SUFFER IF THE COMPANY IS UNABLE TO EFFECTIVELY MANAGE ITS GROWTH. The Company recently has experienced growth, primarily through acquisitions, in both revenue and employees. This growth has resulted in an increase in the responsibilities of the Company's management and has placed added pressures on the Company's operating and financial systems. During fiscal 1998 and 1999, the Company hired directly, or retained through strategic acquisitions, approximately 125 new employees, including certain key members of management, to help the Company manage its growth. The Company's ability to assimilate new personnel will be critical to its performance, and there can be no assurance that the management and systems currently in place will be adequate if its operations continue to expand or that the Company will be able to implement additional systems successfully and in a timely manner as required. BECAUSE THE CONVERGENCE TECHNOLOGY MARKET IS NEW AND EVOLVING, THE COMPANY CANNOT PREDICT ITS FUTURE GROWTH OR ULTIMATE SIZE, AND THE COMPANY MAY BE UNABLE TO COMPETE EFFECTIVELY. The market for bundled communication services using a single connection is in the early stages of development. Since this market is new and evolving and because the Company's current and future competitors are likely to introduce competing services, the Company cannot accurately predict the rate at which this market will grow, if at all, or whether new or increased competition will result in market saturation. Certain critical issues concerning bundled communications services, including reliability, ease and cost of access and quality of service, remain unresolved and may impact the growth of these services. If the markets for the Company's services fail to develop, grow more slowly than anticipated or become saturated with competitors, these events could materially and adversely affect its business, prospects, operating results and financial condition. The Company's success will depend on the development of this new and rapidly evolving market and its ability to compete effectively in this market. To address these risks, the Company must, among other things: - rapidly expand the geographic coverage of FutureOne's convergence technology services; - raise additional capital; - enter into interconnection agreements, resale agreements and working arrangements with additional incumbent carriers, substantially all of which the Company expects to be our competitors; - enter into and maintain high speed Internet and video arrangements to provide Internet access and video in FutureOne's bundled communications services; - build and deploy an effective network infrastructure; -31- 32 - attract and retain customers; - continue to attract, retain and motivate qualified personnel; - accurately assess potential markets and effectively respond to competitive developments; - successfully develop relationships and activities with residential developers; - continue to develop and integrate operational support system and other back office systems; - obtain any required governmental authorizations; - comply with evolving governmental regulatory requirements; - increase awareness of the Company's services; - continue to upgrade the Company's technologies; and - effectively manage the Company's expanding operations. The Company may not be successful in addressing the risks of the convergence technology market, and the Company's failure to address risks would materially and adversely affect the Company's business, prospects, operating results and financial condition. THE COMPANY CANNOT PREDICT ITS SUCCESS BECAUSE ITS BUSINESS MODEL IS UNPROVEN. The Company has not validated its business model and strategy in the market. The Company believes that the combination of its unproven business model and the highly competitive and fast changing market in which it competes makes it impossible to predict the extent to which the Company's convergence technology and communications services will achieve market acceptance and its overall success. To be successful, FutureOne must develop and market bundled communications services that are widely accepted by developers, residents and businesses at profitable prices, as well as compete favorably in the markets of underground engineering and cable construction and Internet advertising and marketing, wholesale communications sales. The Company may never be able to deploy its network as planned or achieve significant market acceptance and favorable operating results. THE COMPANY'S OPERATING RESULTS ARE LIKELY TO FLUCTUATE IN FUTURE PERIODS, WHICH MIGHT LEAD TO REDUCED PRICES FOR ITS STOCK. The Company's annual or quarterly operating results are difficult to predict and are likely to fluctuate significantly in the future as a result of numerous factors, many of which are outside of FutureOne's control. If the Company's annual or quarterly operating results do not meet the expectations of securities analysts and investors, the trading price of its stock could significantly decline. Factors that could impact our operating results include: - market acceptance of the Company's current and future products and services; - fluctuations in the development and growth of NeighborComm; - decreases in the Company's selling prices due to competition; - the award and completion of broadband communications engineering and construction contracts; - the Company's ability to develop new web site designs and e-business solutions; - the timing of orders of the Company's products and services; -32- 33 - the Company's ability to introduce new products and services; - delays in the commencement of the Company's operations in new market segments and geographic regions due to regulatory requirements and other factors; and - costs relating to possible acquisitions and integration of new businesses. THE MARKET FOR THE COMPANY'S NEIGHBORCOMM SERVICES IS ONLY BEGINNING SO IT IS DIFFICULT TO ASSESS ITS SIZE, PRODUCT, FEATURES AND PRICES, THE OPTIMAL DISTRIBUTION STRATEGY AND THE COMPETITIVE ENVIRONMENT THAT WILL DEVELOP. The market for the Company's NeighborComm system is in an early stage of development. Because this market is only beginning to develop, it is difficult to assess the size of this market and the product features and prices, the optimal distribution strategy and the competitive environment that will develop in this market. There is no assurance that the anticipated services that comprise NeighborComm will be provided in a timely manner or at all. There is no assurance that the NeighborComm product will be accepted by consumers or that consumer acceptance will endure. The failure of the Company's NeighborComm to achieve market acceptance or maintains acceptance, if achieved, could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY MAY NOT BE ABLE TO FULLY DEPLOY NEIGHBORCOMM SERVICES IF IT DOES NOT OBTAIN GOVERNMENTAL APPROVALS OR LICENSES. In order to provide voice and video services to consumers, the Company must obtain its own operating authorities and/or resell other providers' services. The Company must therefore have operating authorities to provide telephone services in each state that it intends to offer such service and/or obtain operating authority to provide video services in various localities. There is no guarantee that the Company will be granted such authorities in a timely manner or at all. The Company is currently taking steps to obtain telephone operating authorities by filing applications in Arizona, Nevada, New Mexico and Utah, but to date the Company has not applied for any video authority. See "Description of Business - General - Convergence Technology and Telecommunications." If the Company is not granted direct authority to provide telephone or video services in some or all locations, it may acquire such services from other providers or resell the services of the providers, but such services may not be available if and when needed or at rates that will allow the Company to provide such services to its customers on a profitable basis. FAILURE OF THE COMPANY'S NEIGHBORCOMM TECHNOLOGY TO ACHIEVE MARKET ACCEPTANCE COULD HARM THE COMPANY'S RESULTS OF OPERATIONS. The Company's NeighborComm system is a new product for the Company and still under development. Although the Company is in the process of implementing its first NeighborComm system, there can be no assurance that the Company will be able to continue to develop the NeighborComm system or that it will achieve market acceptance. See "Description of Business - General - Convergence Technology and Telecommunications." The failure of the NeighborComm system to achieve such market acceptance, or maintain such acceptance, if achieved, as a result of competition, technological change or other factors, could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY'S BUSINESS MAY SUFFER IF IT DOES NOT EFFECTIVELY COMPETE IN THE MARKET FOR BROADBAND CONVERGENCE TECHNOLOGY. The market for broadband convergence technology and services is new, intensely competitive, rapidly evolving and subject to rapid technological change. The Company expects competition to intensify in the future. The Company believes that the principal competitive factors affecting the market include scope of product offerings, technical features, ease of use, reliability, customer service and support and price. Although the Company believes that its products currently compete favorably with respect to such factors, there can be no assurance that the Company will maintain its competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other competitive resources. -33- 34 The Company's principal current competitors include AT&T, MCI/WorldCom, Sprint and other major telecommunications companies. There can be no assurance that the Company will not in the future face increased competition from such companies in the bundled communication services market and therefore suffer loss of market share to such companies in the future. Moreover, due to the rapid expansion of the bundled communication services market, the Company may face competition from new entrants in the telecommunications industry. There can be no assurance that the Company's current and potential competitors will not develop products that may be more effective than the Company's current or future products or that the Company's technologies and products would not be rendered obsolete by such developments. Many of the Company's current and potential competitors have longer operating histories, greater name recognition, larger installed customer bases and significantly greater financial, technical and marketing resources than the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than the Company. An increase in competition could result in price reductions and loss of market share. Such competition could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY MAY FAIL TO REACT IN A TIMELY MANNER OR AT ALL TO CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS, WHICH COULD NEGATIVELY IMPACT ITS BUSINESS. The communications industry is characterized by rapid changes, including evolving industry standards, frequent new product introductions, continuing advances in technology and changes in customer requirements and preferences. The introduction of new technologies could render the Company's existing products obsolete or unmarketable. There can be no assurance that the Company will be able to counter challenges to its current products, that the Company's future product offerings will keep pace with technological changes implemented by competitors or persons seeking to provide communications services, that its products will satisfy evolving consumer preferences or that the Company will be successful in developing and marketing products for any future technology. Failure to develop and introduce new products and product enhancements in a timely fashion could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY MAY FAIL TO CONTINUE TO ATTRACT, DEVELOP AND RETAIN MANAGEMENT AND OTHER KEY PERSONNEL WHICH COULD NEGATIVELY IMPACT ITS OPERATING RESULTS. The Company's future success depends to a significant extent on its senior management and other key employees, including key technical personnel. The Company has employment agreements with its five senior management personnel, Earl J. Cook, Alan P. Hald, Donald D. Cannella, Bruce A. Robson and Robert T. Woodbury. The Company also believes that its future success will depend in large part on its ability to attract and retain additional key employees. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. The Company's inability to attract and retain additional key employees or the loss of one or more of its current key employees could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY'S BUSINESS MAY SUFFER IF THE COMPANY DOES NOT OBTAIN TELECOMMUNICATIONS ACCESS. The Company must rely on other companies to provide data communications capacity via leased telecommunications lines. If one or more of these companies is unable or unwilling to provide or expand its current levels of service to the Company in the future or substantially increases the cost of its service, the Company's operations could be materially and adversely affected. Although telecommunications lines are available from several sources, there can be no assurance that the Company could obtain substitute services from other providers at reasonable or comparable prices or in a timely fashion. THE COMPANY ANTICIPATES THAT IT WILL HAVE A LONG SALES CYCLE AND UP-FRONT EXPENSES FOR NEIGHBORCOMM. The Company's NeighborComm services have not historically been available to residential developments or small- and medium-sized businesses. As a result, making a sale may often require a significant amount of time and up-front expense to educate real estate developers and end users regarding the benefits of NeighborComm Real Estate developers and end users may also tend to engage in extensive internal reviews before deciding to engage the -34- 35 Company. Even after real estate developers decide to include NeighborComm in their developments, the build out of the development and sales of homes or commercial buildings normally extends over several years. Due to these long sales and development cycles, the Company's revenues may fluctuate substantially and any given period may include substantial selling expenses without related revenue. These risks could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY'S BUSINESS MAY SUFFER IF IT IS UNABLE TO DELIVER UNINTERRUPTED VOICE, VIDEO AND DATA COMMUNICATIONS SERVICES. The success of the Company depends upon its ability to deliver high quality, uninterrupted voice, video and data communication services. Any system failure that causes interruptions in the Company's planned infrastructure could have a material adverse effect on the Company. As the Company expands its network and data transmission grows, increased stress will be placed upon network hardware and data transmission systems. Although the Company's system will include safety measures to protect its network, there can be no assurance that the Company will not experience failures relating to individual sites, or even catastrophic failure of the entire network. The Company's operations will also depend upon its ability to successfully expand the network and to integrate new and emerging technologies and equipment into the network, which is likely to increase the risk of system failure and cause unforeseen strains on its network. The Company's network will also be vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures and similar events. The Company carries property insurance, which may not be adequate to compensate the Company for all losses that may occur. In any event, significant or prolonged system failures could damage the reputation of the Company and result in the loss of subscribers. AMORTIZATION OF GOODWILL COULD SIGNIFICANTLY IMPACT EARNINGS FOR THE NEXT FIVE TO TEN YEARS. Because the Company has made a number of strategic acquisitions, Goodwill associated with the acquisitions comprise 39% of the Company's total assets as of September 30, 1999. Goodwill is an intangible asset that represents the difference between the aggregate purchase price for the net assets acquired and the amount of such purchase price allocated to such net assets. The Company is required to amortize the goodwill from acquisitions accounted for as purchases over a period of time, with the amount amortized in a particular period constituting an expense that reduces the Company's net income for that period. The Company anticipates that amortization of goodwill will adversely impact earnings for the next five to ten years and possible writedowns or adjustments in any period could significantly adversely impact earnings in such period. THE COMPANY'S OPERATIONS MAY SUFFER IF THE COMPANY EXPERIENCES NETWORK SECURITY PROBLEMS. Despite the implementation of network security measures, the Company's infrastructures remain vulnerable to computer viruses, break-ins and similar disruptive problems. Alleviating problems caused by computer viruses, break-ins, or other problems caused by third parties may require significant expenditures of capital and resources by the Company, which could have a material adverse effect on the Company. THE COMPANY MAY LOSE SUPPLIERS OF EQUIPMENT AND BANDWIDTH, WHICH COULD NEGATIVELY IMPACT THE COMPANY'S OPERATING RESULTS. The Company has no long-term contracts with its suppliers, but the Company has many dealer contracts with communications equipment suppliers, which allows it to purchase components and equipment at favorable prices and on favorable credit terms. If any of these suppliers cancel, materially alter or change the credit terms of their dealer contracts, such actions could adversely affect the Company's communications equipment sales activities, profitability and results of operation. The Company will depend on third-party suppliers for its leased line connections and/or bandwidth. Most of these suppliers are competitors of the Company. To the extent that these suppliers change their pricing structures, the Company may be adversely affected. Moreover, the Company depends on third-party suppliers of hardware components. Some components used by the Company in providing its networking services are currently acquired or available from limited sources. -35- 36 THE COMPANY'S BUSINESS IS SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR FUTURE LAWS OR REGULATIONS COULD RESTRICT THE WAY THE COMPANY OPERATES. A significant portion of the services that the Company offers are subject to regulation at the federal, state and/or local levels. Future federal or state regulations and legislation may be less favorable to the Company than current regulation and legislation and therefore have an adverse impact on the Company's business, results of operations and financial condition. In addition, the Company may expend significant financial and managerial resources to participate in rule-setting proceedings at either the federal or state level, without achieving a favorable result. The Federal Communications Commission prescribes rules applicable to interstate communications, including rules implementing the 1996 Telecommunications Act, a responsibility it shares with the state regulatory commissions. Incumbent carriers may work aggressively to modify or restrict the operation of many provisions of the 1996 Telecommunications Act. Incumbent carries may pursue litigation in courts, institute administrative proceedings with the Federal Communications Commission and other regulatory agencies and lobby the United States Congress, all in an effort to affect the laws and regulations in a manner favorable to the incumbent carriers and against the interest of competitive carriers such as the Company. If the incumbent carriers succeed in any of their efforts, if these laws and regulations change or if the administrative implementation of laws develops in an adverse manner, these events could have a material and adverse effect on the Company's business, results of operations and financial condition and on the price of its common stock. See "Business - Government Regulations." UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON THE COMPANY'S SERVICES MAY INCREASE THE COMPANY'S PAYMENT OBLIGATIONS. Telecommunications providers pay a variety of surcharges and fees on their gross revenues from interstate and intrastate services. The division of the Company's services between interstate and intrastate services is a matter of interpretation, and in the future the Federal Communications Commission or relevant state commission authorities may contest this division. A change in the characterization of the jurisdiction of the Company's services could cause the Company's payment obligations to increase. In addition, pursuant to periodic revisions by state and federal regulators of the applicable surcharges, the Company may be subject to increases in the surcharges and fees currently paid. A POTENTIAL ECONOMIC DOWNTURN MAY NEGATIVELY AFFECT THE COMPANY'S RESULTS OF OPERATIONS. In the last several years, the general health of the economy has been relatively strong and growing, a consequence of which has been increasing capital spending by individuals and growing companies to keep pace with rapid technological advances. To the extent the general economic health of the United States declines from recent historically high levels, or to the extent individuals or companies fear such a decline is imminent, such individuals and companies may reduce, in the near term, expenditures such as those for new housing or commercial developments and the services the Company offers. Any such decline or concern about an imminent decline could delay decisions amongst the Company's customers or prospective customers to purchase new housing or commercial facilities. Such delays could have a material adverse effect on the Company's business, results of operations and financial condition. PROVISIONS IN THE COMPANY'S INCORPORATION DOCUMENTS MIGHT DEFER ACQUISITION BIDS FOR THE COMPANY. The Company's Certificate of Incorporation authorizes the Board of Directors to issue, without stockholder approval, one or more series of preferred stock having such preferences, powers and relative, participating, optional and other rights (including preferences over the Common Stock respecting dividends and distributions and voting rights) as the Board of Directors may determine. The issuance of this "blank-check" preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest, or otherwise. -36- 37 IF THE COMPANY ISSUES ADDITIONAL SECURITIES, STOCKHOLDERS COULD SUFFER DILUTION OF THEIR EXISTING INVESTMENT IN THE COMPANY. The Company will have authority to offer shares of preferred stock, additional shares of Common Stock or other equity or debt securities for cash, in exchange for property or otherwise. Stockholders will have no preemptive right to acquire any such securities, and any such issuance of equity securities could result in dilution of an existing stockholder's investment in the Company. In addition, the Board of Directors has the authority to issue shares of preferred stock having preferences and other rights superior to Common Stock. THE COMPANY'S COMMON STOCK IS SUBJECT TO CERTAIN LIMITATIONS AS A PENNY STOCK, WHICH COULD AFFECT THE ABILITY OF STOCKHOLDERS TO SELL THEIR COMMON STOCK. The Company's common stock is covered by Securities and Exchange Commission rules that impose additional sales practice requirements on broker-dealers who sell securities priced at under $5.00 (so-called "penny stocks") to persons other than established customers and accredited investors (generally institutions with assets in excess of $5 million or individuals with net worth in excess of $1 million or annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by such rules, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Moreover, such rules also require that brokers engaged in secondary sales of penny stocks provide customers written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and ask prices, disclosure of the compensation to the broker-dealer, and disclosure of the salesperson working for the broker-dealer. Consequently, the rules may affect the ability of broker-dealers to sell the Company's Common Stock and also may affect the ability of persons receiving such Common Stock to sell their Common Stock in the secondary market. These trading limitations tend to reduce broker-dealer and investor interest in "penny stocks" and could operate to inhibit the ability of the Company's Common Stock to reach a $3.00 or $4.00 per share trading price that would make it eligible for quotation on NASDAQ, even if the Company otherwise qualifies for quotation on NASDAQ. ITEM 3. DESCRIPTION OF PROPERTY. The Company's principal administrative offices are located in approximately 7,400 square feet of space in Phoenix, Arizona. The Company occupies these premises under a lease agreement expiring on January 31, 2001. In addition, the Company also leases other office space of approximately 1,100 square feet and warehouse space of approximately 1,650 square feet in Phoenix, and other facilities in Colorado Springs, Colorado aggregating approximately 8,500 square feet as of December 15, 1999. The Company considers its facilities to be sufficient for its current and anticipated operations. The Company may have to lease additional space to accommodate any of its expansion plans. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth the numbers of shares and percentage of all shares of the Company's Common Stock outstanding as of January 7, 2000, held by (i) any person known to the Company to be the beneficial owner of 5% or more of the Company's outstanding Common Stock, (ii) each director and executive officer of the Company, and (iii) all directors and executive officers as a group. -37- 38
NAME AND ADDRESS AMOUNT & NATURE OF OF BENEFICIAL OWNER (1) BENEFICIAL OWNER PERCENT OF CLASS (2) ----------------------- ---------------- -------------------- 5% Stockholders Muluha Limited (3) 1,400,000 (4) 10.5% Daniel J. Romano 692,552 (5) 5.4% Kendall Q. Northern (6) 2,105,406 (7) 16.1% 12 Squared Partners, LLC 1,000,000 (8) 7.2% Directors and Officers Earl J. Cook 1,880,406 (9) 14.3% Alan P. Hald 70,000 (10) * Donald D. Cannella 1,414,151 (11) 11.0% Steven R. Green 157,605 (12) 1.2% Bruce A. Robson 117,308 (13) * Robert T. Woodbury 45,400 * All Executive Officers and Directors as a Group (5 Persons) 3,614,870 (14) 27.9%
- ---------------------- * Represents beneficial ownership of less than 1%. (1) Except as otherwise indicated, each holder may be reached through the Company at 4250 East Camelback Road, Suite K-192, Phoenix, Arizona 85018. (2) The percentages shown are calculated based upon 12,905,528 shares of Common Stock outstanding on January 7, 2000. The numbers and percentages shown include the shares of Common Stock actually owned as of January 7, 2000 and the shares of Common Stock that the identified person or group had the right to acquire within 60 days of such date. In calculating the percentage of ownership, all shares of Common Stock that the identified person or group had the right to acquire within 60 days of January 7, 2000 upon the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by any other person. (3) Muluha Limited's address is c/o Stephanie Phillips, Weatherly Securities, 2 World Trade Center, Suite 2946, New York, NY 10048. Linda Stackhouse, President of Maluha Limited, has investment power with respect to the shares held in the name of Muluha Limited. (4) Includes 400,000 shares of Common Stock that Muluha Limited may acquire upon the exercise of warrants exercisable within 60 days of January 7, 2000. (5) Includes 5,000 shares of Common Stock held by Mr. Romano as Custodian for his minor children. (6) Kendall Q. Northern's address is 5146 East Tamblo Drive, Phoenix, Arizona 85044. (7) Includes 300,000 shares of Common Stock held by Mr. Northern as Custodian for his minor children and 205,406 shares of Common Stock that Mr. Northern may acquire upon the exercise of warrants exercisable within 60 days of January 7, 2000. Mr. Northern resigned as President and Chief Executive Officer effective November 23, 1999. (8) Includes 500,000 shares of Common Stock that 12 Squared Partners, LLC may acquire upon the exercise of warrants exercisable within 60 days of January 7, 2000 and 500,000 shares of Common Stock that 12 Squared Partners, LLC may acquire upon the conversion of a promissory note convertible within 60 days of January 7, 2000. 12 Squared Partners LLC's address is 1717 E. Morten, Suite 220, Phoenix, Arizona 85020. -38- 39 (9) Includes 205,406 shares of Common Stock that Mr. Cook may acquire upon the exercise of warrants exercisable within 60 days of January 7, 2000. (10) Includes 70,000 shares of Common Stock that Mr. Hald may acquire upon the exercise of warrants exerciseable within 60 days of January 7, 2000. (11) Includes 20,000 shares of Common Stock held by Mr. Cannella as Custodian for his minor children. (12) Includes 107,605 shares of Common Stock held by Blackwater Capital Partners, L.P. and 50,000 shares of Common Stock that Blackwater Capital Partners, L.P., may acquire upon the exercise of warrants exercisable within 60 days of January 7, 2000. As the managing partner of Blackwater Capital Partners, L.P., Mr. Green has investment power with respect to such shares. (13) Includes 25,000 shares that vested January 1, 2000 under an employment agreement. Under the employment agreement an additional 50,000 shares have been issued which will vest equally on January 1, 2001 and January 1, 2002, which are not included herein. (14) Includes 325,406 shares of Common Stock that such executive officers and directors may acquire upon the exercise of warrants exercisable within 60 days of January 7, 2000. ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. The following table sets forth information concerning the Company's executive officers and directors. Except as otherwise noted, none of the executive officers are directors or officers of any publicly owned corporation or entity.
Name Age Position ---- --- -------- Earl J. Cook 57 Director, President and Chief Executive Officer Alan P. Hald 53 Chairman of the Board Donald D. Cannella 30 Director Steven R. Green 41 Director Bruce A. Robson 43 Vice President - NeighborComm Robert T. Woodbury 41 Vice President - Rocket Science Creative
The term of office of each director of the Company is for one year and until his or her successor is elected at the annual shareholder's meeting and is qualified, subject to removal by the shareholders. All officers serve at the pleasure of the Company's Board of Directors and until his or her successor is elected at the annual meeting of the Board of Directors and is qualified. EARL J. COOK is a founder of FutureOne, INC, an Arizona corporation, and served as its Executive Vice President and a Director since December 26, 1996. He has served as Director, Executive Vice President, Treasurer and Chief Operating Officer of the Company since March 30, 1998. Mr. Cook is a Certified Public Accountant and a graduate of Wayne State University with a degree in accounting. Mr. Cook is the former Chief Financial Officer, Executive Vice President and Director of McCulloch Properties, Inc., a major developer of cities such as Lake Havasu City and Fountain Hills, Arizona. Mr. Cook has owned and operated a variety of businesses including a public accounting firm, financial consulting firms, asset management entities and real estate partnerships. He has also served in a variety of senior management positions for public and private companies for the past thirty years. ALAN P. HALD has served as Chairman of the Company's Board of Directors since January 1, 2000. Mr. Hald co-founded MicroAge, Inc. in 1976 and has served in various executive officer and consulting positions with MicroAge from 1976 through present. Mr. Hald received his undergraduate degree from Rensselaer Polytechnic Institute and his masters in business administration from Harvard University. Mr. Hald also serves as a director for Jotter Technology, Inc., Integrated Information Systems, Inc., Relink, Inc., 3iNet, Inc. and Essential Wisdom, Inc. STEVEN R. GREEN has served as a Director of the Company since August 1998. Mr. Green is the managing partner of Blackwater Capital Partners, L.P. Mr. Green has held senior positions with Jefferies & Co. and Bear Sterns & Co., Inc. as an institutional equity block trader assisting risk arbitrageurs, corporate and financial takeover -39- 40 specialists, leveraged buyout groups, pension funds, money managers and major corporations announcing large stock repurchase programs. In 1990, Mr. Green formed Arcadian Capital, Inc., a boutique investment banking firm specializing in coordinating mergers and acquisitions, initial public offerings, recapitalizations and reorganizations. Mr. Green also serves as a director for Duraswitch Industries, Inc., OneSource Technologies, Inc. and CJM Team Corporation. DONALD D. CANNELLA has served as a Director of the Company since August 1998. Mr. Cannella has been the President of OPEC Corp., a wholly owned subsidiary of the Company, since November 1995. Prior to joining OPEC Corp., Mr. Cannella served in various positions in the telecommunications industry since 1989. BRUCE A. ROBSON has served as a Vice President in charge of NeighborComm Development since October 1999. Since 1998, Mr. Robson has been Director of Sales and Marketing for the Company. Prior to his employment with the Company, Mr. Robson was President of a wholesale distributor of data communications equipment, which the Company acquired in 1998. Previously, Mr. Robson was a National Director of Sales for Gabriel Ride Control Products, Inc., a world-wide leader in automotive ride control and exhaust systems. Mr. Robson also served as Executive Vice President of TL Industries, Inc., a company that was involved in automotive parts and repair facilities. Mr. Robson has over 20 years experience in positions of operations, sales and marketing management. ROBERT TUCKER WOODBURY has served as Vice President of Rocket Science Creative since October 1999. Prior to his employment with the Company, Mr. Woodbury served as Manager of Ubiquity Design LLC, a full service graphic design and advertising agency, which the Company acquired in March 1999. Mr. Woodbury received his Bachelor of Arts degree from Colorado State University in 1981 where he studied marketing, advertising and public relations. He worked as the Director of Advertising and Marketing for the American Wool Council in New York City from 1982 until 1991 where he was responsible for the promotion of wool fiber to the fashion and textile industry both nationally and internationally. Mr. Woodbury also owned and operated the Rockin' Horse concert venue, where he acted as the booking agent and promoter of over 400 national touring acts. INVOLVEMENT IN LEGAL PROCEEDINGS To the best of management's knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) Being found by a court of competent jurisdiction (in a civil action), the commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. ITEM 6. EXECUTIVE COMPENSATION. The following tables set forth the compensation received for services rendered to the Company or its subsidiaries in all capacities during the fiscal years ended September 30, 1999 and 1998 by the Company's Chief Executive Officer and each of the Company's other executive officers who received compensation in excess of $100,000 (the "Named Executive Officers"), which includes salary and bonus earned during the fiscal year ended September 30, 1999. -40- 41 SUMMARY COMPENSATION TABLE
SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) OPTIONS (#) --------------------------- ---- ---------- -------- ----------- Earl J. Cook(1) 1999 $83,078 -- 245,000(2) President and Chief Executive Officer 1998 $12,308 (8) -- Kendall Q. Northern(3) 1999 $98,461 -- 304,000 (4) Former President and 1998 $40,615 (8) -- Chief Executive Officer Donald D. Cannella(5) 1999 $129,043 $252,263(6) 217,000 (7) President of OPEC Corp. 1998 $20,769 -- --
- ------------------- (1) Mr. Cook was elected President and Chief Executive Officer of the Company effective November 23, 1999. (2) Mr. Cook was granted options to purchase 245,000 shares of Common Stock for $4.95 per share under the Company's 1999 Key Employee Stock Option Plan, which was approved on November 23, 1999 at the Company's 1999 Annual Meeting of Stockholders. (3) Mr. Northern resigned as President and Chief Executive Officer of the Company effective November 23, 1999. Pursuant to the terms of his Severance Agreement, Mr. Northern received (i) a separation payment of $100,000 payable in 12 equal monthly payments, (ii) a lump sum payment of $50,000 and (iii) certain other consideration. See "Certain Relationships And Related Transactions." (4) Mr. Northern was granted options to purchase 304,000 shares of Common Stock for $4.95 per share under the Company's 1999 Key Employee Stock Option Plan, which was approved on November 23, 1999 at the Company's 1999 Annual Meeting of Stockholders. (5) Mr. Cannella is a Director of the Company and the President of OPEC CORP., a wholly owned subsidiary of the Company that the Company acquired on July 29, 1998. (6) Represents a one-time bonus for past performance paid in fiscal 1999 but accrued for services provided prior to the Company's acquisition of OPEC on July 29, 1998. (7) Mr. Cannella was granted options to purchase 217,000 shares of Common Stock for $4.95 per share under the Company's 1999 Key Employee Stock Option Plan, which was approved on November 23, 1999 at the Company's 1999 Annual Meeting of Stockholders. (8) On September 30, 1998, Mr. Northern and Mr. Cook were each granted warrants to purchase 205,406 shares of Common Stock at $2.93 per share, as bonuses under their employment contracts. OPTION GRANTS The following table sets forth certain information regarding option grants to Named Executive Officers during the fiscal year ended September 30, 1999. -41- 42 OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS UNDERLYING GRANTED TO EMPLOYEES IN EXERCISE NAME OPTIONS GRANTED FISCAL YEAR PRICE EXPIRATION DATE ---- --------------- ----------- ----- --------------- Earl J. Cook 245,000 (1) 13.60% $4.95 July 18, 2004 Kendall Q. Northern 304,000 (2) 16.88% $4.95 July 18, 2004 Donald D. Cannella 217,000 (3) 12.05% $4.95 July 18, 2004
- ----------------------- (1) Mr. Cook was granted options to purchase 245,000 shares of Common Stock under the Company's 1999 Key Employee Stock Option Plan, which was approved on November 23, 1999 at the Company's 1999 Annual Meeting of Stockholders. (2) Mr. Northern was granted options to purchase 304,000 shares of Common Stock under the Company's 1999 Key Employee Stock Option Plan, which was approved on November 23, 1999 at the Company's 1999 Annual Meeting of Stockholders. (3) Mr. Cannella was granted options to purchase 217,000 shares of Common Stock under the Company's 1999 Key Employee Stock Option Plan, which was approved on November 23, 1999 at the Company's 1999 Annual Meeting of Stockholders. 1999 KEY EMPLOYEE STOCK OPTION PLAN The Company's 1999 Key Employee Stock Option Plan (the "1999 Stock Option Plan") was approved by the Company's Board of Directors and became effective on April 30, 1999. On July 18, 1999, the Company awarded options to purchase 1,039,051 shares to employees at an exercise price of $4.50 per share and 766,000 shares to executive officers at an exercise price of $4.95 per share. All grants were made subject to the approval of the 1999 Stock Option Plan by the Company's stockholders, which was received at the Company's 1999 Annual Meeting of Stockholders held on November 23, 1999. The following is a summary of certain terms and provisions of the 1999 Stock Option Plan. This summary does not propose to be a complete description of the 1999 Stock Option Plan and is subject to the detailed provisions of, and is qualified in its entirety by reference to the 1999 Stock Option Plan. The Company's 1999 Stock Option Plan is administered by the Company's Board of Directors, or a committee of the Board. The Board selects the employees to whom stock options are granted ("Optionees") and determines the number of shares subject to each option and the type of option to be granted. Shares of Common Stock issued pursuant to options awarded under the 1999 Stock Option Plan shall be made available from authorized but unissued or reacquired shares of the Company's Common Stock. The aggregate number of shares of Common Stock that may be issued under the 1999 Stock Option Plan is 2,500,000, provided, however, that the number of shares reserved for issuance pursuant to the 1999 Stock Option Plan shall be adjusted to reflect stock dividends, stock splits and other changes in capitalization. Under the 1999 Stock Option Plan, the Company may grant options that are intended to qualify as Incentive Stock Options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options not intended to qualify as Incentive Stock Options ("Non-Statutory Stock Options"). The Incentive Stock Options are not transferable except by will or the laws of descent -42- 43 and distribution. Non-Statutory Stock Options may be transferred pursuant to terms and conditions established by the Board. Incentive Stock Options shall not be exercisable after the expiration of ten years from the date of grant or upon an earlier expiration date as a result of the retirement or the death of the Optionee. Options held by an Optionee who ceases to be employed by the Company for any reason other than retirement or death shall not be exercisable after the date employment terminates. Also, in consideration of the Company granting the option, an Optionee agrees that he will remain in the employ of the Company for a period of not less than one year from the date of grant of the option, unless his employment shall be terminated on the account of incapacity or with the consent of the Company. The exercise prices of options shall be set by the Board and, in the case of Incentive Stock Options, shall not be less than the per share fair market value of the outstanding shares of the Company on the date the option is granted. If an Incentive Stock Option is granted to an employee who is, at the time the option is granted, deemed for the purposes of Section 422 of the Code, or any successor provisions, to own shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of a parent or subsidiary of the Company, the Option Price shall be at least one hundred and ten percent (110%) of the fair market value of the Common Stock, and shall not be exercisable after the expiration of five years from the date of grant. Options may be granted under the 1999 Stock Option Plan at any time prior to ten years from adoption by the Board, on which date the plan shall expire but without affecting any options then outstanding. The Board may amend, modify or terminate at any time the 1999 Stock Option Plan, except that the Board may not, without further shareholder approval, increase the total number of shares as to which options may be granted under the 1999 Stock Option Plan, change the employees or class of employees eligible to receive options or materially increase the benefits accruing to participants under the 1999 Stock Option Plan. In addition, the Board may not take any action that would impair the validity of any outstanding option or would prevent the incentive stock options issued or to be issued under the 1999 Stock Option Plan from being incentive stock options under Section 422 of the Code, or any successor provision. COMPENSATION OF DIRECTORS All directors of the Company receive a director's fee of $2,500 per month for serving on the Company's Board of Directors. In addition, directors are reimbursed for actual out-of-pocket travel expenses to attend meetings of the Company's Board of Directors. In addition to the standard director's fee paid to the Company's directors, Mr. Hald receives additional consideration for his service to the Company as Chairman of the Board of Directors pursuant to an agreement with the Company. Such consideration includes an additional $7,500 per month, a one-time bonus of $10,000 and warrants to purchase 70,000 shares of the Company's Common Stock for each of the first six months of Mr. Hald's service to the Company. In addition, Mr. Hald shall receive transaction bonuses upon the occurrence of certain events. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS Earl J. Cook is currently employed by the Company under an employment contract that became effective July 26, 1998. At that time, the Company entered into an employment agreement with Mr. Cook that set forth the basic terms of employment, including salary, performance bonuses, and employment duties. In addition, Mr. Cook's employment agreement provides that it is immediately terminable if there is a substantial change in the management or ownership of the Company under which Mr. Cook has a diminished role in ownership or management control so that in the sole opinion of Mr. Cook, it is no longer in his best interests to remain an employee of the Company. Mr. Cook must provide notice of termination within 30 days of receipt of notice of a Change of Control and the Company shall be obligated to pay him (i) his annual salary, a pro-rated stock performance bonus, and all other benefits due him, and (ii) the greater of (a) ten percent (10%) of the Company's net equity as reported on the Company's Balance Sheet at the end of the month immediately preceding such termination, (b) ten percent (10%) of the acquisition price of the Company pursuant to the Change in Control as calculated in accordance with the terms of the employment agreement, or (c) $1,000,000. -43- 44 The Company entered into a Severance Agreement with Kendall Q. Northern effective as of November 23, 1999 (the "Northern Severance Agreement"). Under the terms of the Northern Severance Agreement, Mr. Northern agreed to resign as President and Chief Executive Officer and a Director of the Company in exchange for (i) a separation payment in the amount of $100,000 payable in 12 equal monthly installments, (ii) a lump sum cash payment in the amount of $50,000 and (iii) certain other considerations. Under the Severance Agreement, Mr. Northern agreed to certain restrictive covenants, including, without limitation, refraining from engaging in business in Arizona or Colorado that is directly or indirectly competitive to the Company until November 23, 2000. Donald D. Cannella is currently employed by OPEC CORP., a wholly owned subsidiary of the Company, under an employment agreement that became effective August 1, 1998. The employment agreement sets forth the basic terms of Mr. Cannella's employment as president of OPEC CORP., including salary, bonus, employment duties and employee benefits. The agreement has a term of five years with automatic one year renewal periods and is terminable by either party at the beginning of each renewal period with 30 days prior notice to the other party. Pursuant to the terms of the Company's 1999 Key Employee Stock Option Plan and the stock option agreements relating thereto, the Company has agreed, that all outstanding options granted under the 1999 Key Employee Stock Option Plan vest automatically in the event of a change of control of the Company. For purposes of the Company's 1999 Key Employee Stock Option Plan, the term "change in control" means the first to occur of the following events: (i) The acquisition by any unrelated person of beneficial ownership (as that term is used for purposes of the Securities Exchange Act of 1934 (the "Act") of 20% or more of the then outstanding shares of common stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. The term "unrelated person" means any person other than (x) the Company and any subsidiary, (y) an employee benefit plan or trust of the Company or any subsidiary, and (z) a person who acquires stock of the Company pursuant to an agreement with the Company that is approved by the Board in advance of the acquisition, unless the acquisition results in a Change of Control pursuant to section (ii) below. (ii) Any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, if the result of such transaction is that the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board of the Company or any successor to the Company. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In July 1998, the Company entered into a Stock Purchase Agreement with Blackwater Capital Partners, L.P. and Blackwater Capital Group, L.L.C. (collectively, "Blackwater"). Steven R. Green, a director of the Company, is the managing partner of Blackwater Capital Partners, L.P. Pursuant to the Stock Purchase Agreement, Blackwater Capital agreed to immediately purchase for $375,000 certain units of the Company consisting of an aggregate of 300,000 shares of Common Stock for $1.25 per share and 150,000 warrants with an exercise price of $3.00 per share, which expired in May, 1999 after the original expiration date was extended for six months by the Company. In addition, Blackwater Capital agreed to purchase, or cause to be purchased, up to 3,211,000 shares of Common Stock from the Company and 100,000 shares of Common Stock from each of Kendall Q. Northern and Earl J. Cook, the Company's President and Chief Operating Officer, respectively, at a minimum price of $2.93 per share for a total investment of approximately $10,000,000 and a total sale of up to 3,411,000 shares of Common Stock. In connection with the transactions contemplated by the Stock Purchase Agreement, Blackwater Capital has been issued warrants to purchase 1,700,000 shares of the Company's Common Stock exercisable at any time after vesting at a price of $1.00 per share. The warrants are non-callable and vest from time to time as Blackwater Capital completes the purchase of shares of Common Stock under the Stock Purchase Agreement. Any shares issuable upon exercise of the warrants shall be transferred to a voting trust established under a Voting Trust Agreement among FutureOne (formerly World's Fare, Inc.), Blackwater Capital Group, L.L.C., certain shareholders of the Company and Messrs. Northern and Cook, as co-trustees. Blackwater Capital shall have certain registration rights with respect to all shares of Common Stock and warrants held by Blackwater Capital pursuant to the Stock Purchase Agreement however, no plans have been made with respect to such registration rights to date. Blackwater may or may not -44- 45 purchase the entire 3,411,000 prior to the Company filing a registration statement to resale all or a portion of such shares. The Stock Purchase Agreement also provides that Blackwater Capital may receive fees and commissions to be determined by the Company's Board of Directors in the event that Blackwater Capital assists the Company in completing certain strategic acquisitions. The Stock Purchase Agreement provides that Blackwater shall purchase or cause to be purchased by third party investors up to 3,411,000 shares of the Company's common stock. After the first $2,500,000 is received from Blackwater, the Company may refuse further funding, in which case all of the non-vested warrants would immediately vest. In addition, Blackwater has the right to raise the remaining $7,500,000 through a public offering of the shares of Common Stock that it is committed to buy. Blackwater has purchased 177,605 shares from the Company for its own account at a purchase price of $2.93 per share, but was unable to sell shares to third party investors for that price, consequently, the Company approved the sale of certain shares to third parties at prices less than $2.93 per share. The Company approved the sale of 1,000,000 shares at $2.30 per share and 200,000 shares at $1.25 per share. In connection with the sale of the 1,000,000 shares, Blackwater also assigned 400,000 of their vested warrants to the investor and 100,000 warrants to the broker. Under the Stock Purchase Agreement, Blackwater is entitled to certain piggyback registration rights on the 107,605 shares currently held by Blackwater. There is no assurance that Blackwater will provide additional funding beyond the amounts that were received prior to September 30, 1999. The Company and Blackwater are currently discussing certain modifications to their current arrangement, however, no definitive agreement has been reached to date. In connection with the Company's acquisition of OPEC CORP., the Company assumed a lease for office space which is owned by a partnership controlled by Donald D. Cannella, a director of the Company and President of OPEC Corp. Payments under the lease are $3,000 per month. Although the lease expires in December 2000, it automatically renews for successive one-year periods unless terminated by one of its parties. In August 1999, OPEC obtained a two-year loan for $1,000,000 for its working capital needs. The loan was personally guaranteed by Donald D. Cannella, a director of the Company and President of OPEC CORP. On November 23, 1999, the Company entered into a Severance Agreement with Kendall Q. Northern under which the Company's employment contract with Mr. Northern was terminated by mutual consent and Mr. Northern resigned as an officer and director of the Company, and all of its affiliates, and agreed not to compete with the Company in Arizona and Colorado for a period of one year. In consideration for execution of the Severance Agreement, the Company agreed to immediately pay a one-time sum of $50,000 and a one year separation payment of $100,000 to be paid in equal monthly installments. In addition, the Company is further obligated to pay for Mr. Northern's auto rental, auto insurance and medical insurance for one year. The Company also allowed Mr. Northern to (i) retain certain Company property already in his possession valued at approximately $17,500 and (ii) exchange 200,000 shares of the Company's Common Stock owned by Mr. Northern for 47,031 shares of RMI NET, Inc. common stock obtained by the Company from the sale of substantially all of its assets relating to its Internet access business. ITEM 8. DESCRIPTION OF SECURITIES. The Company is a Nevada corporation and its affairs are governed by its Articles of Incorporation and Bylaws and the Nevada General Corporation Law. The following description of the Company's capital stock, which is complete in all material respects, is qualified in its entirety by reference to the provisions of the Company's Articles of Incorporation and Bylaws, copies of which have been filed as exhibits to this Form 10-SB. The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, par value $0.001 per share. As of January 7, 2000, 12,905,528 shares of Common Stock were issued and outstanding and an additional 1,880,812 shares of Common Stock may be issued upon exercise of outstanding fully vested warrants. Shares of Common Stock may also be issued upon conversion of two convertible notes in an aggregate amount of $29,700 (plus accrued interest) at $1.625 per share, a convertible note in the amount of $500,000 which can be converted at a price of $1.00 per share and an additional convertible note in the amount of $1,000,000, which can be converted at a conversion price of $2.25 per share. Of the 12,905,528 shares currently issued and outstanding, 163,752 shares issued to certain employees of the Company remain subject to awards that were made with vesting -45- 46 restrictions over the next one to two years. In the event an employee's employment with the Company is terminated prior to the vesting of such shares, the Company will cancel such awards. Of the 12,905,528 shares of Common Stock outstanding as of January 7, 2000, approximately 2,528,465 shares of Common Stock are freely tradable without restriction in the public market unless the shares are held by "affiliates," as that term is defined in Rule 144(a) under the Securities Act. As a result, approximately 10,377,063 shares of Common Stock, or approximately 80% of the outstanding shares of Common Stock, are subject to resale only pursuant to Rule 144 of the Securities Act. See "Market Price Of And Dividends On The Registrant's Common Equity And Other Shareholder Matters - Shares Available for Future Sale." COMMON STOCK Holders of shares of Common Stock are entitled to one vote per share on all matters to be voted on by shareholders and do not have cumulative voting rights. The holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. Holders of shares of Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are fully paid and nonassessable. WARRANTS The Company currently has warrants outstanding to purchase 2,947,479 shares of the Company's Common Stock, which were granted to (i) Blackwater Capital, some of which have been subsequently assigned by Blackwater Capital, (ii) certain executive officers and directors of the Company and (iii) certain independent third parties in arm's length financing transactions. The warrants granted to Blackwater Capital are subject to vesting schedules related to amounts of funding provided by Blackwater Capital. Of the 1,700,000 warrants granted to Blackwater Capital, 650,000 warrants are fully vested of which 600,000 have been assigned to third parties. The remaining warrants issued to Blackwater Capital will only become vested if Blackwater Capital provides the remaining funding contemplated by the Stock Purchase Agreement between the Company and Blackwater Capital or the Company refuses to accept additional funding from Blackwater Capital under the Stock Purchase Agreement. The shares of Common Stock underlying the warrants, when issued upon exercise and payment of the purchase price for such shares of Common Stock, will be fairly paid and nonassessable. The warrants contain provisions that protect the purchase rights of the holder upon the occurrence of certain events, such as the merger or consolidation of the Company with or into another corporation or the sale of substantially all of the assets of the Company. The Company is not required to issue fractional shares upon exercise of the warrants. The holder will not possess any rights as a stockholder of the Company until such holder exercises the warrants. -46- 47 PART II ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS. The Company's Common Stock has been quoted on the Over-the-Counter Bulletin Board under the symbol FUTO since August 1998 and previously was quoted under the symbol WRLF since October 14, 1997. The following sets forth the range of high and low bid quotations for the periods indicated as reported by National Quotation Bureau, Inc. Such quotations reflect prices between dealers, without retail mark-up, markdown or commission and may not represent actual transactions.
High Bid Low Bid -------- ------- October 1, 1999 through December 31, 1999............................ $2.8750 $1.2500 July 1, 1999 through September 30, 1999.............................. $5.5000 $2.5000 April 1, 1999 through June 30, 1999.................................. $8.8750 $4.0000 January 1, 1999 through March 31, 1999............................... $10.1250 $2.8750 October 1, 1998 through December 31, 1998............................ $3.7500 $1.8750 July 1, 1998 through September 30, 1998.............................. $3.4375 $2.3750 April 1, 1998 through June 30, 1998.................................. $2.7500 $1.6875 January 1, 1998 through March 31, 1998............................... $1.6250 $1.2500 December 10, 1997 through December 31, 1997.......................... $.5625 $.4375
As of January 7, 2000, there were approximately 202 holders of record of the Company's Common Stock. PENNY STOCK The Company's Common Stock will be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny stock rule." Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9 (d) (1) incorporates the definition of penny stock that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If the Company's Common Stock is deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors are persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in the Company's Common Stock and may affect the ability of stockholders to sell their shares. OTC BULLETIN BOARD ELIGIBILITY RULES In January 1999, the SEC granted approval of amendments to the NASD OTC Bulletin Board Eligibility Rules 6530 and 6540. These amendments now require a company listed on the OTC Bulletin Board to be a reporting company and current in its reports filed with the SEC. As a result of this rule change, the Company has -47- 48 voluntarily filed this registration statement in order to become a fully reporting company and maintain the listing of the Company's Common Stock on the OTC Bulletin Board. The NASD Eligibility Rule requires that the SEC come to a position of no further comment regarding any Form 10 registration statement before the NASD considers a company compliant. The SEC did not come to such a position in regards to this registration statement prior to the Company's phase-in date of December 2, 1999. According to the Eligibility Rule, if the Company is not in compliance at its phase-in date the Company's Common Stock can be removed from the OTC Bulletin Board. To date, the Company's Common Stock has not been removed from the OTC Bulletin Board, however, a delisting may adversely affect the market, if any, in the Company's Common Stock. SHARES AVAILABLE FOR FUTURE SALE Of the 12,905,528 shares of Common Stock outstanding as of January 7, 2000, approximately 2,528,465 shares of Common Stock are freely tradable without restriction in the public market unless the shares are held by "affiliates," as that term is defined in Rule 144(a) under the Securities Act. For purposes of Rule 144 under Securities Act ("Rule 144"), an "affiliate" of an issuer is a person that, directly or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, the issuer. The remaining shares of Common Stock outstanding are "restricted securities" under the Securities Act and may be sold in the public market upon the expiration of the holding periods under Rule 144, described below, subject to the volume, manner of sale, and other limitations of Rule 144. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares for at least one year, including an "affiliate," is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: - 1% of the then outstanding shares of the Company's Common Stock (approximately 129,055 shares); or - the average weekly trading volume during the four calendar weeks preceding filing of notice of the sale of shares of Common Stock. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A stockholder who is deemed not to have been an "affiliate" of the Company at any time during the 90 days preceding a sale, and who has beneficially owned restricted shares for at least two years, would be entitled to sell shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, or public information requirements. In addition, as of January 7, 2000, there were outstanding warrants to purchase 2,947,479 shares of Common Stock, all of which were fully vested. In addition, as of January 7, 2000, there were outstanding options to purchase 1,522,700 shares of Common Stock, none of which were fully vested. As of January 7, 2000, certain outstanding notes payable had conversion rights into approximately 1,000,000 shares depending upon amounts of accrued interest on such notes at the time of conversion. Sales of substantial amounts of the Company's Common Stock (including shares issued upon the exercise of outstanding warrants and options) in the public market in the future could adversely effect the market price of the Company's Common Stock. These sales may also make it more difficult for the Company to sell equity or equity related securities in the future at a time and price that the Company believes is appropriate. ITEM 2. LEGAL PROCEEDINGS. All legal proceedings and actions involving the Company are of an ordinary and routine nature incidental to the operations of the Company. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on the Company's business or financial condition or results of operations. None of the Company's officers, directors, or beneficial owners of 5% or more of the Company's outstanding securities is a party adverse to the Company nor do any of the foregoing individuals have a material interest adverse to the Company. -48- 49 ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. The Company changed its independent auditor from Alvin H. Bender, C.P.A. to Ernst & Young, LLP on December 8, 1998. Ernst & Young LLP has audited the Company's financial statements for the years ended September 30, 1998 and 1999. This change was by mutual consent due to the need for the Company's auditor to be familiar with the requirements of financial statements for corporations becoming reporting companies under the Securities Exchange Act of 1934. The change was approved by the Company's Board of Directors. None of the former accountant's reports on the Company's financial statements for the year ended September 30, 1997 contained an adverse opinion or disclaimer of opinion or was modified as to uncertainty, audit scope or accounting principles. There were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure or any reportable events during the Company's 1998 and 1999 fiscal years. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES. The following provides information concerning all sales of securities within the last three years that were not registered under the Securities Act. In December 1996, the Company issued an aggregate of 100,000 shares of Common Stock to two of its founders for $1,000 received in cash. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In January 1997, the Company issued a total of 10,000,000 shares to the two former stockholders and certain noteholders of Networld.com Inc., of which 7,800,000 shares were directly attributable to the Company's acquisition of Networld.com Inc. and 2,200,000 shares were issued to two noteholders of Networld.com Inc. to redeem $195,000 of debt of Networld.com Inc. In November 1997, 5,000,000 of such shares of Common Stock were voluntarily tendered back to the Company by the same four stockholders pursuant to certain capital adjustment agreements. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In March 1997, the Company exchanged 579,990 shares for notes and leases issued by Networld.com Inc. in the aggregate amount of $242,703. Such offering was made in reliance upon the exemptions from registration provided by Sections 3(b), 4(2), and 4(6) of the Securities Act as private transactions not involving a public distribution. In August and November 1997, the Company issued an aggregate of 250,000 shares of Common Stock in connection with obtaining an equipment financing line of credit. Such shares were issued at $1.00 per share and were not registered pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In October and November 1997, the Company issued 15,500 shares of Common Stock to one investor at a price of $1.00 per share in connection with the Company's purchase of certain equipment. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In 1997, the Company sold 152,000 shares of Common Stock to 11 investors for $152,000. Such offering was made pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In 1998, the Company sold a total of 40 units in consideration for $12,500 per unit to 20 investors with each unit consisting of 10,000 shares of Common Stock and warrants to purchase 5,000 shares of Common Stock at an exercise price of $3.00 per share. Such warrants were redeemable by the Company and expired in May 1999 after the original expiration date of November 1998 was extended for six months by the Company. Such offering -49- 50 was made pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act. From March 1998 through July 1998, the Company issued an aggregate of 181,250 shares of Common Stock to a consultant for services rendered in connection with the merger of World's Fare, Inc. with FUTUREONE INC., an Arizona corporation. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In April 1998, the Company issued 50,000 shares to one holder in consideration for promotional services provided to the Company. Such issuance was made pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In April 1998, the Company issued a total of 215,385 shares of Common Stock, valued at $269,231, to the eight former stockholders of LAN KASTER, INC. in connection with the Company's acquisition of LAN KASTER, INC. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In May 1998, the Company issued a total of 100,000 shares of Common Stock, valued at $125,000, to the two former stockholders of CARNET COMPUTER SERVICES, INC. in connection with the Company's acquisition of CARNET. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In July 1998, the Company issued a total of (i) 40,000 shares of Common Stock, valued at $53,841, to the two partners of InterworldNet Partnership in connection with the Company's acquisition of InterworldNet's assets, and (ii) 2,334,000 shares, valued at $6,200,000, to the three former stockholders of OPEC CORP. in connection with the Company's acquisition of OPEC. The Company also issued 125,000 shares to one individual for consulting services provided in connection with the Company's acquisition of OPEC. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In July 1998, the Company entered into a Stock Purchase Agreement with Blackwater Capital Partners, L.P. and Blackwater Capital Group, L.L.C. Under the Stock Purchase Agreement, Blackwater Capital agreed to purchase, or cause to be purchased, up to 3,211,000 shares of the Company's Common Stock from the Company and up to an aggregate of 200,000 shares from Messrs. Northern and Cook at a minimum price of $2.93 per share. In connection with the Stock Purchase Agreement, Blackwater Capital has been issued warrants to purchase 1,700,000 shares of the Company's Common Stock at $1.00 per share expiring in July 2005. Such warrants vest upon Blackwater Capital's performance under the Stock Purchase Agreement. As of December 15, 1999, 1,387,605 shares of Common Stock have been sold under the Stock Purchase Agreement, including an aggregate of 50,000 shares sold by Messrs. Northern and Cook, and 650,000 warrants have vested in connection therewith which include certain shares and warrants sold in January 1999 as described below. Shares and warrants issued pursuant to the Stock Purchase Agreement are issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act. In addition, under the Agreement, the Company sold to Blackwater Capital a total 300,000 shares of Common Stock and warrants to purchase 150,000 shares of Common Stock at an exercise price of $3.00 per share in consideration for $375,000. Such warrants were redeemable by the Company and expired in May of 1999, after the original expiration date was extended for six months by the Company. In September 1998, the Company issued a total of (i) 33,333 shares of Common Stock, valued at $97,665, to the sole stockholder of PrimeServ, Corp. and two other related parties in connection with the Company's acquisition of the assets of PrimeServ, Corp., (ii) 92,308 shares of Common Stock, valued at $270,462, to the former sole stockholder of Sonoran Industries, Inc. in connection with the Company's acquisition of Kachina and (iii) 185,306 shares of Common Stock, valued at $542,947, to the four former stockholders of PRIORITY SYSTEMS, INC. in connection with the Company's acquisition of PRIORITY SYSTEMS, INC. The Company also issued an aggregate of 2,666 shares of Common Stock to two individuals as commission for services rendered in connection with the acquisition of PrimeServ's assets. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act. In addition, in September 1998, as part of the Blackwater Capital Stock Purchase Agreement, Blackwater Capital acquired 177,605 shares of Common Stock at $2.93 per share. Such shares were issued without -50- 51 registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. Effective September 30, 1998, the Company issued warrants to purchase an aggregate of 410,812 shares of Common Stock to two executive officers of the Company as compensation for services rendered to the Company. Such warrants and the underlying shares of Common Stock were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as a private transaction not involving a public distribution. In November 1998, the Company issued a total of 50,000 shares of Common Stock, valued at $146,500, to four individuals in connection with the Company's acquisition of certain assets of Globalkey. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. The Company issued a total of 222,500 shares of Common Stock to employees in calendar 1998 pursuant to employment contacts or as employment bonuses. Certain stock awards were made with specific vesting restrictions over two to three years. In addition, the Company issued a total of 5,000 shares in June 1998 to a consultant for services provided in connection with some of the Company's corporate acquisitions. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act. In January 1999, as part of the Blackwater Capital Stock Purchase Agreement, Messrs. Northern and Cook sold 40,000 shares and the Company sold (i) 960,000 shares of Common Stock and (ii) warrants to purchase 400,000 shares of Common Stock at an exercise price of $1.00 per share, for an aggregate purchase price of $2,300,000. In connection with this transaction, Blackwater assigned 400,000 of its previously vested warrants to the investor, Muluha Limited, and 100,000 to the broker that facilitated the transaction. The offering of such shares and warrants by the Company was made pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act as private transactions not involving a public distribution. In February 1999, the holder of a convertible promissory note for $25,000 elected to convert the note to 41,750 shares of Common Stock. Such shares were issued without registration pursuant to an exception from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In March 1999, the Company issued a total of 100,000 shares of Common Stock, valued at $230,200, to the four former members of Ubiquity Design, LLC (dba Rocket Science Creative) in connection with the Company's acquisition of Ubiquity Design. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In April 1999, the Company issued a total of 94,118 shares of Common Stock, valued at $216,600, to the two former stockholders of Abcon, Inc. in connection with the Company's acquisition of Abcon. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act. In addition, the Company issued 100,000 shares to the key employee of Abcon pursuant to an employment contract. This award was made with 25,000 shares vesting immediately and specific vesting restrictions on the balance over two years. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In May 1999, two holders exercised warrants that were granted under the Company's Private Placement Memorandum of November 26, 1997 and purchased a total of 10,000 shares at $3 per share. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In July 1999, the Company issued a total of 67,605 shares of Common Stock, valued at $155,628, to the two former members of Progressive Media LLC in connection with the Company's acquisition of Progressive Media. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. -51- 52 In August 1999, the Company issued a total of 121,212 shares of Common Stock, valued at $279,030, to the sole member of AMCOM LLC in connection with the Company's acquisition of AMCOM. In addition, the Company issued 50,000 shares to the key employee of AMCOM pursuant to an employment contract. This award was made with 12,500 shares vesting immediately upon approval of the transfer by the Colorado PUC, which has been completed, and specific vesting restrictions on the balance over two years. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In August 1999, as part of the Blackwater Capital Stock Purchase Agreement the Company sold 200,000 shares of Common Stock for an aggregate purchase price of $250,000. The offering of such shares by the Company was made pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In 1999, the Company has issued a total of 87,000 shares of Common Stock to employees pursuant to employment contracts or as employment bonuses. These awards were made with specific vesting restrictions of up to three years. In addition, the Company issued a total of 2,500 shares in March 1999 to a consultant for services provided in connection with employment agency services and 20,000 shares as a partial commission on the sale of substantially all of the assets relating to the Company's Internet access business. Such shares were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. In October 1999, the Company issued a warrant to purchase 250,000 shares of Common Stock and a promissory note in consideration for $250,000. The offering of such warrants, promissory note and underlying shares of Common Stock was made pursuant to an exemption from registration under Section 4(2) of the Securities Act as private transactions not involving a public distribution. Effective as of October 22, 1999, the Company issued a warrant to purchase 500,000 shares of Common Stock and a promissory note convertible into 500,000 shares of Common Stock in consideration for $500,000. The offering of such warrants, promissory note and underlying shares of Common Stock was made pursuant to an exemption from registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act as private transactions not involving a public distribution. Effective as of December 28, 1999, the Company issued a warrant to purchase 16,667 shares of Common Stock and a promissory note convertible into 50,000 shares of Common Stock in consideration for $50,000. The offering of such warrants, promissory note and underlying shares of Common Stock was made pursuant to an exemption from registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act as private transactions not involving a public distribution. Effective January 1, 2000, the Company issued a warrant to purchase 70,000 shares to a member of the Company's Board of Directors for such director's service to the Company. Such warrants and the underlying shares of Common Stock were issued without registration pursuant to an exemption from registration under Section 4(2) of the Securities Act as a private transaction not involving a public distribution. In each of the private transactions above, the Company believes that each purchaser (i) had access to or was provided information regarding the Company; (ii) was aware that the securities had not been registered under federal securities laws; (iii) acquired the securities for his/her/its own account for investment purposes; (iv) understood that the securities would need to be indefinitely held unless registered or an exemption from registration applied to a proposed disposition; and (v) was aware that the certificate representing the securities would bear a legend restricting its transfer. The Company believes that, in light of the foregoing, the sale of the Company's securities to the respective acquirers did not constitute a sale of an unregistered security in violation of the federal securities laws and regulations by reason of the exemptions provided under Section 4(2) of the Securities Act, and the rules and regulations promulgated thereunder. -52- 53 ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS. A. INDEMNIFICATION PROVIDED BY STATUTE: Sections 78.037, 78.295, 78.300, 78.7502, 78.751 and 78.752 of the Nevada Revised Statutes offer limitation of liability protection for officers and directors and/or indemnification protection of officers, directors, employees and agents of the Company, and provide as follows: NRS 78.037 Articles of Incorporation; Optional provisions. The articles of incorporation may also contain: 1. A provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, but such a provision must not eliminate or limit the liability of a director or officer for: (a) Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (b) The payment of distributions in violation of NRS 78.300. 2. Any provision, not contrary to the laws of this state, for the management of the business and for the conduct of the affairs of the corporation, and any provision creating, defining, limiting or regulating the powers of the corporation or the rights, powers or duties of the directors, and the stockholders, or any class of the stockholders, or the holders of bonds or other obligations of the corporation, or governing the distribution or division of the profits of the corporation. NRS 78.295. Liability of directors for declaration of distributions. A director is fully protected in relying in good faith upon the books of account of the corporation or statements prepared by any of its officials as to the value and amount of assets, liabilities or net profits of the corporation, or any other facts pertinent to the existence and amount of money from which distributions may properly be declared. NRS 78.300 Liability of directors for unlawful distributions. 1. The directors of a corporation shall not make distributions to stockholders except as provided by this chapter. 2. In case of any willful or grossly negligent violation of the provisions of this section, the directors under whose administration the violation occurred, except those who caused their dissent to be entered upon the minutes of the meeting of the directors at the time, or who not then being present caused their dissent to be entered on learning of such action, are jointly and severally liable, at any time within 3 years after each violation, to the corporation, and, in the event of its dissolution or insolvency, to its creditors at the time of the violation, or any of them, to the lesser of the full amount of the distribution made or of any loss sustained by the corporation by reason of the distribution to stockholders. NRS 78.7502 Discretionary and mandatory indemnification of officers, directors, employees and agents: General provisions. 1. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, -53- 54 settlement, conviction or upon a plea of nolo contendre or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. 2. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. 3. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. NRS 78.751 Authorization required for discretionary indemnification; advancement of expenses, limitation on indemnification and advancement of expenses. 1. Any discretionary indemnification under NRS 78.7502 unless ordered by a court or advanced pursuant to subsection 2, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. 2. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. 3. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section: -54- 55 (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the advancement of expenses made pursuant to subsection 2, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. NRS 78.752. Insurance and other financial arrangements against liability of directors, officers, employees and agents. 1. A corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. 2. The other financial arrangements made by the corporation pursuant to subsection 1 may include the following: (a) The creation of a trust fund. (b) The establishment of a program of self-insurance. (c) The securing of its obligation of indemnification by granting a security interest or other lien on any assets of the corporation. (d) The establishment of a letter of credit, guaranty or surety. No financial arrangement made pursuant to this subsection may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification ordered by a court. 3. Any insurance or other financial arrangement made on behalf of a person pursuant to this section may be provided by the corporation or any other person approved by the board of directors, even if all or part of the other person's stock or other securities is owned by the corporation. 4. In the absence of fraud: (a) The decision of the board of directors as to the propriety of the terms and conditions of any insurance or other financial arrangement made pursuant to this section and the choice of the person to provide the insurance or other financial arrangement is conclusive; and -55- 56 (b) The insurance or other financial arrangement: (1) Is not void or voidable; and (2) Does not subject any director approving it to personal liability for his action, even if a director approving the insurance or other financial arrangement is a beneficiary of the insurance or other financial arrangement. 5. A corporation or its subsidiary which provides self-insurance for itself or for another affiliated corporation pursuant to this section is not subject to the provisions of Title 57 of NRS. B. INDEMNIFICATION PROVIDED BY THE ARTICLES OF INCORPORATION: The Company's Amended and Restated Articles of Incorporation provide that the Company shall indemnify, defend or hold harmless any person who incurs expenses, claims, damages or liability by reason of the fact that he or she is, or was, an officer or director of the Corporation, to the fullest extent allowed pursuant to Nevada law. C. INDEMNIFICATION PROVIDED BY THE BY-LAWS OF THE COMPANY: Article IX of the Company's By-Laws provides as follows: 1. General. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. 2. Derivative Actions. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including amounts paid in settlement and attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom to be liable to the Company or for amounts paid in settlement to the Company unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. 3. Indemnification in Certain Cases. To the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of Article IX of the Company's Bylaws ("Article IX"), or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. -56- 57 4. Procedure. Any indemnification under Sections 1 and 2 of Article IX (unless ordered by a court or advanced pursuant to Section 5 of Article IX) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. 5. Advances for Expenses. Expenses incurred by a director, officer, employee, or agent of the Company in defending a civil or criminal action, suit or proceeding shall be paid by the Company as they are incurred and in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay the amount if it shall be ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company as authorized in Article IX. 6. Rights Not Exclusive. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to the other Sections of Article IX shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding such office, except that indemnification, unless ordered by a court pursuant to Section 2 of Article IX or for advancement of expenses made pursuant to Section 5 of Article IX, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. 7. Insurance. The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and liability and expenses incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of Article IX. 8. Definition of Corporation. For the purposes of Article IX, references to "the Company" include, in addition to the resulting corporation, all constituent corporations (including any constituent of a constituent) absorbed in consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. 9. Other Definitions. For purposes of Article IX, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person 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 or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he -57- 58 reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in Article IX. 10. Continuation of Rights. The indemnification and advancement of expenses provided by, or granted pursuant to Article IX shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. No amendment to or repeal of Article IX shall apply to or have any effect on, the rights of any director, officer, employee or agent under Article IX which rights come into existence by virtue of acts or omissions of such director, officer, employee or agent occurring prior to such amendment or repeal. -58- 59 PART F/S The following financial statements are included herein: Consolidated Financial Statements of FutureOne, Inc. and subsidiaries Financial Statements of OPEC CORP. PART III Item 1. Index to Exhibits
Exhibit No. Description - -------------- ---------------------------------------------------------------------- 2.1 Articles of Incorporation of the Company, including all amendments and articles of exchanges thereto* 2.2 By-Laws of the Company* 2.3 First Amendment to By-Laws of the Company* 2.4 Second Amendment to By-Laws of the Company* 2.5 Amended and Restated Articles of Incorporation of the Company 5.1 Voting Trust Agreement among the Company, Blackwater Capital Group, L.L.C., Certain Stockholders and Kendall Q. Northern and Earl J. Cook, dated July 25, 1998* 6.1 Executive Employment Agreement between the Company and Kendall Q. Northern, dated as of July 27, 1998* 6.2 First Amendment to the Executive Employment Agreement between the Company and Kendall Q. Northern, dated May 14, 1999* 6.3 Executive Employment Agreement between the Company and Earl J. Cook, dated as of July 27, 1998* 6.4 First Amendment to the Executive Employment Agreement between the Company and Earl J. Cook, dated May 14, 1999* 6.5 Employment Agreement between OPEC Corp. and Donald D. Cannella, dated as of August 1, 1998* 6.6 Stock Purchase Agreement by and among World's Fare, Inc., dba FutureOne, a Nevada corporation, and Blackwater Capital Partners, L.P., and Blackwater Capital Group, L.L.C., dated as of July 25, 1998* 6.7 Warrant for the Purchase of 1,700,000 Shares of Common Stock of World's Fare, Inc. dba FutureOne* 6.8 FutureOne, Inc. 1999 Key Employee Stock Option Plan* 6.9 Form of FutureOne, Inc. Incentive Stock Option Agreement*
-59- 60
Exhibit No. Description - -------------- ---------------------------------------------------------------------- 6.10 Form of Warrant to Purchase 205,406 shares of Common Stock in the name of Earl J. Cook 6.11(a) Lease by and between First Gracie, Limited Liability Company and Networld.com Inc., dated November 28, 1995, as amended 6.11(b) First Amendment to Lease 6.11(c) Second Amendment to Lease 6.11(d) Third Amendment to Lease 6.11(e) Fourth Amendment to Lease 6.11(f) Fifth Amendment to Lease 6.14 Loan Agreement by and among Norwest Bank Colorado, National Association, Trustee of the James C. Berger Rollover IRA, John Ventiniglia and Robin L. Morley & Mark E. Morley; OPEC Corp. and Donald D. Cannella dated August 27, 1999* 6.15 Collateralized Convertible Commercial Promissory Note by OPEC Corp. to the order of Norwest Bank Colorado, National Association, John Ventiniglia, and Robin L. Morley & Mark E. Morley in the amount of $1,000,000 dated August 27, 1999* 6.16 Guaranty by Donald D. Cannella to and for the benefit of Norwest Bank Colorado, National Association, Trustee of the James C. Berger Rollover IRA dated August 27, 1999* 6.17 State of Colorado Uniform Commercial Code-Security Agreement dated August 27, 1999* 6.18 Addendum to Uniform Commercial Code-Security Agreement* 6.19 Purchase and Sale Agreement by and among FutureOne, Inc. and the Members of Progressive Media LLC, dated as of July 16, 1999* 6.20 Purchase and Sale Agreement by and between the Company and Mandalay Incorporated dated December 6, 1999 6.21 Asset Purchase Agreement by and among RMI.NET, Inc. and Networld.com, Inc., FutureOne, Inc., an Arizona corporation and FutureOne, Inc., a Nevada corporation dated November 19, 1999 6.22 Severance Agreement by and between the Company and Kendall Q. Northern dated as of November 23, 1999 6.23 12% Secured Convertible Promissory Note made by the Company to the order of 12 Squared Partners, LLC, dated as of October 22, 1999 6.24 Warrant to Purchase 500,000 shares of Common Stock in the name of 12 Squared Partners, LLC
-60- 61
Exhibit No. Description -------------- ---------------------------------------------------------------------- 6.25 Security and Pledge Agreement by and between the Company and 12 Squared Partners, LLC, dated as of October 22, 1999 6.26 12% Convertible Promissory Note made by the Company to the order of Hare & Co., as Trustees for Financial Institutions Retirement Fund, dated as of December 28, 1999 6.27 Warrant to Purchase 16,667 shares of Common Stock in the name of Hare & Co., as Trustees for Financial Institutions Retirement Fund 6.28 Reseller Agreement by and between Ascend Communication Inc. and Priority Systems effective as of December 15, 1998 6.29 Employment Agreement between the Company and Bruce A. Robson dated as of January 11, 1999 6.30 Employment Agreement between the Company and R. Tucker Woodbury dated as of March 31, 1999 6.31 Employment Agreement between the Company and Alan Hald dated January 1, 2000 6.32 15% Promissory Note payable to the order of Richard B. McCulloch dated October 8, 1999 6.33 Form of Warrant to Purchase 250,000 shares of Common Stock in the name of Richard B. McCulloch 12.1 Letter on Change in Certifying Accountant 12.2 Subsidiaries of the Registrant* 12.3 Consent of Ernst & Young LLP Independent Auditors 27.1 Financial Data Schedule (Year Ended September 30, 1998)* 27.2 Financial Data Schedule (Year Ended September 30, 1999)
*Incorporated by reference from the Company's Form 10-SB Registration Statement filed with the Commission on October 7, 1999. -61- 62 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. FUTUREONE, INC. Date: January 13, 2000 By: /s/ Earl J. Cook ------------------------- --------------------------------- Earl J. Cook Chief Executive Officer -62- 63 Report of Independent Auditors The Board of Directors and Stockholders FutureOne, Inc. We have audited the accompanying consolidated balance sheets of FutureOne, Inc. and subsidiaries (the Company) as of September 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FutureOne, Inc. and subsidiaries at September 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming FutureOne, Inc. and subsidiaries will continue as a going concern. As more fully described in Note 1, the Company has recurring losses, and negative working capital. These conditions raise substantial doubt about the Company's ability to continue as a going concern (management's plans in regard to those matters are also described in Note 1). The financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty. ERNST & YOUNG LLP Phoenix, Arizona December 29, 1999 F-1 64 Futureone, Inc. and Subsidiaries Consolidated Balance Sheets
SEPTEMBER 30 1999 1998 ------------------- ------------------ ASSETS Current assets: Cash and cash equivalents $ 160,032 $ 570,979 Trading securities -- 151,621 Trade accounts receivable, net of allowance for doubtful accounts of approximately $140,000 and $65,000 at September 30, 1999 and 1998, respectively 2,671,164 1,473,807 Cost and estimated earnings in excess of billings on uncompleted contracts 717,548 411,877 Inventory 2,701,096 49,861 Prepaid expenses and other assets 147,286 7,567 Net current assets of discontinued operations 26,631 52,462 ------------ ------------ Total current assets 6,423,757 2,718,174 Property and equipment, net 3,672,716 1,455,164 Notes receivable 62,906 -- Intangible assets, net 6,513,049 7,135,236 Other assets 191,028 40,649 Net long-term assets of discontinued operations 898,979 961,207 ------------ ------------ $ 17,762,435 $ 12,310,430 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Credit lines payable $ 480,000 $ 294,011 Notes payable to stockholders 171,450 7,450 Trade accounts payable 5,556,062 953,347 Accrued expenses 382,627 251,058 Accrued bonus -- 500,000 Accrual for loss contract -- 100,000 Taxes payable 294,973 297,198 Billings in excess of cost and estimated earnings on uncompleted contract 66,861 72,005 Current portion of long term debt and capital leases 1,429,799 474,245 Other liabilities 25,970 110,591 ------------ ------------ Total current liabilities 8,407,742 3,059,905 Notes payable, less current portion 2,603,848 701,387 Capital lease payable, less current portion 67,786 53,301 Stockholders' equity: Common stock, $.001 par value, 50,000,000 shares authorized and 12,891,028 and 11,055,344 shares issued at September 30, 1999 and 1998, respectively 12,891 11,055 Additional paid-in capital 14,050,433 10,202,771 Unearned compensation (290,159) (153,207) Treasury stock, 108,850 shares (250,573) -- Accumulated deficit (6,839,533) (1,564,782) ------------ ------------ Total stockholders' equity 6,683,059 8,495,837 ------------ ------------ $ 17,762,435 $ 12,310,430 ============ ============ See accompanying notes.
