-----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, L/7JpQVhZE0fU5pk47SlAu8a4k6laO8ehGz7Ewm3n+ZcjCLveqBlIGfrJC2QAEZw wgeHie6vn12ett2mpsUyrw== 0001051622-00-000001.txt : 20000329 0001051622-00-000001.hdr.sgml : 20000329 ACCESSION NUMBER: 0001051622-00-000001 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIXTH BUSINESS SERVICE GROUP INC CENTRAL INDEX KEY: 0001082198 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-92445 FILM NUMBER: 580635 BUSINESS ADDRESS: STREET 1: 2503 WEST GARDNER COURT CITY: TAMPA STATE: FL ZIP: 33611 BUSINESS PHONE: 8138319348 MAIL ADDRESS: STREET 1: 2503 WEST GARDNER COURT CITY: TAMPA STATE: FL ZIP: 33611 S-4/A 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON * REGISTRATION NO. 333-92445 ----------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ Sixth Business Service Group, Inc. (Exact name of registrant as specified in its charter) - ------------------------------------------------------------------------------ Florida 6770 Applied For - ------------------------------ ------------------------- ------------------ State or other jurisdiction of PRIMARY STANDARD I.R.S. Employer incorporation or organization INDUSTRIAL CLASSIFICATION Identification No. CODE NUMBER - ------------------------------------------------------------------------------ 2503 W. Gardner Ct. Tampa, FL 33611 813. 831-9348 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Michael T. Williams PRESIDENT Sixth Business Service Group, Inc. 2503 W. Gardner Ct. Tampa, FL 33611 TELEPHONE: 813.831.9348 (Name, address, including zip code, and telephone number, including area code, of agent for service) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly as practicable after this registration statement becomes effective and after the closing of the merger of the proposed merger described in this registration statement. 1 If this Form is filed to register additional securities for an offering pursuant to Rule 462(b, under the securities act, check the following box and list the securities act registration statement number of the earlier effective registration statement for the same offering. *[ ] *registration number, _____________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the securities act, check the following box and list the securities act registration statement number of the earlier effective registration statement for the same offering. *[ ] *registration number, _____________ If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. *[ ] ============================================================================= CALCULATION OF REGISTRATION FEE
====================================================================================================================== Title of each class of Proposed maximum securities to be Amount to be Proposed maximum aggregate offering price Amount of registered registered offering price per unit registration fee ========================= ==================== ======================== ========================= ==================== Common Stock, $0.01 per share par value 9,790,000 N/A $7,309,920 (2) $1,929.82 (3) ======================================================================================================================
(1) The maximum number of shares of common stock of Registrant which may be issued to former holders of shares of common stock of Telesource International, Inc. pursuant to the merger described herein. (2) The registration fee has been calculated pursuant to Rule 457(f)(2). As of December 31, 1999, Telesource International had retained earnings of $6,519,496. The book value of the shares to be registered is $7,309,920. In addition, Telesource International's common stock has a par value of $0.01 per share. Accordingly, the maximum offering price has been determined to be the book value of the securities to be registered. (3) This fee has been calculated pursuant to Section 6(b) of the Securities Act, as .0264 of one percent of $7,309,920. ============================================================================= THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE. ============================================================================= 2 TELESOURCE INTERNATIONAL INC. INFORMATION STATEMENT FOR SHAREHOLDERS SIXTH BUSINESS SERVICE GROUP, INC. PROSPECTUS SOLICITATION OF WRITTEN CONSENTS NOTICE IS HEREBY GIVEN that in accordance with the provisions of Florida law, you are asked to consider and give your written consent to a proposal to approve: * The merger agreement and plan of reorganization dated as of _________ between Telesource International, Inc., a Delaware corporation, and Sixth Business Service Group, Inc., a Florida corporation. * The articles of merger which will be filed with the offices of the secretary of state of the state of Delaware. The total number of shares of common stock that Sixth Business Service Group will issue to all of the Telesource International shareholders in the merger is 9,790,000. This number will represent 97.9% of the outstanding Sixth Business Service Group common stock after the merger. All Telesource International shareholders other than Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC") and affiliates currently own 36.61% of Telesource International stock and will own 36.61% of Sixth Business Service Group common stock after the merger as a result of SHBC's agreement to absorb all dilution in connection with the merger. SHBC, including beneficially owned stock, will own 6,129,000 shares of Sixth Business Service Group common stock, or 61.3% of all Sixth Business Service Group stock outstanding, after the merger is completed. Prior to the closing of the merger, Sixth Business Service Group will * Reincorporate in Delaware * Change its name to Telesource International, Inc. * Adopt Telesource International's articles of incorporation and bylaws * Elect, effective upon the effectiveness of the merger, a new board of directors to consist of the current directors of Telesource International. Sixth Business Service Group will be subject to reporting requirements of the securities exchange act of 1934 after the merger as a result of its filing of a form 8-A electing to be a reporting company subject to the requirements of the 1934 act. In anticipation of closing of the merger, Sixth Business Service Group will seek to become listed on the over the counter bulletin board under the symbol "****". If and when listed, the Telesource International shareholders will hold shares of a publicly-traded Delaware corporation subject to compliance with the reporting requirements of the 1934 Act. Because the state of incorporation, articles and bylaws of Sixth Business Service Group will be the same as those of Telesource International prior to the merger, the rights of shareholders of Telesource International will not change as a result of the merger. 3 Assuming consents are secured from shareholders owning more than 50% of the stock of Telesource International, shareholders who did not consent to the merger will, by otherwise complying with Delaware corporate law, be entitled to dissenters' rights with respect to the proposed merger. No consents will be solicited or accepted until after the effective date of this information statement/prospectus. In the materials accompanying this letter, you will find an information statement/prospectus relating to the merger proposal and a form of written consent. The information statement/prospectus more fully describes the proposal and includes information about Sixth Business Service Group and Telesource International. I urge you to read the information contained in the accompanying information statement/prospectus. If the required approvals of the shareholders of Telesource International are received and all other conditions to the closing of the merger are satisfied or waived, the merger is anticipated to close ____. The board of directors of Telesource International has determined that the merger is fair to Telesource International and in the best interests of the Telesource International's shareholders. The board of directors of Telesource International has unanimously approved a merger between Telesource International and Sixth Business Service Group, Inc. Sixth Business Service Group has committed to file to have its stock is quoted on the over-the-counter bulletin board of the Nasdaq Stock Market Inc., under the symbol "*BBB symbol." Your board of directors has determined that the merger is fair to you and in your best interests. Because Sixth Business Service Group is a company whose securities will be quoted on the bulletin board, the Telesource International board believes that the merger will * Increase the visibility of Telesource International's business, which could be helpful in further developing and commercializing Telesource International's products. * Facilitate Telesource International's ability to raise capital in the public markets * Potentially improve Telesource International's shareholders' ability to sell their shares in the over-the-counter market. Accordingly, the board of directors of Telesource International has unanimously approved the merger agreement and the board unanimously recommends that you vote in favor of these items. 4 The board of directors has fixed the close of business on ___, as the record date for the determination of shareholders of Telesource International entitled to notice of and to vote on the merger proposal. This date will occur after this registration statement is declared effective. Only holders of record of Telesource International common stock on the record date are entitled to give or withhold their consents. You can ensure that your consent is considered by signing and dating the enclosed consent and sending it to the Secretary of Telesource International at Telesource International' headquarters, at 860 Parkview Blvd., Lombard, IL 60148, 630-620-4787 x222. You will be notified within 10 days of the date that consents are received from shareholders owning more than 50% of the stock of Telesource International. The proposed merger is a very complex transaction with a number of risks and uncertainties associated with it. This document provides you with detailed information about the proposed merger. We strongly urge you to read and consider carefully this document in its entirety, especially the matters referred to under "risk factors"` beginning on page 11. Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved the Sixth Business Service Group common stock to be issued in the merger or if this information statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this information statement/prospectus is _____________, and it is first being mailed to Telesource International shareholders on or about *date mailed. Cautionary Statement This registration statement on Form S-4 contains "forward-looking statements", as defined by the Private Securities Litigation Reform Act of 1995, in order to provide investors with prospective information about the Company. For this purpose, any statements which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors which could cause the Company's actual results and events to differ materially from those indicated by the forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results". Other Information for Telesource International Stockholders: - ------------------------------------------------------------ * The prospectus incorporates important business and financial information that is not included in or delivered with the document. This information is available without charge to security holders upon written or oral request. Send your request to: Bud Curley Telesource International 860 Parkview Blvd. Lombard, IL 60148 630-620-4787 x222 bcurley@yahoo.com 5 * Do not send in your Telesource International stock certificates now. If the merger is completed, we will send you written instructions for exchanging your share articles. * The merger has been structured as a tax-free reorganization. The tax basis in your Telesource International common stock will carryover and become the tax basis in your new shares of Sixth Business Service Group common stock. * Like Telesource International, Sixth Business Service Group has never paid any dividends. * If you have any questions about the merger, please call Nidal Zayed with Telesource International at 630-620-4787 x240 or Bud Curley at 630-620-4787 or x222. Dealer prospectus delivery obligation Until , all dealers that effect transactions in these securities, whether or not participating in this offering, are required to deliver a prospectus. SUMMARY This summary highlights selected information from this information statement/prospectus and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document and the documents to which we have referred you. In the merger, Telesource International's shareholders will merge shares with Sixth Business Service Group, and Sixth Business Service Group will be the surviving company. The merger agreement is attached as annex A to this document. We encourage you to read the merger agreement, as it is the legal document that governs the merger. The companies. - -------------- Sixth Business Service Group 2503 W. Gardner Ct. Tampa, FL 33611 Telephone 813/831-9348 6 We were organized under the laws of the state of Florida in April 1999. Since inception, our primary activity has been directed to organizational efforts. We were formed as a vehicle to acquire through a registered securities offering a private company desiring to become an SEC reporting company in order thereafter to secure a listing on the over the counter bulletin board. Telesource International 860 Parkview Blvd. Lombard, IL 60148 Telesource International was incorporated in Delaware in 1994. Telesource International is an international engineering and construction company, which is in the business of constructing projects, which range from single family housing units to electrical power generation plants. In the Commonwealth of Mariana Islands we also operate a diesel fired electric power generation plant for the sale of electricity to the local power grid. Our facility in Lombard annually handles the procurement, export and shipping of several millions of dollars worth of U.S. fabricated products for use by our subsidiaries or for resale to customers outside of the mainland. Telesource International was formed in 1994 to facilitate various intra-corporate activities and, until July 1999, was a wholly owned subsidiary of SHBC, a Kuwait-based civil, electrical and mechanical construction company. We conduct our operations primarily through subsidiaries. We currently have two subsidiaries. Our Mariana subsidiary, Telesource International CNMI Inc., handles construction and management of our power facilities in the Common Wealth of Mariana Islands. Our second subsidiary, Commsource International Inc., is an international export company that facilitates the purchase of equipment fabricated in the U.S. Our branch offices in Guam, Telesource International Pacifica and Pacifica Power Resources, a trading company, were created to take advantage of opportunities we believe will be available there. Telesource International has three main operating segments: construction services, trading activities and power generation. The power generation activities commenced in March 1999. Telesource International's reasons for the merger - ------------------------------------------------- * Increase the visibility of Telesource International's business, which could be helpful in further developing and commercializing Telesource International's products. * Facilitate Telesource International's ability to raise capital in the public markets. * Potentially improve Telesource International's shareholders' ability to sell their shares in the over-the-counter market. 7 Comparison of the percentage of outstanding shares entitled to vote held by directors, executive officers and their affiliates and the vote required for approval of the merger. - --------------------------------------------------------------------------- The majority of Sixth Business Service Group's shares are held by its director and executive officers and their affiliates. A majority vote of the issued and outstanding shares is required to approve the merger. Shareholders owning a majority of our common stock have executed a written consent voting to approve the merger. No further consent of you or any of the shareholders of Sixth Business Service Group is necessary to approve the merger under the laws of the state of Florida or Delaware. 3.71% of Telesource International's shares are held by its directors, executive officers and their affiliates. A majority vote of the issued and outstanding shares is required to approve the merger. Assuming consents are secured from shareholders owning more than 50% of the stock of Telesource International, shareholders who did not consent to the merger will, by otherwise complying with Delaware corporate law, be entitled to dissents' rights with respect to the proposed merger. No consents will be solicited or accepted until after the effective date of this information statement/prospectus. No regulatory approval required. - -------------------------------- Neither Sixth Business Service Group nor Telesource International is aware of any governmental regulatory approvals required to be obtained with respect to the closing of the merger, except for the filing of the articles of merger with the offices of the secretary of state of the state of Delaware, the filing with the Commission of the registration statement on Form S-4 registering the shares and this information statement/prospectus, and compliance with all applicable state securities laws regarding the offering and issuance of the shares. Dissenters' rights - ------------------ Dissenters' rights of appraisal exist. See page 24 for further information. Federal income tax consequences. - -------------------------------- Tax matters are very complicated and the tax consequences of the merger to you will depend on the facts of your own situation. You should consult your tax advisors for a full understanding of the tax consequences of the merger to you. Telesource International and Sixth Business Service Group have structured the merger so that neither Telesource International nor its shareholders should recognize gain or loss for federal income tax purposes as a result of the merger. SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical financial information of Telesource International and Sixth Business Service Group has been derived from their respective historical financial statements, and should be read in conjunction with such financial statements and the notes , which are included in this information statement/prospectus. 8 Telesource International SELECTED HISTORICAL FINANCIAL INFORMATION - ------------------------------------------------------------------ The following selected financial data for the years ended December 31, 1999, 1998 and 1997 is derived from the Consolidated Financial Statements of the Company. The data should be read in conjunction with the Consolidated Financial Statements and other financial information included elsewhere herein. Twelve Months Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Income Statement Data: ($ in 000's) Construction revenues $ 18,612 $ 26,289 $ 3,561 Other revenues 4,424 7,179 9,815 Gross revenues 23,036 33,468 13,376 Construction costs 15,437 21,730 3,563 Other costs 3,162 5,301 8,058 Gross profits 4,438 6,437 1,755 Salaries and employee benefits 1,034 387 453 Occupancy and expense 246 293 305 General and administrative expenses 2,056 749 347 Permanent impairment of asset - 271 - Operating income 1,102 4,737 651 Other income (expense): Interest income 2,044 12 - Interest expense (1,132) (39) (37) Other income, net 15 4 6 Total other income (expense) 926 (23) (31) Income before taxes 2,028 4,714 620 Income tax expense 378 703 26 Net income (loss) 1,650 4,011 594 Common Share Data: Net income per share $ 0.17 $ 0.40 $ 0.06 Book value $ 0.75 $ 0.58 $ 0.11 Weighted average common shares outstanding (in 000's) 10,000,000 10,000,000 10,000,000 Period end shares outstanding (in 000's) 10,000,000 10,000,000 10,000,000 Balance Sheet Data: Total assets $ 42,635 $ 25,596 $ 9,422 Working capital (3,255) (799) (5,288) Long-term obligations 28,510 17,732 278 Shareholders' equity 7,467 5,817 1,106 Performance Data: Return (loss) on total assets 3.9% 15.7% 6.3% Return (loss) on shareholders' equity 22.1% 69.0% 53.7% Capital Ratios: Quick ratio 51.1% 61.0% 34.2% Debt to equity ratio 381.7% 300.1% 631.1% 9 Sixth Business Service Group SELECTED HISTORICAL FINANCIAL INFORMATION - ---------------------------------------------------------------------- The following selected unaudited financial data for the ten months ended December 31, 1999 is derived from the Financial Statements of Sixth Business Service Group. Sixth Business Service Group was organized in March 1999 with all activity directed toward organizational efforts: December 31, 1999 ----------------- (unaudited) Total assets $ 0 Total liabilities 79 Equity 0 Ten Months Ended December 31, 1999 ----------------- (unaudited) Sales 0 Net loss $ 79 Net loss per share $ 0.00 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF Telesource International AND Sixth Business Service Group - --------------------------------------------------------------- The merger of Telesource International with Sixth Business Service Group will not result in any changes to the financial statements as presented for Telesource International. Sixth Business Service Group is a public shell and the combination is treated as a transfer of shares for cash since the combination is not a business combination. Pro forma information is not presented since the combination is not a business combination. COMPARATIVE PER SHARE DATA December 31 December 31 December 31 1999 1998 1997 ----------- ----------- ----------- NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE Net income before and after merger $ 1,650,201 $ 4,010,819 $ 593,590 =========== =========== =========== DENOMINATOR - BASIC EARNINGS PER SHARE Common stock outstanding before and after merger 10,000,000 10,000,000 10,000,000 =========== =========== =========== Basic and diluted earnings per share before and after merger $ 0.17 $ 0.40 $ 0.06 =========== =========== =========== 10 RISK FACTORS You should carefully consider the risks described below before making an investment decision in our company. In addition, you should keep in mind that the risks described below are not the only risks that we face. The risks described below are all the risks that we currently believe are material risks of this offering. However, additional risks not presently known to us, or risks that we currently believe are immaterial, may also impair our business operations. Moreover, you should refer to the other information contained in this prospectus for a better understanding of our business. Our business, financial condition, or results of operations could be adversely affected by any of the following risks. If we are adversely affected by such risks, then the trading price of our common stock could decline, and you could lose all or part of your investment. This Information statement/prospectus contains forward-looking statements that involve risks and uncertainties. Telesource International's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences, include, but are not limited to, those discussed in the following section and in Telesource International's Management's Discussion and Analysis Of Financial Condition and Results of Operations and Telesource International Business. The merger agreement contains a number of conditions that must be satisfied in order for the merger to take place. If these conditions aren't satisfied, the merger will not close and Telesource International will have suffered a delay in reaching its objective of becoming a listed, trading company on the bulletin board. The conditions include: * The shareholders of Telesource International must approve the merger and this condition has been satisfied; * The holders of no more than 1% of the outstanding shares of common stock of Telesource International shall have exercising dissenters' rights; * The Securities and Exchange Commission must declare this registration statement effective; * Sixth Business Service Group must have filed an application to have its stock quoted on the bulletin board; and * Telesource International and its counsel must have satisfactorily completed their due diligence review of Sixth Business Service Group. Telesource International will not to complete the merger if these conditions are not satisfied. Please understand that there is no guarantee that any of these conditions will be satisfied, or that the merger will occur in the time frame contemplated, or occur at all. Note: as used in the following sections of risk factors, we or ours refers to Telesource International. 11 Telesource International - Risks related to construction activities - ------------------------------------------------------------------- Our dependence on construction contracts for major projects will cause variations in our revenues and profits from quarter to quarter. Our quarterly operating results will depend on revenues from contracts for major projects. We can only undertake a certain number of such projects at any one time. If we finish one project and do not have another to start on, revenues within the quarter and possibly subsequent periods will be adversely affected. Management will take steps it deems appropriate to adjust spending in a timely manner in an effort to compensate for any unexpected revenue shortfalls, however, there can be no assurance that management will be able to lower spending to a level which will compensate for the loss of construction revenues. If customers cancel or defer existing contracts or if we fail to obtain new contracts in any quarter, our business, results of operations and financial condition for that quarter and future periods will be adversely affected. We may not be able to compete successfully because the number of competitors is increasing and some of our competitors are better known, multinational construction companies with greater financial and technical resources and better marketing abilities. The market for construction services is intensely competitive and rapidly changing. We compete directly with other firms that focus on providing general construction services as well as services for more sophisticated structures such as power plants and broadcasting facilities. Many of our competitors have well-established reputations for building residential and technical structures and have longer operating histories and significantly greater financial, technical, marketing, personnel and other resources than we have. We are subject to competition that is expected to intensify in the future. We cannot assure you that we will be able to compete successfully. Competitive factors could materially and adversely affect our business, financial condition and operating results. If we cannot obtain access to sufficient building raw materials, including, but not limited to, wood, steel and concrete, fabricators of technical subsystems and to third-party technical experts, sales of our construction services may decline and this would hurt our operating results. We rely on third-party suppliers for such raw materials as wood, steel and concrete; for fabrication of technical equipment subsystems such as diesel generations, antennas, towers and transmitters, and for providing technical expertise. If we fail to obtain what we need from these providers, our sales revenue might decrease. Our ability to obtain raw materials; fabrication services and technical assistance may be adversely impacted by a number of factors, including the following: * Third-parties may increase the price of the raw materials, fabrication services or technical assistance they provide. 12 * Many third-party raw material suppliers, fabricators or technical expertise providers may decide not to provide us with raw materials, fabrication services or technical expertise. * We have no long-term contracts with third party suppliers of raw materials, fabrication services or technical expertise providers, * We anticipate that our third party contracts will be usually short term and will be cancelled if we do not fulfill our obligations. Failure by suppliers of raw material such as wood, steel or cement; fabricators of technical subsystems or software to be year 2000 complaint could adversely affect our operations. Because our evaluation of these issues is continuing, we cannot assure you that additional issues will not be discovered which could present a material risk of disruption to our operations. We would be harmed if there were any systems failures or interruptions in service resulting from the inability of our computing system or any of our existing third-party suppliers' systems to recognize the year 2000. We are highly dependent upon third-party suppliers for raw materials such as wood, steel and cement; for fabrication of technical subsystems and for software. These third-parties suppliers have generally advised us that their review of their operating systems indicate that their operating systems are or will be year 2000 compliant. With no warranty reserves to cover future warranty claims on commercial equipment we install or on the buildings we build, any claims which are not covered by our suppliers could adversely affect our financial performance. We offer warranties on our constructions services and power generating plants. These warranties are usually backed up by warranties from our vendors; however, we do not have any warranty reserves. Should we be required to cover the cost for repairs not covered by the warranties of our vendors or our major vendors warranty reserves are determined to be inadequate to cover future warranty claims, our financial performance could be adversely affected. Telesource International - Risks related to power generation activities - ----------------------------------------------------------------------- If our power-generating asset fails to perform, our revenues and earnings would be adversely affected. We own a 10-year security interest and title in a diesel fired electric generating facility with a maximum power generation capacity of 30 Mw located on the island of Tinian, in the Commonwealth of Northern Mariana Islands, a U.S. possession. This facility from time to time may experience both scheduled and unscheduled shutdowns. Periodically, the facility will incur scheduled shutdowns in order to perform maintenance procedures to equipment that cannot be performed while the equipment is operating. Occasionally, the facility may also incur unscheduled shutdowns or may be required to operate at reduced capacity levels following the detection of equipment malfunctions, or following minimum generation orders received by the utility. During periods when the facility is shutdown or operating at reduced capacity levels, we may incur losses due to the loss of its operating revenues and/or due to additional costs which may be required to complete any maintenance procedures. It is not possible for us to predict the frequency of future unscheduled shutdowns or to predict the extent of maintenance which may be required during shutdowns related to equipment maintenance. 