F-2 65 FutureOne, Inc. and Subsidiaries Consolidated Statements of Operations
YEAR ENDED SEPTEMBER 30 1999 1998 ------------ ------------ Revenues: Internet services business $ 410,843 $ 63,399 Communication equipment sales 2,058,341 251,194 Broadband communications engineering and construction services 8,663,101 1,695,111 ------------ ------------ 11,132,285 2,009,704 Costs of sales: Internet services business 433,976 117,461 Communication equipment sales 2,161,646 218,508 Broadband communications engineering and construction services (including $448,976 and $43,724 of depreciation and amortization in 1999 and 1998, respectively) 7,082,954 1,376,002 ------------ ------------ 9,678,576 1,711,971 ------------ ------------ Gross profit 1,453,709 297,733 Operating expenses: General and administrative 4,058,577 607,026 Depreciation and amortization 951,021 150,602 Unusual Items 316,720 -- ------------ ------------ Loss from operations (3,872,609) (459,895) Other income (expense): Interest expense (247,155) (22,596) Other 44,907 (8,966) ------------ ------------ Net loss from continuing operations (4,074,857) (491,457) Discontinued operations: Loss from operations (1,133,279) (710,195) Loss on disposal (66,615) -- ------------ ------------ Net loss $ (5,274,751) $ (1,201,652) ============ ============ Basic and diluted net loss per common share: Loss from continuing operations $ (.34) $ (.07) Loss from discontinued operations (.10) (.09) ------------ ------------ Net loss per common share $ (.44) $ (.16) ============ ============ Basic and diluted weighted average shares: 12,031,412 7,677,566 ============ ============
See accompanying notes. F-3 66 FutureOne, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
COMMON STOCK ADDITIONAL ---------------------------- PAID-IN UNEARNED SHARES AMOUNT CAPITAL COMPENSATION ------------- -------------- ------------- -------------- Balance at September 30, 1997 6,049,490 $ 6,049 $ 784,431 $ -- Issuance of common stock: World's Fare, Inc. reverse merger 500,000 500 1,315 -- Private Placement Series 1 40,000 40 39,960 -- Private Placement Series 2, net of offering costs 700,000 700 588,420 -- Commission on Series 2 Private Placement 181,250 181 181,069 -- Equipment acquisition 15,500 16 15,484 -- Services 2,000 2 1,998 -- Compensation to employees 210,001 210 284,690 (162,370) Lan Kaster Inc. acquisition 215,385 215 269,016 -- Consultants for services 180,000 180 224,820 -- Carnet Computer Services, Inc. acquisition 100,000 100 124,900 -- Interworldnet Partnership acquisition 40,000 40 49,960 -- OPEC Corp acquisition 2,334,000 2,334 6,197,666 -- Priority Systems, Inc. acquisition 185,306 185 542,762 -- Purchase Agreement with accredited investor 177,605 178 520,505 -- PrimeServ and Amore Trust acquisition 35,999 36 105,442 -- Kachina International acquisition 92,308 92 270,370 -- Purchase of common stock from terminated employees (2,500) (2) (28) -- Amortization of unearned compensation -- -- -- 9,163 Repurchase of employee shares (1,000) (1) (9) -- Net loss -- -- -- -- ------------ ------------ ------------ ------------ Balance - September 30, 1998 11,055,344 11,055 10,202,771 (153,207) Issuance of common stock Compensation to employees 244,999 245 616,062 (349,485) Private Placements 1,160,000 1,160 2,458,840 -- Exercise of warrants from Private Placement 10,000 10 29,990 -- Conversion of promissory note 41,750 42 24,958 -- Consultants for services 2,500 3 5,753 -- Abcon, Inc. acquisition 94,118 94 216,566 -- AMCOM LLC acquisition 121,212 121 278,909 -- GlobalKey acquisition 50,000 50 146,450 -- Progressive Media LLC acquisition 67,605 68 155,560 -- Ubiquity Design LLC acquisition 100,000 100 230,100 -- Expenses of Private Placement -- -- (240,750) -- Amortization of unearned compensation -- -- -- 137,700 Cancellation of nonvested employee stock (56,500) (57) (74,776) 74,833 Treasury stock from sale of Priority Systems, Inc. -- -- -- -- Net loss -- -- -- -- ------------ ------------ ------------ ------------ Balance - September 30, 1999 12,891,028 $ 12,891 $ 14,050,433 $ (290,159) ============ ============ ============ ============
See accompanying notes.
ACCUMULATED TREASURY DEFICIT STOCK TOTAL -------------- -------------- ------------- Balance at September 30, 1997 $ (363,130) $ -- $ 427,350 Issuance of common stock: World's Fare, Inc. reverse merger -- -- 1,815 Private Placement Series 1 -- -- 40,000 Private Placement Series 2, net of offering costs -- -- 589,120 Commission on Series 2 Private Placement -- -- 181,250 Equipment acquisition -- -- 15,500 Services -- -- 2,000 Compensation to employees -- -- 122,530 Lan Kaster Inc. acquisition -- -- 269,231 Consultants for services -- -- 225,000 Carnet Computer Services, Inc. acquisition -- -- 125,000 Interworldnet Partnership acquisition -- -- 50,000 OPEC Corp acquisition -- -- 6,200,000 Priority Systems, Inc. acquisition -- -- 542,947 Purchase Agreement with accredited investor -- -- 520,683 PrimeServ and Amore Trust acquisition -- -- 105,478 Kachina International acquisition -- -- 270,462 Purchase of common stock from terminated employees -- -- (30) Amortization of unearned compensation -- -- 9,163 Repurchase of employee shares -- -- (10) Net loss (1,201,652) -- (1,201,652) ----------- ----------- ----------- Balance - September 30, 1998 (1,564,782) -- 8,495,837 Issuance of common stock Compensation to employees -- -- 266,822 Private Placements -- -- 2,460,000 Exercise of warrants from Private Placement -- -- 30,000 Conversion of promissory note -- -- 25,000 Consultants for services -- -- 5,756 Abcon, Inc. acquisition -- -- 216,660 AMCOM LLC acquisition -- -- 279,030 GlobalKey acquisition -- -- 146,500 Progressive Media LLC acquisition -- -- 155,628 Ubiquity Design LLC acquisition -- -- 230,200 Expenses of Private Placement -- -- (240,750) Amortization of unearned compensation -- -- 137,700 Cancellation of nonvested employee stock -- -- -- Treasury stock from sale of Priority Systems, Inc. -- (250,573) (250,573) Net loss (5,274,751) -- (5,274,751) ----------- ----------- ----------- Balance - September 30, 1999 $(6,839,533) $ (250,573) $ 6,683,059 =========== =========== ===========
See accompanying notes. F-4 67 FutureOne, Inc. and Subsidiaries Consolidated Statements of Cash Flows
YEAR ENDED SEPTEMBER 30 1999 1998 ----------- ----------- OPERATING ACTIVITIES Net loss $(5,274,751) $(1,201,652) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,399,997 194,326 Provision for doubtful accounts 96,997 48,301 Amortization of unearned compensation 137,700 9,163 Provision for inventory valuation 292,146 11,854 Stock compensation 272,578 530,780 Realized and unrealized (gain) loss on investments -- 38,301 Loss (gain) on sale of assets 113,952 (3,543) Loss on Global Key amortization write-off 120,175 -- Loss on Priority Systems sale 316,720 -- Changes in operating assets and liabilities: Trading securities 151,621 145,978 Trade accounts receivable (1,107,644) (652,552) Costs and estimated earnings in excess of billings on uncompleted contracts (289,251) (245,028) Inventory (2,943,381) (16,619) Prepaid expenses and other assets (140,419) 8,896 Trade accounts payable 4,326,346 570,779 Accrued expenses 171,067 50,159 Accrued bonus (500,000) -- Accrual for loss contract (100,000) 100,000 Taxes payable (2,225) (27,577) Billings in excess of cost and estimated earnings on uncompleted contracts (5,144) (199,265) Other liabilities (84,621) 104,499 ----------- ----------- Net cash used in operating activities (3,048,137) (533,200) INVESTING ACTIVITIES Purchases of property and equipment (2,108,591) (198,915) Proceeds from sale of property and equipment -- 18,799 Acquisitions of businesses, net of cash received 25,851 122,691 Purchase of trademark (1,856) -- Purchase of subscriber list -- -- Change in other assets (94,902) (22,887) Change in net assets of discontinued operations 88,059 133,856 ----------- ----------- Net cash (used in) provided by investing activities (2,091,439) 53,544 FINANCING ACTIVITIES Net proceeds (repayments) under credit lines 185,989 -- Proceeds (repayments) from notes payable to shareholders -- (36,326) Principal payments under capital lease obligations (106,852) (42,036) Proceeds from issuance of common stock 2,249,250 1,151,619 Repurchase of common stock -- (40) Debt issuance costs (75,000) -- Proceeds from borrowings 3,765,014 25,000 Proceeds from notes payable, officers 164,000 -- Principle payments of notes payable (1,453,772) (68,645) ----------- ----------- Net cash provided by financing activities 4,728,629 1,029,572 ----------- ----------- Increase (decrease) in cash and cash equivalents (410,947) 549,916 Cash and cash equivalents at beginning of period 570,979 21,063 ----------- ----------- Cash and cash equivalents at end of period $ 160,032 $ 570,979 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Assets acquired under capital lease obligation $ 362,019 $ 530,523 =========== =========== Conversion of debt into common stock $ 25,000 $ -- =========== =========== Common stock issued for equipment $ -- $ 3,000 =========== ===========
See accompanying notes. F-5 68 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements September 30, 1999 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Description of Business FutureOne, Inc. (f/k/a World's Fare, Inc.) (the "Company") is a successor by reverse merger to FUTUREONE, INC., an Arizona corporation ("FutureOne AZ"). World's Fare, Inc. was incorporated March 22, 1994 and 1,000 shares were issued to the founders in exchange for services. In May 1997, World's Fare, Inc. approved a 500:1 stock split which increased the outstanding shares to 500,000 and the authorized shares to 50,000,000 with a par value of $.001. On March 30, 1998, World's Fare, Inc. issued 6,049,490 shares of its common stock for all of the outstanding shares of FutureOne AZ to consummate the reverse merger. On August 6, 1998, World's Fare, Inc. changed its name to FutureOne, Inc. FutureOne AZ is a successor by reverse merger to Networld.com Inc. FutureOne AZ was incorporated December 26, 1996 and, 100,000 shares were purchased by some of the Founders to establish the business. In January 1997, FutureOne AZ issued 7,800,000 shares of its common stock for all of the outstanding shares of Networld.com Inc. Networld.com Inc. was incorporated November 25, 1995. Networld.com Inc. had $437,703 in debt and loans at the time of the reverse merger that were converted into 2,779,990 common shares of FutureOne AZ common stock. The financial statements present Networld.com as the predecessor business and the financial statements include its operations beginning October 1, 1996. The Company and its subsidiaries are primarily a communications business, in four related, but distinct, industry segments: i) Internet services, including personal and business dial up accounts, high speed frame relay connections, virtual telephone services, web site design and custom software development (the Company sold the Internet access business on November 19, 1999, as further described in Note 18 Subsequent Events, and sold the virtual telephone service on December 6, 1999); ii) communication equipment sales, including direct sales of name brand communications equipment (the Company formerly sold computer products and services on a retail basis, but discontinued its retail computer sales and services on June 15, 1999 and now only sells communications products at the wholesale level); iii) broadband communications engineering and construction services; and iv) telecommunications and convergence technology, which will include local and long distance phone service and the Company's networked community concept known as "NeighborComm(TM)", which, if successful, will provide residents of NeighborComm communities with an easy to use software solution that creates a virtual community (Intranet) within the development and community it serves bundled with integrated communications products that include, voice, video and high-speed Internet, through a single source, directly to homes and businesses. F-6 69 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Presentation The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. As shown in the accompanying statement of operations, the Company incurred an aggregate net loss of $6.5 million over the past two years and has negative working capital of $2.0 million at September 30, 1999. To meet its immediate cash needs, the Company has obtained bridge loans of $750,000 in October 1999 and anticipates it will obtain additional bridge loans of approximately $1.0 million and immediately will realize approximately $1.5 million in cash from the sale of securities obtained in the sale of its Internet access operations (see Note 18). The Company is also seeking additional financial resources through planned additional equity offerings. The Company's ability to improve its financial position will be influenced by, among other things, operating results and customer response to the Company's enhanced business model. The Company's ability to continue operations as a going concern is dependent upon its ability to generate sufficient cash flow and earnings to meet its obligations on a timely basis and to obtain additional financing as may be required in the future. Management of the Company has plans to expand business operations during 2000 which will require more capital resources than are currently available to the Company. The Company's business plans include pursuing additional debt and or equity financing with financial institutions or strategic partner(s). The Company currently has a stock purchase commitment from an entity for an additional round of financing. Under terms of the agreement, the entity can provide funding through a public offering. A representative of that entity is also a member of the board of directors. In the event the Company is unable to obtain additional financing, the Company will scale back the scope of the planned roll out and reduce costs to permit existing sources of capital to finance the operations of the Company until such time additional sources become available. Basis of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, FutureOne AZ, Networld.com Inc. (see Note 3), OPEC CORP., Abcon, Inc., Ubiquity Design LLC, Progressive Media LLC, and AMCOM LLC. The accompanying consolidated financial statements also include the accounts of CARNET COMPUTER SERVICES, INC. and LAN KASTER, INC until they were dissolved in November 1998 and PRIORITY SYSTEMS, INC. until it was sold in June 1999. All significant intercompany accounts and transactions have been eliminated. F-7 70 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The accompanying consolidated statement of operations includes the revenues and expenses of the acquired entities from their actual date of acquisition, all of which occurred at various dates during the years ended September 30, 1999 and 1998. Revenue and Cost Recognition The Company generates revenue from Internet services, communication equipment sales and construction contracts. Internet access revenues are recognized on a monthly basis beginning in the period in which service is made available to a customer. Customer payments collected in advance related to future service are deferred and recognized as revenue in the period service is provided. Other Internet and programming services are billed as the work is completed. The Internet access services segment was sold subsequent to September 30, 1999 (see Note 18). Communication equipment sales revenue is recognized as products are delivered, services are completed or monthly fees have been earned for service contracts. Revenue from firm-fixed-price contracts is recognized using the percentage of completion method. Under this method, revenues recognized on firm-fixed-price contracts are measured by the percentage of costs incurred to date to total estimated costs for each contract. Provision for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions in costs and income and are recognized in the period in which the revisions are determined. Costs and estimated earnings in excess of billings represent revenues recognized, using the percentage of completion method under firm-fixed-price contracts, in excess of billings on those contracts. Company billing amounts to a customer on firm-fixed-price contracts are usually specified in the contract terms and conditions and usually consider passage of time, achievement of certain project milestones or completion of the project. Cash and Cash Equivalents The Company considers all money market funds with a maturity of three months or less at the date acquired to be cash equivalents. F-8 71 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Significant Customers For the years ended September 30, 1999 and 1998, the Company had revenues from one large customer as a percent of total revenues as follows:
YEAR ENDED SEPTEMBER 30 1999 1998 ---- ---- Customer A - % 15% Customer B 10 --
Trading Securities Trading securities are valued at fair market value in accordance with generally accepted accounting principles. Realized and unrealized gains and losses are charged to earnings when identified. Accounts Receivable The Company sold its Internet dial up accounts and other internet services to personal and business accounts principally in Arizona. Communication equipment sales are made to business accounts nationwide. Construction services provided by the Company are performed primarily for utility companies and land developers in the Western United States. Accounts receivable are typically unsecured. The Company performs on going credit evaluations of its retail customers and maintains reserves for potential credit losses. Inventories Inventories consist primarily of communication equipment held for sale. Inventories are carried at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment is stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally three years for software and web site costs and five to seven years for computer related equipment, construction equipment and vehicles. F-9 72 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible Assets Intangible assets consist of trademarks, goodwill, debt issue costs and licenses and are capitalized and amortized on a straight-line basis over their expected useful lives, which range from three to ten years. Income Taxes The Company accounts for income taxes under the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the liability method, deferred tax assets and liabilities are determined from the expected future tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases. Loss Per Share The Company computes earnings per share in accordance with Statement of Financial Accounting Standards Board ("SFAS") No. 128, "Earnings per Share." Earnings per common share amounts are based on the weighted average common shares outstanding during the respective periods and earnings per common share, assuming dilution, amounts are based on the weighted average common and dilutive common equivalent shares outstanding during the respective periods. As of September 30, 1999, 1,613,551 nonvested options and 2,110,812 warrants of which 1,050,000 are nonvested are outstanding which do not have a dilutive effect on loss per share given that they would be antidilutive to such loss and have been excluded from the loss per share computation. The Company also has certain debt securities which are convertible into 462,753 shares of common stock. Advertising Costs Advertising costs are expensed as incurred. Advertising expense was approximately $16,000 and $20,000 for the years ended September 30, 1999 and 1998, respectively. Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," and accordingly, recognizes no compensation expense for employee stock option grants made at fair value. Stock option grants to nonemployees are charged to expense based upon the fair value of the options granted. F-10 73 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Comprehensive Loss As of October 1, 1997, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). Statement 130 establishes new rules for reporting and display of comprehensive income and its components. Comprehensive loss is the same as net loss for all periods presented. Segment Information Effective October 1, 1997, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 superseded FASB No. 14, "Financial Reporting of Segments of a Business Enterprise." SFAS No. 131 establishes standards for the way that business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable interest rates as of the balance sheet date and approximates the carrying value of such debt because the underlying instruments are at variable rates which are repriced frequently. Reclassification Certain reclassifications have been made to the 1998 financial statements to conform with the 1999 presentation. F-11 74 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS Fiscal Year 1998 Acquisitions On April 1, 1998, the Company acquired 100 percent of the issued and outstanding common stock of LAN KASTER, INC. (Internet service provider serving Prescott, Arizona and surrounding areas) for consideration of 215,385 shares of the Company's common stock with a fair value at date of issuance of $1.25 per share or $269,231 in the aggregate. The acquisition was accounted for as a purchase transaction. On May 11, 1998, the Company acquired 100 percent of the issued and outstanding common stock of CARNET COMPUTER SERVICES, INC. (computer software programmers) for consideration of 100,000 shares of the Company's common stock with a fair value at date of issuance of $1.25 per share or $125,000 in the aggregate. The acquisition was accounted for as a purchase transaction. On July 15, 1998, the Company acquired certain assets and assumed certain liabilities of Interworldnet Partnership (Internet service provider serving Lake Havasu City, Arizona and surrounding areas) for consideration or $3,841 in cash and 40,000 shares of the Company's common stock with a fair value at date of issuance of $1.25 per share and total value of $50,000 which aggregates to $53,841 in total consideration. The acquisition was accounted for as a purchase transaction. On July 29, 1998, the Company acquired 100 percent of the issued and outstanding common stock of OPEC CORP. (engaged in the business of underground cable construction in the Western United States) for consideration of 2,334,000 shares of the Company's common stock with a fair value at date of issuance of $2.66 per share or $6,200,000 in the aggregate. The acquisition was accounted for as a purchase transaction. On September 21, 1998, the Company acquired certain assets of PrimeServ Corporation (in the business of providing a virtual office telephone service to customers) for consideration of $50,000 and 33,333 shares of the Company's common stock with a fair value at date of issuance of $2.93 a share and total value of $97,665 which aggregates to $147,665 in total consideration. The acquisition was accounted for as a purchase transaction. In addition, the Company issued 2,666 shares of common stock as commission on the transaction with an aggregate value of $7,813. On September 29, 1998, the Company acquired 100 percent of the issued and outstanding shares of Sonoran Industries, Inc. retained the assets of its Kachina International operation (a factory direct distributor for communications and computer components located in Phoenix, Arizona), and then resold the Sonoran stock to the original owner for $10. Consideration given F-12 75 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS (CONTINUED) in the transaction was $66,759 in cash and 92,308 shares of the Company's common stock with a fair value at date of issuance of $2.93 per share and total value of $270,462 which aggregates to $337,221 in total consideration. The acquisition was accounted for as a purchase transaction. On September 29, 1998, the Company acquired 100 percent of the issued and outstanding common stock of PRIORITY SYSTEMS, INC. (a provider of computer network systems nationwide) for consideration of 185,306 shares of the Company's common stock with a fair value of $2.93 per share and total value of $542,947. The acquisition was accounted for as a purchase transaction. Effective June 15, 1999 the Company sold PRIORITY SYSTEMS, INC. back to the former owner of the company in exchange for 108,850 shares of the Company's common stock with a fair value of $2.302 per share and a note for $50,000. Fiscal Year 1999 Acquisitions On November 12, 1998, the Company acquired the Internet services business of GlobalKey, Inc. in a purchase business combination for consideration of 50,000 shares of the Company's common stock with a fair value at date of issuance of $2.93 per share for a total consideration of $146,500. In January 1999, the Internet access supplier terminated service to the Company because of prior payment disputes with GlobalKey. The small number of customers acquired from GlobalKey have been lost and the value of the customers and associated goodwill have been written off. On March 31, 1999, the Company acquired Ubiquity Design LLC - dba Rocket Science Creative (full service graphic design and advertising agency) in a purchase business combination for consideration of 100,000 shares of the Company's common stock with a fair value at date of issuance of $2.302 per share or $230,200 in the aggregate. The acquisition was accounted for as a purchase transaction. On April 19, 1999, the Company acquired Abcon, Inc. (horizontal drilling and boring company) in a purchase business combination for consideration of 94,118 shares of the Company's common stock with a fair value at date of issuance of $2.302 per share or $216,660 in the aggregate. The acquisition was accounted for as a purchase transaction. F-13 76 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS (CONTINUED) On July 16, 1999, the Company acquired Progressive Media LLC (which provides web-based animation interactive CD-ROM design, digital video production and postproduction, music and sound production, and commercial photography) in a purchase business combination for consideration of 67,605 shares of the Company's common stock with a fair value date of issuance of $2.302 per share or $155,628 in the aggregate. The acquisition was accounted for as a purchase transaction. On August 11, 1999, the Company acquired AMCOM LLC (Competitive Local Exchange Carrier or "CLEC") in a purchase business combination for consideration of 121,212 shares of the Company's common stock with a fair value at date of issuance of $2.302 per share or $279,030 in the aggregate. The acquisition was accounted for as a purchase transaction. For all acquisitions discussed above, the acquired tangible and identified intangible assets have been recorded at their estimated fair values at the date of acquisition with any excess purchase price reflected as goodwill. Fair values are determined based upon the consideration paid which consists typically of common stock and/or cash. The fair value of the Company's common stock is typically based upon recent third party transaction sales for cash. Purchase accounting values for all acquisitions are assigned on a preliminary basis and are subject to adjustment when final information as to the fair values of the net assets acquired is available. The operations of the acquired businesses are included in the statement of operations from the date of acquisition. Certain of the acquired businesses have been merged into the Company and as such are no longer subsidiaries. F-14 77 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS (CONTINUED) A summary of the purchase price allocations for these acquisitions is as follows:
TANGIBLE LESS: LESS: NET CASH ASSETS CUSTOMER CLEC LIABILITIES COMMON PAID ACQUIRED GOODWILL LISTS CERTIFICATION ASSUMED STOCK ISSUED (RECEIVED) ------------- -------------- ------------- ---------------- --------------- --------------- ------------- Fiscal year 1998 acquisitions LAN KASTER $ 38,007 $ 180,005 $100,000 $ - $ (44,857) $ (269,231) $ 3,924 CARNET 25,775 99,474 - - (527) (125,000) (278) Interworldnet 67,176 - 36,783 - (50,118) (50,000) 3,841 OPEC 2,108,872 6,138,125 - - (2,293,934) (6,200,000) (246,937) PrimeServ 133,000 - 22,478 - - (105,478) 50,000 Kachina 16,759 320,462 - - - (270,462) 66,759 PRIORITY 169,899 715,888 - - (342,840) (542,947) - ------------- -------------- ------------- ---------------- --------------- --------------- ------------- 2,559,488 7,453,954 159,261 - (2,732,276) (7,563,118) (122,691) Fiscal year 1999 acquisitions GlobalKey 20,000 126,500 - - - (146,500) - Ubiquity 3,000 227,698 - - - (230,200) 498 Abcon 723,931 101,140 - - (634,311) (216,660) (25,900) Progressive Media 42,247 146,561 - - (33,629) (155,628) (449) AMCOM - - - 279,030 - (279,030) - ------------- -------------- ------------- ---------------- --------------- --------------- ------------- 789,178 601,899 - 279,030 (667,940) (1,028,018) (25,851)
The following table sets forth the unaudited pro forma results of operations for each year in which acquisitions occurred and for the immediately preceding year as if the acquisitions were consummated at the beginning of the immediately preceding year:
YEAR ENDED SEPTEMBER 30 1999 1998 (Unaudited) (Unaudited) ----------- ----------- Revenues $ 12,270,531 $ 7,492,766 Loss before discontinued operations (3,626,461) (563,805) Net loss (4,759,740) (1,274,000) Loss per common share before discontinued operations, basic and diluted (0.30) (0.06) Net loss per common share, basic and diluted (0.40) (0.13)
F-15 78 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. DISCONTINUED OPERATIONS Networld.com Inc. - Internet access business On November 19, 1999, the Company completed a plan to sell and sold the Internet access business of its wholly owned subsidiary Networld.com for equity securities of the publicly traded buyer valued at approximately $2.75 million. Accordingly, the Internet access business was accounted for as a discontinued operation in the accompanying consolidated financial statements. A gain on the sale of approximately $1.0 million is expected to be realized by the Company subsequent to September 30, 1999 and accordingly no provision for loss on sale has been made. The gain will be recognized in fiscal year 2000, the period the sale was completed. On November 12, 1998, the Company acquired the Internet services business of GlobalKey, Inc. in a purchase business combination for consideration of 50,000 shares of the Company's common stock with a fair value at date of issuance of $2.93 per share for a total consideration of $146,500. The business was then transferred to the Company's Networld.com Inc. subsidiary. In January 1999, the Internet access supplier terminated service to the Company because of prior payment disputes with GlobalKey. The customers acquired from GlobalKey have been lost and the unamortized value of the customer list and goodwill acquired from GlobalKey has been charged as an expense totaling $120,175 which is included in operations as an unusual item prior to the discontinuance of the internet access business. Networld.com Inc. - PrimeServ Virtual Telephone Service On August 10, 1999, the Company adopted a plan to sell and signed a letter of intent to sell the assets and customer list of its PrimeServ operating division. On December 6, 1999, the Company closed the sale for consideration of $17,800 cash and a $30,000 note receivable which resulted in a net loss of $66,615 which is included as a loss on disposal under discontinued operations. The following represents the combined results of operations of the Company's discontinued operations:
YEAR ENDED SEPTEMBER 30 1999 1998 ------------------ ------------------- Revenues $ 1,599,891 $ 1,011,542 Cost of sales (1,588,779) (724,319) General and administrative expense (701,834) (825,030) Depreciation and amortization expense (299,030) (167,542) Interest expense (23,352) (4,846) Unusual item (120,175) - Net loss (1,133,279) (710,195)
F-16 79 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. DISCONTINUED OPERATIONS (CONTINUED) Costs and expenses, including interest, have been allocated to discontinued operations for all applicable periods based on management's estimates of those costs directly related to the discontinued operations. 4. INVENTORY Inventory consists of the following:
SEPTEMBER 30 1999 1998 ----------- ----------- Finished goods $ 3,005,096 $ 61,715 Valuation allowance (304,000) (11,854) ----------- ----------- Total inventory $ 2,701,096 $ 49,861 =========== ===========
The Company's inventory held for sale was acquired through a preferred vendor relationship with Lucent Technologies Internet Working Systems (formally Ascend Communications, Inc.). Under the terms of the arrangement the Company received favorable pricing terms and has the right to return inventory in exchange for future purchases. Certain of the inventory may also be usable in its construction activities. Valuation allowances have been established for the portion of such inventory that management expects will be sold at lower prices as part of its plans to accelerate the liquidation of certain of its inventory items to better manage its net assets. 5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings on uncompleted contracts consists of the following:
SEPTEMBER 30 1999 1998 ----------- ----------- Costs incurred on uncompleted contracts $ 2,337,185 $ 774,336 Estimated earnings 1,107,910 325,869 ----------- ----------- 3,445,095 1,100,205 Less billings to date (2,794,408) (760,333) ----------- ----------- $ 650,687 $ 339,872 =========== ===========
F-17 80 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED) Included in the accompanying balance sheet under the following captions:
SEPTEMBER 30 1999 1998 --------- --------- Costs and estimated earnings in excess of billings on uncompleted contracts $ 717,548 $ 411,877 Billings in excess of costs and estimated earnings on uncompleted contracts (66,861) (72,005) --------- --------- $ 650,687 $ 339,872 ========= =========
6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
SEPTEMBER 30 1999 1998 ----------- ----------- Furniture and fixtures $ 148,328 $ 117,655 Computers and other equipment 157,008 126,845 Construction equipment 2,708,636 825,541 Software 168,183 47,368 Vehicles 1,046,432 415,394 Leasehold improvements 59,092 27,057 ----------- ----------- 4,287,679 1,559,860 Less accumulated depreciation and amortization (614,963) (104,696) ----------- ----------- $ 3,672,716 $ 1,455,164 =========== ===========
7. INTANGIBLE ASSETS Intangible assets consist of the following:
SEPTEMBER 30 1999 1998 ----------- ----------- Goodwill $ 6,933,986 $ 7,174,475 Trademarks 2,021 998 Debt issuance costs 158,333 82,500 CLEC certification 279,030 -- ----------- ----------- 7,373,370 7,257,973 Less amortization (860,321) (122,737) ----------- ----------- $ 6,513,049 $ 7,135,236 =========== ===========
F-18 81 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. NOTES PAYABLE AND LONG TERM DEBT
SEPTEMBER 30 1999 1998 -------- -------- Various notes payable to an auto manufacturer's credit corporation bearing interest at rates ranging from 8.25 percent to 9.99 percent and having maturities ranging from 48 to 60 months. Each note is collateralized by a specific vehicle $410,667 $161,465 Various notes payable to an equipment manufacturer's credit corporation bearing interest at rates ranging from 8.89 percent to 10.54 percent and having maturities ranging from 24 to 48 months. Each note is collateralized by specific equipment 679,807 207,681 Various notes payable to a finance company bearing interest at rates ranging from 7.88 percent to 9.0 percent and having maturities ranging from 32 to 57 months. Each loan is collateralized by one or more vehicles and/or pieces of equipment 212,918 643,971 Various notes payable to an equipment manufacturer's credit corporation bearing interest at rates ranging 10.75 percent to 12.50 percent and having maturities ranging from 36 to 42 months. Each note is collateralized by a specific piece of equipment 226,476 -- 8.0 percent, convertible note payable, unsecured, converted in 1999 -- 25,000 8.73 percent, note payable to a bank, collateralized, by a specific list of equipment, principal and interest payable monthly until August 2002, when all principal and interest is due and payable 848,185 -- 9.0 percent, notes payable to former stockholders of Lan Kaster, Inc., unsecured, interest payable April 2001 when all principal and interest is due and payable. Principal and accrued interest is convertible to common shares at option of holder at rate of $1.625 per share 29,752 29,752 Various notes payable, assumed by Priority sale in June 1999 -- 70,337 9.3 percent, note payable to a bank, collateralized by a specific piece of equipment, principal and interest payable monthly until May 2001 when all remaining principal and interest is due and payable 11,846 18,086
F-19 82 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. NOTES PAYABLE AND LONG TERM DEBT (CONTINUED)
SEPTEMBER 30 1999 1998 ----------- ----------- 15 percent, note payable, unsecured, with interest only payable monthly until September 2001, when principal and unpaid interest are due. Principal and accrued interest is convertible to common shares at option of holder at rate of $2.25 per share $ 1,000,000 $ -- 17.5 percent, note payable, unsecured, with interest only payable monthly 4,656 -- Note payable to an equipment manufacturer's credit corporation bearing interest at the rate of 23.18 percent and maturing in 24 months. The note is secured by a specific piece of equipment 52,000 -- Note payable to an equipment manufacturer's credit corporation bearing interest at the rate of 1.50 percent per month on the unpaid balance and having a maturity of 16 months. The note is secured by a specific list of equipment 138,157 -- Note payable, unsecured, noninterest-bearing note due on demand 150,000 -- ----------- ----------- 3,764,464 1,156,292 Less current portion (1,160,616) (454,905) ----------- ----------- $ 2,603,848 $ 701,387 =========== ===========
Annual maturities of notes payable and long-term debt for the five years succeeding September 30, 1999 are $1,160,616 in 2000, $1,964,863 in 2001, $507,594 in 2002, $97,470 in 2003 and $33,921 in 2004. Interest payments were $270,507 and $53,550 for the years ended September 30, 1999 and 1998, respectively. The Company has a $480,000 revolving line of credit agreement with a financial institution dated August 3, 1998, and expiring on February 15, 2000. Interest is payable monthly and accrues at 1.25 percent over prime per annum, 9.5 percent at September 30, 1999. The line is collateralized by all business assets of the Company's OPEC CORP subsidiary including, but not limited to, cash, accounts receivable, property and equipment, and general intangibles. At September 30, 1999, assets collateralized under the line of credit included cash of $202,916, accounts receivable of $2,500,145, and property and equipment of $3,313,661. The terms of the note require that the Company pay regular monthly payments of accrued interest, with payment of all outstanding principal plus all unpaid accrued interest due at maturity. The balance on the line-of-credit as of September 30, 1999, totaled $480,000. F-20 83 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. NOTES PAYABLE AND LONG TERM DEBT (CONTINUED) The Company's communication equipment sales division had a $95,000 revolving line of credit with a bank, which, as of September 30, 1999, was closed and paid in full. 9. LEASES The Company has equipment under capital leases. The Company also leases office facilities under noncancelable operating leases that expire in various years through December 2001. Future minimum payments under capital leases and noncancelable operating leases with initial terms of one year or more consisted of the following at September 30, 1999:
CAPITAL LEASES OPERATING LEASES -------------------------------------- ------------------------------------- CONTINUING DISCONTINUED CONTINUING DISCONTINUED OPERATIONS OPERATIONS OPERATIONS OPERATIONS ------------------ ------------------- ------------------ ------------------ 2000 $ 62,305 $ 228,618 $ 392,704 $ 265,318 2001 57,480 -- 145,129 -- 2002 27,322 -- 55,233 -- 2003 -- -- -- -- 2004 -- -- -- -- Thereafter -- -- -- -- --------- --------- --------- --------- Total minimum lease payments 147,107 228,618 $ 593,066 $ 265,318 ========= ========= Less amounts representing interest (24,603) (14,153) --------- --------- Present value of net minimum lease payments 122,504 214,465 Less current portion (54,718) (214,465) --------- --------- $ 67,786 $ -- ========= =========
In connection with the sale of Network.com, Inc.'s Internet access business, certain leased assets will be sold and the Company is required to pay within 60 days of the sale the remaining obligations under the capital and operating leases. The related payment obligations are reflected in the lease payment schedule above. Total rental expense for all operating leases was approximately $523,000 and $84,000 for the years ended September 30, 1999 and 1998, respectively. In June 1997, the Company entered into the first of three leasing arrangement with El Camino Resources, Ltd. Under the terms of the first lease, El Camino provided $150,000 of available credit. This lease for the equipment requires payments of $5,690 per month, for a term of 30 months, and includes a buyout provision equal to the fair market value of the leased equipment at F-21 84 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. LEASES (CONTINUED) the end of the lease, but not to exceed 20 percent of original cost. In conjunction with the lease arrangement, the Company issued 250,000 shares of the Company's common stock to El Camino. This lease agreement will be closed and paid in connection with the sale of the Internet access business (see Note 18). During the year ended September 30, 1999, the Company has entered into a second lease with El Camino for $150,000. The lease requires payments of $5,406 per month for a term of 30 months, and includes a buyout provision equal to the fair market value of the leased equipment at the end of the lease, but not to exceed 20 percent of the original cost. This lease agreement will be closed and paid in connection with the sale of the Internet access business (see Note 18). During the year ended September 30, 1999, the Company has entered into a third lease with El Camino for $250,000 of which $163,000 was funded at September 30, 1999. The lease will require payments of $9,483 per month once the lease is fully funded, for a term of 30 months, and includes a buyout provision equal to the fair market value of the leased equipment at the end of the lease, but not to exceed 20 percent of original cost. In January and February 1999, the Company entered into two capital leases with Ascend Corporation for Internet communications equipment. The original lease liabilities aggregate $280,735. The leases require monthly payments of $4,671 and $5,509 for 30 months and have a buyout option equal to the fair market value of the equipment. These leases will be repaid in connection with the sale of the Internet access business (see Note 18). Property and equipment includes the following amounts for leases that have been capitalized:
SEPTEMBER 30 1999 1998 --------- --------- Equipment $ 437,599 $ 80,710 Less accumulated amortization (84,133) (6,176) --------- --------- $ 353,466 $ 74,534 ========= =========
Amortization of leased assets is included in depreciation and amortization expense. F-22 85 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. INCOME TAXES Deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax asset and liabilities are as follows:
SEPTEMBER 30 1999 1998 ----------- ----------- DEFERRED TAX ASSETS: Accrued expenses $ 32,900 $ 25,200 Allowance for doubtful accounts 56,000 25,900 Inventory allowance 121,600 4,800 Costs in excess of billings 16,700 23,200 Startup costs 4,500 7,300 Unrealized loss on investment -- 27,600 Net operating loss carryforwards 1,930,000 447,000 Deductible goodwill amortization 94,300 -- Other 38,400 29,600 ----------- ----------- Deferred tax assets 2,294,400 590,600 Valuation allowance (2,131,600) (544,000) ----------- ----------- Net deferred tax assets 162,800 46,600 Deferred tax liabilities: Fixed asset basis differences (130,100) (15,100) Customer lists (12,000) (31,300) Other (20,700) (200) ----------- ----------- Net deferred tax asset/(liability) $ -- $ -- =========== ===========
At September 30, 1999, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $4.8 million that expire in the years 2011 through 2019 for federal taxes purposes and will begin to expire in 2001 for state tax purposes. As a result of common stock issued in connection with private placements and prior year acquisitions, the utilization of the net operating loss carryforwards is subject to annual limitations in accordance with Internal Revenue Code Section 382. The ultimate utilization of the net operating loss carryforwards is also subject to future profitability of the Company. The valuation allowance increased $1,587,600 for the year ended September 30, 1999. The increase in 1999 is principally due to increases in deferred tax assets related to net operating loss carryforwards. F-23 86 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. STOCKHOLDERS' EQUITY In October 1997, FutureOne AZ sold 40,000 shares of FutureOne AZ common stock to close a private placement offering to accredited investors at $1.00 per share for net proceeds of $40,000. In November 1997, the Company issued 17,500 shares of the Company's common stock in exchange for goods and services. The shares were recorded at their fair value of $1.00 per share for an aggregate value of $17,500. Amounts were recorded in equity with a related charge to expense or asset recognition based upon the consideration received. In November 1997 through August 1998, FutureOne AZ sold 700,000 shares in a second private placement offering at $1.25 per share to investors with net proceeds of $770,370. In May and September 1998, FutureOne Inc. issued 143,750 and 37,500 shares, respectively, of the Company's common stock to advisors who assisted the Company with its private placement as part of the related issuance costs. In connection with the private placement offering, 350,000 warrants to purchase one share of FutureOne AZ common stock for each warrant at $3.00 per share were issued. The warrants expired May 27, 1999 and 10,000 warrants were exercised as of September 30, 1999. In December 1997, the Company repurchased 2,500 common shares from former employees for $30. On April 1, 1998, the Company issued 215,385 common shares in connection with the acquisition of LAN KASTER, INC. The shares were determined to have a fair value of $1.25 per share at date of issuance and an aggregate value of $269,231. On May 11, 1998, the Company issued 100,000 common shares in connection with the acquisition of CARNET COMPUTER SERVICES, INC. The shares were determined to have a fair value of $1.25 per share at date of issuance and an aggregate value of $125,000. On May 18, 1998, the Company repurchased 1,000 common shares from a former employee for $10. On July 15, 1998, the Company issued 40,000 shares of common stock in connection with the acquisition of certain net assets of Interworldnet. The shares were determined to have a fair value of $1.25 per share at the date of issuance and an aggregate value of $50,000. In July 1998, the Company entered into a Stock Purchase Agreement with Blackwater Capital Partners LP ("Blackwater") under which Blackwater must arrange for the purchase of 3,211,000 shares of the Company's common stock for an average price of $2.93 per share and make an initial purchase of 300,000 shares at a price of $1.25 per share. As of September 30, 1998, F-24 87 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. STOCKHOLDERS' EQUITY (CONTINUED) Blackwater and its capital sources had purchased 300,000 shares of common stock at $1.25 per shares for net proceeds of $337,500 and 177,605 shares of common stock at a price of $2.93 for net proceeds of $520,683. In connection with the Stock Purchase Agreement, Blackwater has been issued detachable warrants to purchase 1,700,000 shares of the Company's common stock for $1.00 per share expiring July 2005. The warrants vest upon Blackwater completing the purchase of shares under the Stock Purchase Agreement. As of September 30, 1998, related to Blackwater's purchase of the initial 300,000 shares in accordance with purchase agreement, 300,000 warrants have vested and are unexercised as of September 30, 1999. On July 29, 1998, the Company issued 2,334,000 shares of common stock in connection with the acquisition of OPEC CORP. The shares were determined to have a fair value of $2.66 per share at date of issuance and an aggregate value of $6,200,000. On September 21, 1998, the Company issued 35,999 shares of common stock in connection with the acquisition of PrimeServ assets. The shares were determined to have a fair value of $2.93 per share at the date of issuance and an aggregate value of $105,478. On September 29, 1998, the Company issued 92,308 shares of common stock in connection with the acquisition of Kachina International. The shares were determined to have a fair value of $2.93 per share at the date of issuance and an aggregate value of $270,462. On September 29, 1998, the Company issued 185,306 shares of common stock in connection with the acquisition of PRIORITY SYSTEMS INC. The shares were determined to have a fair value of $2.93 per share at the date of issuance and an aggregate value of $542,947. During the year ended September 30, 1998, the Company issued 210,001 shares of the Company's common stock to employees as compensation. Share values at dates of issuance ranged from $1.25 to $2.93 and had a total value of $284,900. Compensation expense is being recognized based on the applicable vesting periods of the stock issued. During the year ended September 30, 1998, the Company issued 180,000 shares of the Company's common stock to consultants for services. Share values at dates of issuance were $1.25 and had a total value of $225,000. Amounts were recorded as consulting expense as service was performed. For the period ended September 30, 1998, the Company awarded total warrants to purchase 410,812 shares of the Company's common stock for $2.93 per share as a bonus to two officers of the Company. The warrants expire October 1, 2005 and none of the warrants have been exercised as of September 30, 1999. Given that the warrants issued to these employees were at not less than the fair value of the common stock, there was no compensation expense recorded for the grants. F-25 88 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. STOCKHOLDERS' EQUITY (CONTINUED) On November 16, 1998, the Company issued a total of 50,000 shares of Common Stock in connection with the Company's acquisition of certain assets of Global Key, Inc. The shares were determined to have a fair value of $2.93 per share at the date of issuance and an aggregate value of $146,500. On January 15, 1999, the Company sold 960,000 shares of the Company's common stock in a private placement transaction to an accredited investor at $2.302 per share which resulted in gross proceeds of $2,210,000. The Company incurred $240,750 of offering expenses relating to commissions and expenses. The transaction was consummated as part of the Blackwater Stock Purchase Agreement and as part of the transaction Blackwater Capital assigned 400,000 of their warrants earned under the Agreement to the Investor and 100,000 warrants to the Broker. The warrants are at $1 per share and expire January 2005. As of September 30, 1999 none of the warrants have been exercised. On February 28, 1999 the holder of a convertible promissory note for $25,000 elected to convert the note to 41,750 shares of common stock. On March 31, 1999, the Company issued a total of 100,000 shares of common stock in connection with the Company's acquisition of Ubiquity Design LLC (dba Rocket Science Creative). The shares were determined to have a fair value of $2.302 per share at the date of issuance and an aggregate value of $230,200. On April 19, 1999, the Company issued a total of 94,118 shares of common stock in connection with the Company's acquisition of Abcon, Inc. The shares were determined to have a fair value of $2.302 per share at the date of issuance and an aggregate value of $216,660. In May 1999, two individuals exercised warrants that were granted under the Company's Private Placement Memorandum of November 26, 1997 and purchased a total of 10,000 shares at $3 per share. Effective June 15, 1999 the Company sold PRIORITY SYSTEMS, INC., which was acquired by the Company on September 29, 1998, back to the original owner. The consideration paid was to return 108,850 shares of the Company's common stock valued at $ 2.302 and a note for $50,000. The Company considers the returned stock to be treasury stock and has recorded the loss on the transaction as an unusual item. On July 16, 1999, the Company issued a total of 67,605 shares of common stock in connection with the Company's acquisition of Progressive Media LLC. The shares were determined to have a fair value of $2.302 per share at the date of issuance and an aggregate value of $155,628. F-26 89 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. STOCKHOLDERS' EQUITY (CONTINUED) On August 11, 1999, the Company issued a total of 121,212 shares of common stock in connection with the Company's acquisition of AMCOM LLC. The shares were determined to have a fair value of $2.302 per share at the date of issuance and an aggregate value of $279,030. On August 23, 1999, the Company sold 200,000 shares of the Company's common stock in a private placement transaction to an accredited investor at $1.25 per share which resulted in net proceeds of $250,000. The transaction was consummated as part of the Blackwater Stock Purchase Agreement. During the year ended September 30, 1999, the Company issued 244,999 shares of common stock to employees pursuant to employment contracts or as employment bonuses. Share values at dates of issuance ranged from $1.25 to $2.93 and had a total value of $616,307. Compensation expense is being recognized based on the vesting periods of the stock issued. During the period, 56,500 non-vested shares, previously issued to employees, were canceled when they terminated. Share value at the date of issuance ranged from $1.25 to $2.302 and the canceled shares had an unamortized value of $74,833. During the year ended September 30, 1999, the Company issued 2,500 shares of the Company's common stock to an employment agency for services. Share value at dates of issuance was $2.302, a total value of $5,756. Amounts were recorded as consulting expense as service was performed. 12. STOCK OPTION PLAN On April 30, 1999, the Board of Directors of the Company adopted the FutureOne, Inc. 1999 Key Employee Stock Option Plan ("the Plan") which authorizes options which may be issued to employees to purchase up to 2,500,000 shares of the Company's common stock. Options granted under the Plan may be incentive stock options or nonstatutory stock options. Options vest over a three-year period with one-third becoming vested annually one year from the date of the grant. All options expire ten years after the date of grant. Under the terms of the Plan, Incentive Stock Options granted to executives owning more than 10 percent of the Company's stock shall not be exercisable after the expiration of five years from the date of grant and must be issued at 110 percent of the price granted to other employees. Under the 1999 Stock Option Plan, the Company may grant options that are intended to qualify as Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended or options not intended to qualify as Incentive Stock Options. The Incentive Stock Options are not transferable except by will or the laws of descent and distribution. Non-Statutory Stock Options may be transferred pursuant to terms and conditions established by the Board. F-27 90 12. STOCK OPTION PLAN (CONTINUED) The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations in accounting for its employee stock options. As discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation Statement 123, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, for options issued with an exercise price which equal the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for those options was estimated at the date of grant using a minimum value pricing model with the following weighted-average assumptions for the period ending September 30, 1999: Expected life of the award 2.5 - 5 years Dividend yield 0 percent Risk-free interest rate 6 percent For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The pro forma effect of SFAS No. 123 was not material for the year ended September 30, 1999 in that it was less than $0.01 per share. Option activity under the 1999 Plan during the year ended September 30, 1999 is as follows:
OUTSTANDING OPTIONS -------------------------------------- SHARES AVAILABLE PRICE UNDER OPTION SHARES RANGE ------ ------ ----- Available at April 30, 1999 2,500,000 -- $ -- Granted (1,805,051) 1,805,051 4.50 - 4.95 Forfeited 191,500 (191,500) 4.50 ----------- ----------- ------------ Balance at September 30, 1999 886,449 1,613,551 $4.50 - 4.95 =========== ========== ============ Exercisable at September 30, 1999 -- $ -- =========== ============
The weighted-average fair value of options granted during the year ended September 30, 1999 was $4.69. F-28 91 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. STOCK OPTION PLAN (CONTINUED) The following table summarizes information about stock options under the 1999 Plan outstanding at September 30, 1999:
OPTIONS OUTSTANDING ---------------------------------------------------- OPTIONS EXERCISABLE NUMBER NUMBER OUTSTANDING AT REMAINING CONTRACTUAL LIFE OUTSTANDING AT SEPTEMBER EXERCISE PRICE SEPTEMBER 30, 1999 (YEARS) 30, 1999 --------------------- --------------------- -------------------------- ------------------------ $4.50 847,551 9.98 - $4.95 766,000 4.75 -
13. COMMITMENTS AND CONTINGENCIES In June of 1999, the Company entered into an agreement with Lucent Technologies Internet Working Systems (formerly Ascend Communications, Inc.) to become a stocking distributor. Under the agreement the Company was required to place an initial product order of approximately $3,000,000. As of September 30, 1999, the product was received in full and is included in the accompanying financial statements. Under terms of the agreement the Company is to pay for the inventory as the inventory is sold. The Company is subject to legal proceedings which arise out of the ordinary course of business. Based upon advice from outside legal counsel, management is of the opinion that these matters will have no material effect on the Company's consolidated financial statements taken as a whole. 14. RELATED PARTY TRANSACTIONS As of September 30, 1998 and 1999, the stockholders of the Company have made loans to the Company as follows:
September 30 1999 1998 ---------------------------- Notes payable that bears no interest $ 7,450 $ 7,450 Two notes payable that bear interest at the rate of 8 percent. With interest payable annually and principal payable based on payments received by the Company on a loan to OPEC CORP., due March 12, 2001 164,000 -- -------- -------- $171,450 $ 7,450 ======== ========
F-29 92 14. RELATED PARTY TRANSACTIONS (CONTINUED) As of September 30, 1999 and 1998, interest in the amount of $7,265 and $-0-, respectively, was accrued and unpaid. Interest expense for the years ended September 30, 1999 and 1998 was $7,265 and $6,021, respectively. The Company sells computer equipment, services, and Internet access and services to various officers, employees and stockholders. All such sales are considered to be in the normal course of business and at prices similar to prices that are charged to nonrelated parties. The Company assumed a lease for office space and a construction yard from a partnership controlled by an individual, who became a major stockholder in the Company when his corporation was acquired by the Company. The lease requires payments of $3,000 per month and expires December 2000, but automatically renews for annual periods unless terminated by either party. As of September 30, 1999 and 1998, $36,000 and $6,000, respectively, of rental expense is included in the consolidated statement of operations from this lease. In August 1999, OPEC CORP. obtained a two-year loan for $1,000,000 for its working capital needs. The loan was personally guaranteed by Donald D. Cannella, a Director of the Company and President of OPEC CORP.. 15. 401(k) PLAN On January 1, 1999, the Company adopted the FutureOne, Inc. 401(k) Plan ("the Plan"). All employees of the Company are eligible to participate in the Plan when they have met certain eligibility requirements. Employees are eligible to participate in the Plan after one year of service and after having attained the age of 21. After the initial enrollment date, all subsequent enrollments for eligible employees will occur on January 1 and July 1 of each year. Employees may defer up to 15 percent of their annual salary up to a maximum of $10,000. The Company's matching percentage is equal to 20 percent of the employees contribution on employee contributions of up to 5 percent. For the year ended September 30, 1999, the Company's matching contribution due is $8,677. F-30 93 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 16. Segment Information The Company operates its business under Internet services, communication equipment sales services and broadband communications engineering and construction services. Management evaluates the performance of the segments based upon revenues, gross margin, pre-tax income and long-lived assets. For the years ended September 30, 1999 and 1998, this information has been provided by segment. The Companies sales are primarily in the Western United States with no international sales.
Years Ended September 30 1999 1998 ----------------------------- Revenues from external customers: Internet services business $ 410,843 $ 63,399 Communication equipment sales 2,058,341 251,194 Broadband communications engineering and construction services 8,663,101 1,695,111 ------------------------------ $ 11,132,285 $ 2,009,704 ============================== Gross profit (loss): Internet services business $ (23,133) $ (54,062) Communication equipment sales (103,305) 32,686 Broadband communications engineering and construction services 1,580,147 319,109 ------------------------------ $ 1,453,709 $ 297,733 ============================== Depreciation and amortization expense: Internet services business $ 28,784 $ -- Communication equipment sales 192,189 2,021 Broadband communications engineering and construction services 590,208 84,627 Unallocated corporate 139,840 63,954 ------------------------------ $ 951,021 $ 150,602 ============================== Unusual Items: Communication equipment sales $ 316,720 $ -- ------------------------------ $ 316,720 $ -- ==============================
F-31 94 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 16. Segment Information (continued)
Years Ended September 30 1999 1998 -------------------------------- Net income (loss) from continuing operations: Internet services business $ (250,221) $ (54,062) Communication equipment sales (1,213,948) (56,726) Broadband communications engineering and construction services (629,779) 7,065 Convergence technology and telecommunications (86,744) -- Unallocated corporate (1,894,165) (387,734) ------------------------------ $ (4,074,857) $ (491,457) ============================== Long-lived assets: Discontinued operations $ 898,979 $ 961,207 Internet services business 381,085 -- Communication equipment sales 258,218 1,116,852 Broadband communications engineering and construction services 8,899,734 7,244,657 Convergence technology and telecommunications 279,030 -- Unallocated corporate 621,632 269,540 ------------------------------ $ 11,338,678 $ 9,592,256 ==============================
17. Unusual Items On September 29, 1998, the Company acquired 100 percent of the issued and outstanding common stock of PRIORITY SYSTEMS, INC. (a provider of computer network systems nationwide) for consideration of 185,306 shares of the Company's common stock with a fair value of $2.93 per share and total value of $542,947. The acquisition was accounted for as a purchase transaction. In June of 1999, management of the Company determined that it was no longer economically feasible to remain in the retail computer equipment sales and service industry. Therefore, effective June 15, 1999 the Company sold PRIORITY SYSTEMS, INC. back to the former owner of the company in exchange for 108,850 shares of the Company's common stock with a fair value of $250,573 and a note for $50,000. The difference between the value of the consideration received and the net assets and liabilities of PRIORITY SYSTEMS, INC. which were sold of $316,720 is included in the accompanying consolidated statement of operations as an unusual item. Revenues from PRIORITY SYSTEMS, INC. for the fiscal year ended September 30, 1999 were $856,000. F-32 95 FutureOne, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 18. Subsequent Events On October 8, 1999, the Company obtained a bridge loan in the amount of $250,000. The note is due and payable February 8, 2000 and bears interest at the rate of 15 percent. Additional consideration given was 250,000 warrants at $1 per share. The warrants expire October 7, 2006. On October 22, 1999, the Company obtained a bridge loan in the amount of $500,000. The note is due and payable April 22, 2000 and bears interest at the rate of 12 percent. The note also contains a conversion privilege whereby the holder can convert the note to shares of common stock of the Company, at any time prior to maturity, for the $1 per share. Additional consideration given was 500,000 warrants at $0.75 per share. The warrants expire October 21, 2004. The note is secured by 795,000 shares of the Company's common stock. Default provisions allow the lender the option to accept the pledged company stock as payment or to convert the note to stock of RMI.NET, Inc. at 125 percent of the outstanding note balance plus accrued interest at date of default. On November 19, 1999, the Company sold its Internet access business, including all of its personal and business Internet access customers in Phoenix, Flagstaff, Tucson, Lake Havasu City, Prescott, Florence, Wickenburg and Payson, Arizona and all of the equipment related to providing Internet access to the Company's current Internet subscribers to RMI.NET, Inc. for approximately $2.75 million in RMI.NET common stock which is publicly traded. Under terms of the agreement 50 percent of the stock is immediately available for sale, 20 percent will be available for sale in six months, 20 percent will be available for sale in one year and 10 percent will be held in escrow for 18 months to cover any adverse claim that may be made against the acquired assets. The purchase price is subject to adjustment upward or downward depending on actual revenues achieved by the buyer during the next three months. Any adjustment to the purchase price will be adjusted from the 20 percent portion of the stock that is restricted from sale for six months. Subsequent to the transaction the Company sold approximately 50 percent of the RMI.NET common stock for approximately $1.5 million. On November 23, 1999, the Company entered into a severance agreement with Kendall Q. Northern, the Company's then chief executive officer, under which the employment contract with Mr. Northern was terminated by mutual consent and Mr. Northern resigned as an officer and director of the Company and all of its affiliates and agreed not to compete with the Company for a period of one year. In consideration for executing the severance agreement, the Company agreed to immediately pay a one time sum of $50,000 and a one year separation payment of $100,000 to be paid in equal monthly installments. In addition, the Company is further obligated to pay for Mr. Northern's auto rental, auto insurance and medical insurance for one year. The Company also allowed Mr. Northern to retain certain Company property, already in his possession, valued at approximately $17,500 and to exchange 200,000 shares of the Company's common stock owned by Mr. Northern for 47,031 shares of RMI.NET, Inc. stock obtained by the Company from the sale of its Internet access business. F-33 96 Report of Independent Auditors Board of Directors OPEC CORP. We have audited the accompanying balance sheets of OPEC CORP. as of September 30, 1997 and July 28, 1998 and the related statements of operations, shareholders' equity and cash flows for the year and ten months then ended, respectively. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OPEC CORP. at September 30, 1997 and July 28, 1998 and the results of its operations and its cash flows for the year and ten months then ended in conformity with generally accepted accounting principles. Ernst & Young LLP Phoenix, Arizona June 8, 1999 F-34 97 OPEC CORP. Balance Sheets
SEPTEMBER 30, JULY 28, 1997 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 237,200 $ 272,195 Investments -- 335,900 Accounts receivable 93,671 777,607 Costs and estimated earnings in excess of billings on uncompleted contracts 35,996 166,849 Prepaid expenses 3,125 1,245 ---------- ---------- Total current assets 369,992 1,553,796 Property and equipment, net 218,288 798,205 Deferred tax asset 4,876 17,128 Other noncurrent assets -- 3,808 ---------- ---------- $ 593,156 $2,372,937 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit $ -- $ 200,000 Accounts payable 153,114 289,722 Accrued bonus to officers -- 500,000 Due to related parties 5,443 7,450 Accrued compensation and related taxes 21,420 30,968 Income taxes payable 4,054 274,775 Billings in excess of costs and estimated earnings on uncompleted contracts 36,947 271,270 Current maturities of long-term debt and capital leases 67,813 161,843 ---------- ---------- 288,791 1,736,028 Noncurrent liabilities: Capital leases, net of current portion 83,247 482,648 Deferred tax liability 9,894 29,964 ---------- ---------- 381,932 2,248,640 Shareholders' equity Common stock, no par value, 1,000 shares authorized, 100 and 76 shares issued and outstanding at September 30, 1997 and July 28, 1998, respectively 5,000 -- Retained earnings 206,224 124,297 ---------- ---------- Total shareholders' equity 211,224 124,297 ---------- ---------- Total liabilities and shareholders' equity $ 593,156 $2,372,937 ========== ==========
See accompanying notes. F-35 98 OPEC CORP. Statements of Operations
TEN YEAR ENDED MONTHS ENDED SEPTEMBER 30, JULY 28, 1997 1998 ----------- ----------- Revenues $ 2,000,713 $ 3,288,806 Cost of sales 1,434,454 1,993,912 ----------- ----------- Gross profit 566,259 1,294,894 Selling, general and administrative expenses 527,061 1,017,261 ----------- ----------- Operating income 39,198 277,633 Other income (expense): Unrealized gain (loss) on investments 616 (30,629) Interest expense (7,537) (25,605) Interest and dividend income -- 4,292 Other (695) 5,768 ----------- ----------- (7,616) (46,174) ----------- ----------- Income before income taxes 31,582 231,459 Provision for income taxes (9,072) (286,039) ----------- ----------- Net income (loss) $ 22,510 $ (54,580) =========== ===========
See accompanying notes. F-36 99 OPEC CORP. Statements of Stockholders' Equity
TOTAL COMMON STOCK RETAINED SHAREHOLDERS' -------------------------- SHARES TOTAL EARNINGS EQUITY ------ ----- -------- ------ Balance at October 1, 1996 -- $ -- $ 199,095 $ 199,095 Distributions to owners -- -- (15,381) (15,381) Issuance of common stock 100 5,000 -- 5,000 Net income -- -- 22,510 22,510 --------- --------- --------- --------- Balance at September 30, 1997 100 5,000 206,224 211,224 Repurchase of common stock (24) (5,000) (10,000) (15,000) Distributions to owners -- -- (17,347) (17,347) Net loss -- -- (54,580) (54,580) --------- --------- --------- --------- Balance at July 28, 1998 76 $ -- $ 124,297 $ 124,297 ========= ========= ========= =========
See accompanying notes. F-37 100 OPEC CORP. Statements of Cash Flows
TEN MONTHS YEAR ENDED ENDED SEPTEMBER 30, JULY 28, 1997 1998 ------------- ----------- OPERATING ACTIVITIES Net income (loss) $ 22,510 $ (54,580) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 28,967 89,964 Loss on sale of property and equipment -- 4,283 Deferred taxes 5,018 7,818 Changes in operating assets and liabilities: Accounts receivable 103,726 (683,936) Prepaid expenses and other assets (3,125) 1,880 Costs and estimated earnings in excess of billings on uncompleted contracts (20,364) (130,853) Accounts payable 149,042 136,608 Accrued compensation 11,369 9,548 Accrued Bonus -- 500,000 Income taxes payable 4,054 270,721 Billings in excess of cost 17,136 234,323 --------- --------- Net cash provided by operating activities 318,333 385,776 INVESTING ACTIVITIES Purchases of property and equipment (85,077) (117,537) Sales of property and equipment -- 90,000 Purchase of investments -- (335,900) Increase in other assets -- (3,808) Decrease in related party debt (757) 2,007 --------- --------- Net cash used in investing activities (85,834) (365,238) FINANCING ACTIVITIES Payments on capital leases (9,251) (153,196) Increase in line of credit -- 200,000 Issuance (repurchase) of common stock 5,000 (15,000) Distributions to owners (15,381) (17,347) --------- --------- Net cash (used in) provided by financing activities (19,632) 14,457 --------- --------- Increase in cash and cash equivalents 212,867 34,995 Cash at beginning of year 24,333 237,200 --------- --------- Cash at end of year $ 237,200 $ 272,195 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Property and equipment acquired through capital lease obligations $ 155,864 $ 646,627 ========= =========
See accompanying notes. F-38 101 OPEC CORP. Notes to Financial Statements September 30, 1997 and July 28, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS OPEC CORP. ("OPEC," or "the Company") was incorporated in December 1995 in the State of Colorado. The Company engages primarily in installation of communication and cable television lines for commercial and residential projects. Effective July 28, 1998, all of the Company's outstanding shares of common stock were sold to Future One, Inc., and OPEC became a wholly owned subsidiary of Future One, Inc. Financial statements included herein are prior to the acquisition. The Company's customer base primarily consists of commercial and residential contractors located in El Paso County, Colorado. The Company performs ongoing credit evaluations of its customer's financial condition and requires no collateral from its customers. REVENUES AND COST RECOGNITION Revenue from firm-fixed-price contracts is recognized using the percentage of completion method. Under this method, revenues recognized on firm-fixed-price contracts are measured by the percentage of costs incurred to date to total estimated costs for each contract. Provision for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions in costs and income and are recognized in the period in which the revisions are determined. Costs and estimated earnings in excess of billings on uncompleted contracts represent revenues recognized, using the percentage of completion method under firm-fixed-price contracts, in excess of billings on those contracts. Company billing amounts to a customer on firm-fixed-price contracts are usually specified in the contract terms and conditions and usually consider passage of time, achievement of certain project milestones or completion of the project. F-39 102 OPEC CORP. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SIGNIFICANT CUSTOMERS For the year ended September 30, 1997 and for the ten months ended July 28, 1998, the Company had revenues from three large customers as a percent of total revenues as follows:
YEAR ENDED TEN MONTHS ENDED SEPTEMBER 30, JULY 28, 1997 1998 ------------- ----------------- Customer A 23% 10% Customer B 15 - Customer C - 15
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less from date of purchase to be cash equivalents. INVESTMENTS Investments consist of mutual funds and are valued at fair market value and are considered trading investments in accordance with generally accepted accounting principles. Realized and unrealized gains and losses are recorded in income. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are being depreciated using the straight-line method over their estimated useful lives as follows: Computer and office equipment 5 years Furniture and fixtures 7 years Construction and radio equipment 3-10 years Vehicles and trailers 5-7 years Leasehold improvements 10 years
F-40 103 OPEC CORP. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company accounts for income taxes under the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. Actual results could differ from those estimates. 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings on uncompleted contracts consist of the following:
SEPTEMBER 30, JULY 28, 1997 1998 --------- --------- Costs incurred on uncompleted contracts $ 246,496 $ 592,970 Estimated earnings 55,365 218,405 --------- --------- 301,861 811,375 Less billings to date (302,812) (915,796) --------- --------- $ (951) $(104,421) ========= =========
Included in the accompanying balance sheet under the following captions:
SEPTEMBER 30, JULY 28, 1997 1998 --------- --------- Costs and estimated earnings in excess of billings on uncompleted contracts $ 35,996 $ 166,849 Billings in excess of costs and estimated earnings on uncompleted contracts (36,947) (271,270) --------- --------- $ (951) $(104,421) ========= =========
F-41 104 OPEC CORP. Notes to Financial Statements (continued) 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following at:
SEPTEMBER 30, JULY 28, 1997 1998 --------- --------- Leasehold improvements $ -- $ 12,629 Vehicles 111,347 292,013 Machinery and equipment 131,969 573,892 Computers -- 17,285 Office furniture and fixtures 5,441 12,529 --------- --------- 248,757 908,348 Less accumulated depreciation (30,469) (110,143) ========= ========= $ 218,288 $ 798,205 ========= =========
4. LINE OF CREDIT The Company has a $480,000 revolving line of credit agreement with a financial institution dated August 3, 1998, and expiring on July 15, 1999. Interest is payable monthly and accrues at 1.25 percent over prime per annum, 9.75 percent at July 28, 1998. The line is collateralized by all business assets including, but not limited to, cash, accounts receivable, equipment, and general intangibles and is personally guaranteed by most of the Company's stockholder's. The terms of the note require that the Company pay regular monthly payments of accrued interest on the outstanding balance, with payment of all outstanding principal plus all unpaid accrued interest due at maturity. This line-of-credit is an extension of the line in effect as of July 28, 1998. The balance on the line-of-credit as of July 28, 1998, totaled $200,000. F-42 105 OPEC CORP. Notes to Financial Statements (continued) 5. LEASES Future minimum payments under capital leases and noncancelable operating leases with initial terms of one year or more consisted of the following at July 28, 1998:
CAPITAL LEASES OPERATING LEASES -------------- ---------------- 1999 $212,018 $ 64,360 2000 199,770 33,050 2001 175,500 19,950 2002 91,250 -- 2003 18,460 -- Thereafter -- -- -------- -------- Total minimum lease payments 696,998 -- Less amounts representing interest 52,507 -- -------- -------- Present value of net minimum lease payments 644,491 -- Less current portion 161,843 -- -------- -------- $482,648 $117,360 ======== ========
Total rental expense for all operating leases was approximately $25,000 and $36,000 for the year ended September 30, 1997 and the ten month period ended July 28, 1998, respectively. In addition, the Company leases its operating facility under an operating lease agreement for $3,000 per month from a partnership in which the majority of the Company's stockholders are partners. This agreement expires December 31, 1998, with the automatic renewal options for one year periods thereafter, unless terminated by either party. Rent expense for the facility for the year ended September 30, 1997 and ten months ended July 28, 1998, totaled approximately $24,000 and $30,000, respectively. F-43 106 OPEC CORP. Notes to financial statements (continued) 6. INCOME TAXES The provision (benefit) for income taxes is comprised of the following:
SEPTEMBER 30, JULY 28, 1997 1998 ------------- ------- Current: Federal $ 2,654 $225,221 State 1,400 53,000 -------- -------- 4,054 278,221 Deferred: Federal 4,268 6,618 State 750 1,200 -------- -------- 5,018 7,818 ======== ======== $ 9,072 $286,039 ======== ========
The Company's effective tax rate for the ten months ended July 28, 1998 was higher than the statutory rates primarily due to $500,000 of accrued bonus to certain owner/managers of the business which are treated as shareholder distributions for income tax accounting purposes. Deferred income taxes reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of deferred tax assets and liabilities are as follows:
SEPTEMBER 30, JULY 28, 1997 1998 ------------ --------- Deferred tax assets: UNICAP adjustment $ 4,876 $ 4,876 Unrealized loss on investment -- 12,252 -------- -------- 4,876 17,128 Deferred tax liabilities: Depreciation and amortization (9,894) (29,964) -------- -------- (9,894) (29,964) ======== ======== Net deferred tax asset (liability) $ (5,018) $(12,836) ======== ========
F-44 107 OPEC CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. YEAR 2000 ISSUE (UNAUDITED) OPEC realizes the need to ensure operations will not be adversely impacted by year 2000 software failures and believes that its internal accounting systems are presently year 2000 compliant. The Company's equipment utilized to deliver services to its customers is not materially reliant on embedded technology potentially impacted by the year 2000 issue. In addition, the Company is not materially reliant on third party systems (e.g. electronic data interchange) to conduct business. Communications have taken place and are ongoing with significant vendors, customers and other third parties to confirm and monitor their plans to become year 2000 ready and assess any possible risk to or effects on the current operations. Contingency plans will be developed for significant third parties' determined to be at high risk of noncompliance or business disruption. 8. SUBSEQUENT EVENT (UNAUDITED) Effective July 28, 1998, all of the outstanding stock of OPEC CORP. was acquired by FutureOne, Inc. The Company has purchased over $451,000 in vehicles and equipment subsequent to July 28, 1998, all of which is financed by additional debt. F-45 108 Exhibit Index
Exhibit No. 2.1 Articles of Incorporation of the Company, including all amendments and articles of exchanges thereto* 2.2 By-Laws of the Company* 2.3 First Amendment to By-Laws of the Company* 2.4 Second Amendment to By-Laws of the Company* 2.5 Amended and Restated Articles of Incorporation of the Company 5.1 Voting Trust Agreement among the Company, Blackwater Capital Group, L.L.C., Certain Stockholders and Kendall Q. Northern and Earl J. Cook, dated July 25, 1998* 6.1 Executive Employment Agreement between the Company and Kendall Q. Northern, dated as of July 27, 1998* 6.2 First Amendment to the Executive Employment Agreement between the Company and Kendall Q. Northern, dated May 14, 1999* 6.3 Executive Employment Agreement between the Company and Earl J. Cook, dated as of July 27, 1998* 6.4 First Amendment to the Executive Employment Agreement between the Company and Earl J. Cook, dated May 14, 1999* 6.5 Employment Agreement between OPEC Corp. and Donald D. Cannella, dated as of August 1, 1998* 6.6 Stock Purchase Agreement by and among World's Fare, Inc., dba FutureOne, a Nevada corporation, and Blackwater Capital Partners, L.P., and Blackwater Capital Group, L.L.C., dated as of July 25, 1998* 6.7 Warrant for the Purchase of 1,700,000 Shares of Common Stock of World's Fare, Inc. dba FutureOne* 6.8 FutureOne, Inc. 1999 Key Employee Stock Option Plan* 6.9 Form of FutureOne, Inc. Incentive Stock Option Agreement*
109
Exhibit No. 6.10 Form of Warrant to Purchase 205,406 shares of Common Stock in the name of Earl J. Cook 6.11(a) Lease by and between First Gracie, Limited Liability Company and Networld.com Inc., dated November 28, 1995, as amended 6.11(b) First Amendment to Lease 6.11(c) Second Amendment to Lease 6.11(d) Third Amendment to Lease 6.11(e) Fourth Amendment to Lease 6.11(f) Fifth Amendment to Lease 6.14 Loan Agreement by and among Norwest Bank Colorado, National Association, Trustee of the James C. Berger Rollover IRA, John Ventiniglia and Robin L. Morley & Mark E. Morley; OPEC Corp. and Donald D. Cannella dated August 27, 1999* 6.15 Collateralized Convertible Commercial Promissory Note by OPEC Corp. to the order of Norwest Bank Colorado, National Association, John Ventiniglia, and Robin L. Morley & Mark E. Morley in the amount of $1,000,000 dated August 27, 1999* 6.16 Guaranty by Donald D. Cannella to and for the benefit of Norwest Bank Colorado, National Association, Trustee of the James C. Berger Rollover IRA dated August 27, 1999* 6.17 State of Colorado Uniform Commercial Code-Security Agreement dated August 27, 1999* 6.18 Addendum to Uniform Commercial Code-Security Agreement* 6.19 Purchase and Sale Agreement by and among FutureOne, Inc. and the Members of Progressive Media LLC, dated as of July 16, 1999* 6.20 Purchase and Sale Agreement by and between the Company and Mandalay Incorporated dated December 6, 1999 6.21 Asset Purchase Agreement by and among RMI.NET, Inc. and Networld.com, Inc., FutureOne, Inc., an Arizona corporation and FutureOne, Inc., a Nevada corporation dated November 19, 1999 6.22 Severance Agreement by and between the Company and Kendall Q. Northern dated as of November 23, 1999 6.23 12% Secured Convertible Promissory Note made by the Company to the order of 12 Squared Partners, LLC, dated as of October 22, 1999 6.24 Warrant to Purchase 500,000 shares of Common Stock in the name of 12 Squared Partners, LLC
110
Exhibit No. 6.25 Security and Pledge Agreement by and between the Company and 12 Squared Partners, LLC, dated as of October 22, 1999 6.26 12% Convertible Promissory Note made by the Company to the order of Hare & Co., as Trustees for Financial Institutions Retirement Fund, dated as of December 28, 1999 6.27 Warrant to Purchase 16,667 shares of Common Stock in the name of Hare & Co., as Trustees for Financial Institutions Retirement Fund 6.28 Reseller Agreement by and between Ascend Communication Inc. and Priority Systems effective as of December 15, 1998 6.29 Employment Agreement between the Company and Bruce A. Robson dated as of January 11, 1999 6.30 Employment Agreement between the Company and R. Tucker Woodbury dated as of March 31, 1999 6.31 Employment Agreement between the Company and Alan Hald dated January 1, 2000 6.32 15% Promissory Note payable to the order of Richard B. McCulloch dated October 8, 1999 6.33 Form of Warrant to Purchase 250,000 shares of Common Stock in the name of Richard B. McCulloch 12.1 Letter on Change in Certifying Accountant 12.2 Subsidiaries of the Registrant* 12.3 Consent of Ernst & Young LLP Independent Auditors 27.1 Financial Data Schedule (Year Ended September 30, 1998)* 27.2 Financial Data Schedule (Year Ended September 30, 1999)
*Incorporated by reference from the Company's Form 10-SB Registration Statement filed with the Commission on October 7, 1999. EX-2.5 2 EX-2.5 1 Exhibit 2.5 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FUTUREONE, INC. ------------------------------------------ Pursuant to Sections 78.390 and 78.403 of the Nevada Revised Statutes ------------------------------------------ Pursuant to the provisions of Sections 78.390 and 78.403 of the Nevada Revised Statutes, the undersigned, being the President and Secretary of FutureOne, Inc., a corporation organized and existing under the laws of the State of Nevada (the "Corporation"), do hereby certify: 1. The name of the corporation is FutureOne, Inc. 2. The Articles of Incorporation of the corporation were filed with the Secretary of State on the 22nd day of March, 1994. 3. This Amended and Restated Certificate of Incorporation amends, restates and integrates the provision of the Articles of Incorporation of Corporation filed with the Nevada Secretary of State on March 22, 1994, as amended (the "Articles of Incorporation"), and was duly adopted by the Board of Directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 78.390 and 78.403 of the Nevada Revised Statutes. 4. For purposes of the Company's 1999 Annual Meeting of the Stockholders held on November 23, 1999 (the "Annual Meeting"), the total number of outstanding shares of the Common Stock the Corporation having voting power as of November 5, 1999 was Twelve Million Seven Hundred Seventy-One Thousand Six Hundred Seventy-Eight (12,771,678) and the total number of votes represented at the Annual Meeting by the holders of all said outstanding shares of the Common Stock was Seven Million One Hundred Thirty-Seven Thousand Eight Hundred Five (7,137,805). 5. This Amended and Restated Articles of Incorporation was approved by the Company's stockholders at the Annual Meeting with all votes represented at the Annual Meeting voting to adopt this Amended and Restated Articles of Incorporation. 6. The text of the Articles of Incorporation is hereby amended and restated in its entirety to provide as herein set forth in full. 1. The name of the Corporation is FutureOne, Inc. 2 2. Its principal office in the State of Nevada is located at One East First Street, Reno, Washoe County, Nevada 89501. The name and address of its resident agent is Corporation Trust Company of Nevada, One East First Street, Reno, Nevada 89501. 3. The purpose for which the Corporation is organized is the transaction of any and all lawful activities for which corporations may be incorporated under the laws of the State of Nevada, as the same may be amended from time to time. 4. The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 60,000,000 shares, consisting of (i) 50,000,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), and (ii) 10,000,000 shares of Preferred Stock, par value $.001 per share (the "Preferred Stock"). Such shares may be issued by the Corporation from time to time for such consideration as may be fixed by the Board of Directors. As to the Preferred Stock of the Corporation, the power to issue any shares of Preferred Stock of any class or any series of any class and designations, voting powers, preferences, and relative participating, optional or other rights, if any, or the qualifications, limitations, or restrictions thereof, shall be determined by the Board of Directors. 5. The capital stock of the Corporation shall have no pre-emptive rights except as set forth in any Certificate of Designation filed with the Nevada Secretary of State by the Corporation. 6. Shares of one class or series of capital stock may be issued as a share dividend for shares of any other class or series of capital stock in accordance with Nevada Revised Statutes Section 78.215. 7. The governing board of this Corporation shall be known as directors, and the number of directors may from time to time be increased up to nine (9) or decreased in such manner as shall be provided by the Bylaws of this Corporation. 8. The capital stock, after the amount of the subscription price or par value has been paid in, shall not be subject to assessment to pay the debts of the Corporation. 9. The Corporation is to have perpetual existence. 10. The fiscal year of the Corporation shall initially end on September 30 and begin on October 1 of each year; provided, however, that such date may be changed from time to time as determined by the Board of Directors to be in the best interest of the Corporation. 11. Meetings of stockholders may be held within or without the State of Nevada, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the Nevada statutes or the rules and regulations promulgated thereunder) outside the State of Nevada at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. 2 3 12. To the fullest extent permitted by the laws of the State of Nevada, as the same exist or may hereinafter be amended, no director or officer of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer; provided, however, that nothing contained herein shall eliminate or limit the liability of a director or officer of the Corporation to the extent provided by applicable laws (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law or (ii) for authorizing the payment of dividends in violation of Nevada Revised Statutes Section 78.300. The limitation of liability provided herein shall continue after a director or officer has ceased to occupy such position as to acts or omissions occurring during such director's or officer's term or terms of office. No repeal, amendment or modification of Section 78.300, whether direct or indirect, shall eliminate or reduce its effect with respect to any act or omission of a director or officer of the Corporation occurring prior to such repeal, amendment or modification. 13. The Corporation shall indemnify, defend or hold harmless any person who incurs expenses, claims, damages or liability by reason of the fact that he or she is, or was, an officer or director of the Corporation, to the fullest extent allowed pursuant to Nevada law. 14. Pursuant to Nevada Revised Statutes Section 78.378, the Corporation elects not to be governed by the provisions of Nevada Revised Statutes Sections 78.378 to 78.3793, inclusive, as the same may be amended from time to time. 16. The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation or in the Bylaws of the Corporation, in the manner now or hereafter previously prescribed by statute, and all rights conferred upon stockholders herein are granted subject to reservation; provided, however, that notwithstanding anything to the contrary in these Articles of Incorporation, the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of stock of this Corporation entitled to vote shall be required to amend, alter, change or repeal, or adopt any provision inconsistent with, these Articles of Incorporation. IN WITNESS WHEREOF, I have executed these Amended and Restated Articles of Incorporation this 14th day of December, 1999. FUTUREONE, INC. By /s/ Earl J. Cook -------------------------------------- Earl J. Cook, President By /s/ Bradley G. Black -------------------------------------- Bradley G. Black, Secretary 3 4 State of Arizona ) ) ss. County of Maricopa ) On this 14 day of December, 1999, before me personally came Earl J. Cook, the President of FutureOne, Inc., a Nevada corporation, who acknowledged that he executed the above instrument. /s/ Eric J. Cook -------------------------------------- Notary Public My Commission Expires: July 17, 2003 State of Arizona ) ) ss. County of Maricopa ) On this 14 day of December, 1999, before me personally came Bradley G. Black, the Secretary of FutureOne, Inc., a Nevada corporation, who acknowledged that he executed the above instrument. /s/ Eric J. Cook -------------------------------------- Notary Public My Commission Expires: July 17, 2003 4 EX-6.10 3 EX-6.10 1 Exhibit 6.10 THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. FUTUREONE, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Earl J. Cook (the "Holder") is entitled to subscribe for and purchase Two Hundred Five Thousand Four Hundred Six (205,406) shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock (as defined below) of FutureOne, Inc., a Nevada corporation (the "Company"), at the Warrant Price (as defined in Section 2 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized common stock, $.001 par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged. 1. Term of Warrant. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during the period beginning on the date hereof and ending on the seventh (7th) anniversary of the date hereof. 2. Warrant Price. The initial exercise price of this Warrant is $2.93 per share, subject to adjustment from time to time pursuant to the provisions of Section 5 hereof (the "Warrant Price"). 3. Method of Exercise; Payment; Issuance of New Warrant; Exercise. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased (the "Aggregate Exercise Price") either (i) by cash, check or wire transfer, (ii) by Cashless Exercise (as defined below) or (iii) by cancellation by the Holder of indebtedness of the Company to the Holder. The holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment or loan forgiveness otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect 2 instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"): Net Number = (A x B) - (A x C) ----------------- B For purposes of the foregoing formula: A = the total number of shares with respect to which this Warrant is then being exercised. B = the Market Price as of the date of the Exercise Notice. "Market Price" means, with respect to any security for any date of determination that price which shall be computed as the arithmetic average of the closing bid prices for such security on each of the five (5) consecutive trading days immediately preceding the date of notice requiring such determination (all such determinations to be appropriately adjusted for any stock dividend, stock split or similar transaction during the pricing period). C = the Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise. The Company agrees that the shares purchased pursuant to this Section 3 shall be deemed to be issued to the Holder hereof or the designee of the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder hereof or the designee of the Holder hereof within 15 days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder hereof within such 15-day period. 4. Stock Fully Paid; Reservation of Shares. All Common Stock that may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, the full number of shares of Common Stock or other security then deliverable upon exercise of this Warrant. 5. (a) Adjustment for Dividends in Other Stock and Property; Reclassifications. In case at any time or from time to time the holders of the Common Stock (or 2 3 any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, (1) other or additional stock or other securities or property (other than cash) by way of dividend, (2) any cash or other property paid or payable out of any source, or (3) other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement, (other than (x) shares of Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities), then and in each such case a holder, upon the exercise hereof as provided in Section 3, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which such holder would hold on the date of such exercise if as of the date hereof (the "Issuance Date") such holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant, and had thereafter, during the period from the Issuance Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clause (2) and (3) above) receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 5(a) and 5(b). (b) Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the exercise of this Warrant) or reclassification of its securities after the Issuance Date, or the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey or exchange all or substantially all its assets to another corporation or entity, then and in each such case the holder of this Warrant, upon the exercise hereof as provided in Section 3 at any time after the consummation of such reorganization, reclassification, consolidation, merger, conveyance or exchange, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Sections 5(a), (b), (c) and (d); in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation. (c) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time makes, or fixes a record date for the determination of holders of 3 4 Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) entitled to receive, a dividend or other distribution payable in additional shares of (x) Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities, then and in each such event (1) the Warrant Price then in effect shall be decreased as of the time of the issuance of such additional shares or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Warrant Price then in effect by a fraction (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Warrant Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Warrant Exercise Price shall be adjusted pursuant to this Section 5(c) as of the time of actual payment of such dividends or distributions; and (2) the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be increased, as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, in inverse proportion to the decrease in the Warrant Price. (d) Stock Split and Reverse Stock Split. If the Company at any time or from time to time effects a stock split or subdivision of the outstanding Common Stock, the Warrant Price then in effect immediately before that stock split or subdivision shall be proportionately decreased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately increased. If the Company at any time or from time to time effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Warrant Price then in effect immediately before that reverse stock split or combination shall be proportionately increased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately decreased. Each adjustment under this Section 5(d) shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective. 6. Notice of Adjustments. Whenever any adjustment is required to be made as provided in Section 5, the Company shall promptly notify the Holder, describing in reasonable detail the adjustment and method of calculation used. 7. Fractional Shares. In the sole discretion of the Company, instead of any fraction of a share which would otherwise be issuable upon exercise of the Warrant, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the 4 5 market price per share of Common Stock (as reasonably determined in good faith by the Board of Directors of the Company), at the close of business on the date of exercise. 8. Compliance with the Act. The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Act or any state securities laws. 9. Miscellaneous. (a) No Rights as Stockholder. Except as otherwise specifically provided herein, no holder of this Warrant, solely by virtue of such holding, shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether a reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance of the shares of Common Stock which the Holder is then entitled to receive upon the due exercise of this Warrant. (b) Replacement. On receipt of an executed Lost Warrant Affidavit in substantially the form annexed hereto as Exhibit B of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement, or bond reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder's expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) Notice. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given when delivered or telecopied or, if mailed, when mailed, if sent registered or certified, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Arizona without regard to conflicts of law principles. 5 6 IN WITNESS WHEREOF, this Warrant is executed as of the 30th day of September, 1998. FUTUREONE, INC., a Nevada corporation By: _____________________________________ Name: ___________________________________ Title: __________________________________ Date: ___________________________________ 6 7 EXHIBIT A NOTICE OF EXERCISE TO: FUTUREONE, INC. 1. The undersigned hereby elects to purchase ____________ shares of Common Stock of FutureOne, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full in accordance with the provisions of the following section of the attached Warrant: ___ Section 3(i) ___ Section 3(ii) ___ Section 3(iii) 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ____________________ (Name) ____________________ ____________________ (Address) 3. The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned will not offer, sell or otherwise dispose of any such shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities law. _________________________________________ Signature A-1 8 EXHIBIT B FORM OF AFFIDAVIT OF LOSS STATE OF ) ) ss: COUNTY OF ) The undersigned (hereinafter "Deponent"), being duly sworn, deposes and says that: 1. Deponent is an adult whose mailing address is: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ 2. Deponent is the recipient of a Warrant (the "Warrant") from FutureOne, Inc. (the "Company"), dated as of September 30, 1998 for the purchase of 205,406 shares of Common Stock, par value $.001 per share, of the Company, at an exercise price of $2.93 per share. 3. The Warrant has been lost, stolen, destroyed or misplaced, under the following circumstances: 4. The Warrant was not endorsed. 5. Deponent has made a diligent search for the Warrant, and has been unable to find or recover same, and Deponent was the unconditional owner of the Warrant at the time of loss, and is entitled to the full and exclusive possession thereof; that neither the Warrant nor the rights of Deponent therein have, in whole or in part, been assigned, transferred, hypothecated, pledged or otherwise disposed of, in any manner whatsoever, and that no person, firm or corporation other than the Deponent has any right, title, claim, equity or interest in, to, or respecting the Warrant. 6. Deponent makes this Affidavit for the purpose of requesting and inducing the Company and its agents to issue a new warrant in substitution for the Warrant. 7. If the Warrant should ever come into the hands, custody or power of the Deponent or the Deponent's representatives, agents or assigns, the Deponent will immediately and without consideration surrender the Warrant to the Company, its representatives, agents or assigns, its transfer agents or subscription agents for cancellation. B-1 9 8. The Deponent in its sole discretion shall either (i) indemnify and hold harmless the Company from any claim or demand for payment or reimbursement of any party arising in connection with the subject matter of this Affidavit or (ii) provide the Company with a bond reasonable satisfactory to the Company in form and amount. Signed, sealed and dated: _________________________ _________________________________________ Deponent Sworn to and subscribed before me this _____ day of __________, ____ __________________________________ Notary Public B-2 EX-6.11(A) 4 EX-6.11(A) 1 OFFICE LEASE by and between INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company "Landlord" and NETWORLD.COM INC., a(n) Arizona Corporation "Tenant" November 28, 1995 This lease proposal shall not be treated as an offer but merely as a proposal for review purposes. This proposal shall not be valid or binding unless and until accepted by Landlord in writing and fully executed copy delivered to both parties hereto. This proposal is subject to withdrawal or modification by Landlord at any time. Landlord reserves the right to offer premises simultaneously to other third parties. Therefore, the premises may be subject to prior leasing. 2 TABLE OF CONTENTS
Page I. BASIC PROVISIONS....................................................1 II. LEASED PREMISES.....................................................3 III. LEASE TERM; COMMENCEMENT DATE.......................................4 IV. SECURITY DEPOSIT....................................................5 V. RENT; RENT TAX; ADDITIONAL RENT.....................................5 VI. ADDITIONAL OPERATING EXPENSES, REAL ESTATE TAXES, IMPOSITIONS, ESTIMATED PAYMENTS..................................................6 VII. INITIAL CONSTRUCTION................................................7 VIII. CONDITION, REPAIRS AND ALTERATIONS..................................7 IX. SERVICES............................................................9 X. LIABILITY AND CASUALTY INSURANCE...................................10 XI. CASUALTY DAMAGE....................................................12 XII. WAIVER OF SUBROGATION..............................................13 XIII. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS.....................13 XIV. DEFAULT AND REMEDIES...............................................13 XV. LATE PAYMENTS......................................................16 XVI. ABANDONMENT AND SURRENDER..........................................16 XVII. INDEMNIFICATION AND EXCULPATION....................................17 XVIII. ENTRY BY LANDLORD..................................................18 XIX. SUBSTITUTE PREMISES................................................18 XX. ASSIGNMENT AND SUBLETTING..........................................19 XXI. USE OF LEASED PREMISES.............................................21 XXII. SUBORDINATION AND ATTORNMENT.......................................22 XXIII. ESTOPPEL CERTIFICATE...............................................23 XXIV. SIGNS..............................................................23 XXV. LIENS..............................................................23 XXVI. HOLDING OVER.......................................................24 XXVII. ATTORNEYS' FEES....................................................24 XXVIII. RESERVED RIGHTS OF LANDLORD........................................26 XXIX. EMINENT DOMAIN.....................................................26 XXX. NOTICES............................................................27 XXXI. RULES AND REGULATIONS..............................................27 XXXII. ACCORD AND SATISFACTION............................................27 XXXIII. HAZARDOUS MATERIALS REGULATION.....................................28 XXXIV. MISCELLANEOUS............................
i 3 OFFICE LEASE I. BASIC PROVISIONS 1.1 Date: November 28, 1995 1.2 Landlord: INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company 1.3 Landlord's Address: 4350 East Camelback Road, Suite 120G Phoenix, AZ 85018 With Copy of Notice To: Mr. Andrew G. Spiros, Esq. 288 Todd Road Katonah, NY 10536 1.4 Tenant: NETWORLD.COM INC., a(n) Arizona Corporation 1.5 Tenant's Address: (a) Prior to 4413 N. Saddlebag Trail, #3 Commencement Date: Scottsdale, AZ 85251 (b) Subsequent to Commencement Date: 4250 East Camelback Road Suite 192K Phoenix, Arizona 85018 1.6 Superior Lessor: American National Insurance Company 1.7 Superior Lessor's One Moody Plaza Address: 17th Floor Galveston, TX 77550 1.8 Superior Mortgagee: Aid Association for Lutherans 1.9 Superior Mortgagee's Aid Association for Lutherans Address: 4321 North Ballard Road Appleton, WI 54919-0001 1.10 Project: The parcel of real estate commonly known as "CamelSquare", located at the Northwest corner of 44th Street and Camelback Road, Phoenix, Arizona, together 4 with the office buildings now or hereafter situated thereon, the landscaping, parking facilities and all other improvements and appurtenances thereto. 1.11 Building: That certain office building commonly known as Building "K", situated in the Project. 1.12 Leased Premises: Approximately 1440 rentable square feet of office space located on the 1st floor of the Building and known as Suite 192K , as outlined on the Floor Plan attached as Exhibit "A". Rentable Square Feet 295,013 of Project: Permitted Use: General Office use. 1.13 Lease Term: One, (1) years. 1.14 Scheduled Commencement December 1, 1995 Date: 1.15 Annual Basic Rent: Year 1: $21,600.00 ($1,800.00 per month) plus applicable rental sales tax, [subject to adjustment pursuant to Article V and VI of this Lease.] Year 2: $__________ ($_________ per month) plus applicable rental sales tax, [subject to adjustment pursuant to Article V and VI of this Lease.] Year 3 $__________ ($_________ per month) plus applicable rental sales tax, [subject to adjustment pursuant to Article V and VI of this Lease.] Year 4: $__________ ($_________ per month) plus applicable rental sales tax, [subject to adjustment pursuant to Article V and VI of this Lease.] Year 5: $__________ ($_________ per month) plus applicable rental sales tax, [subject to adjustment pursuant to Article V and VI of this Lease.] 1.16 Security Deposit: $1,900.00, plus applicable rental sales tax. 2 5 1.17 Rent Escalation's: None 1.18 Building Hours: 7:00 a.m. to 6:00 p.m., Monday through Friday, and 7:00 a.m. to 1:00 p.m. on Saturday, excluding recognized federal, state or local holidays. 1.19 Guarantors: N/A 1.20 Broker: Koll - CBS Real Estate Services Company 3033 N. 44th Street, Suite 100 Phoenix, Arizona 85018 1.21 Managing Agent: Koll - CBS Real Estate Services Company 3033 N. 44th Street, Suite 100 Phoenix, Arizona 85018 1.22 Exhibits: A = Leased Premises B = Memorandum of Commencement Date [reserved] D = Building Rules and Regulations [reserved] [reserved] 1.23 Riders: [reserved] [reserved] [reserved] D = Parking II. LEASED PREMISES 2.1 Leased Premises. Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Premises, upon the terms and conditions set forth in this Lease and any modifications, supplements or addenda hereto (the "Lease"), including the Basic Provisions of Article I which are incorporated herein by this reference, together with the non-exclusive right to use, in common with Landlord and others, the Building Common Areas (as hereinafter defined). The term "Project Common Areas" means common hallways, corridors, walkways and footpaths, foyers and lobbies, bathrooms and janitorial closets, electrical and telephone closets, landscaped areas, and such other areas in the Project and within or adjacent to the Project which are subject to or are designed or intended solely for the common enjoyment, use and benefits of the tenants of the Project. III. LEASE TERM; COMMENCEMENT DATE 3.1 Lease Term. The Lease Term shall begin on the Commencement Date and shall be for the period set forth in Article 1.13, plus any period of less than one (1) month between the 3 6 Commencement Date and the first day of the next succeeding calendar month, unless sooner terminated in accordance with the further provisions of this Lease. 3.2 Commencement Date. The Commencement Date shall mean the earliest of (a) the date on which Landlord substantially completes the Tenant Improvements (as defined in the Work Letter) and tenders possession of the Leased Premises to Tenant; (b) the date on which Landlord would have substantially completed the Tenant Improvements and tendered possession of the Leased Premises to Tenant but for (i) any act or omission of Tenant, its agents, contractors or employees, including any delays by Tenant to approve any item or perform any obligation in accordance with the terms of the Work Letter, (ii) Tenant's request for materials, finishes or installations other than those readily available, or (iii) Tenant's request for changes to the Tenant Improvement Plans (as defined in the Work Letter) after initial approval by Tenant; or (c) the date on which Tenant takes possession of the Leased Premises. 3.3 Memorandum of Commencement Date. Landlord and Tenant shall, within ten (10) days after the Commencement Date, execute a declaration in the form of Exhibit "B" specifying the Commencement Date should the Commencement Date be a date other than the Scheduled Commencement Date. 3.4 Delay in Commencement Date. In the event Landlord shall be unable, for any reason, to deliver possession of the Leased Premises to Tenant on the Scheduled Commencement Date, Landlord shall not be liable for any loss or damage occasioned thereby, nor shall such inability affect the validity of this Lease or the obligations of Tenant. In such event, Tenant shall not be obligated to pay Annual Basic Rent or Additional Rent until the Commencement Date. In the event Landlord shall not have delivered possession of the Leased Premises to Tenant within six (6) calendar months after the Scheduled Commencement Date, and if such failure to deliver possession was (a) caused solely by the fault or neglect of Landlord, and (b) not caused by any fault or neglect of Tenant or due to additional time required to plan for and install other work for Tenant beyond the amount of time which would have been required if only building standard improvements had been installed, then, as its sole and exclusive remedy for Landlord's failure to deliver possession of the Leased Premises in a timely manner, Tenant shall have the right to terminate this Lease by delivering written notice of termination to Landlord at any time within thirty (30) days after the expiration of such six (6) month period. Such termination shall be effective thirty (30) days after receipt by Landlord of Tenant's notice of termination unless Landlord shall, prior to the expiration of such thirty (30) day period, deliver possession of the Leased Premises to Tenant. Upon a termination of this Lease pursuant to the provisions of this Article 3.4, the parties shall have no further obligations or liabilities to the other and Landlord shall promptly return any monies previously deposited or paid by Tenant. 3.5 Lease Year. Each "Lease Year" shall be a period of twelve (12) consecutive calendar months, the first Lease Year beginning on the Commencement Date or on the first day of the calendar month next succeeding the Commencement Date if the Commencement Date is not on the first day of a calendar month. Each Lease Year after the first Lease Year shall begin on the calendar day next succeeding the expiration of the immediately preceding Lease Year. 4 7 IV. SECURITY DEPOSIT ---------------- Tenant shall pay to Landlord, upon the execution of this Lease, the Security Deposit set forth in Article 1.16, plus applicable rental sales tax, as security for the performance by Tenant of its obligations under this Lease, which amount shall be returned to Tenant after the expiration or earlier termination of this Lease, provided that Tenant shall have fully performed all of its obligations contained in this Lease. The Security Deposit, at the election of Landlord, may be retained by Landlord as and for its full damages or may be applied in reduction of any loss and/or damage sustained by Landlord by reason of the occurrence of any breach, nonperformance or default by Tenant under this Lease without the waiver of any other right or remedy available to Landlord at law, in equity or under the terms of this Lease. If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) days after written notice from Landlord, deposit with Landlord immediately available funds in an amount sufficient to restore the Security Deposit to its original amount. Tenant acknowledges and agrees that in the event Tenant shall file a voluntary petition pursuant to the Bankruptcy Code or any successor thereto, or if an involuntary petition is filed against Tenant pursuant to the Bankruptcy Code or any successor thereto, then Landlord may apply the Security Deposit towards those obligations of Tenant to Landlord which accrued prior to the filing of such petition. Tenant acknowledges further that the Security Deposit may be commingles with Landlord's other funds and that Landlord shall be entitled to retain any interest earnings thereon. Any mortgagee of Landlord, or purchaser of the Premises, or beneficiary of a deed of trust, shall be relieved and released from any obligation to return such security in the event such mortgagee, beneficiary of a deed of trust, or purchaser comes into possession of the Premises by reason of foreclosure or trustee's sale (including deed in lieu thereof) or proceeding in lieu of foreclosure unless such security deposit shall have been actually delivered to such mortgagee or purchaser. Such release does not relieve Landlord of any obligation it may have to return the security deposit. V. RENT; RENT TAX; ADDITIONAL RENT ------------------------------- 5.1 Payment of Rent. Tenant shall pay to Landlord the Annual Basic Rent set forth in Article 1.15, subject to adjustment as provided herein. The Annual Basic Rent shall be paid in equal monthly installments, on or before the first day of each and every calendar month during the Lease Term, in advance, without notice or demand and without abatement, deduction or set-off. If the Commencement Date is other than the first day of a calendar month, the payment for the partial month following the Commencement Date shall be prorated and shall be payable on the Commencement Date. The Annual Basic Rent for the first full month of the Lease Term shall be paid upon the execution of this Lease. All payments requiring proration shall be prorated on the basis of a thirty (30) day month. All payments shall be paid in lawful money of the United States of America to Landlord or its agent at the address set forth in Article 1.3, or to such other person or at such other place as Landlord may from time to time designate in writing. 5.2 Rent Tax. In addition to the Annual Basic Rent, Tenant shall pay to Landlord, together with the monthly installments of Annual Basic Rent, an amount equal to any state or local sales, rental, privilege, occupancy, excise, or use taxes assessed or levied upon Landlord with respect to the amounts paid by Tenant to Landlord hereunder, as well as all taxes assessed or imposed upon Landlord's gross receipts or gross income from leasing the Leased Premises to Tenant, including, without limitation, transaction privilege taxes, education excise taxes, any tax 5 8 now or hereafter imposed by the City of Phoenix, the State of Arizona, any other governmental body, and any taxes assessed or imposed in lieu of or in substitution of any of the foregoing taxes. Such taxes shall not, however, include any franchise, gift, estate, inheritance, conveyance, transfer or net income tax assessed against Landlord. 5.3 Additional Rent. In addition to Annual Basic Rent, all other amounts to be paid by Tenant to Landlord pursuant to this Lease (including amounts to be paid by Tenant pursuant to Article VI), if any, shall be deemed to be Additional Rent, whether or not designated as such, and shall be due and payable within five (5) days after receipt by Tenant of Landlord's statement or together with the next succeeding installment of Annual Basic Rent, whichever shall first occur. Landlord shall have the same remedies for the failure to pay Additional Rent as for the nonpayment of Annual Basic Rent. VI. ADDITIONAL OPERATING EXPENSES, REAL ESTATE TAXES, ------------------------------------------------- IMPOSITIONS, ESTIMATED PAYMENTS ------------------------------- 6.1 Additional Rent. All charges required to be paid by Tenant hereunder, including without limitation payments for Impositions, Operating Expenses, and any other amounts payable hereunder, shall be considered additional rent for the purposes of this Lease ("Additional Rent"), and Tenant shall pay Additional Rent upon written demand by Landlord or otherwise as provided in this Lease. "Rent," as used herein, shall be Base Rent and Additional Rent. [reserved] 6.3 Impositions. All real estate taxes, including all real estate rental, use, and privilege taxes, and all other taxes relating to the Premises or the Project, all other taxes which may be levied in lieu of real estate taxes, including any real estate rental, use, and privilege taxes, all assessments, assessment bonds, levies, fees and other governmental charges (including, but not limited to, charges for traffic facilities improvements, water services studies and improvements, and fire services studies and improvements) or amounts necessary to be expended because of governmental order, whether general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind and nature for public improvements, services, benefits, or any other purposes are assessed, levied, confirmed, imposed or become a lien upon the Premises or Project or become payable during the Term shall collectively be referred to as "Impositions". Impositions shall not include any franchise, estate, inheritance or succession transfer tax of Landlord, or any income, profits or revenue tax or charge upon the net income of Landlord from all sources; provided, however, that if at any time during the Term under the laws of the United States Government or the Applicable State, or any political subdivision thereof, a tax or excise on rent, or any other tax however described, is levied or assessed by any such political body against Landlord on account of Rent, or a portion thereof, Tenant shall pay one hundred percent (100%) of any said tax or excise as Additional Rent. Tenant shall pay or cause to be paid, prior to delinquency, any and all taxes and assessments levied upon all trade fixtures, inventories and other personal property placed in and upon the Premises by Tenant. 6.4 Services and Utilities. So long as Tenant is not in default under this Lease, Landlord shall provide to the Premises and the Building Common Areas during business Hours, utilities and maintenance as required in Landlord's reasonable judgment for the comfortable use 6 9 and occupancy of the Premises. Landlord shall not be liable for, and Tenant shall not be entitled to any reduction or abatement of Rent on account of, any failure on the part of the Landlord to deliver the services and utilities provided in the Lease unless the same results from the willful or intentional misconduct of Landlord, nor shall Landlord be liable under any circumstances for any direct or consequential damages incidental to any failure to furnish any utilities or services. Tenant may install its own trash receptacle. "Business Hours", as used herein, means the hours from 7:00 a.m. to 6:00 p.m. Monday through Friday and 7:00 a.m. to 1:00 p.m. on Saturday, except for National Holidays. Landlord will provide janitorial service five (5) days per week within the Premises as per Article 9.2. 6.5 Extra Services and Utilities. Landlord agrees to provide utility and maintenance service, including HVAC service, above the Building standard quality provided herein, at a market hourly rate to be determined by Landlord. Any extra services and utilities, including after-Business Hours HVAC service, shall be provided upon at least one business day's notice to Landlord. VII. INITIAL CONSTRUCTION -------------------- Construction of Tenant Improvements within the Leased Premises shall be performed [reserved] as follows: tenant accepts suite in "as-is" condition. VIII. CONDITION, REPAIRS AND ALTERATIONS ---------------------------------- 8.1 Tenant's Obligations. Tenant shall, at Tenant's sole cost and expense, maintain the Leased Premises in a clean, neat and sanitary condition and shall keep the Leased Premises and every part thereof in good condition and repair except where the same is required to be done by Landlord. Tenant hereby waives all rights to make repairs at the expense of Landlord as provided by any law, statute or ordinance now or hereafter in effect. Tenant shall, upon the expiration or earlier termination of the Lease Term, surrender the Leased Premises to Landlord, broom clean and in the same condition as when received, ordinary wear and tear excepted. Except as set forth in the Work Letter and in Article 8.2 below, Landlord has no obligation to construct, remodel, improve, repair, decorate or paint the Leased Premises or any part thereof. Tenant shall pay for the cost of all repairs to the Leased Premises not required to be made by Landlord and shall be responsible for any redecorating, remodeling, alteration and painting during the Lease Term. Tenant shall pay for any repairs to the Leased Premises, the Building, or the Project made necessary by any negligence or carelessness of Tenant, its employees or invitees. 8.2 Landlord's Obligations. Landlord shall (a) make all necessary repairs to the exterior walls, exterior doors, windows and corridors of the Building, (b) keep the Building and the Building Common Areas in a clean, net and attractive condition, and (c) keep all Building equipment such as elevators, plumbing, heating, air conditioning and similar Building equipment in good repair, but Landlord shall not be liable or responsible for breakdowns or interruptions in service when reasonable efforts are made to restore such service. 8.3 Alterations. Tenant may place partitions and fixtures and may make improvements and other alterations to the interior of the Leased Premises at Tenant's expense, 7 10 provided, however, that prior to commencing any such work, Tenant shall first obtain the written consent of Landlord to the proposed work, including the plans, specifications and the proposed architect and/or contractor(s) for such alterations and/or improvements. At least ten (10) days prior to the commencement of any construction in the Leased Premises, Tenant shall deliver to Landlord copies of the plans and specifications for the contemplated work and shall identify the contractor(s) selected by Tenant to perform such work. Landlord may require that the work be done by Landlord's own employees, its construction contractors, or under Landlord's direction, but at the expense of Tenant, and Landlord may, as a condition to consenting to such work, require that Tenant provide security adequate in Landlord's judgment so that the improvements or other alterations to the Leased Premises will be completed in a good, workmanlike and lien free manner. Landlord may also require that any work done to the interior of the Leased Premises be subject to the supervision of Landlord or its designee, and Tenant shall pay to Landlord, upon completion of such work, a supervision fee in an amount equal to ten percent (10%) of cost of such work. All such improvements or alterations must conform to and be in substantial accordance in quality and appearance with the quality and appearance of the improvements in the remainder of the Building. All such improvements shall be the property of Landlord. In the event Landlord consents to the use by Tenant of its own architect and/or contractor for the installation of any such alternations or improvements, prior to the commencement of such work, Tenant shall provide Landlord with evidence that Tenant's contractor has procured worker's compensation, liability and property damage insurance (naming Landlord and the managing agent as an additional insured) in a form and in an amount approved by Landlord, and evidence that Tenant's architect and/or contractor has procured the necessary permits, certificates and approvals from the appropriate governmental authorities. Tenant acknowledges and agrees that any review by Landlord of Tenant's plans and specifications and/or right of approval exercised by Landlord with respect to Tenant's architect and/or contractor is for Landlord's benefit only and Landlord shall not, by virtue of such review or right of approval, be deemed to make any representation, warranty or acknowledgement to Tenant or to any other person or entity as to the adequacy of Tenant's plans and specifications or as to the ability, capability or reputation of Tenant's architect and/or contractor. 8.4 Removal of Alterations. Upon the expiration or earlier termination of this Lease, Tenant shall remove from the Leased Premises all movable trade fixtures and other movable personal property, and shall promptly repair any damage to the Leased Premises, the Building or the Project caused by such removal. All such removal and repair shall be entirely at Tenant's sole cost and expense. At any time within fifteen (15) days prior to the scheduled expiration of the Lease Term or immediately upon any termination of this Lease, Landlord may require that Tenant remove from the Leased Premises any alterations, additions, improvements, trade fixtures, equipment, shelving, cabinet units or movable furniture (and other personal property) designed by Landlord to be removed. In such event, Tenant shall, in accordance with the provisions of Article 8.3 above, complete such removal (including the repair of any damage caused thereby) entirely at its own expense and within fifteen (15) days after notice from Landlord. 8.5 No Abatement. Except as provided herein, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease, including without limitation, Tenant's obligation to pay Annual Basic Rent and Additional Rent, be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or 8 11 injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted to make pursuant to the terms of this Lease or by any other Tenant's lease or are required by law to be made in and to any portion of the Leased Premises, the Building or the Project. Landlord shall, nevertheless, use reasonable efforts to minimize any interference with Tenant's business in the Leased Premises. IX. SERVICES -------- 9.1 Climate Control. Landlord shall provide reasonable climate control to the Leased Premises during the Building Hours as is suitable, in Landlord's judgment, for the comfortable use and occupation of the Leased Premises, excluding, however, air conditioning or heating for electronic data processing or other equipment requiring extraordinary climate control. 9.2 Janitorial Services. Landlord shall make janitorial and cleaning services available to the Leased Premises at least five (5) evenings per week, except recognized federal, state or local holidays. Tenant shall pay to Landlord, within five (5) days after receipt of Landlord's bill, the reasonable costs incurred by Landlord for extra cleaning in the Leased Premises required because of (a) misuse or neglect on the part of Tenant, its employees or invitees, (b) use of portions of the Leased Premises for special purposes requiring greater or more difficult cleaning work than office areas, (c) interior glass partitions or unusual quantities of glass surfaces, (d) non-building standard materials or finishes installed by Tenant or at its request, and (e) removal from the Leased Premises of refuse and rubbish of Tenant in excess of that ordinarily accumulated in general office occupancy or at times other than Landlord's standard cleaning times. 9.3 Electricity. Landlord shall, during Building Hours, furnish reasonable amounts of electric current as required for normal and usual lighting purposes and for office machines and equipment such as personal computers, typewriters, adding machines, copying machines, calculators and similar machines and equipment normally utilized in general office use. Tenant's use of electric energy in the Leased Premises shall not at any time exceed the capacity of any of the risers, piping, electrical conductors and other equipment in or serving the Leased Premises. In order to insure that such capacity is not exceeded and to avert any possible adverse effect on the Building's electric system, Tenant shall not, without Landlord's prior written consent in each instance, connect appliances, or heavy-duty equipment other than ordinary office equipment to the Building's electric system or make any alterations or additions to the Building's electric system. Should Landlord grant such consent, all additional risers, piping and electrical conductors and other equipment therefor shall be provided by Landlord and the cost thereof shall be paid by Tenant within ten (10) days after receipt of Landlord's bill. As a condition to granting such consent, Landlord may require Tenant to pay the cost of additional electric energy that is made available to Tenant based upon the estimated additional capacity of such additional risers, piping and electrical conductors or other equipment. 9.4 Light Bulbs. Landlord shall perform such replacement of lamps, fluorescent tubes and lamp ballast's in the Leased Premises and in the Building as may be required from time to time. If the lighting fixtures in the Leased Premises are other than those furnished as Base Building Improvements (as defined in Exhibit "D"), Tenant shall pay Landlord's charge for 9 12 replacing the lamps, lamp ballast's and fluorescent tubes in such lighting fixtures within ten (10) days after receipt of Landlord's bill. 9.5 Heat Generating Equipment. Whenever heat generating machines or equipment used in the Leased Premises affect the temperature otherwise maintained by the climate control system, Landlord shall have the right to install supplementary air-conditioning units in the Leased Premises and the cost thereof, including the cost of installation, operation and maintenance shall be paid by Tenant to Landlord within five (5) days after receipt by Tenant of Landlord's statement. 9.6 Separate Meters. Landlord may install separate meters for the Leased Premises to register the usage of all or any one of the utilities serving the Leased Premises and in such event, Tenant shall pay for the cost of utility usage as metered (a) during other than Building Hours, or (b) which is in excess of that usage customary for general office use. Tenant shall reimburse Landlord for the cost of installation of the meters. In addition, Landlord shall have the right to require that Tenant reduce its consumption of utilities furnished to the Leased Premises to a level not exceeding normal consumption for general office use as determined by Landlord in its reasonable business judgment. 9.7 Additional Services. Tenant shall pay to Landlord, monthly as billed, as Additional Rent, Landlord's charge for services furnished by Landlord to Tenant in excess of that agreed to be furnished by Landlord pursuant to this Article IX, including, but not limited to (a) any utility services utilized by Tenant during other than Building Hours or for computers, data processing equipment or other electrical equipment in excess of the amounts of electric current agreed to be furnished by Landlord to the Leased Premises pursuant to Article 9.3 above, and (b) climate control in excess of that agreed to be furnished by Landlord pursuant to Article 9.1 above or provided at times other than Building Hours. 9.8 Interruptions in Service. Landlord does not warrant that any of the foregoing services or any other services which Landlord may supply will be free from interruption. Tenant acknowledges that any one or more of such services may be suspended by reason of accident, repairs, inspections, alterations or improvements necessary to be made, or by strikes or lockouts, or by reason of operation of law, or by causes beyond the reasonable control of Landlord. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of Annual Basic Rent or Additional Rent by reason of any disruption of the services to be provided by Landlord pursuant to this Lease. X. LIABILITY AND CASUALTY INSURANCE -------------------------------- 10.1 Liability Insurance. Tenant shall, during the Lease Term, keep in full force and effect, a policy or policies of commercial general liability insurance for personal injury (including wrongful death) and damage to property covering (a) any occurrence in the Leased Premises, (b) any act or omission by Tenant, by any subtenant of Tenant, or by any of their respective invitees, agents, servants or employees anywhere in the Leased Premises or the Project, (c) the business operated by Tenant and by any subtenant of Tenant in the Leased Premises, and (d) the contractual liability of Tenant to Landlord pursuant to the indemnification provisions of Article 17.1 below, which coverage shall not be less than One Million and No/100 10 13 Dollars ($1,000,000.00), combined single limit, per occurrence. If Landlord shall so request, Tenant shall increase the amount of such liability insurance to the amount then customary for premises and uses similar to the Leased Premises and Tenant's use thereof. The liability policy or policies shall contain an endorsement naming Landlord and its managing agent, its partners and any persons, firms or corporations designated by Landlord as additional insured and the Superior Lessor as a named insured. 10.2 Casualty Insurance. Tenant shall, during the Lease Term, keep in full force and effect, a policy or policies of so called "All Risk" or "All Peril" insurance, insuring the Tenant Improvements and Tenant's stock in trade, furniture, personal property, fixtures and equipment in the Leased Premises, with coverage in an amount equal to the replacement cost thereof. Tenant may, with Landlord's prior written consent, elect to have a reasonable deductible in connection with such insurance. 10.3 Worker's Compensation Insurance. Tenant shall, during the Lease Term, keep in full force and effect, a policy or policies of worker's compensation insurance with an insurance carrier and in amounts approved by the Industrial Commission of the State of Arizona. 10.4 Insurance Requirements. Each insurance policy and certificate thereof obtained by Tenant pursuant to this Lease shall contain a clause that the insurer will provide Landlord, its partners and any persons, firms or corporations designated by Landlord with at least thirty (30) days prior written notice of any material change, nonrenewable or cancellation of the policy. Each such insurance policy shall be with an insurance company authorized to do business in the State of Arizona and reasonably acceptable to Landlord. A certificate evidencing the coverage under each such policy, as well as a certified copy of the required additional insured endorsement(s) shall be delivered to Landlord prior to commencement of the Lease Term. Each such policy shall provide that any loss payable thereunder shall be payable notwithstanding (a) any act, omission or neglect by Tenant or by any subtenant of Tenant, or (b) any occupation or use of the Leased Premises or any portion thereof by Tenant or by any subtenant of Tenant for purposes more hazardous than permitted by the terms of such policy or policies, or (c) any foreclosure or other action or proceeding taken by any mortgagee or trustee pursuant to any provision of any mortgage or deed of trust covering the Leased Premises, the Building or the Project, or (d) any change in title or ownership of the Project. All insurance policies required pursuant to this Article X shall be written as primary policies, not contributing with or in excess of any coverage which Landlord may carry. Tenant shall procure and maintain all policies entirely at its own expense and shall, at least twenty (20) days prior to the expiration of such policies, furnish Landlord with renewal certificates thereof. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies maintained by Landlord or the insurance policies required pursuant to this Article X or the coverage thereunder. If Tenant or any subtenant of Tenant does or permits to be done anything which shall increase the cost of any insurance policies maintained by Landlord, then Tenant shall reimburse Landlord for any additional premiums attributable to any act or omission or operation of Tenant or any subtenant of Tenant causing such increase in the cost of insurance. Any such amount shall be payable as Additional Rent within five (5) days after receipt by Tenant of a bill from Landlord. 10.5 Co-Insurance. If on account of the failure of Tenant to comply with the provisions of this Article X, Landlord is deemed a co-insurer by its insurance carrier, then any 11 14 loss or damage which Landlord shall sustain by reason thereof shall be borne by Tenant, and shall be paid by Tenant within five (5) days after receipt of a bill therefor. 10.6 Adequacy of Insurance. Landlord makes no representation or warranty to Tenant that the amount of insurance to be carried by Tenant under the terms of this Lease is adequate to fully protect Tenant's interests. If Tenant believes that the amount of any such insurance is insufficient, Tenant is encouraged to obtain, at its sole cost and expense, such additional insurance as Tenant may deem desirable or adequate. Tenant acknowledges that Landlord shall not, by the fact of approving, disapproving, waiving, accepting, or obtaining any insurance, incur any liability for or with respect to the amount of insurance carried, the form or legal sufficiency of such insurance, the solvency of any insurance companies or the payment or defense of any lawsuit in connection with such insurance coverage, and Tenant hereby expressly assumes full responsibility therefor and all liability, if any, with respect thereto. Tenant shall carry such additional insurance and coverage's and meeting such standards as may be required from time to time by the Superior Lessor. 10.7 Earthquake and Flood Insurance. In addition to any other insurance policies carried by Landlord in connection with the Project, Landlord may, in its sole discretion, elect to procure and maintain in full force and effect during the Term, with respect to the Project, a policy of earthquake/volcanic action and flood and/or surface water insurance. XI. CASUALTY DAMAGE --------------- 11.1 Obligation to Repair. In the event of any damage to the Leased Premises, Tenant shall promptly notify Landlord in writing. If the Leased Premises or any part of the Building are damaged by fire or other casualty not due to the fault or negligence of Tenant, its employees, invitees, agents, contractors or servants, the damage to the Building and/or the Base Building Improvements within the Leased Premises shall be repaired by and at the expense of Landlord and the Tenant Improvements and the remainder of the Leased Premises shall be repaired by and at the expense of Tenant, unless this Lease is terminated in accordance with the provisions of Article 11.2 below. There shall be no abatement of Annual Basic Rent or Additional Rent on account of damage to the Leased Premises, the Building or the Project. Tenant hereby waives any statute now or hereafter in effect which grants to Tenant the right to terminate this Lease or which provides for an abatement of rent on account of damage or destruction, including, without limitation, A.R.S. 33-343. 11.2 Landlord's Option. If the damage is not fully covered by Landlord's insurance, or if Landlord determines in good faith that the cost of repairing the damage is more than one-third of the then replacement cost of the Building or the Project, or if Landlord has determined in good faith that the required repairs to the Building cannot be made within a one hundred twenty (120) day period without the payment of overtime or other premiums, or in the event the lessor under a ground lease or a holder of a mortgage or a deed of trust against the Building or the Project requires that all or any portion of the insurance proceeds be applied on the ground lease or in reduction of the mortgage debt, then Landlord may, by written notice to Tenant within ninety (90) days after the occurrence of such damage, terminate this Lease as of the date set forth in Landlord's notice to Tenant. If Landlord does not elect to terminate this Lease, Landlord shall, at its sole cost and expense, repair the Building and the Base Building Improvements within the 12 15 Leased Premises and while such repair work is being performed, the Annual Basic Rent and Additional Rent shall be abated but only if and to the extent that the proceeds of Tenant's business interruption insurance proceeds are paid to Landlord. In any situation where Landlord is required to or has elected to repair damage to the Leased Premises, Landlord shall not be obligated to repair or replace any items other than Base Building Improvements. After completion by Landlord of the repairs to the Base Building Improvements, Tenant shall commence, and thereafter diligently pursue to completion, in accordance with the provisions of Article 8.3, the repair and restoration of the Tenant Improvements and the remainder of the Leased Premises. Nothing in this Article XI shall be construed as a limitation of Tenant's liability for any such damage, should such liability otherwise exist. XII. WAIVER OF SUBROGATION --------------------- Tenant hereby waives its rights and the subrogation rights of its insurer against Landlord and any other Tenants of space in the Building, or the Project, as well as their respective officers, employees, agents, authorized representatives and invitees, with respect to any claims including, but not limited to, claims for injury to any persons, and/or damage to the Leased Premises and/or any fixtures, equipment, personal property, furniture, improvements and/or alterations in or to the Leased Premises, which are caused by or result from (a) risks or damages required to be insured against under this Lease, or (b) risks and damages which are insured against by insurance policies maintained by Tenant from time to time. Tenant shall obtain for Landlord from its insurers under each policy required by this Lease a waiver of all rights of subrogation which such insurers of Tenant might otherwise have against Landlord. XIII. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS ---------------------------------------------- All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Annual Basic Rent or Additional Rent. If Tenant shall fail to pay any sum of money, other than Annual Basic Rent, required to be paid by it hereunder, or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for five (5) days after notice thereof by Landlord (or such shorter period of time as may be reasonable following oral notice to Tenant's personnel in the Leased Premises), Landlord may (but shall not be obligated to do so) without waiving or releasing Tenant from any of Tenant's obligations, make any such payment or perform any such other act on behalf of Tenant. All sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the greater of (a) eighteen percent (18%) per annum or (b) the rate of interest per annum publicly announced, quoted or published, from time to time, by Bank of America, at its Phoenix, Arizona office as its "prime rate" plus four (4) percentage points, from the date of such payment by Landlord until reimbursement in full by Tenant (the "Default Rate"), shall be payable to Landlord as Additional Rent with the next monthly installment of Annual Basic Rent; provided, however, in no event shall the Default Rate exceed the maximum rate (if any) permitted by applicable law. XIV. DEFAULT AND REMEDIES -------------------- 14.1 Event of Default. If Tenant shall fail to pay any installment of Annual Basic Rent, any Additional Rent or any other sum required to be paid by Tenant under this Lease, and 13 16 such failure shall continue for five (5) days after written notice, or if Tenant shall fail to perform any of the other covenants or conditions which Tenant is required to observe and perform and such failure shall continue for fifteen (15) days (or such shorter period of time as may be specified by Landlord in the event of an emergency) after written notice thereof by Landlord to Tenant, or if Tenant makes or has made any warranty, representation or statement to Landlord in connection with this Lease which is or was materially false or misleading when made or furnished, or if Tenant shall commit an Event of Default under any other agreement between Landlord and Tenant, or if Tenant shall fail to conduct business operations within the Leased Premises for five (5) consecutive days, or if the interest of Tenant in this Lease shall be levied upon under execution or other legal process, or if any petition shall be filed by or against Tenant or any Guarantor to declare Tenant or any Guarantor a bankrupt or to delay, reduce or modify Tenant's or any Guarantor's debts or obligations, or if any petition shall be filed or other action taken to reorganize or modify Tenant's or any Guarantor's capital structure, or if Tenant or any Guarantor shall be declared insolvent according to law, or if any assignment of Tenant's or any Guarantor's property shall be made for the benefit of creditors, or if a receiver or trustee is appointed for Tenant or any Guarantor or all or any of their respective property, or if Tenant or any Guarantor shall file a voluntary petition pursuant to the Bankruptcy Code or any successor thereto or if an involuntary petition be filed against Tenant or any Guarantor pursuant to the Bankruptcy Code or any successor thereto, then Tenant shall have committed a material breach and default under this Lease (an "Event of Default"). 14.2 Remedies. Upon the occurrence of an Event of Default under this Lease by Tenant, Landlord may, without prejudice to any other rights and remedies available to Landlord at law, in equity or by statute, exercise one or more of the following remedies, all of which shall be construed and held to be cumulative and non-exclusive: (a) Terminate this Lease and re-enter and take possession of the Leased Premises, in which event, Landlord is authorized to make such repairs, redecorating, refurbishment's or improvements to the Leased Premises as may be necessary in the reasonable opinion of Landlord acting in good faith for the purposes of reletting the Leased Premises and the costs and expenses incurred in respect of such repairs, redecorating and refurbishment's and the expenses of such reletting (including brokerage commissions) shall be paid by Tenant to Landlord within five (5) days after receipt of Landlord's statement; (b) Without terminating this Lease, re-enter and take possession of the Leased Premises; (c) Without such re-entry, recover possession of the Leased Premises in the manner prescribed by any statute relating to summary process, and any demand for Annual Basic Rent, re-entry for condition broken, and any and all notices to quit, or other formalities of any nature to which Tenant may be entitled, are hereby specifically waived to the extent permitted by law; (d) Without terminating this Lease, Landlord may relet the Leased Premises as Landlord may see fit without thereby avoiding or terminating this 14 17 Lease, and for the purposes of such reletting, Landlord is authorized to make such repairs, redecorating, refurbishment's or improvements to the Leased Premises as may be necessary in the reasonable opinion of Landlord acting in good faith for the purpose of such reletting, and if a sufficient sum is not realized from such reletting (after payment of all costs and expenses of such repairs, redecorating and refurbishment's and expenses of such reletting (including brokerage commissions) and the collection of rent accruing therefrom) each month to equal the Annual Basic Rent and Additional Rent payable hereunder, then Tenant shall pay such deficiency each month within five (5) days after receipt of Landlord's statement; (e) Landlord may declare immediately due and payable all the remaining installments of Annual Basic Rent and Additional Rent, and such amount, less the far rental value of the Leased Premises for the remainder of the Lease Term shall be paid by Tenant within five (5) days after receipt of Landlord's statement. Landlord shall not by re-entry or any other act, be deemed to have terminated this Lease, or the liability of Tenant for the total Annual Basic Rent and Additional Rent reserved hereunder or for any installment thereof then due or thereafter accruing, or for damages, unless Landlord notifies Tenant in writing that Landlord has so elected to terminate this Lease. After the occurrence of an Event of Default, the acceptance of Annual Basic Rent or Additional Rent, or the failure to re-enter by Landlord shall not be deemed to be a waiver of Landlord's right to thereafter terminate this Lease and exercise any other rights and remedies available to it, and Landlord may re-enter and take possession of the Leased Premises as if no Annual Basic Rent or Additional Rent had been accepted after the occurrence of an Event of Default. 14.3 Additional Remedies. All of the remedies given to Landlord in this Lease in the event Tenant commits an Event of Default are in addition to all other rights or remedies available to a landlord at law, in equity or by statute. All rights, options and remedies available to Landlord shall be construed and held to be cumulative, and no one of them shall be exclusive of the other. 14.4 Interest on Past Due Amounts. In addition to the late charge described in Article XV, if any installment of Annual Basic Rent or Additional Rent is not paid promptly when due, it shall bear interest at the Default Rate from the due date; provided, however, this provision shall not relieve Tenant from any default in the making of any payment at the time and in the manner required by the Lease; and provided, further, in no event shall the Default Rate exceed the maximum rate (if any) permitted by applicable law. 14.5 Landlord Default. In the event Landlord should neglect or fail to perform or observe any of the covenants, provisions or conditions contained in this Lease on its part to be performed or observed, and such failure continues for thirty (30) days after written notice of default (or if more than thirty (30) days shall be required because of the nature of the default, if Landlord shall fail to commence the curing of such default within such thirty (30) day period and 15 18 proceed diligently thereafter), then Landlord shall be responsible to Tenant for any actual damages sustained by Tenant as a result of Landlord's breach, but not special or consequential damages. Should Tenant give written notice to Landlord to correct any default, Tenant shall give the same notice to the Superior Lessor and Superior Mortgagee (as defined in Article 22.1) at the addresses set forth in Article 1.7 an 1.9 respectively (or at such other addresses as Tenant may be notified of from time to time) and prior to any cancellation of this Lease or the exercise of any other remedies, the Superior Lessor and Superior Mortgagee shall be given thirty (30) days or such longer period of time as may be reasonably necessary to correct or remedy such default, but shall have no obligation to do so. If and when the Superior Lessor or Superior Mortgagee has made performance on behalf of Landlord, the default of Landlord shall be deemed cured. Tenant shall have no right to terminate this Lease, unless expressly provided in this Lease. XV. LATE PAYMENTS ------------- Tenant acknowledges that the late payment by Tenant to Landlord of any monthly installment of Annual Basic Rent, any Additional Rent or any other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include but are not limited to processing, administrative and accounting costs. Accordingly, if any monthly installment of Annual Basic Rent, any Additional Rent or any other sum due from Tenant shall not be received by Landlord within five (5) days after the date when due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount. Tenant acknowledges that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payments by Tenant. Neither assessment nor acceptance of a late charge by Landlord shall constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. Nothing contained in this Article XV shall be deemed to condone, authorize, sanction or grant to Tenant an option for the late payment of Annual Basic Rent, Additional Rent or any other sum due hereunder. XVI. ABANDONMENT AND SURRENDER ------------------------- 16.1 Abandonment. Tenant shall not vacate or abandon the Leased Premises for a consecutive period of 5 days at any time during the Lease Term. No act or thing done by Landlord or by any agent or employee of Landlord during the Lease Term shall be deemed an acceptance of a surrender of the Leased Premises unless such acceptance is expressed in writing and duly executed by Landlord. Unless Landlord so agrees in writing, the delivery of the key to the Leased Premises to any employee or agent of Landlord shall not operate as a termination of this Lease or as a surrender of the Leased Premises. 