13 We will depend on a single customer continuing to purchase electric power, which, if they fail to do so, would reduce our revenues and may result in losses. Since March 1999, we began deriving a portion of our revenues from the sale of electric power. Although our customers cannot reduce consumption quickly and without penalty as a result of minimum purchase requirements, if the customers default or purchases only the minimum, our business, results of operations and financial condition for that quarter and future periods could be adversely affected. Our insurance or reserves may be insufficient to cover future claims on our power generation activities, which could adversely affect our financial performance. Our power generation activities involve significant risks to us for environmental damage, equipment damage and failures, personal injury and fines and costs imposed by regulatory agencies. In the event a liability claim is made against us, or if there is an extended outage or equipment failure or damage at our power plant for which it is inadequately insured or subject to a coverage exclusion, and we are unable to defend such claim successfully or obtain indemnification or warranty recoveries, there may be a material adverse effect on the Company. The Company maintains general and excess liability, construction equipment, and workers' compensation insurance; all in amounts consistent with industry practices. Management believes its insurance programs are adequate. We need to expand in anticipation of what we anticipate will be increasing demand for our construction service. We will need to expand in anticipation of a growing user base and larger demand for our services. Expansion will require us to make significant up front expenditures for increasing our sales and marketing efforts and to hire and train additional project managers, engineers and facilities operators. Expansion must be completed without disruptions of existing operations. Telesource International - Other risks - -------------------------------------- Certain risks in our international operations could interrupt the supply of our construction and power generation products and services Our international operations are subject to the inherent risks of doing business abroad. The loss of certain international suppliers and customers could harm our ability to deliver our construction services and power services on time and cause our sales to decline. Our financial performance could be materially adversely affected by many events and circumstances relating to our international operations, including: * Shipping delays and cancellations; * Increases in import duties and tariffs; 14 * Foreign exchange rate fluctuations; * Changes in foreign laws and regulations; and * Political and economic instability. The Company is subject to government regulation by federal, state, and municipal agencies and authorities, including regulations concerning the operations of the Company's power generation plant and the protection of the environment. While compliance with applicable regulatory requirements has not adversely affected the Company's operations in the past relative to its competitive position within its industry sector, there can be no assurance that these requirements will not change and that compliance will not adversely affect the Company's operations. In addition, the aggregate materials operations of the Company require operating permits granted by governmental agencies. The Company believes that tighter regulations for the protection of the environment and other factors will make it increasingly difficult to obtain new permits and renewal of existing permits may be subject to more restrictive conditions than currently exist. Our operating results could be effected if our agreement with SHBC, Inc. to purchase construction materials from us is terminated. Sales of U.S. fabricated materials to SHBC accounted for 86.7% of our total sales in 1999. The sales to SHBC did decline by 42.3% , from $5,427,103 to $3,129,587 for 1998 and 1999, respectively, and are expected to decline further in 2000. The agreement with SHBC is short-term in nature and can be cancelled at will. The loss of purchases of U.S. fabricated materials by SHBC would have an adverse effect on the operating results of Telesource International, Inc. The largest stockholder owns approximately 61% of the common stock outstanding after the merger, which may impact the ability of minority stockholders to influence our activities. The largest stockholder, SHBC, including beneficial owners of Telesource International common stock, will be able to control the outcome of all matters submitted to a vote of the holders of common stock, including the election of directors, amendments to our certificate of incorporation and approval of significant corporate transactions. These persons will beneficially own, in the aggregate, approximately 61% of our outstanding common stock. This consolidation of voting power could also have the effect of delaying, deterring or preventing a change in control of Telesource International that might be beneficial to other stockholders. The price of our stock may fall if our insiders sell a large number of their shares. After the merger, we will have 10,000,000 shares of common stock outstanding, 9,790,000 of which are being issued under this registration statement. The remaining 210,000 shares owned by Sixth Business Service Group shareholders before the merger plus 6,392,000 of the shares being issued hereunder which are owned by officers, directors, control persons and affiliates plus 300,000 shares owned by persons receiving the 300,000 shares as compensation with this transaction are restricted securities as defined under Rule 144 of the Securities Act and may only be sold under the Rule or otherwise under an effective registration statement or an exemption from registration, if available. Rule 144 generally provides that a person who has satisfied a one year holding period for the restricted securities may sell, within any three month period (provided we are current in our reporting obligations under the Exchange Act) subject to certain manner of resale provisions, an amount of restricted securities which does not exceed the greater of 1% of a company's outstanding common stock or the average weekly trading volume in such securities during the four calendar weeks prior to such sale. However, because the 6,392,000 insider shares are being issued under this registration statement, the one-year holding period does not apply. A sale of shares by such security holders, whether under Rule 144 or otherwise, may have a depressing effect upon the price of our common stock in any market that might develop. 15 There has been no prior market for our common stock. If we don't get our stock listed for trading after the merger, we will not have satisfied the primary objective of the merger transaction. Prior to this offering, you could not buy or sell our common stock publicly. We may not be able to secure a market maker to file an application to have our stock listed for trading. Even if we do, an active public market for our common stock may not develop or be sustained after the offering. The price of our common stock may be volatile. You may not be able to sell your stock for more than you paid for it. The market price of the common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including: * quarterly variations in operating results * changes in financial estimates by securities analysts * changes in market valuation of construction and electric power companies * announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments * loss of a major customer * additions or departures of key personnel * any shortfall in revenue or net income or any increase in losses from levels expected by analysts; * future sales of common stock * stock market price and volume fluctuations, which are particularly common among highly volatile securities of electric power companies. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, which could have a material adverse effect on our business, operating results and financial condition. We may be subject to penny stock rules that may make it more difficult for you to sell your shares. 16 Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Commission. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker- dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If our shares immediately following the closing of the merger and listing of our stock are subject to subject to such penny stock rules, our shareholders will in all likelihood find it more difficult to sell their securities. MERGER APPROVALS Approval of the merger On November 3, 1999, Michael T. Williams as the sole member of our board of directors approved the merger proposal. All of our stockholders approved the merger proposal on the same date. On November 3, 1999, Telesource International's board of directors unaimously approved the merger proposal. Assuming the consents are secured from shareholders owning more than 50% of the stock of Telesource International, shareholders who did not consent to the merger will, by otherwise complying with Delaware corporate law, be entitled to disenters' rights with respect to teh proposed merger. No consents will be solicited or accepted until after the effective date of this information statement/ prospectus. MERGER TRANSACTIONS As of December 31, 1999, Telesource International had 10,000,000 shares of common stock issued and outstanding. Before the merger occurs, SHBC will retire 210,000 shares of Telesource International common stock by contributing it to Telesource International. The retirement of 210,000 shares by SHBC will lower the number of shares outstanding to 9,790,000 shares at the time of the merger. The merger agreement provides that each outstanding share of Telesource International common stock, other than dissenting shares, as defined later in this document, will be exchanged for one share of Sixth Business Service Group common stock. Immediately after the closing of the merger, the former holders of Telesource International common stock will hold in the aggregate 9,790,000 shares, or 97.9% of the shares of Sixth Business Service Group common stock to be outstanding immediately after the closing of the merger, which includes the 300,000 shares being transferred as compensation for this transaction. 17 Sixth Business Service Group had 1,000,000 shares of its common stock issued and outstanding at December 31, 1999 to two shareholders, Michael T. Williams and Nidal Zayed. In connection with the merger, we agreed to effect a reverse split such that Mr. Williams will own 100,000 shares prior to the closing of the merger. Mr. Zayed's shares were issued subject to reverse split protection such that his shares will not be reduced. Accordingly, there will be 210,000 shares of Sixth Business Service Group common stock outstanding. None of the shares of Sixth Business Service Group common stock outstanding prior to the closing of the merger will be converted or otherwise modified in the merger and all of such shares not otherwise retained by our stockholders as provided in the merger agreement will be outstanding capital stock of Sixth Business Service Group after the closing of the merger. Upon closing of the merger, Sixth Business Service Group will issue 9,790,000 shares to the Telesource International shareholders on a one-for- one basis. After the issuance of these shares, Sixth Business Service Group will have 10,000,000 shares of its common stock outstanding. The agreement provides that prior to or at closing of the merger, Sixth Business Service Group will * Reincorporate in Delaware * Change its name to Telesource International, Inc. * Adopt Telesource International's articles of incorporation and bylaws * Elect, effective upon the effectiveness of the merger, a new board of directors to consist of Nidal Z. Zayed, K. J. Semikian, Weston Marsh, Max Engler, Jeff Adams and Ibrahim M. Ibrahim. The agreement provides that Telesource International's shareholders who vote against the merger are entitled to dissenters' rights with respect to the proposed receipt of shares of Sixth Business Service Group common stock as set forth in Delaware law. The merger will be consummated promptly after this information statement/prospectus is declared effective by the SEC and upon the satisfaction or waiver of all of the conditions to the closing of the merger. The merger will become effective on the date and time a properly executed articles of merger are filed with the offices of the secretary of state of Delaware. Thereafter, Telesource International will be merged and Sixth Business Service Group, with the result that Telesource International will cease to exist and Sixth Business Service Group will be the surviving corporation in the merger. 18 Fractional shares. - ------------------ As of the date of this information statement/prospectus, there were no fractional shares of Telesource International's common stock outstanding. Because each outstanding share of Telesource International's common stock will be entitled to receive one share of Sixth Business Service Group's common stock under the terms of the merger agreement, there will be no fractional shares issued in the merger. Bulletin board listing - ---------------------- Sixth Business Service Group will be subject to the reporting requirements of the securities exchange act of 1934 after the merger as a result of its filing of a form 8-A electing to be a reporting company subject to the requirements of the 1934 act. Upon closing of the merger, Sixth Business Service Group will seek to become listed on the over the counter bulletin board under the symbol "****". If and when listed, the Telesource International's shareholders will hold shares of a publicly traded Delaware corporation subject to compliance with the reporting requirements of the exchange act. Because the state of incorporation, articles and bylaws of Sixth Business Service Group will be the same as those of Telesource International prior to the merger, the rights of shareholders of Telesource International will not change as a result of the merger. Background of the merger - ------------------------ In April 1999, Mr. Mr. Nidal Zayed, Executive Vice President of Telesource International contacted Venture Associates to inquire about the possibility of locating a company such as Sixth Business Service Group to acquire Telesource International in order that Telesource International could become an SEC reporting company and thereafter secure a listing on the over the counter bulletin board. Venture Associates referred Mr. Zayed to Longman & Associates, Inc., which was retained by Telesource International in June 1999 for a fee of $90,000 plus 300,000 shares of Telesource International common stock. Venture Associates has agreed to act as an uncompensated finder in connection with the acquisition transaction. The common stock that was to be paid to Longman & Associates, Inc. is to be paid by SHBC. In May, 1999, Longman & Associates retained Sixth Business Service Group to provide services necessary to accomplish Telesource International's objectives for a fee of $45,000. At the request of Mr. Zayed, in May 1999, Sixth Business Service Group sold Mr. Zayed 110,000 shares for aggregate consideration of $100. Thereafter, there were numerous telephone conversations between the companies relating to various aspects of the potential merger, including in-depth discussions concerning the steps that needed to be taken to close the merger. Following these discussions, representatives of Sixth Business Service Group and Telesource International negotiated the remaining basic structure, terms and conditions of the merger. After having reached resolution on all open issues, a merger agreement was drafted and Telesource International convened a special meeting of its board of directors at which the agreement of merger and the other transactions required by the merger agreement were discussed and reviewed. In connection with these discussions, SHBC agreed that prior to closing the merger, it will surrender 210,000 shares of Telesource International common stock for retirement and will assume Telesource International's obligation to transfer 300,000 shares as described above. The purpose of these actions is to reduce the number of shares of the surviving corporation to be outstanding after the merger to 10,000,000 and to have SHBC absorb the dilutive effect of the transaction in full. All Telesource International shareholders other than SHBC and affiliates currently own 36.61% of Telesource International stock and will own 36.61% of Sixth Business Service Group common stock after the merger as a result. Accordingly, no dilution will occur to any Telesource International shareholder other than SHBC as a result of the merger. Thereafter, on November 3, 1999, the board of directors of Telesource International unanimously adopted and approved the agreement of merger and the transactions required by the merger agreement. 19 On November 3, 1999, Michael T. Williams, as the sole director of Sixth Business Service Group, approved the agreement of merger and the transactions required by the merger agreement. As of November 3, 1999, the agreement of merger was executed and delivered by each of the parties. In March 2000, Mr. Longman joined Harrison Douglas, an NASD broker/dealer. As a condition of Mr. Longman's employment, Longman & Associates was required to assign its contract to Harrison Douglas. Of the funds payable under the agreement assigned to Harrison Douglas, $45,000 is being paid to us on behalf of Telesource, which we are treating as a merger fee. Of this fee, $5,000 will be paid to Mr. Williams as salary for acting as an executive officer and director and signing this registration statement, and the remaining $40,000 will be paid to Williams Law Group, P.A. as legal fees for preparation of this registration statement. In addition, following a reverse split of our stock prior to the closing of the merger, Mr. Williams through his blind trust will own 100,000 shares of the surviving company. Neither of the respective boards of Directors of Sixth Business Service Group or Telesource International requested or received, or will receive, an opinion of an independent investment banker as to whether the merger is fair, from a financial point of view, to Sixth Business Service Group and its stockholders Telesource International and its shareholders. Reasons for the merger - ---------------------- Sixth Business Service Group' reasons for the merger. In considering the merger, the Sixth Business Service Group board took note of the fact that a merger with Telesource International would accomplish all of Sixth Business Service Group's business objectives. Accordingly, the Sixth Business Service Group board determined that the merger proposal was fair to, and in the best interests of, Sixth Business Service Group and the Sixth Business Service Group's stockholders. Telesource International's reasons for the merger. * Increase the visibility of Telesource International's business, which could be helpful in further developing and commercializing Telesource International's products. * Facilitate Telesource International's ability to raise capital in the public markets. * Potentially improve Telesource International's shareholders' ability to sell their shares in the over-the-counter market. 20 Interests of certain persons in the merger - ------------------------------------------ Upon the closing of the merger, the current directors and executive officers of Telesource International will become the directors and executive officers of the surviving corporation. Mr. Nidal Zayed owns110,000 shares of Sixth Business Service Group. Material Federal Income Tax Consequences - ---------------------------------------- The following discussion summarizes the material federal income tax consequences of the merger that are generally applicable to holders of Telesource International's common stock. This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, existing and proposed Treasury Regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to the Telesource International shareholders, as described herein. Telesource International's shareholders should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular shareholders in light of their particular circumstances, such as shareholders who are dealers in securities, banks or insurance companies, are subject to the alternative minimum tax provisions of the code, are foreign persons, are tax-exempt entities, are taxpayers holding stock as part of a conversion, straddle, hedge or other risk reduction transaction, or who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions. In addition, the following discussion does not address the tax consequences of the merger under foreign, state or local tax laws or the tax consequences of transactions effectuated prior to, concurrently with or after the merger as a result of its filing of a Form 8-A electing to be a reporting company subject to the requirements of the 1934 act, whether or not such transactions are in connection with the merger. Accordingly, all shareholders are urged to consult their own tax advisors as to the specific consequences of the merger to them, including the applicable federal, state, local and foreign tax consequences of the merger in their particular circumstances. Neither Sixth Business Service Group nor Telesource International has requested, or will request, a ruling from the Internal Revenue Service, IRS, with regard to any of the federal income tax consequences of the merger. It is the opinion of Williams Law Group, P.A., counsel to Sixth Business Service Group, that the merger will constitute a reorganization under Section 368(a) of the code. The tax opinion is based on certain assumptions, as well as representations received from Telesource International, Sixth Business Service Group and certain shareholders of Telesource International and will be subject to the limitations discussed below. Of particular importance are the assumptions and representations relating to the continuity of interest requirement discussed below. Moreover, the tax opinions will not be binding on the IRS nor preclude the IRS from adopting a contrary position. The tax description set forth below has been prepared and reviewed by Williams Law Group, and in their opinion, to the extent such descriptions relates to statements of law, it is correct in all material respects. 21 Subject to the limitations and qualifications referred to herein, and as a result of the merger's qualifying as a reorganization, the following federal income tax consequences should, under currently applicable law, result: * No gain or loss will be recognized for federal income tax purposes by the holders of Telesource International common stock upon the receipt of Sixth Business Service Group common stock solely in merger for such Telesource International common stock in the merger, except to the extent that cash is received by the exercise of dissenters' rights. * The aggregate tax basis of the Sixth Business Service Group common stock so received by Telesource International shareholders in the merger will be the same as the aggregate tax basis of the Telesource International common stock surrendered in merger therefore. * The holding period of the Sixth Business Service Group common stock so received by each Telesource International shareholder in the merger will include the period for which the Telesource International common stock surrendered in merger therefore was considered to be held, provided that the Telesource International common stock so surrendered is held as a capital asset at the closing of the merger. A holder of Telesource International common stock who exercises dissenters' rights with respect to a share of Telesource International common stock and receives a cash payment for such share generally should recognize capital gain or loss, if such share was held as a capital asset at the closing of the merger, measured by the difference between the shareholder's basis in such share and the amount of cash received, provided that such payment is not essentially equivalent to a dividend within the meaning of Section 302 of the code nor has the effect of a distribution of a dividend within the meaning of Section 356(a)(2) of the code after giving effect to the constructive ownership rules of the code. A sale of shares under an exercise of dissenters' rights generally will not be so treated if, as a result of such exercise, the shareholder exercising dissenters' rights owns no shares of capital stock of the Sixth Business Service Group, either actually or constructively within the meaning of Section 318 of the code, immediately after the merger. Neither Sixth Business Service Group nor Telesource International will recognize gain solely as a result of the merger. Characterizing the merger as a reorganization is dependent on certain requirements. One key requirement is that there is a continuity of interest with respect to the business of Telesource International . In order for the continuity of interest requirement to be met, shareholders of Telesource International must not, under a plan or intent existing at or prior to the closing of the merger, dispose of so much of their Telesource International common stock in anticipation of the merger, plus the Sixth Business Service Group common stock received in the merger that the Telesource International shareholders, as a group, would no longer have a significant equity interest in the Telesource International business being conducted by the us after the merger . 22 Telesource International shareholders will generally be regarded as having a significant equity interest as long as the Sixth Business Service Group common stock received in the merger, in the aggregate, represents a substantial portion of the entire consideration received by the Telesource International shareholders in the merger. This requirement is frequently referred to as the continuity of interest requirement. If the continuity of interest requirement is not satisfied, the merger would not be treated as a reorganization. The law is unclear as to what constitutes a significant equity interest or a substantial portion. The IRS ruling guidelines require eighty percent continuity, although such guidelines do not purport to represent the applicable substantive law. The continuity of interest certificates obtained from such shareholders contemplates that the eighty percent standard will be applied. If such requirement is not satisfied, the merger will not be treated as a reorganization. A successful IRS challenge to the reorganization status of the merger would result in significant tax consequences. For example, * Telesource International would recognize a corporate level gain or loss on the deemed sale of all of its assets equal to the difference between * The fair market value of all assets owned by Telesource International less all liabilities owed by Telesource International on the merger date * Telesource International shareholders would recognize gain or loss with respect to each share of Telesource International common stock surrendered equal to the difference between the shareholder's basis in such share and the fair market value, as of the closing of the merger, of the Sixth Business Service Group common stock received in merger therefore. In such event, a shareholder's aggregate basis in the Sixth Business Service Group common stock so received would equal its fair market value and the shareholder's holding period for such stock would begin the day after the merger as a result of its filing of a form 8-A electing to be a reporting company subject to the requirements of the 1934 act is consummated. Even if the merger qualifies as a reorganization, a recipient of Sixth Business Service Group common stock would recognize income to the extent that, for example, any such shares were determined to have been received in merger for services, to satisfy obligations or in consideration for anything other than the Telesource International common stock surrendered. Generally, such income is taxable as ordinary income upon receipt. In addition, to the extent that Telesource International shareholders were treated as receiving, directly or indirectly, consideration other than Sixth Business Service Group common stock in merger for such shareholder's common stock gain or loss would have to be recognized. Termination. - ------------ At any time prior to the Effective Date, the merger agreement may be terminated, and the merger abandoned under certain circumstances, including: * By mutual consent of Sixth Business Service Group and Telesource International 23 * By either party if any of the other party's representations and warranties contained in the merger agreement shall be or shall have become inaccurate, or if any of the other party's covenants contained in the merger agreement shall have been breached * By either party if a court of competent jurisdiction or other governmental body shall have issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the merger * By Telesource International if the special meeting shall have been held and the merger agreement shall not have been adopted and approved at such meeting by the required vote * By Telesource International if Telesource International reasonably determines that the timely satisfaction of any condition to its obligations to consummate the merger has become impossible or unlikely. Dissenters' Rights - ------------------ The following summary of dissenters' rights under Delaware law is qualified in its entirety by reference to section 262, Delaware General Corporation Law. Pursuant to Section 262 of the Delaware General Corporation Law, the holder of record of any shares of Telesource International common stock who does not vote such holder's shares in favor of adoption and approval of the merger may assert appraisal rights and elect to have the "fair value" of such holder's shares of Telesource International common stock determined and paid to such holder, provided that such holder complies with the requirements of section 262, summarized below. All references to and summaries of the rights of the dissenting shareholders are qualified in their entirety by reference to the text of section 262 of the DGLC which is attached to this Information statement as Exhibit C. Any shareholder entitled to vote on the merger who desires that Telesource International purchase shares of Telesource International common stock held by such shareholder, must not vote in favor of adoption and approval of the merger. Shares of Telesource International common stock voted in favor of adoption and approval of the merger will be disqualified as dissenting shares. Shareholders whose shares are not voted in favor of adoption and approval of the merger and who, in all other respects, follow the procedures specified in section 262 will be entitled to have their Telesource International common stock appraised by the Delaware Court of Chancery and to receive payment of the "fair value" of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by the Court. The procedures set forth in section 262 must be strictly complied with. Failure to follow any such procedures will result in a termination or waiver of appraisal rights under section 262. Under section 262, a holder of Telesource International common stock may exercise appraisal rights as follows: 24 * Either before the effective date of the merger or consolidation or within ten days thereafter, Telesource International shall notify each of the holders of any of its class or series of stock who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. * Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. * For purposes of determining the stockholders entitled to receive either notice, each corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. * The written demand for appraisal must be made by or for the holder of record of shares of Telesource International common stock. Accordingly, such demand must be executed by or for such shareholder of record, fully and correctly, as such stockholder's name appears on the stock certificates representing the shares. If the applicable shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in such capacity, and if the applicable shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, such demand should be executed by or for all joint owners. An authorized agent, including one of two or more joint owners, may execute the demand for appraisal for a shareholder of record. However, the agent must identify the record owner(s) and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record owner(s). 