16.2 Surrender. Tenant shall, upon the expiration or earlier termination of this Lease, peaceably surrender the Leased Premises, including the Tenant Improvements, in a broom clean condition and otherwise in as good condition as when Tenant took possession, except for (i) reasonable wear and tear subsequent to the last repair, replacement, restoration, alteration or renewal; (ii) loss by fire or other casualty, and (iii) loss by condemnation. If Tenant shall abandon, vacate or surrender the Leased Premises, or be dispossessed by process of law or otherwise, any personal property and fixtures belonging to Tenant and left in the Leased Premises shall be deemed abandoned and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. Landlord may, however, if it so elects, remove all or any part of such personal property from the Leased Premises and the costs incurred by Landlord in connection with such removal, including storage costs and the cost of repairing any damage to the Leased 16 19 Premises, the Building and/or the Project caused by such removal shall be paid by Tenant within five (5) days after receipt of Landlord's statement. Upon the expiration or earlier termination of this Lease, Tenant shall surrender to Landlord all keys to the Leased Premises. The obligations of Tenant under this Article 16.2 shall survive the expiration or earlier termination of this Lease. XVII. INDEMNIFICATION AND EXCULPATION ------------------------------- 17.1 Indemnification. Tenant shall indemnify, protect, defend and hold Landlord harmless for, from and against all claims, damages, losses, costs, liabilities and expenses, including reasonable attorneys', accountants' and investigators' fees and court costs (collectively, the "Claims"), however caused, arising in whole or in part from Tenant's use of all or any part of the Leased Premises, the Building and/or the Project or the conduct of Tenant's business or from any activity, work or thing done, permitted or suffered by Tenant or by any invitee, servant, agent, employee or subtenant of Tenant in the Leased Premises, the Building and/or the Project, and shall further indemnify, protect, defend and hold Landlord harmless for, from and against all Claims arising in whole or in part from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease or arising in whole or in part from any act, neglect, fault or omission by Tenant or by any invitee, servant, agent, employee or subtenant of Tenant anywhere in the Leased Premises, the Building and/or the Project. In case any action or proceeding is brought against Landlord to which this indemnification shall be applicable, Tenant shall pay all Claims resulting therefrom and shall defend such action or proceeding, if Landlord shall so request, at Tenant's sole cost and expense, by counsel reasonably satisfactory to Landlord. The obligations of Tenant under this Article 17.1 shall survive the expiration or earlier termination of this Lease. 17.2 Exculpation. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property, injury and death to persons and all claims of any other nature resulting from Tenant's use of all or any part of the Leased Premises, the Building and/or the Project, and Tenant hereby waives all claims in respect thereof against Landlord, unless due to Landlord's willful negligence. Neither Landlord nor its agents or employees shall be liable for any damaged property of Tenant entrusted to any employee or agent of Landlord or for loss of or damage to any property of Tenant by theft or otherwise. Landlord shall not be liable for any injury or damage to persons or property resulting from any cause, including, but not limited to, fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building and/or the Project or from the pipes, appliances or plumbing works therein, or from the roof of any structure in the Project, or from any streets or subsurfaces on or adjacent to the Building or the Project, or from any other place or resulting from dampness or any other causes whatsoever, unless caused solely by the gross negligence or willful misconduct of Landlord. Neither Landlord nor its employees or agents shall be liable for any defects in the Leased Premises, the Building and/or the Project, nor shall Landlord be liable for the negligence or misconduct, including, but not limited to, criminal acts, by maintenance or other personnel or contractors serving the Leased Premises, the Building and/or the Project, unless Landlord is 17 20 grossly negligent or guilty of willful misconduct. All property of Tenant kept or stored on the Project shall be so kept or stored at the risk of Tenant only, and Tenant shall indemnify, defend and hold Landlord harmless for, from and against any Claims arising out of damage to the same, including subrogation claims by Tenant's insurance carriers, unless such damage shall be caused by the willful act or gross neglect of Landlord and through no fault of Tenant. None of the events or conditions set forth in this Article XVII shall be deemed a constructive or actual eviction or result in a termination of this Lease, nor shall Tenant be entitled to any abatement or reduction of Annual Basic Rent or Additional Rent by reason thereof. Tenant shall give prompt notice to Landlord with respect to any defects, fires or accidents which Tenant observes in the Leased Premises, the Building and/or the Project. XVIII. ENTRY BY LANDLORD ----------------- Landlord reserves and shall at any and all times have the right to enter the Leased Premises, to inspect the same, to supply janitorial service and other services to be provided by Landlord to Tenant hereunder, to submit the Leased Premises to prospective purchasers or tenants, to post notices of non-responsibility, and to alter, improve or repair the Leased Premises and any portion of the Building of which the Leased Premises are a part, without abatement of Annual Basic Rent or Additional Rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing that access into the Leased Premises shall not be blocked thereby, and further providing that the business of Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Leased Premises or any loss occasioned thereby. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all the doors in, upon or about the Leased Premises, excluding Tenant's vaults and safes and where Landlord reasonably believes an emergency exists, Landlord shall have the right to use any and all means which Landlord may deem proper to open such doors in order to obtain entry to the Leased Premises, and any entry to the Leased Premises obtained by Landlord by any such means or otherwise shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a retainer of, the Leased Premises or an eviction of Tenant from all or any portion of the Leased Premises. Nothing in this Article XVIII shall be construed as obligating Landlord to perform any repairs, alterations or maintenance except as otherwise expressly required elsewhere in this Lease. XIX. SUBSTITUTE PREMISES ------------------- 19.1 Relocation of Leased Premises. Landlord may, before or after the Commencement Date, elect by notice to Tenant, to substitute for the Leased Premises other office space in the Project (the "Substitute Premises") designated by Landlord, provided that the Substitute Premises shall contain at least the same usable area as the Leased Premises and have a configuration substantially similar to the Leased Premises. Landlord's notice shall be accompanied by a plan of the Substitute Premises. Tenant shall vacate and surrender the Leased Premises and shall occupy the Substitute Premises promptly (and, in any event, not later than fifteen (15) days) after Landlord has substantially completed the work to be performed by Landlord in the Substitute Premises pursuant to Article 19.2. Tenant shall pay the same Annual Basic Rent and Additional Rent with respect to the Substitute Premises as was payable with 18 21 respect to Leased Premises. This Lease shall remain in full force and effect and the Substitute Premises shall thereafter be deemed to be the Leased Premises. 19.2 Compensation to Tenant. In the event Landlord shall elect to relocate Tenant to Substitute Premises, Tenant shall not be entitled to any compensation for any inconvenience or interference with Tenant's business, nor any abatement or reduction of Annual Basic Rent or Additional Rent, but Landlord shall, at Landlord's expense perform the following: (a) Furnish and install in the Substitute Premises fixtures, equipment, improvements, appurtenances and leasehold improvements at least equal in kind and quality to those contained or to be contained in the Leased Premises at the time such notices of substitution is given by Landlord; (b) Provide personnel to perform, under Tenant's direction, the moving of Tenant's personal property and trade fixtures from the Leased Premises to the Substitute Premises; (c) Promptly reimburse Tenant for Tenant's actual and reasonable out-of-pocket costs incurred in connection with the relocation of any telephone or other communications equipment from the Leased Premises to the Substitute Premises; and (d) Promptly reimburse Tenant for any other actual and reasonable out-of-pocket costs incurred by Tenant in connection with Tenant's move from Leased Premises to the Substitute Premises, provided such costs are approved by Landlord in advance which approval shall not be unreasonably withheld. Tenant shall cooperate with Landlord so as to facilitate the performance by Landlord of its obligations under this Article 19.2 and the prompt surrender by Tenant of the Leased Premises. Without limiting the generality of the preceding sentence, Tenant shall provide Landlord promptly any approvals or instructions and any plans or specifications or any other information reasonably requested by Landlord, and Tenant shall perform promptly in the Substitute Premises any work to be performed therein by Tenant to prepare the same for Tenant's occupancy. XX. ASSIGNMENT AND SUBLETTING ------------------------- 20.1 Assignment and Subletting Prohibited. Tenant shall not transfer or assign this Lease or any right or interest hereunder, or sublet the Leased Premises or any part thereof, without first obtaining Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. No transfer or assignment (whether voluntary or involuntary, by operation of law or otherwise) or subletting shall be valid or effective without such prior written consent. Should Tenant attempt to make or allow to be made any such transfer, assignment or subletting, except as aforesaid, or should any of Tenant's rights under this Lease be sold or otherwise transferred by or under court order or legal process or otherwise, then, and in any of the foregoing events Landlord may, at its option, treat such act as an Event of Default by Tenant. Should Landlord consent to a transfer, assignment or subletting, such consent shall not constitute a waiver of any of the restrictions or prohibitions of this Article XX, and such 19 22 restrictions or prohibitions shall apply to each successive transfer, assignment or subletting hereunder, if any. 20.2 Deemed Transfers. For the purposes of this Article XX, an assignment shall be deemed to include the following: (a) if Tenant is a partnership, a withdrawal or change (voluntary, involuntary, by operation of law or otherwise) of any of the partners thereof, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) by any partner thereof of such partner's interest in Tenant, or the dissolution of the partnership; (b) if Tenant consists of more than one person, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) from one person unto the other or others; (c) if Tenant (or a constituent partner of Tenant) is a corporation or a limited liability company, any dissolution, merger, consolidation or reorganization of Tenant (or such constituent partner), or any change in the ownership (voluntary, involuntary, by operation of law, creation of new stock or ownership interest or otherwise) of twenty percent (20%) or more of its capital stock (or in the case of a limited liability company, its membership interests) from the ownership existing on the date set forth in Article 1.1 above; (d) if Tenant is an unincorporated association, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) of any interest in such unincorporated association; or (e) the sale of twenty percent (20%) or more in value of the assets of Tenant. 20.3 Landlord's Consent Required. If Tenant desires at any time to assign this Lease or sublet the Leased Premises or any portion thereof, it shall first notify Landlord of its desire to do so and shall submit in writing to Landlord: (a) the name of the proposed subtenant or assignee; (b) the nature of the proposed subtenant's or assignee's business to be carried on in the Leased Premises; (c) the terms and the provisions of the proposed sublease or assignment; and (d) such financial information as Landlord may reasonably request concerning the proposed subtenant or assignee; (e) resume of subtenant. Tenant's failure to comply with the provisions of this Article 20.3 shall entitle Landlord to withhold its consent to the proposed assignment or subletting. 20.4 Recapture. If Tenant proposes to assign its interest in this Lease or sublet all or any part of the Leased Premises, Landlord may, at its option, upon written notice to Tenant within thirty (30) days after Landlord's receipt of the information specified in Article 20.3 above, elect to recapture all or any portion of the Leased Premises, and within sixty (60) days after notice of such election has been given to Tenant, this Lease shall terminate as to the portion of the Leased Premises recaptured. If all or a portion of the Leased Premises is recaptured by Landlord pursuant to this Article 20.4, Tenant shall promptly execute and deliver to Landlord a termination agreement setting forth the termination date with respect to the Leased Premises or the recaptured portion thereof, and prorating the Annual Basic Rent, Additional Rent and other charges payable hereunder to such date. If Landlord does not elect to recapture as set forth above, Tenant may thereafter enter into a valid assignment or sublease with respect to the Leased Premises, provided that Landlord consents thereto pursuant to this Article XX, and provided further, that (a) such assignment or sublease is executed within ninety (90) days after Landlord has given its consent, (b) Tenant pays all amounts then owed to Landlord under this Lease, (c) there is not in existence an Event of Default as of the effective date of the assignment or sublease, (d) there have been no material changes with respect to the financial condition of the 20 23 proposed subtenant or assignee or the business such party intends to conduct in the Leased Premises, and (e) a fully executed original of such assignment or sublease providing for an express assumption by the assignee or subtenant of all of the terms, covenants and conditions of this Lease is promptly delivered to Landlord. 20.5 Adjustment to Rental. In the event Tenant assigns its interest in this Lease or sublets the Leased Premises, the Annual Basic Rent set forth in Article 1.13 above, as adjusted, shall be increased (but not decreased) effective as of the date of such assignment or subletting to the rent and other consideration payable by any such assignee or sublessee pursuant to such assignment or sublease. Notwithstanding the foregoing, in no event shall the Annual Basic Rent after any such assignment or subletting be less than the Annual Basic Rent specified in Article 1.13 above, as adjusted. 20.6 No Release from Liability. Landlord may collect Annual Basic Rent and Additional Rent from the assignee, subtenant, occupant or other transferee, and apply the amount so collected, first to the monthly installments of Annual Basic Rent, then to any Additional Rent and other sums due and payable to Landlord, and the balance, if any, to Landlord, but no such assignment, subletting, occupancy, transfer or collection shall be deemed a waiver of Landlord's rights under this Article XX, or the acceptance of the proposed assignee, subtenant, occupant or transferee. Notwithstanding any assignment, sublease or other transfer (with or without the consent of Landlord), Tenant shall remain primarily liable under this Lease and shall not be released from performance of any of the terms, covenants and conditions of this Lease. 20.7 Landlord's Expenses. If Landlord consents to an assignment, sublease or other transfer by Tenant of all or any portion of Tenant's interest under this Lease, Tenant shall pay or cause to be paid to Landlord, a transfer fee of not less than Two Hundred and Fifty and No/100 Dollars ($250.00) to reimburse Landlord for administrative expenses and for legal, accounting and other out-of-pocket expenses incurred by Landlord. XXI. USE OF LEASED PREMISES ---------------------- The Leased Premises are leased to Tenant solely for the Permitted Use set forth in Article 1.12 above and for no other purpose whatsoever. Tenant shall not do or permit anything to be done in or about the Leased Premises nor bring or keep anything therein which will in any way increase the existing rate of or affect any casualty or other insurance on the Building, the Project or any of their respective contents, or cause a cancellation of any insurance policy covering the Building, the Project or any part thereof or any of their respective contents. Tenant shall not do or permit anything to be done in or about the Leased Premises, the Building or the Project which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building, or the Project or injure or annoy them. Tenant shall not use or allow the Leased Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Leased Premises, the Building or the Project. Tenant shall not commit or suffer to be committed any waste in or upon the Leased Premises, the Building or the Project. Tenant shall not use the Leased Premises, the Building or the Project or permit anything to be done in or about the Leased Premises, the Building or the Project which will in any way conflict with any matters of record, or any law, statute, ordinance, zoning or governmental rule or regulation now in force or which may hereafter be enacted or promulgated, 21 24 and shall, at its sole cost and expense, promptly comply with all matters of record and all laws, statutes, ordinances and governmental rules, regulations and requirements now in force or which may hereafter be in force and with the requirements of any Board of Fire Underwriters or other similar body now or hereafter constituted, foreseen or unforeseen, ordinary as well as extraordinary, relating to or affecting the condition, use or occupancy of the Building or the Project, excluding structural changes not relating to or affected by Tenant's improvement or acts. The judgment of any court of competent jurisdiction or the admission by Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any matters of record, or any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact between Landlord and Tenant. In addition, Tenant shall not place a load upon any floor of the Leased Premises which exceeds the load per square foot which the floor was designed to carry, nor shall Tenant install business machines or other mechanical equipment in the Leased Premises which cause noise or vibration that may be transmitted to the structure of the Building. Tenant shall indemnify, protect, defend and hold Landlord and against all claims, damages, losses, costs, liabilities and expenses, whatsoever arising in whole or in part from Tenant's breach of this paragraph. XXII. SUBORDINATION AND ATTORNMENT ---------------------------- 22.1 Subordination. This Lease and all rights of Tenant hereunder shall be, at the option of Landlord, subordinate to (a) all matters of record, (b) all ground leases, overriding leases and underlying leases (collectively referred to as the "leases") of the Building or the Project now or hereafter existing, (c) all first mortgages and first deeds of trust (individually referred to as a "mortgage" and collectively referred to as the "mortgages") which may now or hereafter encumber or affect the Building or the Project, and (d) all renewals, modifications, amendments, replacements and extensions of leases and mortgages and to spreaders and consolidations of the mortgages, whether or not leases or mortgages shall also cover other lands, buildings or leases. The provisions of this Article 22.1 shall be self-operative and no further instruments of subordination shall be required; however in conformation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any lease or the holder of any mortgage or any of their respective assigns or successors in interest may reasonably request to evidence such subordination. Any lease to which this Lease is subject and subordinate is called a "Superior Lease" and the lessor under a Superior Lease or its assigns or successors in interest is called a "Superior Lessor." Any mortgage to which this Lease is subject and subordinate is called a "Superior Mortgage" and the holder of a Superior Mortgage is called a "Superior Mortgagee." If Landlord, a Superior Lessor or a Superior Mortgagee requires that such instruments be executed by Tenant, Tenant's failure to do so within ten (10) days after request therefor shall be deemed an Event of Default under this Lease. Tenant waives any right to terminate this Lease because of any foreclosure proceedings. 22.2 Attornment. If any Superior Lessor or Superior Mortgagee (or any purchaser at a foreclosure sale) succeeds to the rights of Landlord under this Lease, whether through possession or foreclosure action, or the delivery of a new lease or deed (a "Successor Landlord"), Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. 22 25 22.3 Termination of Superior Lease. In the event of the termination of the Superior Lease, the Superior Lessor may notify, within six (6) months after the termination of the Superior Lease, Tenant of the Superior Lessor's election to either ratify and adopt this Lease or terminate this Lease within two (2) months following such notice. The foregoing shall not apply if this Lease is for a term of five (5) years or less and the Leased Premises are 10,000 square feet or less. XXIII. ESTOPPEL CERTIFICATE -------------------- 23.1 Estoppel Certificate. Tenant shall, from time to time, within ten (10) days after written request by Landlord, execute, acknowledge and deliver to Landlord or Landlord's designee a statement in writing certifying: (a) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect); (b) the dates to which Annual Basic Rent, Additional Rent and other charges are paid in advance, if any; (c) that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or specifying such defaults if any are claimed; and (d) that Tenant has paid Landlord the Security Deposit. In addition, such statement shall provide such other information and facts Landlord may reasonably require, including, but not limited to, the Commencement Date and termination date of the Lease Term. Any such statement may be relied upon by any prospective or existing purchaser, ground lessee or mortgagee of all or any portion of the Project, as well as by any other assignee of Landlord's interest in this Lease. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord; (ii) that there are no uncured defaults in Landlord's performance hereunder; (iii) that Tenant has paid to Landlord the Security Deposit; (iv) that no more than one month's installment of Annual Basic Rent or Additional Rent has been paid in advance; and (v) that the other information and facts set forth therein are true and correct. XXIV. SIGNS ----- Landlord shall retain absolute control over the exterior appearance of the Project and the exterior appearance of the Leased Premises as viewed from outside the Leased Premises. Tenant shall not install, or permit to be installed, any drapes, shutters, signs, lettering, advertising, or any items that will in any way alter the exterior appearance of the Building or the exterior appearance of the Leased Premises as viewed from outside the Leased Premises. Notwithstanding the foregoing, Landlord shall install, at Tenant's sole cost and expense, letters or numerals at or near the entryway to the Leased Premises. All such letters or numerals shall be in accordance with the criteria established by Landlord for the Building. In addition, Tenant's name and suite number shall be identified on the Building directory. All costs shall be borne by the Tenant for any subsequent Building directory changes requested by Tenant. XXV. LIENS ----- Tenant shall keep the Leased Premises free and clear of all mechanic's and material workmen's liens. If, because of any act or omission (or alleged act or omission) of Tenant, any mechanics', material workmen's or other lien, charge or order for the payment of money shall be filed or recorded against the Leased Premises, the Project or the Building, or against any other 23 26 property of Landlord (whether or not such lien, charge or order is valid or enforceable as such), Tenant shall, at its own expense, cause the same to be cancelled or discharged of record within thirty (30) days after Tenant shall have received written notice of the filing thereof, or Tenant may, within such thirty (30) day period, furnish to Landlord, a bond pursuant to A.R.S. Section 33-104 (or any successor statute) and satisfactory to Landlord and all Superior Lessors and Superior Mortgagees against the lien, charge or order, in which case Tenant shall have the right to contest, in good faith, the validity or amount thereof. XXVI. HOLDING OVER ------------ The date of termination of this Lease and the right of Landlord to recover immediate possession of the Leased Premises thereupon is an important and material matter affecting the parties and the rights of third parties, all of which have been specifically considered by Landlord and Tenant. Tenant shall not hold over. In the event of any continued occupancy or holding over of the Leased Premises without the express written consent of Landlord beyond the expiration of earlier termination of this Lease or beyond the expiration or earlier termination of Tenant's right to occupy the Leased Premises, whether in whole or in part, or by leaving property on the Leased Premises or otherwise, this Lease shall be deemed a monthly tenancy and Tenant shall pay two (2) times the Annual Basic Rent then in effect, in advance at the beginning of the hold-over month(s), plus any Additional Rent or other charges or payments contemplated in this Lease, and any other costs, expenses, damages, liabilities and attorneys' fees incurred by Landlord on account of Tenant's holding over. XXVII. ATTORNEYS' FEES --------------- Tenant shall pay to Landlord all amounts for costs (including reasonable attorneys' fees) incurred by Landlord in connection with any breach or default by Tenant under this Lease or incurred in order to enforce or interpret the terms or provisions of this Lease. Such amounts shall be payable within five (5) days after receipt by Tenant of Landlord's statement. In addition, if any action shall be instituted by either of the parties hereto for the enforcement or interpretation of any of their respective rights or remedies in or under this Lease, the prevailing party shall be entitled to recover from the losing party all costs incurred by the prevailing party in such action and any appeal therefrom, including reasonable attorneys' fees to be fixed by the court. Further, should Landlord be made a party to any litigation between Tenant and any third party, then Tenant shall pay all costs and attorneys' fees incurred by or imposed upon Landlord in connection with such litigation. XXVIII. RESERVED RIGHTS OF LANDLORD --------------------------- Landlord reserves the following rights, exercisable without liability to Tenant for damage or injury to property, persons or business and without effecting an eviction, constructive or actual, or disturbance of Tenant's use or possession or giving rise to any claim: (a) To name the Building and the Project and to change the name or street address of the Building or the Project; 24 27 (b) To install and maintain all signs on the exterior and interior of the Building and the Project; (c) To designate or approve all sources furnishing sign painting and lettering; (d) During the last ninety (90) days of the Lease Term, if Tenant has vacated the Leased Premises, to decorate, remodel, repair, alter or otherwise prepare the Leased Premises for reoccupancy, without affecting Tenant's obligation to pay Annual Basic Rent and Additional Rent; (e) To have pass keys to the Leased Premises and all doors therein, excluding Tenant's vaults and safes; (f) On reasonable prior notice to Tenant, to exhibit the Leased Premises to any prospective purchaser, mortgagee, or assignee of any mortgage on the Building or the Project and to others having interest therein at any time during the Lease Term, and to prospective Tenants during the last six (6) months of the Lease Term; (g) To take any and all measures, including entering the Leased Premises for the purposes of making inspections, repairs, alterations, additions and improvements to the Leased Premises or to the Building (including, for the purposes of checking, calibrating, adjusting and balancing controls and other parts of the Building systems) as may be necessary or desirable for the operation, improvement, safety, protection or preservation of the Leased Premises or the Building, or in order to comply with all laws, orders and requirements of governmental or other authorities, or as may otherwise be permitted or required by this Lease; provided, however, that Landlord shall endeavor (except in an emergency) to minimize interference with Tenant's business in the Leased Premises; (h) To relocate various facilities within the Building or the Project if Landlord shall determine such relocation to be in the best interest of the development of the Building or the Project, provided, that such relocation shall not materially restrict access to the Leased Premises; (i) To change the nature, extent, arrangement, use and location of the Building Common Areas and any common areas of the Project; (j) To commence or discontinue operation of any health club, fitness center or restaurant located in the Project; (k) To make alterations or additions to and to build additional stories on the Building and to build additional buildings or improvements in the Project; and (l) To install vending machines of all kinds in the Leased Premises and the Building, and to receive all of the revenue derived therefrom, provided, 25 28 however, that no vending machines shall be installed by Landlord in the Leased Premises unless Tenant so requests. Landlord further reserves the exclusive right to the roof of the Building. No easement for light, air, or view is included in the leasing of the Leased Premises to Tenant. Accordingly, any diminution or shutting off of light, air or view by any structure which may be erected in the Project or on other properties in the vicinity of the Building shall in no way affect this Lease or impose any liability upon Landlord. XXIX. EMINENT DOMAIN -------------- 29.1 Taking. If the whole of the Building is lawfully and permanently taken by the condemnation or a deed in lieu thereof or any other manner for any public or quasi-public purpose, this Lease shall terminate as of the date of vesting of title in such condemning authority and the Annual Basic Rent and Additional Rent shall be prorated to such date. If any part of the Building or Project is so taken, or if the whole of the Building is taken, but not permanently, then this Lease shall be unaffected thereby, except that (a) Landlord may terminate this Lease by notice to Tenant within ninety (90) days after the date of vesting of title in the condemning authority, and (b) if twenty percent (20%) or more of the Leased Premises shall be permanently taken and the remaining portion of the Leased Premises shall not be reasonably sufficient for Tenant to continue operation of its business, Tenant may terminate this Lease by notice to Landlord within ninety (90) days after the date of vesting of title in such condemning authority. This Lease shall terminate on the thirtieth (30th) day after receipt by Landlord of such notice, by which date Tenant shall vacate and surrender the Leased Premises to the Landlord. The Annual Basic Rent and Additional Rent shall be prorated to the earlier of the termination of this Lease or such date as Tenant is required to vacate the Leased Premises by reason of the taking. If this Lease is not terminated as a result of a partial taking of the Leased Premises, the Annual Basic Rent and Additional Rent shall be equitably adjusted according to the rentable area of the Leased Premises and Building remaining. 29.2 Award. In the event of a taking of all or any part of the Building or the Project, all of the proceeds or the award, judgment, settlement or damages payable by the condemning authority shall be and remain the sole and exclusive property of Landlord, and Tenant hereby assigns all of its right, title and interest in and to any such award, judgment, settlement or damages to Landlord. Tenant shall, however, have the right, to the extent that the same shall not reduce or prejudice amounts available to Landlord, to claim from the condemning authority, but not from Landlord, such compensation as may be recoverable by Tenant in its own right for relocation benefits, moving expenses, and damages to Tenant's personal property and trade fixtures. XXX. NOTICES ------- Any notice or communication given under the terms of this Lease shall be in writing and shall be delivered in person, sent by any public or private express delivery service or deposited with the United States Postal Service or a successor agency, certified or registered mail, return receipt requested, postage pre-paid, addressed as set forth in the Basic Provisions, or at such other address as any party, the Superior Lessor, or the Superior Mortgagee may from time to 26 29 time designate by notice hereunder. Notice shall be effective and deemed given when personally delivered or three days after deposited in the U.S. Mail, postage prepaid. The inability to deliver a notice because of a changed address of which no notice was given or a rejection or other refusal to accept any notice shall be deemed to be the receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept. Any notice to be given by Landlord may be given the legal counsel or the authorized agent of the Landlord. XXXI. RULES AND REGULATIONS --------------------- Tenant shall abide by all rules and regulations of the Project imposed by Landlord, as attached hereto as Exhibit "D" or as may hereafter be issued by Landlord. Such rules and regulations are imposed to enhance the cleanliness, appearances, maintenance, order and use of the Leased Premises, the Building and the Project, and the proper enjoyment of the Building and the Project by all tenants and their clients, customers and employees. The rules and regulations of the Project may be changed from time to time upon ten (10) days notice to Tenant. Breach of the rules and regulations by Tenant shall constitute an Event of Default if such breach is not fully cured within ten (10) days after written notice to Tenant by Landlord. Landlord shall not be responsible to Tenant for nonperformance by any other tenant, occupant or invitee of the Building or the Project of any rules or regulations. XXXII. ACCORD AND SATISFACTION ----------------------- No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Annual Base Rent and Additional Rent (jointly called "Rent" in this Article XXXII), shall be deemed to be other than on account of the earliest stipulated Rent due and not yet paid, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue any other remedy in these Lease. No receipt of money by Landlord from Tenant after the termination of this Lease, after the service of any notice relating to the termination of this Lease, after the commencement of any suit, or after final judgment for possession of the Leased Premises, shall reinstate, continue or extend the Lease Term or affect any such notice, demand, suit or judgment. XXXIII. HAZARDOUS MATERIALS REGULATION ------------------------------ 33.1 Hazardous Materials Regulations. Tenant shall strictly comply with all statutes, laws, codes, ordinances, rules, regulations and precautions now or hereafter mandated or advised by any federal, state, local or other governmental agency with respect to the use, generation, storage, or disposal of hazardous, toxic, or radioactive materials (collectively referred to as "Hazardous Materials"). Landlord shall have the right, but not the obligation, at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions. The full cost of all such inspections, tests and investigations shall be borne by Tenant. As used herein, Hazardous Materials shall include, but not be limited to, those substances defined as "hazardous substances or pollutant or contaminants," "hazardous wastes," "toxic substances," regulated substances," or other similar designations in the Comprehensive Environmental Response, Compensation and Liability Act of 27 30 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Resources Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; Paragraph 9001 of the solid Waste Disposal Act, as amended by Paragraph 601 of the Hazardous and solid Waste Amendments of 1984; and any other federal, state or local governmental statues, laws, ordinances, and codes, including any and all rules, and regulations and precautions promulgated thereunder. Tenant shall not cause, or allow anyone else under the control of Tenant to cause, any Hazardous Material to be used, generated, stored, discharged, released or disposed of on or about the Premises, Building or Project, including all common areas, without the prior written consent of Landlord, which consent may be withheld or revoked at any time, in the sole discretion of Landlord, Tenant's indemnification of Landlord pursuant to Article 5.08, above, shall extend to all liability, including all foreseeable and unforeseeable consequential damages and all fines, penalties, assessments or charges that may be assessed for the disposal, discharge or release of Hazardous Materials at, on or in the Premises, directly or indirectly arising out of the use, generation, storage, transportation, or disposal of Hazardous Materials by Tenant or anyone under Tenant's control. Neither the written consent by Landlord to the use, generation, storage, or disposal of Hazardous Materials nor the strict compliance by Tenant with all statutes, laws, ordinances, rules, codes, regulations, and precautions pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation to indemnification pursuant to this subsection. Tenant's obligation pursuant to the foregoing indemnity shall survive the termination of this Lease. XXXIV. MISCELLANEOUS 34.1 Entire Agreement Amendments. This Lease and any Exhibits and Riders attached hereto set forth all of the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Leased Premises and there are no covenants, promises, agreements, representations, warranties, conditions or understandings either oral or written between them other than as contained in this Lease. Except as otherwise provided in this Lease, no subsequent alteration, amendment, change or addition to this Lease shall be binding unless it is in writing and signed by both Landlord and Tenant. 34.2 Time of the Essence. Time is of the essence of each and every term, covenant and condition of this Lease. 34.3 Binding Effect. The covenants and conditions of this Lease shall, subject to the restrictions on assignment and subletting, apply to and bind the heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. 34.4 Recordation. Neither this Lease nor any memorandum hereof shall be recorded by Tenant. At the sole option of Landlord, Tenant and Landlord shall execute, and Landlord may record, a short form memorandum of this Lease in form and substance satisfactory to Landlord. 34.5 Governing Law. This Lease and all the terms and conditions thereof shall be governed by and construed in accordance with the laws of the State of Arizona. Landlord and 28 31 Tenant agree that any action or proceeding arising out of this lease shall be heard by a court of competent jurisdiction sitting without a jury, and each hereby waives all rights to trial by jury. 34.6 Defined Terms and Paragraphs Headings. The words "Landlord" and "Tenant" as used in this Lease shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there is more than one Tenant, the obligations in this Lease imposed upon Tenant shall be joint and several. The paragraph headings and titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 34.7 Authority. If Tenant executes this Lease as a partnership, each individual executing this Lease on behalf of the partnership represents and warrants that he or she is a general partner of the partnership and that this Lease is binding upon the partnership in accordance with its terms. If Tenant executes this Lease as a corporation or a limited liability company, each of the persons executing this Lease on behalf of Tenant covenants and warrants that Tenant is a duly authorized and existing corporation or limited liability company, that Tenant has and is qualified to transact business in Arizona, that the corporation or limited liability company has full right, authority and power to enter into this Lease and to perform its obligations hereunder, that each person signing this Lease on behalf of the corporation or limited liability company is authorized to do so and that this Lease is binding upon the corporation or limited liability company in accordance with its terms. 34.8 No Waiver. The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. 34.9 Severability. If any clause or provision of this Lease is or becomes illegal or unenforceable because of any present or future law or regulation of any governmental body or entity effective during the Lease Term, the intention of the parties is that the remaining provisions of this Lease shall not be affected thereby. 34.10 Exhibits. If any provision contained in an Exhibit, Rider or Addenda to this Lease is inconsistent with any other provision of this Lease, the provision contained in this Lease shall supersede the provisions contained in such Exhibit, Rider or Addenda, unless otherwise provided. 34.11 Fair Meaning. The language of this Lease shall be construed to its normal and usual meaning and not strictly for or against either Landlord or Tenant. Each party has reviewed and revised this Lease and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply to the interpretation of this Lease, or any Exhibits, Riders or amendments hereto. 29 32 34.12 No Merger. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation of this Lease shall not work as a merger and shall, at Landlord's option, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Landlord of any or all of such subleases or subtenancies. 34.13 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, act of God, inability to obtain labor or materials for reasonable substitutes therefor, governmental restrictions, regulations or controls, judicial orders, enemy or hostile governmental actions, civil commotions, fire or other casualty and other causes beyond the reasonable control of Landlord shall excuse the Landlord's performance hereunder for the period of any such prevention, delay, or stoppage. 34.14 Government Energy or Utility Controls. In the event of the imposition of federal, state or local governmental controls, rules, regulations or restrictions on the use or consumption of energy or other utilities during the Lease Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation of any governmental control, rule, regulation or restriction between Landlord and Tenant, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance, including the right of entry into the Leased Premises to effect compliance. 34.15 Shoring. If any excavation or construction is made adjacent to, upon or within the Building, or any part thereof, Tenant shall afford to any and all persons causing or authorized to cause such excavation or construction license to enter onto the Leased Premises for the purposes of doing such work as such persons shall deem necessary to preserve the Building or any portion thereof from injury or damage and to support the same by proper foundations, braces and supports without any claim for damages, indemnity or abatement of Annual Basic Rent or Additional Rent or for a constructive or actual eviction of Tenant. 34.16 Transfer of Landlord's Interest. The term "Landlord" as used in this Lease, insofar as the covenants or agreements on the part of the Landlord are concerned, shall be limited to mean and include only the owner or owners of Landlord's interest in this Lease at the time in question. Upon any transfer or transfers of such interest, the Landlord herein named (and in the case of any subsequent transfer, the then transferor) shall thereafter be relieved of all liability for the performance of any covenants or agreements on the part of the Landlord contained in this Lease. 34.17 Limitation on Landlord's Liability. If Landlord becomes obligated to pay Tenant any judgment arising out of any failure by the Landlord to perform or observe any of the terms, covenants, conditions or provisions to be performed or observed by Landlord under this Lease, Tenant shall be limited in the satisfaction of such judgment solely to Landlord's interest in the Building and the Project or any proceeds arising from the sale thereof and no other property or assets of Landlord or the individual partners, directors, officers or shareholders of Landlord or its constituent partners shall be subject to levy, execution or other enforcement procedure whatsoever for the satisfaction of any such money judgment. 30 33 34.18 Financial Statements. Tenant acknowledges that, prior to its execution of this Lease, it has delivered to Landlord current financial statements of Tenant, and hereby represents and warrants that such financial statements are true and correct in all material respects. In addition, within ten (10) days after Landlord's written request, at any time and from time to time, Tenant shall deliver to Landlord updated, audited financial statements of Tenant. 34.19 Modification for Lender. If, in connection with obtaining construction, interim or permanent financing for the Project or any portion thereof, the lender shall request modifications in the Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created of Tenant's rights hereunder. 34.20 Brokerage Fees. Tenant warrants and represents that is has not dealt with any realtor, broker or agent in connection with this Lease except the Broker identified in Article 1.20. Tenant shall indemnify, defend and hold Landlord harmless for, from and against any cost, expense or liability (including the cost of suit and reasonable attorneys' fees) for any compensation, commission or charges claimed by any other realtor, broker or agent in connection with this Lease or by reason of any act of Tenant. 34.21 Americans with Disability Act. Tenant hereby acknowledges that the Leased Premises, is subject to the Americans with Disabilities Act of 1990 and related rules and regulations (the "ADA") and that the ADA may require substantial modifications to the use and/or physical structure of the Leased Premises. Tenant further acknowledges that it will be solely responsible for determining the specific application of the ADA to the Leased Premises. If Landlord provides space plans for all or any part of the Leased Premises, Landlord makes no representations or warranties, express or implied, that such plans are in compliance with the ADA. Tenant shall be responsible for retaining qualified experts and legal counsel of their choice to detect and correct any aspect of the structure or use of the Leased Premises, including without limitation any modifications of the structure or use reflected in any space plan and to determine the liability for ADA compliance under any transaction documents relating to the Leased Premises. [reserved] 31 34 IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date and year first above written. LANDLORD: INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company by Sam Halpern - Member By: /s/ Sam Halpern --------------------------------------- Sam Halpern TENANT: NETWORLD.COM INC. , a(n) ------------------------------------------ Arizona Corporation ------------------------------------------ By: /s/ Kendall Q. Northern --------------------------------------- Its: President --------------------------------------- By: --------------------------------------- Its: -------------------------------------- 32 35 Exhibit "A" Leased Premises EXHIBIT "A" LEASED PREMISES Page 1 of 1 36 EXHIBIT "B" MEMORANDUM OF COMMENCEMENT DATE THIS MEMORANDUM OF COMMENCEMENT DATE is entered into this 28th day of November, 1995 by INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company ("Landlord"), and NETWORLD.COM INC., a(n) Arizona Corporation ("Tenant"). RECITALS A. Landlord and Tenant have previously executed that certain Office Leased dated November 28, 1995 ("Lease"), pursuant to which Tenant has leased from Landlord certain premises more particularly described therein. B. Pursuant to the provisions of Article 3.3 of the Lease, Landlord and Tenant have agreed to execute this Memorandum of Commencement Date to specify the Commencement Date of the Lease Term. NOW, THEREFORE, in consideration of the foregoing recitals, the execution and delivery of the Lease and other good and valuable consideration, the receipt, sufficiency and validity of which of which is hereby acknowledged, Landlord and Tenant agree as follows: 1. Commencement Date. The Commencement Date is December 1, 1995. All reference in the Lease to Commencement Date shall be deemed to be references to December 1, 1995. 2. Definitions. Capitalized terms used in this Memorandum of Commencement Date without definition shall have the meaning assigned to such terms in the Lease, unless the context requires otherwise. 3. Full Force and Effect. Except as specifically modified by this Memorandum of Commencement Date, the Lease remains in full force and effect. Exhibit "B" Memorandum of Commencement Date Page 1 of 1 37 IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Commencement Date as of the date and year first above written. LANDLORD: INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company by Sam Halpern - Member By: /s/ Sam Halpern --------------------------------------- Sam Halpern TENANT: NETWORLD.COM INC. , a(n) ------------------------------------------ Arizona Corporation ------------------------------------------ By: /s/ Kendall Q. Northern --------------------------------------- Its: President --------------------------------------- By: --------------------------------------- Its: -------------------------------------- Exhibit "B" Memorandum of Commencement Date Page 2 of 2 38 EXHIBIT "D" BUILDING RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls of the Building shall not be obstructed or encumbered or used for any purpose other than ingress and egress to and from the premises demised to any tenant or occupant. 2. No awnings or other projection shall be attached to the outside walls or windows of the Building. No curtains, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door of the premises demised to any tenant or occupant, without the prior written consent of Landlord. All electrical fixtures hung in the Leased Premises must be of a type, quality, design, color, size and general appearance approved by Landlord. 3. The windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed, nor shall any bottles, parcels, or other articles be placed on any window sills. 4. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors, vestibules or other public parts of the Building. 5. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags or other substances shall be thrown therein. No tenant shall bring or keep, or permit to be brought or kept, any inflammable, combustible, explosive or hazardous fluid, material, chemical or substance in or about the premises demised to such tenant. 6. No tenant or occupant shall mark, paint, drill into or in any way deface any part of the Building or the premises demised to such tenant or occupant. No boring, cutting or strings of wires shall be permitted, except with the prior consent of Landlord, and as Landlord may direct. No tenant or occupant shall install any resilient tile or similar floor covering in the premises demised to such tenant or occupant except in a manner approved by Landlord. 7. No bicycles, vehicles or animals of any kind (except seeing eye dogs) shall be brought into or kept in or about the premises demised to any tenant. No cooking shall be done or permitted in the Building by any tenant without the written approval of Landlord. No tenant shall cause or permit any unusual or objectionable odors to emanate from the premises demised to such tenant. 8. No space in the Building shall be used for manufacturing, for the storage of merchandise, or for the sale of merchandise, goods or property of any kind at auction. 9. No tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with other tenants or occupants of the Building or neighboring buildings or premises whether by the use of any musical instrument, radio, television set or other audio EXHIBIT "D" Building Rules and Regulations Page 1 of 1 39 device, unmusical noise, whistling, singing, or in any other way. Nothing shall be thrown out of any doors. 10. No additional locks or bolts of any kind shall be placed upon any of the doors, nor shall any changes be made in locks or the mechanism thereof. Each tenant must, upon termination of its tenancy, restore to Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant. 11. All removals from the Building, or the carrying in or out of the Building or from the premises demised to any tenant, of any safes, freight, furniture or bulky matter of any description must take place at such time and in such manner as Landlord or its agents may determine, from time to time. Landlord reserves the right to respect all freight to be brought into the Building and to exclude from the Building all freight which violates any of the rules and regulations or the provisions of such tenant's lease. 12. No tenant shall use or occupy, or permit any portion of the premises demised to such tenant to be used or occupied, as an office for a public stenographer or typist, or as an employment bureau. No tenant or occupant shall engage or pay any employees in the Building, except those actually working for such tenant or occupant in the Building, nor advertise for day laborers giving and address at the Building. 13. No tenant or occupant shall purchase bottled water, lighting maintenance, cleaning towels or other like service, from any company or person not approved in writing by Landlord. 14. Landlord shall have the right to prohibit any advertising by any tenant or occupant which, in Landlord's opinion, tends to impair the reputation of the Building or its desirability as a building for offices, and upon notice from Landlord, such tenant or occupant shall refrain from or discontinue such advertising. 15. Each tenant, before closing and leaving the premises demised to such tenant at any time, shall see that all entrance doors are locked and all electrical equipment and lighting fixtures are turned off. 16. Each tenant shall, at its expense, provide artificial light in the premises demised to such tenant for Landlord's agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations in said premises. 17. No premises shall be used, or permitted to be used for lodging or sleeping, or for any immoral or illegal purposes. 18. The requirements of tenants will be attended to only upon application at the office of Landlord. Building employees shall not be required to perform, and shall not be requested by any tenant or occupant to perform, and work outside of their regular duties, unless under specific instructions from the office of Landlord. EXHIBIT "D" Building Rules and Regulations Page 2 of 2 40 19. Canvassing, soliciting and peddling in the Building are prohibited and each tenant and occupant shall cooperate in seeking their prevention. 20. There shall not be used in the Building, either by any tenant or occupant or by their agents or contractors, in the delivery or receipt of merchandise, freight or other matter, any hand trucks or other means of conveyance except those equipped with rubber tires, rubber side guards and such other safeguards as Landlord may require. 21. If the premises demised to any tenant become infested with vermin, such tenant, at its sole cost and expense, shall cause its premises to be exterminated, from time to time, to the satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved in writing by Landlord. 22. No premises shall be used, or permitted to be used, at any time, without the prior written approval of Landlord, as a store for the sale or display of goods, wares or merchandise of any kind, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public in the premises demised to such tenant, or for manufacturing or for other similar purposes. 23. No tenant shall clean any window of the Building from the outside. 24. No tenant shall move, or permit to be moved, into or out of the Building or the premises demised to such tenant, any heavy or bulky matter, without the specific approval of Landlord. If any such matter requires special handling, only a qualified person shall be employed to perform such special handling. No tenant shall place or permit to be placed, on any part of the floor or floors of the premises demised to such tenant, a load exceeding the floor load per square foot which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of safes and other heavy objects, which must be placed so as to distribute the weight. 25. With respect to work being performed by a tenant in its premises with the approval of Landlord, the tenant shall refer all contractors, contractors' representatives and installation technicians to Landlord for its supervision, approval and control prior to the performance of any work or services. This provision shall apply to all work performed in the Building including installation of telephones, telegraph equipment, electrical devices and attachments, and installations of every nature affecting floors, walls, woodwork, trim, ceilings, equipment and any other physical portion of the Building. 26. Landlord shall not be responsible for lost or stolen personal property, equipment, money, or jewelry from the premises of tenants or public rooms whether or not such loss occurs when the Building or the premises are locked against entry. 27. Landlord may permit entrance to the premises of tenants by use of pass keys controlled by Landlord, employees, contractors, or service personnel directly supervised by Landlord and employees of the United States Postal Service. EXHIBIT "D" Building Rules and Regulations Page 3 of 3 41 28. Each tenant and all of tenant's representatives, shall observe and comply with the directional and parking signs on the Project, and Landlord shall not be responsible for any damage to any vehicle towed because of non-compliance with parking regulations. 29. No tenant shall install any radio, telephone, television, microwave or satellite antenna, loudspeaker, music system or other device on the roof or exterior walls of the Building or on common walls with adjacent tenants. 30. Each tenant shall store all trash and garbage within its premises. No material shall be placed in the trash boxes or receptacles in the Building unless such material may be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage and will not result in a violation of any law or ordinance governing such disposal. All garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. 31. No tenant shall employ any persons other than the janitor of Landlord for the purpose of cleaning its premises without the prior written consent of Landlord. 32. Each tenant shall give prompt notice to landlord of any accidents to or defects in plumbing, electrical or heating apparatus so that same may be attended to properly. 33. No tenant shall bring onto the Project or into the Building any pollutants, contaminants or hazardous substances (as now or later defined under State or Federal law). 34. Landlord reserves the right to restricted access to and from the Building between the hours of 6:00 P.M. and 8:00 A.M. on business days and at all hours on Saturdays, Sundays and holidays. 35. No tenant shall install or permit to be installed any additional lock on any door into or inside of the premises demised to that tenant. Landlord shall be entitled at all times to possession of a duplicate of all keys to all doors into or inside of the premises demised to tenants of the Building. All keys shall remain the property of Landlord. Upon the expiration of the Lease Term, each tenant shall surrender all such keys to Landlord and shall deliver to Landlord the combination to all locks on all safes, cabinets and vaults which will remain in the premises demised to that tenant. Landlord shall be entitled to install, operate and maintain security systems in or about the Property which monitor, by computer, closed circuit television or otherwise, persons entering or leaving the Property, the Building and/or the premises demised to any tenant. For the purposes of this rule the term "keys" shall mean traditional metallic keys, plastic or other key cards and other lock opening devices. EXHIBIT "D" Building Rules and Regulations Page 4 of 4 42 TENANT: NETWORLD.COM INC. , a(n) ------------------------------------------ Arizona Corporation ------------------------------------------ By: /s/ Kendall Q. Northern --------------------------------------- Its: President -------------------------------------- EXHIBIT "D" Building Rules and Regulations Page 5 of 5 43 RIDER "D" Rider to Lease dated November 28, 1995 between INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company ("Landlord") and NETWORLD.COM INC., a(n) ARIZONA CORPORATION , ("Tenant") 1. Parking. In consideration for the making of this Lease, Landlord and Tenant do hereby mutually agree that Landlord shall provide Tenant with one (1) covered, reserved parking space throughout the term of this lease, at no charge. Landlord reserves the right to designate the location of said parking space. 2. Definitions. Capitalized terms used in this Rider without definition shall have the definition assigned to such terms in the Lease to which this Rider is attached, unless the context requires otherwise. 3. Full Force and Effect. Except as specifically modified by this Rider, the Lease to which this rider is attached remains in full force and effect. /s/ /s/ - ----------------------------------- ------------------------------------- Landlord's Initials Tenant's Initials Exhibit "D" Parking Page 1 of 1 EX-6.11(B) 5 EX-6.11(B) 1 Exhibit 6.11(b) FIRST AMENDMENT TO LEASE This FIRST AMENDMENT TO LEASE is made and entered into this 7th day of February, 1997, by and between INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company, hereinafter referred to as "Landlord", and NETWORLD.COM INC., an Arizona corporation, hereinafter referred to as "Tenant". WHEREAS, Landlord leased certain premises to Tenant in the CamelSquare Complex, in the City of Phoenix, County of Maricopa, State of Arizona, pursuant to that certain Office Lease dated the 28th day of November, 1995, hereinafter referred to as the "Lease", the premises being more particularly described therein; and WHEREAS, Landlord and Tenant wish to amend said Lease: THEREFORE, in consideration for these present and the agreement of each other, Landlord and Tenant agree that the said Lease shall be and the same is hereby amended as of the 7th day of February, 1997, as follows, but the language contained herein shall prevail if in conflict with any previous language. 1. TERM: The term of the First Amendment to Lease is for three (3) years, commencing on March 1, 1997 and terminating on February 28, 2000. 2. LEASED PREMISES: The leased premises shall consist of the following: A. Suite K192, as per the lease dated November 28, 1995; containing approximately 1440 rentable square feet, as shown on the attached Exhibit "A" and B. Expansion Premises (formerly a part of Suite K195), containing approximately 856 rentable square feet, as shown on the attached Exhibit "A". Therefore the entire leased (which shall be continued to be called Suite K192) consists of approximately 2,296 rentable square feet. 3. BASE RENT: Tenant agrees to pay as the monthly base rental the following: 03/01/97 - 02/28/98 - $ 3,137.87 per month, plus applicable rental sales tax. 03/01/98 - 02/28/99 - $ 3,233.53 per month, plus applicable rental sales tax. 03/01/99 - 02/28/00 - $ 3,329.20 per month, plus applicable rental sales tax. for each and every month of the lease, payable in advance, without offset or deduction, on the first day of each month commencing on March 1, 1997. Any occupancy of the Expansion Premises by the Tenant prior to March 1, 1997 shall be pro-rated on a daily basis. If occupancy of the Expansion Premises is after March 1, 1997, the rent for the Expansion Premises for March shall be pro-rated on a daily basis. First Amendment to Lease Page 1 of 3 2 4. JANITORIAL SERVICES: The Landlord shall not provide janitorial services to the leased premises. The Tenant shall not receive any credit or allowance for the Landlord not providing janitorial service to the leased premises. 5. SECURITY DEPOSIT: The Landlord presently retains a security deposit of One Thousand Nine Hundred dollars and no cents ($1,900.00) for Suite K192. The Tenant shall now also pay to the Landlord the amount of One Thousand Two Hundred dollars and no cents ($1,200.00) for an additional security deposit due to the Tenant expanding their leased premises. Therefore the total security deposit for Suite K192 shall be Three Thousand One Hundred dollars and no cents ($3,100.00). 6. TENANT IMPROVEMENTS: The Landlord agrees to perform certain Tenant improvements in the leased premises at the Landlord's sole expense. These Tenant improvements are specified and shown on the attached Exhibit "B" - Tenant Improvements. Other than noted in Exhibit "B", the Tenant accepts the premises in "as-is" condition. 7. COVERED PARKING: Per the lease dated November 28, 1995, the Tenant received one (1) free covered, reserved parking space for Suite K192. Due to the Tenant's expansion, the Tenant shall now receive a total of two (2) free, covered reserved parking spaces through out the term of the lease at no charge. The Landlord reserves the right to designate the location of said parking spaces. 8. OPERATING COSTS: The Tenant shall receive a 1997 Base Year in determining the Tenant's responsibilities regarding the payment of operating costs. The Tenant shall not be responsible for paying any operating costs from March 1, 1997 through February 28, 1998. In the lease dated November 28, 1995, Article 6.2 (Operating Expenses) was deleted. This Article 6.2 (Operating Expenses) is hereby inserted into the lease and is attached as Exhibit "C". 9. RIGHT OF REFUSAL: Provided that Tenant is not in default of any of the terms and conditions herein contained, Landlord and Tenant hereby and herewith agree that Landlord shall not lease to any other Tenant that office space comprising approximately 921 rentable square feet (Suite K195) and located as indicated on the attached Exhibit "A" without first notifying Tenant of Landlord's intention to lease said space. If Tenant upon receipt of said notification desires to lease that space indicated on Exhibit "A", Landlord shall agree to lease that space to Tenant under those terms and conditions applicable to other expanding Tenants at CamelSquare (exclusive of below ground space). First Amendment to Lease Page 2 of 3 3 In order to exercise said right of first refusal, Tenant must notify Landlord of its intention to do so in writing within three (3) working days of Tenant's receipt of intention to lease said space. Tenant shall then commence rent payment on such space upon substantial completion of construction, Tenant's occupancy of such space or thirty (30) days after notifying Landlord of Tenant's intention to lease such space, whichever shall first occur. In the event that Tenant declines to lease said office space after notification under this provision, then Tenant shall have no further rights to said space. 10. OTHER: All other terms and conditions of Lease, as amended, remain in full force and effect. IN WITNESS HEREOF, Landlord and Tenant have executed this instrument by proper persons thereunto authorized so to do on the day and year first hereinabove written. TENANT: LANDLORD: NETWORLD.COM INC., INDELA CAMELSQUARE LIMITED LIABILITY an Arizona corporation COMPANY, an Arizona limited liability company By: /s/ Kendall Q. Northern by Sam Halpern - Member ------------------------------- Printed Name: Kendall Q. Northern By: /s/ Sam Halpern -------------------- ------------------------------------- Sam Halpern Its: President ----------------------------- This lease proposal shall not be treated as an offer but merely as a proposal for review purposes. This proposal shall not be valid or binding unless and until accepted by Landlord in writing and fully executed copy delivered to both parties hereto. This proposal is subject to withdrawal or modification by Landlord at any time. Landlord reserves the right to offer premises simultaneously to other third parties. Therefore, the premises may be subject to prior leasing. First Amendment to Lease Page 3 of 3 4 EXHIBIT "A" 5 EXHIBIT "B" TENANT IMPROVEMENTS 6 EXHIBIT "C" 6.2 Operating Expenses. Tenant shall pay to Landlord, as Additional Rent, Tenant's share of Operating Expenses as follows: (a) Definition. "Operating Expenses" shall include all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the Project and surrounding property and support facilities, including, without limitation: (i) all Impositions; (ii) premiums for insurance maintained by Landlord; (iii) wages, salaries and related expenses and benefits of all on site and off site employees and contractors engaged in operation, maintenance and security; (iv) all supplies, materials and equipment rental use in operations; (v) all maintenance and repair, janitorial, security and service costs; (vi) management cost; (vii) legal and accounting expenses, including the cost of audits by certified public accountants; (viii) repairs, replacements and general maintenance (excluding those paid for by proceeds of insurance or other parties and alterations attributable solely to Tenants of the project other than Tenant); (ix) all maintenance and repair costs, including sidewalks, landscaping, service area, mechanical rooms, Garage and other parking area, building exteriors and driveways; (x) amortization of capital improvements to the extent such capital improvements reduce other Operating Expenses or to the extent that they are required by governmental authorities; (xi) all other operating, management and other expenses incurred by Landlord in connection with operation of the Project; (xii) all charges for heat, water, gas, electricity and other utilities used or consumed in the Project and surrounding lots, entrance ways, sidewalks, etc.; and (xiii) transportation services. (b) Proration. Any Operating Expenses attributable to a period which falls only partially within the Term shall be prorated. (c) Survival. Any sum payable by Tenant which would not otherwise be due until after the date of the termination of this Lease shall, if the exact amount is uncertain at the time that this Lease terminates, be paid by Tenant to Landlord upon such termination in an amount to be determined by Landlord, with an adjustment to be made once the exact amount is known. (d) Estimated Payment. Prior to the commencement of each Lease Year, Landlord shall estimate the Additional Rent payable by Tenant pursuant to this provision. Tenant shall pay to Landlord on the first of each month, in advance, one twelfth (1/12) of what Landlord estimates to be Tenant's Share of Operating Expenses. At the end of each Lease Year there shall be an adjustment made to account for any difference between the actual and the estimated Operating Expenses for the previous year. If Tenant has Page 1 of 3 7 overpaid the amount of Additional Rent owing pursuant to this provision, Landlord shall credit Tenant the amount of such overpayment in determining Tenant's estimated payments for the following Lease Year of the Term, Landlord shall refund such overpayment to Tenant within thirty (30) days after the end of the Lease Year. If Tenant has underpaid the amount of Additional Rent owing pursuant to this provision, Tenant shall pay the amount of such underpayment to Landlord, as Additional Rent, within ten (10) days after billing. In no event shall Tenant's Base Rent be less than the Base Rent specified herein. (e) Adjustment. Notwithstanding any provision herein to the contrary, in the event the Project is not fully occupied during any year of the Term, an adjustment shall be made in computing Operating Expenses for such year so that the same shall be computed for such year as though the Project had been fully occupied during such year; provided, however, that in no event shall Landlord retain more than the actual Operating Expenses for the Project after the amount is determined and settled with Tenants of the Project. Tenant's Share of Operating Expenses: A fraction, the numerator of which is the Rentable Square Feet of the Premises, and the denominator of which is the actual (295,013 sq. ft.) Rentable Square Feet of the Project. The Rental Square Feet of Project is approximate and may be subject to inaccuracy. No amount payable hereunder shall be adjusted notwithstanding any increase or decrease in the actual rentable square footage for that set forth herein. (f) Calendar Year. The Operating costs shall be determined for each calendar year. If the Operating Costs for any calendar year exceed the Base Operating Cost, Tenant's rent for said calendar year shall be increased by an amount equal to Tenant's Share of such excess which increased rental for such calendar year Tenant agrees to pay to Landlord in accordance with the statements rendered. Each calendar year Landlord may elect to require that the rental be adjusted for that year effective January 1 on the basis of Landlord's estimates of increases and decreases in Operating Costs, which adjusted rental Tenant agrees to pay in accordance with the statements rendered. A final adjustment of the rental for each calendar year shall be made the following year based upon the final Operating Costs, determined as herein provided and examined by Landlord's regularly employed accountants. Appropriate fair adjustments shall be made for costs which vary with occupancy and where Tenants pay costs that in other leases are paid by Landlord. In no event, however, shall Tenant's rent be less than the Base Rent specified above. (g) Real Estate Taxes. Tenant hereby agrees to pay, as additional rent, Tenant's Share of any Real and Personal Property taxes assessed or levied for any tax year (the "Tax Year") or portion thereof occurring during the term of this Lease in excess of the Base Taxes. If the Real and Personal Page 2 of 3 8 Property taxes for any Tax Year are lower than the Base Taxes, Tenant shall not be entitled to any refund whatsoever. After Landlord has received the tax bill(s) for each Tax Year, Landlord shall furnish Tenant with a written statement of the amount due as Tenant's Proportionate share of Real and Personal Property taxes in excess of the Base Taxes, and within thirty (30) days of the date of such statement, Tenant shall pay the amount due in one lump sum. Alternatively, Landlord shall have the right to estimate Tenant's Proportionate share of Real and Personal Property taxes in excess of the Base Taxes, which sums Tenant agrees to pay in accordance with the statements rendered, in which event a final annual adjustment shall be made based upon the Real and Personal Property taxes actually assessed or levied, the failure of Landlord to send Tenant any such statement shall not constitute a waiver by Landlord of its right to require Tenant to pay its Proportionate Share of such excess. Any fractional Tax Year in the first or final year of the Lease term shall be treated proportionately on a 360-day year basis. Page 3 of 3 EX-6.11(C) 6 EX-6.11(C) 1 Exhibit 6.11(c) SECOND AMENDMENT TO LEASE This SECOND AMENDMENT TO LEASE is made and entered into this 20th day of January, 1998, by and between FIRST GRACIE, LLC, a Delaware limited liability company, hereinafter referred to as "Landlord," and NETWORLD.COM INC., an Arizona corporation, hereinafter referred to as "Tenant." RECITALS A. INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company ("INDELA") and Tenant executed that certain Lease dated November 28, 1995 and First Amendment to Lease dated February 7, 1997 (the "Lease") pursuant to which Tenant leased certain premises commonly known as 4250 East Camelback Road, Suite K192, Phoenix, Arizona 85018 ("Premises"). The Landlord has succeeded to all of INDELA's right, title and interest as the Landlord under the Lease and as such is the Landlord under the Lease. B. Tenant leased premises commonly known as 4250 East Camelback Road, Suite K114 pursuant to a lease dated June 1, 1996. Said lease expired November 30, 1997, however, Tenant was on holdover for December 1997 and January 1998. Landlord acknowledges that during said months Tenant continued to pay rent as defined below. Tenant desires to continue leasing Suite K114, therefore, Landlord agrees to expand the Premises accordingly and as outlined below. C. In addition, Tenant desires to exercise their First Right of Refusal as provided for in the First Amendment to Lease dated February 7, 1997 and expand into Suite K195 for a term of three years. Said expansion shall be coterminous with existing Lease thereby extending the Term of the Lease. NOW, THEREFORE, Landlord and Tenant hereby express their mutual desire and intent to extend the terms of the Lease, expand the Premises and amend by this writing those terms, covenants and conditions contained in the Lease as set forth herein. 1. TERM. The term of the Second Amendment of Lease is for eleven (11) months commencing on March 1, 2000 and terminating on January 31, 2001. The term for the Expansion Premises, being Suite K114 and Suite K195, will be for a period of three (3) years commencing on February 1, 1998 and terminating on January 31, 2001. 2. EXPANSION LEASED PREMISES. Tenant hereby exercises its First Right of Refusal to Suite K195 as outlined in paragraph 9 of the First Amendment to Lease, and Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Expansion Premises, upon all of the terms and conditions set forth in the Lease, as amended by this Amendment, for a term which shall commence upon the Delivery Date (as defined below) and end on the Termination Date. For purposes of this Amendment, the Delivery Date shall mean February 1, 1998. If 2 Landlord fails to tender possession of the Premises to Tenant in accordance with Paragraph 2 on or before February 1, 1998 the Delivery Date will be automatically extended one day for each day after which Landlord tenders possession of the Premises to Tenant; provided, however, the Delivery Date and the date on which Tenant's obligations commence with regard to the Expansion Premises shall not be extended for any delay attributed to Tenant, as described in Paragraph 5 below. 3. TENANT IMPROVEMENTS. Landlord hereby agrees to a one-time shampoo for the carpet in Suite K114, paint and carpet Expansion Suite K195 (carpet to the building standard quality) and install a connecting opening between Suite K192 and Suite K195 all at Landlord's sole expense. Other than noted here, the Tenant accepts the Suite in "as-is" condition. 4. EARLY OCCUPANCY. Tenant has no right to enter the Expansion Premises until possession is tendered by Landlord. Any occupancy of the Expansion Premises by Tenant for the regular conduct of Tenant's business prior to the tender of the Expansion Premises by Landlord will be permitted only with the prior express written consent of Landlord. If Tenant so takes possession of any part of the Expansion Premises for business purposes with Landlord's prior written consent, all of the covenants and conditions of the Lease shall be binding upon both parties with respect to such portion of the Expansion Premises in the same manner as if the Delivery Date had been fixed as the date when Tenant took all other amounts due under the Lease, as amended by this Amendment, for the prior of such occupancy, prorated for the portion of the Expansion Premises so occupied. No early occupancy under this Paragraph will change the Delivery Date. 5. TENANT'S DELAYS. If Landlord is delayed in tendering the Expansion Premises as a result of: (a) Tenant's request for materials or installations as a part of the Expansion Premises that are other than building standard items (except as may be included with the Expansion Improvements); (b) Tenant's request for changes in any drawing, plans or specifications; (c) Any other act or omission of Tenant (all of which shall be deemed to be delays caused by Tenant). then the Delivery Date shall only be extended pursuant to Paragraph 2 of this Amendment until the date on which Landlord would have been able to tender the Premises but for such delays. 6. PUNCH LIST. Tenant's taking possession of any portion of the Expansion Premises will be conclusive evidence that such portion of the Expansion Premises was in good order and satisfactory condition when Tenant took possession, except as to an inspection of a punch list prepared and signed by Landlord and Tenant after an inspection of the Expansion Premises by both such parties when Tenant takes possession. Landlord will not be responsible for any items of damage caused by Tenant, its agents, independent contractors or suppliers. No promises to alter, remodel or improve the Expansion Premises or Building have been made by 2 3 Landlord to Tenant other than as may be expressly set forth in the Lease, including this Amendment. 7. LEASED PREMISES. The Premises, as defined in the Lease and amended hereby, shall be deemed to include the original Premises and the Expansion Premises. As a consequence thereof, commencing upon the Delivery Date, the Rentable Area of the Premises shall be increased to a total of 4,490,000 rentable square feet as outlined below: (a) Original Premises, Suite K192: said Premises contains 2,296 rentable square feet; and (b) Expansion Premises: Suite K114 containing 1,273 rentable square feet, which suite is outlined on Exhibit "A" contained herein and shall continue to be referred to as Suite K114; and (c) Expansion Premises: Suite K195 (which shall now be referred to as part of Suite K192) containing an additional 921 rentable square feet, which suite is outlined on Exhibit "A" contained herein. 8. MONTHLY RENT. Tenant agrees to pay as the monthly base rental the following: February 1, 1998 - January 31, 1999 $6,547.92 per month February 1, 1999 - January 31, 2000 $6,828.54 per month February 1, 2000 - January 31, 2001 $7,109.17 per month
plus applicable sales tax for each and every month of the lease, payable in advance, without offset or deduction, on the first day of each month, commencing on February 1, 1998. Landlord acknowledges the Leased Premises known as Suite K114 expired on November 30, 1997 and Tenant has paid rent as "Holdover Tenant" for December, 1997 and January, 1998 in the amount of $1,587.34 plus sales tax. 9. SECURITY DEPOSIT. Tenant shall pay Landlord the sum of One Thousand, Six Hundred Fifty and No/100 Dollars ($1,650.00) as Security Deposit for the Expansion Premises originally known as Suite K195. In addition, Landlord shall transfer the security deposit on hand of $1,600.00 from the Lease dated June 21, 1996, which lease has expired to be held as Security Deposit for the Expansion Premises known as Suite K114; and Landlord shall continue to hold the Security Deposit on hand for the original Premises known as Suite K192, in the amount of $3,100.00. Now therefore, the total Security Deposit on hand for the Leased Premises shall be Six Thousand, Three Hundred Fifty and No/100 Dollars ($6,350.00). 3 4 10. JANITORIAL. Landlord shall not provide janitorial services to the Leased Premises. Further, the Tenant shall not be provided any credit or monetary allowance as compensation for not receiving said janitorial services. Tenant shall, however, maintain the Premises in an acceptable condition at all times. 11. PARKING. Landlord to provide a total of seven (7) covered/reserved parking spaces at $35.00 per space per month throughout the term of the Lease. 12. OPERATING COSTS. The Tenant shall receive a 1998 Base Year in determining the Tenant's responsibility regarding the payment of operating costs. 13. CONTINUING OBLIGATIONS. Tenant hereby acknowledges and agrees that Tenant shall remain liable for any and all of Tenant's duties and obligations under the Lease accruing prior to the date of this Amendment, including, without limitation, the payment of all Monthly Installments of Rent and Tenant's Proportionate Share of Direct Expenses and taxes. 14. COUNTERPARTS. This amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 15. ATTORNEYS' FEES. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Amendment, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Amendment, the successful or prevailing party, whether by judgment or out-of-court settlement, shall be entitled to recover from the losing party all costs and expenses incurred therein, including reasonable attorneys' fees. 16. SEVERABILITY. If any provision of this Amendment or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Amendment or the application of such provision to such person or circumstance, other than those as to which it so determined invalid or unenforceable, shall not be affected. 17. GOVERNING LAW. This Amendment shall be deemed to have been entered into in the State of Arizona and shall be governed by and construed in accordance with the laws of the State of Arizona. 18. DUE AUTHORITY. Tenant hereby represents and warrants to Landlord that this Amendment has been duly authorized and that the person executing this Amendment on behalf of Tenant has all necessary power and authority to execute this Amendment on behalf of Tenant and that no consent of any other person or entity is required for the execution or performance of this Amendment. 19. EFFECT OF AMENDMENT. Except as expressly modified herein and previously amended, the Lease shall continue in full force and effect. In the event of any conflict between the terms of the Lease and the terms of this Amendment, this Amendment shall control. 4 5 IN WITNESS WHEREOF, Landlord and Tenant have executed this instrument by proper persons thereunto authorized so to do on the day and year first hereinabove written. TENANT: LANDLORD: NETWORLD.COM INC., FIRST GRACIE, LLC, an Arizona corporation a Delaware limited liability company By: /s/ Kendall Q. Northern By: /s/ Bradley A. Settleman ------------------------------ --------------------------------- Kendall Q. Northern Bradley A. Settleman Its: President Its: Vice President Dated: February 5, 1997 Dated: February 10, 1998 --------------------------- ------------------------------ This lease proposal shall not be treated as an offer but merely as a proposal for review purposes. This proposal shall not be valid or binding unless and until accepted by Landlord in writing and fully executed copy delivered to both parties hereto. This proposal is subject to withdrawal or modification by Landlord at any time. Landlord reserves the right to offer premises simultaneously to other third parties. Therefore, the premises may be subject to prior leasing. 5 6 EXHIBIT "A" (Diagram of Leased Premises) A-1 EX-6.11(D) 7 EX-6.11(D) 1 Exhibit 6.11(d) THIRD AMENDMENT TO LEASE This THIRD AMENDMENT TO LEASE (this "Amendment') is made as of this 6th day of August, 1998, by and between FIRST GRACIE, LIMITED LIABILITY COMPANY, a Delaware limited liability company ("Landlord"), and NETWORLD.COM, INC., an Arizona corporation dba FUTURE ONE ("Tenant"). RECITALS A. INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company ("INDELA") and Tenant executed that certain Lease dated November 28, 1995, First Amendment to Lease dated February 7, 1997 and Second Amendment to Lease dated January 20, 1998 (the "Lease") pursuant to which Tenant leased certain premises commonly known as 4250 East Camelback Road, Suites K114, K192 and K195, Phoenix, Arizona 85018 ("Premises"). The Landlord has succeeded to all of INDELA's right, title and interest as the Landlord under the Lease and as such is the Landlord under the Lease. B. Landlord and Tenant, hereby express their mutual desire and intent to expand the Premises and amend by this writing those terms, covenants and conditions contained in the Lease as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Defined Terms. Except for those terms expressly defined in this Amendment, all capitalized terms used herein shall have the meanings set forth in the Lease. 2. Expansion Premises. The leased Premises shall be increased from approximately 4,490 square feet to approximately 5,764 square feet (an increase of approximately 1,274 square feet). The Landlord hereby leases to Tenant and Tenant leases from Landlord, the Expansion Premises being Suite K190 (approximately 634 contiguous rentable square feet) and Suite K112 (approximately 640 contiguous rentable square feet) more particularly described on attached Exhibit "A-1". 3. Effective Date. This Amendment shall be effective September 1, 1998. 4. Lease Term. The Term of the Lease shall be for a period of two years and five months commencing on September 1, 1998 and expiring an January 31, 2001. Said expansion shall be coterminous with existing Lease. 5. Rent. Commencing upon the Effective Date, rent for the leased Premises shall be made to Landlord in monthly installments plus applicable tax as outlined below: 2
DATE PER MONTHLY MONTHLY TOTAL ANNUAL BASIC SQUARE INSTALLMENTS INSTALLMENTS/ MINIMUM RENT FOOT PER SECOND EXPANSION PREMISES MONTHLY AMENDMENT DATED PER THIRD RENT JANUARY 20,1998 AMENDMENT DATED AUGUST 6, 1998 ========================================================================================== 09-1-98 $17.50 $ 6,547.92 $ 1,857.92 $8,405.84 $100,870.00 through 1-31-99 02-01-99 $18.25 $ 6,828.54 $ 1,937.54 $8,766.08 $105,192.96 through 01-31-00 02-01-00 $19.00 $ 7,109.17 $ 2,017.17 $9,126.34 $109,516.08 through 01-31-01
The Minimum Rent per Month and Annual Rent amounts do not include applicable rental tax charges which taxes are subject to change in accordance with local, county, and state taxing authorities. 6. Tenant Improvements. Landlord shall provide a Tenant Improvement Allowance of $6,370.00 ($5.00 per square foot) for 1,274 square feet of expansion space. Tenant shall employ a licensed, bonded and insured contractor to perform the improvements, Upon completion of the Tenant Improvements, Landlord shall credit the Tenant $6,370.00 towards rent. 7. Base Year/Operating Expenses. Tenant shall continue to receive a 1998 Base Year in determining the Tenant's responsibility regarding its prorata share of Operating Expenses that exceed the actual operating costs of the Building incurred in the calendar year as Additional Rent. This prorata share Is subject to adjustment from time to time to reflect any changes in the size of the (a) Premises or (b) any correction in the net rentable area of the Building from a measurement that Landlord may cause to be made. 8. Security Deposit. A Security Deposit the amount of $6,350.00 is presently being held by Landlord. Upon the execution of this Amendment, Tenant shall pay an additional $3.000.00 Security Deposit for a total deposit of $9,350.00. 9. Parking. Tenant shall continue to receive seven (7) reserved parking spaces at $35.00 each per month. Landlord shall provide one (1) additional reserved parking space at $35.00 per month for a total of 8 reserved parking spaces for the term of the Lease. Landlord reserves the right to designate or change the location of parking spaces at such time as Landlord deems necessary. 10. Janitorial. Landlord shall not provide janitorial services to the Leased Premises. Further, the Tenant shall not be provided any credit or monetary allowance as compensation for not receiving said janitorial services. Tenant shall, however, maintain the Premises in an acceptable condition at all times. 11. Continuing Obligations. Tenant hereby acknowledges and agrees that Tenant shall remain liable for any and all of Tenant's duties and obligations under the Lease accruing prior to the date of this Amendment, including, without limitation, the payment of all Monthly Installments of Rent and Tenant's Proportionate Share of Operating Expenses and taxes. 2 3 12. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 13. Attorney's Fees. If any legal action or any arbitration or other proceeding Is brought for the enforcement of this Amendment, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Amendment, the successful or prevailing party, whether by judgment or out-of-court settlement, shall be entitled to recover from the losing party all costs and expenses incurred therein, including reasonable attorneys' fees. 14. Severability. If any provision Of this Amendment or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Amendment or the application of such provision to such person or circumstance, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 15. Governing Law. This Amendment shall be deemed to have been entered into in the State of Arizona and shall be governed by and construed in accordance with the laws of the State of Arizona. 16. Due Authority. Tenant hereby represents and warrants to Landlord that this Amendment has been duly authorized and that the person executing this Amendment on behalf of Tenant has all necessary power and authority to execute this Amendment on behalf of Tenant and that no consent of any other person or entity is required for the execution or performance of this Amendment. 17. Effect of Amendment. Except as expressly modified herein and previously amended, the Lease shall continue in full force and effect. In the event of any conflict between the terms of the Lease and the terms of this Amendment, this Amendment shall control, IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first written above. TENANT: LANDLORD: NETWORLD.COM, INC., an Arizona FIRST GRACIE, LIMITED LIABILITY COMPANY, corporation, dba FUTURE ONE a Delaware limited liability company By: /s/ Bradley A. Settleman By: /s/ Kendall Q. Northern -------------------------- -------------------------- Bradley A. Settleman Kendall Q. Northern Its: Vice President Its: President Dated: August 20, 1998 Dated: August 14, 1998 -------------------------- -------------------------- 3 EX-6.11(E) 8 EX-6.11(E) 1 Exhibit 6.11(e) FOURTH AMENDMENT TO LEASE This FOURTH AMENDMENT TO LEASE (this "Amendment") is made as of this 3rd day of March, 1999, by and between FIRST GRACIE, LIMITED LIABILITY COMPANY, a Delaware limited liability company ("Landlord"), and NETWORLD.COM, INC., an Arizona corporation dba FUTURE ONE ("Tenant"). RECITALS A. INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company ("INDELA") and Tenant executed that certain Lease dated November 28, 1995, First Amendment to Lease dated February 7, 1997, Second Amendment to Lease dated January 20, 1998 and Third Amendment to Lease dated March 6, 1998 (the "Lease") pursuant to which Tenant leased certain premises commonly known as 4250 East Camelback Road, Suites K114, K192, K195, K190 and K112, Phoenix, Arizona 85018 ("Premises"). The Landlord has succeeded to all of INDELA's right, title and interest as the Landlord under the Lease and as such is the Landlord under the Lease. B. Landlord and Tenant, hereby express their mutual desire and intent to expand the Premises and amend by this writing those terms, covenants and conditions contained in the Lease as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Defined Terms. Except for those terms expressly defined in this Amendment, all capitalized terms used herein shall have the meanings set forth in the Lease. 2. Expansion Premises. The leased Premises shall be increased from approximately 5,764 square feet to approximately 7,740 square feet (an increase of approximately 1,976 square feet). The Landlord hereby leases to Tenant and Tenant leases from Landlord, the Expansion Premises being Suite K124 (approximately 1,587 contiguous rentable square feet) and Suite K152 (approximately 389 contiguous rentable square feet) more particularly described on attached Exhibit "A-1." 3. Effective Date. This Amendment shall be effective April 1, 1999. 4. Lease Term. The Term of the Lease shall be for a period of one (1) year and ten (10) months commencing on April 1, 1999 and expiring on January 31, 2001. Said expansion shall expire coterminously with existing Lease and subsequent amendments to Lease. 5. Rent. Commencing upon the Effective Date, rent for the Expansion Premises shall be made to Landlord in monthly installments plus applicable tax as outlined below and will 1 2 be in addition to the Minimum Rent being paid for the leased Premises consisting of Suites K112, K114, K190, K192 and K195.
PSF RATES (SUITE K152 & PERIOD DATES K124) MONTHLY RENT PERIOD RENT ================================================================================ 04/01/99 12 Months through $19.00 $3,128.67 $37,544.04 03/31/00 04/01/00 10 Months through $20.00 $3,293.33 $32,933.30 01/31/01
*The Minimum Rent per Month and Annual Rent amounts do not include applicable rental tax charges which taxes are subject to change in accordance with local, county, and state taxing authorities. 6. Tenant Improvements. Landlord shall provide a Tenant Improvement Allowance of $9,880.00 ($5.00 per square foot) for 1,976 square feet of expansion space. Tenant shall employ a licensed, bonded and insured contractor to perform the improvements. Upon completion of the Tenant Improvements, Landlord shall credit Tenant $9,880.00 towards rent. 7. Base Year/Operating Expenses. Tenant shall receive a 1999 Base Year for the Expansion Premises (Suites K124 and K152) and shall continue to receive a 1998 Base Year for the remainder of the leased Premises (Suites K112, K114, K190, K192 and K195) in determining the Tenant's responsibility regarding its prorata share of Operating Expenses that exceed the actual operating costs of the Building incurred in the calendar year as Additional Rent. This prorata share is subject to adjustment from time to time to reflect any changes in the size of the (a) Premises or (b) any correction in the net rentable area of the Building from a measurement that Landlord may cause to be made. 8. Security Deposit. A Security Deposit in the amount of $9,350.00 is presently being held by Landlord. Upon the execution of this Amendment, Tenant shall pay an additional $3,800.00 Security Deposit for a total deposit of $13,150.00. 9. Parking. Tenant shall continue to receive eight (8) reserved parking spaces at $35.00 each per month. Landlord shall provide two (2) additional reserved parking spaces at $35.00 per month for a total of ten (10) reserved parking spaces at a total of $350.00 plus applicable taxes for the term of the Lease. Landlord reserves the right to designate or change the location of parking spaces at such time as Landlord deems necessary. 10. Janitorial. Landlord shall not provide janitorial services to the Leased Premises. Further, the Tenant shall not be provided any credit or monetary allowance as compensation for not receiving said janitorial services. Tenant shall, however, maintain the Premises in an acceptable condition at all times. 2 3 11. HVAC. Tenant shall receive twenty-four (24) hour air conditioning in the Expansion Premises (Suites K152 and K124) at a cost of $250.00 per month. 12. Continuing Obligations. Tenant hereby acknowledges and agrees that Tenant shall remain liable for any and all of Tenant's duties and obligations under the Lease accruing prior to the date of this Amendment, including, without limitation, the payment of all Monthly Installments of Rent and Tenant's Proportionate Share of Operating Expenses and taxes. 13. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 14. Attorney's Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Amendment, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Amendment, the successful or prevailing party, whether by judgment or out-of-court settlement, shall be entitled to recover from the losing party all costs and expenses incurred therein, including reasonable attorneys' fees. 15. Severability. If any provision of this Amendment or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Amendment or the application of such provision to such person or circumstance, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 16. Governing Law. This Amendment shall be deemed to have been entered into in the State of Arizona and shall be governed by and construed in accordance with the laws of the State of Arizona. 17. Due Authority. Tenant hereby represents and warrants to Landlord that this Amendment has been duly authorized and that the person executing this Amendment on behalf of Tenant has all necessary power and authority to execute this Amendment on behalf of Tenant and that no consent of any other person or entity is required for the execution or performance of this Amendment. 18. Effect of Amendment. Except as expressly modified herein and previously amended, the Lease shall continue in full force and effect. In the event of any conflict between the terms of the Lease and the terms of this Amendment, this Amendment shall control. 3 4 IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first written above. TENANT: LANDLORD: NETWORLD.COM, INC., an Arizona FIRST GRACIE, LIMITED LIABILITY corporation dba FUTURE ONE COMPANY, a Delaware limited liability company By: /s/ Kendall Q. Northern By: /s/ Bradley A. Settleman ----------------------------- ----------------------------------- Kendall Q. Northern Bradley A. Settleman Its: President Its: Vice President Dated: March 3, 1999 Dated: March 4, 1999 --------------------------- -------------------------------- 4 5 EXHIBIT A-1 LEASED PREMISES 5 EX-6.11(F) 9 EX-6.11(F) 1 Exhibit 6.11(f) FIFTH AMENDMENT TO LEASE This FIFTH AMENDMENT TO LEASE (this "Amendment") is made as of this 26th day of June, 1999, by and between FIRST GRACIE, LIMITED LIABILITY COMPANY, a Delaware limited liability company ("Landlord"), and NETWORLD.COM, INC., an Arizona corporation dba FUTURE ONE ("Tenant"). RECITALS A. INDELA CAMELSQUARE LIMITED LIABILITY COMPANY, an Arizona limited liability company ("INDELA") and Tenant executed that certain Lease dated November 28, 1995, First Amendment to Lease dated February 7, 1997, Second Amendment to Lease dated January 20, 1998, Third Amendment to Lease dated March 6, 1998 and Fourth Amendment to Lease dated March 3, 1999 (the "Lease") pursuant to which Tenant leased certain premises commonly known as 4250 East Camelback Road, Suites K112, K114, K124, K152, K190, K192 and K195, Phoenix, Arizona 85018 ("Premises"). The Landlord has succeeded to all of INDELA's right, title and interest as the Landlord under the Lease and as such is the Landlord under the Lease. B. Landlord and Tenant, hereby express their mutual desire and intent to expand the Premises and amend by this writing those terms, covenants and conditions contained in the Lease as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Defined Terms. Except for those Terms expressly defined in this Amendment, all capitalized terms used herein shall have the meanings set forth in the Lease. 2. Expansion Premises. The leased Premises shall be increased from approximately 7,740 square feet to approximately 9,355 square feet (an increase of approximately 1,615 square feet). The Landlord hereby leases to Tenant and Tenant leases from Landlord, the Expansion Premises being Suite K105 (approximately 313 contiguous rentable square feet), Suite K120 (approximately 297 contiguous rentable square feet) and Suite K140 (approximately 1,005 contiguous rentable square feet) more particularly described on attachment Exhibit "A-1". 3. Effective Date. The Effective Date shall therefore be July 1, 1999. 4. Lease Term. The Term of the Lease shall be for a period of one (1) year and six (6) months commencing on July 1, 1999 and expiring on January 31, 2001. Said expansion shall expire coterminously with existing Lease and subsequent amendments to Lease. 2 5. Rent. Commencing upon the Effective Date, rent for the Expansion Premises shall be made to Landlord in monthly installments plus applicable tax as outlined below and will be in addition to the Minimum Rent being paid for the Leased Premises consisting of Suites K112, K114, K124, K152, K190, K192 and K195.
Date Per Monthly Annual Basic Square Foot Installments Rent - -------------------------------- ---------- ------------ ------------- 12 months $ 19.00 $ 2,557.08 $ 30,685.00 7 months $ 20.00 $ 2,691.66 $ 18,841.62
The Minimum Rent per Month and Annual Rent amounts do not include applicable rental tax charges which taxes are subject to change in accordance with local, county, and state taxing authorities. 6. Tenant Improvements. Tenant agrees to accept the Premises in "As Is" condition. 7. Base Year/Operating Expenses. Tenant shall receive a 1999 Base Year for the Expansion Premises (Suites K105, K120 and K140) as well as Suites K124 and K152 and shall continue to receive a 1998 Base Year for the remainder of the leased Premises (Suites K112, K114, K190, K192 and K195) in determining the Tenant's responsibility regarding its prorata share of Operating Expenses that exceed the actual operating costs of the Building incurred in the calendar year as Additional Rents. This prorata share is subject to adjustment from time to time to reflect any changes in the size of the (a) Premises or (b) any correction in the net rentable area of the Building from a measurement that Landlord may cause to be made. 8. Security Deposit. The Security Deposit in the amount of $13,150.00 is presently being held by Landlord. Upon execution of this Amendment, Tenant shall pay an additional $3,000.00 Security Deposit for a total deposit of $16,150.00. 9. Parking. Tenant shall continue to receive ten (10) reserved parking spaces at $35.00 each per month. Landlord shall provide two (2) additional reserved parking spaces at $35.00 each per month for a total of twelve (12) reserved parking spaces at a total of $420.00 plus applicable taxes for the term of the Lease. Landlord reserves the right to designate or change the location of parking spaces at such time as Landlord deems necessary. 10. Janitorial. Landlord shall not provide janitorial services to the Leased Premises. Further, the Tenant shall not be provided any credit or monetary allowance as compensation for not receiving said janitorial services. Tenant shall, however, maintain the Premises in an acceptable condition at all times. 11. Continuing Obligations. Tenant hereby acknowledges and agrees that Tenant shall remain liable for any and all of Tenant's duties and obligations under the Lease accruing 2 3 prior to the date of this Amendment, including, without limitation, the payment of all Monthly Installments of Rent and Tenant's Proportionate Share of Operating Expenses and taxes. 12. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 13. Attorney's Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Amendment, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Amendment, the successful or prevailing party, whether by judgment or out-of-court settlement, shall be entitled to recover from the losing party all costs and expenses incurred therein, including reasonable attorneys' fees. 14. Severability. If any provision of this Amendment or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Amendment or the application of such provision to such person or circumstance, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 15. Governing Law. This Amendment shall be deemed to have been entered into in the State of Arizona and shall be governed by and construed in accordance with the laws of the State of Arizona. 16. Due Authority. Tenant hereby represents and warrants to Landlord that this Amendment has been duly authorized and that the person executing this Amendment on behalf of Tenant has all necessary power and authority to execute this Amendment on behalf of Tenant and that no consent of any other person or entity is required for the execution or performance of this Amendment. 17. Effect of Amendment. Except as expressly modified herein and previously amended, the Lease shall continue in full force and effect. In the event of any conflict between the terms of the Lease and the terms of this Amendment, this Amendment shall control. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year written below. 3 4 TENANT: LANDLORD: NETWORLD.COM, INC., an Arizona FIRST GRACIE, LIMITED LIABILITY corporation dba FUTURE ONE, COMPANY a Delaware limited liability company By: /s/ Kendall Q. Northern By: /s/ Bradley A. Settleman ---------------------------- ---------------------------- Kendall Q. Northern Bradley A. Settleman Its: President Its: Vice President Dated: June 28, 1999 Dated: June 30, 1999 ---------------------------- ---------------- 4 EX-6.20 10 EX-6.20 1 Exhibit 6.20 PURCHASE & SALE AGREEMENT BY AND BETWEEN FUTUREONE, INC. (A NEVADA CORPORATION) AND MANDALAY INCORPORATED (AN ARIZONA CORPORATION) This agreement entered into this 6th day of December, 1999, by and between, Mandalay, Incorporated, an Arizona Corporation (hereinafter "Mandalay") and FutureOne, Inc., a Nevada Corporation (hereinafter "FutureOne"). RECITALS WHEREAS, FutureOne is a full-service communications company providing Internet services, computer networking services, special programming services, underground cable construction and is the developer of NeighborComm(TM). FutureOne is willing to sell certain assets and all of the subscribers of its PrimeServ(R) division under the terms and conditions contained herein; and WHEREAS, Mandalay is a telecommunications company and Mandalay is willing to buy all of, the subscribers and certain assets of FutureOne consisting of certain assets of FutureOne's PrimeServ division as further described in Section II hereof; and WHEREAS The transactions contemplated under this Agreement were adopted and ratified on August 11, 1999 at a Special Meeting of the Board of Directors of FutureOne by a unanimous vote of the Directors; and WHEREAS The transactions contemplated under this Agreement were adopted and ratified on December 2, 1999 at a Special Meeting of Board of Directors of Mandalay by a unanimous vote of the Directors; and Accordingly, in consideration of the mutual covenants and Agreements contained herein, it is agreed that the PrimeServ subscribers and certain assets of FutureOne shall be acquired by Mandalay (the "Acquisition"), and that the terms and conditions of the Acquisition, the mode of carrying same into effect and such other provisions as are deemed necessary or desirable to be effected by the Acquisition. NOW, THEREFORE, in consideration of the mutual promises, Agreements and benefits contained herein, it is agreed by and between the parties as follows: ARTICLE I TERMS OF ACQUISITION 1.1 ACQUISITION. Mandalay shall pay to FutureOne the sum of Forty Seven Thousand Eight Hundred Dollars ($47,800) in exchange for the Priority Call Management Switch, subscribers list, assignment of certain GST telephone numbers and non-compete agreement as per the terms described below. Such transfer shall be made by Bill of Sale as per Exhibit A attached hereto and the equipment shall be in good working order and all assets to be transferred shall be free from any liens or Page 1 of 9 2 encumbrances. FutureOne acknowledges the receipt of Seventeen Thousand Eight Hundred Dollars ($17,800) from Mandalay. The remaining Thirty Thousand Dollars ($30,000) shall be payable to FutureOne within ten (10) days of the signing of this agreement per the attached Promissory Note, Exhibit B. The subscriber list shall disclose all relevant customer information to allow Mandalay to continue servicing said customers and all customers listed shall be valid customers of FutureOne. 1.2 CLOSING. The consummation of the Acquisition by Mandalay (the "Closing") shall take place at the offices of FutureOne, Inc. at such date, and time as may be agreed upon by FutureOne and Mandalay. 1.3 EFFECT OF ACQUISITION. Mandalay shall be paid for those customers that have paid in advance by having FutureOne transfer to Mandalay all Accounts Receivable associated with those customers that it has billed for services as of the date of this Agreement, but which it has not yet collected. Mandalay shall only be liable for payment of expenses incurred after the date of this Agreement in operating the business and assets of FutureOne acquired herein and FutureOne shall be liable for payment of all expenses incurred in operating the business and assets prior to the date of this Agreement. If necessary certain expenses and bills may be prorated to carry out this provision of the Agreement. Mandalay shall reimburse FutureOne a prorated portion of any prepaid expenses pertaining to the assets acquired herein, such payment being due within ten (10) days of receipt of notice from FutureOne. FutureOne shall retain the registered PrimeServ trademark and Mandalay shall be permitted to use the PrimeServ name for a period not to exceed twelve (12) months from the date of this agreement. ARTICLE II DESCRIPTION OF ASSETS BEING TRANSFERRED HEREUNDER 2.1 PRIORITY CALL MANAGEMENT SWITCH. One used Priority Call Management Switch, Model 12VF96D-DSP, Serial Number pcm80052. The switch is being transferred as is, where is and FutureOne represents that it is currently operating in a manner necessary to serve the existing subscribers. Mandalay hereby acknowledges that FutureOne has advised them that the switch may not be Y2K complaint and a substantial investment may be required to make it Y2K compliant. 2.2 SUBSCRIBER LIST. The current subscriber list of FutureOne's PrimeServ customers consists of approximately 104 paying subscribers. 2.3 TELEPHONE NUMBERS. FutureOne hereby agrees to assign to Mandalay those GST telephone numbers necessary for them to continue to serve their subscribers in an uninterrupted manner. Mandalay shall be responsible for payment of all communications costs after the date of this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF FUTUREONE 3.1 DUE INCORPORATION, GOOD STANDING, QUALIFICATION. FutureOne is a corporation duly organized, Page 2 of 9 3 validly existing and in good standing under the laws of its jurisdiction of incorporation with all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as presently conducted. 3.2 AUTHORITY AND COMPLIANCE; NO VIOLATION. FutureOne, to the best of its knowledge, has full corporate power and lawful authority to execute and deliver this Agreement, and to consummate and perform the transactions contemplated hereby. 3.3 OTHER. FutureOne, to the best of its knowledge, has disclosed relevant financial and corporate information regarding this transaction to Mandalay. 3.4 VALID TITLE, NO LIENS. FutureOne has valid title to all of the assets being transferred hereunder and owns all of the assets, free and clear of any liens or encumbrances. The telephone numbers are not considered a part of this representation. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MANDALAY 4.0 DUE INCORPORATION, GOOD STANDING, QUALIFICATION. Mandalay is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation with all requisite corporate power and authority to own, operate and lease its properties and carry on its business as presently conducted. 4.1 AUTHORITY AND COMPLIANCE; NO VIOLATION. Mandalay has full corporate power and lawful authority to execute and deliver this Agreement, and to consummate and perform the transactions contemplated hereby. 4.3 OTHER. Mandalay has fully disclosed, and shall disclose, all financial and corporate information regarding this transaction, whether material or inconsequential, to FutureOne. ARTICLE V OTHER AGREEMENTS 5.0 Y2K ANALYSIS. FutureOne shall assist Mandalay in completing a Y2K compliance test on the Priority Call Management Switch. Such test shall be designed to determine if the switch, in its present condition, will provide the necessary functions to continue to serve existing customers with the same services after December 31, 1999. 5.1 TRANSITION SERVICES. FutureOne shall assist Mandalay to become familiar with the switch and its operation, setting up and changing subscriber data and general operation of the business for a period of 60 days. Mandalay acknowledges that FutureOne employees have limited operating knowledge of the switch and cannot provide any technical expertise that may be necessary to repair or modify the switch. FutureOne shall assist Mandalay in providing billing services for a period up to December 31, 1999. 5.2 LOCATION. FutureOne shall allow Mandalay to leave the switch in its present location at 4250 E. Camelback Road, Suite K-192, Phoenix, Arizona for one year from the date of this Agreement at no charge. Page 3 of 9 4 5.3 COURTESY ACCOUNTS. Mandalay shall provide FutureOne with up to Fifty (50) accounts at no charge for one year from the date of this Agreement. Any long distance charges associated with these accounts shall be billed to FutureOne at Mandalay's actual cost. FutureOne shall provide Mandalay one (1) Internet hosting account at no charge for one year from the date of this agreement. 5.4 NON-COMPETE. FutureOne hereby agrees not to compete with Mandalay in providing virtual telephone services in the state of Arizona and in the country of Mexico for a period of three years from the date of this Agreement. ARTICLE VI GENERAL PROVISIONS 6.1 NOTICES. Any notice hereunder to a party shall be deemed to be properly served in writing and personally delivered or mailed to: In the case of Mandalay: 8873 E. Gail Scottsdale, AZ 85260 (602) 385-9205 Attn: Nephi T. Julien In the case of FutureOne: FutureOne, Inc. 4250 East Camelback Road Suite K-192 Phoenix, AZ 85018-2751 Attention: Earl J. Cook, President Or to such other address as may have been furnished in writing by such party to the other parties to this Agreement, and shall be deemed to have been given as of the time delivered or, if mailed, as of the time acknowledged as received if mailed registered or certified mail, postage prepaid, it being the intention that all notices pursuant hereto shall be effective only upon receipt. 6.2 INTERPRETATIONS. To the extent permitted by the context in which used; (a) words in the singular number shall include the plural, words in the masculine gender shall include the feminine and neuter, and vice versa; and (b) references to "persons" or "parties" in this Agreement shall be deemed to refer to natural persons, corporations, and all other entities. This instrument shall be construed in accordance with the fair meaning of its language, and shall not be construed for or against the party drafting it, solely because of such fact. 6.3 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed, shall constitute an original copy hereof, but all of which together shall constitute one and the same document. 6.4 SECTION HEADINGS AND GENDER. The section headings herein have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms or provisions hereof. The use of the masculine or any other pronoun herein when referring to any party has been for convenience only and shall be deemed to refer to the particular party intended regardless of the actual gender of such party. Page 4 of 9 5 6.5 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties with respect to the transactions contemplated hereby, and any previous Agreements or understandings between the parties regarding the subject matter hereof are merged into and superseded by this Agreement. 6.6 NON-ASSIGNABILITY. The obligations of this Agreement are personal to each party, and neither the rights nor obligations under this Agreement may be assigned or transferred by any party in any manner whatsoever, nor are such rights or obligations subject to involuntary alienation, assignment or transfer, except as may be approved by the other party in writing. 6.7 EXCLUSIVE GOVERNING LAW. This Agreement shall be exclusively construed in accordance with the laws of the State of Arizona. 6.8 SEVERABILITY. The unenforceability, invalidity, or illegality of any provision of this Agreement shall not render the other provisions unenforceable, invalid, or illegal. If any term, provision, covenant or condition of this Agreement is invalidated due to its scope or breadth, such term, provision, covenant, or condition shall be deemed valid to the extent of the scope or breadth permitted by law in accordance with the intent of the parties as expressed herein. 6.9 WAIVER OF TERMS. Any of the terms and conditions of this Agreement, to the extent permitted by law, may be waived in writing at any time by any party. Such action shall be evidenced by written notice signed by the Party taking such action. 6.10 COOPERATION. Subject to the terms and conditions herein provided, each of the parties hereto shall use its best lawful efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be delivered, such additional documents and instruments and to do or cause to be done all things necessary, proper or advisable, under the provisions of this Agreement and under applicable law to consummate and make effective the transactions contemplated by this Agreement. 6.11 ARBITRATION; EXCLUSIVE JURISDICTION AND VENUE. The parties hereby agree to exclusively submit all controversies, claims, and matters of difference to arbitration in Phoenix, Arizona, according to the rules and practices of the American Arbitration Association from time to time in force, except to the extent that such rules and practices are inconsistent with the terms of this Agreement. This submission and Agreement to arbitrate shall be specifically enforceable. The arbitrator shall exclusively apply Arizona law as though he or she were bound by the applicable statutes and precedents in case law. The arbitrator shall have the power to issue any award, judgment, decree, or order of relief that a court of law or equity could issue under Arizona law, including but not limited to money damages, specific performance, or injunctive relief. In the event that any party refuses to submit to arbitration, the party that has submitted to arbitration shall be empowered to file the appropriate action in a court in Maricopa County, Arizona. In all disputes, the non-prevailing party shall be pay the reasonable attorneys' fees and costs of the prevailing party. 6.12 ENFORCEMENT. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement. 6.13 PROFESSIONAL ADVICE, FEES AND COSTS. Each party has relied on its own professional legal, accounting and tax advisors in determining the legal, accounting and income tax effects of this transaction on their corporations, the stockholders of their corporation and themselves. Except as Page 5 of 9 6 otherwise provided herein, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions incurred in connection with this Agreement and the transactions contemplated hereby. The Parties agree that they have not used the services of any broker or other person or entity in arranging this transaction and no commissions are due any person or entity for such services. 6.14 AMENDMENT OF AGREEMENT. Notwithstanding anything to the contrary in this Agreement, to the extent permitted by law, this Agreement may be amended, supplemented or interpreted at any time by written instrument duly executed by any of the parties hereto, which shall have been authorized by appropriate action taken by the board of directors of FutureOne or Mandalay and in the case of an interpretation, the actions of the FutureOne or Mandalay board of directors shall be binding. 6.15 INDEMNIFICATION. FutureOne hereby indemnifies and agrees to hold harmless Mandalay, its officers and Directors from any and all acts, actions, claims and assessments against FutureOne, or any asset purchased by Mandalay under this Agreement, resulting from any and all acts or actions, whether financial or otherwise, of FutureOne prior to the date of this Agreement. Mandalay hereby indemnifies, holds harmless, and agrees to defend FutureOne, its officers and Directors, from any and all acts, actions, claims and assessments against Mandalay, or any asset sold by FutureOne under this Agreement from any and all acts or actions, whether intentional or otherwise, of Mandalay that may occur after the date of this Agreement. IN WITNESS WHEREOF, each of the Parties hereto, pursuant to authority duly granted to each by their respective board of directors, has caused this Agreement between Mandalay and FutureOne, to be executed on the date first written above. FutureOne Inc. - Seller Mandalay Incorporated - Buyer (a Nevada corporation) (an Arizona corporation) /s/ Earl J. Cook /s/ Matthew Voirin -------------------------- -------------------------------- By: Earl J. Cook By: Matthew Voirin Its: President Its: President /s/ Nephi T. Julien -------------------------------- By: Nephi T. Julien Its: Chief Financial Officer Page 6 of 7 7 8 EXHIBIT A BILL OF SALE KNOW ALL MEN BY THESE PRESENTS: That FutureOne, Inc., a Nevada Corporation, hereinafter referred to as "Seller", for and in the consideration of the sum of Forty Seven Thousand Eight Hundred and 00/100 Dollar ($47,800.00) paid to them by Mandalay, an Arizona Corporation, under the terms of a Purchase Agreement executed concurrently with the execution of this document, hereafter referred to as "Buyer", does hereby sell, assign and transfer to Buyer, free of any liens or encumbrances, all of the seller's right title and interest in the following personal property located in Phoenix, Arizona: 1) Seller's "PrimeServ" customer list and all of the customers on the attached list; and 2) All of Seller's rights to GST telephone numbers And does hereby sell, assign and transfer to Buyer, free of any liens or encumbrances, all of the Seller's right title and interest in the following used equipment located in Phoenix, Arizona: 1 - Priority Call Management Switch, Model # 12VF96D-DSP, Serial # pcm80052 Buyer acknowledges that the equipment is used and the equipment is being sold "as is", "where is" and may not be Y2K compliant. Seller represents and warrants that the equipment described herein is in good working order and capable of performing the services for which it was intended. Buyer accepts title at Phoenix, Arizona. Dated this 6th day of December 1999. Mandalay Incorporated FutureOne, Inc. /s/ Matthew Voirin /s/ Earl J. Cook - ------------------------------- ----------------------------- By: Matthew Voirin, President By: Earl J. Cook, President Page 7 of 9 9 EXHIBIT B PROMISSORY NOTE $30,000.00 DECEMBER 6, 1999 PHOENIX, ARIZONA FOR VALUE RECEIVED, the adequacy and sufficiency of which are hereby expressly acknowledged, the undersigned Mandalay Incorporated, an Arizona Corporation (the "MAKER"), promises and agrees to pay to the order of FutureOne, Inc., a Nevada corporation ("HOLDER"), at the offices of FutureOne, the principal amount of Thirty Thousand and No/100 Dollars ($30,000.00) payable in full on or before December 16, 1999. This Note shall evidence a portion of the Purchase Price payable pursuant to Section 1.1 of that certain Purchase and Sale Agreement between the Maker and the Holder (as amended from time to time, the "PURCHASE AGREEMENT"). The Maker shall have the right to prepay this Note in full or in part at any time without penalty, premium or notice. All payments and prepayments shall be applied first to any Expenses (as defined below), and then to principal. Principal shall be payable in lawful money of the United States of America. Maker agrees that upon the occurrence of an Event of Default (as hereinafter defined) hereunder, (a) the Maker will pay all costs and expenses of collection of this Note, including reasonable attorney's fees ("EXPENSES"); (b) at the option of the Holder, the unpaid principal balance of this Note along with accrued and unpaid interest shall become due and payable immediately without notice; and (c) Holder may utilize any available remedies, including without limitation any remedies available against the Collateral, under Arizona law and/or under the Uniform Commercial Code, at law or in equity, in such order and/or combination as Holder may elect in its sole and absolute discretion. For purposes of this Note, an "EVENT OF DEFAULT" shall mean (a) any failure by Maker to pay when due the principal under this Note, which failure is not cured within ten (10) days of written notice thereof by Holder to the Maker, (b) any general assignment by Maker for the benefit of creditors, (c) any filing of a voluntary bankruptcy petition by Maker, and (d) any filing of any involuntary bankruptcy petition against Maker, which filing is not dismissed within 90 days thereof. Failure of the Holder to exercise any option hereunder shall not constitute a waiver of the right to exercise the same in the event of any subsequent default or breach, or in the event of continuance of any existing default or breach after demand for performance thereof. The Maker, sureties, guarantors and endorsers, if any, severally waive demand, diligence, presentment for payment, protest and notice of demand, protest, nonpayment and exercise of any option hereunder. The granting without notice of any extension or extensions of time for payment of any sum or sums due hereunder, or the taking or release of security shall in no way release or discharge the liability of Maker or any surety, guarantor or endorser. Page 8 of 9 10 No provision of this Note is intended to or shall require or permit Holder, directly or indirectly, to take, collect or receive in money, goods or in any other form, any interest in excess of that permitted by applicable law. If any amount due from or paid by Maker shall be determined by a court of competent jurisdiction to be interest in excess of such maximum rate, Maker shall not be obligated to pay such excess and, if paid, such excess shall be applied against the unpaid principal balance of this Note, or if and to the extent that this Note has been paid in full, such excess shall be remitted to Maker. The provisions of this Note shall be binding upon and inure to the benefit of the heirs, personal representatives, successors and assigns of the parties hereto. This Note shall be secured, in the event of default, by the assets identified on Exhibit A of the Purchase and Sale Agreement executed between the Maker and Holder on December 6, 1999. This Note shall be governed by and construed in accordance with the laws of the State of Arizona without regard to conflicts of law principles. IN WITNESS WHEREOF, Maker has executed this Note as of the date first stated above. MANDALAY INCORPORATED "MAKER" /s/ Matthew Voirin -------------------------------- By: Matthew Voirin Its: President Page 9 of 9 EX-6.21 11 EX-6.21 1 Exhibit 6.21 ASSET PURCHASE AGREEMENT BY AND AMONG RMI.NET, INC. AND NETWORLD.COM, INC. FUTUREONE, INC., AN ARIZONA CORPORATION AND FUTUREONE, INC., A NEVADA CORPORATION(1) NOVEMBER 19, 1999 - -------- 1 Solely for the purposes of Sections 8(h) and 9 hereof. 2
TABLE OF CONTENTS 1. Definitions ........................................................ 1 2. Basic Transaction .................................................. 4 (a) Purchase and Sale of Acquired Assets .......................... 4 (b) Assumption of Liabilities ..................................... 4 (c) Purchase Price ................................................ 5 (d) Adjustment to Purchase Price .................................. 6 (e) The Closing ................................................... 6 (f) Deliveries at the Closing ..................................... 7 (g) Allocation .................................................... 7 3. Representations and Warranties of the Seller ....................... 7 (a) Organization of the Seller .................................... 7 (b) Authorization of Transaction .................................. 7 (c) Noncontravention .............................................. 8 (d) Brokers' Fees ................................................. 8 (e) Title to Acquired Assets ...................................... 8 (f) Financial Statements .......................................... 8 (g) Events Subsequent to Most Recent Month End .................... 8 (h) Undisclosed Liabilities ....................................... 9 (i) Legal Compliance .............................................. 9 (j) Tax Matters ................................................... 9 (k) Real Property ................................................. 9 (l) Intellectual Property ......................................... 10 (m) Tangible Assets ............................................... 10
3 (n) Contracts ..................................................... 10 (o) Insurance ..................................................... 10 (p) Litigation .................................................... 10 (q) Warranties .................................................... 11 (r) Guaranties .................................................... 11 (s) FCC Authorizations ............................................ 11 (t) Employees ..................................................... 11 (u) Disclosure .................................................... 11 (v) Refundable Deposits ........................................... 11 (w) Past Due Accounts ............................................. 11 (x) Point of Presence Agreements .................................. 12 4. Representations and Warranties of the Buyer ........................ 12 (a) Organization of the Buyer ..................................... 12 (b) Authorization of Transaction .................................. 12 (c) Noncontravention .............................................. 12 (d) SEC Filings ................................................... 13 (e) Buyer Shares .................................................. 13 (f) Brokers' Fees ................................................. 13 (g) Absence of Certain Changes .................................... 13 (h) Disclosure .................................................... 13 5. Pre-Closing Covenants .............................................. 13 (a) General ....................................................... 13 (b) Notices and Consents .......................................... 13 (c) Operation of the Acquired Assets .............................. 14
ii 4 (d) Preservation of Business ...................................... 14 (e) Full Access ................................................... 14 (f) Notice of Developments ........................................ 14 (g) Legend ........................................................ 14 (h) Registration Rights Agreement ................................. 15 6. Conditions to Obligation to Close .................................. 15 (a) Conditions to Obligation of the Buyer ......................... 15 (b) Conditions to Obligation of the Seller ........................ 16 7. Termination ........................................................ 17 (a) Termination of Agreement ...................................... 17 (b) Effect of Termination ......................................... 18 8. Post-Closing Covenants ............................................. 18 (a) General ....................................................... 18 (b) Litigation Support ............................................ 19 (c) Transition .................................................... 19 (d) Confidentiality ............................................... 20 (e) Covenant Not to Compete ....................................... 20 (f) Survival of Representations and Warranties .................... 21 (g) Third Party Consents .......................................... 21 (h) Indemnification Provisions for Benefit of the Buyer ........... 21 (i) Indemnification Provisions for Benefit of the Seller .......... 22 (j) Matters Involving Third Parties ............................... 23 (k) Limitations on Indemnification Obligations .................... 23 (l) Payment of Certain Liabilities ................................ 24
iii 5 9. Escrow Agreement ................................................... 24 10. Miscellaneous ..................................................... 25 (a) Press Releases and Public Announcements ....................... 25 (b) No Third-Party Beneficiaries .................................. 25 (c) Entire Agreement .............................................. 25 (d) Succession and Assignment ..................................... 25 (e) Counterparts .................................................. 25 (f) Headings ...................................................... 26 (g) Notices ....................................................... 26 (h) Governing Law ................................................. 27 (i) Arbitration ................................................... 27 (j) Amendments and Waivers ........................................ 28 (k) Severability .................................................. 28 (l) Expenses ...................................................... 28 (m) Construction .................................................. 28 (n) Incorporation of Exhibits and Schedules ....................... 29 (o) Specific Performance .......................................... 29
Exhibit A - Acquired Assets Exhibit A-1 - Customer Contracts and Customer List Exhibit A-2 - Supplier Contracts and Supplier List Exhibit A-3 - Tangible Assets Exhibit A-4 - Accounts Receivable Exhibit A-5 - Commercial Lease Agreements Exhibit B - Lockup Agreement Exhibit C - Bill of Sale Exhibit D - Assignment and Assumption of Contracts iv 6 Exhibit E - Financial Statements Exhibit F - Registration Rights Agreement Exhibit G - Opinion of Counsel to Seller Exhibit H - Opinion of Counsel to Buyer Exhibit I - Escrow Agreement Exhibit J - Customer Transition Agreement Exhibit K - Interim Agreement to Permit Occupancy Pending Assignment of Leases Disclosure Schedule. v 7 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT entered into as of this 19th day of November, 1999, by and among RMI.NET, INC., a Delaware corporation (the "Buyer"), Networld.com, Inc., an Arizona corporation (the "Seller"), FutureOne, Inc., an Arizona corporation and sole shareholder of the Seller (the "Sole Shareholder"), and, solely for purposes of Sections 8(h) and 9 hereof, FutureOne, Inc., a Nevada corporation and sole shareholder of the Sole Shareholder ("FutureOne, Inc"). The Buyer and the Seller are sometimes referred to collectively herein as the "Parties". This Agreement contemplates a transaction in which the Buyer will purchase certain of the assets and assume certain specified liabilities of the Seller in return for the consideration hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. Definitions. "Acquired Assets" means all right, title, and interest in and to the assets of the Seller set forth on Exhibit A hereto. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including court costs and reasonable attorney's fees and expenses involving or relating to the Acquired Assets. "Assignment and Assumption of Contracts" has the meaning set forth in Section 2(f) below. "Assumed Liabilities" means (a) those existing obligations of the Seller under the real estate leases as indicated on Exhibit A-5 attached hereto and (b) the obligation to provide certain services to the customers acquired as part of the Acquired Assets, but only to the extent that such obligation is reflected as Deferred Revenue on the balance sheet contained in the Most Recent Financial Statements; provided, however, that the Assumed Liabilities shall not include any other Liability of the Seller not specified in (a) or (b) above. "Bill of Sale" means the Bill of Sale attached hereto as Exhibit C. 8 "Buyer" has the meaning set forth in the preface above. "Buyer Share" means any share of the common stock, $0.001 par value per share, of the Buyer. "Closing" has the meaning set forth in Section 2(e) below. "Closing Date" has the meaning set forth in Section 2(e) below. "Confidential Information" means any information concerning the businesses and affairs of the Parties that is not already generally available to the public. "DFA Small Company Portfolio" means the DFA Small Company Portfolio (Ticker: DFSCX). "Disclosure Schedule" has the meaning set forth in Section 3 below. "Distributees" has the meaning set forth in Section 2(c)(ii) below. "Escrow Agent" has the meaning set forth in Section 2(c)(iii) below. "Escrow Agreement" has the meaning set forth in Section 9 below. "Escrow Fund" has the meaning set forth in Section 9 below. "Escrow Period" has the meaning set forth in Section 2(c)(iii) below. "Escrow Shares" has the meaning set forth in Section 2(c)(iii) below. "Excluded Assets" means the assets of the Seller not purchased by the Buyer hereunder. "FCC Authorizations" means all approvals, consents, permits, licenses, certificates, and authorizations given by the Federal Communications Commission or similar federal governmental agency to provide the telecommunications services currently provided by the Seller and to conduct its business as it is currently conducted. "Final Disbursement" has the meaning set forth in Section 2(c)(ii) below. "Financial Statements" has the meaning set forth in Section 3(f) below. "FutureOne, Inc." has the meaning set forth in the preface above. 2 9 "GAAP" means United States generally accepted accounting principles as in effect "Initial Disbursement" has the meaning set forth in Section 2(c)(i) below. "Intellectual Property" means (a) all licenses for and any modifications to computer software which are part of the Acquired Assets, (b) the "FutureOne" domain name for the purpose of serving customers that use the domain name "futureone.com," and (c) all practices and procedures and other license agreements and confidential business information (including ideas, know how, production processes and techniques, specifications, and customer and supplier lists) used in the operation of the Acquired Assets. "Knowledge" means actual knowledge after reasonable investigation. "Liability" or "Liabilities" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Lockup Agreement" has the meaning set forth in Section 2(c)(v) below. "Lockup Periods" has the meaning set forth in Section 2(c)(v) below. "Lockup Shares" has the meaning set forth in Section 2(c)(v) below. "Most Recent Financial Statements" has the meaning set forth in Section 3(f) below. "Most Recent Fiscal Month End" has the meaning set forth in Section 3(f) below. "Most Recent Fiscal Year End" has the meaning set forth in Section 3(f) below. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Party" has the meaning set forth in the preface above. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Post-Closing Revenue" has the meaning set forth in Section 2(d)(ii) below. 3 10 "Pre-Closing Revenue" has the meaning set forth in Section 2(d)(i) below. "Purchase Price" has the meaning set forth in Section 2(c) below. "Recurring Revenue Rate" has the meaning set forth in Section 2(d) below. "Refundable Deposits" has the meaning set forth in Section 3(v) below. "Registered Shares" has the meaning set forth in Section 2(c)(iv) below. "SEC" means the United States Securities and Exchange Commission. "SEC Filings" has the meaning set forth in set forth in Section 4(d) below. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Seller" has the meaning set forth in the preface above. "Sole Shareholder" has the meaning set forth in the preface above. "Tangible Assets" has the meaning set forth in Section 3(m) below. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. 2. Basic Transaction. (a) Purchase and Sale of Acquired Assets. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of the Acquired Assets at the Closing, for the consideration specified below in this Section 2. (b) Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, the Buyer agrees to assume and become responsible for the Assumed Liabilities at the Closing. The Buyer will not assume or have any 4 11 responsibility, however, with respect to any other obligation or Liability of the Seller not included within the definition of Assumed Liabilities, except as otherwise provided in Section 8(c)(iv) below. (c) Purchase Price. In exchange for the Acquired Assets, the Buyer agrees to pay to the Seller $2,900,000 (the "Purchase Price"), subject to adjustment in accordance with Sections 2(d)(i) and 2(d)(ii) below: i. At the Closing, Buyer will issue to the Seller that number of the Buyer Shares equal to eighty percent (80%) of the Purchase Price (the "Initial Disbursement") divided by the average closing price per share of the Buyer Shares for the five (5) day period ending on the day prior to the Closing Date (the "Closing Price"). The Initial Disbursement set forth herein is subject to adjustment in accordance with Section 2(d)(i) below and a lock-up agreement in accordance with section 2(c)(v) below. ii. Ninety (90) days after the Closing, the Buyer will issue to the Seller that number of the Buyer Shares equal to ten percent (10%) of the Purchase Price (the "Final Disbursement") divided by the Closing Price. The Final Disbursement set forth herein is subject to the adjustments in Sections 2(d)(i) and 2(d)(ii) below and a lockup agreement in accordance with Section 2(c)(v). iii. At and as of the Closing Date, to secure the obligations under Section 8 below, and as more fully described in Section 9 below, the Buyer shall deposit with an escrow agent (the "Escrow Agent") the Buyer Shares equal to ten percent (10%) of the Purchase Price divided by the Closing Price (the "Escrow Shares"), which Escrow Shares shall be held by the Escrow Agent for eighteen (18) months following the Closing Date (the "Escrow Period"). The Escrow Shares shall be registered under the Securities Act ninety (90) days prior to the expiration of the Escrow Period. iv. The number of Buyer Shares to be issued pursuant to Sections 2(c)(i) above equal to fifty percent (50%) of the Purchase Price divided by the Closing Price shall be allocated among and distributed by the Seller to itself and its shareholder, (the "Distributees") as determined by the Seller in its sole and absolute discretion and shall be registered under the Securities Act of 1933, as amended (the "Registered Shares"). Subject to the provisions of Rule 145 of the Securities Act of 1933, as amended, the Distributees shall be allowed to sell, trade and otherwise transfer the Registered Shares; provided, however, that the Distributees may not sell, trade or otherwise transfer more than 4,000 of such Registered Shares in any one trading day, and the Distributees may not sell, trade or otherwise transfer any such Registered Shares during the first 30 minutes and the final 30 minutes of any trading day; provided further, that the Seller shall be allowed to make a one-time transfer of the Registered Shares to the DFA Small Company Portfolio (Ticker: DFSCX), or to another fund recommended 5 12 by the Seller, but at the Buyer's sole discretion and only after receiving written permission from the Buyer. v. The number of Buyer's Shares issued pursuant to Section 2(c)(i) above equal to thirty percent (30%) of the Purchase Price divided by the Closing Price, and the Buyer's Shares issued in the Final Disbursement as set forth in Section 2(c)(ii) above will be subject to a lockup agreement (collectively, the "Lockup Shares") in the form attached hereto as Exhibit B (the "Lockup Agreement") for the following periods of time: ten percent (10%) of the Buyer's Shares for a period of six (6) months from the date of issuance; an additional twenty percent (20%) of the Buyer's Shares for a period of twelve (12) months from the date of issuance; and the Buyer's Shares issued in the Final Disbursement for a period of three (3) months from the date of issuance (the "Lockup Periods"); provided, however, that in no event shall the Lockup Shares include the Registered Shares. The Lock Up Shares shall be registered under the Securities Act on or prior to the date of the expiration of the relevant Lockup Period. (d) Adjustment to Purchase Price. The Purchase Price set forth in Section 2(c) above is based upon an monthly recurring revenue rate directly derived from the Acquired Assets of $138,333 for the calendar month immediately preceding the month in which the Closing occurs (the "Recurring Revenue Rate"). For purposes of this Agreement, the Recurring Revenue Rate has been determined through accrual based accounting in accordance with GAAP for revenues that recur each month on a customer specific and plan type basis. i. In the event that the monthly revenue rate directly derived from the Acquired Assets for the one (1) month period immediately preceding the Closing (the "Pre-Closing Revenue") is less or more than the Recurring Revenue Rate, the Purchase Price shall be reduced or increased by $20.96 for each dollar that the Pre-Closing Revenue is less or more than the Recurring Revenue Rate. ii. In the event that the average monthly revenue rate directly derived from the Acquired Assets for the ninety (90) day period immediately following the Closing Date (the "Post-Closing Revenue") is less than the Recurring Revenue Rate, the Final Disbursement shall be reduced by $20.96 for each dollar that the Post-Closing Revenue is less than the Recurring Revenue Rate; provided, however, that (A) any monies refunded or forgiven by the Buyer to a customer for sales promotional or customer retention purposes, but not otherwise legally owed to such customer, and (B) revenues lost as a result of a service outage (i) that the Seller could not reasonably have foreseen nor prevented or (ii) that was caused by any negligent action or omission of the Buyer not directly or indirectly related to any action or omission of the Seller with respect to the Acquired Assets, shall not be deducted from the Post-Closing Revenue. (e) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place by in presence or by telephone conference 6 13 call, or at the corporate headquarters of the Buyer, 999 18th Street, North Tower, 22nd Floor, Denver, Colorado 80202, commencing at 10:00 a.m. local time on the earlier of (i) the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or (ii) November 19, 1999 (the "Closing Date"); provided, however, that the Closing Date may be extended upon mutual written agreement of the Parties. (f) Deliveries at the Closing. At the Closing: (i) the Buyer will deliver to the Seller (A) the various certificates, instruments, and documents referred to in Section 6 below, and (B) the Purchase Price specified in Sections 2(c)(i) through 2(c)(iii); (ii) the Seller will deliver to the Buyer (A) the various certificates, instruments, and documents referred to in Section 6 below, (B) the Bill of Sale in the form attached hereto as Exhibit C, and (C) the Assignment and Assumption of Contracts in the form attached hereto as Exhibit D; and (iii) each Party shall deliver such other instruments of sale, transfer, conveyance, and assignment as the other Party and its counsel reasonably may request. (g) Allocation. The Parties agree that the Buyer may allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in the most tax-efficient manner available to the Buyer. 3. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the disclosure schedule accompanying this Agreement and initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3: (a) Organization of the Seller. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona. (b) Authorization of Transaction. The Seller has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. Without limiting the generality of the foregoing, all individuals who are signatories to this Agreement have been duly authorized to execute, deliver, and cause the Seller to perform this Agreement. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions. 7 14 (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 2 above), will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject, or any provision of the articles of incorporation or bylaws of the Seller or (ii) conflict with, result in a material breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of the Acquired Assets ). The Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, except for the "Supplier Contracts" and the Leases being assumed by Buyer hereunder. (d) Brokers' Fees. The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated, and the Buyer shall have no Liability whatsoever to such broker. (e) Title to Acquired Assets. As of the date of Closing, the Seller shall provide to the Buyer good and marketable title to all of the Acquired Assets, free and clear of any Liabilities, but excluding the Assumed Liabilities and certain other Liabilities set forth on Section 3(e) of the Disclosure Schedule to be paid by the Seller pursuant to Section 8(l) below, including all debts, obligations, claims, limitations, liens, Security Interests, restrictions on transfer, and/or any other encumbrances whatsoever. (f) Financial Statements. Attached hereto as Exhibit E are the following financial statements of the Seller (collectively, the "Financial Statements"): (i) unaudited balance sheets and statements of income as of and for the month ended October 31, 1999 (the "Most Recent Fiscal Month End") and for the nine (9) months ended September 30, 1999; and (ii) as they relate specifically to the Acquired Assets, a statement of revenue for the one month ended October 31, 1999, and the balances in the deferred revenue and accounts receivable accounts as of October 31, 1999 (collectively, the "Most Recent Financial Statements"). The Most Recent Financial Statements (without any notes thereto) have been prepared in accordance with GAAP on a consistent basis throughout the periods covered thereby, and are true, correct, and complete. (g) Events Subsequent to Most Recent Month End. Since the Most Recent Fiscal Month End, there has not been any material adverse change in the 8 15 business, financial condition, operations, results of operations, or future prospects of the Acquired Assets of the Seller. (h) Undisclosed Liabilities. The Seller has no Liability with respect to the Acquired Assets with the exception of the Assumed Liabilities (and the Seller does not have any reason to believe that any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand may be brought against any of them giving rise to any Liability). (i) Legal Compliance. The Seller has complied in all material respects with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), with respect to the Acquired Assets, including FCC Authorizations, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. (j) Tax Matters. The Seller has timely filed all Tax Returns with respect to the ownership and operation of the Acquired Assets and paid all Taxes due thereunder, and no Liability exists for any unpaid Taxes relative to the Acquired Assets prior to the Closing. (k) Real Property. The Seller does not own any interest in any real property. Section 3(k) of the Disclosure Schedule lists and describes briefly all real property leased or subleased to the Seller related to the Acquired Assets. The Seller has delivered to the Buyer correct and complete copies of the leases and subleases listed in Section 3(k) of the Disclosure Schedule (as amended to date). Other than such leases or subleases, the Acquired Assets do not include any real property or any interest therein. With respect to each lease and sublease listed in Section 3(k) of the Disclosure Schedule: i. the lease or sublease is legal, valid, binding, enforceable, and in full force and effect, except where the illegality, invalidity, non-binding nature, unenforceability or ineffectiveness would not have a material adverse effect on the financial condition of the Company; ii. the lease or sublease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby, except where the illegality, invalidity, non-binding nature, unenforceability or ineffectiveness would not have a material adverse effect on the financial condition of the Company; iii. no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a material 9 16 breach or constitute a default or permit termination, modification, or acceleration thereunder; iv. no party to the lease or sublease has repudiated any provision thereof; v. there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; vi. with respect to each sublease, the representations and warranties set forth in subsections (i) through (v) above are true and correct with respect to the underlying lease; vii. the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; viii. all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; and ix. all facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities. (l) Intellectual Property. The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of the Acquired Assets as presently operated, free and clear of any Security Interests, Liabilities or other restrictions. (m) Tangible Assets. The Seller owns all tangible assets set forth in Exhibit A-3 (the "Tangible Assets"). Each such Tangible Asset is free from material defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. (n) Contracts. Except as set forth in Section 3(n) of the Disclosure Schedule, no material contracts or other agreements exist relating to the Acquired Assets to which the Seller is a party. (o) Insurance. The Acquired Assets have been, and will be until the Closing Date, covered by an insurance policy (providing property, casualty, and liability coverage) adequately insuring the Acquired Assets. (p) Litigation. The Seller (i) is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge, relative to the Acquired Assets, 10 17 nor (ii) is it a party or, to the Knowledge of the Seller, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator with respect to the Acquired Assets. The Seller does not have any reason to believe that any such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Seller relative to the Acquired Assets. (q) Warranties. No product or service sold, leased, or delivered by the Seller with respect to the Acquired Assets is subject to any guaranty, warranty, or other indemnity. (r) Guaranties. The Seller is not a guarantor or otherwise is liable for any Liability or other obligation (including indebtedness) of any other Person with respect to the Acquired Assets. (s) FCC Authorizations. There are no FCC Authorizations which have been issued to the Seller with respect to the Acquired Assets. (t) Employees. The Seller is not a party to or bound by any collective bargaining agreement, nor has Seller experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Seller has not committed any unfair labor practice that, individually or in the aggregate, would have a material adverse effect on the Acquired Assets. The Seller has no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Seller. The Seller believes it has complied in all material respects to all applicable federal, state and local laws, statutes, rules, ordinances and regulations regarding their respective employees. (u) Disclosure. The representations and warranties contained in this Section 3 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 3 not misleading. (v) Refundable Deposits. The Seller has made certain deposits to secure liabilities of the Seller for leases, utilities, and telecommunications circuit agreements to be assumed by the Buyer under this Agreement from which no deductions would be made were the Seller to complete the terms of such leases, utilities, and telecommunication circuit agreements and request reimbursement from the holders of such deposits (the "Refundable Deposits"), which amount to a total sum equal to or greater than $18,330. (w) Past Due Accounts. None of the customers' accounts to be acquired by the Buyer as part as of the Acquired Assets will be more than sixty (60) days past due 11 18 as of the Closing Date, and no revenue relating to accounts that will be more than sixty (60) days past due as of the Closing Date is included in the Pre-Closing Revenue, with the exception of the accounts of those customers that the Parties mutually agree, on or prior to ninety (90) days after the Closing Date, demonstrate reasonable indicia of a pattern of late but reasonably reliable payment, provided that the Seller shall use its reasonable best efforts to assist the Buyer in obtaining the payment of such accounts within a reasonable time after the Closing Date. (x) Point of Presence Agreements. All Point of Presence agreements to which the Seller is a party (the "POP Agreements") are in final and written form as of the Closing Date and will remain in full force and effect, pursuant to the same terms and conditions, from and after the Closing Date and are attached hereto as Exhibit A-5. 4. Representations and Warranties of the Buyer. The Buyer represents and warrants to the Seller that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4). (a) Organization of the Buyer. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 2 above), will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (ii) conflict with, result in a material breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject. The Buyer does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement (including the assignments and assumptions referred to in Section 2 above). 12 19 (d) SEC Filings. The Buyer has filed all required reports, schedules, forms, statement and other documents with the SEC since January 1, 1998 (the "SEC Filings"). As of their respective dates, the SEC Filings complied in all material respects with the requirements of the Securities Act or the Securities Exchange Act, as the case may be, the rules and regulations of the SEC promulgated thereunder applicable to such SEC Filings , and none of the SEC Filings when filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) Buyer Shares. The Buyer Shares have been duly authorized, will be, when issued, validly issued, fully paid, nonassessable, and validly existing, free and clear of any Liabilities and other encumbrances and restrictions, except as set forth herein. (f) Brokers' Fees. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. (g) Absence of Certain Changes. Since the date of the filing with the SEC of its most recent quarterly report on Form 10-Q, as supplemented by subsequent current reports on any Forms 8-K thereafter, there has not been any material adverse change with respect to the business of the Buyer or any event, occurrence, or development of a set of circumstances or facts known to the Buyer, which, as of the date hereof, could reasonably be expected to have a material adverse effect on the Buyer. (h) Disclosure. The representations and warranties contained in this Section 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 4 not misleading. 5. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in Section 6 below). (b) Notices and Consents. The Seller will give any notices to third parties, and the Seller will use its reasonable best efforts to obtain any third party consents, that the Buyer reasonably may request in connection with the matters referred to in Section 3 above. Each of the Parties will give any notices to, make any filings 13 20 with, and use its reasonable best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Sections 3 and 4 above. Without limiting the generality of the foregoing, each of the Parties will make any further filings that may be necessary, proper, or advisable in connection therewith. (c) Operation of the Acquired Assets. The Seller will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business, with respect to the Acquired Assets. (d) Preservation of Business. The Seller will keep the Acquired Assets substantially intact, including its present use and operation thereof, and its relationships with licensors, suppliers, customers, and employees related to the Acquired Assets. (e) Full Access. The Seller will permit representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Seller, to all of the Seller's premises, properties, personnel, books, records (including Tax records), contracts, and documents of, or pertaining to, the Acquired Assets. (f) Notice of Developments. Each Party will give prompt written notice to the other Party of any material adverse development causing a breach of any of its own representations and warranties in Sections 3 and 4 above. No disclosure by any Party pursuant to this Section 5(f), however, shall be deemed to amend or supplement this Agreement or the Exhibits hereto or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (g) Legend. The Buyer and the Seller covenant and agree that fifty percent (50%) of the Buyer Shares will bear the following legend until the Buyer Shares are registered pursuant to Sections 2(c)(iv) and 2(c)(v) hereof and the Registration Rights Agreement (as defined below): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY ACCEPTING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN ACCORDANCE WITH ANY OTHER EXEMPTION UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE 14 21 SECURITIES LAWS UPON THE DELIVERY OF A LEGAL OPINION, REASONABLY SATISFACTORY TO THE ISSUER, TO THE FOREGOING EFFECT. THE TRANSFER OF THE SECURITIES IS ALSO RESTRICTED UNDER THE TERMS OF A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF RMI.NET, INC. (h) Registration Rights Agreement. The Buyer shall agree, and upon any distribution of the Buyer Shares to the Seller the Seller shall agree, to become a party to and be bound by a Registration Rights Agreement in the form attached hereto as Exhibit F (the "Registration Rights Agreement"), setting forth the terms of ownership of the Buyer Shares; provided, however, that except as provided in Sections 2(c)(iv) and 2(c)(v) hereof the Seller receiving the Buyer Shares shall not be entitled to any demand registration rights. 6. Conditions to Obligation to Close. (a) Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: i. the representations and warranties set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date; ii. the Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; iii. no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own the Acquired Assets, to operate the Acquired Assets (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); iv. the Seller and the Buyer shall have entered into the Assignment and Assumption of Contracts; v. the Seller shall have delivered to the Buyer the Bill of Sale; vi. the Seller and the Buyer shall have received all other authorizations, consents, and approvals of governments and governmental agencies, if any referred to in Sections 3 and 4 above; 15 22 vii. the Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Section 6(a)(i)-(iii) is satisfied in all respects; viii. the Buyer shall have received from counsel to the Seller an opinion in form and substance as set forth in Exhibit G attached hereto, addressed to the Buyer, and dated as of the Closing Date; ix. the Buyer shall have completed and shall be satisfied with its due diligence examination of the Seller; x. the Buyer's board of directors shall have approved this Agreement; and xi. all actions to be taken by the Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. The Buyer may waive any condition specified in this Section 6(a) if it executes a writing so stating at or prior to the Closing. (b) Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: i. the representations and warranties set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date; ii. the Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; iii. no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); iv. the Seller and the Buyer shall have entered into the Assignment and Assumption of Contracts and the Buyer shall have delivered to the Seller the Registration Rights Agreement; 16 23 v. the Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Section 6(b)(i)-(iii) is satisfied in all respects; vi. the Buyer shall have delivered to the Seller evidence of the instructions to the Buyer's transfer agent to transfer (A) to the Seller, a number of the Buyer Shares equal to eighty percent (80%) of the Purchase Price divided by the Closing Price, and (B) to the Escrow Agent, the Escrow Shares; vii. the Seller shall have received from counsel to the Buyer an opinion in form and substance as set forth in Exhibit H attached hereto, addressed to the Seller, and dated as of the Closing Date; viii. the Seller's board of directors shall have approved this Agreement; and ix. all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. The Seller may waive any condition specified in this Section 6(b) if it executes a writing so stating at or prior to the Closing. 7. Termination. (a) Termination of Agreement. Either of the Parties may terminate this Agreement as provided below: i. the Buyer may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing (A) in the event the Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Buyer has notified the Seller of the breach, and the breach has continued without cure for a period of fifteen (15) days after the notice of breach; (B) if the Closing shall not have occurred on or before November 30, 1999 (or such later date, if extended pursuant to Section 2), by reason of the failure of any condition precedent under Section 6(a) hereof (unless the failure results primarily from the Buyer itself breaching any representation, warranty, or covenant contained in this Agreement. ii. the Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing (A) in the event the Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer of the breach, and the breach has continued without cure for a period of fifteen (15) days after the notice of breach, or 17 24 (B) if the Closing shall not have occurred on or before November 30, 1999 (or such later date, if extended pursuant to Section 2), by reason of the failure of any condition precedent under Section 6(b) hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement). (b) Effect of Termination. Notwithstanding the termination of this Agreement, the confidentiality provisions of this Agreement shall survive. 8. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing: (a) General. i. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party; provided, however, that the Seller shall provide the Buyer with such assistance, technical and otherwise, as the Buyer may reasonably request in order to facilitate an efficient transition of the Acquired Assets from the Seller to the Buyer. ii. The Seller acknowledges and agrees that the Seller shall deliver to the Buyer, within three (3) business days after the Closing, all customer contracts, supplier and vendor contracts, hardware and software maintenance agreements, maintenance records, configuration documentation, and any other agreement directly related to the operation of the Acquired Assets, and that the Seller, on an ongoing basis, shall deliver to the Buyer, on the day of receipt or, if not feasible, within one business day thereafter, any and all bills, payments, notices and any other documents related to the Acquired Assets. Each party agrees to provide the other with reasonable access, upon reasonable notice, to such documents, books, records, agreements, and financial data related to the Acquired Assets as necessary. The Seller acknowledges that audited balance sheets and statements of income, changes in stockholders' equity, and cash flow relating to the Acquired Assets as of and for the twelve (12) month-period ended December 31, 1998, as well as unaudited financial statements for the nine (9) month-period ended September 30, 1999 and for the nine (9) month-period ended September 30, 1998, must be prepared within sixty (60) days from the Closing Date and agrees that the Seller shall provide to the Buyer and the Buyer's auditors such assistance (including, but not limited to, production of documents, access to the Seller's offices and files, and access to and assistance from any employees of the Seller and/or FutureOne, Inc. as necessary) as the Buyer and the Buyer's auditors may deem necessary in their sole discretion in order to prepare such audited balance sheets and statements of income within sixty (60) days from the Closing Date. 18 25 (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Acquired Assets, each of the other Parties will cooperate with the contesting or defending Party and his or its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to his or its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Sections 8(h), 8(i), or 8(j) below). (c) Transition. i. The Seller will not take any action that is designed or intended to have the effect of discouraging any carrier, supplier, lessor, licenser, customer, or other business associate of the Seller from maintaining the same business relationships with the Buyer after the Closing as it maintained with the Seller prior to the Closing. The Seller will refer all customer inquiries relating to the Acquired Assets to the Buyer from and after the Closing. ii. The Seller shall cooperate in recommending the Internet access and web-hosting services of the Buyer to any and all future customers of the Seller who request such a recommendation, provided, however, that Seller shall not be obligated to recommend Buyer's services when such recommendation would compete with a product or service offered by Seller in accordance with Section 8(e) below. iii. The Seller and Buyer will cooperate in implementing the Customer Transition Agreement incorporated into this Agreement as Exhibit J; provided, however, that the Buyer will not willfully and maliciously take any action that is specifically intended to materially damage or injure the reputation of the "futureone" name while it is being used by the Buyer under the terms of the Customer Transition Agreement. iv. The Seller and the Buyer agree that, except as otherwise provided in the Interim Agreement to Permit Occupancy Pending Assignment of Leases (a copy of which is attached hereto as Exhibit K), the Buyer will reimburse the Seller for the Buyer's pro rata share of all costs and expenses incurred in connection with the operation of the Acquired Assets from the Closing Date to the end of the month of November, 1999 (the "Expenses") within ten (10) days after receiving from the Seller a summary of the Expenses, together with appropriate documentation supporting such summary. 19 26 (d) Confidentiality. The Seller shall treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in his/her or its possession. In the event that the Seller or any of the Seller's shareholders is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that the Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 8(d). If, in the absence of a protective order or the receipt of a waiver hereunder, the Seller or the Seller's shareholders are, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, the Seller or the Seller's shareholders (as the case may be) may disclose the Confidential Information to the tribunal; provided, however, that the Seller and the Seller's shareholders shall use their reasonable best efforts to obtain, at the reasonable request of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. (e) Covenant Not to Compete. For a period of two (2) years from and after the Closing Date, the Seller, the Seller's shareholders and their respective Affiliates, agree not to engage directly or indirectly in any business that offers dial-up internet access, dedicated internet access and web-hosting to third parties in the state of Arizona; provided, however, that Seller, the Seller's shareholders and their respective affiliates may offer those specific services listed below: i. high-speed Internet access as part of Seller's or the Seller's affiliates' bundled communications package known as NeighborComm(TM), but only on infrastructure built and owned or controlled by the Seller or the Seller's affiliates and only within a four-and-one-half (4.5)-mile radius of a NeighborComm(TM) hub location; ii. hosting of electronic commerce based websites that are developed by Seller's affiliate Rocket Science Creative division; iii. direct, high-speed Internet connections through the Seller's (or Seller's affiliates') CLEC operations, except that the Buyer will be given right of first refusal to provide any element of such direct, high-speed Internet connections that directly competes with the Buyer's current services, on a wholesale basis; and iv. in no case will the Seller, the Seller's shareholders and their respective affiliates provide dialup Internet access, nor will the Seller, the Seller's shareholders, and their respective affiliates solicit any of the customers acquired as part of the Acquired Assets. 20 27 If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 8(e) is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed (f) Survival of Representations and Warranties. All of the representations and warranties of the Parties contained in this Agreement shall survive the Closing and shall continue in full force and effect for a period of two (2) years thereafter. (g) Third Party Consents. The Seller shall use its best efforts to procure, and assist the Buyer in procuring, the consent of any third party whose consent is required in connection with the transactions contemplated by this Agreement. (h) Indemnification Provisions for Benefit of the Buyer. i. In the event the Seller breaches any of its representations, warranties, and covenants contained in this Agreement, and, if there is an applicable survival period pursuant to Section 8(f) above, provided that the Buyer makes a written claim for indemnification against the Seller within such survival period, then the Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the date of the claim for indemnification resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach). If the Escrow Fund is not sufficient to cover any such Adverse Consequences, then the Buyer shall be entitled to seek payment directly from the Seller and, if the Seller cannot or will not cover such Adverse Consequences, then the Buyer shall be entitled to seek payment directly from the Sole Shareholder and, if the Sole Shareholder cannot or will not cover such Adverse Consequences, then the Buyer shall be entitled to seek payment directly from FutureOne, Inc. ii. The Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by any Liability (with the exception of any Assumed Liability) of the Seller. iii. The Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Seller's operation of the Acquired Assets before the Closing. 