25 * A record owner, such as a broker, who holds shares as nominee for other persons may exercise appraisal rights with respect to the shares held for all or less than all of such other persons. In such case, the written demand should set forth the number of shares covered by it. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares standing in the name of such record owner. * Within 10 days after the closing of the merger, Telesource International is required to, and will, notify each shareholder who has satisfied the foregoing conditions of the date on which the closing of the merger occurred and that appraisal rights are available with respect to shares for which a demand has been submitted. Within 120 days after the closing of the merger, Telesource International, or any such shareholder who has satisfied the foregoing conditions and is otherwise entitled to appraisal rights under section 262, may file a petition in the court demanding a determination of the value of the shares held by all shareholders entitled to appraisal rights. If no such petition is filed, appraisal rights will be lost for all shareholders who had previously demanded appraisal of their shares. Shareholders of Telesource International seeking to exercise appraisal rights should not assume that Telesource International will file a petition with respect to the appraisal of the value of their shares or that Telesource International will initiate any negotiations with respect to the "fair value" of such shares. Accordingly, such shareholders should regard it as their obligation to take all steps necessary to perfect their appraisal rights in the manner prescribed in section 262. * Within 120 days after the date of the closing of the merger, any shareholder who has therefore complied with the applicable provisions of section 262 will be entitled, upon written request, to receive from Telesource International a statement setting forth the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal were received by Telesource International, and the number of holders of such shares. Such statement must be mailed within 10 days after the written request therefore has been received by Telesource International or within 10 days after expiration of the period for delivery of demands for appraisal, which ever is later. * If a petition for an appraisal is timely filed, at the hearing on such petition the court will determine the shareholders of Telesource International entitled to appraisal rights. After determining the shareholders entitled to an appraisal, the court will appraise the value of the shares of Telesource International common stock owned by such shareholders, determining the "fair value" thereof exclusive of any element of value arising from the accomplishment or expectation of the merger. The court will direct payment by Telesource International of the fair value of such shares together with a fair rate of interest, if any, on such fair value to shareholders entitled thereto upon surrender to Telesource International of stock certificates. The costs of the proceeding may be determined by the court and taxed upon the parties as the court deems equitable in the circumstances. Upon application of a shareholder, the court may, in its discretion, order that all or a portion of the expenses incurred by any shareholder in connection with an appraisal proceeding, including without limitation, reasonable attorneys' fees and fees and expenses of experts, be charged pro rata against the value of all the shares entitled to appraisal. 26 * Although Telesource International believes that the merger is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the court and shareholders should recognize that such appraisal could result in a determination of a value higher or lower than, or the same as, the Conversion Value. Moreover, Telesource International does not presently anticipate offering more than the Conversion Value to any shareholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of section 262, the "fair value" of a share of Telesource International common stock is less than the Conversion Value. In determining the "fair value" of shares of Telesource International common stock, the court is required to take into account all relevant factors. Therefore, such determination could be based upon considerations other than, or in addition to, the price paid for shares of Telesource International common stock, including, without limitation, the market value of shares and the asset values and earning capacity of Telesource International. In WEINBERGER V. UOP, INC. ET AL., 457 A.2d 701,713 (Del. 1983), the Delaware Supreme court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Section 262 provides that "fair value" is to be "exclusive of any element of value arising from the accomplishment or expectation of the merger." In WEINBERGER, the Delaware Supreme court held that "elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered." * Any holder of shares of Telesource International common stock who has demanded an appraisal in compliance with section 262 will not, after the closing of the merger, be entitled to vote such holder's shares for any purpose nor be entitled to the payment of dividends or other distributions on such shares (other than those payable to shareholders of record as of a date prior to the closing of the merger). * If (i) no petition for an appraisal is filed within 120 days after the date of the closing of the merger or (ii) a holder of shares delivers to Telesource International a written withdrawal of such holder's demand for an appraisal and an acceptance of the merger, either within 60 days after the closing of the merger or with the written approval of Telesource International thereafter (which Telesource International reserves the right to give or withhold, in its sole discretion), then the right of such shareholder to an appraisal will cease and such shareholder will remain a shareholder of Telesource International. No appraisal proceeding in the court will be dismissed as to any shareholder without the approval of the court, which approval may be conditioned on such terms as the court deems just. 27 It is a condition to Telesource International' obligations to consummate the merger that the holders of no more than 1% of the outstanding shares of Telesource International's common stock are entitled to dissenters' rights. If demands for payment are made with respect to more than 1%, of the outstanding shares of Telesource International's common Stock, and, as a consequence more than 1% of the shareholders of Telesource International become entitled to exercise dissenters' rights, then Telesource International will not be obligated to consummate the merger. Accounting Treatment - -------------------- For accounting purposes, the merger will be treated as a reverse acquisition with Telesource International being treated as the acquiree for financial reporting purposes. Merger Procedures - ----------------- Unless otherwise designated by a Telesource International shareholder on the transmittal letter, certificates representing shares of Sixth Business Service Group common stock issued to Telesource International shareholders will be issued and delivered to the tendering Telesource International shareholder at the address on record with Telesource International. In the event of a transfer of ownership of shares of Telesource International common Stock represented by certificates that are not registered in the transfer records of Telesource International, the shares may be issued to a transferee if such certificates are delivered to the Transfer Agent, accompanied by all documents required to evidence such transfer and by evidence satisfactory to the Transfer Agent that any applicable stock transfer taxes have been paid. If any certificates shall have been lost, stolen, mislaid or destroyed, upon receipt of * An affidavit of that fact from the holder claiming such certificates to be lost, mislaid or destroyed, Such bond, security or indemnity as the surviving corporation and the merger agent may reasonably require * Any other documents necessary to evidence and effect the bona fide merger, the merger agent shall issue to holder the shares into which the shares represented by such lost, stolen, mislaid or destroyed * Certificates have been converted. Neither Sixth Business Service Group, Telesource International, nor the Transfer Agent is liable to a holder of Telesource International's common stock for any amounts paid or property delivered in good faith to a public official under any applicable abandoned property law. Adoption of the merger agreement by the Telesource International's shareholders constitutes ratification of the appointment of the Transfer Agent. After the closing of the merger, holders of certificates will have no rights with respect to the shares of Telesource International common stock represented thereby other than the right to surrender such certificates and receive in merger the shares of Sixth Business Service Group common stock to which such holders are entitled. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction In Management's Discussion and Analysis we explain the general financial condition and results of operations for Telesource International and its business subsidiaries including: * what factors affect our business, * what our earnings and costs were for the twelve months ended December 31, 1999 and 1998, respectively, * why those earnings and costs were different from the year before, * where our earnings came from, * how all of this affects our overall financial condition, * how our segments performed, * where cash will come from to pay for future capital expenditures. As you read Management's Discussion and Analysis, it may be helpful to refer to our Consolidated Statements of Income on page F-3, which present the results of our operations for 1999, 1998 and 1997. In Management's Discussion and Analysis, we analyze and explain the annual changes in the specific line items in the Consolidated Statements of Income. Our analysis may be important to you in making decisions about your investments in Telesource International. Telesource International and Sixth Business Service Group have agreed to merge into a new company and for the surviving company to be named Telesource International, Inc. We plan to complete the merger as soon as we obtain all regulatory approvals. These matters are discussed in more detail beginning on page 5. Overview of the Company Telesource International is an international engineering and construction company, which has among its operations power generation and specialty construction services in the Commonwealth of Mariana Islands. We operate a diesel fired electric power generation plant for the sale of electricity to the local power grid. Our facility in Lombard, Illinois annually handles the procurement, export and shipping of several million dollars worth of U.S. fabricated products for use by our subsidiaries or for resale to customers outside of the mainland. Telesource International was formed in 1994 to facilitate various intra-corporate activities and, until July 1999, was a wholly owned subsidiary of SHBC a Kuwait-based civil, electrical and mechanical construction company. We conduct our operations primarily through subsidiaries. We currently have two subsidiaries. Our Mariana subsidiary handles construction and management of our power facilities in the Commonwealth of Mariana Islands. Our second subsidiary, Commsource International located in Chicago, Illinois, is an international export company that facilitates the purchase of equipment fabricated in the U.S. Our branch offices in Guam, Telesource International Pacifica and Pacifica Power Resources, a trading company, were created to take advantage of opportunities we believe will be available there. 29 Telesource International has three main operating segments: construction services, trading activities and power generation. The power generation activities did not commence until March 1999. * Construction services. Our main lines of construction services cover the range from single-family housing to power generation plants. We are now working on expanding the business by taking advantage of opportunities to increase market share in existing geographic areas and to expand geographic service areas in our core lines of business. We are currently one of the largest construction contractors in the Commonwealth of Northern Mariana Islands. * Power generation and sale. We have contracts to generate and provide wholesale electrical power to local government agencies, which is then distributed on their power grids. In March 1999, Telesource International began generating power for resale at its power generation plant, and this activity generated $121,333 in operating revenues since March 1999 or less than 1% of the combined gross revenues for Telesource International. Prior to 1999, Telesource International had not established this segment and therefore financial data is presented only for the year ended December 31, 1999. For the years ended December 31, 1998 and 1997, Telesource International was involved in two other lines of business, construction and trading of U.S. fabricated products. There were no material amounts of transfers between lines of business. Any intersegment sales have been eliminated. The following table sets forth certain segment information for the periods indicated: 30
Power Generation Construction Trading Total ------------ -------------- ------------- ---------------- The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local agencies, and private parties. The Company's bidding activity is affected by such factors as backlog, current utilization of equipment and other resources, ability to obtain necessary surety bonds and competitive considerations. Bidding activity, backlog and revenue resulting from the award of new contracts to the Company may vary significantly from period to period. 31 Revenue from construction contracts including construction joint ventures is recognized using the percentage-of-completion method of accounting, based upon costs incurred and projected costs. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs) and insurance costs. Depreciation is provided using straight-line methods for construction equipment. Contracts frequently extend over a period of more than one year and revisions in cost and profit estimates during construction are reflected in the accounting period in which the facts that require the revision become known. Losses on contracts, if any, are provided in total when determined, regardless of the degree of project completion. Claims for additional contract revenue are recognized in the period when it is probable that the claim will result in additional revenue and the amount can be reliably estimated. The foregoing as well as the stage of completion, and mix of contracts at different margins may cause fluctuations in gross profit between periods. The construction industry and electric utility industry are undergoing rapid and substantial change. Competition is increasing. The regulatory environment is shifting. These matters are discussed briefly in the "Competition" and "Regulatory" sections on pages 46 and 47. Telesource International continuously evaluates these changes. Based on the evaluations, Telesource International refines its short and long-term business plans with the primary goal of protecting our security holders' investments and providing them with superior returns on their investment in Telesource International. As you read Management's Discussion and Analysis, many Telesource International initiatives to support our primary goal are mentioned. These include the proposed merger with Sixth Business Service Group and subsequent listing of Telesource International's stock on the Over The Counter system, designed to position us to remain competitive as the industry changes by giving us improved access to the capital markets. Cautionary Statement This registration statement on Form S-4 contains "forward-looking statements", as defined by the Private Securities Litigation Reform Act of 1995, in order to provide investors with prospective information about the Company. For this purpose, any statements which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors which could cause the Company's actual results and events to differ materially from those indicated by the forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results". Results of Operations Year ended December 31, 1999 ("1999") compared to the year ended December 31, 1998 ("1998"). Revenue. During the year ended December 31, 1999, revenue was $23,036,351 and decreased $10,431,856, or 31.2%, as compared to revenues of $33,468,207 for the same period in 1998. The construction revenues during the year ended December 31, 1999 were $18,612,386 and decreased $7,676,538, or 29.2%, as compared to construction revenues of $26,288,924 for the same period in 1998. The construction of the power generation plant was completed on phase I in March 1999. The Company received a change order in December of 1998 to proceed with the construction of Phase II; however, the construction activities on phase II of the power generation plant were delayed as expected to allow for ordering and the delivery of the construction materials needed for phase II. 32 Gross Profits. For the year ended December 31, 1999, gross profit was $4,437,971, a $1,998,946 decrease from $6,436,917 for the same period in 1998. As a percentage of revenue, gross profit decreased for the year ended December 31, 1999 to 18.9% from 19.2% for the same period in 1998. The decrease in gross profits is attributed primarily to the lower revenues earned in the construction operations. Salaries and Employee Benefits. Salaries and employee benefits were $1,034,948 for the year ended December 31, 1999 as compared to $386,571 for the same period in 1998. The increase in salaries and employee benefits was a 167.7% increase and is attributed to additional staffing required for the operation and maintenance of the power generation plant along and additional corporate officers required in connection with Telesource International's efforts to become a publicly listed company. Occupancy and Equipment Expenses. Occupancy and equipment expenses decreased to $245,551, or 16.2%, from $293,112 for the years ended December 31, 1999 and 1998, respectively. The decrease in occupancy and equipment expense is attributed to management's efforts to reduce costs in periods of reduced sales, rental income and service fees. The reductions in revenue generation resulted in reduced needs and subsequently, lower expenses. General and Administrative Expenses. General and administrative expenses include costs associated with the Company's estimating and bidding activities, and other administrative costs. General and administrative expenses increased from $748,935 to $2,055,901 for the years ended December 31, 1998 and 1999, respectively and increased to 8.9% of gross revenues, from 2.2% of gross revenues for the years ended December 31, 1999 and 1998, respectively. The increase is primarily due to the operational needs of the Company to prepare for phase II of the power generation plant along with the operation and maintenance of the power generation plant and expenses incurred in connection Other Expense and Other Income. Other expense and other income, net, increased to a net other income of $926,248 for year ended December 31, 1999 as compared to a net expense of $23,229 for the same period during 1998. The change is attributed to the recognition of interest income on the notes receivable in the amount of $2,043,864 and interest expense on the notes payable in the amount of $1,132,221 for a net amount of interest income of $911,643. Net Income. Net income for the year ended December 31, 1999 amounted to $1,650,201 or $0.17 per share as compared to net income of $4,010,819 or $0.40 per share for the same period in 1998. The decrease in net results during the 1999 is attributable to the expected delay between receiving the notice to proceed with construction on phase II and the time required to order the materials and have them delivered along with decreases in trading activities, rental income and service fees. Earnings per share in future periods will depend in large part on the Company's ability to successfully bid and be awarded additional contracts for construction services. 33 Operating Activities The following adjustments, which did not impact the Company's cash flows, need to be considered in order to reconcile the Company's 1999 net income to its net cash provided by operating activities. Depreciation and Amortization. During 1999, the Company recognized depreciation of $363,880 and no amortization. Deferred Income Tax Benefit. The Company's net deferred income tax liability amounted to $510,000 as of December 31, 1999 as compared to $232,382 as of December 31, 1998. The increase in the deferred tax liability is a result of the tax provision taken during 1999. The Company also offers the following information to discuss changes in its operating assets and liabilities which most notably impacted its cash position during 1999: The Company's current assets amounted to $3,403,572 as of December 31, 1999, as compared to $1,247,910 as of December 31, 1998. The increase is due primarily to an increase in accounts receivable and the recognition of a note receivable in the amount of $13,620,809 during 1999. $907,822 was classified as the current portion due on the note receivable at December 31, 1999. The note receivable is associated with the Company's completion of phase I on the construction of the power generation plant. The completion of phase I resulted in the transfer from the balance sheet account costs and estimated earnings in excess of estimated billings. The Company began receiving installment payments in March 1999 in the amount of $180,000 per month for ten years. Costs and estimated earnings in excess of billings increased by $2,240,320 to $24,734,067 from $22,502,747 as of December 31, 1999 and 1998, respectively. The increase is attributed to the work performed on phase II of the power generation plant construction contract and work performed on other construction projects. Premises and equipment, net of depreciation was almost unchanged at December 31, 1999 in the amount of $1,891,188 as compared to the balance at December 31, 1998 of $1,786,409, for a net increase of $104,779. The increase is attributed to premises and equipment additions required with the opening of the power generation facility and additions made at Telesource International's corporate headquarters. The Company's accounts payable and accrued expenses amounted to $5,510,317 as of December 31, 1999 as compared to $1,478,774 as of December 31, 1998. The increase of 272.6% in accounts payable and accrued expenses is attributed to the increase in goods and services purchased during 1999 as related to the construction activities on phase II and the other projects currently underway at the end of the year. The growth in construction services resulted in increased demand for construction products which in turn increased the amount of accounts payable and accrued expenses at December 31, 1999. Customer deposits remained unchanged at $125,000 as of December 31, 1999. 34 Notes payable classified as long-term increased $10,500,000 to $28,000,000 from $17,500,000 as of December 31, 1999 as compared to December 31, 1998. The additional borrowings consisted of the $7,500,000 from the Commercial Bank of Kuwait, New York Branch, which increased the amount owed to the Commercial Bank of Kuwait, New York Branch, to $25,000,000 or the maximum amount available under the credit line from the Commercial Bank of Kuwait, New York Branch. This credit line is due in February 2002. The Company was granted a $2,000,000 letter of credit from the Kuwait Real Estate Bank on May 2, 1999 at a floating interest rate of LIBOR plus 2.5%. This letter of credit will mature on May 21, 2001 and the Company had a balance due to the Kuwait Real Estate Bank on this letter of credit of $2,000,000 at December 31, 1999. The Company was also granted a $1,000,000 line of credit with the Bank of Hawaii at a fixed rate of interest of 6.25%. This line of credit will mature on March 26, 2001 and had a balance due to the Bank of Hawaii on this letter of credit of $1,000,000 at December 31, 1999. All credit lines at December 31, 1999 had been fully utilized. Warranty Reserve. The Company does not record a warranty reserve. Work performed under warranties is performed at the expense of the equipment manufacturer. The Company has not experienced any losses associated with warranty work to date. Financing Activities Unsecured Line of Credit with the Commercial Bank of Kuwait, New York Branch - The Company used the full amount of a credit line with $25 million of available credit under an unsecured loan from the Commercial Bank of Kuwait, New York Branch. The loan has an interest rate of LIBOR plus 300 basis points. Under the terms of the loan agreement, interest payments are due annually and the principal balance is due at maturity. This loan is scheduled to mature in February 2002. This loan has a guarantee of repayment to the Commercial Bank of Kuwait, New York Branch, from the Company's largest shareholder, SHBC and its major shareholders. See "Certain Relationships and Related Transactions". Telesource International was granted an unsecured letter of credit with the Kuwait Real Estate Bank for $2,000,000 and had subsequently borrowed $2,000,000 on this letter of credit at December 31, 1999. The loan has an interest rate of LIBOR plus 250 basis points. This loan was originated on May 2, 1999 and will mature on May 2, 2001. Under the terms of the loan agreement, the loan is due in lump sum at maturity. This line of credit is guaranteed by SHBC and its major shareholders. Telesource International was granted a $1,000,000 line of credit from the Bank of Hawaii. This line of credit is secured by certificates of deposits held at the Bank of Hawaii and has an interest rate of 1% over the certificate of deposit rate. The line has a maturity in March 2001 with interest payments due monthly and principal due at maturity. The Company had fully utilized this line of credit at December 31, 1999. On January 24, 2000, Telesource International was granted a $2,000,000 line of credit from The Hongkong and Shanghai Banking Corporation Limited, Guam Branch. This line of credit is secured by the promissory notes Telesource International holds on the power generation plant. This line of credit has a maturity January 31, 2001 with interest payments due monthly and principal due at maturity. This line bears an interest rate of the Bank of Hawaii's prime rate plus 1.5%. 35 Common Stock - The Company received a capital contribution from its stockholder, SHBC, in the amount of $700,000 in 1998. In July 1999, the Company announced that its Board of Directors approved a one-for-ten thousand stock split to stockholders of record on July 26, 1999. There was only one shareholder of record on the record date, SHBC. All references in this document to number of shares and per share amounts of the Company's common stock have been retroactively restated to reflect the increased number of shares outstanding. Treasury Stock - The Company from time to time may make purchases of its own common stock. The Company did not purchase any treasury stock during the twelve months ended December 31, 1999 or the twelve months ended December 31, 1998. Outlook During 2000, the Company expects that its principal sources of cash to fund its business activities will be from available cash balances, operating activities, investment earnings, lines of credit and other financing activities. 2000 Outlook With a view towards 2000, the Company expects to achieve continuing operating earnings as a result of profits from construction and power generation activities along with the management of its corporate general and administrative expenses. The Company offers the following prospective information concerning significant components of its 2000 results of operations which are being compared to historical results of operations in 1999: Power Generation Revenues. Our power generation activities are estimated to be less than 10% of the Company's revenues in 2000. During 1998, the power generation facility located on the island of Tinian was under construction and did not begin producing power until March 1999. Originally, Telesource International was contracted to construct a 10 Mw plant and then in December of 1998, Telesource International was contracted to increase its power producing capabilities to 20 Mw. Telesource International's power generation plant on Tinian was designed to be upgradeable to a total power generation capability of 30 Mw. While the Company expects that it will be able to sell all of its production, there can be no assurance that our full power production capability will be utilized at all times. Operating Expenses. Operating expenses are expected to increase in 2000 as a result of having one full year of power plant production activities. The completion of the second phase of construction is expected in March 2000. 36 General and Administrative Expenses. General and administrative expenses are expected to increase during 2000. The principal administrative costs which are subject to considerable variation pertain to the Company's expenses incurred in registering its common stock and maintaining its public company status. Staffing additions as well as increased fees for audit and legal expenses are expected to occur. Unlike traditional offering statements, whereby the expenses of the offering and subsequent registration of the Company's common stock are netted from the proceeds of the offering, the Company is not offering any securities for sale through this registration statement. All known expenses incurred as of December 31, 1999 for the registration statement have been recognized in 1999. Additionally, Telesource International began paying board fees to its board members in late 1999. The board fees for 1999 were $70,000 and the board fees for 2000 are expected to be approximately $140,000. Other Expense and Other Income. Other expenses and other income are expected to remain flat during 2000. Finally, the Company remains focused on growth both internally and externally. We believe we are working to carry out a strategic plan that will provide us with the opportunity to capitalize on the exciting opportunities ahead of us. We will continue to work our plan, focusing on profitable growth in an effort to provide an optimal level of value to our stockholders. Year ended December 31, 1998 ("1998") compared with the year ended December 31, 1997 ("1997") Revenue. During the year ended December 31, 1998, revenue increased $20,092,199, or 150.2%, to $33,468,207 as compared to revenues of $13,376,008 for the same period in 1997. The increase in gross revenues is due primarily to the Company's efforts in securing a contract to install and operate a power generation plant on the island of Tinian and the completion of 97% of the first phase of this contract during 1998 as well as the Company's involvement in the construction of a radio relay tower for the Voice of America on the island of Tinian. The power generation plant is being constructed in phases with the order to construct phase I and II fully executed. The power generation plant has the capacity for a phase III; however, the construction of phase III is subject to future power demands and the date or the probability of Telesource International receiving an order to construct phase III can not be reasonably estimated. Revisions in contract revenue and cost estimates are reflected in the accounting period when known. Provision for the entire amount of estimated losses on uncompleted contracts is made in the period such losses are determined. Claims for additional contract revenue are recognized if it is probable that the claim will result in additional revenue and the amount can be reliably estimated. Gross Revenues. While the Company expects to be able to increase gross revenues in future periods, the growth rate in earnings recognized in 1998 is not expected to continue at the level experienced in 1998. Future revenues are dependent upon the Company's efforts to secure contracts through the bidding process and therefore no assurances can be given that the Company will be able to increase gross revenues in future periods. 37 Gross Profits. For the year ended December 31, 1998, gross profit reached $6,436,917, a $4,681,533 increase from 1997. As a percentage of revenue, gross profit increased in 1998 to 19.2% from 13.1% in 1997. The increased gross profit margin is attributed to the Company's efforts to grow revenues and manage costs efficiently during periods of high growth. Salaries and Employee Benefits. Salaries and employee benefits declined to $386,571 for the twelve months ended December 31, 1998 as compared to the same period during 1997 of $452,795. The decrease in salaries and employee benefits was a 14.6% decrease and is attributed to vacancies within two executive positions during 1998. These vacancies have been filled and an increase in salaries and employee benefits is expected to occur in future periods. Occupancy and Equipment Expenses. Occupancy and equipment expenses remained relatively flat at $293,112 as compared to $305,290 for the twelve months ended December 31, 1998 and 1997, respectively. General and Administrative Expenses. General and administrative expenses include administrative salaries, incentive compensation, retirement plans, costs associated with the Company's estimating and bidding activities, and other administrative costs. General and administrative expenses increased from $346,543 in 1997 to $748,935 in 1998 and decreased from 19.7% of gross profit in 1997, to 11.6% of gross profit in 1998. The dollar increase is primarily due to costs resulting from the Company's increased revenue and bidding activities and additional administrative staffing associated with the Company's growth. The decrease as a percent of revenue is due to the fixed nature of certain expenses and the increased revenue achieved in 1998. Impairment of Long-Lived Asset. Telesource International recognized an impairment of long-lived assets during 1998 in the amount of $271,456 with no impairment recognition during 1997. The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Management began evaluating the balance in goodwill associated with its acquisition of Commsource International in connection with its review of the operational performance of this subsidiary. Commsource International posted a loss of $73,444 for the twelve months ended December 31, 1997 and a loss of $195,791 for the twelve months ended December 31, 1998. In light of these losses recognized by Commsource International along with the lack of necessary evidence to support the carrying value of the goodwill, management has recognized an impairment to the full value of the goodwill associated with Telesource International's investment in Commsource International. 38 Other Expense and Other Income. Other expense and other income remained relatively unchanged at an expense of $23,229 for the twelve months ended December 31, 1998 as compared to an expense of $30,697 for the same period during 1997. The $7,468 reduction in other expenses is attributed to improved cash management. Net Income. Net income in 1998 amounted to $4,010,819 or $0.40 per share as compared to net income of $593,590 or $0.06 per share in 1997. The increase in net results during 1998 is attributable to increases in our construction activities and growth in rental revenues. Earnings per share in future periods will depend in large part on the Company's ability to successfully bid and be awarded additional contracts for construction services. There were no power generation revenues in CNMI during 1998 or 1997 and we began generating power at our power generation plant on the island of Tinian in March 1999 as scheduled. Liquidity and Capital Resources Operating Activities The Company had cash used by operating activities of $10,124,673 in 1998 and cash used by operating activities of $5,424,342 in 1997. While the Company reported an overall net income of $4,010,819 during 1998, the Company did not generate significant cash from its operating activities. The following adjustments, which did not impact the Company's cash flows, need to be considered in order to reconcile the Company's 1998 net income to its net cash provided by operating activities. Depreciation and Amortization. During 1998, the Company recognized depreciation and amortization of $451,888, and an impairment to long-lived assets of $271,456. Deferred Income Tax Benefit. The Company's net deferred income tax liability amounted to $232,382 as of December 31, 1998 as compared to none as of December 31, 1997. The increase in the deferred tax liability is associated with a temporary difference created by the Company's recognition of profits on its construction activities under the percentage-of- completion method for financial statement reporting purposes as compared to the installment method of recognizing income for income tax purposes. The Company also offers the following information to discuss changes in its operating assets and liabilities which most notably impacted its cash position during 1998: The Company's current assets amounted to $1,247,910 as of December 31, 1998 as compared to $2,162,777 as of December 31, 1997. The decrease in current assets by 42.3% is due to a reduction in accounts receivable by 82.4% from $1,086,581 to $191,078 as of December 31, 1997 and 1998, respectively. The reduction in accounts receivable is a result of the contract to construct the power plant which defers payments for construction services until the construction is complete. Telesource International began receiving installment payments in March 1999 in the amount of $180,000 per month for ten years. 39 Costs and estimated earnings in excess of billings increased by $17,314,750 to $22,502,747 from $5,187,997 as of December 31, 1998 and 1997, respectively. The increase is attributed to the power plant construction contract which defers the payment for construction services until completion at which time Telesource International will begin receiving monthly installments of $180,000 for ten years. Premises and equipment, net of depreciation increased 56.9% to $1,786,409 from $1,138,567. The increase is attributed to additional equipment needs associated with the growth in construction service activities. Excess of cost over fair value of net assets acquired amounted to $287,424 at December 31, 1997 and none at December 31, 1998. The full amount of the goodwill associated with the acquisition of Commsource International was recognized as impaired in 1998 as a result of the losses realized by Commsource International in 1997 and 1998 along with the lack of evidence to support the carrying value of the goodwill. The Company's accounts payable and accrued expenses amounted to $1,478,774 as of December 31, 1998 as compared to $989,532 as of December 31, 1997. The increase of 49.4% in accounts payable and accrued expenses is attributed to the growth in construction services realized during 1998. The growth in construction services resulted in increased demand for construction products which in turn increased the amount of accounts payable outstanding at December 31, 1998. Customer deposits remained unchanged at $125,000 as of December 31, 1998 while notes payable classified as current liabilities decreased from $6,700,000 to none at December 31, 1997 and 1998, respectively. The decrease in notes payable classified as currently due was paid at December 31, 1997 consisted of a $6,000,000 note payable to the Commercial Bank of Kuwait, New York Branch, which was renewed for $25,000,000 due in February 2002 during 1998, a $700,000 note due to SHBC which was repaid with proceeds from a capital contribution made by SHBC, and lastly a note payable to SHBC for $278,374 which was repaid during 1998 by internally generated cash flows. Warranty Reserve. The Company does not record a warranty reserve. Work performed under warranty's is performed at the expense of the equipment manufacturer. The Company has not experienced any losses associated with warranty work to date. Financing Activities The Company utilized $11,221,626 and $6,978,374 in financing activities during the years ended December 31, 1998 and 1997, respectively. The Company's financing activities are concentrated primarily in the following areas: Unsecured Line of Credit with the Commercial Bank of Kuwait, New York Branch, - The Company used $17.5 million of a credit line with $25 million of available credit under an unsecured loan from the Commercial Bank of Kuwait, New York Branch. The loan has an interest rate of LIBOR plus 300 basis points. Under the terms of the loan agreement, interest payments are due annually and the principal balance is due at maturity. This loan is scheduled to mature in February 2002. This loan has a guarantee of repayment to the Commercial Bank of Kuwait, New York Branch, from the Company's largest shareholder, SHBC and its major shareholders. See "Certain Relationships and Related Transactions". 40 Telesource International has an unsecured line of credit with the Kuwait Real Estate Bank for $2,000,000. The loan has an interest rate of LIBOR plus 250 basis points. This loan was originated on May 2, 1999 and will mature on May 21, 2001. Under the terms of the loan agreement, the loan is due in lump sum at maturity. This line of credit is guaranteed by SHBC and its major shareholders. Telesource International was granted a $1,000,000 line of credit from the Bank of Hawaii. This line of credit is 100% secured by certificates of deposits held at the Bank of Hawaii and has an interest rate of 1% over the certificate of deposit rate. The line has a maturity in March 2001 with interest payments due monthly and principal due at maturity. Common Stock - The Company received a capital contribution from its stockholder, SHBC, in the amount of $700,000 in 1998, none in 1997, and a $40,000 capital contribution from SHBC in 1996. The Company did not receive any proceeds from the issuance of its Common Stock during 1998, 1997 and 1996, respectively and no additional stock was issued for these same periods. Treasury Stock - The Company from time to time may make purchases of its own common stock. The Company did not purchase any treasury stock during 1998, 1997 or 1996. Reclassification of Certain Balances There have been reclassifications of certain balances to conform the financial statement to Generally Accepted Accounting Principles. Prior to the preparation of this registration statement, Telesource International maintained its accounting records on a tax basis, specifically, Telesource International used the completed contract method in the preparation of its financial statements for tax purposes. In order for Telesource International to prepare its financial statements in accordance with Generally Accepted Accounting Principles, Telesource International changed its method of accounting for the revenues realized on its construction contracts to the percentage-of-completion method of accounting, and applied the percentage-of-completion method to the financial statement information presented herein. Recently Issued Accounting Standards See Note 2 to the Consolidated Financial Statements for recently issued accounting standards which are required to be adopted in 1999. Legal Proceedings Telesource International is involved in various litigation proceedings incidental to the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from such litigation would not be material in relation to the Company's financial position or results of operations. 41 Year 2000 Readiness General The Company has developed and implemented its plan to address the issue of Year 2000 Readiness ("the Y2K Project"). In 1998, the Company began establishing procedures to assess the risks associated with the Y2K Project. The Company's procedures to assess the risks of the Y2K Project have included an inventory of stand-alone hardware and software ("IT Systems"), an inventory of all system components embedded in our power generation plant operating control systems ("Non-IT Systems"), the identification of critical vendors, customers and business partners, the testing of both IT Systems and Non-IT systems and a solicitation of responses from all critical vendors, customers and business partners indicating their readiness for the Year 2000. Presently, the Company has completed its testing of IT Systems and Non- IT Systems. Based on the results of these tests, the Company has identified IT Systems and components of Non-IT Systems which are not Year 2000 compliant. With respect to IT systems, the Company has either already upgraded such systems or has replaced such systems. As far as Non- IT Systems, the Company has received recommendations from third parties regarding solutions to either upgrade or replace non-compliant system components. The upgrades and/or replacements of non-compliant system components were completed prior to December 1999. The Company has made substantial progress in securing responses from most critical vendors, and business partners indicating their readiness for Year 2000. Based on the responses received to date, the Company has not identified any conditions of potential non-compliance which the Company estimates would materially impact its business. As of March 6, 2000, the Company has not been made aware of any Year 2000 disruptions for which it is responsible at any of its project sites or the power generation plant. Costs Telesource International began operating in 1994 and began verifying Year 2000 compliance on equipment purchases before executing orders. The Company had not incurred costs to remediate Year 2000 issues as of December 31, 1999. The Company does not expect that the total costs to remediate Year 2000 issues would be material to its financial position. Risks and Contingency Plans The Company established a plan designed to ensure that the Y2K Project was completed prior to the year 2000. However, in connection with its Y2K Project, the Company also developed a contingency plan which describes the steps the Company would take if the Y2K Project is not completed as planned. The Y2K Project efforts are ongoing and the Company will endeavor to update the Y2K Project activities and its contingency plans as new information becomes available. 42 The Year 2000 problem is a worldwide concern and there is a tremendous amount of uncertainty about the effect this problem will have on any business. The Company is endeavoring to understand the impact that failures of third parties could have on its business. However, even with a diligent effort, the Company may not be able to conceive every scenario in which a third party failure could impact its business. However, through direct solicitation, the Company has taken steps to assess the risk that known third parties with whom it has significant business relationships are sufficiently prepared for the Year 2000. The Company has key relationships with numerous vendors and business partners. Presently, the Company has received responses from most key vendors and business partners indicating their readiness for the Year 2000. Based on the responses received to date, the Company has not identified any conditions of potential non-compliance that the Company estimates would materially impact its business. The Company has considered its relationships with the vendors and business partners who have not yet indicated their readiness for Year 2000. Based on this review, the Company does not believe that its business would be materially affected if any of these vendors or key business partners failed to ensure that they were Year 2000 compliant. The Company has taken steps it deems prudent to understand its Year 2000 risks, to estimate the costs to complete its Y2K Project and to understand the extent to which it could be impacted by third parties who fail to ensure they are ready for the Year 2000. However, there can be no assurance that all non-compliant systems or system components will be identified, that the Company's systems will be Year 2000 compliant, that the Company will achieve its estimated remediation costs or timetable, or that a failure by a third party to be Year 2000 compliant would not have a material adverse affect on the Company's business. However, by completing its Y2K Project, the Company believes it will have taken appropriate steps to mitigate the risk that any of the aforementioned items would have a material adverse affect on its business. Interest Rates The Company's subsidiary has a variable rate term loan from the Commercial Bank of Kuwait, New York Branch,, a variable rate term loan from Kuwait Real Estate Bank and a variable rate term loan from the Bank of Hawaii. The Company offers the following information about these debt obligations: 43
Description of the Balance at Obligation 12/31/98 Interest Rate Matures - ----------------------- ----------- -------------------- ----------------- Variable rate term loan $17,500,000 LIBOR rate plus 3.0% February 17, 2002 Description of the Balance at Obligation 12/31/99 Interest Rate Matures - ----------------------- ----------- -------------------- ----------------- Variable rate term loan $25,000,000 LIBOR rate plus 3.0% February 17, 2002 Variable rate term loan $ 2,000,000 LIBOR rate plus 2.5% May 2, 2001 Fixed rate term loan $ 1,000,000 Fixed rate of 6.25% March 26, 2001 Fixed rate letter of credit $ 500,000 Fixed rate of 12.5% May 21, 2000
TELESOURCE INTERNATIONAL BUSINESS Telesource International is an international engineering and construction company, with specialized knowledge and experience in the construction of power generation and broadcasting facilities as well as the operation of independent power generation facilities. Telesource International was formed in 1994 to facilitate various intra-corporate activities and, until July 1999, was a wholly owned subsidiary of SHBC a Kuwait-based civil, electrical and mechanical construction company. Our activities in Micronesia are concentrated in the Commonwealth of Northern Mariana Islands, a United States possession. Our Chicago office is responsible for the procurement of U.S. fabricated products to be used by our subsidiaries as well as for resale. We conduct our operations primarily through subsidiaries. We currently have two subsidiaries. Our Mariana subsidiary, Telesource International CNMI Inc., handles construction and management of our power facilities in the Commonwealth of Mariana Islands. Our second subsidiary, Commsource International, is an international export company that facilitates the purchase of equipment in the U.S. Our branch offices in Guam, Telesource International Pacifica and Pacifica Power Resources, a trading company, were created to take advantage of opportunities we believe will be available there. Telesource International has three main operating segments: construction services, trading activities and power generation. Power generation activities did not commence until March 1999. * Construction services. Our main lines of construction services cover the range from single-family housing to power generation plants. We are now working on expanding the business by taking advantage of opportunities to increase market share in existing geographic areas and to expand geographic service areas in our core lines of business. We are currently one of the largest construction contractors in the Commonwealth of Northern Mariana Islands. 44 * Power generation and sale. We have contracts to generate and provide wholesale electrical power to local government agencies, which is then distributed on their power grids. Construction Services: Telesource International's Micronesian construction services are primarily carried out through our Mariana subsidiary. In late 1996, our Mariana subsidiary was subcontracted by our then-parent corporation to build a multimillion-dollar radio relay station in the Commonwealth of Northern Mariana Islands for the United States Information Agency. In 1999, through a competitive bidding process, we were awarded a contract to build 45 housing units for the Northern Mariana Housing Agency, a government agency. These are government-subsidized, low-income housing units. This project is valued at $6.3 million and is a first phase of a potentially larger project. This project is currently at the permitting stage. We believe there may be additional contracts or phases in the future. Although these may never be contracted and we may not obtain the contract if they are. Also in 1999, we were awarded a contract to build a school building on the island of Tinian as part of a infrastructure upgrade. The first phase of this project is valued at $330,000 which may at a latter date be upgraded; however, there can be no assurance that Telesource International will be awarded the upgrade. Telesource International has also been awarded a contract valued at approximately $800,000 to provide overhead and underground electricity transmission lines to a U.S. government site in the Commonwealth of Northern Mariana Islands and for the development of a well valued at $715,000. Non-Power Project Construction Expansion Plans: With our expansion into Guam to take advantage of the growing U.S. military presence there, we are currently looking for opportunities for our construction services not only in Micronesia, but also throughout the Pacific basin. Specialized Construction Processes: Building a power plant or a broadcasting facility is not like the construction of a more conventional building. Because of the high levels of radio frequency emissions or the generation of electrical currents, every part of the structure is integrated into the overall design and plays a role in making the overall facility safer and more efficient. 45 The building of these specialized structures requires additional engineering skills, the knowledge of specialized construction techniques and relationships with specialized subcontractors. The situation is made harder when building offshore, where distance from raw materials and subcontractors becomes a risk factor. Past and Present Power Generation Construction Projects: Our power generation business involves: * Building the power plants * Operating the power plants for the period of time of the contract * Selling wholesale power to the client to be distributed on their power grid * The transfer of the ownership of the properties to the clients at the end of the contract. In 1997, the Commonwealth Utility Corporation, located in the Commonwealth of the Northern Mariana Islands, awarded our Mariana subsidiary a multi-million contract to design, build and operate a 10-30 megawatt power plant. The initial 10 megawatts are now on-line, completed within budget and on time; the plant has been operational since March 1999. The second phase of the project is currently under construction, and by March 2000, we anticipate that an additional 10 megawatts will be on-line. The third phase will be constructed at the discretion of our Mariana subsidiary as the demand for power increases. Accordingly, if power demand fails to meet our projections, this phase may never be constructed. Power Plant Operation and Maintenance: The Commonwealth Utilities Corporation project in the Commonwealth of Northern Mariana Islands is an example of a power plant operation and maintenance project. We designed, financed and built the power plant. We obtained financing through a $25,000,000 line of credit from the Commercial Bank of Kuwait, New York Branch,. For this construction, we are paid $180,000 per month for ten years by the Commonwealth Utilities Corporation. Each monthly payment is secured by a promissory note in the amount of $180,000 issued by the Commonwealth Utilities Corporation. We have a 20-year lease on the land on which the power plant is built, plus title to the entire plant and a two-month escrow account of no less than $360,000 on which we have a first lien. In the event of the Commonwealth Utilities Corporation being unable to meet their obligations either for their monthly maintenance fees or for the promissory notes, we may sell, lease, assign or transfer the power plant or any of the plant equipment. In the first phase, Commonwealth Utilities Corporation also pays us a production fee of $.02 per kilowatt-hour for each kilowatt produced on its behalf for the first 5,140,000 kilowatt hours per month. In the second additional 10 megawatt phase, Commonwealth Utilities Corporation has agreed to pay us an additional production fee of $.065 per kilowatt-hour produced over the initial 5,140,000 kilowatt hours per month. In addition, the CUC pays a service fee of $50,000 a month for operating and maintaining the power plant. 46 CUC has the right to terminate the contract for operation and maintenance at any time with six month's notice. In such event, we would still have title to the power plant until such a time that we are fully repaid. Potential Future Power Plant Construction and Power Supply: Based on our previous experience, we believe there will be a growing demand for power around the world and in the U.S.; however competition and deregulation could eliminate the financial feasibility of these projects and thereby prevent us from taking advantage of the expected growth in demand. In the U.S. two-thirds of the country's installed plants are 25 years-plus old and need to be replaced and repowered, principally with new gas combustion turbines. Industry forecast for the U.S. power plant market are forecasting growth of 10% each year for the next five to eight years. Orders are forecasted to reach $6 billion in 1999 as compared to only $2 billion in 1997. We also believe that in those situations where the local governments lack the up-front funding to build the additional power plants will represent an opportunity for us to find alternative solutions up to and including having Telesource International locate the needed project financing. Without the additional energy, we believe that many of the infrastructure upgrades envisioned by local governments can't take place. In our experience, in return for our securing project financing in a manner similar to that obtained for our project in Mariana, the CNMI, the local governments will be willing to enter into contracts which guarantee us a minimum amount of power consumption, coupled with long-term operations and maintenance contracts similar to those with the Commonwealth Utility Corporation. We anticipate that these contracts will generally be secured by governmental guarantees, promissory notes, liens and collateral in the land and in the physical power plants. Sales and Marketing Strategies: Most of our jobs will be obtained through a public bid process, and our clients are either governments or governmental agencies. In obtaining contracts: * We perform significant market research. We analyze potential markets, looking for future building plans or plans to expand the capital infrastructure. Our research also includes analyzing numerous government documents and reviewing previous and current requests for bids. * We are actively involved in public relations with the governments and agencies that might contract for our services. Much of this effort is informational, finding out what the specific needs of each governmental agency while at the same time explaining what services Telesource International has to offer. * We have created and provide to potential clients a survey to help governmental agencies whether Telesource International's resources and services might be more efficient and cost-effective than the systems currently in use. 47 We maintain three full-time marketing executives to help our sales and marketing efforts; one in our Illinois headquarters and two offshore. All three are salaried employees. Competition The independent power industry has grown rapidly over the past twenty years. There are a large number of suppliers in the wholesale market and a surplus of capacity, which has led to intense competition in this market. The principal sources of competition in this market include traditional regulated utilities who have excess capacity, unregulated subsidiaries of regulated utilities, energy brokers and traders, energy service companies in the development and operation of energy-producing projects and the marketing of electric energy, equipment suppliers and other non-utility generators like the Company. Competition in this industry is substantially based on price with competitors discovering lower cost alternatives for providing electricity. The electric industry is also characterized by rapid changes in regulations, which the Company expects could continue to increase competition. We do not believe the CUC facility would be significantly impacted by competition in the wholesale energy market since its revenues are subject to contracted rates which are substantially fixed for several years. We also compete in the market to develop power generation facilities. The primary bases of competition in this market are the quality of development plans, the ability of the developer to finance and complete the project and the price. In certain cases, competitive bidding for a development opportunity is required. Competition for attractive development opportunities is expected to be intense as there are a number of competitors in the industry interested in the limited number of such opportunities. Many of the companies competing in this market have substantially greater resources than us. We believe our project development experience and its experience in creating strategic alignments with other development firms with greater financial and technical resources could enable us to continue to compete effectively in the development market if and when opportunities arise. Presently, we believe there are a number of opportunities for additional project development worldwide for projects similar to those previously developed by us. However, we are currently evaluating whether it should seek development opportunities in other areas outside of the south pacific to diversify its activities. Presently, there is significant merger and consolidation activity occurring in the electric industry. From time to time, we may consider merger and acquisition proposals when they appear to present an opportunity to enhance shareholder value. We are not involved in any such discussions or negotiations at this time. Energy Regulation Our projects are subject to regulation under federal and local energy laws and regulations. Telesource International is subject to the requirements established by its permitting authorities, i.e. Department of Environmental Quality ("DEQ") and the Environmental Protection Agency ("EPA"). Presently, neither the Customer Choice Act nor proposed legislation directly impacts us because the legislation and restructuring plan pertain to the retail market or new contracts in the wholesale market. However, as discussed above, we could possibly be impacted in the future by, among other things, increases in competition as a result of deregulation. We are actively monitoring these developments in energy proceedings in order to evaluate the impact on its projects and also to evaluate new business opportunities created by the restructuring of the electric industry. 