21 28 iv. The Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by any Liability (with the exception of any Assumed Liability) of the Seller for Taxes of the Seller related to the Acquired Assets. v. The Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by any Liability of the Seller in relation to the termination of any of the Seller's employees who are not employed by the Buyer. vi. The Seller shall not have any Liability to the Buyer for any Adverse Consequences set forth in this Section 8(h) to the extent that such Adverse Consequences are covered by insurance of the Buyer. vii. Notwithstanding anything contained herein to the contrary, the Seller shall have no Liability to the Buyer as a result of any breach of any representation, warranty or covenant, to the extent that the Buyer knew that such representation, warranty or covenant was incorrect prior to the Closing Date, except when such breach is the result of fraud or willful misconduct. (i) Indemnification Provisions for Benefit of the Seller. i. In the event the Buyer breaches any of its representations, warranties, and covenants contained in this Agreement, and, if there is an applicable survival period pursuant to Section 8(f) above, provided that the Seller makes a written claim for indemnification against the Buyer within such survival period, then the Buyer agrees to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer through and after the date of the claim for indemnification resulting from, arising out of, relating to, in the nature of, or caused by the breach. ii. The Buyer agrees to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller and its shareholders may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Buyer's operation of the Acquired Assets after the Closing. iii. The Buyer shall not have any Liability to the Seller for any Adverse Consequences set forth in this Section 8(i) to the extent that such Adverse Consequences are covered by insurance of the Seller. iv. Notwithstanding anything contained herein to the contrary, the Buyer shall have no Liability to the Seller as a result of any breach of any representation, warranty or covenant, to the extent that the Seller knew that such 22 29 representation, warranty or covenant was incorrect prior to the Closing Date, except where such breach is the result of fraud or willful misconduct. (j) Matters Involving Third Parties. i. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. ii. Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, (C) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. iii. So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 8(i)(ii) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably). (k) Limitations on Indemnification Obligations. Notwithstanding the provisions of Section 8(h), through 8(j) above, none of the Parties shall be obligated to 23 30 indemnify or pay damages to any other Party or Parties, as the case may be, from and against any Adverse Consequences arising from or related to this Agreement to the extent that such Adverse Consequences arising from or related to this Agreement exceed the Purchase Price; provided, however, that any claims brought by a Party against another Party or Parties for fraud or willful misconduct shall not be subject to the foregoing limitations. (l) Payment of Certain Liabilities. Seller and/or its affiliates shall (i) make all payments necessary to satisfy any amounts due and payable on the equipment leases and any other Liabilities of the Seller or its affiliates relating to the Acquired Assets set forth on Section 3(e) of the Disclosure Schedule, and (ii) satisfy in full all obligations included in Section 3(e) of the Disclosure Schedule within sixty (60) days of the Closing Date. In the event the Seller and/or its affiliates do not fully perform their obligations under this Section 8(l) within sixty (60) days of the Closing Date, the Buyer shall have no obligation to deliver to the Seller the Final Disbursement and the Escrow Shares under this Agreement, and shall have any other right or remedy available to the Buyer at law or in equity; provided, however, that, in addition to the foregoing, if the Seller does not perform its obligations under this Section 8(l) and the Buyer, therefore, has to assume the amounts and Liabilities set forth on Section 3(e) of the Disclosure Schedule, then, as liquidated damages for its failure to perform its obligations under this Section 8(l), the Seller shall deliver to the Buyer, within two (2) business days from the completion of the sixty (60) day period referred to above, a number of Lock-Up Shares so that the total of the Escrow Shares, the Final Disbursement and such number of Lock-Up Shares shall be, if multiplied by the Closing Price, equal to two (2) times the total amount of all amounts due and payable on the equipment leases and any other Liabilities of the Seller or its affiliates relating to the Acquired Assets set forth on Section 3(e) of the Disclosure Schedule. 9. Escrow Agreement. As security for the indemnity of the Buyer by the Seller provided for in Section 8 above, the Escrow Shares shall be registered in the name of the Seller, and deposited (with an executed assignment in blank) with Norwest Bank, N.A. as Escrow Agent such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein and in the Escrow Agreement to be signed by all parties thereto (the "Escrow Agreement"). Any dividends or distributions of any kind (including, without limitation, any shares received upon a stock split) made in respect of any securities in the Escrow Fund shall be added to the Escrow Fund and become a part thereof. In the event of any conflict between the terms of this Agreement and the Escrow Agreement, the terms of the Escrow Agreement shall govern. All costs and fees of the Escrow Agent for establishing and administering the Escrow Fund shall be borne equally by the Parties. Upon compliance with the terms hereof, the Buyer shall be entitled to obtain indemnity first from the Escrow Fund for all Adverse Consequences covered by the indemnity provided for in Section 8 above. If the Escrow Fund is not 24 31 sufficient to cover any such Adverse Consequences covered by Section 8 above, then the Buyer shall be entitled to seek payment directly from the Seller and, if the Seller cannot or will not cover such Adverse Consequences, then the Buyer shall be entitled to seek payment directly from the Sole Shareholder and, if the Sole Shareholder cannot or will not cover such Adverse Consequences, then the Buyer shall be entitled to seek payment directly from FutureOne, Inc. The form of the Escrow Agreement is attached hereto as Exhibit I. 10. Miscellaneous. (a) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party prior to making the disclosure). (b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (c) Entire Agreement. This Agreement and the Exhibits and Schedules hereto (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (d) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided, however, that the Seller or Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Seller and Buyer nonetheless each shall remain responsible for the performance of all of their obligations hereunder). (e) Counterparts. This Agreement may be executed by facsimile and in any number of counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. This Agreement may be executed 25 32 by facsimile, provided that the original counterpart is delivered within five (5) days of such execution. (f) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to the Seller: Networld.com Inc. 4250 E. Camelback Rd. Suite K-192 Phoenix, Arizona 85018-2751 Attn: Kendall Q. Northern, President E-mail: ceo@futureone.com Copy to: Squire, Sanders and Dempsey LLP Two Renaissance Square 40 N. Central Ave Suite 2700 Phoenix, AZ 85004-4441 Attn: Mr. Brian Dolasinski E-mail: bdolasinski@ssd.com If to the Buyer: RMI.NET, Inc. 999 18th Street, 22nd Floor Denver, Colorado 80202 Attention: Mr. Douglas H. Hanson, Chairman & CEO E-Mail: dhhanson@rmi.net.com Copy to: 26 33 RMI.NET, Inc. 999 18th Street, 22nd Floor Denver, Colorado 80202 Attention: Mr. Chris J. Melcher, General Counsel E-Mail: chris.melcher@corp.rmi.net Holland & Hart LLP 215 South State Street, Suite 500 Salt Lake City, Utah 84111-23117 Attention: Mr. David R. Rudd E-Mail: drudd@hollandhart.com If to FutureOne, Inc.: FutureOne, Inc. 4250 E. Camelback Rd. Suite K-192 Phoenix, Arizona 85018-2751 Attn: Kendall Q. Northern, President E-mail: ceo@futureone.com Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Colorado without giving effect to any choice or conflict of law provision or rule (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Colorado. (i) Arbitration. The Parties hereby covenant and agree that, except as otherwise set forth in this Agreement, any suit, dispute, claim, demand, controversy or cause of action of every kind and nature whatsoever, known or unknown, fixed or contingent, that the Parties may now have or at any time in the future claim to have based in whole or in part, or arising from or that in any way is related to the 27 34 negotiations, execution, interpretation or enforcement of this Agreement (collectively, the "Disputes") shall be completely and finally settled by submission of any such Disputes to arbitration under the Rules of Arbitration and Conciliation of the American Arbitration Association then in effect. If the Parties to the Dispute are unable to agree on a single arbitrator, then such binding arbitration shall be conducted before a panel of three (3) arbitrators that shall be comprised of one (1) arbitrator designated by each Party to the Dispute and a third arbitrator designated by the two (2) arbitrators selected by the Parties to the Dispute. Unless the Parties to the Dispute agree otherwise, the arbitration proceedings shall take place in Denver, Colorado and the arbitrator(s) shall apply the law of the State of Colorado, USA, to all issues in dispute, in accordance with Section 10(h). The findings of the arbitrator(s) shall be final and binding on the Parties to the Dispute. Judgment on such award may be entered in any court of appropriate jurisdiction, or application may be made to that court for a judicial acceptance of the award and an order of enforcement, as the party seeking to enforce that award may elect. Notwithstanding any applicable rules of arbitration, all arbitral awards shall be in writing and shall set forth in particularity the findings of fact and conclusions of law of the arbitrator or arbitrators. If the Buyer makes any claim based upon the alleged intentional fraud or willful misconduct of the Seller or its shareholders and such claim is not found by the arbitrator(s) to be valid or proven, the Buyer shall pay the costs of the Seller or its shareholders incurred in connection with such arbitration proceeding (including reasonable attorneys fees). (j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (l) Expenses. Each of the Buyer and the Seller will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (m) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any 28 35 Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (o) Specific Performance. Each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(i) above), in addition to any other remedy to which it may be entitled, at law or in equity. ***** 29 36 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. RMI.NET, INC. By: /s/ Douglas H. Hanson ----------------------------------- Douglas H. Hanson Title: Chairman and CEO ----------------------------------- NETWORLD.COM, INC. By: /s/ Kendall Q. Northern ----------------------------------- Title: President ----------------------------------- FUTURE ONE, INC., an Arizona corporation By: /s/ Kendall Q. Northern ----------------------------------- Title: President ----------------------------------- SOLELY FOR PURPOSES OF SECTIONS 8(h) AND 9 ABOVE: FUTUREONE, INC., a Nevada corporation By: /s/ Kendall Q. Northern ----------------------------------- Title: President ----------------------------------- 30 EX-6.22 12 EX-6.22 1 Exhibit 6.22 SEVERANCE AGREEMENT This Severance Agreement (hereinafter "Agreement") is made and entered into effective as of the 23rd day of November, 1999, by and between FutureOne, Inc., a Nevada corporation and its affiliates, subsidiaries and related entities (hereinafter referred to as the "Company"), and KENDALL Q. NORTHERN (hereinafter referred to as "Northern"). The Company and Northern shall hereinafter be referred to collectively as the "Parties." WHEREAS, Northern and the Company entered into an Employment Agreement, dated as of July 27, 1998 (as such agreement may have been amended or supplemented, the "Employment Agreement"), pursuant to which the Company agreed to retain Northern, and Northern agreed to serve, as the President and Chief Executive Officer of the Company. WHEREAS, Northern serves as President and Chief Executive Officer of the Company and as a member of the Company's Board of Directors. WHEREAS, Northern wishes to resign from active employment with the Company and, in connection therewith, the Company and Northern wish to terminate the Employment Agreement with the Company effective November 23, 1999 ("Separation Date"); and WHEREAS, Northern wishes to resign from the Board of Directors of the Company effective the Separation Date. NOW, THEREFORE, for and in consideration of the mutual agreements herein described and agreed to be performed, the Parties agree as follows: A. CONSIDERATION PAID BY THE COMPANY TO NORTHERN 1. MONETARY PAYMENTS. The Company agrees to provide Northern with the payment and other items of valuable consideration listed below: (a) The Company shall pay to Northern a total separation payment of $100,000 payable in twelve (12) equal monthly installments. Each subsequent installment of the separation payment shall be due and payable within 15 days following the end of the month for which such payment is due. The first installment of the separation payment pursuant to this Section A.1. shall be due and payable on January 15, 2000. (b) In addition to the amount set forth in Section A.1.(a), the Company shall pay Northern a lump sum cash payment equal to $50,000. Such amount shall be due and payable within ten business days following the date of this Agreement. (c) In addition to the amounts set forth in Sections A.1(a) and (b), within five (5) business days following the date of this Agreement, the Company shall pay to Northern all outstanding board of director fees owed to Northern. 2 (d) Northern shall reimburse the Company for any outstanding charges incurred by Northern on Company credit cards for personal or other expenses not related to the Company or the Company's business, to be determined by Northern and the Company's Board of Directors. (e) All accrued salary payable to Northern as of the Separation Date, which shall be paid within five business days following the Separation Date. (f) All vested options to purchase common stock which are held by Northern and are unexercised as of the close of business on the Separation Date shall remain exercisable during the term of and pursuant to their underlying stock option agreements, notwithstanding that Northern's employment will terminate as of the Separation Date, subject however to all limitations and conditions contained in such stock option agreement and the Company's 1999 Key Employee Stock Option Plan. (g) All amounts payable pursuant to this Section A.1.(a) and (e) shall be made in accordance with the Company's regular payroll policies in effect from time to time. 2. RMI STOCK. Subject to the terms and conditions of the Asset Purchase Agreement by and between the Company and RMI.NET, Inc. ("RMI") dated as of November 19, 1999, Northern shall receive 47,031 shares of RMI common stock, par value $0.001 per share ("RMI Common Stock"), on or before May 23, 1999, in exchange for his delivery to the Company of 200,000 shares of the Company's common stock owned by Northern ("Northern Shares"), which are free and clear of any liabilities, including all debts, obligations, claims limitations, liens, security interests and or any other encumbrances. The RMI Stock will be subject to all restrictions, conditions and limitations as set forth in the Asset Purchase Agreement. 3. CONTINUED BENEFITS. The Company shall pay the premiums for health and dental insurance coverage as provided by COBRA, which coverage shall be no less than Northern's insurance coverage immediately preceding the date of this Agreement as provided by the Company, for Northern's continued benefit and the benefit of his eligible beneficiaries, until November 23, 2000. 4. COMPANY CAR. As and for additional consideration under this Severance Agreement, Northern shall continue to have full access to and use of the 1999 Lincoln Navigator (AZ License Plate "FUTO"). The Company agrees to pay the lease payments and Northern's insurance premiums on such vehicle through November 2000. B. WAIVER OF CLAIMS In exchange for the consideration provided in Section A above and the other covenants, terms and conditions, Northern hereby agrees to the following: -2- 3 1. NORTHERN RELEASE. (a) Northern does hereby knowingly, voluntarily, and irrevocably release and discharge the Company, its stockholders, officers, directors, partners, agents, representatives, attorneys, employees, contractors, managers, predecessors, successors, other affiliates, assigns and all other persons or entities acting by, through, under, or in concert with any of them (hereinafter collectively referred to as the "Company Released Parties") from any and all claims, demands, liabilities, judgments, damages, expenses, or causes of action of any kind or nature whatsoever which Northern, his heirs, personal representatives, and assigns, and each of them, may now or hereafter have or assert, whether now known or unknown, arising out of his employment relationship with the Company and his resignation and termination therefrom or otherwise. The claims which are waived, released and discharged include, but are not limited to, breach of express or implied contract; breach of the covenant of good faith and fair dealing; wrongful discharge; public policy torts of any kind or nature; discrimination on the basis of age, sex, religion, disability, race, or any other reason prohibited by applicable law; claims under the Civil Rights Act of 1991; the Labor Management Relations Act; the Family and Medical Leave Act; Title VII of the Civil Rights Act of 1964; the Equal Pay Act; the Employee Retirement Income Security Act of 1974; the Americans with Disabilities Act; or the Age Discrimination in Employment Act, all as amended, or any state or local law; tort claims of any kind whatsoever, any other common law or statutory claims; claims for salary, wages, vacation pay, severance pay, bonus payments, or earnings of any kind, fringe benefits, medical or hospital expenses or benefits, litigation expenses, attorneys' fees, employment reinstatement, compensatory damages of any kind, liquidated or statutory damages, and any other amounts; any and all other damages arising out of or connected in any way whatsoever with the employment of Northern by the Company at any time before the date of this Agreement, or with the separation of such employment, whether known by the Parties at the time of the execution of this Agreement or not. b. Northern hereby knowingly, voluntarily and irrevocably releases, acquits and forever discharges the Company Released Parties, or any of them, from all causes of action and claims of any kind which could be brought against the Company Released Parties, or any of them, arising out of the Employment Agreement, or any other agreement, oral or otherwise, or document executed prior to the date hereof by Northern and the Company Released Parties, or any of them, or otherwise. Northern further warrants that he has not assigned any cause of action released herein to any other person or entity prior to the execution of this Agreement. In addition, and in particular, Northern, knowingly, voluntarily and irrevocably releases, acquits and forever discharges the Company Released Parties from all causes of action and claims which were or could have been brought or asserted in connection with his employment with the Company. c. Notwithstanding any other provision of this Agreement, Northern does not waive or release his rights or claims (i) in respect of salary accruing to Northern through the date of this Agreement or for reimbursement of expenses incurred by Northern through the date of this Agreement to the extent reimbursable under this Agreement and in accordance with the Company's usual policies and procedures or (ii) to any -3- 4 indemnification by the Company with respect to which Northern may be eligible, by reason of any statute or any provision of the Company's Bylaws or Articles of Incorporation, pertaining to any claim which may be asserted against Northern (including any claim in any suit, action or proceeding, whether civil, criminal, administrative or investigative), by reason of Northern being an officer, director, employee or agent of the Company. Northern acknowledges that the considerations afforded him under this Agreement, including the payments described in Section A above, are in full and complete satisfaction of any claims Northern may have, or may have had, arising out of his employment with the Company, or the termination thereof. 2. COMPANY RELEASE. The Company hereby knowingly, voluntarily, and irrevocably releases and discharges Northern, his heirs, personal representatives and assigns from any and all claims, demands, liabilities, judgements, damages, expenses, or causes of action of any kind or nature whatsoever, arising or accruing on or prior to the date hereof, which the Company may have had or may now or hereafter have or assert, whether now known or unknown; provided, however, the claims which are waived, released and discharged pursuant to this Agreement do not include any claims related to or arising out of, either directly or indirectly, acts or omissions of Northern which constitute willful misconduct, fraud, bad faith, intentional violations of fiduciary duties, or gross negligence. C. COMPANY PROPERTY 1. RETURN OF PROPERTY. Northern shall return all Company property, including, without limitation, handbooks or manuals, building or office access cards, keys and credit cards immediately upon November 23, 1999. Northern shall promptly return all computer equipment immediately prior to the close of business on November 23, 1999; provided, however, Northern shall not be responsible for returning any of the Company's equipment to the extent such equipment has a value of $17,500 or less on the date hereof. 2. INVENTIONS AND PROPRIETARY INFORMATION. (a) All inventions, discoveries, computer programs, data, technology, designs, innovations and improvements, among other things, (whether or not patentable and whether or not copyrightable) ("Inventions") related to the business of the Company, including, without limitation which are made, conceived, reduced to practice, created, written, designed or developed by Northern, solely or jointly with others and whether during normal business hours or otherwise, during the period of Northern's employment by the Company prior to execution of this Agreement through the Separation Date or thereafter if resulting or directly derived from Proprietary Information (as defined below) or if resulting or directly derived through work, time and effort for which the Company compensated Northern, shall be the sole property of the Company. Northern will not disclose any Proprietary Information to any person or entity other than employees of the Company who have a need to know such information or use the same for any purposes (other than in the performance of his duties as an employee of the Company) without -4- 5 written approval by an officer of the Company, either during or after his employment with the Company, unless and until such Proprietary Information has become public knowledge without fault by Northern. (b) Northern agrees that all files, letters, memoranda, reports, records, data, program listings, or other written, photographic, or other tangible material containing Proprietary Information, whether created by Northern or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by Northern only in the performance of his duties for the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of Northern shall be delivered to the Company on November 23, 1999. After such delivery, Northern shall not retain any such materials or copies thereof or any such tangible property. (c) Northern agrees that his obligation not to disclose or to use information and materials of the types set forth in paragraphs (a) and (b) above, and his obligation to return materials and tangible property, set forth in paragraph (b) above, also extends to such types of information, materials and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to Northern. (d) For purposes of this Agreement, "Proprietary Information" means and includes the following: the identity of clients or customers or potential clients or customers of the Company or its affiliates; any written, typed or printed lists, or other materials identifying the clients or customers of the Company or its affiliates; any financial or other information supplied by clients or customers of the Company or its affiliates; any and all data or information involving the Company, its affiliates, programs, methods, or contacts employed by the Company or its affiliates in the conduct of their business; any lists, documents, manuals, records, forms, or other material used by the Company or its affiliates in the conduct of their business; and any other secret or confidential information concerning the Company's or its affiliates' business or affairs. The terms "list," "document" or other equivalents, as used in this subparagraph (d), are not limited to a physical writing or compilation but also include any and all information whatsoever regarding the subject matter of the "list" or "document," whether or not such compilation has been reduced to writing. "Proprietary Information" shall not include any information which: (i) is or becomes publicly available through no act or failure of Northern; (ii) was or is rightfully learned by Northern from a source other than the Company before being received from the Company; or (iii) becomes independently available to Northern as a matter of right from a third party. If only a portion of the Proprietary Information is or becomes publicly available, then only that portion shall not be Proprietary Information hereunder. D. NO DISPARAGEMENT The Parties agree that, as part of the consideration for this Agreement, and as an expression of their desire to obtain an amicable termination of their employment and business -5- 6 relationship, neither party will make disparaging or derogatory statements, whether oral or written, about the other party, or in the case of the Company, its subsidiaries, affiliates, officers, directors, employees or agents, for a five (5) year period effective at the date of execution of this Agreement unless required to by law. E. CONFIDENTIALITY 1. NONDISCLOSURE. Northern shall keep confidential the terms and existence of this Agreement and the negotiations that led to its creation and execution to any third party or parties for a five (5) year period effective at the date of execution of this Agreement unless required to by law. Any breach of this paragraph, including the disclosure of the foregoing confidentiality provision, shall be deemed a material breach of this Agreement. 2. CONFIDENTIAL MATERIAL. In the course of Northern's employment by the Company, Northern agrees that he had access to secret or confidential technical and commercial information, business plans and strategies, financial information, financial forecasts, business records, information regarding key business relationships, records, data, specifications, systems, methods, plans, designs, policies, inventions, material and other knowledge ("Confidential Material"), whether or not copyrighted, owned by the Company. Northern recognizes and acknowledges that the Confidential Material is valuable, special and unique to the Company's business. All such Confidential Material shall be and remain the property of the Company. Northern hereby affirms that during the course of his employment with the Company he has not disclosed any Confidential Information to any third party except in good faith and in the course of fulfilling his assigned responsibilities. Northern shall not, directly or indirectly, either during the term of the Agreement under Section C, or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Material. Northern shall not be deemed to have breached this Section E if Northern shall be specifically compelled by lawful order of any judicial, legislative, or administrative authority or body to disclose any Confidential Material or else face civil or criminal penalty or sanction. The term "Confidential Material" does not include information which (i) is currently or becomes generally available to the public other than as a result of a disclosure by Northern or (ii) becomes available to Northern on a nonconfidential basis from a source other than the Company or its representatives provided that such source is not bound, to Northern's knowledge after due inquiry, by a confidentiality agreement with respect to such information. 3. REMEDIES. Northern hereby agrees that damages and any other remedy available at law would be inadequate to redress or remedy any loss or damage suffered by the Company upon any breach of the terms of this Section E by Northern, and Northern therefore agrees that the Company, in addition to recovering on any claim for damages or obtaining any other remedy available at law, also may enforce the terms of this Section E by injunction or specific performance, and may obtain any other appropriate remedy available in equity. F. NON-COMPETE 1. NO COMPETITION. Northern agrees that for a period of one (1) year commencing on the Separation Date, unless the Company breaches one or more of its payment obligations -6- 7 under Section A.1.(a), (b), (c) or (e) of this Agreement in which case this Section F shall no longer be in effect, he shall not engage in, plan for, organize, work for, or assist, directly or indirectly, any business with operations in Arizona or Colorado that is competitive, directly or indirectly, with the Company's business, nor solicit participants in or customers of the Company's products and services, nor use Northern's knowledge of the Company or its business in any manner that competes, directly or indirectly, with, or otherwise may adversely affect, the Company. Northern expressly understands that the Company has a legitimate business purpose in requiring Northern to abide by all of the restrictions described in this paragraph. Northern acknowledges that the services he rendered, and may render, to the Company, the information exchanged between all parties in connection with rendering those services, and Northern's and the Company's relationships with the Company's customers, consultants, employees, vendors, banks, accountants, and any other Company product or service participants, purchasers and suppliers are each of a unique and valuable character. Northern acknowledges that any competition by Northern for a one (1) year period following the Separation Date would materially and unfairly harm the Company's ability to carry out its business. 2. LIMITATION OF ACTIVITIES IN ARIZONA AND COLORADO. Northern agrees that for a period of one (1) year after the Separation Date, unless the Company breaches one or more of its payment obligations under Section A.1.(a), (b), (c) or (e) of this Agreement in which case this Section F shall no longer be in effect, the foregoing restrictions shall prohibit Northern from participating in the following non-exclusive list of activities. (a) Participate in, be employed in any capacity by, serve as director, consultant, agent or representative for, or have any interest, directly or indirectly, in any enterprise which is engaged in a business competitive to any products or services of the Company or any of its subsidiaries, affiliates or joint ventures existing or proposed, or at the locations at which any of such entities is providing services or proposes to provide services at any time during the term of this Agreement, or which are competitive to any products and services offered or being actively developed by the Company to Northern's knowledge, with the bona fide intent to market same. (b) In addition, Northern agrees that he shall observe the covenants set forth in this Section G and shall not own, either directly or indirectly or through or in conjunction with one or more members of her family or her spouse's family or through any trust or other contractual arrangement, a greater than five percent (5%) interest in, or otherwise control either directly or indirectly, any partnership, corporation, or other entity which has products and services that are competitive to any products and services being developed or otherwise offered by the Company during the term of this Agreement or being actively developed by the Company during the term of this Agreement with a bona fide intent to market same. Northern further agrees, for such one-year period following the Separation Date, to refrain from directly or indirectly soliciting the Company's vendors, customers or employees, except that the Northern may solicit the Company's vendors or customers in connection with a business that does not compete with the Company. -7- 8 (c) Northern agrees not to provide services as an employee or as a consultant to any entity that is competitive, directly or indirectly, with the Company or its products and services in Arizona and Colorado. 3. REMEDIES. Northern hereby agrees that damages and any other remedy available at law would be inadequate to redress or remedy any loss or damage suffered by the Company upon any breach of the terms of this Section F by Northern, and Northern therefore agrees that the Company, in addition to recovering on any claim for damages or obtaining any other remedy available at law, also may enforce the terms of this Section F by injunction or specific performance, and may obtain any other appropriate remedy available in equity, without the need to post a bond or other security. If any provision of this Section F is deemed, as a matter of law, to be unreasonable as to time, area, or scope by any court or arbitrator, then such court or arbitrator shall have authority to modify this paragraph as to time, area or scope, but only to the limited extent necessary to make this paragraph reasonable and in a manner intended to preserve the relative expectations, benefits and intents of the parties hereto. G. RESIGNATIONS. Northern hereby resigns as an officer, director and employee of the Company and its affiliates effective November 23, 1999. The Company hereby accepts Northern's voluntary resignation from employment effective November 23, 1999. H. TERMINATION OF EMPLOYMENT. The Company and Northern hereby agree that the Employment Agreement is terminated as of the date hereof and Northern agrees that the Company has no obligation or liability thereunder and that the Company has fully performed and fulfilled its obligations thereunder. I. DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION. To the extent that the Company maintains an insurance policy or policies providing liability insurance for officers or directors of the Company or fiduciaries of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, the Company shall cause Northern to be covered by such policy or policies in accordance with the terms thereof to the maximum extent of the coverage available to all of the directors and officers of the Company under such policy or policies. In the event that (a) Northern is made a party to, or threatened to be made a party to, any threatened or pending action, suit or proceeding brought by any third party, whether civil, criminal, administrative or investigative, by reason of the fact that he was an officer, director, employee or agent of the Company or an affiliate of the Company or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust or other enterprise, and (b) the Company provides indemnification and/or defends and holds harmless with respect to such action, suit or proceeding to any other person who is or was an officer, director, employee or agent of the Company or an affiliate of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust or other enterprise, and (c) the indemnification and/or defense and holding harmless provided to such other person is more favorable than the -8- 9 indemnification and/or reimbursement of expenses to which Northern would be entitled but for this Section 7, then the Company shall provide indemnification and/or reimbursement of expenses (as the case may be) to Northern in the same amount, at the same time, and on the same terms and conditions as such indemnification and/or reimbursement of expenses are provided by the Company to such other person. 2. GENERAL. This Agreement is entered into and shall be interpreted, enforced and governed by the laws of the State of Arizona, regardless of conflict of laws rules. Any action regarding this agreement shall be brought in a court in Maricopa County, Arizona. In any proceeding to enforce this Agreement, the non-prevailing party will pay the costs and reasonable attorneys' fees of the prevailing party. J. REPRESENTATIONS OF EMPLOYEE Northern, by his execution of this Agreement, represents and warrants that the following statements are true: 1. That he has been given a fair and reasonable opportunity to read this entire Agreement, that this Agreement is written in a manner that is understandable to him and he has read and has had all questions regarding its meaning and content answered to his satisfaction; 2. That he fully understands the contents of this Agreement and understands that it is a full waiver of all claims against the Company; 3. That this full waiver of all claims is given in return for valuable consideration, as provided under the terms of this Agreement; 4. That he entered into this Agreement knowingly and voluntarily in exchange for the promises referenced in this Agreement, and that no other representations have been made to him to induce or influence him to execute this Agreement; 5. That he has been advised that he may consult with counsel of his own choosing or such other persons as he may deem advisable before signing this Agreement. 6. That he understands, agrees and acknowledges that the law firm of Squire, Sanders & Dempsey L.L.P. has not represented him in his individual capacity at any time and will not represent or advise him with respect to this Agreement; and 7. That the Northern Shares are free and clear of any liabilities, including all debts, obligations, claims, limitations, liens, security interests and/or any other encumbrances whatsoever. -9- 10 K. MISCELLANEOUS 1. PENDING OBLIGATIONS. This Agreement and all provisions thereof, including all representations and promises contained herein, are contractual and not a mere recital and shall continue in permanent force and effect. 2. ENTIRE AGREEMENT. This Agreement constitutes the sole and entire agreement of the Parties with respect to the subject matter hereof, and there are no agreements of any nature whatsoever between the Parties hereto regarding the subject matter hereof. The Parties expressly acknowledge and agree that that certain Employment Agreement, upon execution of this Agreement, be of no further force or effect. No provision of this Agreement shall be amended, waived or modified except by an instrument in writing, signed by the Parties hereto. 3. NO VIOLATION OF LAW, ETC. It is understood and agreed that the execution of this Agreement by the Company is not to be construed as an admission of any violation of any statute, law or regulation or breach of any contract or agreement or other liability on its part to Northern other than to comply with the terms of this Agreement. 4. ENFORCEABILITY. This Agreement may be enforced in any jurisdiction within or outside the United States and this Agreement shall constitute a severable and enforceable agreement in each of such jurisdictions, notwithstanding any contrary choice of law or venue provisions set forth herein. In the event that any portion of this Agreement is found to be invalid, illegal or unenforceable for any reason whatsoever, that portion shall be considered to be severable and the remainder of this Agreement shall continue to be in full force and effect. The parties shall negotiate in good faith to preserve each partner's anticipated benefits hereunder. 5. GOVERNING LAW. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance, or otherwise, by the laws of the State of Arizona, without regard to conflict of law principles. The parties hereto hereby consent to personal jurisdiction in any court of appropriate subject matter jurisdiction located in Arizona County in which the Company's principal executive officers are situated. 6. REMEDIES. In the event of default or breach set forth in the above paragraphs are intended to be non-exclusive, and either party may, in addition to such remedies, seek any additional remedies available either in law or in equity. 7. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration in Phoenix, Arizona in accordance with the rules of the American Arbitration Association. Judgement may be entered on the arbitrator's award in any court having jurisdiction over this Agreement. The nonprevailing party shall pay the fees, costs, and expenses of the arbitration proceeding (including reasonable attorneys' fees). 8. BINDING; ASSIGNMENT. The Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. No party hereto may assign or transfer its rights or delegate its duties or obligations hereunder without the prior written consent of the -10- 11 other party; and any document, instrument or act for which consent has not been obtained purporting to effect any such assignment, transfer or delegation shall be void. 9. CONSTRUCTION. The parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any amendments or exhibits hereto. 10. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart will be deemed to be an original, and all such counterparts shall constitute one and the same instrument. -11- 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates get forth below. DATED as of the 23rd day of November, 1999. /s/ Kendall Q. Northern ------------------------------------------ KENDALL Q. NORTHERN DATED as of the 23rd day of November, 1999. FUTUREONE, INC. By: /s/ Bradley G. Black --------------------------------------- Name: Bradley G. Black ------------------------------------- Title: Secretary ------------------------------------ -12- 13 State of Arizona ) ) ss. County of Maricopa ) On this 23rd day of November, 1999, before me personally appeared Kendall Q. Northern who voluntarily executed the foregoing Severance Agreement. /s/ Jeffrey Halim ---------------------------------------- Notary Public My Commission Expires: August 19, 2001 - ---------------------- State of Arizona ) ) ss. County of Maricopa ) On this 23rd day of November, 1999, before me personally appeared Bradley Black, who voluntarily executed the foregoing Severance Agreement on behalf of FutureOne, Inc., as its Corp. Secretary and duly authorized agent. /s/ Eric J. Cook ---------------------------------------- Notary Public My Commission Expires: July 17, 2003 - ---------------------- EX-6.23 13 EX-6.23 1 Exhibit 6.23 THIS PROMISSORY NOTE AND THE UNDERLYING COMMON STOCK ("COMMON STOCK") OF FUTUREONE, INC. (THE "COMPANY") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, THE "SECURITIES ACT") OR WITH THE SECURITIES AUTHORITIES OF ANY STATE UNDER ANY STATE SECURITIES LAWS AND ANY REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, "STATE SECURITIES LAWS"). AS A CONSEQUENCE, NEITHER THIS PROMISSORY NOTE NOR COMMON STOCK MAY BE SOLD, TRANSFERRED, ASSIGNED, MORTGAGED, PLEDGED, LIENED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF (COLLECTIVELY, A "TRANSFER") EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. 12% SECURED CONVERTIBLE PROMISSORY NOTE $500,000.00 Phoenix, Arizona As of October 22, 1999 FOR VALUE RECEIVED, FUTUREONE, INC., a Nevada corporation with an office at 4250 East Camelback Road, Suite K-192, Phoenix, Arizona 85018-2751 (including its successors and assigns, "Borrower"), hereby promises to pay to the order of 12 Squared Partners, LLC, an Arizona limited liability company with an office at 1717 East Morten, Suite 220, Phoenix, AZ 85020 ("Lender"), the principal sum of Five Hundred Thousand Dollars ($500,000) (the "Principal Amount"), with interest on any unpaid balance of such amount from the date of the advance thereof at the rate of interest specified herein, in lawful money of the United States of America and in immediately available funds in accordance with the terms hereof. The unpaid Principal Amount of this 12% Secured Convertible Promissory Note (this "Note"), together with all accrued and unpaid interest hereunder, shall be due and payable on the Maturity Date (as defined below), unless this Note is converted in accordance with Section 4 hereof. This Note evidences a loan (the "Loan") made by Lender to Borrower in the Principal Amount; the Note and all other documents, instruments and certificates, including, without limitation, the Security and Pledge Agreement between Borrower and Lender dated as of the date hereof and the escrow arrangements made in connection with the Loan and the Security and Pledge Agreement, which may at any time be given as security for, as evidence of, or in connection with, the Loan, as the same may be modified, amended, restated, consolidated or extended from time to time, are hereinafter collectively referred to as the "Loan Documents" and individually as a "Loan Document"). 2 1. Definitions. 1.1. Certain Defined Terms. As used in this Note, the following terms have the meanings indicated below: "Business Day" means a day other than Saturday, Sunday or other day on which commercial banks in Phoenix, Arizona are authorized or required by law or executive order to close. "Common Stock" means the $0.001 par value common stock of Borrower. "Conversion Price" means One Dollar ($1.00) per share of Common Stock subject to adjustment as provided in Section 4. "Default" means any event which, with the passage of time or the giving of notice, or both, could become an Event of Default. "Default Rate" means a rate of interest equal to the Stated Interest Rate plus six (6) percentage points per annum. "Disbursement Date" means a date on which the Loan proceeds are funded to or at the direction of Borrower. "Dollars" or "$" mean lawful currency of the United States of America and, in relation to any amount to be disbursed or paid under this Note, immediately available funds or such other funds as may be acceptable to Lender in its sole discretion. "Event of Default" has the meaning set forth in subsection 6.1. "Indebtedness" of any Person means as of the date of any determination thereof, (i) all indebtedness for borrowed money or purchase money financing, (ii) all indebtedness evidenced by a note, bond, debenture or similar instrument (but only to the extent actually disbursed), (iii) the face amount of all letters of credit and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all payment obligations under any interest rate protection agreements and currency swaps and similar agreements, (v) all indebtedness under capitalized leases, (vi) all obligations to pay money or assume indebtedness in respect of the acquisition of property, securities and other assets, (vii) all obligations in respect of guaranties, (viii) all obligations to purchase, repurchase or otherwise acquire, to supply or advance funds or to become liable (directly or indirectly) with respect to any indebtedness or obligation of any Person and (ix) all refundings, renewals, extensions or restatements of any of the foregoing. "Maturity Date" means (i) April 19, 2000, or (ii) such other date as the Principal Amount shall become due and payable pursuant to the terms and provisions of this Note or any other Loan Document or shall have been converted in full in accordance with the provisions hereof; provided, however, Borrower may extend the Maturity Date at any time with the prior written consent of Lender. -2- 3 "Person" means an individual, a corporation, an association, a joint stock company, a business trust, a partnership, a joint venture, a limited liability company, an unincorporated organization, or a government or any agency or political subdivision thereof. "RMI Market Price" means, with respect to RMI Stock, for any date of determination that price which shall be computed as the arithmetic average of the closing bid prices for RMI Stock on each of the five (5) consecutive trading days immediately preceding the date of notice requiring such determination (all such determinations to be appropriately adjusted for any stock dividend, stock split or similar transaction during the pricing period). "RMI Stock" means shares of the $0.001 par value common stock of RMI.NET, Inc. held by Borrower pursuant to a certain Asset Purchase Agreement among RMI.NET, Inc. and the Borrower and certain other parties dated as of November 19, 1999 (the "RMI Asset Purchase Agreement"). RMI Stock is subject to an Agreement Not to Sell executed by Borrower as of November 19, 1999, which restricts Borrower from, without the consent of RMI.NET, Inc., offering, selling, contracting to sell, granting an option to sell or otherwise disposing of, directly or indirectly, RMI Stock for certain time periods as set forth in the Agreement Not to Sell attached hereto as Exhibit A. "Securities Act" means, collectively, the Securities Act of 1933, as amended, and any regulations promulgated thereunder. "State Securities Act" means, collectively, the securities law of any State that is applicable to this Note or the Common Stock and any regulations promulgated thereunder. "Stated Interest Rate" means simple interest at the rate of twelve percent (12%) per annum. "Taxes" means any and all present and future taxes, levies, imposts, duties, fees, deductions, withholdings or charges of a similar nature imposed or assessed by any country or any political subdivision or taxing authority thereof (but not including any income or franchise taxes of Lender), together with any interest thereon and any penalties with respect thereto. 1.2. Computation of Time Periods. Unless otherwise provided herein, with respect to the computation of periods of time from a specified date to a later specified date herein, the word "from" means "from and including" and each of the words "to" and "until" means "to but excluding". 1.3. Dollar Amounts. All dollar amounts used herein shall mean United States Dollars. 1.4. Construction. In this Note, the singular includes the plural, the plural includes the singular. 2. The Loan. 2.1. Use of Loan Proceeds. The proceeds of the Loan shall be used for the general working capital needs of Borrower. -3- 4 3. Payments. 3.1. Payment of Interest. 3.1.1. Interest Rate; Interest Payment. Interest shall accrue on the outstanding Principal Amount at the Stated Interest Rate: (a) from and including the Disbursement Date through the Maturity Date, and (b) shall be due and payable on the Maturity Date. All interest and fees accruing under the Note and the other Loan Documents shall be computed on the basis of a 360-day year and the actual number of days elapsed. 3.1.2. Default Interest. Notwithstanding anything to the contrary contained in this Note or any other Loan Document, if Borrower shall fail to make any payment when due of principal, interest or any other amount owing under this Note or any other Loan Document, then such principal, interest or other amount shall accrue interest thereon at a rate equal to the Default Rate to the fullest extent permitted by law from the date such payment was due until payment in full of the amount overdue plus such interest thereon. 3.1.3. Maximum Interest. Anything in this Note or the other Loan Documents to the contrary notwithstanding, the interest rate on the Loan shall in no event be in excess of any maximum interest rate permitted by applicable law; provided, however, that, to the extent permitted by applicable law, in the event that interest is not collected as a result of the operation of this subsection and interest thereafter payable pursuant to this Note shall be less than such maximum amount, then such interest thereafter payable shall be increased up to such maximum amount to the extent necessary to recover the amount of interest, if any, theretofore uncollected as a result of the operation of this subsection. In determining whether or not any interest payable under this Note exceeds the maximum rate permitted by applicable law, any non-principal payment, except payments specifically stated to be "interest", shall be deemed, to the extent permitted by applicable law, to be a fee, expense reimbursement or penalty, rather than interest. 3.2. Payments of Principal. The unpaid balance of the Principal Amount, together with all accrued and unpaid interest, and all other amounts payable under the Loan Documents, shall be due and payable in full on the Maturity Date. 3.3. Manner of Payments. Each payment of principal of and interest on this Note shall be made by check of Borrower or by transferring the amount thereof in Dollars in immediately available funds via the Fedwire or intra-bank account transfer, not later than 5:00 p.m., Phoenix, Arizona time, on the date on which such payment shall be due. Each such payment shall be made without setoff, offset, deduction or counterclaim. 3.4. Extension of Payments. If any payment from Borrower to Lender under this Note or any of the other Loan Documents shall become due on a day which is not a Business Day, the due date thereof shall be extended to the next following day which is a Business Day and such additional time shall be included in the computation of interest. 3.5. Application of Payments. Lender shall have the absolute right to determine the order in which payments received by Lender under this Note and the other Loan Documents shall be applied to the amounts which are then due and payable under the Loan Documents, regardless of any application designated by Borrower; provided, however, that, unless and until the occurrence of -4- 5 an Event of Default hereunder, all payments shall be applied first against any fees or expenses due and payable to Lender under this Note or any other Loan Document, second, to the payment of delinquency or late charges, third, to interest due and payable on the Loan, and fourth to repay the Principal Amount. 4. Conversion. 4.1. Conversion Privilege. 4.1.1. Prior to the Maturity Date, Lender may at any time convert all or part of the indebtedness evidenced by this Note, including accrued interest, into Common Stock (a "FutureOne Common Stock Conversion"). The number of shares of Common Stock issuable upon a FutureOne Common Stock Conversion shall be determined as follows: Divide the Principal Amount and accrued interest to be converted by the Conversion Price. Borrower will deliver to a holder so converting a check in payment for any fractional share of Common Stock. In the event Lender effects a FutureOne Common Stock Conversion, Lender understands and acknowledges that it shall have no rights to the Pledged Collateral as defined in the Security and Pledge Agreement between the Borrower and Lender of even date herewith. 4.1.2. In the event Borrower does not consummate a public offering of its Common Stock prior to the Maturity Date, Lender may convert all of the indebtedness evidenced by this Note, including accrued interest, into RMI Stock (a "RMI Stock Conversion"). The number of shares of RMI Stock issuable upon a RMI Stock Conversion shall be determined as follows: Divide (a) accrued interest plus 1.25 times the Principal Amount to be converted by (b) the RMI Market Price on the date of such RMI Stock Conversion. Borrower will deliver to a holder so converting a check in payment for any fractional RMI Stock. In the event Lender effects an RMI Stock Conversion, Lender understands and acknowledges that it shall have no rights to the Pledged Collateral as defined in the Security and Pledge Agreement between the Borrower and Lender of even date herewith. 4.2. Conversion Procedure. 4.2.1. To effect any FutureOne Common Stock Conversion, Lender shall (i) surrender this Note for conversion to Borrower at its office in Phoenix, Arizona and provide Borrower with ten (10) business days advance written notice to Borrower specifying the date and amount of such conversion and the name in which the Common Stock shall be issued (if the name is other than that of Lender), (ii) furnish any appropriate endorsements and transfer documents reasonably requested by Borrower, (iii) pay any documentary, stamp, transfer or similar tax if required and (iv) deliver a certificate to Borrower in which Lender certifies that (a) Lender is an "accredited investor" as defined in the Securities Act, (b) Lender acknowledges that the Common Stock to be issued to Lender have not been registered under the Securities Act or any State Securities Laws and (c) Lender is acquiring the Common Stock to be issued to Lender for investment and not with a view to the resale, subdivision, distribution or fractionalization thereof and that Lender agrees that such Common Stock may not be sold, transferred, assigned, mortgaged, pledged, liened, hypothecated or otherwise encumbered or disposed of (collectively, a "transfer") except pursuant to an effective Registration Statement under the Securities Act of 1933, as -5- 6 amended, or an opinion of counsel satisfactory to Borrower to the effect that such registration is not required. 4.2.2. To effect any RMI Stock Conversion, at least ten (10) business days prior to the Maturity Date, Lender shall (i) surrender this Note for conversion to Borrower at its office in Phoenix, Arizona and provide Borrower written notice of his intention to convert this Note to RMI Stock on the Maturity Date, and (ii) deliver a certificate to Borrower acknowledging certain restrictions on the RMI Stock pursuant to the Agreement Not to Sell as attached hereto as Exhibit A. 4.2.3. Upon surrender of this Note for a FutureOne Common Stock Conversion or an RMI Stock Conversion, the note shall be marked "cancelled" or "paid-in-full". Any such notice of election to convert shall constitute a contract between the holder of this Note and Borrower, whereby such holder shall be deemed to subscribe for the number of shares of Common Stock or RMI Stock, as the case may be, which it shall be entitled to receive upon such conversion, and in payment and satisfaction of such subscription, to surrender this Note and to release Borrower from all liability hereon in respect of the principal and/or accrued and unpaid interest hereon being converted, and including interest accruing after the date of the receipt of the notice of conversion on the portion of the principal hereof being converted, and whereby Borrower shall be deemed to agree that the surrender of such Note and the extinguishment of liability hereon shall constitute full payment for the shares of Common Stock or RMI Stock, as the case may be, to be received by Lender upon such conversion. 4.3. Piggyback Registration Rights. (i) If, at any time commencing on the date hereof and expiring one (1) year hereafter, Borrower proposes to register any of its securities under the Securities Act of 1933, as amended (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-4, Form S-8 or any successor form thereto), Borrower shall give written notice by registered or certified mail at least fifteen (15) business days prior to the filing of each such registration statement, to the holder of this Note and/or Common Stock issued upon conversion hereof (collectively, "Note Securities") of its intention to do so. If the Lender notifies Borrower in writing not more than five (5) business days after receipt of such notice of its desire to include any such Note Securities in such proposed registration statement, Borrower shall (subject to the limitations described below) afford Lender the opportunity to have any such Note Securities registered under such registration statement. Notwithstanding the foregoing, Borrower shall have the right at any time after it shall have given written notice of such proposed registration (irrespective of whether a written request for inclusion of any such Note Securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. Borrower shall not be obligated to effect any piggyback registration of Note Securities more than one time. (ii) Notwithstanding the foregoing, if the managing underwriter of any such registered offering advises Borrower in writing that the number of securities Lender, Borrower and any other persons or entities having registration rights (regardless of whether such registration rights were granted on, prior to or subsequent to the date of issuance of this Note) intend to include in such offering should, in such managing underwriter's sole discretion, be limited, then the amount of securities to be offered for the account of holders of Note Securities, along with the securities of any -6- 7 other persons or entities having registration rights (regardless of whether such registration rights were granted on, prior to or subsequent to the date of issuance of this Note), but excluding securities that Borrower intends to sell for its own account included in such offering, shall be reduced pro rata to the extent necessary to reduce the aggregate amount of securities proposed to be registered to the aggregate amount recommended by the managing underwriter. If Lender holds five percent or more of Borrower's outstanding Common Stock, Lender, whose Note Securities are covered by a registration statement pursuant to this Section 4, agrees, if requested by the managing underwriter in an underwritten offering, not to effect any public sale or distribution of securities of the same class as the securities included in such registration statement, including a sale pursuant to Rule 144 under the Securities Act of 1933, as amended (except as part of such underwritten registration), during the 10-day period prior to, and during the 180-day period beginning on the closing date of each underwritten offering made pursuant to such registration statement. (iii) With respect to any piggyback registration involving Note Securities, Borrower shall pay all registration expenses in connection with the any such registration but excluding underwriting discounts and commissions, if any, relating to the sale or disposition of Note Securities by Lender, any transfer tax payable with respect thereto and the fees and expenses of Lender's counsel. Borrower shall agree to indemnify the holder of Note Securities which are included in a registration statement pursuant hereto substantially to the same extent as Borrower agrees to indemnify the underwriters in the underwriting agreement, and the holder of Note Securities participating in such offering shall agree to indemnify Borrower and any underwriter with respect to information furnished by the holder for inclusion therein substantially to the same extent as the underwriters have indemnified Borrower in the underwriting agreement. Notwithstanding anything to the contrary contained herein, Lender shall be liable under this Section 4.3.(iii) for only that amount as does not exceed the net proceeds to Lender as a result of the sale of Note Securities pursuant to such registration statement. Borrower will use its best efforts to permit any prospectus used pursuant to a registration statement contemplated hereby to remain effective for a period of not less than ninety (90) days from the effective date of the registration statement or amendment thereto in which such prospectus is contained. Borrower may require the holder of Note Securities, as a condition to registration, to furnish Borrower such information regarding such seller and the distribution of such Note Securities as may be required to be included in any registration statement or amendment thereto that Borrower may request in writing. To the extent that Lender holds five percent or more of Borrower's outstanding Common Stock, Lender shall agree to be bound by the terms of any lock-up arrangements or other covenants requested by the managing underwriter in any such registration and to complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents, instruments and agreements required under the terms of such underwriting arrangements or otherwise reasonably requested by Borrower or the underwriter in connection therewith. 4.4. Adjustment for Change in Common Stock. If Borrower: (i) pays a dividend or makes a distribution on its Common Stock; (ii) subdivides its outstanding Common Stock into a greater number of Common Stock; -7- 8 (iii) combines its outstanding Common Stock into a smaller number of Common Stock; (iv) makes a distribution on its Common Stock in property or cash; (v) issues by reclassification of its Common Stock or otherwise any additional capital stock or debt or equity instrument or instruments convertible into Common Stock; or (vi) Borrower grants rights or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock at a price less than the Conversion Price; then the conversion privilege and the Conversion Price in effect immediately prior to such action shall be adjusted so that Lender thereafter may receive the number of shares of Common Stock which Lender would have owned immediately following such action if Lender had converted the Loan immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination, reclassification or grant of rights or warrants. If after an adjustment Lender upon any such conversion receives securities of two or more series or classes of securities of Borrower, Borrower shall determine in good faith the allocation of the adjusted Conversion Price between the series or classes of securities consistent with prior valuations. After such allocation, the conversion privilege and the Conversion Price of each series or class of Common Stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section 4. 4.5. When Adjustment May Be Deferred. No adjustment in the Conversion Price need be made unless the adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or to the nearest 1/100th of a Common Stock, as the case may be. 4.6. When No Adjustment Required. No adjustment need be made for a transaction referred to in subsection 4.4 if Lender is to participate in the transaction on a basis and with notice that Borrower determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. No adjustment need be made for rights to purchase Common Stock pursuant to a plan for reinvestment of dividends or interest provided that such reinvestment is made at or about the Conversion Price. 4.7. Notice of Adjustment. Whenever the Conversion Price is adjusted Borrower shall promptly mail to Lender a notice of the adjustment. -8- 9 4.8. Voluntary Reduction. Borrower from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days and if the reduction is irrevocable during the period. Whenever the Conversion Price is reduced, Borrower shall mail to Lender a notice of the reduction. Borrower shall mail the notice at least fifteen (15) days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A voluntary reduction of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of subsection 4.4. 4.9. Reorganization of Borrower. If Borrower is a party to a consolidation or a merger, or if Borrower transfers or leases all or substantially all of its assets, which event reclassifies or changes Borrower's outstanding Common Stock, Lender will have the right to convert the Loan only into the kind and amount of securities, cash or other assets which Lender would have owned immediately after the consolidation, merger, transfer or lease if Lender had converted the Loan immediately before the effective date of the transaction. 4.10. Borrower's Determination Final. Any determination that Borrower must make pursuant to subsections 4.3, 4.5 or 4.6, shall be made by Borrower in good faith and shall be conclusive. 5. Defaults. 5.1. Events of Default. The occurrence of any one or more of following shall constitute an "Event of Default." 5.1.1. Borrower shall fail to pay any interest or principal under this Note within ten (10) business days following the date such amount was due, whether at maturity, by acceleration or otherwise. 5.1.2. Borrower shall fail to pay any other amount (whether fees, Taxes or otherwise) payable to Lender or any other party under or as required by this Note or any other Loan Document within ten (10) business days after demand therefor or receipt of notice that such amount was due, whether at maturity, by acceleration or otherwise. 5.1.3. Any default (beyond applicable notice or cure periods, if any) by Borrower under any Loan Document (other than this Note) shall have occurred. 5.1.4. Borrower shall fail to perform or observe any material obligations, covenants, terms, agreements or undertakings contained in this Note (other than obligations, covenants, terms, agreements or undertakings set forth in subsections 5.1.1, 5.1.2 and 5.1.3), and such default shall continue unremedied for a period of thirty (30) days after notice of such default is delivered by Lender to Borrower; provided, however, that if Borrower commences to cure such default during such thirty (30) day period but such default is not susceptible to cure within such thirty (30) day period, Lender may, in its sole discretion, extend such thirty (30) day period shall be extended so long as Borrower is at all times diligently pursuing the cure thereof. -9- 10 6. Remedies After Default. Upon maturity of this Note and/or the failure to pay the Principal Amount, interest or any other sums due hereunder or under this Note or any other Loan Document after the expiration of any applicable notice and/or cure period and/or the occurrence of any other Event of Default, Lender may, at its option, exercise all rights and remedies to which it may be entitled under this Note, any of the other Loan Documents, at law or in equity, including, without limitation, the right to declare the Principal Amount, all interest thereon and all other amounts payable under this Note and the other Loan Documents to be immediately due and payable. 7. General Provisions. 7.1. Assignment. This Note is a continuing obligation and shall be binding upon and shall inure to the benefit of Borrower, Lender and their respective successors and assigns. Notwithstanding the preceding sentence, Lender may not sell, transfer, assign, mortgage, pledge, lien, hypothecate or otherwise encumber or dispose of this Note or any Common Stock or RMI Stock into which this Note is convertible, except pursuant to the terms, provisions and conditions of this Note. 7.2. Costs; Expenses. Borrower agrees to pay on demand all reasonable costs and expenses, if any (including, without limitation, reasonable fees and expenses of counsel of and for Lender) in connection with the amendment, modification, extension, or enforcement of this Note, the other Loan Documents and any other documents to be delivered hereunder or thereunder. 7.3. Severability. Every provision of this Note is intended to be severable, and if any term or provision hereof shall be invalid, illegal, or unenforceable for any reason, the validity, legality, and enforceability of the remaining provisions hereof shall not be affected or impaired thereby, and any invalidity, illegality, or unenforceability in any jurisdiction shall not affect the validity, legality, or enforceability of any such term or provision in any other jurisdiction. 7.4. Governing Law. This Note and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of Arizona without regard to the principles of conflicts of laws. 7.5. Entire Agreement. This Note, the other Loan Documents and any other documents executed in connection herewith and therewith contain the entire understanding of and supersede all prior representations, warranties, agreements, arrangements, understandings and negotiations, written and oral, between Lender and Borrower with respect to the subject matter hereof and shall not be modified except in writing executed by the parties hereto. 7.6. Waivers. Borrower waives presentment, demand for payment, notice of dishonor and any or all notices or demands (other than any notices or demands which cannot be waived by operation of law) in connection with the delivery, acceptance, performance, default or enforcement of this Note and consents to any or all delays, extensions of time, renewals, release of any party, and of any available security therefor, and any and all waivers that may be granted or consented to by Lender with regard to the time of payment or with respect to any other provision of this Note, and agrees that no such action, delay or failure to act on the part of Lender shall be construed as a waiver by Lender of, or otherwise affect, in whole or in part, its right to avail itself of any remedy with respect thereto. -10- 11 7.7. Amendment; Waiver. No amendment, modification or waiver of any provision of this Note, and no consent to any departure by Borrower therefrom, shall in any event be effective unless the same be in writing and signed by Lender and Borrower. Any waiver of any provision of this Note, and any consent to any departure by Borrower or Lender therefrom, shall be effective only in the specific instance and for the specific purpose for which given. Neither failure nor delay on the part of Lender to exercise any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any right, power or remedy. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. The rights herein provided are cumulative and not exclusive of any rights provided by law. 7.8. Notices, Etc. All notices, approvals, demands, consents and other communications ("notices") provided for or otherwise given hereunder or under any other Loan Document shall be in the English language, in writing, and shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy with electronic confirmation to the numbers set forth below, (iii) the day following the day on which the same has been delivered prepaid to a reputable national overnight courier service or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid and return receipt requested, as follows: To Borrower: FutureOne, Inc. 4250 East Camelback Road, Suite K-192 Phoenix, Arizona 85018-2751 Attention: President Telephone: (602) 852-9725 Facsimile: (602) 522-8714 To Lender: 12 Squared Partners, LLC 1717 East Morten Suite 220 Phoenix, AZ 85020 Attention: Barry Zemel Telephone: (602) 943-2360 Telecopier: (602) 870-9122 or, as to each party, at such other address or telecopier number as shall be designated by such party in a written notice to the other party. All such notices shall be effective as set forth above and shall be effective against the party to which it is sent irrespective of whether copies have been sent to other parties. 7.9. Headings. The headings contained in this Note are for convenience of reference only and shall not affect the construction hereof. 7.10. Drafting. Borrower acknowledges that Borrower and Lender and their respective counsel have reviewed and revised this Note and the other Loan Documents, and Borrower agrees that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of any of the Loan Documents. -11- 12 7.11. No Third Party Beneficiaries. Nothing in this Note or in any of the other Loan Documents shall confer upon any Person, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under or by reason of this Note or the other Loan Documents. 7.12. Non-Recourse. Notwithstanding anything to the contrary contained in this Note or the other Loan Documents, no individual member, partner, officer, or director of Borrower or the manager or managers of Borrower shall have any personal liability for the obligations of Borrower hereunder, but, rather, the terms, covenants, provisions and obligations contained in this Note and the other Loan Documents as made are only intended to bind Borrower and the assets of Borrower as the same may exist from time to time. The foregoing shall not diminish or release any of the obligations of Borrower hereunder. IN WITNESS WHEREOF, Borrower has executed this Note as of the date first above written. FUTUREONE, INC., A NEVADA CORPORATION By: /s/ Earl J. Cook -------------------------------------- Name: Earl J. Cook ------------------------------------ Its: President ------------------------------------- Date: December 17, 1999 ------------------------------------ -12- EX-6.24 14 EX-6.24 1 Exhibit 6.24 THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. FUTUREONE, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, 12 Squared Partners, LLC, an Arizona limited liability company (the "Holder"), is entitled to subscribe for and purchase Five Hundred Thousand (500,000) shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock (as defined below) of FutureOne, Inc., a Nevada corporation (the "Company"), at the Warrant Price (as defined in Section 2 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized common stock, $.001 par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged. 1. Term of Warrant. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during the period beginning on the date hereof and ending on the fifth (5th) anniversary of the date hereof. 2. Warrant Price. The initial exercise price of this Warrant is $.75 per share, subject to adjustment from time to time pursuant to the provisions of Section 5 hereof (the "Warrant Price"). 3. Method of Exercise; Payment; Issuance of New Warrant; Exercise. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased (the "Aggregate Exercise Price") either (i) by cash, check or wire transfer, (ii) by Cashless Exercise (as defined below) or (iii) by cancellation by the Holder of indebtedness of the Company to the Holder. The holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment or loan forgiveness otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect 2 instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"): Net Number = (A x B) - (A x C) ----------------- B For purposes of the foregoing formula: A = the total number of shares with respect to which this Warrant is then being exercised. B = the Market Price as of the date of the Exercise Notice. "Market Price" means, with respect to any security for any date of determination that price which shall be computed as the arithmetic average of the closing bid prices for such security on each of the five (5) consecutive trading days immediately preceding the date of notice requiring such determination (all such determinations to be appropriately adjusted for any stock dividend, stock split or similar transaction during the pricing period). C = the Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise. The Company agrees that the shares purchased pursuant to this Section 3 shall be deemed to be issued to the Holder hereof or the designee of the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder hereof or the designee of the Holder hereof within 15-days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder hereof within such 15-day period. 4. Stock Fully Paid; Reservation of Shares. All Common Stock that may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, the full number of shares of Common Stock or other security then deliverable upon exercise of this Warrant. 