48 Environmental Regulation Our projects are subject to regulation under federal, foreign and local environmental laws and regulations and must also comply with the applicable laws pertaining to the protection of the environment, primarily in the areas of water and air pollution. These laws and regulations in many cases require a lengthy and complex process of obtaining and maintaining licenses, permits and approvals from federal and local agencies. As regulations are enacted or adopted in any of these jurisdictions, we cannot predict the effect of compliance therewith on our business. Our failure to comply with all applicable requirements could result in delays in proceeding with any projects under development or require modifications to operating facilities. During periods of non-compliance, our operating facilities may be forced to shutdown until the non- compliances are corrected. We are responsible for ensuring compliance of its facilities with all applicable requirements and, accordingly, attempts to minimize these risks by dealing with reputable contractors and using appropriate technology to measure compliance with the applicable standards. Insurance and Bonding The Company maintains general and excess liability, construction equipment, and workers' compensation insurance; all in amounts consistent with industry practices. Management believes its insurance programs are adequate. In connection with its business, the Company is in the process of securing a surety bond which provide an additional measure of security of the Company's performance under certain public and private sector contracts. The Company's ability to obtain a surety bond depends upon its capitalization, working capital, past performance, management expertise and other factors. Surety companies consider such factors and their current underwriting standards, which may change from time to time. Employees Telesource International presently employs 154 people, consisting of 18 employees in management, 25 engineers and technical staff members, six support staff members and 105 hourly employees. All of our employees are nonunion workers, although we may employ union subcontractors from time to time. Ninety percent of our crews are staff, because of the technical nature of our construction contracts. Working on a power plant, broadcasting facility or other technical construction site requires a higher level of expertise and a greater attention to safety issues. 49 Our non-engineering level employees are hourly workers, while our engineering and supervisory staff are on monthly salaries. Properties Telesource International maintains leased office spaces and land leased for storage of construction equipment. Our Mariana subsidiary's head office in the Commonwealth of Northern Mariana Islands is leased for five years; we also have an office on the island of Tinian leased on a yearly commitment. On Guam, we have an office leased by the year with 90 days notice for termination of lease. Our corporate offices in Illinois are leased on a month-to-month basis. Additionally, we have approximately 10 leased vehicles in our fleet. MANAGEMENT The names and ages of our executive officers and directors as of November 30, 1999, and their background are as follows: Name and Age; Principal Occupation for Past Five Years; Years Served as Director Other Directorships - ------------------------ ----------------------------------------- Khajadour Semikian Khajadour Semikian, President, joined the Age 46 Company in September 1996. From January 1986 Director Since 1995 to December 1996 Mr. Semikian was Assistant General Manager with Sayed Hamid Behbehani & Sons. Mr. Semikian attended a workshop with Wide & Co. in Hamburg, Germany in 1975, attended the Institute of Bankers in Sussex, U.K. in 1973 for a banking course and received a degree in Electrical Engineering in 1973. Mr. Semikian has also served as a director for Computhink Incorporated since 1994, Telebond Insurance Corporation and Retsa Development Incorporated since 1998. Nidal Zayed Nidal Zayed, Executive Vice President, joined Age 39 the Company in January 1996. From January 1990 Director Since 1998 to December 1995 Mr. Zayed was the owner/ President of Commsource Int'l Inc. and self-employed in the practice of law during this period and to date. Mr. Zayed passed the Illinois Bar in November 1985. In June 1985 Mr. Zayed received a law degree from Loyola University School of Law and in June 1982 he received a B.A. in Accounting from Loyola University of Chicago. Mr. Zayed does serve as Chairman for Computhink Incorporated and as a director for Computhink since 1994. 50 Max Engler From 1988 to present Mr. Engler has been an Age 50 independent Financial Consultant and Mr. Director Since 1997 Engler is also on the Board of Directors of various companies in Switzerland and abroad. From 1984 to 1988 Mr. Engler headed the Private Banking desk (Middle East and Far East) of Bank Leu as Vice President. Mr. Engler received a diploma of Commerce from the High School of Commerce of Schwyz, Switzerland and from 1971 to 1975 went through an extensive training program with Union Bank of Switzerland and became an investment advisor. Mr. Engler has also served as a director for Computhink Incorporated since 1998. Mr. Engler also is a director for Belmoral S.A., Computhink Ltd., Telesource International CNMI Inc., Retsa Development Inc., Golden Osprey Ltd., Computhink Technology Ltd., FSD Holdings PLC, Litra Holdings AG, Linos Finanz AG, Trafex Ltd., R.C.W. Enterprises S.A., Formvac S.A., Sanop AG, and Protea Beratungs-und Finanz AG. Weston W. Marsh Mr. Marsh joined the Board of Directors for Age 49 Telesource International in 1999. He is a Director Since 1999 member of the law firm Freeborn and Peters. Prior to joining Freeborn and Peters, Mr. Marsh served as the Assistant General Counsel in charge of all litigation and claims for the nation's seventh largest railroad. Mr. Marsh has handled and supervised the strategy of billion-dollar antitrust cases, large environmental litigation, and a variety of commercial and insurance-related disputes. Mr. Marsh obtained his law degree from the University of Illinois, where he graduated with honors, Order of the Coif, and was associate editor of the Law Review. He received his B.A. from Yale University and an M.B.A. from the University of Chicago, where he graduated first in his class. Ibrahim M. Ibrahim Mr. Ibrahim has served as a director of Age 57 Telesource International since 1999. He has Director Since 1999 been Head of International Banking for The Gulf Bank K.S.C. in Kuwait since 1986. Mr. Ibrahim served as the Vice President and Head of Credit and Marketing for the First National Bank of Chicago for the middle east region from 1984 to 1986 and he has also served as the Vice President and General Manager of Continental Illinois Bahrain Branch from 1969 to 1984. Mr. Ibrahim received his M.B.A. in International Business from DePaul University, his M.S. in Taxation and Islamic Law from the University of Alexandria and his B.A. in Accounting from the University of Alexandria. 51 Jeffery Adams Mr. Adams has served as a director of Age 57 Telesource International since 1999. He is an Director Since 1999 Electrical Engineer trained in the United Kingdom. From 1978 to 1986, Mr. Adams served as the marketing director of Babcock Industries and Electrical Group of Companies. In 1986, Mr. Adams became an independent international sales marketing consultant. From 1987 to present, Mr. Adams is the general manager for Trafex Ltd., an engineering supplies company serving the Middle East. From 1997 to 1999, Mr. Adams served as a director for Computhink Ltd. in the United Kingdom. Ralph Beck Mr. Beck has served as a director of Age 61 Telesource International since 1999. He Director since 1999 currently is a principal of Global Construction Solutions, L.L.C. From 1994 to 1998, Mr. Beck served as the President of Kajima Construction Services, Inc., the N.A. investment of a global engineering and construction firm. From 1965 to 1994, Mr. Beck was with the Turner Corporation, an international engineering and construction firm. Mr. Beck served as the chairman of the board for Turner Steiner International from 1987 to 1994 and as a senior vice president for Turner Corporation. Jeff Karandjeff Secretary, joined us in April 1997. From Age 33 October 1996 to February 1997 Mr. Karandjeff was an Associate with Schoenberg, Fisher, Newman & Rosenberg, LTD. From June 1992 to October 1996 Mr. Karandjeff was an associate with Treumann, Goba & Podbelsek, PC. In May 1993 Mr. Karandjeff received a law degree from Loyola University School of Law and passed the Illinois Bar in September 1993. In May 1988, Mr. Karandjeff received a Bachelors Degree from Massachusetts Institute of Technology. Robert Swihart Joined Telesource International in March 1998 Age 53 as Treasurer. From 1988 to 1998 Mr. Swihart held various accounting positions including Assistant Controller with Continental Cablevision/MediaOne. In June 1970 Mr. Swihart received an M.B.A. from Northern Illinois University and in June 1968 he received a B.A. Business Administration from North Park College. 52 Bud Curley Bud Curley joined Telesource International as Age 36 its Chief Financial Officer in September 1999. Prior to September 1999, Mr. Curley served as the Chief Financial Officer, Secretary and Executive Vice President for Surety Capital Corporation and Surety Bank, N.A. from 1996 to 1999. From 1993 to 1996, Mr. Curley served as Surety Capital Corporation and Surety Bank, N.A.'s Controller and Senior Vice President. From 1991 to 1993, Mr. Curley served as the Controller for Environmental Engineering and Geotechnics and from 1989 to 1991, Mr. Curley served as a Financial Analyst for Residential Mortgage Investments, Inc. In 1989, Mr. Curley received a B.A. in Business Administration from the University of Texas. He has also served as a director for Surety Capital Corporation and Surety Bank, N.A. from 1998 to 1999. Board Composition Directors are elected annually at our annual meeting of stockholders, and serve for the one year term for which they are elected and until their successors are duly elected and qualified. Our bylaws currently provide for a board of directors comprised of seven directors. Executive Compensation The following table sets forth summary information concerning the compensation received for services rendered to us during the years ended December 31, 1999, 1998 and 1997, respectively by the Executive Vice President. No other executive officers received aggregate compensation during our last fiscal year which exceeded, or would exceed on an annualized basis, $100,000. Other annual compensation consists of health insurance premiums paid for by us on behalf of the named officers, and in some cases, the spouse and dependents of the named officers. Executive Compensation and Other Information Summary of Cash and Certain Other Compensation. The following table provides certain summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's most highly compensated executive officer of the Company (determined as of the end of the last fiscal year) (hereafter referred to as the "named executive officers") for the fiscal years ended December 31, 1999, 1998 and 1997: 53 SUMMARY COMPENSATION TABLE Annual Compensation All Other Name and Annual Principal Position Year Salary (1) Bonus Compensation - -------------------------- ---- ---------- ------- ------------ Khajadour Semikia 1999 $ 152,337 $ - $ - President 1998 $ - $ - $ - 1997 $ - $ - $ - Nidal Zayed 1999 $ 142,404 $ - $ 10,000 Executive Vice President 1998 $ 108,830 $ - $ - 1997 $ 108,000 $13,185 $ - (1) Includes salary paid by the Company, before any salary reduction for contributions to the Company's Savings Plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). The Company paid director fees of $10,000 in 1999 to Mr. Zayed and no director fees for 1998 or 1997. We have entered into an employment agreement with Khajadour Semikian and Nidal Zayed. The term of the agreement with Mr. Semikian is from July 1, 1999 to July 1, 2002. Under the terms of the agreement, Mr. Semikian is required to devote his full time to our business. We have agreed to pay him an annualized base salary of $220,000 for the current fiscal year, subject to an increase on January 1, 2000 to $270,000 and to remain at $270,000 per year till July 1, 2002. The payment of cash bonuses to Mr. Semikian will be at the Board's discretion. We have agreed to provide Mr. Semikian with health insurance for him and his family at a reduced rate. The term of the agreement with Mr. Zayed is from September 1, 1999 to September 1, 2002. Under the terms of the agreement, Mr. Zayed responsibilities' comprise serving as the number two operating officer accountable for the full range of operations. We have agreed to pay him an annualized base salary of $125,000 per year for the term of the agreement. The payment of cash bonuses to Mr. Zayed will be at the Board's discretion. We have also agreed to provide Mr. Zayed with health insurance for him and his family at a reduced rate along with a company car. Board Compensation - ------------------ Our directors did not receive cash compensation for their services as directors until December 1999, although some directors are reimbursed for reasonable expenses incurred in attending board or committee meetings. The Board has approved a resolution to increase fees paid to each director from none to $20,000 per year beginning in December 1999. The board fees are to be paid semiannually. In August 1999, Mr. Semikian purchased 200,000 shares of common stock at a price per share of $3.00. 54 Board Committees - ---------------- The Board has appointed three outside directors to serve as the compensation committee and three outside directors to serve as the audit committee at the December 1999 Board meeting. Prior to December 1999, Mr. Semikian, our current chief executive officer and a director, and Mr. Zayed, an executive vice president and a director of Telesource International, participated in deliberations of our full board of directors concerning executive officer compensation. CONFLICTS OF INTEREST EXISTING BUSINESS CONFLICTS Certain of our executive officers, directors and major shareholders are also owners, officers and/or directors of SHBC located in Kuwait. SHBC is a civil, electrical and mechanical construction contractor with 750 employees and over 30 years of experience. SHBC and its affiliates was the sole shareholder of Telesource International prior to July 1999 and will own approximately 61% of the common stock outstanding upon completion of this transaction. SHBC and Telesource International bid and compete within the same industries; however, SHBC has agreed to not bid projects within the United States and its possessions. We have described the specific relationships more fully under the heading "Certain Relationships and Related Transactions" below. Additionally, SHBC and SHBC's majority stockholders, Fouad Behbehani and Nasrallah Behbehani, have signed as guarantors on Telesource International CNMI's promissory note for $25,000,000 with the Commercial Bank of Kuwait, New York Branch. The $25,000,000 promissory note is used by us to finance our construction activities on the power plant. SHBC and SHBC's majority stockholders, Fouad has also signed as guarantor on a $2,000,000 letter of credit from the Kuwait Real Estate Bank for Telesource International. There can be no assurance that upon maturity of these borrowing contracts that SHBC will continue to renew its guarantee of the debt. CERTAIN RELEATIONSHIPS AND RELATED TRANSACTIONS The Behbehani's have significant ownership or control positions in the Company and SHBC as noted under "Risk Factors - -- The largest stockholder owns approximately 61% of the common stock outstanding after the merger, which may impact the ability of minority stockholders to influence our activities." on page 14, SHBC and Telesource International compete within the same industry; however, Telesource International has a right of first refusal to bid projects within the United States and its territories, the Pacific Rim and the Indian Ocean. This right of first refusal agreement between SHBC and the Company specifically excludes projects or modifications for the International Broadcasting Bureau's stations located outside of the continental United States, which both SHBC and the Company may freely bid. SHBC has signed as guarantor on a $25,000,000 unsecured promissory note for Telesource International from the Commercial Bank of Kuwait, New York Branch, and a $2,000,000 line of credit with the Kuwait Real Estate Bank. The $25,000,000 promissory note is used by the Company to finance its construction activities for the Commonwealth Utilities Corporation Tinian Power Plant. The $2,000,000 line of credit is used by Telesource International to meet its working capital needs. There can be no assurance that upon maturity of these borrowing contracts that SHBC will continue to renew its guarantee of the debt. 55 Additionally, from time-to-time we may hire, on a part time or temporary basis, individuals employed by SHBC to provide assistance to Telesource International on certain projects in the Northern Mariana Islands. The rates paid will not exceed the fair market value of similar services provided by unrelated third parties. In 1996, the Company was subcontracted by SHBC to build a multimillion dollar radio relay station in the Commonwealth of Northern Mariana Islands for the United States Information Agency. The agreement between SHBC and the Company included payment to the Company on a monthly basis for all costs incurred plus a fee of 7.5% on local purchases and procurements. The radio relay station project was completed in 1998. The following table describes the condensed financial information related to this project: Years Ended December 31, 1999 1998 1997 ----------- ----------- ----------- Construction revenues $ 2,180,683 $ 3,786,177 $ 3,561,055 Sales 1,691,426 2,236,888 3,801,805 Gross profit 1,070,930 209,328 213,245 The Company does not believe that the subcontract with SHBC is indicative of future contracts and expected results. The Company had sales to SHBC of $3,129,587, $5,427,103 and $4,247,086 during the twelve months ended December 31, 1999, 1998 and 1997. At December 31, 1999 and 1998, the Company had receivables due from SHBC in the amount of $320,109 and $186,326, respectively. Telesource International performed services in addition to the construction of the radio relay station mentioned above. The following table describes the condensed financial information related to all services provided by Telesource International to SHBC. Twelve Months Ended December 31, ------------------------------------------- 1999 1998 1997 ----------- ------------ ----------- Construction revenues $ 3,872,177 $ 3,786,177 $ 3,561,055 Sales 3,129,587 5,427,103 4,247,086 Rental income 610,918 1,380,956 882,078 Service fees 204,628 351,956 362,536 Accounts receivable 320,109 186,326 490,854 Other current assets - 10,000 25,000 Prepaid expenses 170,182 - - Accounts payable 1,604,811 527,203 139,100 Accrued expenses - 598,110 202,012 Other customer deposits 125,000 125,000 125,000 Current liabilities 88,726 58,503 222,904 Debt - - 6,978,374 56 In March 1999, the Company signed a three year lease for 20,000 square meters of land. The land will be used to store equipment for the Company. The lease has a total cost for the three year period of $75,000 and was paid in full. The lease is with Retsa Development Incorporated. Our President and CEO, K.J. Semikian and one of our directors, Max Engler, serves on Retsa Development Incorporated's board of directors. The Company held an investment in Telebond Insurance Corporation at December 31, 1999, in the amount of $50,000. During 1999, the Company purchased insurance from Telebond in the amount of $211,357 and held a prepaid asset for insurance in the amount of $170,812 at December 31, 1999. Our President and CEO, K.J. Semikian serves on Telebond Insurance Corporation's board of directors. PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of December 31, 1999 by SHBC, which owned 100% of all outstanding common stock as of June 30, 1999, which was reduced to 66.4% ownership at December 31, 1999. SHBC sold 3,361,000 shares in August 1999. Number of Shares: 6,639,000 Percentage ownership by SHBC at December 31, 1999: 66.4% The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of the 3rd quarter ended December 31, 1999 by: * Each shareholder known by us to own beneficially more than 5% of the common stock * Each executive officer * Each director and all directors and executive officers as a group: 57 Number of Percentage Percentage Name Shares before merger(1) after merger - ----------------------- --------- ---------------- ------------ Khajadour J. Semikian 200,000 2.00% 2.00% Nidal Zayed(2) 110,000 * 1.10% Max Engler(3) 50,000 * * Ibrahim M. Ibrahim 10,000 * * Jeffrey H. Adams 1,000 * * --------- ---------------- ------------ All directors and named Executive officers as a group (number in group: five persons) 371,000 2.61% 3.71% ========= ================ ============ Sayed Hamid Behbehani & Sons Co. W.L.L. (4) 6,639,000(5) 66.39% 61.29% ============ ================ ============ * Less than 1% of all the issued and outstanding shares of Common Stock. (1) This table is based upon information derived from our stock records and information furnished by persons named. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based upon 10,000,000 shares of Common Stock outstanding as of December 31, 1999. (2) Mr. Zayed owns 110,000 shares of Sixth Business Service Group. (3) Max Engler serves as a board director for Litra Holding AG. Litra Holding AG owns directly 495,000 shares of Telesource International's common stock. Based upon information provided to Telesource International, Telesource International does not consider these shares to be beneficially owned by Mr. Engler. (4) Includes 2,020,000 shares of Common Stock held by the Behbehani family in the following manner: 58 Who Relationship Number of Shares - -------------------------------------- ------------ ---------------- Nasrallah S. H. S. A. Behbehani 725,000 Aster I. Behbehani 495,000 Salman F. Behbehani 250,000 Eqbal E. A. A. Al-Behbehani 200,000 Amal N. S. H. S. A. Behbehani 100,000 Anwar N. S. H. S. A. Behbehani 100,000 Nasarallah Behbehani & Sons Co. W.L.L. 100,000 Najeeb S. H. Behbehani 50,000 ---------------- Total shares held directly by the Behbehani family members 2,020,000 ---------------- Sayed Hamid Behbehani & Sons Co. W.L.L. 4,619,000 ---------------- Total SHBC and beneficially held 6,639,000 ================ (5) SHBC and beneficially held common stock will be 6,639,000 shares before the merger which will decrease by 510,000 shares in connection with the merger to 6,129,000. The decrease in ownership of 510,000 shares by SHBC will occur as follows: 300,000 shares will be distributed to Longman and Associates for their services provided in connection with the completion of the merger and 210,000 shares will be given to Telesource International to be retired which in turn will eliminate the dilution to all other existing Telesource International shareholders which would have occurred as a result of the merger without the retirement of the 210,000 shares of SHBC common stock. DESCRIPTION OF TELESOURCE INTERNATIONAL CAPITAL STOCK The Company is authorized to issue fifty million (50,000,000) shares of Common Stock, par value $0.01 per share, 10,000,000 of which shares were issued and outstanding as of March 1, 2000. At March 1, 2000, the Company had 192 shareholders of record. In July 1999, the Company announced that its Board of Directors approved a one-for-ten thousand stock split to stockholders of record on July 26, 1999. There was only one shareholder of record on the record date, SHBC. All references in the financial statements to number of shares and per share amounts of the Company's common stock have been retroactively restated to reflect the increased number of shares outstanding. Holders of shares are entitled to one vote per share, without cumulative voting, on all matters to be voted on by shareholders. Therefore, the holders of a majority of the shares voting for the election of directors can elect all the directors without the concurrence of any other shareholder. Subject to preferences that may be applicable to any outstanding preferred stock, shareholders are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds 59 legally available. In the event of a liquidation, dissolution or winding up of the Company, shareholders are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding preferred stock. Shares of the Common Stock have preemptive rights for thirty days, to subscribe for, purchase or otherwise acquire any shares of stock of the same class of the corporation or any equity and/or voting shares of stock of any class of the corporation which the corporation proposes to issue or any rights or options which the corporation proposes to grant for the purchase of shares of stock of the same class of the corporation or of equity and/or voting shares of any class of stock of the corporation or for the purchase of any stock, bonds, securities, or obligations of the corporation which are convertible into or exchangeable for, or which carry any rights to subscribe for, purchase or otherwise acquire shares of stock of the same class of the corporation or equity and/or voting shares of any class of the corporation, whether now or hereafter authorized or created, whether having unissued or treasury status, and whether the proposed issue, reissue, or grant is for cash, property, or any other lawful consideration; and after the expiration of said thirty days, any and all such shares of stock, rights, options bonds, securities or obligations of the corporation may be issued, reissued, transferred or granted by the Board of Directors, as the case may be, to such persons, firms, corporations and associations, and for such lawful consideration, and on such terms, as the Board of Directors in its discretion may determine. There are no conversion rights or redemption or sinking fund provisions with respect to such shares. The transfer agent and registrar of the common stock is American Securities Transfer & Trust, Inc., 12039 West Alameda Parkway, Lakewood, CO 80228. Indemnification of Directors and Officers Section 145 of the General Corporation Law of the State of Delaware (the "Act") empowers a corporation to indemnify it directors and officers and to purchase insurance with respect to liability arising out of their capacity as directors and officers. The Act further provides that indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the Corporation's bylaws, any agreement, vote of the shareholders, or otherwise. Article VII of the our bylaws provides that we shall indemnify all persons to the full extent allowed by law, by reason of the fact that they are or were a director, become a party or are threatened to be made a party to any indemnifiable action, suit or proceeding. We shall pay, in advance of the final disposition of any indemnifiable action, suit or proceeding under this bylaw, all reasonable expenses incurred by the director, upon receipt of an undertaking by or on behalf of the director to repay such amount if it is ultimately determined that he is not entitled to be indemnified by us under law. We may indemnify persons other than directors, such as officers and employees, as permitted by law. We my purchase and maintain insurance on behalf of directors, officers and other persons against any liability asserted against him, whether or not we would have the power to indemnify such person against such liability, as permitted by law. Insofar as indemnification for liabilities arising under the securities act may be permitted to directors, officers or persons controlling the registrant under the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against the public policy and is therefore, unenforceable. 60 Dividend Policy Telesource International has not paid cash dividends in the past and does not intend to pay dividends for the foreseeable future. Telesource International intends to retain any future earnings for use in the business of the company. The payment of any dividends in the future will be made at the discretion of the Board of Directors of the Company and will depend upon the operating results and financial condition of the company and its subsidiaries, their capital requirements, contractual agreements, general business conditions and other factors. Telesource International's principal source of funds to pay dividends in the future, if any, on the Common Stock will be cash dividends Telesource International receives from its subsidiaries. The transfer agent and registrar of the common stock is American Securities Transfer & Trust, Inc., 12039 West Alameda Parkway, Lakewood, CO 80228. ****************************************************************************** Sixth Business Service Group's Business History and Organization - ------------------------ We were organized under the laws of the state of Florida in March, 1999. Since inception, our primary activity has been directed to organizational efforts. We were formed as a vehicle to acquire a private company desiring to become an SEC reporting company in order thereafter to secure a listing on the over the counter bulletin board. Operations - ---------- We were organized for the purposes of creating a corporate vehicle to seek, investigate and, if such investigation warrants, engage in business combinations presented to us by persons or firms who or which desire to become an SEC reporting company. We will not restrict our search to any specific business, industry or geographical location. We do not currently engage in any business activities that provide any cash flow. The costs of identifying, investigating, and analyzing business combinations will be paid with money in our treasury or loaned by management. This is based on an oral agreement between management and us. Employees - --------- We presently have no employees. Our officer and director is engaged in business activities outside of us, and the amount of time he will devote to our business will only be between five, 5, and twenty, 20, hours per person per week. It is anticipated that management will devote the time necessary each month to our affairs of until a successful business opportunity has been acquired. 61 Year 2000 Issues - ---------------- Because we currently have no operations, we do not anticipate incurring significant expense with regard to Year 2000 issues. Selected Financial Data - ----------------------- The following information concerning our financial position and operations is as of and for December 31, 1999 and for the ten months ended December 31, 1999 and is unaudited. Total assets $ 0 Total liabilities 0 Equity 0 Sales 0 Net loss $ 79 Net loss per share $ 0.00 Management Discussion And Analysis Or Plan Of Operation - ------------------------------------------------------- We are a development stage entity, and have neither engaged in any operations nor generated any revenues to date. We have no assets. Our expenses to date, all funded by a loan from management, are $79. We have agreed to pay our management a fee of $55,000, to be paid from the merger fee. Substantially all of our expenses that must be funded by management will be from our efforts to identify a suitable acquisition candidate and close the acquisition. Management has orally agreed to fund our cash requirements until an acquisition is closed. So long as management does so, we will have sufficient funds to satisfy our cash requirements. This is primarily because we anticipate incurring no significant expenditures. Before the conclusion of an acquisition, we anticipate our expenses to be limited to accounting fees, legal fees, telephone, mailing, filing fees, occupational license fees, and transfer agent fees. We do not intend to seek additional financing. At this time we believe that the funds to be provided by management will be sufficient for funding our operations until we find an acquisition and therefore do not expect to issue any additional securities before the closing of a business combination. We expect no Year 2000 problems, as our business is not dependent upon any computer. However, the business we acquire could experience interruptions in its business and significant losses if it or its customers or vendors rely on computer information systems that are unable to accurately process dates beginning on January 1, 2000. 62 Properties. - ----------- We are presently using the office of Michael T. Williams, 2503 W. Gardner Ct., Tampa FL, at no cost as our office. Such arrangement is expected to continue only until a business combination is closed, although there is currently no such agreement between us and Mr. Williams. We at present own no equipment, and do not intend to own any. Security Ownership of Certain Beneficial Owners and Management. - --------------------------------------------------------------- The following table sets forth information about our current shareholders. The person named below has sole voting and investment power with respect to the shares. The numbers in the table reflect shares of common stock held as of the date of this Information Statement/Prospectus:
Number of Percentage Number of Percentage Shares before Shares after Pre-Merger(1) Merger Post-Merger(1)(2) Merger ------------- ---------- ----------------- ---------- Michael T. Williams(1)(3) 890,000 89% 100,000 1% 2503 W. Gardner Ct. Tampa, FL 33611 Nidal Z. Zayed(3) 110,000 11% 110,000 1.1% 860 Parkview Blvd. Lombard, IL 60148 All directors and officers as a group - 1 persons 1,000,000 89% 890,000 1.1% group - 1 persons
(1) Owned by the Williams Blind Trust, with beneficiaries as Tenants by the Entireties of Michael Williams and Donna Williams, his wife. Under the terms of the trust, all sales decisions will be made exclusively by the trustee and no details of the trust's holdings or sales will be disclosed to the beneficiaries. (2) Shares issued to Mr. Zayed subject to reverse split protection. (3) Mr. Williams is a director and officer of Sixth Business Service Group prior to the merger; however, Mr. Williams will not be a director and officer after the merger. Mr. Zayed is not a director or officer prior to the merger of Sixth Business Service Group ; however, Mr. Zayed will be a director and officer after the merger. Mr. Williams may be deemed our promoter, as that term is defined under the securities act of 1933. Directors and Executive Officers. - --------------------------------- The following table and subsequent discussion sets forth information about our director and executive officer, who will resign upon the closing of the acquisition transaction. Our director and executive officer was elected to his position in March, 1999. 63 Name Age Title - ----- --- ----- Michael T. Williams 51 President, Treasurer and Director Michael T. Williams responsibilities will include management of our operations as well as our administrative and financial activities. Since 1975 Mr. Williams has been in the practice of law, initially with the U.S. Securities and Exchange Commission until 1980, and since then in private practice. He was also chief executive officer of Florida Community Cancer Centers, Dunedin, FL from 1991-1995. He received a BA from the University of Kansas and a JD from the University of Pennsylvania. Executive Compensation. - ----------------------- Mr. Williams will receive an aggregate salary of $5,000 from inception of our business until closing of the merger. Certain Relationships and Related Transactions. - ----------------------------------------------- Williams Law Group will receive a fee of $40,000 for legal services in connection with the preparation of this registration statement. Mr. Williams will own through his blind trust 100,000 shares of stock after closing of the merger as a result of a reverse split. Legal Proceedings. - ------------------ We not a party to or aware of any pending or threatened lawsuits or other legal actions. Indemnification of Directors and Officers. - ------------------------------------------ Our director is bound by the general standards for directors provisions in Florida law. These provisions allow him in making decisions to consider any factors as he deems relevant, including our long-term prospects and interests and the social, economic, legal or other effects of any proposed action on the employees, suppliers or our customers, the community in which the we operate and the economy. Florida law limits our director's liability. We have agreed to indemnify our director, meaning that we will pay for damages they incur for properly acting as director. The SEC believes that this indemnification may not be given for violations of the securities act of 1933. Insofar as indemnification for liabilities arising under the securities act may be permitted to directors, officers or persons controlling the registrant under the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against the public policy and is therefore, unenforceable. 64 Provisions With Possible Anti-Takeover Effects - ---------------------------------------------- As we will reincorporate in Delaware before the closing of the merger, the following information about Delaware law is provided: Section 203 of Delaware law prohibits a corporation from engaging in a business combination with an interested stockholder for three years following the date that such person becomes an interested stockholder. With certain exceptions, an interested stockholder is a person or entity who or which owns 15% or more of the corporation's outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of 15% or more of such voting stock at any time within the previous three years. For purposes of Section 203, the term business combination is defined broadly to include mergers of the corporation or a subsidiary with or caused by the interested stockholder; sales or other dispositions of the interested stockholder (except proportionately with the corporation's other stockholders) of assets of the corporation or a subsidiary equal to ten percent or more of the aggregate market value of the corporation's consolidated assets or its outstanding stock; the issuance or transfer by the corporation or a subsidiary of stock of the corporation or such subsidiary to the interested stockholder (except for certain transfers in a conversion or exchange or a pro rata distribution or certain other transactions, none of which increase the interested stockholder's proportionate ownership of any class or series of the corporation's or such subsidiary's stock); or receipt by the interested stockholder (except proportionately as a stockholder), directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a subsidiary. The three-year moratorium imposed on business combinations by Section 203 does not apply if: (i) prior to the date at which such stockholder becomes an interested stockholder the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder; (ii) the interested stockholder owns 85% of the corporation's voting stock upon consummation of the transaction which made him or her an interested stockholder (excluding from the number of shares outstanding those shares owned by directors who are also officers of the target corporation and shares held by employee stock plans which do not permit employees to decide confidentially whether to accept a tender or exchange offer); or (iii) on or after the date such person becomes an interested stockholder, the board approves the business combination and it is also approved at a stockholder meeting by 66 2/3% of the voting stock not owned by the interested stockholder. 65 Section 203 does not apply if the business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or a 20-day notice required under Section 203 of the proposed transaction which * constitutes certain * mergers or consolidations * sales or other transfers of assets having an aggregate market value equal to 50% or more of the aggregate market value of all of the assets of the corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation * proposed tender or exchange offer for 50% or more of the corporation's outstanding voting stock; * is with or by a person who was either not an interested stockholder during the last three years or who became an interested stockholder with the approval of the corporation's board of directors * is approved or not opposed by a majority of the board members elected prior to any person becoming an interested stockholder during the previous three years (or their chosen successors). Stockholder Voting on Mergers and Similar Transactions. The laws of Delaware generally require that a majority of the stockholders of both acquiring and target corporations approve statutory mergers. They do not require a stockholder vote of the surviving corporation in a merger unless the corporation provides otherwise in its certificate of incorporation if * the merger agreement does not amend the existing certificate of incorporation, * each share of stock of the surviving corporation outstanding before the merger is an identical outstanding or treasury share after the merger, and * the number of shares to be issued by the surviving corporation in the merger does not exceed 20% of the shares outstanding immediately prior to the merger. The laws of Delaware also generally require that a sale of all or substantially all of the assets of a corporation be approved by a majority of the voting shares of the corporation transferring such assets. Delaware law generally does not require class voting, except for amendments to the certificate of incorporation that change the number of authorized shares or the par value of shares of a specific class or that adversely affect such class of shares. 66 DESCRIPTION OF SIXTH BUSINESS SERVICE GROUP'S CAPITAL STOCK Common Stock As of March 1, 2000, there were 1,000,000 shares of common stock outstanding held of record by 2 stockholders. There will be 10,000,000 post merger shares of common stock outstanding after giving effect to the issuance of the shares of common stock to the public under this prospectus. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The common stock has no preemptive or conversion rights or other subscription rights. There are no sinking fund provisions applicable to the common stock. The outstanding shares of common stock are, and the shares of common stock to be issued upon completion of this offering will be, fully paid and non-assessable. Preferred Stock There are no shares of preferred stock outstanding. issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including voting rights of the holders of common stock. In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock. As of the closing of the merger, we currently have no plans to issue any additional shares of preferred stock. Dividends We have never paid any dividends and do not expect to do so after the closing of the merger and thereafter for the foreseeable future. Transfer Agent and Registrar We are the transfer agent and registrar for our common stock. COMPARISON OF RIGHTS OF SIXTH BUSINESS SERVICE GROUP STOCKHOLDERS AND TELESOURCE INTERNATIONAL SHAREHOLDERS Because Sixth Business Service Group will change its state of incorporation, articles or articles and bylaws to be the same as those of Telesource International, the rights of shareholders of Telesource International will not change as a result of the merger. AVAILABLE INFORMATION Telesource International is not and, until the effectiveness of the registration statement (as defined below), Sixth Business Service Group was not, subject to the reporting requirements of the Exchange Act and the 67 rules and regulations promulgated thereunder, and, therefore, do not file reports, proxy statements or other information with the Commission. Under the rules and regulations of the Commission, the solicitation of proxies from the shareholders of Telesource International to approve the merger constitutes an offering of Sixth Business Service Group common stock to be issued in connection with the merger. Accordingly, Sixth Business Service Group has filed with the Commission a registration statement on Form S-4 under the Securities Act, with respect to such offering from time to time, the registration statement. This proxy statement/prospectus constitutes the prospectus of Sixth Business Service Group that is filed as part of the Registration Statement in accordance with the rules and regulations of the Commission. Copies of the registration statement, including the exhibits to the Registration Statement and other material that is not included herein, may be inspected, without charge, at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and may be available at the following Regional Offices of the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of such materials may be obtained at prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. EXPERTS The consolidated financial statements of Telesource International, Inc. as of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997, also included in this prospectus and elsewhere in the Registration Statement have been included herein in reliance on the report of Pender Newkirk & Company, CPAs, independent accountants, given on the authority of that firm as experts in accounting and auditing. LEGAL MATTERS The validity of the shares of Sixth Business Service Group common stock being offered by this information statement/prospectus and certain federal income tax matters related to the exchange are being passed upon for Sixth Business Service Group by Williams Law Group, P.A., Tampa, FL. Mr. Williams is the sole officer and director of and owns 890,000 shares pre merger and 100,000 shares post merger of the stock of Sixth Business Service Group. 68 INDEX TO FINANCIAL STATEMENTS Page Telesource International Inc.: Report of Independent Accountants.................................. F-1 Consolidated Balance Sheet as of December 31, 1999 and 1998........ F-2 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997.............................. F-3 Consolidated Statements of Shareholder's Equity for the years ended December 31, 1999, 1998 and 1997.................. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.............................. F-5 Notes to Consolidated Financial Statements as of December 31, 1999 and 1998................................................. F-6 Independent Auditors' Report Board of Directors Telesource International, Inc. and Subsidiaries Lombard, Illinois We have audited the accompanying consolidated balance sheets of Telesource International, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years ended December 31, 1999, 1998, and 1997. These consolidated financial statements are the responsibility of the management of Telesource International, Inc. and Subsidiaries. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Telesource International, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years ended December 31, 1999, 1998, and 1997 in conformity with generally accepted accounting principles. /s/ Pender Newkirk & Company Certified Public Accountants Tampa, Florida February 18, 2000 TELESOURCE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 1999 1998 ------------ ------------ Assets: Cash and cash equivalents $ 866,388 $ 958,146 Accounts receivable (including related party of $320,109 and $186,326 at 1999 and 1998, respectively) 710,840 191,078 Current portion notes receivable 907,822 - Prepaid expenses (including related party of $170,182 and none at 1999 and 1998, respectively) 288,798 88,686 Costs and estimated earnings in excess of billings 629,724 - Other current assets (including related party of $0 and $10,000 at 1999 and 1998, respectively) - 10,000 ------------ ------------ Total current assets 3,403,572 1,247,910 Long term portion costs and estimated earnings in excess of billings 24,113,343 22,502,747 Deposits 70,297 59,113 Premises and equipment, net of accumulated depreciation of $1,044,312 and $686,102 at 1999 and 1998, respectively 1,891,188 1,786,409 Time deposits 1,000,000 - Long term portion notes receivable 12,022,557 - Other assets 134,244 - ------------ ------------ Total assets $42,635,201 $25,596,179 ============ ============ Liabilities and shareholders' equity: Accounts payable (including related party of $1,604,811 and $527,203 at 1999 and 1998, respectively) $ 3,917,531 $ 771,436 Accrued expenses (including related party of $0 and $598,110 at 1999 and 1998, respectively) 1,592,786 707,338 Customer deposits - related party 125,000 125,000 Current notes payable 500,000 - Current liabilities - related party 88,726 58,503 Taxes payable 434,437 385,000 ------------ ------------ Total current liabilities 6,658,480 2,047,277 Deferred tax liability 510,000 232,382 Long-term debt 28,000,000 17,500,000 ------------ ------------ Total liabilities 35,168,480 19,779,659 ------------ ------------ Commitments and contingent liabilities Shareholders' equity: Common stock, $0.01 par value, 50,000,000 shares authorized, 10,000,000 shares issued and outstanding 100,000 100,000 Additional paid-in capital 847,225 847,225 Retained earnings 6,519,496 4,869,295 ------------ ------------ Total shareholders' equity 7,466,721 5,816,520 ------------ ------------ Total liabilities and shareholders' equity $42,635,201 $25,596,179 ============ ============ Read the Accountant's Report along with the accompanying notes which are an integral part of the consolidated financial statements. F-2 TELESOURCE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1999, 1998 and 1997 Years Ended ------------------------------------------ 1999 1998 1997 ------------- ------------ ------------ Revenues: Construction revenues (including related party of $3,872,119, $3,786,177 and $3,561,055 in 1999, 1998 and 1997, respectively) $ 18,612,386 $ 26,288,924 $ 3,561,055 Sales (including related party of $3,129,587, $5,427,103 and $4,247,086 1999, 1998 and 1997, respectively) 3,608,419 5,446,731 8,570,339 Rental income - related party 610,918 1,380,596 882,078 Service fees - related party 204,628 351,956 362,536 ------------- ------------ ------------ Gross revenues 23,036,351 33,468,207 13,376,008 ------------- ------------ ------------ Costs and expenses: Construction costs 15,436,605 21,729,942 3,563,007 Cost of sales 3,161,775 5,301,348 8,057,617 ------------- ------------ ------------ Gross profit 4,437,971 6,436,917 1,755,384 ------------- ------------ ------------ Expenses: Salaries and employee benefits 1,034,948 386,571 452,795 Occupancy and equipment 245,551 293,112 305,290 General and administrative 2,055,901 748,935 346,543 Impairment of long-lived asset - 271,456 - ------------- ------------ ------------ Total expenses 3,336,400 1,700,074 1,104,628 ------------- ------------ ------------ Operating profit 1,101,571 4,736,843 650,756 ------------- ------------ ------------ Other income (expense): Interest income 2,043,864 12,453 - Interest expense (1,132,221) (39,963) (36,799) Other income, net 14,605 4,281 6,102 ------------- ------------ ------------ Total other income (expense) 926,248 (23,229) (30,697) ------------- ------------ ------------ Income before income taxes 2,027,819 4,713,614 620,059 ------------- ------------ ------------ Income tax expense 377,618 702,795 26,469 ------------- ------------ ------------ Net income $ 1,650,201 $ 4,010,819 $ 593,590 ============= ============ ============ Basic and diluted earnings per share $ 0.17 $ 0.40 $ 0.06 ============= ============ ============ Weighted average shares outstanding 10,000,000 10,000,000 10,000,000 ============= ============ ============ Read the Accountant's Report along with the accompanying notes which are an integral part of the consolidated financial statements. F-3 TELESOURCE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1999, 1998 and 1997
Common Stock Additional Par Paid-in Retained Total Shares Value Capital Earnings Equity ---------- -------- ---------- ---------- ---------- Balance at December 31, 1996 10,000,000 $100,000 $147,225 $264,886 $512,111 Net income 593,590 593,590 ---------- -------- ---------- ---------- ---------- Balance at December 31, 1997 10,000,000 100,000 147,225 858,476 1,105,701 Capital contribution by shareholder 700,000 700,000 Net income 4,010,819 4,010,819 ---------- -------- ---------- ---------- ---------- Balance at December 31, 1998 10,000,000 100,000 847,225 4,869,295 5,816,520 Net income 1,650,201 1,650,201 ---------- -------- ---------- ---------- ---------- Balance at December 31, 1999 10,000,000 $100,000 $847,225 $6,519,496 $7,466,721 ========== ======== ========== ========== ==========
Read the Accountant's Report along with the accompanying notes which are an integral part of the consolidated financial statements. F-4 TELESOURCE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1999, 1998 and 1997
Years Ended ------------------------------------------- 1999 1998 1997 ------------ ----------- ---------- Cash flows from operating activities: Net income $ 1,650,201 $4,010,819 $ 593,590 Adjustments to reconcile net income to net Cash provided by (used in) operating activities: Depreciation and amortization 363,880 451,888 219,156 Impairment of long-lived assets - 271,456 - Changes in assets and liabilities: Receivables (519,762) 1,482,603 (1,531,681) Costs and estimated earnings in excess of billings (2,240,320) (17,314,750) (4,983,579) Other assets (335,540) 31,088 43,031 Other liabilities 4,061,766 324,841 235,141 Tax payable 49,437 385,000 Deferred tax liability 277,618 232,382 - ------------ ----------- ---------- Net cash provided by (used in) operating activities 3,307,280 (10,124,673) (5,424,342) ------------ ----------- ---------- Cash flows from investing activities: Increase in notes receivable (13,620,809) - - Payments received on notes receivable 690,430 - - Purchase of interest bearing deposits in financial institutions (1,000,000) - - Premise and equipment expenditures (468,659) (1,083,762) (683,933) ------------ ----------- ---------- Net cash (used in) investing activities (14,399,038) (1,083,762) (683,933) ------------ ----------- ---------- Cash flows from financing activities: Proceeds from borrowings 11,000,000 17,500,000 6,978,374 Payments made on borrowings - (6,978,374) - Proceeds from shareholder contribution - 700,000 - Net cash provided by financing activities 11,000,000 11,221,626 6,978,374 ------------ ----------- ---------- Net (decrease) increase in cash and cash equivalents (91,758) 13,191 870,099 Beginning cash and cash equivalents 958,146 944,955 74,856 ------------ ----------- ---------- Ending cash and cash equivalents $ 866,388 $ 958,146 $ 944,955 ============ =========== ========== Supplemental disclosure: Cash paid during the period for interest $ 1,953,320 $ 379,436 $ 169,038 Cash paid during the period for income taxes $ 55,537 $ 180,018 $ 100,905
Read the Accountant's Report along with the accompanying notes which are an integral part of the consolidated financial statements. F-5 TELESOURCE INTERNATIONAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1999, 1998 and 1997 1. Background: ----------- Telesource International ("Telesource" or the "Company") was incorporated in Delaware in 1994. Telesource is an international engineering and construction company, which is in the business of constructing projects, which range from single family housing units to electrical power generation plants. In the Commonwealth of Mariana Islands (U.S. Territory) the Company also operates a diesel fired electric power generation plant for the sale of electricity to the local power grid. The Company's facility in Lombard, Illinois, annually handles the procurement, export and shipping of several millions of dollars worth of U.S. fabricated products for use by the Company's subsidiaries or for resale to customers outside of the mainland. Telesource was formed in 1994 to facilitate various intra-corporate activities and, until July 1999, was a wholly owned subsidiary of Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC"), a Kuwait-based civil, electrical and mechanical construction company. The Company conducts its operations primarily through subsidiaries. Telesource currently has two subsidiaries. The Company's Mariana subsidiary, Telesource CNMI, handles construction and management of the Company's power facilities in the Commonwealth of Mariana Islands and operates a branch office in Guam to take advantage of opportunities we believe will be available there. The Company's second subsidiary, Commsource International, is an international export company that facilitates the purchase of equipment in the U.S. Telesource has three main operating segments: construction services, trading of U.S. fabricated goods and power generation. The power generation activities commenced in March 1999. During 1999, Telesource entered into an agreement for a merger with Sixth Business Service Group, an SEC registered company located in Tampa, Florida. Under the proposed structure of the transaction, Telesource will merge with and into Sixth Business Service Group, pursuant to which merger the shareholders of Telesource will receive shares of Sixth Business Service Group in exchange for their shares of Telesource stock. Sixth Business Service Group will change its name to Telesource International, Incorporated after the merger. The transaction involves a reverse merger, whereby Telesource is expected to become listed on the Over The Counter Bulletin Board. The merger is expected to occur during the second quarter of 2000. F-6 2. Summary of Significant Accounting Policies: ------------------------------------------- Customer and Credit Concentration The Company has a concentration with two major customers. One customer is the Commonwealth Utilities Corporation ("CUC"). The Company was contracted by the CUC to construct and operate a power generation facility. In March 1999, the power generation plant became operational. Power revenues from this plant did not begin until March 1999 and were earned under a long-term power purchase agreement with the same customer. The other major customer, SHBC, was the Company's parent corporation and is now a related party. In 1997, the Company was contracted to construct a radio relay station for SHBC and completed its construction in 1998. The radio relay station contract was on a cost basis with a fee to be paid to the Company in the amount of a 7.5% premium added to the costs on any local products used in the construction of the radio relay station. The Company's subsidiary, Commsource International, which is involved in the trading of U.S. fabricated products had one major customer, SHBC, which is a related party. The Company expects that the concentration of its revenues with SHBC will continue for the foreseeable future. The Company had a concentration of credit with the CUC. The Company has received promissory notes with a net present value of $12,930,379 at December 31, 1999 and these notes have a payment amount of $180,000 per month for ten years. The costs and estimated earnings in excess of billings for the construction activities on the power generation plant were $24,113,343 and $22,502,747 at December 31, 1999 and 1998, respectively. The Company performs ongoing credit evaluations of its customers to determine if a provision for credit losses is appropriate. Principals of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Telesource currently has two subsidiaries. The Mariana subsidiary, Telesource CNMI Inc., handles construction and management of the Company's power facilities in the Commonwealth of the Northern Mariana Islands. Commsource International, is an international export company that facilitates the purchase of equipment fabricated in the U.S. Telesource CNMI, Inc. also operates a branch office in Guam, Telesource Pacifica and Pacifica Power Resources, a trading office which was opened to take advantage of opportunities expected to be available there. All significant intercompany transactions and accounts have been eliminated. Deposits in excess of Federal Deposit Insurance Corporation Insurance The Company maintains cash in accounts in excess of the Federal Deposit Insurance Corporation's insured limit of $100,000. Cash and Cash Equivalents Telesource records as cash and cash equivalents all highly liquid short-term investments with original maturities of three months or less. Receivables The Company extends credit to its various customers based on the customer's ability to pay. At December 31, 1999 the Company had a provision for credit losses in the amount of $12, 660 and no provision for credit losses at December 31, 1998. F-7 2. Summary of Significant Accounting Policies: continued ------------------------------------------- Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight- line method at rates sufficient to amortize the cost over the estimated economic lives of the assets. Expenditures for repairs and maintenance are expensed as incurred, and renewals and betterments that extend the lives of assets are capitalized. Cost and accumulated depreciation are eliminated from the accounts when assets are sold or retired and any resulting gain or loss is reflected in operations in the year of disposition. Revenue Recognition Revenue from construction contracts including construction joint ventures is recognized using the percentage-of- completion method of accounting, based upon costs incurred and projected costs. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs), interest associated with construction projects and insurance costs. Depreciation is provided using straight-line methods for construction equipment. Contracts frequently extend over a period of more than one year and revisions in cost and profit estimates during construction are reflected in the accounting period in which the facts that require the revision become known. Losses on contracts, if any, are provided in total when determined, regardless of the degree of project completion. Claims for additional contract revenue are recognized in the period when it is probable that the claim will result in additional revenue and the amount can be reliably estimated. The foregoing as well as the stage of completion, and mix of contracts at different margins may cause fluctuations in gross profit between periods. Revenue from the Company's trading of U.S. fabricated goods is recognized at the time of shipment. The Company recognizes service revenues and energy sales in the period in which the commodity is delivered or when the work is performed. Telesource recognizes rental revenue on the accrual basis pursuant to contractual arrangements between the Company and its customers. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. F-8 2. Summary of Significant Accounting Policies: continued ------------------------------------------- Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that included the enactment date. Computation of Earnings Per Share Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding, excluding restricted common stock. Diluted earnings per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. The Company did not have any dilutive potential common shares outstanding at December 31, 1999, 1998 and 1997. Stock Split In July 1999, the Board of Directors approved a one-for-ten thousand stock split to stockholders of record on July 26, 1999. There was only one shareholder of record on the record date, SHBC. All references in the financial statements to number of shares and per share amounts of the Company's common stock have been retroactively restated to reflect the increased number of shares outstanding. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes new standards for recording derivatives in interim and annual financial statements. On May 19, 1999, the Financial Accounting Standards Board voted to defer the implementation date of this statement, thereby making it effective for the Company's fiscal year 2001. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant impact on the results of operations or the financial position of the Company. 3. Accounts Receivable: -------------------- December 31, December 31, 1999 1998 ------------ ------------ Construction contracts completed and in progress $ 583,104 $ 181,688 Construction material sales 127,736 9,390 ------------ ------------ $ 710,840 $ 191,078 ============ ============ F-9 4. Costs and Estimated Earnings on Uncompleted Contracts: ------------------------------------------------------ Long-term construction contracts in progress accounted for using the percentage-of-completion method at December 31 consisted of: December 31 December 31 1999 1998 ----------- ----------- Costs incurred on uncompleted contracts $31,548,947 $21,729,942 Estimated earnings 7,203,394 4,174,248 ----------- ----------- 38,752,341 25,904,190 Less billings to date 14,009,274 3,401,443 ----------- ----------- $24,743,067 $22,502,747 =========== =========== Included in the accompanying balance sheet under the following captions: Current portion costs and estimated earnings in excess of billings on uncompleted contracts $ 629,724 $ - Long term portion costs and estimated earnings in excess of billings on uncompleted contracts 24,113,343 22,502,747 ----------- ----------- $24,743,067 $22,502,747 =========== =========== 5. Notes Receivable: ----------------- In March 1999, the Company completed its construction activities on Phase I of a power generation plant located on the island of Tinian. The Company began operating the plant and thus issued notes receivable in the original amount of $13,620,809 (the estimated net present value of the payments) for construction of the power generation plant. The notes receivable called for the Company to receive payments of $180,000 per month, starting in March 1999 and those payments will total $21,600,000. The Company received ten payments or $1,800,000 during the twelve months ended December 31, 1999 and recognized $1,109,570 in interest income on the notes receivable. The notes receivable at December 31, 1999 and 1998 were: December 31 December 31 1999 1998 ----------- ----------- Notes receivable on power generation plant $12,930,379 $ - Less current portion of notes receivable 907,822 - ----------- ----------- Long term portion of notes receivable $12,022,557 $ - =========== =========== F-10 6. Premises and Equipment: ----------------------- December 31 December 31 1999 1998 ----------- ----------- Machinery and equipment $ 1,948,568 $ 1,580,178 Office furniture and equipment 535,294 463,038 Computer and communication equipment 99,752 88,394 Autos 211,600 206,701 Leasehold improvements 140,286 134,200 ----------- ----------- 2,935,500 2,472,511 Less accumulated depreciation and amortization 1,044,312 686,102 ----------- ----------- Net premises and equipment $ 1,891,188 $ 1,786,409 =========== =========== 7. Long-Term Debt and Credit Arrangements: --------------------------------------- Notes payable to banks and long-term debt at December 31, 1999 and 1998 are shown in the following table: December 31 December 31 1999 1998 ----------- ----------- Citytrust Bank letter of credit, maturing on May 21, 2000. Principal and interest are due at maturity. This letter of Credit bears an interest rate of 12.5%. Secured by a personal guaranty from SHBC and its major shareholders. $ 500,000 $ - Bank of Hawaii credit line, maturing on March 26, 2001. Principal and interest due at maturity. The line of credit Bears an interest rate of 6.25% and is secured by a time deposit in the Bank of Hawaii in the amount of $1,000,000. 1,000,000 - Kuwait Real Estate Bank loan maturing on May 2, 2001. Principal is due at maturity with interest due annually. The note bears an interest of LIBOR bank rate plus 2.5%. This loan is secured by a guarantee by SHBC And its major shareholders. 2,000,000 - Commercial Bank of Kuwait, New York branch, loan, maturing on February 17, 2002. Principal is due at maturity with interest due every six months. The note Bears an interest rate of LIBOR bank rate plus 3%. This note is secured by a guarantee by SHBC and its major shareholders. 25,000,000 17,500,000 ----------- ----------- 28,500,000 17,500,000 Less current portion 500,000 - ----------- ----------- Total long term debt $28,000,000 $17,500,000 =========== =========== F-11 7. Long-Term Debt and Credit Arrangements: continued --------------------------------------- The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 1999, are as follows: 2000, $500,000; 2001, $3,000,000; 2002, $25,000,000; 2003, none; and 2004, none. 8. Shareholders' Equity: --------------------- During the years ended December 31, 1999, 1998 and 1997, 10,000,000 shares of the Company's common stock were issued and outstanding. The Company received a capital contribution from its stockholder, SHBC, in the amount of $700,000 in 1998. The proceeds from this capital contributions was used to repay debt to the same stockholder. The Company had no remaining debt owed to SHBC at December 31, 1998. In July 1999, the Board of Directors approved a one-for-ten thousand stock split to stockholders of record on July 26, 1999. There was only one shareholder of record on the record date, SHBC. All references in the financial statements to number of shares and per share amounts of the Company's common stock have been retroactively restated to reflect the increased number of shares outstanding. At December 31, 1999, SHBC had sold 5,381,000 shares of Telesource stock to various entities and individuals, including members of the Behbehani family. At December 31, 1999, SHBC owned directly 4,619,000 shares and beneficially owned 6,639,000 shares (the beneficially owned shares includes the stock held by the Behbehani family and SHBC). 9. Earnings Per Share: ------------------- In accordance with the disclosure requirements of "SFAS 128", a reconciliation of the numerator and denominator of basic and diluted earnings per share is provided as follows: Years Ended December 31, 1999 1998 1997 ----------- ----------- ----------- NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE Net income $ 1,650,201 $ 4,010,819 $ 593,590 =========== =========== =========== DENOMINATOR - BASIC EARNINGS PER SHARE Common stock outstanding 10,000,000 10,000,000 10,000,000 =========== =========== =========== Basic and diluted earnings per share $ 0.17 $ 0.40 $ 0.06 =========== =========== =========== 10. Financial Instruments With Off-Balance-Sheet Risk and Concentrations of Credit Risk: ------------------------------ The Company is party to financial instruments with off- balance-sheet risk, entered into in the normal course of business to meet the Company's financing needs. These financial instruments involve letters of credit. At December 31, 1999, the Company had no unused balance on its letter of credit. The instruments involve, to varying degrees, elements of interest rate risk in excess of the amount recognized in the financial statements. F-12 10. Financial Instruments With Off-Balance-Sheet Risk and Concentrations of Credit Risk: continued ------------------------------ The Company has completed phase I construction of the power generation plant on the island of Tinian which began operations in March 1999. The Company is currently in the process of constructing phase II of the power generation plant and expects construction on phase II to be completed in March 2000. The power generation plant will be operated by the Company for a period of ten years upon completion of phase II. The Company will receive monthly payments for ten years which will include repayment to the Company for the construction costs, fees for the generation of electricity as well as fees for the operation and maintenance of the power plant. The Company has received promissory notes covering the first phase of constructing the power plant. The promissory notes have a repayment schedule of ten years and a payment of $180,000 per month. The Company's exposure to credit loss in the event of nonperformance by counter parties to the promissory notes is represented by the contractual amount of those instruments. 11. Related Party Transactions: --------------------------- Certain of the Company's executive officers, directors and major shareholders are also owners, officers and/or directors of SHBC located in Kuwait. SHBC is a civil, electrical and mechanical construction contractor with 750 employees and over 30 years of experience. SHBC and its affiliates was the sole shareholder of Telesource International prior to July 1999, at which time some of the ownership was divested. SHBC and Telesource International bid and compete within the same industries; however, SHBC has agreed in writing to give the Company the right of first refusal on projects within the United States and its territories, the Pacific Rim and the Indian Ocean. This right of first refusal agreement between SHBC and the Company specifically excludes projects or modifications for the International Broadcasting Bureau's stations located outside of the continental United States, which both SHBC and the Company may freely bid. Additionally, SHBC and SHBC's majority shareholders, Fouad Behbehani and Nasrallah Behbehani, have signed as guarantors on Telesource CNMI's promissory note for $25,000,000 with the Commercial Bank of Kuwait, New York Branch, and SHBC and SHBC's majority stockholders, Fouad Behbehani and Nasrallah Behbehani have signed as guarantors on a $500,000 letter of credit with the Citytrust Bank. The $25,000,000 promissory note is used by Telesource to finance the construction activities on the power plant and the letter of credit will be used to secure a performance surety bond on an overhead line project. SHBC and SHBC's majority stockholders, Fouad Behbehani and Nasrallah Behbehani, have also signed as guarantors on a $2,000,000 line of credit with the Kuwait Real Estate Bank for Telesource. There can be no assurance that upon maturity of these borrowing contracts that SHBC will continue to renew its guarantee of the debt. Additionally, from time-to-time the Company may hire, on a part time or temporary basis, individuals employed by SHBC to provide assistance to Telesource on certain projects in the Northern Mariana Islands. The rates paid will not exceed the fair market value of similar services provided by unrelated third parties. In 1996, the Company was subcontracted by SHBC to build a multimillion dollar radio relay station in the Commonwealth of Northern Mariana Islands for the United States Information Agency. The agreement between SHBC and the Company included payment to the Company on a monthly basis for all time and material plus a fee of 7.5% on local purchases and procurements. The radio relay station project was completed in early 1999, however, an addition to the radio relay station was approved and the Company was hired by SHBC to perform additional construction services on the radio relay station under the same terms as the original agreement and expects to complete the additional construction services by February 2000. The Company does not believe that the subcontract with SHBC is indicative of future contracts and expected results. F-13 11. Related Party Transactions: continued --------------------------- The following table describes the condensed financial information related to SHBC in regards only to the radio relay station project: Years Ended December 31, 1999 1998 1997 ------------ ------------ ------------- Construction revenues $ 2,180,683 $ 3,786,177 $ 3,561,055 Sales 1,691,426 2,236,888 3,801,805 ------------ ------------ ------------- Gross revenues 3,872,109 6,023,065 7,362,860 Construction costs 2,168,449 3,603,465 3,563,007 Cost of sales 1,532,730 2,110,272 3,586,608 ------------ ------------ ------------- Gross profit $ 170,930 $ 309,328 $ 213,245 ============ ============ ============= The Company had total sales of $3,129,587, $5,427,103 and $4,247,086 during the twelve months ended December 31, 1999, 1998 and 1997, respectively to SHBC, including sales listed above for the radio relay station project. At December 31, 1999 and 1998, the Company had receivables due from SHBC in the amount of $320,109 and $186,326, respectively. Additionally, the Company earned rental income of $610,918, $1,380,596 and $882,078 during the twelve months ended December 31, 1999, 1998 and 1997 from SHBC along with service fees of $204,628, $351,956 and $362,536 during the twelve months ended December 31, 1999, 1998 and 1997, respectively from SHBC as well. In March 1999, the Company signed a three year lease for 20,000 square meters of land. The land will be used to store equipment for the Company. The lease has a total cost for the three year period of $75,000 and was paid in full. The lease is with Retsa Development Incorporated. Our President and CEO, K.J. Semikian and one of our directors, Max Engler, serves on Retsa Development Incorporated's board of directors. The Company held an investment in Telebond Insurance Corporation at December 31, 1999, in the amount of $50,000. During 1999, the Company purchased insurance from Telebond in the amount of $211,357 and held a prepaid asset for insurance in the amount of $170,812 at December 31, 1999. Our President and CEO, K.J. Semikian serves on Telebond Insurance Corporation's board of directors. The above amounts, terms and related party amounts disclosed on the financial statements are not necessarily indicative of the amounts and terms which would have been incurred had comparable transactions been entered into with independent parties. 12. Federal Income Tax: ------------------- The components of the provision for income taxes are as follows: December 31, December 31, 1999 1998 ------------ ------------ Currently payable $ 100,000 $ 385,000 Deferred taxes 277,618 317,795 ------------ ------------ $ 377,618 $ 702,795 ============ ============ F-14 12. Federal Income Tax: continued ------------------- The difference between the provision for income taxes and the amounts obtained by applying the statutory U.S. Federal Income tax rate to the consolidated net income before taxes is as follows: December 31, December 31, 1999 1998 ------------ ------------ Tax expense at statutory rate $ 938,000 $ 1,602,629 Benefit of subsidiary's net operating losses not deductible 7,000 (101,774) Reduction of taxes due to Northern Mariana Territorial Income tax credit (297,382) (504,349) Reduction of taxes due to Northern Mariana Island Business gross receipts tax (270,000) (293,711) ------------ ------------ Effective tax rate $ 377,618 $ 702,795 ============ ============ The sources of significant temporary differences which gave rise to deferred tax assets and liabilities at December 31, 1998 and 1997 are as follows: 1999 1998 ---------- ---------- Deferred tax assets Tax basis of tangible and intangible assets in excess of book basis $ 25,000 $ 21,555 Accrued expenses not deductible until paid - 7,500 Net operating loss carryovers 95,000 22,350 Unused alternative minimum tax credit 490,000 476,713 ---------- ---------- 610,000 528,118 Valuation allowance (70,000) (47,655) ---------- ---------- Deferred tax assets 540,000 480,463 ---------- ---------- Deferred tax liabilities Difference in reporting gross profit on uncompleted contracts 500,000 330,379 Taxes due on Northern Mariana Island Business gross receipts tax 550,000 382,466 ---------- ---------- 1,050,000 712,845 ---------- ---------- Net deferred tax liability $ 510,000 $ 232,382 ========== ========== Telesource International, Inc., Commsource International, Inc. and Telesource CNMI, Inc. file separate corporation income tax returns. Telesource International, Inc. and Commsource International, Inc. are U.S. corporations which file separate U.S. Corporate tax returns. Telesource CNMI, Inc. is a Commonwealth of Northern Mariana Island corporation and files a corporation tax return for this commonwealth. At December 31, 1999, Telesource International, Inc. and Commsource International, Inc. have net operating loss carryforwards of approximately $112,000 and $170,000, respectfully. The net operating loss carryforwards expire in the years 2000 through 2018. The utilization of this net operating loss carryforward is limited by Section 382 of the Internal Revenue Code of 1986 to approximately $15,000 annually until its expiration. F-15 13. Commitments and Contingencies: ------------------------------ Minimum rental commitments under all noncancellable- operating leases, primarily property, vehicles and construction equipment, in effect at December 31, 1999 were: Years Ending December 31, 2000 $ 199,520 2001 166,961 2002 113,718 2003 86,700 2004 4,800 ----------- Total minimum rental commitment 571,699 Less prepayments 112,672 ----------- $ 459,027 =========== Lease expense was $181,726 for the year ended December 31, 1999, $231,849 for the year ended December 31, 1998 and $262,175 for the year ended December 31, 1997. Telesource entered into an employment agreement with Khajadour Semikian in June 1999 and Nidal Zayed in August 1999. The term of the agreement with Mr. Semikian is from July 1, 1999 to July 1, 2002. Under the terms of the agreement, Mr. Semikian is required to devote his full time to the Company's business. The Company has agreed to pay him an annualized base salary of $220,000 for the current fiscal year, subject to an increase on January 1, 2000 to $270,000 and to remain at $270,000 per year till July 1, 2002. The payment of cash bonuses to Mr. Semikian will be at the Board's discretion. The Company has agreed to provide Mr. Semikian with health insurance for him and his family at a reduced rate. The term of the agreement with Mr. Zayed is from September 1, 1999 to September 1, 2002. Under the terms of the agreement, Mr. Zayed responsibilities' comprise serving as the number two operating officer accountable for the full range of operations. The Company has agreed to pay him an annualized base salary of $125,000 per year for the term of the agreement. The payment of cash bonuses to Mr. Zayed will be at the Board's discretion. The Company has also agreed to provide Mr. Zayed with health insurance for him and his family at a reduced rate along with a company car. During 1999, Commsource International, a subsidiary of Telesource, adopted a 401(k) employee benefit plan that covers all employees who meet certain age and service requirements. Employees may make contributions to the plan through salary deferrals. Commsource International does not provide any matching funds for contributions; however, Commsource International does cover the expenses of administering the plan. The annual costs to administer the plan are expected to be approximately $750. Telesource is involved in various litigation proceedings incidental to the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from such litigation would not be material in relation to the Company's financial position or results of operations. 14. Backlog: -------- The following schedule summarizes changes in backlog on contracts during the year ended December 31, 1999. Backlog represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress at year end and from contractual agreements on which work has not yet begun. F-16 14. Backlog: continued -------- Backlog balance at December 31, 1998 $ 27,836,569 New contracts during the year 10,507,142 ------------- 38,343,711 Less contract revenue earned during the year 18,612,386 ------------- Backlog balance at December 31, 1999 $ 19,731,325 ============= 15. Business Segment Information: ----------------------------- The Company adopted "SFAS No. 131", Disclosure About Segments of an Enterprise and Related Information, in 1998. The adoption of this statement did not have any effect on either the current or prior year's presentation of reportable segments. For 1998 and 1997, the Company was primarily involved in two lines of business, construction and trading of U.S. fabricated products. There were no material amounts of transfers between lines of business. Any intersegment sales have been eliminated. In 1999, Telesource had three operating segments: construction services, trading of U.S. fabricated goods and power generation. Power generation activities did not commence until March 1999 and therefore no segment information is available. The following table sets forth certain segment information for the periods indicated: F-17 15. Business Segment Information: -----------------------------
Power Generation Construction Trading Total ------------ -------------- ------------- ---------------- Gross profit is total operating revenue less operating expenses. Gross profit excludes general corporate expenses, interest expense, interest income and income taxes. F-18 16. Subsequent Events: ------------------ The Company entered into a borrowing agreement with The Hongkong and Shanghai Banking Corporation Limited, ("Hongkong Shanghai Bank") Guam Branch, on January 24, 2000 for a $2,000,000 line of credit. This line of credit is secured by the promissory notes Telesource holds on the power generation plant. This line of credit has a maturity January 31, 2001 with interest payments due monthly and principal due at maturity. This line bears an interest rate of the Bank of Hawaii's prime rate plus 1.5%. F-19 PART II--INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS - -------------------------------------------------- Delaware Under Section 145 of the Delaware General Corporation Law, the Registrant has broad powers to indemnify its Directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act. Under Section 145 of the Delaware Law, a corporation generally has the power to indemnify its present and former directors, officers, employees and agents against expenses incurred by them in connection with any suit to which they are or are threatened to be made a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in or not opposed to, the best interests of the corporation and with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. The Registrant believes that these provisions are necessary to attract and retain qualified persons as Directors and officers. These provisions do not eliminate the Directors' duty of care, and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware Law. In addition, each Director will continue to be subject to liability (i) for breach of the Directors' duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit. The provisions also does not affect a Directors' responsibilities under any other law, such as the federal securities law or state or federal environmental laws. 69 Florida Florida Business Corporation Act. Section 607.0850(1) of the Florida Business Corporation Act (the "FBCA") provides that a Florida corporation, such as the Company, shall have the power to indemnify any person who was or is a party to any proceeding (other than 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 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 liability incurred in connection with such proceeding, including any appeal thereof, 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 corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 607.0850(2) of the FBCA provides that a Florida corporation shall have the power to indemnify any person, who was or is a party to any proceeding 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 and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof. Such indemnification shall be authorized if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made under this subsection in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Section 607.850 of the FBCA further provides that: (i) 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 proceeding referred to in subsection (1) or subsection (2), or in defense of any proceeding referred to in subsection (1) or subsection (2), or in defense of any claim, issue, or matter therein, he shall be indemnified against expense actually and reasonably incurred by him in connection therewith; (ii) indemnification provided pursuant to Section 607.0850 is not exclusive; and (iii) the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or 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 liabilities under Section 607.0850. Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that indemnification or advancement of expenses shall not be made to or on behalf of any director, officer, employee or agent if a judgment or other final adjudication establishes that his actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (i) a violation of the criminal law, unless the director, officer, employee or agent had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (ii) a transaction from which the director, officer, employee or agent derived an improper personal benefit; (iii) in the case of a director, a circumstance under which the liability provisions regarding unlawful distributions are applicable; or (iv) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. 70 Section 607.0831 of the FBCA provides that a director of a Florida corporation is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, by a director, unless: (i) the director breached or failed to perform his duties as a director; and (ii) the director's breach of, or failure to perform, those duties constitutes: (A) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (B) a transaction from which the director derived an improper personal benefit, either directly or indirectly; (C) a circumstance under which the liability provisions regarding unlawful distributions are applicable; (D) in a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct; or (E) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. Articles and Bylaws. The Company's Articles of Incorporation and the Company's Bylaws provide that the Company shall, to the fullest extent permitted by law, indemnify all directors of the Company, as well as any officers or employees of the Company to whom the Company has agreed to grant indemnification. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The exhibits and financial statement schedules listed on the accompanying Exhibit Index are filed as part of this Registration Statement and such Exhibit Index is hereby incorporated by reference. ITEM 22. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 71 The undersigned Registrant hereby undertakes: (1) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request; (2) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective; (3) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (4) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 72 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa , State of Florida , on March 27, 2000 . Sixth Business Service Group, INC. By: /s/ MICHAEL T. WILLIAMS. ------------------------------ President and Treasurer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/MICHAEL T. WILLIAMS President and Treasurer MARCH 27, 2000 73 EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- -------------------------------- 2.01 Agreement and Plan of Merger and Plan of Reorganization dated as of November 30, 1999 among Sixth Business Service Group, Inc. and Telesource International, Inc. 3.01 Certificate of Incorporation of Sixth Business Service Group 3.02 By-laws of Sixth Business Service Group 5.01 Opinion of Williams Law Group P.A. regarding the validity of the securities being registered. 