5. (a) Adjustment for Dividends in Other Stock and Property; Reclassifications. In case at any time or from time to time the holders of the Common Stock (or 2 3 any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, (1) other or additional stock or other securities or property (other than cash) by way of dividend, (2) any cash or other property paid or payable out of any source, or (3) other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement, (other than (x) shares of Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities), then and in each such case a holder, upon the exercise hereof as provided in Section 3, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which such holder would hold on the date of such exercise if as of the date hereof (the "Issuance Date") such holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant, and had thereafter, during the period from the Issuance Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clause (2) and (3) above) receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 5(a) and 5(b). (b) Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the exercise of this Warrant) or reclassification of its securities after the Issuance Date, or the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey or exchange all or substantially all its assets to another corporation or entity, then and in each such case the holder of this Warrant, upon the exercise hereof as provided in Section 3 at any time after the consummation of such reorganization, reclassification, consolidation, merger, conveyance or exchange, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Sections 5(a), (b), (c) and (d); in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation. (c) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time makes, or fixes a record date for the determination of holders of 3 4 Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) entitled to receive, a dividend or other distribution payable in additional shares of (x) Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities, then and in each such event (1) the Warrant Price then in effect shall be decreased as of the time of the issuance of such additional shares or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Warrant Price then in effect by a fraction (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Warrant Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Warrant Exercise Price shall be adjusted pursuant to this Section 5(c) as of the time of actual payment of such dividends or distributions; and (2) the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be increased, as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, in inverse proportion to the decrease in the Warrant Price. (d) Stock Split and Reverse Stock Split. If the Company at any time or from time to time effects a stock split or subdivision of the outstanding Common Stock, the Warrant Price then in effect immediately before that stock split or subdivision shall be proportionately decreased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately increased. If the Company at any time or from time to time effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Warrant Price then in effect immediately before that reverse stock split or combination shall be proportionately increased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately decreased. Each adjustment under this Section 5(d) shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective. 6. Registration of Warrant Securities. If, at any time commencing on the date hereof and expiring on the sixth (6th) anniversary, the Company proposes to register any of its securities under the Securities Act of 1933, as amended (the "Securities Act"), (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-4, Form S-8 or any successor form thereto), the Company shall give written notice by registered or certified mail at least fifteen (15) days prior to the filing of each such registration statement, to the holder of this Warrant and/or any shares of Common Stock issued upon 4 5 conversion hereof (collectively, "Warrant Securities") of its intention to do so. If holders of the Warrant Securities notify the Company in writing not more than five (5) days after receipt of such notice of their desire to include any such Warrant Securities in such proposed registration statement, the Company shall (subject to the limitations described below) afford such holders of the Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. Notwithstanding the foregoing, the Company shall have the right at any time after it shall have given written notice of such proposed registration (irrespective of whether a written request for inclusion of any such Warrant Securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. The Company shall not be obligated to effect any piggyback registration of Warrant Securities of any other Warrant Securities (as defined below) more than one time. Notwithstanding the foregoing, if the managing underwriter of any such registered offering advises the Company in writing that the number of securities such holders of Warrant Securities, the Company and any other persons or entities having registration rights (regardless of whether such registration rights were granted on, prior to or subsequent to the date of issuance of this Warrant) intend to include in such offering should, in the managing underwriter's sole discretion, be limited, then the amount of securities to be offered for the account of holders of Warrant Securities, along with the securities of any other persons or entities having registration rights (regardless of whether such registration rights were granted on, prior to or subsequent to the date of issuance of this Warrant), but excluding securities that the Company intends to sell for its own account included in such offering, shall be reduced pro rata to the extent necessary to reduce the aggregate amount of securities proposed to be registered to the aggregate amount recommended by the managing underwriter. Each Holder of five percent or more of Common Stock, whose Warrant Securities are covered by a registration statement pursuant to this Section 6, agrees, if requested by the managing underwriter in an underwritten offering, not to effect any public sale or distribution of securities of the same class as the securities included in such registration statement, including a sale pursuant to Rule 144 under the Securities Act of 1933, as amended (except as part of such underwritten registration), during the 10-day period prior to, and during the 180-day period beginning on the closing date of each underwritten offering made pursuant to such registration statement. With respect to any piggyback registration involving Warrant Securities, the Company shall pay all registration expenses in connection with the any such registration but excluding underwriting discounts and commissions, if any, relating to the sale or disposition of Warrant Securities by holders thereof, any transfer tax payable with respect thereto and the fees and expenses of any holder's counsel. The Company shall agree to indemnify the holder of Warrant Securities which are included in a registration statement pursuant hereto substantially to the same extent as the Company agrees to indemnify the underwriters in the underwriting agreement, and the holder of Warrant Securities participating in such offering shall agree to indemnify the Company and any underwriter with respect to information furnished by them for inclusion therein substantially to the same extent as the underwriters have indemnified the Company in the underwriting agreement. Notwithstanding anything to the contrary contained herein, Holder shall 5 6 be liable under this Section 6 for only that amount as does not exceed the net proceeds to Holder as a result of the sale of Warrant Securities pursuant to such registration statement. The Company will use its best efforts to permit any prospectus used pursuant to a registration statement contemplated hereby to remain effective for a period of not less than ninety (90) days from the effective date of the registration statement or amendment thereto in which such prospectus is contained. The Company may require each holder of Warrant Securities, as a condition to registration, to furnish the Company such information regarding such seller and the distribution of such securities as may be required to be included in any registration statement or amendment thereto that the Company may request in writing. To the extent Holder holds five percent or more of Common Stock, Holder shall agree to be bound by the terms of any lock-up arrangements or other covenants requested by the managing underwriter in any such registration and to complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents, instruments and agreements required under the terms of such underwriting arrangements or otherwise reasonably requested by the Company or the underwriter in connection therewith. 7. Notice of Adjustments. Whenever any adjustment is required to be made as provided in Section 5, the Company shall promptly notify the Holder, describing in reasonable detail the adjustment and method of calculation used. 8. Fractional Shares. In the sole discretion of the Company, instead of any fraction of a share which would otherwise be issuable upon exercise of the Warrant, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock (as reasonably determined in good faith by the Board of Directors of the Company), at the close of business on the date of exercise. 9. Compliance with the Act. The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Act or any state securities laws. 10. Miscellaneous. (a) No Rights as Stockholder. Except as otherwise specifically provided herein, no holder of this Warrant, solely by virtue of such holding, shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether a reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance of the shares of Common Stock which the Holder is then entitled to receive upon the due exercise of this Warrant. (b) Replacement. On receipt of an executed Lost Warrant Affidavit in substantially the form annexed hereto as Exhibit B of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement, 6 7 or bond reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder's expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) Notice. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given when delivered or telecopied or, if mailed, when mailed, if sent registered or certified, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Arizona without regard to conflicts of law principles. IN WITNESS WHEREOF, this Warrant is executed as of the 22nd day of October, 1999. FUTUREONE, INC., a Nevada corporation By: /s/ Earl J. Cook ------------------------------------ Name: Earl J. Cook ---------------------------------- Title: President --------------------------------- Date: December 17, 1999 ---------------------------------- 7 8 EXHIBIT A NOTICE OF EXERCISE TO: FUTUREONE, INC. 1. The undersigned hereby elects to purchase ____________ shares of Common Stock of FutureOne, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full in accordance with the provisions of the following section of the attached Warrant: ___ Section 3(i) ___ Section 3(ii) ___ Section 3(iii) 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: (Name) (Address) 3. The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned will not offer, sell or otherwise dispose of any such shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities law. -------------------------------- Signature B-1 9 EXHIBIT B FORM OF AFFIDAVIT OF LOSS STATE OF ) ) ss: COUNTY OF ) The undersigned (hereinafter "Deponent"), being duly sworn, deposes and says that: 1. Deponent is an adult whose mailing address is: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. Deponent is the recipient of a Warrant (the "Warrant") from FutureOne, Inc. (the "Company"), dated as of October 22, 1999 for the purchase of 500,000 shares of Common Stock, par value $.001 per share, of the Company, at an exercise price of $0.75 per share. 3. The Warrant has been lost, stolen, destroyed or misplaced, under the following circumstances: 4. The Warrant was not endorsed. 5. Deponent has made a diligent search for the Warrant, and has been unable to find or recover same, and Deponent was the unconditional owner of the Warrant at the time of loss, and is entitled to the full and exclusive possession thereof; that neither the Warrant nor the rights of Deponent therein have, in whole or in part, been assigned, transferred, hypothecated, pledged or otherwise disposed of, in any manner whatsoever, and that no person, firm or corporation other than the Deponent has any right, title, claim, equity or interest in, to, or respecting the Warrant. 6. Deponent makes this Affidavit for the purpose of requesting and inducing the Company and its agents to issue a new warrant in substitution for the Warrant. 7. If the Warrant should ever come into the hands, custody or power of the Deponent or the Deponent's representatives, agents or assigns, the Deponent will immediately B-1 10 and without consideration surrender the Warrant to the Company, its representatives, agents or assigns, its transfer agents or subscription agents for cancellation. 8. The Deponent in its sole discretion shall either (i) indemnify and hold harmless the Company from any claim or demand for payment or reimbursement of any party arising in connection with the subject matter of this Affidavit or (ii) provide the Company with a bond reasonable satisfactory to the Company in form and amount. Signed, sealed and dated: ---------------------------- ------------------------------ Deponent Sworn to and subscribed before me this day of , - ----- -------------- --------- - ---------------------------------------- Notary Public B-2 EX-6.25 15 EX-6.25 1 Exhibit 6.25 SECURITY AND PLEDGE AGREEMENT THIS SECURITY AND PLEDGE AGREEMENT ("Agreement") is made as of the 22nd day of October, 1999 by and between 12 Squared Partners, LLC, an Arizona limited liability company ("Secured Party"), and FutureOne, Inc., a Nevada corporation ("FutureOne"). RECITALS WHEREAS, the Secured Party has agreed to extend credit in the amount of $500,000.00 to FutureOne (the "Loan") as evidenced by the 12% Secured Convertible Promissory Note dated as of the date hereof (the "Note") by FutureOne, as Maker, in favor of Secured Party; and WHEREAS, in order to induce the Secured Party to make the Loan and to secure payment and performance by FutureOne of its obligation under the Note, FutureOne has agreed to pledge to the Secured Party, and grant to the Secured Party a security interest in, Seven Hundred Ninety Five Thousand (795,000) shares of FutureOne's common stock, par value $0.001 per share (the "Shares"). NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, FutureOne agrees with the Secured Party as follows: 1. DEFINITIONS. Capitalized terms used in this Agreement shall have the following respective meanings when used herein: "Event of Default" shall have the meaning ascribed to such term in Section 8 below. "Pledged Collateral" shall have the meaning ascribed to such term in Section 2 below. "Secured Obligations" shall mean, collectively, all obligations of payment and performance of FutureOne under the Note. 2. PLEDGE. In order to secure the prompt payment and performance of the Secured Obligations, FutureOne hereby pledges to the Secured Party, and grants to Secured Party a first security interest in, all its right, title and interest in all of the following (collectively, the "Pledged Collateral"): a. the Shares and the certificates representing the Shares, and all securities, instruments, documents and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Shares; and b. all proceeds and products of, and all accessions to and substitutions for, the foregoing. 2 3. DELIVERY OF SHARES. All certificates representing or evidencing the Shares shall be issued in the name of Secured Party. The Shares shall be deemed constructively delivered to Secured Party and will be held by an escrow agent under terms and conditions reasonably acceptable to FutureOne and the Secured Party. 4. REPRESENTATIONS AND WARRANTIES. FutureOne represents and warrants to the Secured Party that: a. It has the right and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral to the Secured Party as provided herein; b. No consent, approval, authorization or other order of any person or entity is required for the execution and delivery of this Agreement or the delivery of the Pledged Collateral to the Secured Party as provided herein which has not been obtained; and c. This Agreement has been duly authorized, executed and delivered by FutureOne and constitutes a legal, valid and binding obligation of FutureOne, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, or other similar laws affecting the rights of creditors generally or by the application of general equity principles. 5. MAINTENANCE OF PRIORITY OF SECURITY INTEREST. FutureOne agrees to execute and deliver all documents reasonably requested by the Secured Party to enable the Secured Party to perfect, preserve and protect its security interest in and on the Pledged Collateral, and FutureOne hereby authorizes the Secured Party to file and record any such documents for such purposes. 6. RELEASE OF PLEDGED COLLATERAL. FutureOne and Secured Party hereby agree that a release of the Pledged Collateral from the lien of this Agreement and return of the Pledged Collateral to FutureOne shall occur upon the earlier of (i) final payment of $500,000.00 of such principal and all accrued and unpaid interest (as defined in the Note); (ii) conversion of the Note into Common Stock (as defined in the Note) or RMI Stock (as defined in the Note); or (iii) whereupon such released Pledged Collateral shall no longer be deemed to be Pledged Collateral for any purpose hereunder. 7. DEFAULTS AND REMEDIES. Upon the occurrence of an Event of Default and during the continuation of such Event of Default, then or at any time after the occurrence thereof, subject to the provisions of applicable law, the Secured Party is hereby authorized and empowered at its election, to transfer and register in its name the whole or any part of the Pledged Collateral, to exercise the voting rights with respect to the Pledged Collateral, to collect and receive all cash dividends and other distributions made on the Pledged Collateral and to otherwise act with respect to the Pledged Collateral as though the Secured Party were the outright owner thereof, FutureOne hereby constituting and appointing the Secured Party as its proxy and attorney-in-fact to do so. Notwithstanding anything to the contrary herein, the Secured Party shall have no rights to the Pledged Collateral if the Secured Party effects an RMI Stock Conversion (as defined in the Note) and, in the event of an RMI Stock Conversion, 2 3 Secured Party acknowledges and understands that the Pledged Collateral will be released from the lien of this Agreement and returned to FutureOne in accordance with Section 6 hereof. 8. EVENT OF DEFAULT. Any event which constitutes an Event of Default under, and as defined in, the Note shall constitute an event of default ("Event of Default") under this Agreement. 9. ENTIRE AGREEMENT. This Note, the other Loan Documents and any other documents executed in connection herewith and therewith contain the entire understanding of and supersede all prior representations, warranties, agreements, arrangements, understandings and negotiations, written and oral, between the Secured Party and FutureOne with respect to the subject matter hereof and shall not be modified except in writing executed by the parties hereto. 10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. 11. AMENDMENT; MODIFICATION. This Agreement may be amended, modified, renewed or extended by only by a written instrument, executed by all of the parties hereto in the manner of the execution of this Agreement. 12. SEVERABILITY. If any term or provision of this Agreement shall be invalid, illegal or unenforceable to any extent, such term or provision shall not invalidate or render unenforceable any other term or provision of this Agreement. To the extent permitted by law, the parties hereto hereby waive any provision of law that renders any term or provision hereof invalid or unenforceable in any respect. 13. NOTICES. All notices, approvals, demands, consents and other communications ("notices") provided for or otherwise given hereunder or under any other Loan Document shall be in the English language, in writing, and shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy with electronic confirmation to the numbers set forth below, (iii) the day following the day on which the same has been delivered prepaid to a reputable national overnight courier service or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid and return receipt requested, as follows: If to Secured Party, to: 12 Squared Partners, LLC 1717 East Morten Suite 220 Phoenix, AZ 85020 Telephone: (602) 943-2360 Facsimile: (602) 870-9122 Attention: Barry Zemel 3 4 If to FutureOne, to: FutureOne, Inc. 4250 East Camelback Road Suite K-192 Phoenix, Arizona 85018 Telephone: (602) 852-9725 Facsimile: (602) 522-8714 Attn: President 14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 15. APPLICABLE LAW. The obligations of FutureOne hereunder are to be performed in, and this Agreement is executed, delivered and accepted in, and this Agreement shall be construed in accordance with and governed by, the internal laws and decisions of the State of Arizona (without regard for its conflicts of law principles), and by execution hereof FutureOne, and by acceptance hereof, the Secured Party, each agrees that such laws and decisions of the State of Arizona shall govern this Agreement notwithstanding the fact that there may be other jurisdictions which may bear a reasonable relationship to the transactions contemplated hereby; provided, however, that with respect to procedural and substantive matters relating only to the creation, perfection and enforcement by the Secured Party of its rights and remedies against the Pledged Collateral located in a state other than the State of Arizona, such matter shall be governed by the laws of such other state. 16. WAIVER OF JURY TRIAL. The Secured Party and FutureOne acknowledge and agree that any controversy that may arise under this Agreement, or with respect to the transactions contemplated hereby, would be based upon difficult and complex issues and, therefore, the parties agree that any lawsuits arising out of any such controversy shall be tried in a court of competent jurisdiction by a judge sitting without a jury. [Remainder of Page Intentionally Left Blank] 4 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FUTUREONE, INC., A NEVADA CORPORATION By: /s/ Earl J. Cook -------------------------------------------- Name: Earl J. Cook ------------------------------------------ Title: President ----------------------------------------- Date: December 17, 1999 ------------------------------------------ 12 SQUARED PARTNERS, LLC, AN ARIZONA LIMITED LIABILITY COMPANY By: /s/ Barry Zemel -------------------------------------------- Name: Barry Zemel ------------------------------------------ Title: Mgr. Mbr. ----------------------------------------- Date: December 17, 1999 ------------------------------------------ 5 EX-6.26 16 EX-6.26 1 Exhibit 6.26 THIS PROMISSORY NOTE AND THE UNDERLYING COMMON STOCK ("COMMON STOCK") OF FUTUREONE, INC. (THE "COMPANY") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, THE "SECURITIES ACT") OR WITH THE SECURITIES AUTHORITIES OF ANY STATE UNDER ANY STATE SECURITIES LAWS AND ANY REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, "STATE SECURITIES LAWS"). AS A CONSEQUENCE, NEITHER THIS PROMISSORY NOTE NOR COMMON STOCK MAY BE SOLD, TRANSFERRED, ASSIGNED, MORTGAGED, PLEDGED, LIENED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF (COLLECTIVELY, A "TRANSFER") EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. 12% CONVERTIBLE PROMISSORY NOTE $50,000.00 Phoenix, Arizona As of December 28, 1999 FOR VALUE RECEIVED, FUTUREONE, INC., a Nevada corporation with an office at 4250 East Camelback Road, Suite K-192, Phoenix, Arizona 85018-2751 (including its successors and assigns, "Borrower"), hereby promises to pay to the order of Hare & Co., as Trustees for Financial Institutions Retirement Fund with an office at The Bank of New York, Master Trust/Master Custody Department, Floor 12, One Wall Street, New York, New York 10286 ("Lender"), the principal sum of Fifty Thousand Dollars ($50,000) (the "Principal Amount"), with interest on any unpaid balance of such amount from the date of the advance thereof at the rate of interest specified herein, in lawful money of the United States of America and in immediately available funds in accordance with the terms hereof. The unpaid Principal Amount of this 12% Convertible Promissory Note (this "Note"), together with all accrued and unpaid interest hereunder, shall be due and payable on the Maturity Date (as defined below), unless this Note is prepaid in accordance with Section 3 hereof or converted in accordance with Section 4 hereof. This Note evidences a loan (the "Loan") made by Lender to Borrower in the Principal Amount. 1. Definitions. 1.1. Certain Defined Terms. As used in this Note, the following terms have the meanings indicated below: "Business Day" means a day other than Saturday, Sunday or other day on which commercial banks in Phoenix, Arizona are authorized or required by law or executive order to close. "Common Stock" means the $0.001 par value common stock of Borrower. 2 "Conversion Price" means One Dollar ($1.00) per share of Common Stock subject to adjustment as provided in Section 4. "Default" means any event which, with the passage of time or the giving of notice, or both, could become an Event of Default. "Default Rate" means a rate of interest equal to the Stated Interest Rate plus three (3) percentage points per annum. "Disbursement Date" means a date on which the Loan proceeds are funded to or at the direction of Borrower. "Dollars" or "$" mean lawful currency of the United States of America and, in relation to any amount to be disbursed or paid under this Note, immediately available funds or such other funds as may be acceptable to Lender in its sole discretion. "Event of Default" has the meaning set forth in subsection 6.1. "Indebtedness" of any Person means as of the date of any determination thereof, (i) all indebtedness for borrowed money or purchase money financing, (ii) all indebtedness evidenced by a note, bond, debenture or similar instrument (but only to the extent actually disbursed), (iii) the face amount of all letters of credit and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all payment obligations under any interest rate protection agreements and currency swaps and similar agreements, (v) all indebtedness under capitalized leases, (vi) all obligations to pay money or assume indebtedness in respect of the acquisition of property, securities and other assets, (vii) all obligations in respect of guaranties, (viii) all obligations to purchase, repurchase or otherwise acquire, to supply or advance funds or to become liable (directly or indirectly) with respect to any indebtedness or obligation of any Person and (ix) all refundings, renewals, extensions or restatements of any of the foregoing. "Maturity Date" means (i) June 28, 2000, or (ii) such other date as the Principal Amount shall become due and payable pursuant to the terms and provisions of this Note or shall have been prepaid or converted in full in accordance with the provisions hereof; provided, however, Borrower may extend the Maturity Date at any time with the prior consent of Lender. "Person" means an individual, a corporation, an association, a joint stock company, a business trust, a partnership, a joint venture, a limited liability company, an unincorporated organization, or a government or any agency or political subdivision thereof. "Securities Act" means, collectively, the Securities Act of 1933, as amended, and any regulations promulgated thereunder. "State Securities Act" means, collectively, the securities law of any State that is applicable to this Note or the Common Stock and any regulations promulgated thereunder. "Stated Interest Rate" means simple interest at the rate of twelve percent (12%) per annum. -2- 3 "Taxes" means any and all present and future taxes, levies, imposts, duties, fees, deductions, withholdings or charges of a similar nature imposed or assessed by any country or any political subdivision or taxing authority thereof (but not including any income or franchise taxes of Lender), together with any interest thereon and any penalties with respect thereto. 1.2. Computation of Time Periods. Unless otherwise provided herein, with respect to the computation of periods of time from a specified date to a later specified date herein, the word "from" means "from and including" and each of the words "to" and "until" means "to but excluding". 1.3. Dollar Amounts. All dollar amounts used herein shall mean Dollars. 1.4. Construction. In this Note, the singular includes the plural, the plural includes the singular, and the word "or" is used in the inclusive sense. 2. The Loan. 2.1. Use of Loan Proceeds. The proceeds of the Loan shall be used for the general working capital needs of Borrower. 2.2. Maturity Date. The Maturity Date for the Loan shall be (i) June 28, 2000, or (ii) such other date as the Principal Amount shall become due and payable pursuant to the terms and provisions of this Note shall have been prepaid or converted in full in accordance with the provisions hereof; provided, however, Borrower may extend the Maturity Date at any time with the prior consent of Lender. 3. Payments. 3.1. Payment of Interest. 3.1.1. Interest Rate; Interest Payment. Interest shall accrue on the outstanding Principal Amount at the Stated Interest Rate: (a) from and including the Disbursement Date through the Maturity Date, and (b) shall be due and payable on the Maturity Date. All interest and fees accruing under the Note shall be computed on the basis of a 360-day year and the actual number of days elapsed. 3.1.2. Default Interest. Notwithstanding anything to the contrary contained in this Note, if Borrower shall fail to make any payment when due of principal, interest or any other amount owing under this Note, then such principal, interest or other amount shall accrue interest thereon at a rate equal to the Default Rate to the fullest extent permitted by law from the date such payment was due until payment in full of the amount overdue plus such interest thereon. 3.1.3. Maximum Interest. Anything in this Note to the contrary notwithstanding, the interest rate on the Loan shall in no event be in excess of any maximum interest rate permitted by applicable law; provided, however, that, to the extent permitted by applicable law, in the event that interest is not collected as a result of the operation of this subsection and interest thereafter payable pursuant to this Note shall be less than such maximum amount, then such interest thereafter payable shall be increased up to such maximum amount to the extent necessary to recover the -3- 4 amount of interest, if any, theretofore uncollected as a result of the operation of this subsection. In determining whether or not any interest payable under this Note exceeds the maximum rate permitted by applicable law, any non-principal payment, except payments specifically stated to be "interest", shall be deemed, to the extent permitted by applicable law, to be a fee, expense reimbursement or penalty, rather than interest. 3.2. Payments of Principal. 3.2.1. Maturity. Subject to subsection 3.6 hereof, the unpaid balance of the Principal Amount, together with all accrued and unpaid interest, and all other amounts payable under the Note, shall be due and payable in full on the Maturity Date. 3.2.2. Prepayment. Subject to subsection 3.6 hereof, (i) Borrower may at any time prior to the Maturity Date prepay all or any portion of the Principal Amount without penalty, upon ten (10) days advance notice to Lender specifying the date and amount of such repayment; and (ii) Borrower's notice of prepayment, once given, shall obligate Borrower either (a) to make the prepayment on the date specified therein or (b) pay Lender's reasonable out-of-pocket costs and damages incurred as a result of Borrower's failure to make such prepayment on the date specified for such prepayment. 3.3. Manner of Payments. Each payment of principal of and interest on this Note shall be made by check of Borrower or by transferring the amount thereof in Dollars in immediately available funds via the Fedwire or intra-bank account transfer, not later than 5:00 p.m., Phoenix, Arizona time, on the date on which such payment shall be due. Each such payment shall be made without setoff, offset, deduction or counterclaim. 3.4. Extension of Payments. If any payment from Borrower to Lender under this Note shall become due on a day which is not a Business Day, the due date thereof shall be extended to the next following day which is a Business Day and such additional time shall be included in the computation of interest. 3.5. Application of Payments. Lender shall have the absolute right to determine the order in which payments received by Lender under this Note shall be applied to the amounts which are then due and payable under the Note, regardless of any application designated by Borrower; provided, however, that, unless and until the occurrence of an Event of Default hereunder, all payments, including, without limitation, all prepayments, shall be applied first against any fees or expenses due and payable to Lender under this Note, second, to the payment of delinquency or late charges, third, to interest due and payable on the Loan, and fourth to repay the Principal Amount. 3.6. Optional Conversion of Note and Notice Thereof. Anything contained in this Section 3 to the contrary notwithstanding, in the event that Borrower shall give Lender notice of prepayment, Lender may, within five (5) Business Days following the giving of such notice, elect to convert the entire unpaid Principal Amount of this Note and any accrued interest outstanding pursuant to Section 4 hereof. -4- 5 4. Conversion. 4.1. Conversion Privilege. Prior to the Maturity Date, Lender may, subject to subsection 3.6 hereof, at any time convert all or part of the indebtedness evidenced by this Note, including accrued interest, into Common Stock (a "FutureOne Common Stock Conversion"). The number of shares of Common Stock issuable upon a FutureOne Common Stock Conversion shall be determined as follows: Divide the Principal Amount and accrued interest to be converted by the Conversion Price in effect as of the date of such FutureOne Common Stock Conversion. Borrower will deliver to a holder so converting a check in payment for any fractional share of Common Stock. 4.2. Conversion Procedure. To effect any FutureOne Common Stock Conversion, Lender shall (i) provide Borrower with ten (10) business days advance written notice to Borrower specifying the date and amount of such conversion and the name in which the Common Stock shall be issued (if the name is other than that of Lender), (ii) furnish any appropriate endorsements and transfer documents reasonably requested by Borrower, (iii) pay any documentary, stamp, transfer or similar tax if required and (iv) deliver a certificate to Borrower in which Lender certifies that (a) Lender is an "accredited investor" as defined in the Securities Act, (b) Lender acknowledges that the Common Stock to be issued to Lender have not been registered under the Securities Act or any State Securities Laws and (c) Lender is acquiring the Common Stock to be issued to Lender for investment and not with a view to the resale, subdivision, distribution or fractionalization thereof and that Lender agrees that such Common Stock may not be sold, transferred, assigned, mortgaged, pledged, liened, hypothecated or otherwise encumbered or disposed of (collectively, a "transfer") except pursuant to an effective Registration Statement under the Securities Act of 1933, as amended, or an opinion of counsel satisfactory to Borrower to the effect that such registration is not required. 4.3. Adjustment for Change in Common Stock. If Borrower: (i) pays a dividend or makes a distribution on its Common Stock in Common Stock; (ii) subdivides its outstanding Common Stock into a greater number of Common Stock; (iii) combines its outstanding Common Stock into a smaller number of Common Stock; (iv) makes a distribution on its Common Stock in property other than cash; (v) issues by reclassification of its Common Stock any additional Common Stock; or (vi) Borrower grants rights or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock at a price less than the Conversion Price; -5- 6 then the conversion privilege and the Conversion Price in effect immediately prior to such action shall be adjusted so that Lender thereafter may receive the number of shares of Common Stock which Lender would have owned immediately following such action if Lender had converted the Loan immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination, reclassification or grant of rights or warrants. If after an adjustment Lender upon any such conversion receives securities of two or more series or classes of securities of Borrower, Borrower shall determine the allocation of the adjusted Conversion Price between the series or classes of securities. After such allocation, the conversion privilege and the Conversion Price of each series or class of Common Stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section 4. 4.4. When Adjustment May Be Deferred. No adjustment in the Conversion Price need be made unless the adjustment would require an increase or decrease of at least five percent (5%) in the Conversion Price. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or to the nearest 1/100th of a Common Stock, as the case may be. 4.5. When No Adjustment Required. No adjustment need be made for a transaction referred to in subsection 4.3 if Lender is to participate in the transaction on a basis and with notice that Borrower determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. No adjustment need be made for rights to purchase Common Stock pursuant to a plan for reinvestment of dividends or interest. 4.6. Notice of Adjustment. Whenever the Conversion Price is adjusted Borrower shall promptly mail to Lender a notice of the adjustment. 4.7. Voluntary Reduction. Borrower from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days and if the reduction is irrevocable during the period. Whenever the Conversion Price is reduced, Borrower shall mail to Lender a notice of the reduction. Borrower shall mail the notice at least fifteen (15) days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A reduction of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of subsection 4.4. 4.8. Reorganization of Borrower. If Borrower is a party to a consolidation or a merger, or if Borrower transfers or leases all or substantially all of its assets, which event reclassifies or -6- 7 changes Borrower's outstanding Common Stock, Lender will have the right to convert the Loan only into the kind and amount of securities, cash or other assets which Lender would have owned immediately after the consolidation, merger, transfer or lease if Lender had converted the Loan immediately before the effective date of the transaction. 4.9. Borrower's Determination Final. Any determination that Borrower must make pursuant to subsections 4.4, 4.5, 4.6 or 4.9 is conclusive. 5. Defaults. 5.1. Events of Default. The occurrence of any one or more of following shall constitute an "Event of Default." 5.1.1. Borrower shall fail to pay any interest or principal under this Note within ten (10) business days following the date such amount was due, whether at maturity, by acceleration or otherwise. 5.1.2. Borrower shall fail to pay any other amount (whether fees, Taxes or otherwise) payable to Lender or any other party under or as required by this Note within ten (10) business days after demand therefor or receipt of notice that such amount was due, whether at maturity, by acceleration or otherwise. 5.1.3. Borrower shall fail to perform or observe any material obligations, covenants, terms, agreements or undertakings contained in this Note (other than obligations, covenants, terms, agreements or undertakings set forth in subsections 5.1.1 and 5.1.2), and such default shall continue unremedied for a period of thirty (30) days after notice of such default is delivered by Lender to Borrower; provided, however, that if Borrower commences to cure such default during such thirty (30) day period but such default is not susceptible to cure within such thirty (30) day period, such thirty (30) day period shall be extended so long as Borrower is at all times diligently pursuing the cure thereof. 6. Remedies After Default. Upon maturity of this Note and/or the failure to pay the Principal Amount, interest or any other sums due hereunder after the expiration of any applicable notice and/or cure period and/or the occurrence of any other Event of Default, Lender may, at its option, exercise all rights and remedies to which it may be entitled under this Note at law or in equity, including, without limitation, the right to declare the Principal Amount, all interest thereon and all other amounts payable under this Note to be immediately due and payable. 7. General Provisions. 7.1. Assignment. This Note is a continuing obligation and shall be binding upon and shall inure to the benefit of Borrower, Lender and their respective successors and assigns. Notwithstanding the preceding sentence, Lender may not sell, transfer, assign, mortgage, pledge, lien, hypothecate or otherwise encumber or dispose of this Note or any Common Stock into which this Note is convertible, except pursuant to the terms, provisions and conditions of this Note. 7.2. Costs; Expenses. Borrower agrees to pay on demand all reasonable costs and expenses, if any (including, without limitation, reasonable fees and expenses of counsel of and for -7- 8 Lender) in connection with the amendment, modification, extension, or enforcement of this Note and any other documents to be delivered hereunder. 7.3. Severability. Every provision of this Note is intended to be severable, and if any term or provision hereof shall be invalid, illegal, or unenforceable for any reason, the validity, legality, and enforceability of the remaining provisions hereof shall not be affected or impaired thereby, and any invalidity, illegality, or unenforceability in any jurisdiction shall not affect the validity, legality, or enforceability of any such term or provision in any other jurisdiction. 7.4. Governing Law. This Note shall be governed by, and construed in accordance with, the laws of the State of Arizona without regard to the principles of conflicts of laws. 7.5. Entire Agreement. This Note and any other documents executed in connection herewith and therewith contain the entire understanding of and supersede all prior representations, warranties, agreements, arrangements, understandings and negotiations, written and oral, between Lender and Borrower with respect to the subject matter hereof and shall not be modified except in writing executed by the parties hereto. 7.6. Waivers. Borrower waives presentment, demand for payment, notice of dishonor and any or all notices or demands (other than any notices or demands which cannot be waived by operation of law) in connection with the delivery, acceptance, performance, default or enforcement of this Note and consents to any or all delays, extensions of time, renewals, release of any party, and of any available security therefor, and any and all waivers that may be granted or consented to by Lender with regard to the time of payment or with respect to any other provision of this Note, and agrees that no such action, delay or failure to act on the part of Lender shall be construed as a waiver by Lender of, or otherwise affect, in whole or in part, its right to avail itself of any remedy with respect thereto. 7.7. Amendment; Waiver. No amendment, modification or waiver of any provision of this Note, and no consent to any departure by Borrower therefrom, shall in any event be effective unless the same be in writing and signed by Lender and Borrower. Any waiver of any provision of this Note, and any consent to any departure by Borrower or Lender therefrom, shall be effective only in the specific instance and for the specific purpose for which given. Neither failure nor delay on the part of Lender to exercise any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any right, power or remedy. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. The rights herein provided are cumulative and not exclusive of any rights provided by law. 7.8. Notices, Etc. All notices, approvals, demands, consents and other communications ("notices") provided for or otherwise given hereunder shall be in the English language, in writing, and shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy with electronic confirmation to the numbers set forth below, (iii) the day following the day on which the same has been delivered prepaid to a reputable national overnight courier service or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid and return receipt requested, as follows: -8- 9 To Borrower: FutureOne, Inc. 4250 East Camelback Road, Suite K-192 Phoenix, Arizona 85018-2751 Attention: President Telephone: (602) 852-9725 Telecopier: (602) 522-8714 To Lender: Hare & Co., as Trustees for Financial Institutions Retirement Fund One Wall Street, 12th Floor MT/MC Dept. New York, New York 10286 Attention: Ms. Elba Montero Telephone: (212) 635-8225 Telecopier: (212) 635-7999/(212) 635-8159 or, as to each party, at such other address or telecopier number as shall be designated by such party in a written notice to the other party. All such notices shall be effective as set forth above and shall be effective against the party to which it is sent irrespective of whether copies have been sent to other parties. 7.9. Headings. The headings contained in this Note are for convenience of reference only and shall not affect the construction hereof. 7.10. Drafting. Borrower acknowledges that Borrower and Lender and their respective counsel have reviewed and revised this Note, and Borrower agrees that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of any of this Note. 7.11. No Third Party Beneficiaries. Nothing in this Note shall confer upon any Person, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under or by reason of this Note. 7.12. Non-Recourse. Notwithstanding anything to the contrary contained in this Note, no individual member, partner, officer, or director of Borrower or the manager or managers of Borrower shall have any personal liability for the obligations of Borrower hereunder, but, rather, the terms, covenants, provisions and obligations contained in this Note as made are only intended to bind Borrower and the assets of Borrower as the same may exist from time to time. The foregoing shall not diminish or release any of the obligations of Borrower hereunder. -9- 10 IN WITNESS WHEREOF, Borrower has executed this Note as of the date first above written. FUTUREONE, INC., A NEVADA CORPORATION By: /s/ Earl J. Cook ------------------------------------ Its: President ----------------------------------- -10- EX-6.27 17 EX-6.27 1 Exhibit 6.27 THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. FUTUREONE, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Hare & Co., as Trustees for Financial Institutions Retirement Fund (the "Holder"), is entitled to subscribe for and purchase Sixteen Thousand Six Hundred Sixty-Seven (16,667) shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock (as defined below) of FutureOne, Inc., a Nevada corporation (the "Company"), at the Warrant Price (as defined in Section 2 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized common stock, $.001 par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged. 1. Term of Warrant. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during the period beginning on the date hereof and ending on the fifth (5th) anniversary of the date hereof. 2. Warrant Price. The initial exercise price of this Warrant is $1.00 per share, subject to adjustment from time to time pursuant to the provisions of Section 5 hereof (the "Warrant Price"). 3. Method of Exercise; Payment; Issuance of New Warrant; Exercise. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased (the "Aggregate Exercise Price") either (i) by cash, check or wire transfer, (ii) by Cashless Exercise (as defined below) or (iii) by cancellation by the Holder of indebtedness of the Company to the Holder. The holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant in whole or in 2 part and, in lieu of making the cash payment or loan forgiveness otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"): Net Number = (A x B) - (A x C) ----------------- B For purposes of the foregoing formula: A = the total number of shares with respect to which this Warrant is then being exercised. B = the Market Price as of the date of the Exercise Notice. "Market Price" means, with respect to any security for any date of determination that price which shall be computed as the arithmetic average of the closing bid prices for such security on each of the five (5) consecutive trading days immediately preceding the date of notice requiring such determination (all such determinations to be appropriately adjusted for any stock dividend, stock split or similar transaction during the pricing period). C = the Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise. The Company agrees that the shares purchased pursuant to this Section 3 shall be deemed to be issued to the Holder hereof or the designee of the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder hereof or the designee of the Holder hereof within 15-days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder hereof within such 15-day period. 4. Stock Fully Paid; Reservation of Shares. All Common Stock that may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, the full number of shares of Common Stock or other security then deliverable upon exercise of this Warrant. 2 3 5. (a) Adjustment for Dividends in Other Stock and Property; Reclassifications. In case at any time or from time to time the holders of the Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, (1) other or additional stock or other securities or property (other than cash) by way of dividend, (2) any cash or other property paid or payable out of any source, or (3) other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement, (other than (x) shares of Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities), then and in each such case a holder, upon the exercise hereof as provided in Section 3, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which such holder would hold on the date of such exercise if as of the date hereof (the "Issuance Date") such holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant, and had thereafter, during the period from the Issuance Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clause (2) and (3) above) receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 5(a) and 5(b). (b) Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the exercise of this Warrant) or reclassification of its securities after the Issuance Date, or the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey or exchange all or substantially all its assets to another corporation or entity, then and in each such case the holder of this Warrant, upon the exercise hereof as provided in Section 3 at any time after the consummation of such reorganization, reclassification, consolidation, merger, conveyance or exchange, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Sections 5(a), (b), (c) and (d); in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation. 3 4 (c) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) entitled to receive, a dividend or other distribution payable in additional shares of (x) Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities, then and in each such event (1) the Warrant Price then in effect shall be decreased as of the time of the issuance of such additional shares or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Warrant Price then in effect by a fraction (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Warrant Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Warrant Exercise Price shall be adjusted pursuant to this Section 5(c) as of the time of actual payment of such dividends or distributions; and (2) the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be increased, as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, in inverse proportion to the decrease in the Warrant Price. (d) Stock Split and Reverse Stock Split. If the Company at any time or from time to time effects a stock split or subdivision of the outstanding Common Stock, the Warrant Price then in effect immediately before that stock split or subdivision shall be proportionately decreased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately increased. If the Company at any time or from time to time effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Warrant Price then in effect immediately before that reverse stock split or combination shall be proportionately increased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately decreased. Each adjustment under this Section 5(d) shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective. 6. Notice of Adjustments. Whenever any adjustment is required to be made as provided in Section 5, the Company shall promptly notify the Holder, describing in reasonable detail the adjustment and method of calculation used. 4 5 7. Fractional Shares. In the sole discretion of the Company, instead of any fraction of a share which would otherwise be issuable upon exercise of the Warrant, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock (as reasonably determined in good faith by the Board of Directors of the Company), at the close of business on the date of exercise. 8. Compliance with the Act. The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Act or any state securities laws. 9. Miscellaneous. (a) No Rights as Stockholder. Except as otherwise specifically provided herein, no holder of this Warrant, solely by virtue of such holding, shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether a reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance of the shares of Common Stock which the Holder is then entitled to receive upon the due exercise of this Warrant. (b) Replacement. On receipt of an executed Lost Warrant Affidavit in substantially the form annexed hereto as Exhibit B of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement, or bond reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder's expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) Notice. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given when delivered or telecopied or, if mailed, when mailed, if sent registered or certified, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Arizona without regard to conflicts of law principles. 5 6 IN WITNESS WHEREOF, this Warrant is executed as of the 28th day of December, 1999. FUTUREONE, INC., a Nevada corporation By: /s/ Earl J. Cook ---------------------------------------- Name: Earl J. Cook -------------------------------------- Title: President ------------------------------------- Date: December 22, 1999 -------------------------------------- 6 7 EXHIBIT A NOTICE OF EXERCISE TO: FUTUREONE, INC. 1. The undersigned hereby elects to purchase ____________ shares of Common Stock of FutureOne, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full in accordance with the provisions of the following section of the attached Warrant: ___ Section 3(i) ___ Section 3(ii) ___ Section 3(iii) 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: (Name) (Address) 3. The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned will not offer, sell or otherwise dispose of any such shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities law. --------------------------------- Signature B-1 8 EXHIBIT B FORM OF AFFIDAVIT OF LOSS STATE OF ) ) ss: COUNTY OF ) The undersigned (hereinafter "Deponent"), being duly sworn, deposes and says that: 1. Deponent is an adult whose mailing address is: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. Deponent is the recipient of a Warrant (the "Warrant") from FutureOne, Inc. (the "Company"), dated as of December 28, 1999 for the purchase of 16,667 shares of Common Stock, par value $.001 per share, of the Company, at an exercise price of $1.00 per share. 3. The Warrant has been lost, stolen, destroyed or misplaced, under the following circumstances: 4. The Warrant was not endorsed. 5. Deponent has made a diligent search for the Warrant, and has been unable to find or recover same, and Deponent was the unconditional owner of the Warrant at the time of loss, and is entitled to the full and exclusive possession thereof; that neither the Warrant nor the rights of Deponent therein have, in whole or in part, been assigned, transferred, hypothecated, pledged or otherwise disposed of, in any manner whatsoever, and that no person, firm or corporation other than the Deponent has any right, title, claim, equity or interest in, to, or respecting the Warrant. 6. Deponent makes this Affidavit for the purpose of requesting and inducing the Company and its agents to issue a new warrant in substitution for the Warrant. 7. If the Warrant should ever come into the hands, custody or power of the Deponent or the Deponent's representatives, agents or assigns, the Deponent will immediately B-1 9 and without consideration surrender the Warrant to the Company, its representatives, agents or assigns, its transfer agents or subscription agents for cancellation. 8. The Deponent in its sole discretion shall either (i) indemnify and hold harmless the Company from any claim or demand for payment or reimbursement of any party arising in connection with the subject matter of this Affidavit or (ii) provide the Company with a bond reasonable satisfactory to the Company in form and amount. Signed, sealed and dated: ------------------------ --------------------------------- Deponent Sworn to and subscribed before me this day of - ---- -------------, --------- - ---------------------------------------- Notary Public B-2 EX-6.28 18 EX-6.28 1 Exhibit 6.28 RESELLER AGREEMENT (UNITED STATES) This Agreement is effective as of December 15, 1998 ("Commencement Date") by and between Ascend Communication Inc., a California Corporation, having its principal place of business at One Ascend Plaza, 1701 Harbor Bay Parkway, Alameda, California 94502, ("Ascend") and Priority Systems having its principal place of business at 4545 N. 36th St., Phoenix, Arizona ("Reseller"). It is mutually agreed that: 1. COVERED PRODUCTS - TERMS AND CONDITIONS OF PURCHASE/SUPPLEMENTS: All purchases of products (as defined below) by Reseller from Ascend shall be subject to this Agreement including supplements issued by Ascend from time to time during the term hereof and then in effect. Supplements may be issued to cover new products or programs or to modify, supersede or delete, in whole or in part, the provisions of previously issued supplements. The terms and conditions contained in any supplement issued by Ascend shall be in the sole discretion of Ascend and shall be incorporated into and made a part of this Agreement effective as of the Effective Date specified in such supplement. No supplement issued after the Commencement Date hereof shall be effective earlier than thirty (30) days after issuance by Ascend. Reseller acknowledges that it has received from Ascend copies of the following supplements, which are incorporated herein and made a part of this Agreement effective as of the Commencement Date hereof: TITLE EFFECTIVE DATE Standard Price List November, 1997 Discount Schedule Supplement January 1, 1998 Quota Supplement January 1, 1998 Warranty Supplement January 1, 1998 Stock Rotation Plan Supplement January 1, 1998 Referral Sale Supplement January 1, 1998 Point-of-Sale Supplement January 1, 1998 Inventory Supplement January 1, 1998 Software License Supplement January 1, 1998 Market Development Program January 1, 1998 2. APPOINTMENT: 2.1 Ascend appoints Reseller, and Reseller accepts such appointment and agrees to act as an Ascend non-exclusive reseller for the "Products" (as defined herein), subject to the terms and conditions set forth in this Agreement. Except as otherwise noted, "Product" or "Products" shall mean the Ascend equipment and ("Software") contained in the product ("Ascend Products") and/or third parties' equipment or Software ("Non-Ascend Products") listed in then-current Standard 1 2 Price List. Ascend may unilaterally add items to, or remove items from, the Standard Price List from time to time during the term of this Agreement and any such addition or removal shall be effective immediately upon the effective date of a new Standard Price List or other written notification by Ascend. 2.2 Ascend reserves the right to sell directly to any other customer, including but not limited to, distributors, original equipment manufacturer ("OEMs") and other resellers. Any such distributors, OEMs and other resellers shall have the right to resell the Products. 3. TERM: The initial term of this Agreement is twelve (12) months from the Commencement Date ("Initial Term"), subject to the terms and conditions set forth in Section 17, Termination. This Agreement shall continue thereafter in twelve (12) month increments ("Renewal Term") subject to the same rights of termination. 4. INVENTORY COMMITMENT: 4.1 In order that Reseller will be able to promptly supply Products to its customers, Reseller agrees to purchase and maintain reasonable inventory levels as specified in the then-current Inventory Supplement. 5. PRICES, DISCOUNTS, QUOTA AND ADJUSTMENTS: 5.1 Reseller's purchase price for the Products shall be: (a) the prices stated in the then-current Standard Price List; (b) less the applicable discount then allowable to Reseller in accordance with the then-current Discount Schedule Supplement. Nothing in this Agreement restricts Reseller from establishing its own resale prices. 5.2 In the event of a price increase or a change in an applicable discount, such increase or change shall apply only to new orders. No price increase or change in an applicable discount shall apply to shipments made prior to such effective date. 5.3 The above notwithstanding, Ascend agrees to deliver at the non-revised price and for a period not to exceed six (6) months from the effective date of the revised Standard Price List, Products which are required for Reseller to fulfill its long-term fixed-price contractual commitments. Reseller shall, within thirty (30) days of the date of such price revision notification, notify Ascend in writing of any and all such contractual obligations, providing copies thereof and of all implementing purchase orders placed on Reseller by Reseller's customer pursuant to such obligations. Failure to so notify Ascend within said thirty (30) day period shall constitute a waiver of Reseller's claim under this Section 5.3. 5.4 Ascend does not pre-announce price decreases. In the event of a price decrease, the decrease shall apply to all units of Product which are on order and have not been shipped by Ascend prior to the effective date of such decrease. In addition, 2 3 Reseller shall receive a credit for units of Product still in Reseller's inventory if and to the extent such units were purchased within the previous ninety (90) days. Such credit shall be to Reseller's account for future purchase orders under this Agreement in an amount equal to the difference between the invoice price at which each such unit of Product was delivered to Reseller and the current decreased price announced by Ascend. Credit will be granted to the Reseller upon his submission of request to Ascend showing serial numbered units of affected Products still in his inventory and upon validation by Ascend utilizing the most recently submitted inventory report from Reseller. Notwithstanding anything contained herein to the contrary, any such credit must be claimed within (6) months of a price decrease. 5.5 Ascend has defined a Revenue quota goal ("Quota") for the Reseller, as stated in the then-current Quota Supplement. The purpose of this Quota is to establish expected levels of purchases for Reseller during the Initial Term and any subsequent Renewal Term. Ascend and Reseller will review Reseller's actual purchases of Products as of the date(s) of such review against Reseller's Quota to determine what action, if any, is appropriate in light of such a review. 6. ORDERS: 6.1 Products shall be ordered by Reseller by written purchase order and shall reference this Agreement. Orders are subject to acceptance by Ascend and assignment of delivery schedules in accordance with Product availability. Any term or condition set forth on Reseller's purchase order which is inconsistent with or additive to this Agreement shall have no force or effect. 6.2 Cancellation of any order by Reseller within thirty (30) days of confirmed ship date will be subject to a cancellation charge of ten percent (10%) of the net order value of the canceled portion of the order. 6.3 Changes in delivery schedule may be made without charge, in writing and received by Ascend at least thirty (30) days prior to scheduled delivery date(s). However, changes in delivery schedule made within thirty (30) days of scheduled delivery shall be subject to a rescheduling charge of ten percent (10%) of the net order value of the rescheduled portion of the order. 7. SHIPMENTS: 7.1 Ascend shall deliver the Products ordered by Reseller, F.O.B. Ascend's factory, such delivery to be made to a carrier or freight forwarder selected by Ascend unless otherwise specified by Reseller. Products will be packaged by Ascend in accordance with Ascend's standard practices. Title, possession and risk of loss shall pass to Reseller upon delivery of the Products by Ascend to the designated carrier or freight forwarder. 3 4 7.2 Reseller must notify Ascend within ten (10) days of receipt of Products of any discrepancies in the shipment of such Products or of any reason for rejection of such Products. 8. PAYMENT TERMS, TAXES AND OTHER CHARGES: 8.1 All Products sold by Ascend to Reseller shall be invoiced in full upon shipment. Payment is net thirty (30) days from date of invoice. Reseller agrees to submit such financial information from time to time as may be reasonably requested by Ascend. Reseller agrees that Ascend shall have the right to determine Reseller's credit limit from time to time at Ascend's discretion. In the event any order by Reseller exceeds its credit limit, or Reseller fails to make payments when due or otherwise defaults or commits a breach hereunder, Ascend may effective immediately upon the giving of notice to Reseller (i) suspend credit and delay shipment until such terms are met, and/or (ii) alter the terms of payment; and /or (iii) cancel any order then outstanding and/or (iv) pursue any other remedies available by law or equity. Further, if Reseller fails to pay any charges when due, Ascend may (i) charge Reseller a late payment charge equal to the lesser of one and one-half percent (1-1/2%) per month or the maximum amount allowed by law on the past-due balance and (ii) cancel or delay further shipment of Products. 8.2 The purchase price for Products does not include taxes and other charges. All taxes, sales, use or privilege taxes, excise or similar taxes, duties or assessments, shipping, handling, insurance, brokerage, and other related charges levied by any jurisdiction pertaining to the Products, other than taxes computed on the basis of the net income of Ascend, shall be paid by Reseller. In lieu of any tax, Reseller may provide Ascend with a tax exemption certification acceptable to the taxing authorities. 9. REFERRAL SALES: In the event certain sales transactions which involve referral of an end user purchaser by Reseller to Ascend, in such case Reseller may be eligible for commission payments and such transactions shall be subject to the provisions set forth in the then-current Referral Sale Supplement. 10. OTHER OBLIGATIONS OF RESELLER: 10.1 Reseller agrees to provide Products to customers in combination with other products or services provided by Reseller, such that the overall value of the Product is enhanced, Reseller shall use its best efforts and devote such time as is necessary to diligently promote the sale of, and stimulate demand for, the products. 10.2 Reseller shall perform such servicing and follow-up on purchase orders secured by the Reseller as good salesmanship shall require and as Ascend shall reasonably request. 4 5 10.3 Reseller shall promptly advise Ascend of any complaints or claims brought or threatened against Reseller with respect to the sale or use of the Products or with respect to any alleged patent, copyright or trademark infringement. 10.4 Within thirty (30) days after Reseller's execution of this Agreement, Reseller shall provide Ascend with a non-binding forecast of the quantity of Products, by Product type, of expected sales of Products for the next three (3) month period ("Forecast"). By the third Friday of every month thereafter, Reseller shall provide a new Forecast for the then following three (3) month period. 10.5 Excluding Non-Ascend Product(s), Reseller will purchase Product(s) for sales demonstration purposes ("sales demos") at special discounts to be unilaterally determined by Ascend. Reseller may place two (2) purchase orders for sales demos during any consecutive twelve (12) month period. Such purchase orders shall: (i) be limited to $30,000 (based on the then-current Price List) per purchase order and (ii) state "For Demonstration Purposes." Ascend reserves the unilateral right to limit the quantity and type of Product(s) ordered for sales demos. 10.6 Within fifteen (15) days after the end of each calendar month, Reseller will provide to Ascend written reports showing, for the month immediately preceding, the report, Reseller's shipments of Products and current inventory levels. Point-of-Sale reports and inventory reports shall use the appropriate forms as provided in the then-currant Point-of-Sale Supplement and Inventory Supplement. 11. OTHER OBLIGATIONS OF ASCEND: 11.1 Ascend shall allow Reseller to rotate its Products in stock in accordance with the then-current Stock Rotation Plan Supplement. 12. WARRANTY 12.1 Products Warranty. Ascend warrants to Reseller that the Products conform in all material respects to the end user documentation provided with the Products and that the hardware components of the Products will be free from defects in materials and workmanship until the date which is one (1) year after receipt of the Products by the end user (the total "warranty period" shall not exceed 15 months in total which includes 3 months of shelf time.) This limited warranty does not cover the results of accidents (including unusual physical or electrical stress), abuse, neglect, vandalism, use contrary to handling or operating instructions supplied by Ascend, or repair or modification by anyone other than Ascend. 12.2 Warranty Claims. If Reseller believes that Products do not conform to the warranty set forth in Section 12.1, Reseller shall notify Ascend in writing of such nonconformance no later than ten (10) days after the end of the Warranty Period for those Products, and shall provide such details of the nonconformance as Ascend reasonably requests. Reseller will, upon the request of Ascend and in accordance with Ascend's standard procedures, return such Products to Ascend at Ascend's expense and risk. The final determination whether Products fail to 5 6 satisfy this warranty will be made in the sole reasonable discretion of Ascend. If Ascend determines that returned Products do conform to this warranty, then Ascend will return such Products at Reseller's expense and risk. If Products are deemed to fail to conform to this warranty by Ascend, Reseller's sole remedy shall be, at Ascend's option and expense, the repair or replacement and return of the Products within forty-eight (48) hours after Ascend receives the Products, or a refund (or, at the option of Reseller, a credit) of the price or fee paid by Reseller for the Products. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, THE FOREGOING IS RESELLER'S SOLE AND EXCLUSIVE REMEDY FOR BREACH OF WARRANTY BY ASCEND WITH RESPECT TO THE PRODUCTS. 12.3 Disclaimer of Warranties. EXCEPT FOR THE LIMITED WARRANTY FOR THE PRODUCTS CONTAINED IN SECTION 12.1, ASCEND AND ITS SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING AS TO PERFORMANCE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. 13. CONFIDENTIALITY: No proprietary information disclosed by either party to the other in connection with this Agreement (including, without limitation, Ascend's Proprietary Materials as defined in Section 17.7 hereof) shall be disclosed to any person or entity other than the recipient party's employees and contractors directly involved with the recipient party's use of such information who are bound by a written agreement to protect the confidentiality of such information, and such information shall otherwise be protected by the recipient party from disclosure to others with the same degree of care accorded to its own proprietary information. To be subject to this provision, information must be delivered in writing, and designated as proprietary within thirty (30) days after the oral disclosure. Information will not be subject to this provision if it is or becomes a matter of public knowledge without the fault of the recipient party, if it was a matter of written record in the recipient party's files prior to disclosure to it by the other party, or if it was or is received by the recipient party from a third person under circumstances permitting its unrestricted disclosure by the recipient party. Upon termination of this Agreement, each party shall promptly deliver to the other all proprietary information, together with any copies, excerpts, summaries, memoranda, or notes thereof or thereon, of the other party in the possession or control of such part and all companies thereof. The obligations under this Section 13 shall continue for both parties for a period of ten (10) years after delivery by Ascend to Reseller of the last Product under this Agreement, 14. TRADEMARK USAGE: Ascend will provide Reseller with artwork for Ascend's trademark, tradenames and logo (collectively, the "Licensed Marks"). Ascend grants to Reseller the non-exclusive right to use the Licensed Marks solely in connection with the promotion and sale of the Products by Reseller in accordance with the terms and conditions of this Agreement; 6 7 provided, however, that (i) no names or descriptive words or phrases shall be co-joined or used by Reseller in any way in connection with the Licensed Marks; (ii) Reseller will submit to Ascend for its prior written approval any material incorporating any of the Licensed Marks which Reseller proposes to use in any fashion whatsoever at least thirty (30) days prior to Reseller's initial use of such material; (iii) Reseller will comply with any instruction or requirement issued by Ascend with respect to the appearance and use of the Licensed Marks; (iv) Reseller shall use the Licensed Marks only in a manner so as to preserve and protect all rights of Ascend therein and (v) Reseller shall not use or adopt any names or marks which might be confusingly similar to the Licensed Marks. Nothing herein grants to Reseller or its customers any interest in or to the Licensed Marks and all rights in the Licensed Marks shall at all times during the term of this Agreement and thereafter, be and remain the sole property of Ascend, and all goodwill and other benefits associated therewith are hereby assigned to, and shall inure to, Ascend. Reseller hereby agrees that it shall not remove the Licensed Marks from any product furnished by Ascend. Reseller and its customers shall have no right to alter, otherwise use or in any way transfer the Licensed Marks. Reseller shall promptly notify Ascend of any actual or potential infringement of, unauthorized use of, or adverse claim to the Licensed Marks and Reseller shall provide Ascend with reasonable assistance in any efforts to prevent or terminate any infringement, unauthorized use or limitation thereof. 15. GRANT OF SOFTWARE LICENSE: Subject to the terms of this Agreement, Ascend grants Reseller a license to (a) use the Software solely in connection with Reseller internal use of the Products, and (b) distribute the Software to and sublicense end-users of the Products to use the Software solely in connection with the Products. Reseller will not copy all or any part of the Software, or attempt, or encourage or permit any third party to attempt, to reverse engineer, reverse compile or disassemble the object code for the Software. 16. PATENT AND COPYRIGHT INFRINGEMENT INDEMNIFICATION: Ascend shall defend, at its own expense, any suit brought against Reseller on the grounds the Products or any part thereof infringe any valid United States patent or copyright, and shall pay the amount of any final judgment that may be awarded against Reseller in any such Suit; provided that Reseller (i) shall have made all payments to Ascend due under this Agreement; (ii) shall have otherwise complied with the terms, conditions and provisions of this Agreement; (iii) shall have given prompt written notice to Ascend of any claim of infringement and furnished Ascend with all papers received in connection therewith; (iv) shall have permitted Ascend to take complete charge of the defense of any such suit and to settle the same, if deemed advisable by Ascend; and (v) shall have assisted Ascend in every reasonable manner in the conduct of such defense. Ascend's obligations hereunder shall be void as to any Products modified by Reseller (whether or not with Ascend's approval) or by Ascend solely to comply with the request of Reseller, to the extent such modification is the alleged basis of the suit, or if such claims based upon the use of the Product or any component thereof in combination with machines, firmware, software, programs to devices not provided by Ascend, rather, Reseller shall indemnify and defend Ascend as to any Products modified by Reseller (whether or not 7 8 with Ascend approval) or by Ascend to comply with the request of Reseller if the use or sale of any Products is permanently enjoined or a final judgment awarding damages is entered against Reseller by reason of any such patent or copyright infringement, Ascend shall, at its sole election, either (i) procure the right to use the Products; (ii) replace or modify the Products so that it becomes noninfringing; or (iii) refund to Reseller for an amount equal to the depreciated value of the products sold to Reseller and remaining in Reseller's inventory (such value to be based on its straight-line depreciation of book value over a five-year life). THE FOREGOING CONSTITUTES THE ENTIRE LIABILITY OF ASCEND AND THE SOLE REMEDY OF RESELLER WITH RESPECT TO ANY CLAIM OR ACTION BASED IN WHOLE OR IN PART UPON INFRINGEMENT OF A PATENT OR COPYRIGHT. 17. TERMINATION: 17.1 Either party may terminate this Agreement, at any time, with or without cause, upon sixty (60) days advance written notice to the other. 17.2 Notwithstanding anything in this Agreement to the contrary, this Agreement may be canceled and terminated by Ascend immediately upon written notice to Reseller upon the occurrence of any of the following: (i) In the event of the breach of any of the terms or conditions of this Agreement, or any act of misfeasance, by Reseller, and the breach is not cured within thirty (30) days after written notice thereof; or (ii) Upon the commencement by or against Reseller of insolvency, receivership of bankruptcy proceedings or any other proceedings for the settlement of Reseller's debts, or upon Reseller making of an assignment for the benefit of creditors, or upon commencement of any act or action concerning Reseller's dissolution or liquidation. 17.3 In the event of termination of this Agreement, Ascend will accept orders from Reseller, subject to cash-in-advance credit terms or as otherwise reasonably determined by Ascend, for in-production Products which Reseller is contractually obligated to furnish to its customers during the twelve (12) month period immediately following the effective date of the termination and does not have in its inventory provided Reseller notifies Ascend of any and all such obligations in writing within ten (10) clays of the effective date of such termination. All such orders shall be priced accordance with the pricing in effect at the time such orders are received by Ascend. 17.4 If this Agreement is terminated by Ascend, Ascend shall, at Reseller's option, which option must be exercised by Reseller in writing within thirty (30) days of such termination, repurchase Products remaining in Reseller's inventory in excess 8 9 of that required to meet Reseller's contractual obligations existing at the time of termination, subject to the following: (i) The price to be paid for the repurchase of said inventory shall be Reseller's net cost at the time of purchase, free of any taxes, transportation and/or other charges and less any adjustment which may have been made pursuant to Section 5.4. (ii) All Products must be returned in the original sealed packaging, new, unused undamaged and in good merchantable condition. (iii) All Products must be shipped to Ascend's designated facility, freight prepaid. 17.5 If this Agreement is terminated by the Reseller, Ascend may, at its option, which option must be exercised by Ascend in writing within thirty (30) days of the effective date of such termination, repurchase all or some unsold Products subject to the following: (i) The price to be paid on repurchase of said Products shall be Reseller's net cost at time of purchase free of any taxes, transportation and/or other charges, less a fifteen percent (15%) handling charge. (ii) All Products must be returned in their original sealed packaging, new unused, and undamaged and in good merchantable condition. (iii) All Products must be shipped to Ascend's designated facility, freight prepaid. 17.6 In the event of termination of this Agreement as provided herein, all rights hereunder shall terminate on the effective date of such termination, except that, subject to the further terms and condition of this Agreement (including, without limitation, Section 17.8), Ascend shall make shipment against Resellers then outstanding purchase orders, and Reseller shall pay Ascend for all such purchase orders. 17.7 Upon termination of this Agreement, all tradenames, patents, designs, drawings, engineering or other data, photographs, samples, literature, sales aids and any other materials containing information relating to the Products or Ascend's business, including any copies, excerpts, summaries, memoranda, or notes thereof or thereon (collectively, the "Proprietary Materials") of every kind shall remain the property of Ascend, and, Reseller shall prepare all such Proprietary Materials in its possession with a reasonable promptness for shipment, F.O.B the shipping point, as Ascend may direct, at Ascend's expense. Reseller shall not make or retain any copies of Proprietary Materials or other confidential items or information which may have been entrusted to it. 9 10 17.8 The termination of this Agreement shall in no way relieve either party from its obligation to pay the other any sums accrued hereunder prior to such termination. In addition, the obligations of Sections 8.1, 12, 13, 14, 15, 16, 18, and 19 shall survive termination of this Agreement. 18. INDEMNIFICATION: Reseller shall indemnify and hold harmless Ascend from and against any and all claims, actions, liabilities, losses, damages and expenses, including reasonable attorneys' fees and such fees on appeal, incurred by Ascend in investigation and/or defending against any claims, actions or liabilities for which indemnification is provided herein, arising out of or in connection with (i) the sale, license, servicing and related activities pursuant to this Agreement with respect to the Products by Reseller; (ii) the failure of Reseller to comply with all applicable laws, rules, and/or regulations regarding advertising, selling, licensing, importing or exporting the Products; (iii) Reseller's attachment to the Products of any tradename, trademark or logo that is challenged as an infringement of the proprietary rights of any third party, (iv) any warranties granted by Reseller, or any implied warranties claimed by any of Reseller's purchasers or end users, in excess of those warranties contained herein or in the Warranty Supplement; or (v) the failure of Reseller to comply with each and every term of this Agreement. Ascend shall give written notice to Reseller within twenty (20) days of learning of any such claim, action or liability for which indemnification is provided herein. Reseller agrees that Ascend may employ attorneys of its own selection to defend and/or appeal the claim or action on behalf of Ascend, or Ascend may elect to allow Reseller, at Ascend's expense, to employ an attorney to defend Ascend: provided, however, Ascend reserves the right to reasonably disapprove any such attorney. 19. GENERAL: 19.1 The relationship of the parties under this Agreement shall be and at all times shall remain one of independent contractors. Reseller is not a partner, agent, employee or legal representative of Ascend and Reseller will take no action which has the effect of creating an appearance of its having authority to do so. Reseller shall have no authority to bind Ascend to any agreement or commitment of any kind. 19.2 ASCEND SHALL NOT BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES EVEN IF RESELLER SHALL HAVE ADVISED ASCEND OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE. 19.3 Reseller shall not disclose, publish or otherwise reveal the content of this Agreement to any third party without Ascend's prior express written consent. 19.4 If any provision herein is held to be invalid, illegal or unenforceable for any reason, such invalidity, illegality or unenforceability shall be severed, but without in any way affecting the remainder of such provision or any other provision contained herein, all of which shall continue in full force and effect. 10 11 19.5 Either party's waiver of any breach or default by the other party shall not constitute a waiver of any different or subsequent breach or default. Should any action, suit or other proceeding become necessary to enforce any of the terms and conditions set forth herein, the prevailing party shall recover all expenses incurred, including attorney's fees, in connection with such action, suit or other proceeding. 19.6 Neither party shall be liable for failure to perform or delay in performing any obligation (other than payment of money) under this Agreement contract of sale hereunder if such failure Or delay is due to fire, flood, earthquake, strike, labor trouble or other industrial disturbance, war (declared or undeclared), embargo, blockage, shortage of labor, materials or equipment, legal prohibition, governmental action, riot, insurrection, damage, destruction or any other cause beyond the control of such defaulting party preventing or delaying the performance. 19.7 All notices, requests, consents and other communications which are required or permitted under this Agreement shall be in writing, and shall be delivered personally or mailed by certified or registered mail, postage prepaid, return receipt requested (in which case it shall be deemed given three (3) days after mailing), or sent by facsimile, with a confirmation copy simultaneously mailed (in which case it shall be deemed given when transmitted), at the following addresses: (i) If to Ascend, to: ASCEND COMMUNICATIONS ONE ASCEND PLAZA 1701 HARBOR BAY PARKWAY ATTN: ARTHUR R. HOFFMAN VP CHANNEL SALES (ii) If to Reseller, to: PRIORITY SYSTEMS, INC. 4545 N. 36TH ST., #111 PHOENIX, AZ 85018 or to such other address as to which any party hereto may notify the other parties hereto as aforesaid. 19.8 Orders for Products may only be placed by Reseller for delivery by Ascend within the United States and its territories and possessions. In the event that Reseller exports or re-exports the Products, Reseller shall have full responsibility for obtaining all necessary approvals, licenses, permits and the like which may be required by any regulatory or governmental body of the U.S. or destination country. Reseller agrees to abide by the rules and regulations of the U.S. 11 12 Department of Commerce, Office of Export Administration and the U.S. Anti-Boycott provisions, as well as all applicable U.S. federal, state and municipal statutes, rules, and regulations when exporting, re-exporting the Products, Software or other items sold or licensed hereunder. 19.9 This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California. All actions Or proceedings relating to this Agreement shall be maintained in a Court located in Alameda County, State of California, and the parties hereto consent to the jurisdiction of said court and waive any objection to such venue. 19.10 The section and subsection headings contained in this Agreement are included for convenience only, and shall not limit or otherwise affect the terms hereof. 19.11 Reseller may not transfer the rights or delegate the duties provided for under the terms of this Agreement without the prior written consent of Ascend, which consent Ascend may withhold in the exercise of its absolute discretion, 19.12 This agreement, including the supplements hereto as described in Section 1, above, and the pricing and pricing provisions set forth in the Standard Price List as issued by Ascend from time to time during the term hereof and then in effect, constitutes the entire agreement between Ascend and Reseller concerning the subject matter hereof, supersedes all prior and contemporaneous communications or agreements, written or oral, and is intended by the parties to be a complete and exclusive statement of the terms of the agreement between them. Any terms and conditions contained on Reseller's purchase order releases which are not in strict accordance with the terms set forth herein shall not be binding on Ascend. Except for the Standard Price List and the supplements hereto issued pursuant to Section 1 above, this Agreement may only be modified by a writing signed by authorized representatives of both parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized representatives. Ascend Communications, Inc. Reseller: By: /s/ Arthur R. Hoffman By: /s/ Michael Mazick ----------------------------- ----------------------------- Name: Arthur R. Hoffman Name: Michael Mazick --------------------------- --------------------------- Title: Title: President -------------------------- -------------------------- Date: Date: December 15, 1998 --------------------------- --------------------------- 12 EX-6.29 19 EX-6.29 1 EXHIBIT 6.29 EMPLOYMENT AGREEMENT THIS AGREEMENT made this 11th day of January 1999, by and between FutureOne, Inc., a Nevada corporation, (hereinafter called "Company") and Bruce A. Robson (hereinafter called "Employee") shall be effective as of January 1, 1999. RECITALS: WHEREAS, The Company, located in Phoenix Arizona, is a full service communications company providing Internet access, Website development and hosting, custom software development, computer sales and services and communications and networking solutions; and WHEREAS, The Company, desires to enter into an employment relationship with Employee pursuant to the terms and conditions set forth herein; and WHEREAS, Employee is willing to accept such employment with the Company, pursuant to the terms and conditions set forth in this Agreement; and NOW THEREFORE, the Parties hereto, in consideration of the mutual covenants and promises hereinafter contained, do hereby agree as follows: TERMS 1. EMPLOYMENT DUTIES. The Company hereby employs Employee to perform the following duties as the Director of Marketing: a. Establish marketing plans for the Company's products, prepare advertising programs, arrange and participate in trade shows and determine and manage other programs to promote the Company's products to potential customers. b. Manage the Company's sales force, including hiring sales personnel, establishing sales programs, establishing sales quotas and integrating cross selling programs for the Company's various operating divisions products. 2. PERFORMANCE. Employee agrees to devote all of the time and effort necessary to perform the duties described in Section 1 above in a manner satisfactory to the Company and to perform such other duties as are assigned to him from time to time by the Officers or Board of Directors of the Company. 3. TERM. Except as provided in Section 7 below, the term of this Contract shall be three (3) years from the effective date hereof. This Agreement shall automatically renew for periods of one year, unless earlier terminated in accordance with the provisions of Section 7 below or either party gives written notice, at least thirty days (30) prior to the automatic renewal date, of their intention not to renew this Agreement. 2 4. COMPENSATION. In consideration for the services to be rendered by Employee in his capacity hereunder, Employee shall be compensated as follows: a. An annual salary of Seventy Five Thousand Dollars ($75,000), which shall be payable in equal installments based on the Company's normal pay periods. b. Employee shall be eligible to receive a management bonus as defined below. 1) Employee shall be paid a bonus equal to 2% of the increase in gross revenues, less refunds and discounts, from the prior year, for all of the Company's operations, except construction, based on the audited financial statements of the Company for the comparative periods. Such bonus shall be subject to the calculations defined below. The year shall be defined as the 12 month period, or shorter period ending September 30 and the Company and Employee acknowledge that the books and records of the Company may not be kept in an exact format, nor are the Company's audits prepared to specifically calculate the basis for the above bonuses. Therefor, the Company and Employee will work together to determine a reasonable comparison of revenues within the spirit of this agreement to determine the basis for the bonus calculations as defined above. The bonus for the first period, which shall end September 30, 1999, shall compare revenues from the period January 1, 1999 through September 30, 1999 with revenues for the period March 1, 1998 through December 31, 1998, The bonus shall be paid in cash within 90 days after the amount of the bonus is determined from the audited financial statements. c. Employee shall also be immediately issued Seventy Five Thousand (75,000) shares of common stock of the Company as additional consideration that may be earned under this Agreement. Such stock when issued will be "Restricted" as that term is defined under the Securities Act of 1933 as amended and shall be earned and vest only under the following terms and schedule: The Seventy Five Thousand (75,000) shares shall be split into three (3) units ("Unit") of Twenty Five Thousand 25,000 shares each and each Unit may become fully earned and fully vested on each of the following dates January 1, 2000, January 1, 2001 and January 1, 2002. Each unit will become fully earned and fully vested only if Employee has met all of the terms of this Agreement to that date and is still employed by the Company on that date. If Employee is not employed by the Company for any reason on any of the above dates and this Agreement has been terminated under any provision of Section 7 of this Agreement before any of the above dates, then the Employee shall not be entitled to any of the remaining stock Units, that have not been earned and vested according to the above schedule and FutureOne shall cancel such shares on the books of the corporation. 3 Employee hereby agrees that any of the above referenced stock certificates that have not been earned and vested shall be held by the Company and shall be delivered to Employee only on the vesting dates shown above and only if Employee has met all of the terms of this Agreement to that date and is still employed by the Company on that date. d. Employees salary, may be adjusted by mutual consent of the parties at any time during the term of this contract or any subsequent extension hereof. In addition, the Company may provide other employment benefits as per Section 5 below. 5. EMPLOYEE BENEFITS. The Company, at its sole discretion, may provide certain group benefits to all full time employees and agrees that Employee will be covered by any such plans adopted by the Company while he is a full time employee and Employee hereby agrees to submit to any medical or other examination and to execute and deliver any application or other instrument in writing, reasonably necessary to effectuate such plans and benefits. 6. EXPENSES. The Company will reimburse the employee for all reasonable and necessary business expenses which are approved in advance by the Company. 7. TERMINATION. Employment under this Agreement may be terminated as follows: a. DEATH/EXPIRATION OF THIS AGREEMENT WITHOUT RENEWAL. By Employees death or upon the expiration of the term of this Agreement and the Company shall be obligated, in either event, to pay Employee his normal compensation up to the actual date of termination, a prorated bonus and benefits actually due Employee up to the actual date of death or expiration of the Agreement. b. TOTAL DISABILITY. For the purpose of this Agreement, the term "total disability" means Employee's inability, because of serious physical and/or mental injury, illness or impairment, certified by a licensed medical doctor and by whatever supporting documents are requested by the Company, to perform his assigned duties for more than Sixty (60) consecutive days; and the Company shall be obligated, in that event, to pay Employee his normal compensation up to the actual date of termination, a prorated bonus and benefits actually due up to the date of disability. c. EMPLOYEE NOTICE. At the election of Employee upon thirty (30) days written notice to Company, in such event, the Company shall only be obligated to pay Employee his normal compensation and benefits actually due Employee up to the date of termination. Upon receipt of such notice from Employee the Company, at its sole discretion, may terminate this Agreement immediately and pay Employee only his normal compensation and benefits actually due Employee up to the Company's elected date of termination. d. WITHOUT CAUSE. Company may terminate without cause and for any reason Employee's employment upon thirty (30) days written notice to Employee. If Employee is terminated without cause he shall be entitled to be paid, his compensation up to the actual date of termination and benefits actually due Employee up to the date of termination. 4 e. WITH CAUSE. Employee's employment may be terminated for cause at any time upon five (5) days written notice. For the purpose of this Agreement "for cause" is defined to include, but not be limited to the following: (i) intentional or unintentional acts by Employee having the effect or causing significant harm to the business interests of The Company; (ii) the failure of Employee to devote all of his time, energies and efforts to the performance of his duties; (iii) the conviction of Employee of any felony crime involving an act of moral turpitude; (iv) the violation of any specific written direction of the Board of Directors relating to services to be rendered by him or the scope of his duties as contemplated by this Agreement; (v) the commission by Employee of any other material breach of this Agreement, and to the extent that this act is curable, Employee has not cured it within five (5) business days following receipt of notice of said material breach. Any notice to Employee shall specify the facts and circumstances claimed to provide the basis for such termination. In the event of termination of this Agreement under this section, the Company shall only be obligated to pay Employee his normal compensation and actual benefits due up to the actual date of termination. f. DEFAULT. Employee shall have the option to immediately terminate this agreement if the Company fails to comply with the terms and conditions of this Agreement, but only if such default or breach of this Agreement is not caused, directly or indirectly, by Employee in his managerial and fiduciary capacity under this Agreement, whereby Employee's, intentional or unintentional, acts have caused the Company, through lack of work or excess expenditures, to be unable to meet its financial obligations under this Agreement, Upon failure of the Company to meet any of its obligations due Employee under this Agreement or there is any other material breach of this Agreement, and to the extent that it is curable, Employee shall give written notice to the Company and shall specify the facts and circumstances claimed to be a breach of this Agreement. The Company shall have five (5) business days following receipt of such written notice to cure such alleged breach. If said breach is not cured by the Company within such time period than it shall be deemed as if the Company has terminated this Agreement "Without Cause" and Employee shall be entitled to all amounts due hereunder as if the Agreement had not been terminated. 8. AGREEMENT NOT TO COMPETE. Employee hereby agrees and stipulates that he shall not compete, in any business engaged in by the Company, either directly or indirectly, or compete in any other way with the business opportunities of the Company, for any period that he is receiving any compensation from the Company under this Agreement and not less than one (1) year from the date of any termination of this Agreement as provided in Section 7 of this Agreement, without the express written permission of the Company. Employee hereby further acknowledges, agrees and stipulates, that he has received fair and adequate consideration, in the form of stock and or cash, in exchange for this Agreement. 9. PROPRIETARY INFORMATION. Employee shall treat as information proprietary to FutureOne any and all data and/or information discovered and/or disclosed and shall not, directly or indirectly, use any such information and/or data for his own benefit or disclose or fail to use its best efforts to prevent the disclosure of the same to any other person or entity for any purpose or reason whatsoever, during the term of this Agreement or at any time thereafter. 5 10. PROPRIETARY INFORMATION DEFINED. Proprietary information includes but is not limited to unique concepts, products, services, company/corporate strategy and business development, including plans relating to this acquisition, expansion, marketing, financials, client lists and other business information, operating information, policies, practices and processes, database and networking systems, information relating to employees, customers, prospective customers and suppliers, whether such information is documented, contained electronically and/or contained on any other medium. 11. REPRODUCTION OF PROPRIETARY INFORMATION. Employee stipulates that he will not, at any time, make any reproduction, copy, abstract, summary and/or precis of the whole or of any part of any Proprietary Information without the prior express written consent of the Company, in which case said reproduction, copy, abstract, summary and/or precis shall remain the property of the Company. 12. CONFIDENTIALITY. Employee stipulates that he shall keep any and all Proprietary Information obtained, during the term of this Agreement or any time thereafter, in the strictest of confidence and secrecy. 13. NON-DISCLOSURE. Employee stipulates that he shall not, during the term of this Agreement or any time thereafter, in any way or by any means, disclose, disseminate and /or distribute any Proprietary Information to any third party without the prior express written consent of the Company. 14. NON-CIRCUMVENTION. Employee stipulates that he shall not, during the term of this Agreement or any time thereafter, in any way or by any means implement and /or use any Proprietary Information, circumvent, usurp an opportunity, take advantage of and/or benefit from, through the exclusion of the Company, any Proprietary Information obtained. 15. INJUNCTIVE RELIEF. The Employee recognizes and agrees that, a breach of this Agreement will cause irreparable harm to FutureOne and no amount of monetary damages can adequately compensate FutureOne for the injury that would be caused by said breach. Accordingly, Employee hereby stipulates that should FutureOne have a good faith reason to believe that Employee is breaching or taking steps to breach any material provision of this Agreement then FutureOne shall be entitled to immediate issuance of an ex-parte temporary restraining order, by a Court, enjoining the Employee from engaging in the opposed activities. 16. WAIVER. A Party's failure to insist on compliance or enforcement of any provision of this Agreement shall not effect the validity or enforceability or constitute a waiver of future enforcement of that provision or any other provision of this Agreement by that Party or any other party. 17. LAW, JURISDICTION AND VENUE. This Agreement shall in all respects be exclusively subject to, and governed by, the laws of the state of Arizona. Exclusive venue and jurisdiction for any and all disputes shall lie in Maricopa County, Arizona. The Parties hereto stipulate that any dispute arising out of this Agreement shall be submitted to binding arbitration in Arizona pursuant to the arbitration rules and regulations, as codified in the Arizona Revised Statutes. 6 18. VALIDITY. The invalidity or unenforceability of any provision in this Agreement shall not in any way effect the validity or enforceability of any other provision and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had never been in this Agreement. 19. NOTICE. All notices and other communications provided for or permitted hereunder shall be made by hand delivery, overnight courier, certified or registered mail, postage prepaid and return receipt requested, telex or facsimile transmission. If to the Company If to Employee 4250 E. Camelback Rd., Ste. K-192 4545 E. Caida del Sol Dr. Phoenix, Arizona 85018-2751 Paradise Valley, AZ 85253 Fax: 602-852-9727 Fax: 480-905-0856 All such notices shall be deemed to have been duly given: when delivered, by hand if personally delivered; and the next day, after being sent by overnight courier; and when received, if by mail; and when received (as electronically acknowledged), if by facsimile transmission. 20. AMENDMENTS. This Agreement may be amended, at any time, only by the written mutual consent of the Parties hereto, with any such Amendment to be invalid unless it is both written and signed by both Parties. 21. LEGAL FEES AND COSTS. The Parties hereby stipulate and agree that in the event that a dispute arises between the Parties, relating to this Agreement, and one or both of the Parties deem it necessary to hire an attorney to protect its rights and/or resolve said dispute, then the prevailing Party, in any action, shall be entitled to recover and collect, from the non-prevailing Party, all reasonable attorney's fees and costs incurred. 22. ENTIRE AGREEMENT. This Agreement contains the entire agreement and understanding by and between the Parties and no representations, promises, agreements and/or understandings, written or oral, relating to this Agreement by either Party not contained herein shall be of any force or effect. IN WITNESS WHEREOF, The Company and Employee have duly executed this Agreement this 11th day of January, 1999. FutureOne, Inc. Employee /s/ Earl J. Cook /s/ Bruce A. Robson - --------------------------------- ------------------------------------ By: Earl J. Cook By: Bruce A. Robson Its: Executive Vice President EX-6.30 20 EX-6.30 1 EXHIBIT 6.30 EMPLOYMENT AGREEMENT THIS AGREEMENT made this 31st day of March 1999, by and between FutureOne, Inc., an Arizona corporation (hereinafter called "Company"), and R. Tucker Woodbury (hereinafter called "Employee") shall be effective as of April 1, 1999. RECITALS WHEREAS, the Company, located in Phoenix, Arizona, is a full service communications company providing Internet access, Website development and hosting, customer software development, advertising agency services, computer sales and services and communications and networking solutions; and WHEREAS, the Company desires to enter into an employment relationship with Employee pursuant to the terms and conditions set forth herein; and WHEREAS, Employee is willing to accept such employment with the Company, pursuant to the terms and conditions set forth in this Agreement; and NOW THEREFORE, the Parties hereto, in consideration of the mutual covenants and promises hereinafter contained, do hereby agree as follows: TERMS 1. EMPLOYMENT DUTIES. The Company hereby employs Employee to perform the following duties as the Director of Advertising Services: a. Manage the affairs of Ubiquity as a wholly owned division of FutureOne and be responsible for sales and purchasing, hiring, firing and supervision of personnel and overall supervision of the division. b. Carry out other duties as may be assigned from time to time by executive management or the Board of Directors of FutureOne. 2. PERFORMANCE. Employee agrees to devote all of the time and effort necessary to perform the duties described in Section 1 above in a manner satisfactory to the Company and to perform such other duties as are assigned to him from time to time by the Officers or Board of Directors of the Company. 3. TERM. Except as provided in Section 7 below, the term of this Contract shall be three (3) years from the effective date hereof. This Agreement shall automatically renew for periods of one year, unless earlier terminated in accordance with the provisions of Section 7 below or either party gives written notice, at least thirty days (30) prior to the automatic renewal date, of their intention not to renew this Agreement. 2 4. COMPENSATION. In consideration for the services to be rendered by Employee in his capacity hereunder, Employee shall be compensated as follows: a. An annual salary of Seventy Thousand and 00/100 Dollars ($70,00), which shall be payable in equal installments based on the Company's normal pay periods. b. Employee salary, may be adjusted by mutual consent of the parties at any time during the term of this contract or any subsequent extension hereof. In addition, the Company may provide other employment benefits as per Section 5 below. 5. EMPLOYEE BENEFITS. The Company, at its sole discretion, may provide certain group benefits to all full time employees and agrees that Employee will be covered by any such plans adopted by the Company while he is a full time employee and Employee hereby agrees to submit to any medical or other examination and to execute and deliver any application or other instrument in writing, reasonably necessary to effectuate such plans and benefits. 6. EXPENSES. The Company will reimburse the Employee for all reasonable and necessary business expenses which are approved in advance by the Company. 7. TERMINATION. Employment under this Agreement may be terminated as follows: a. DEATH/EXPIRATION OF THIS AGREEMENT WITHOUT RENEWAL. By Employee's death or upon the expiration of the term of this Agreement and the Company shall be obligated, in either event, to pay Employee his normal compensation up to the actual date of termination, a prorated bonus and benefits actually due Employee up to the actual date of death or expiration of the Agreement. b. TOTAL DISABILITY. For the purpose of this Agreement, the term "total disability" means Employee's inability, because of serious physical and/or mental injury, illness or impairment, certified by a licensed medical doctor and by whatever supporting documents are requested by the Company, to perform his assigned duties for more than sixty (60) consecutive days; and the Company shall be obligated, in that event, to pay Employee his normal compensation up to the actual date of termination, a prorated bonus and benefits actually due up to the date of disability. c. EMPLOYEE NOTICE. At the election of Employee upon thirty (30) days written notice to Company, in such event, the Company shall only be obligated to pay Employee his normal compensation and benefits actually due Employee up to the date of termination. Upon receipt of such notice from Employee, the Company, at its sole discretion, may terminate this Agreement immediately and pay Employee only his normal compensation and benefits actually due Employee up to the Company's elected date of termination. d. WITHOUT CAUSE. Company may terminate without cause and for any reason Employee's employment upon thirty (30) days written notice to Employee. If 3 Employee is terminated without cause he shall be entitled to be paid, his compensation up to the actual date of termination and benefits actually due Employee up to the date of termination. e. WITH CAUSE. Employee's employment may be terminated for cause at any time upon five (5) days written notice. For the purpose of this Agreement "for cause" is defined to include, but not be limited to the following: (i) intentional or unintentional acts by Employee having the effect or causing significant harm to the business interests of the Company; (ii) the failure of Employee to devote all of his time, energies and efforts to the performance of his duties; (iii) the conviction of Employee of any felony crime involving an act of moral turpitude; (iv) the violation of any specific written direction of the Board of Directors relating to services to be rendered by him or the scope of his duties as contemplated by this Agreement; (v) the commission by Employee of any other material breach of this Agreement, and to the extent that this act is curable, Employee has not cured it within five (5) business days following receipt of notice of said material breach. Any notice to Employee shall specify the facts and circumstances claimed to provide the basis for such termination. In the event of termination of this Agreement under this section, the Company shall only be obligated to pay Employee his normal compensation and actual benefits due up to the actual date of termination. f. DEFAULT. Employee shall have the option to immediately terminate this agreement if the Company fails to comply with the terms and conditions of this Agreement, but only if such default or breach of this Agreement is not caused, directly or indirectly, by Employee in his managerial and fiduciary capacity under this Agreement, whereby Employee's, intentional or unintentional, acts have caused the Company, through lack of work or excess expenditures, to be unable to meet its financial obligations under this Agreement. Upon failure of the Company to meet any of its obligations due Employee under this Agreement or there is any other material breach of this Agreement, and to the extent that it is curable, Employee shall give written notice to the Company and shall specify the facts and circumstances claimed to be a breach of this Agreement. The Company shall have five (5) business days following receipt of such written notice to cure such alleged breach. If said breach is not cured by the Company within such time period then it shall be deemed as if the Company has terminated this Agreement "Without Cause" and Employee shall be entitled to all amounts due hereunder as if the Agreement had not been terminated. 8. AGREEMENT NOT TO COMPETE. Employee hereby agrees and stipulates that he shall not compete, in any business engaged in by the Company, either directly or indirectly, or compete in any other way with the business opportunities of the Company, for any period that he is receiving any compensation from the Company under this Agreement and not less than one (1) year from the date of any termination of this Agreement as provided in Section 7 of this Agreement, without the express written permission of the Company. Employee hereby further acknowledges, agrees and stipulates, that he has received fair and adequate consideration, in the form of stock and/or cash, in exchange for this Agreement. The Parties agree that in the event that Woodbury is terminated from employment by FutureOne, this provision shall not be construed so as to prevent Woodbury from accepting employment in the advertising industry in any position that does not involve soliciting the existing clients of FutureOne. 4 9. PROPRIETARY INFORMATION. Employee shall treat as information proprietary to FutureOne any and all data and/or information discovered and/or disclosed and shall not, directly or indirectly, use any such information and/or data for his own benefit or disclose or fail to use its best efforts to prevent the disclosure of the same to any other person or entity for any purpose or reason whatsoever, during the term of this Agreement or at any time thereafter. 10. PROPRIETARY INFORMATION DEFINED. Proprietary information includes but is not limited to unique concepts, products, services, company/corporate strategy and business development, including plans relating to this acquisition, expansion, marketing, financials, client lists and other business information, operating information, policies, practices and processes, database and networking systems, information relating to employees, customers, prospective customers and suppliers, whether such information is documented, contained electronically and/or contained on any other medium. 11. REPRODUCTION OF PROPRIETARY INFORMATION. Employee stipulates that he will not, at any time, make any reproduction, copy, abstract, summary and/or precis of the whole or of any part of any Proprietary Information without the prior express written consent of the Company, in which case said reproduction, copy, abstract, summary and/or precis shall remain the property of the Company. 12. CONFIDENTIALITY. Employee stipulates that he shall keep any and all Proprietary Information obtained, during the term of this Agreement or any time thereafter, in the strictest of confidence and secrecy. 13. NON-DISCLOSURE. Employee stipulates that he shall not, during the term of this Agreement or any time thereafter, in any way or by any means, disclose, disseminate and/or distribute any Proprietary Information to any third party without the prior express written consent of the Company. 14. NON-CIRCUMVENTION. Employee stipulates that he shall not, during the term of this Agreement or any time thereafter, in any way or by any means implement and/or use any Proprietary Information, circumvent, usurp an opportunity, take advantage of and/or benefit from, through the exclusion of the Company, any Proprietary Information obtained. 15. INJUNCTIVE RELIEF. The Employee recognizes and agrees that, a breach of this Agreement will cause irreparable harm to FutureOne and no amount of monetary damages can adequately compensate FutureOne for the injury that would be caused by said breach. Accordingly, Employee hereby stipulates that should FutureOne have a good faith reason to believe that Employee is breaching or taking steps to breach any material provision of this Agreement then FutureOne shall be entitled to immediate issuance of an ex-parte temporary restraining order, by a Court, enjoining the Employee from engaging in the opposed activities. 16. WAIVER. A Party's failure to insist on compliance or enforcement of any provision of this Agreement shall not effect the validity or enforceability or constitute a waiver of future enforcement of that provision or any other provision of this Agreement by that Party or any other party. 5 17. LAW, JURISDICTION AND VENUE. This Agreement shall in all respects be exclusively subject to, and governed by, the laws of the State of Arizona. Exclusive venue and jurisdiction for any and all disputes shall lie in Maricopa County, Arizona. The Parties hereto stipulate that any dispute arising out of this Agreement shall be submitted to binding arbitration in Arizona pursuant to the arbitration rules and regulations, as codified in the Arizona Revised Statutes. 18. VALIDITY. The invalidity or unenforceability of any provision in this Agreement shall not in any way effect the validity or enforceability of any other provision and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had never been in this Agreement. 19. NOTICE. All notices and other communications provided for or permitted hereunder shall be made by hand delivery, overnight courier, certified or registered mail, postage prepaid and return receipt requested, telex or facsimile transmission. 20. If to the Company If to Employee 4250 East Camelback Road 4429 North 47th Street Suite K-192 Phoenix, Arizona 85018 Phoenix, Arizona 85018-2751 Fax: ______________ Fax: 602-852-9727 All such notices shall be deemed to have been duly given: when delivered, by and is personally delivered; and the next day, after being sent by overnight courier; and when received, if by mail; and when received (as electronically acknowledged), if by facsimile transmission. 21. AMENDMENTS. This Agreement may be amended, at any time, only by the written mutual consent of the Parties hereto, with any such Amendment to be invalid unless it is both written and signed by both Parties. 22. LEGAL FEES AND COSTS. The Parties hereby stipulate and agree that in the event that a dispute arises between the Parties, relating to this Agreement, and one or both of the Parties deem it necessary to hire an attorney to protect its rights and/or resolve said dispute, then the prevailing Party, in any action, shall be entitled to recover and collect, from the non-prevailing Party, all reasonable attorney's fees and costs incurred. 23. ENTIRE AGREEMENT. This Agreement contains the entire agreement and understanding by and between the Parties and no representations, promises, agreements and/or understandings, written or oral, relating to this Agreement by either Party not contained herein shall be of any force or effect. IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement this 31st day of March, 1999. FutureOne, Inc. Employee /s/ Earl J. Cook /s/ R. Tucker Woodbury - --------------------------------- -------------------------------- By: Earl J. Cook, Executive Vice President By: R. Tucker Woodbury EX-6.31 21 EX-6.31 1 Exhibit 6.31 EMPLOYMENT AGREEMENT THIS AGREEMENT (this "Agreement") is made this 1st day of January 2000, between FutureOne, Inc., a Nevada corporation ("Employer"), and Alan Hald ("Employee"). The Employer and the Employee are collectively referred to herein as the "Parties." The Parties wish to provide for employment and future services of Employee upon the terms and conditions set forth in this Agreement. The Parties, intending to be legally bound hereby, agree upon the following terms of employment of Employee by Employer. 1. TERM. Subject to the provisions of Section 5 hereof, the term of Employee's employment (the "Initial Employment Term") hereunder shall commence January 1, 2000 (the "Effective Date"), and shall continue for a period of six months from such Effective Date; provided, however, that upon the mutual consent of the Parties, the Employee's employment hereunder may be extended for an additional six months (the "Subsequent Employment Term" and, together with the Initial Employment Term, the "Employment Term"). 2. EMPLOYMENT AND DUTIES. Subject to the provisions of Section 5 hereof, Employer agrees to employ Employee as its Executive Chairman of the Board or such other position as Employer and Employee may agree during the Employment Term, and Employee agrees to remain in the employ of Employer during the Employment Term. Employee agrees to perform all duties for Employer as may be requested by the Board, including, without limitation, general corporate advisory functions and management duties, such as conducting regular staff and division head meetings, assisting with Employer's capital formation efforts, and assisting with Employer's search for additional key management personnel. Employee will have such authority, power and responsibilities and duties as are inherent to Employee's position and necessary to carry out Employee's responsibilities and the duties required of Employee's office hereunder. 3. PERFORMANCE BY EMPLOYEE. Except as otherwise may be directed or approved by Employer from time to time, during the period of employment under this Agreement, Employee shall perform Employee's duties competently and efficiently and shall dedicate the amount of time and efforts necessary to perform in such manner. The Agreement does not restrict Employee from continuing his consulting practice as an advisor and a member of the board of directors of other companies, his work with ASU or civic activities during the term of this Agreement. 4. COMPENSATION AND BENEFITS. A. Compensation. For all services to be performed by Employee during the Employment Term, Employee shall receive a salary of Ten Thousand and No/Dollars ($10,000.00) per month (the "Base Salary"), payable in two equal installments on the first and fifteenth day of each month, during the Employment Term. B. Bonus. Upon signing the Agreement the Employee shall receive a signing bonus of $20,000. The Board may award Employee such additional bonuses, from time to time, subject to limitations imposed by agreement with lenders or others, as the Board may see fit, commensurate with Employee's performance and overall performance of Employer. 2 C. Warrants. For all services to be performed by Employee during the Employment Term, Employee shall receive warrants ("Warrants") to purchase 70,000 shares of common stock of the Employer at an exercise price of $1.00 per share, each of which if not sooner exercised shall expire seven (7) years from the date of issuance, for each month during the Initial Employment Term in which the Employee is employed by Employer. Each Warrant issued pursuant to this Section 4(C) shall be in substantially the form of Exhibit A attached hereto and shall be issued to Employer within five days following the end of each month during the Initial Employment Term in which Employee is employed. D. Transaction Bonus. In the event the Employer closes a public offering, private placement, sale of Employer or merger ("Transaction") in an aggregate amount valued at least $10,000,000 during the term of this Agreement, Mr. Hald shall receive payment from the Employer in the cash amount of 1% of the Transaction ("Cash Amount") and an amount of warrants, equal to the Cash Amount divided by the strike price of the warrant. Such warrants shall have a strike price of $1.00 per share, shall expire seven (7) years from the date of issuance and shall be in substantially the form of Exhibit A attached hereto. E. Participation in Employee Benefit Plans. In addition to any cash compensation payable hereunder, Employee shall be entitled to participate in the various employee benefits generally made available to other employees of Employer. Nothing in this Section 4(E) shall require the Board or any committee thereof to exercise its discretion in favor of Employee in awarding any discretionary benefit. F. Vacation. Employee shall be entitled up to ten (10) days of paid vacation during the Initial Employment Term, subject to any increases approved by the Board. Employer shall first approve the time or times during which vacation is taken. G. Expenses. It is understood that Employee will from time to time incur reasonable expenses in conjunction with Employee's employment. Employer will reimburse Employee for any such expenses of which Employee shall present an itemized written account within thirty (30) days after they have been incurred. Employee will not be reimbursed for expenses in substantial amounts unless they have been approved in advance by Employer. H. Personal Expenses. Notwithstanding anything to the contrary in this Agreement, Employee understands and agrees that Employee shall not receive any personal perquisites (other than as set forth in this Section 4) nor receive reimbursement for any personal expenses. 5. TERMINATION. This Agreement shall be terminated upon the happening of any of the following events: A. Death. Employee's death; B. Disability. In the event Employee becomes physically or mentally disabled so as to become unable, for a period of more than thirty (30) consecutive calendar days or for more than sixty (60) calendar days in the aggregate during any six-month period, to perform Employee's duties hereunder, Employer may at its option terminate Employee's employment hereunder upon written notice; -2- 3 C. Cause by Employer. Employer may terminate Employee's employment hereunder for Cause. "Cause" shall include but not be limited to: (i) dishonesty in connection with the duties to be performed by Employee; (ii) an adjudication in a criminal or civil proceeding that Employee has committed a fraud or any felony; or (iii) violation of any of the provisions of this Agreement, including without limitation, Sections 6 and 7 hereunder; or D. Cause by Employee. Employee may terminate this agreement hereunder for cause. "Cause" shall include but not be limited to: (i) Employers failure to perform their obligations under Agreement (ii) Majority change in ownership or merger of Employer where the Employer is not the surviving corporation (iii) Board of Director actions which cause the Employer to violate standard accounting practices; or federal, state or local regulations or law; or failure to maintain prudent and reasonable levels of Employer director's and officer's insurance; or E. Stockholder or Director Action. Employer may immediately and without notice terminate Employee's employment hereunder in the event the Company's stockholders or directors take action to remove Employee from the Employee's Board of Directors during the Employment Term or do not elect Employee as a director pursuant to Delaware General Corporation Law, the Employer's Amended and Restated Articles of Incorporation or the Employer's Bylaws. 6. COMPENSATION UPON TERMINATION OF EMPLOYMENT. If Employee's employment is terminated pursuant to Section 5, the Employer shall: (1) pay Employee (or his estate or beneficiaries) any Base Salary that has accrued but has not been paid as of the termination date; (2) reimburse Employee (or his estate or beneficiaries) for expenses incurred by him prior to the date of termination that are subject to reimbursement pursuant to Section 4(G) hereof; (3) provide to Employee (or his estate or beneficiaries) any accrued benefits required to be provided by the terms of any Employer-sponsored benefit plans or programs, together with any benefits required to be paid or provided in the event of Employee's death or disability under applicable laws; (4) pay Employee (or his estate or beneficiaries) any discretionary bonus that has been authorized by the Board of Directors and has accrued and been earned but has not been paid; and (5) Upon termination as a result of section 5 A., B., D. or E., or termination of Employee without cause, Employee or in the case of A., his estate, will be granted warrants equal to the amount he would have received if he was employed for the full six month Initial Term as specified -3- 4 in section 4 C. In addition, upon termination as a result of section 5 D., or termination of Employee without cause, Employee shall receive a lump sum payment at termination equal to the amount that would have been paid under section 4 had the Employee completed the entire Employment Term; and if the Employer closes a Transaction before January 1, 2001 then Employee shall also be entitled to the Transaction Bonus in section 4D. 7. Confidential Information; Proprietary Information. A. Definitions. (i) "Confidential Information" means: (i) this Agreement; (ii) any trade secrets relating to Employer's product plans, designs, costs, prices and names, finances marketing plans, business opportunities, personnel, research, development or know-how and any other non-public technical or business information; (iii) any information or materials marked or identified as confidential; and (iv) any information or materials identified by Employer in writing as confidential. Confidential Information shall not include information that: (i) is now or subsequently becomes generally available to the public through no fault or breach on the part of Employee; (ii) Employee can demonstrate to have had lawfully in his possession without an obligation of confidentiality prior to disclosure hereunder; or (iii) Employee lawfully obtains from a third party who has the right to transfer or disclose it and who provides it without any obligation to maintain the confidentially of such information. (ii) "Proprietary Information" means all materials of Employer, including, but not limited, to any computer software (in object code and source code form), script, programming code, data, information, custom developed solutions of Employer, and any trade secrets, know-how, methodologies and processes related to Employer's products or services, including, without limitation, all copyrights, trademarks, patents, trade secrets, and any other proprietary rights inherent therein and appurtenant thereto. B. Nondisclosure and Restrictions. Employee shall treat confidential Information and Proprietary Information as confidential, and Employee shall not use Confidential Information or Proprietary Information for purposes other than those necessary to directly further the purposes of this Agreement. Employee shall protect Confidential Information and Proprietary Information from unauthorized dissemination and use with the same degree of care that Employee uses to protect Employee's own like information, but in no event less than a reasonable degree of care. Employee shall not disclose to any third party any Confidential Information or Proprietary Information without the prior written consent of Employer. Except as expressly provided in this Agreement, Employee shall not have any ownership or license rights in any Confidential Information or Proprietary Information. Employee will not, during or at any time after termination of this Agreement (for whatever reason), without authorization of Employer, disclose to, or make use of for Employee or for any person or corporation or other entity, any Confidential Information or Proprietary Information. C. Return. Upon the termination of this Agreement, or upon written request therefor, Employee shall return to Employer all Confidential Information and Proprietary Information and all files, lists, books, records, literature, products and any other material owned by Employer or used by Employer in connection with the conduct of its business, whether tangible or in electronic form. Each party acknowledges that all of the Confidential Information and Proprietary Information is the exclusive property of Employer and that the unauthorized disclosure or use of such Confidential -4- 5 Information or Proprietary Information would cause irreparable harm and significant injury, the monetary effect of which would be difficult to ascertain. D. Court-Ordered Disclosure. To the extent that any court or agency seeks to have Employee disclose Confidential Information or Proprietary Information, Employee will promptly inform Employer, and will take such reasonable steps at Employer's expense to prevent disclosure of Confidential Information and Proprietary Information until Employer has been informed of such requested disclosure, and Employer has an opportunity to respond to such court or agency. To the extent that Employee obtains information on behalf of Employer that may be subject to attorney-client privilege as to Employer's attorneys, Employee will take reasonable steps to maintain the confidentiality of such information and to preserve such privilege. 8. COVENANT NOT TO COMPETE AND NONSOLICITATION. A. Restrictive Covenant. During the Employment Term and for a period of one (1) year after termination of this Agreement, Employee shall not, within the Restricted Area as hereinafter defined, directly or indirectly own, operate, control, be employed by, participate in, or be connected in any way with the ownership, management, operation or control of any Restricted Business. For the purposes of this Agreement, Restricted Business is specifically limited to those businesses engaged primarily in the installation of fiber optic cable and delivery of voice, video and data services through that cable to new residential developments. For purposes of this Section 7(A), the "Restricted Area" means the states of Arizona and Colorado. However, this section shall not apply to Employee if Employee is terminated in accordance with sections 5 D, E or termination of Employee without cause. B. Solicitation of Customers or Employees. In furtherance of the foregoing, and not in limitation thereof, during the Employment Term and for a period ending one (1) year after termination of this Agreement, for whatever reason, Employee shall not, directly or indirectly solicit or service in any way, for the purpose of competing directly with Employer in Restricted Businesses and within Restricted Areas, on behalf of Employee or on behalf of or in conjunction with others, any client or customer, or prospective client or customer, which has been solicited or serviced by Employer or any affiliate of Employer during the Employment Term. So long as Employee remains employed by Employer and for a period ending one (1) year after termination of such employment, Employee shall not solicit any employee of Employer or any of its affiliates to become employed by or otherwise associated with Employee in any other business. Employee shall be deemed to be competing with Employer or soliciting a customer, prospective customer or employee of Employer if Employee is engaged in any such activity directly, whether for Employee's own account or as a principal, agent, proprietor, officer, director, employee, Employee or in any other capacity for any other person, corporation or other entity. The foregoing provision, however, shall not prohibit Employee from investing in securities of any corporation whose securities are listed on a national securities exchange or traded in the over the counter market if Employee shall be the owner, beneficially or of record, of less than five percent (5%) of any class of the stock of such corporation. C. Extension of Period. If Employee violates this Section 8 and Employer brings legal action for injunctive or other relief, Employer shall not, as a result of the time involved in obtaining such relief, be deprived of the benefit of the full period of the restrictive covenants. Accordingly, the restrictive covenants shall be deemed to have the duration specified in this Section 8 hereof, computed from the date such relief is granted but reduced by the time expired between the date the period of restriction began to run and the date of the first violation of the covenant by Employee. -5- 6 D. Reformation or Judicial Modification. Employee acknowledges and agrees that the duration and other limitations set forth in this Section 8 have been specifically discussed and negotiated and are reasonable in view of all the facts and circumstances known to Employee. Nevertheless, if any court shall determine that such duration or other limitations are unenforceable, the restrictions set forth herein shall be deemed modified to apply for the maximum duration and other limitations which are reasonable in view of all the facts and circumstances, and the Agreement shall be reformed to that extent. E. Representations, Warranties and Covenants. Employee represents, warrants and covenants that (a) Employee has all necessary right, power and authority to enter into this Agreement and perform Employee's obligations under this Agreement, (b) the execution of this Agreement and the performance of Employee's obligations hereunder do not and will not conflict with or cause any default under or breach of any other agreement or contract to which Employee is a party or will become a party; (c) Employee's performance of this Agreement shall be conducted in full compliance with any and all applicable agreements, laws, rules, ordinances, and regulations adopted or required by any governmental agency or regulatory body, or other party, whether foreign, federal, state, municipal, city, town, or local, and (d) Employee is currently a resident of the United States of America and has no plans to become a resident of a country other than the United States of America or otherwise take any action which would exclude Employee from taxation by the United States of America during the Employment Term. 9. REMEDIES OF EMPLOYER. As an Employee of Employer, Employee may have access to Confidential Information and Proprietary Information of Employer. Moreover, Employee's continued employment relationship with Employer will be instrumental to the continuity and development of Employer's business. Employee therefore acknowledges that the restrictions contained in Sections 7 and 8 of this Agreement are a reasonable and necessary protection of the legitimate interests of Employer, that any violation of them could cause substantial injury to Employer, and that Employer would not have entered into this Agreement with Employee without receiving the additional consideration of Employee being bound to said restrictions. In the event of any violation of the said restrictions, Employer shall be entitled, in addition to any other remedy, to preliminary and permanent injunctive relief, including attorneys' fees and costs incurred in enforcing this Agreement. The rights and remedies provided hereunder are cumulative and the use of any one right or remedy shall not preclude or waive the right to use any or all other remedies. Said rights and remedies are given in addition to any other rights available by law, statute, and ordinance or otherwise. 10. WORK PRODUCT; FURTHER ASSURANCES. A. "Work Product" shall mean documentation, software, creative works, know-how, information, or any other item created, designed, or produced in whole or in part, by Employee, during the term of this Agreement and pursuant to this Agreement whether or not copyrightable or otherwise protectable. Employee hereby assigns to Employer without addition consideration to Employee, the entire right title and interest in and to the Work Product and all proprietary rights therein or based thereon. B. Further Assurances. Employee will keep Employer informed of, and will execute such assignments as may be necessary to transfer to Employer or its affiliates the benefits of, any inventions, discoveries, improvements, trade secrets, developments, processes, and procedures -6- 7 made by Employee, in whole or in part, or conceived by Employee either alone or with others, which results from any work which Employee has done or may do for or at the request of Employer, and will assist Employer, or other entity nominated by it, to obtain patents, trademarks and service marks and to execute all documents and to take all other actions which are necessary or appropriate to secure to Employer and its affiliates the benefits thereof. Employee will deliver to Employer all sketches, drawings, models, figures, plans, outlines, descriptions or other information with respect thereto. 11. NOTICES. All notices, requests, demands and other communications required under this Agreement shall be in writing and shall be deemed duly given and received (i) if personally delivered, on the date of delivery, (ii) if mailed, three (3) days after deposit in the United States mail, registered or certified, return receipt requested, postage prepaid and addressed as provided below, or (iii) if by a courier delivery service providing overnight or "next-day" delivery, on the next business day after deposit with such service, addressed as follows: If to Employer: FutureOne, Inc. 4250 East Camelback Road, Suite K-192 Phoenix, Arizona 85018 Attention: President If to Employee: Alan Hald 5350 E Calle del Medio Phoenix, Arizona 85018 Any party may change its above-designated address by giving the other party written notice of such change in the manner set forth herein. 12. MISCELLANEOUS. Employer and Employee hereby acknowledge and agree that (a) this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, executors, administrators, personal representatives, successors and permitted assigns of any of the parties to this Agreement, (b) no waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver, and no waiver shall be binding unless executed in writing by the party making the waiver, (c) except as expressly provided herein, this Agreement shall be construed in accordance with, and governed by, the laws of the State of Arizona, without regard to the application of conflicts of law principles, (d) in the event an action or suit is brought by any party hereto to enforce the terms of this Agreement, the prevailing party shall be entitled to the payment of reasonable attorneys' fees and costs, as determined by the judge of the court, (e) this Agreement constitutes the entire agreement among the parties and supersedes all prior and contemporaneous agreements and understandings of the parties with respect to the subject matter hereof, (f) no supplement, modification or amendment of this Agreement or any exhibit hereto shall be binding and enforceable unless executed in writing by both parties hereto, (g) headings contained in this Agreement are inserted only as a matter of convenience and in no way define, limit extend or describe the scope of this Agreement or of any provision hereof, (h) this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, (i) Employer will not be liable to Employee for, or be considered to be in breach of or default under this Agreement on account of, any delay or failure to perform as required by this Agreement as a result of any cause or condition beyond Employer's reasonable control (including, without limitation power surges, civil unrest, strikes, acts of government, or acts of God), (j) in no -7- 8 event shall Employer be liable to Employee, whether in contract, warranty, tort (including negligence) or otherwise, for any special, incidental, indirect or consequential damages (including, without limitation, damages for any loss of profit, revenue or business) arising out of or in connection with this Agreement, (k) Employee may not assign or otherwise transfer this Agreement or any of Employee's rights and obligations hereunder or any portion thereof without the prior written consent of Employer, (1) Sections 7, 8, 9, 10, and 11 of this Agreement shall survive any expiration or earlier termination of this Agreement except if Agreement is terminated in accordance with section 5 D, E or termination of Employee without cause,, and (m) if any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, illegality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. /s/ Alan Hald ----------------------------------------- Alan Hald, Employee FUTUREONE, INC. By: /s/ Earl J. Cook -------------------------------------- Name: Earl J. Cook ------------------------------------ Title: President ---------------------------------- -8- EX-6.32 22 EX-6.32 1 Exhibit 6.32 PROMISSORY NOTE $250,000.00 Phoenix, Arizona October 8, 1999 For value received the undersigned promises to pay to the order of Richard B. McCulloch at Phoenix, Arizona, or such other place as the holder may designate, the sum of TWO HUNDRED FIFTY THOUSAND & 00/100 DOLLARS ($250,000.00). Interest at the rate of FIFTEEN PERCENT (15%) per annum shall accrue from the date of this note. All payments shall apply first to interest and the balance to principal. The entire principal and interest shall be due and payable on or before February 8, 2000. All principal and interest under this note shall be payable in lawful money of the United States. The Maker hereof, hereby waives grace, presentment, demand, notice of dishonor and protest. If suit shall be brought to recover on this note or to enforce any of its terms or provisions the prevailing party shall be entitled to reimbursement of reasonable attorney fees. As additional consideration for the loan evidenced by this note, maker shall grant to payee, TWO HUNDRED FIFTY THOUSAND (250,000) Warrants to purchase restricted common stock of the maker for a price of ONE DOLLAR ($1) per share and such Warrants shall expire October 7, 2006. MAKER FutureOne, Inc. (a Nevada corporation) By: /s/ Kendall Q. Northern By: /s/ Earl J. Cook President Treasurer EX-6.33 23 EX-6.33 1 Exhibit 6.33 THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. FUTUREONE, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Richard B. McCulloch (the "Holder") is entitled to subscribe for and purchase Two Hundred Fifty Thousand (250,000) shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock (as defined below) of FutureOne, Inc., a Nevada corporation (the "Company"), at the Warrant Price (as defined in Section 2 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized common stock, $.001 par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged. 1. Term of Warrant. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during the period beginning on the date hereof and ending on the seventh (7th) anniversary of the date hereof. 2. Warrant Price. The initial exercise price of this Warrant is $1.00 per share, subject to adjustment from time to time pursuant to the provisions of Section 5 hereof (the "Warrant Price"). 3. Method of Exercise; Payment; Issuance of New Warrant; Exercise. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased (the "Aggregate Exercise Price") either (i) by cash, check or wire transfer, (ii) by Cashless Exercise (as defined below) or (iii) by cancellation by the Holder of indebtedness of the Company to the Holder. The holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment or loan forgiveness otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect 2 instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"): Net Number = (A x B) - (A x C) ----------------- B For purposes of the foregoing formula: A = the total number of shares with respect to which this Warrant is then being exercised. B = the Market Price as of the date of the Exercise Notice. "Market Price" means, with respect to any security for any date of determination that price which shall be computed as the arithmetic average of the closing bid prices for such security on each of the five (5) consecutive trading days immediately preceding the date of notice requiring such determination (all such determinations to be appropriately adjusted for any stock dividend, stock split or similar transaction during the pricing period). C = the Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise. The Company agrees that the shares purchased pursuant to this Section 3 shall be deemed to be issued to the Holder hereof or the designee of the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder hereof or the designee of the Holder hereof within 15 days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder hereof within such 15-day period. 4. Stock Fully Paid; Reservation of Shares. All Common Stock that may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, the full number of shares of Common Stock or other security then deliverable upon exercise of this Warrant. 5. (a) Adjustment for Dividends in Other Stock and Property; Reclassifications. In case at any time or from time to time the holders of the Common Stock (or 2 3 any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, (1) other or additional stock or other securities or property (other than cash) by way of dividend, (2) any cash or other property paid or payable out of any source, or (3) other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement, (other than (x) shares of Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities), then and in each such case a holder, upon the exercise hereof as provided in Section 3, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which such holder would hold on the date of such exercise if as of the date hereof (the "Issuance Date") such holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant, and had thereafter, during the period from the Issuance Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clause (2) and (3) above) receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 5(a) and 5(b). (b) Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the exercise of this Warrant) or reclassification of its securities after the Issuance Date, or the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey or exchange all or substantially all its assets to another corporation or entity, then and in each such case the holder of this Warrant, upon the exercise hereof as provided in Section 3 at any time after the consummation of such reorganization, reclassification, consolidation, merger, conveyance or exchange, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Sections 5(a), (b), (c) and (d); in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation. (c) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time makes, or fixes a record date for the determination of holders of 3 4 Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) entitled to receive, a dividend or other distribution payable in additional shares of (x) Common Stock or any other stock or securities into which such Common Stock shall have been exchanged, or (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities, then and in each such event (1) the Warrant Price then in effect shall be decreased as of the time of the issuance of such additional shares or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Warrant Price then in effect by a fraction (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Warrant Price shall be recomputed accordingly as of the close of business on such record date, and thereafter the Warrant Exercise Price shall be adjusted pursuant to this Section 5(c) as of the time of actual payment of such dividends or distributions; and (2) the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be increased, as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, in inverse proportion to the decrease in the Warrant Price. (d) Stock Split and Reverse Stock Split. If the Company at any time or from time to time effects a stock split or subdivision of the outstanding Common Stock, the Warrant Price then in effect immediately before that stock split or subdivision shall be proportionately decreased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately increased. If the Company at any time or from time to time effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Warrant Price then in effect immediately before that reverse stock split or combination shall be proportionately increased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately decreased. Each adjustment under this Section 5(d) shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective. 6. Notice of Adjustments. Whenever any adjustment is required to be made as provided in Section 5, the Company shall promptly notify the Holder, describing in reasonable detail the adjustment and method of calculation used. 7. Fractional Shares. In the sole discretion of the Company, instead of any fraction of a share which would otherwise be issuable upon exercise of the Warrant, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the 4 5 market price per share of Common Stock (as reasonably determined in good faith by the Board of Directors of the Company), at the close of business on the date of exercise. 8. Compliance with the Act. The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Act or any state securities laws. 9. Miscellaneous. (a) No Rights as Stockholder. Except as otherwise specifically provided herein, no holder of this Warrant, solely by virtue of such holding, shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether a reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance of the shares of Common Stock which the Holder is then entitled to receive upon the due exercise of this Warrant. (b) Replacement. On receipt of an executed Lost Warrant Affidavit in substantially the form annexed hereto as Exhibit B of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement, or bond reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder's expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) Notice. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given when delivered or telecopied or, if mailed, when mailed, if sent registered or certified, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Arizona without regard to conflicts of law principles. 5 6 IN WITNESS WHEREOF, this Warrant is executed as of the 7th day of October, 1999. FUTUREONE, INC., a Nevada corporation By: Name: Title: Date: 6 7 EXHIBIT A NOTICE OF EXERCISE TO: FUTUREONE, INC. 1. The undersigned hereby elects to purchase ____________ shares of Common Stock of FutureOne, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full in accordance with the provisions of the following section of the attached Warrant: ___ Section 3(i) ___ Section 3(ii) ___ Section 3(iii) 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: -------------------- (Name) -------------------- -------------------- (Address) 3. The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned will not offer, sell or otherwise dispose of any such shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities law. ------------------------------ Signature A - 1 8 EXHIBIT B FORM OF AFFIDAVIT OF LOSS STATE OF ) ) ss: COUNTY OF ) The undersigned (hereinafter "Deponent"), being duly sworn, deposes and says that: 1. Deponent is an adult whose mailing address is: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. Deponent is the recipient of a Warrant (the "Warrant") from FutureOne, Inc. (the "Company"), dated as of October 7, 1999 for the purchase of 250,000 shares of Common Stock, par value $.001 per share, of the Company, at an exercise price of $1.00 per share. 3. The Warrant has been lost, stolen, destroyed or misplaced, under the following circumstances: 4. The Warrant was not endorsed. 5. Deponent has made a diligent search for the Warrant, and has been unable to find or recover same, and Deponent was the unconditional owner of the Warrant at the time of loss, and is entitled to the full and exclusive possession thereof; that neither the Warrant nor the rights of Deponent therein have, in whole or in part, been assigned, transferred, hypothecated, pledged or otherwise disposed of, in any manner whatsoever, and that no person, firm or corporation other than the Deponent has any right, title, claim, equity or interest in, to, or respecting the Warrant. 6. Deponent makes this Affidavit for the purpose of requesting and inducing the Company and its agents to issue a new warrant in substitution for the Warrant. 7. If the Warrant should ever come into the hands, custody or power of the Deponent or the Deponent's representatives, agents or assigns, the Deponent will immediately and without consideration surrender the Warrant to the Company, its representatives, agents or assigns, its transfer agents or subscription agents for cancellation. B - 1 9 8. The Deponent in its sole discretion shall either (i) indemnify and hold harmless the Company from any claim or demand for payment or reimbursement of any party arising in connection with the subject matter of this Affidavit or (ii) provide the Company with a bond reasonable satisfactory to the Company in form and amount. Signed, sealed and dated: _________________________ ___________________________________ Deponent Sworn to and subscribed before me this _____ day of __________, ____ ______________________________________ Notary Public B - 2 EX-12.1 24 EX-12.1 1 Exhibit 12.1 ALVIN H. BENDER, C.P.A. P.O. Box 36203 Phoenix, Arizona 85067-6203 (602) 604-2354 Facsimile (602) 235-9040 December 23, 1999 U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Amendment No. 1 to the Registration Statement on Form 10-SB of FutureOne, Inc. Gentlemen: I have read the section titled "Changes In and Disagreements With Accountants" included in Amendment No. 1 to the Registration Statement on Form 10-SB of FutureOne, Inc. originally filed with the Securities and Exchange Commission on October 7, 1999, and I am in agreement with the statements contained therein. Very truly yours, Alvin H. Bender, C.P.A. /s/ Alvin H. Bender, C.P.A. - --------------------------- Alvin H. Bender AHB:as EX-12.3 25 EX-12.3 1 Exhibit 12.3 CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS We consent to the use of our report on the financial statements of FutureOne, Inc. dated December 29, 1999 and to the use of our report on the financial statements of OPEC CORP. dated June 8, 1999 in this Amendment No. 1 to Form 10-SB of FutureOne, Inc. /s/ ERNST & YOUNG LLP Phoenix, Arizona January 13, 2000 EX-27.2 26 EX-27.2
5 1 U.S. DOLLARS 12-MOS SEP-30-1999 OCT-01-1998 SEP-30-1999 1 160,032 0 2,811,164 140,000 2,701,096 6,423,757 4,287,679 614,963 17,762,435 8,407,742 0 0 0 12,891 6,670,168 17,762,435 2,058,341 11,132,285 2,161,646 9,678,576 5,274,228 96,997 247,155 (4,074,857) 0 (4,074,857) (1,199,894) 0 0 (5,274,751) (.44) (.44)
-----END PRIVACY-ENHANCED MESSAGE-----