10.01 Agreement for Design, Supply of Plant and Equipment, Private Construction, Maintenance and Operation, and Transfer of Ownership dated June 10, 1997 10.02 Agreement for Design, Supply of Plant and Equipment, Private Construction, Maintenance and Operation, and Transfer of Ownership, Change Order Number 1, dated November 30, 1998 10.03 Agreement for Design, Supply of Plant and Equipment, Private Construction, Maintenance and Operation, and Transfer of Ownership, Change Order Number 2, dated November 30, 1998 10.04 Agreement and Contract for Construction of Koblerville Expansion Project between the Northern Mariana Islands and Telesource International dated July 28, 1998 10.05 Agreement between Sayed Hamid Behbehani & Sons, Co. W.L.L. and Telesource International CNMI, Inc., Radio Relay Station Subcontract dated January 6, 1997 and Addendum dated August 27, 1998 10.06 Memorandum of Understanding between Sayed Hamid Behbehani & Sons, Co. W.L.L. and Telesource International, Inc. regarding right of first refusal for certain areas 10.07 Memorandum of Understanding between Sayed Hamid Behbehani & Sons, Co. W.L.L. and Telesource International, Inc. regarding commission fees 10.08 Agreement to Supply Series of Doors and Associated Equipment for the United States Department of State for the Construction of Diplomatic Housing in Kuwait between P.W.S. International, Inc., the supplier, and Telesource International, Inc., the contractor, dated August 31, 1999 10.09 Agreement to Supply Electrical Items for Power Plant Subcontract between Wheeler Power Systems, the subcontractor, and Commsource International, Inc., the contractor, dated June 10, 1998 10.10 Note Agreement between the Commercial Bank of Kuwait, New York Branch, and Telesource International CNMI, Inc. dated August 20, 1998 10.11 Term Loan Agreement between the Kuwait Real Estate Bank and Telesource International CNMI, Inc. dated May 2, 1999* 10.12 Line of Credit Agreement between the Bank of Hawaii and Telesource International CNMI, Inc. 10.13 Credit Agreement between Hongkong and Shanghai Bank Corporation, Limited and Telesource CNMI, Inc. dated January 21, 2000 10.14 Lease of Tinian Land between the Commonwealth Utilities Corporation and Telesource International CNMI, Inc. 10.15 Employment Contract between K.J. Semikian and Telesource International, Inc. 10.16 Employment Contract between Nidal Z. Zayed and Telesource International, Inc. 10.17 Adoption Agreement for Aetna Life Insurance and Annuity Company Standardized 401(k) Profit Sharing Plan and Trust between Aetna Life Insurance and Annuity Company and Commsource International, Inc. dated November 13, 1998 23.01 Consent of independent accountants to Telesource International, Inc. with respect to the use of its February 18, 2000 Report 23.02 Consent of Williams Law Group P.A. 99.01 Form of Sixth Business Service Group Proxy Card* * To be filed by Amendment 74 EX-2.01 2 AGREEMENT AND PLAN OF MERGER Exhibit 2.01 Agreement and Plan of Merger AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION dated as of November 30, 1999, 1999 (the "Agreement") by and among Sixth Business Service Group, Inc., a Florida corporation ("SBSG") and Telesource International, Inc., a Delaware corporation ("Telesource"). R E C I T A L S The respective Boards of Directors of SBSG and Telesource deem it desirable and in the best interests of their respective corporations, and of their respective shareholders, subject to, among other things, the approval of the shareholders of SBSG and Telesource, Telesource shall merge with and into SBSG; as a result of which the holders of shares of capital stock of Telesource will, in the aggregate, receive the consideration hereinafter set forth (collectively, the "Merger"). Upon the terms and subject to the conditions of this Agreement, at the Effective Date (as defined in Section 2.3 of this Agreement) in accordance with the Florida Business Corporation Act ("BCA"), Telesource shall be merged with and into SBSG and the separate existence of Telesource shall thereupon cease. SBSG shall be the surviving corporation in the Merger and is hereinafter sometimes referred to as the "Surviving Corporation." NOW, THEREFORE, in consideration of the terms, conditions, agreements and covenants contained herein, and in reliance upon the representations and warranties contained in this Agreement, the parties hereto agree as follows: I. RECITALS; TRUE AND CORRECT The above stated recitals are true and correct and are incorporated into this Agreement. II. MERGER 2.1 Merger. In the manner and subject to the terms and conditions set forth herein, Telesource shall merge with and into SBSG, and SBSG shall be the surviving corporation after the Merger and shall continue to exist as a corporation governed by the laws of Delaware. 2.2 Name Change. Upon the Closing of the Merger, SBSG shall change its name to Telesource International, Inc. (the "Name Change"). 2.3 Effective Date. If all of the conditions precedent to the obligations of each of the parties hereto as hereinafter set forth shall have been satisfied or shall have been waived, the Merger shall become effective on the date (the "Effective Date") the Articles of Merger, together with Plans of Merger reflecting the Merger, shall be accepted for filing by the Secretary of State of Delaware. 2.4 Securities of the Corporations. The authorized capital stock of Telesource is comprised of 50,000,000 shares of Common Stock, par value $0.01 (One Cent) per share (the "Telesource Stock"), of which 10,000,000 shares are issued and outstanding. The authorized capital stock of SBSG is comprised of 50,000,000 shares of Common Stock, no par value per share (the "SBSG Stock"), of which 1,000,000 shares are issued and outstanding. In addition, SBSG has authorized but unissued 20,000,000 shares of no par value Preferred Stock 2.5 Shares of the Constituent and Surviving Corporations. The manner and basis of converting the shares of Telesource Stock into shares of SBSG Stock shall be as follows: At the Effective Date, by virtue of the Merger and without any action on the part of any holder of any capital stock of either SBSG or Telesource, each share of Telesource Stock issued and outstanding shall be converted into the right to receive one share of SBSG Stock (the "Exchange Ratio"). 2.6 Effect of the Merger. As of the Effective Date, all of the following shall occur: (a) The separate existence and corporate organization of Telesource shall cease (except insofar as it may be continued by statute), SBSG shall exist as a surviving corporation. (b) Except as otherwise specifically set forth herein, the corporate identity, existence, purposes, powers, franchises, rights and immunities of SBSG shall continue unaffected and unimpaired by the Merger, and the corporate identity, existence, purposes, powers, franchises and immunities of Telesource shall be merged with and into SBSG as the surviving corporation, shall be fully vested therewith. (c) Neither the rights of creditors nor any liens upon or security interests in the property of Telesource shall be impaired by the Merger. (d) All corporate acts, plans, policies, agreements approvals and authorizations of the shareholders and Board of Directors of Telesource and of its respective officers, directors and agents, which were valid and effective immediately prior to the Effective Date, shall be the acts, plans, policies, agreements, approvals and authorizations of SBSG and shall be as effective and binding on SBSG as the same were on Telesource. (e) SBSG shall be liable for all of the obligations and liabilities of Telesource. (f) The rights, privileges, goodwill, inchoate rights, franchises and property, real, personal and mixed, and debts due on whatever account and all other things in action belonging to Telesource, shall be, and they hereby are, bargained, conveyed, granted, confirmed, transferred, assigned and set over to and vested in SBSG, without further act or deed. (g) No claim pending at the Effective Date by or against any of Telesource, or any stockholder, officer or director thereof, shall abate or be discontinued by the Merger, but may be enforced, prosecuted, settled or compromised as if the Merger had not occurred. (h) All rights of employees and creditors and all liens upon the property of Telesource shall be preserved unimpaired, limited in lien to the property affected by such liens at the Effective Date, and all the debts, liabilities and duties of Telesource shall attach to SBSG and shall be enforceable against SBSG to the same extent as if all such debts, liabilities and duties had been incurred or contracted by Telesource. (i) Prior to the Effective Date, SBSG will become a Delaware corporation and file a Certificate of Continuity with the Delaware Secretary of State with Articles of Incorporation mirroring those of Telesource. These Articles of Incorporation of SBSG, as in effect on the Effective Date, shall continue to be the Articles of Incorporation of SBSG without change or amendment. (j) The Bylaws of SBSG, as in effect on the Effective Date, shall continue to be the Bylaws of SBSG without change or amendment until such time, if ever, as it is amended thereafter in accordance with the provisions thereof and applicable laws. (k) Upon the Effective Date, the Board of Directors of SBSG shall consist of six designees of Telesource (KJ Semikian, Nidal Zayed, Jeff Adams, Max Engler, Ibrahim M. Ibrahim, and Weston Marsh), and the officers of SBSG shall be the officers specified by Telesource to hold such offices, as set forth in the Proxy Statement hereinafter defined. III. CONDUCT OF BUSINESS PENDING CLOSING; STOCKHOLDER APPROVAL Telesource and SBSG covenant that between the date hereof and the date of the Closing: 3.1 Access to Telesource. Telesource shall (a) give to SBSG and to SBSG's counsel, accountants and other representatives reasonable access, during normal business hours, throughout the period prior to the Closing Date (as defined in Section 6.1), to all of the books, contracts, commitments and other records of Telesource and shall furnish SBSG during such period with all information concerning Telesource that SBSG may reasonably request; and (b) afford to SBSG and to SBSG's representatives, agents, employees and independent contractors reasonable access, during normal business hours, to the properties of Telesource, in order to conduct inspections at SBSG's expense to determine that Telesource is operating in compliance with all applicable federal, state, local and foreign statutes, rules and regulations, and all material building, fire and zoning laws or regulations and that the assets of Telesource are substantially in the condition and of the capacities represented and warranted in this Agreement; provided, however, that in every instance described in (a) and (b), SBSG shall make arrangements with Telesource reasonably in advance and shall use its best efforts to avoid interruption and to minimize interference with the normal business and operations of Telesource. Any such investigation or inspection by SBSG shall not be deemed a waiver of, or otherwise limit, the representations, warranties or covenants of Telesource contained herein. 3.2 Conduct of Business. During the period from the date hereof to the Closing Date, Telesource shall and shall use reasonable efforts, to the extent such efforts are within Telesource's control, to cause its business to be operated in the usual and ordinary course of business and in material compliance with the terms of this Agreement. 3.3 Intentionally Deleted. 3.4 Access to SBSG. SBSG shall (a) give to Telesource and to Telesource's counsel, accountants and other representatives reasonable access, during normal business hours, throughout the period prior to the Closing Date, to all of the books, contracts, commitments and other records of SBSG and shall furnish Telesource during such period with all information concerning SBSG that Telesource may reasonably request; and (b) afford to Telesource and to Telesource's representatives, agents, employees and independent contractors reasonable access, during normal business hours, to the properties of SBSG in order to conduct inspections at Telesource's expense to determine that SBSG is operating in compliance with all applicable federal, state, local and foreign statutes, rules and regulations, and all material building, fire and zoning laws or regulations and that the assets of SBSG are substantially in the condition and of the capacities represented and warranted in this Agreement; provided, however, that in every instance described in (a) and (b), Telesource shall make arrangements with SBSG reasonably in advance and shall use its best efforts to avoid interruption and to minimize interference with the normal business and operations of SBSG. Any such investigation or inspection by Telesource shall not be deemed a waiver of, or otherwise limit, the representations, warranties or covenants of SBSG contained herein. 3.5 Conduct of Business. During the period from the date hereof to the Closing Date, the business of SBSG shall be operated by SBSG in the usual and ordinary course of such business and in material compliance with the terms of this Agreement. Without limiting the generality of the foregoing: (a) SBSG shall: (i) comply in all material respects with all laws applicable to it; (ii) not declare any dividend or other distribution, redeem or otherwise acquire any shares of its capital stock or other securities, sell or issue any shares of its capital stock or other or agree to do any of the foregoing; (iii) not make any payments to any of its employees other than reimbursement of accountable expenses in the ordinary course of business in accordance with past practices; (iv) not make any payments, loans or other distribution to any officer, director, employee or agent or prepay any obligations due to any of the foregoing; and (v) not expend nor incur any liabilities or indebtedness, direct or indirect, or enter into any agreements or commitments with respect to same during the period between the date hereof and the Closing Date exclusive of (i) costs and expenses relating to the consummation of the transactions contemplated by this Agreement; (ii) any understandings relating to funding the purchase of shares of SBSG Stock offered for redemption to SBSG by its non-affiliated shareholders in the manner contemplated by the Proxy Statement; and (iii) liabilities based on applications for directors' and officers' liability insurance; and (b) SBSG shall timely file all reports required to be filed by it with the Securities and Exchange Commission (the "SEC"). 3.6 Exclusivity to Telesource. SBSG and its officers, directors, representatives or agents, as appropriate, shall not, from the date hereof until the Closing or the earlier termination of this Agreement, solicit any inquiries, proposals or offers to purchase the business of SBSG or the shares of capital stock of SBSG from any person other than Telesource. Any person inquiring as to the availability of the business or shares of capital stock of SBSG or making an offer therefor shall be told that SBSG is bound by the provisions of this Agreement. Each of SBSG and its officers, directors, representatives or agents further agree to advise Telesource promptly of any such inquiry or offer. 3.7 Stockholder Approval. (a) As promptly as reasonably practicable following the date of this Agreement, SBSG shall take all action reasonably necessary in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the laws of the State of Florida and its Articles of Incorporation and Bylaws to call, give notice of and convene a meeting (the "Meeting") of its shareholders to consider and vote upon the approval and adoption of (i) the Merger; (ii) such other matters as shall properly come before the Meeting in connection with this Agreement. The approval and adoption of this Agreement and the Merger by the Board of Directors and the shareholders of Telesource in accordance with the laws of the State of Florida, Articles of Incorporation and Bylaws and the receipt of the approvals and consents referred to in Section 7.9 is a condition precedent to the undertaking and obligation of SBSG to mail its definitive Proxy Statement (as hereinafter defined) subject to, among other things, approval by the shareholders of SBSG to its shareholders and to hold the Meeting. The Board of Directors of SBSG shall unanimously recommend that SBSG's shareholders vote to approve and adopt the Merger, this Agreement and any other matters to be submitted to SBSG's shareholders in connection therewith. SBSG shall, subject as aforesaid, use its best efforts to solicit and secure from shareholders of SBSG such approval and adoption. (b) As promptly as reasonably practicable following the date of this Agreement, SBSG shall prepare and file with the SEC under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated by the SEC thereunder: a registration statement on Form S-4 (or other form of registration statement as agreed by the parties) covering (i) all shares of SBSG Stock issuable as a consequence of the Merger. Prior to such filings, Telesource shall supply to SBSG, for inclusion in the Initial Registration Statement, the Financial Statements (as hereinafter defined). Concurrent with the filing of the Initial Registration Statement, SBSG shall also prepare and file with the SEC under the Securities Act and the rules and regulations promulgated by the SEC thereunder, a preliminary proxy statement (the "Proxy Statement"; the Proxy Statement and the Initial Registration Statement are collectively referred to as the "Registration Statement") pertaining to the Merger. Telesource shall cooperate fully with SBSG in the preparation and filing of the Registration Statement and any amendments and supplements thereto, including, without limitation, the furnishing to SBSG of such information regarding Telesource as shall be required by each of the Securities Act and the Exchange Act and the respective rules and regulations promulgated by the SEC thereunder. The Registration Statement shall not be filed, and no amendment or supplement thereto shall be made by SBSG, without prior consultation with and the consent of Telesource, which consent shall not be unreasonably withheld or delayed. As promptly as reasonably practicable following the date of this Agreement, SBSG shall cause to be mailed a definitive Proxy Statement to its shareholders entitled to vote at the Meeting promptly following completion of any review by, or in the absence of such review, the termination of any applicable waiting period of, the SEC and the SEC's declaration of effectiveness of the Registration Statement under the Securities Act. (d) As promptly as practicable but in no event later than the Effective Date, SBSG shall prepare and file with the NASD OTC Bulletin Board ("BB"), an application to have the SBSG Stock listed for trading on BB. IV. REPRESENTATIONS AND WARRANTIES OF TELESOURCE Telesource represents and warrants to SBSG as follows, with the knowledge and understanding that SBSG is relying materially upon such representations and warranties: 4.1 Organization and Standing. Telesource is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. Telesource has all requisite corporate power to carry on its business as it is now being conducted and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary under applicable law, except where the failure to qualify (individually or in the aggregate) does not have any material adverse effect on the assets, business or financial condition of Telesource, and all states in which each is qualified to do business as of the date hereof, have been disclosed to SBSG The copies of the Articles of Incorporation and Bylaws of Telesource, as amended to date, delivered to SBSG, are true and complete copies of these documents as now in effect. Except as otherwise set forth in the Telesource Disclosure Schedule, Telesource does not own any interest in any other corporation, business trust or similar entity. The minute book of Telesource contains accurate records of all meetings of its respective Board of Directors and shareholders since its incorporation. 4.2 Capitalization. The authorized capital stock of Telesource, the number of shares of capital stock which are issued and outstanding and par value thereof are as set forth in the Telesource Disclosure Schedule. All of such shares of capital stock are duly authorized, validly issued and outstanding, fully paid and nonassessable, and were not issued in violation of the preemptive rights of any person. There are no subscriptions, options, warrants, rights or calls or other commitments or agreements to which Telesource is a party or by which it is bound, calling for any issuance, transfer, sale or other disposition of any class of securities of Telesource. There are no outstanding securities convertible or exchangeable, actually or contingently, into shares of common stock or any other securities of Telesource. 4.3 Authority. This Agreement constitutes, and all other agreements contemplated hereby will constitute, when executed and delivered by Telesource in accordance therewith (and assuming due execution and delivery by the other parties hereto), the valid and binding obligation of Telesource, enforceable in accordance with their respective terms, subject to general principles of equity and bankruptcy or other laws relating to or affecting the rights of creditors generally. 4.4 Properties. Except as set forth on the Telesource Disclosure Schedule, Telesource has good title to all of the assets and properties which it purports to own as reflected on the balance sheet included in the Financial Statements (as hereinafter defined), or thereafter acquired. Telesource has a valid leasehold interest in all material property of which it is the lessee and each such lease is valid, binding and enforceable against Telesource, as the case may be, and, to the best knowledge of Telesource, the other parties thereto in accordance with its terms. Neither Telesource nor the other parties thereto are in material default in the performance of any material provisions thereunder. Neither the whole nor any material portion of the assets of Telesource is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor, to the best knowledge of Telesource, any such condemnation, expropriation or taking been proposed. 4.5 Contracts Listed; No Default. All contracts, agreements, licenses, leases, easements, permits, rights of way, commitments, and understandings, written or oral, connected with or relating in any respect to present or proposed future operations of Telesource (except employment or other agreements terminable at will and other agreements which, in the aggregate, are not material to the business, properties or prospects of Telesource and except governmental licenses, permits, authorizations, approvals and other matters referred to in Section 4.17), which would be required to be listed as exhibits to a Registration Statement on Form S-4 or an Annual Report on Form 10-K if Telesource were subject to the reporting requirements of the Exchange Act (individually, the "Telesource Contract" and collectively, the "Telesource Contracts"), have been described and disclosed to SBSG. Telesource is the holder of, or party to, all of the Telesource Contracts. To the best knowledge of Telesource, the Telesource Contracts are valid, binding and enforceable by the signatory thereto against the other parties thereto in accordance with their terms. Telesource's operation of its business has been, is, and will, between the date hereof and the Closing Date, continue to be, consistent with the material terms and conditions of the Telesource Contracts. 4.6 Litigation. Except as will be provided to SBSG for inclusion in Form S-4 , to the best of Telesource's knowledge, there is no claim, action, proceeding or investigation pending or, to the best knowledge of Telesource, threatened against or affecting Telesource before or by any court, arbitrator or governmental agency or authority which, in the reasonable judgment of Telesource, could have any materially adverse effect on Telesource. There are no decrees, injunctions or orders of any court, governmental department, agency or arbitration outstanding against Telesource. 4.7 Taxes. For purposes of this Agreement, (A) "Tax" (and, with correlative meaning, "Taxes") shall mean any federal, state, local or foreign income, alternative or add-on minimum, business, employment, franchise, occupancy, payroll, property, sales, transfer, use, value added, withholding or other tax, levy, impost, fee, imposition, assessment or similar charge, together with any related addition to tax, interest, penalty or fine thereon; and (B) "Returns" shall mean all returns (including, without limitation, information returns and other material information), reports and forms relating to Taxes or to any benefit plans. Telesource has duly filed all Returns required by any law or regulation to be filed by it, except for extensions duly obtained. All such Returns were, when filed, and to the best knowledge of Telesource, are accurate and complete in all material respects and were prepared in conformity with applicable laws and regulations in all material respects. Telesource has paid or will pay in full or has adequately reserved against all Taxes otherwise assessed against it through the Closing Date, and the assessment of any material amount of additional Taxes in excess of those paid and reported is not reasonably expected. 4.8 Compliance with Laws and Regulations. To its best knowledge, Telesource is in compliance, in all material respects, with all laws, rules, regulations, orders and requirements (federal, state and local) applicable to it in all jurisdictions where the business of Telesource is currently conducted or to which Telesource is currently subject which has a material impact on Telesource, including, without limitation, all applicable civil rights and equal opportunity employment laws and regulations, and all state and federal antitrust and fair trade practice laws and the Federal Occupational Health and Safety Act. Telesource knows of no assertion by any party that Telesource is in violation of any such laws, rules, regulations, orders, restrictions or requirements with respect to its current operations, and no notice in that regard has been received by Telesource. To the best knowledge of Telesource, there is not presently pending any proceeding, hearing or investigation with respect to the adoption of amendments or modifications to existing laws, rules, regulations, orders, restrictions or requirements which, if adopted, would materially adversely affect the current operations of Telesource. 4.9 Compliance with Laws. (a) To its best knowledge, the business, operations, property and assets of Telesource (and, to the best knowledge of Telesource, the business of any sub-tenant or licensee which is occupying or has occupied any space on any premises of Telesource and the activities of which could result in any material adverse liability to Telesource) (i) conform with and are in compliance in all material respects with all, and are not in material violation of any applicable federal, state and local laws, rules and regulations, including, but not limited to, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (including the 1986 Amendments thereto and the Superfund Amendments and Reauthorization Act) ("CERCLA"), and the Resource Conservation and Recovery Act ("RCRA"), as well as any other laws, rules or regulations relating to tax, product liability, controlled substances, product registration, environmental protection, hazardous or toxic waste, employment, or occupational safety matters; and (ii) have been conducted and operated in a manner such that, to Telesource's best knowledge, Telesource has foreseeable potential liabilities for environmental clean-up under CERCLA, RCRA or under any other law, rule, regulation or common or civil law doctrine. (b) To its best knowledge, no predecessor-in-title to any real property now or previously owned or operated by Telesource, nor any predecessor operator thereof conducted its business or operated such property in violation of CERCLA and RCRA or any other applicable federal, state and local laws, rules and regulations relating to environmental protection or hazardous or toxic waste matters. (c) Except as will be disclosed to SBSG for inclusion in Form s-4, no suit, action, claim, proceeding, nor investigation, review or inquiry by any court or federal, state, county, municipal or local governmental department, commission, board, bureau, agency or instrumentality, including, without limitation, any state or local health department (all of the foregoing collectively referred to as "Governmental Entity") concerning any such possible violations by Telesource is pending or, to the best knowledge of Telesource, threatened, including, but not limited to, matters relating to diagnostic tests and products and product liability, environmental protection, hazardous or toxic waste, controlled substances, employment, occupational safety or tax matters. Telesource does not know of any reasonable basis or ground for any such suit, claim, investigation, inquiry or proceeding. For purposes of this Section 4.9, the term "inquiry" includes, without limitation, all pending regulatory issues (whether before federal, state, local or inter-governmental regulatory authorities) concerning any regulated product, including, without limitation, any diagnostic drugs and products. 4.10 Reserved. 4.11 Condition of Assets. The equipment, fixtures and other personal property of Telesource, taken as a whole, is in good operating condition and repair (ordinary wear and tear excepted) for the conduct of the business of Telesource as is contemplated to be conducted. 4.12 No Breaches. To its best knowledge, the making and performance of this Agreement and the other agreements contemplated hereby by Telesource will not (i) conflict with or violate the Articles of Incorporation or the Bylaws of Telesource; (ii) violate any material laws, ordinances, rules or regulations, or any order, writ, injunction or decree to which Telesource is a party or by which Telesource or any of its respective assets, businesses, or operations may be bound or affected; or (iii) result in any breach or termination of, or constitute a default under, or constitute an event which, with notice or lapse of time, or both, would become a default under, or result in the creation of any encumbrance upon any asset of Telesource under, or create any rights of termination, cancellation or acceleration in any person under, any Telesource Contract. 4.13 Employees. Except as set forth in the Telesource Disclosure Schedule, none of the employees of Telesource is represented by any labor union or collective bargaining unit and, to the best knowledge of Telesource, no discussions are taking place with respect to such representation. 4.14 Financial Statements. Telesource has disclosed to SBSG an audited balance sheet as of December 31, 1998 and related statements of operations, statements of cash flows and statements of shareholders' equity of Telesource for the one-year period ended December 31, 1998 (collectively, the "Financial Statements"). The Financial Statements present fairly, in all respects, the consolidated financial position and results of operations of Telesource as of the dates and periods indicated. The Financial Statements, when submitted to SBSG for inclusion in the Registration Statement, will have been prepared in accordance with Regulation S-X of the SEC and, in particular, Rules 1-02 and 3-05 promulgated thereunder. 4.15 Absence of Certain Changes or Events. Except as previously disclosed by Telesource, since December 31, 1998, there has not been: (a) Any material adverse change in the financial condition, properties, assets, liabilities or business of Telesource; (b) Any material damage, destruction or loss of any material properties of Telesource, whether or not covered by insurance; (c) Intentionally Deleted; (d) Any material change in the treatment and protection of trade secrets or other confidential information of Telesource; (e) Any material change in the business or contractual relationship of Telesource with any customer or supplier which might reasonably be expected to adversely affect the business or prospects of Telesource; and (f) Any agreement by Telesource, whether written or oral, to do any of the foregoing. 4.16 Governmental Licenses, Permits, Etc. To its best knowledge, Telesource has all governmental licenses, permits, authorizations and approvals necessary for the conduct of its business as currently conducted ("Licenses and Permits"). 4.17 Employee Agreements. (a) For purposes of this Agreement, the following definitions apply: (1) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any regulations promulgated thereunder. (2) "Multi-employer Plan" means a plan, as defined in ERISA Section 3(37), to which Telesource contributes or is required to contribute. (3) "Employee Plan" means any pension, retirement, profit sharing, deferred compensation, vacation, bonus, incentive, medical, vision, dental, disability, life insurance or any other employee benefit plan as defined in Section 3(3) of ERISA other than a Multi-employer Plan to which Telesource contributes, sponsors, maintains or otherwise is bound to with regard to any benefits on behalf of the employees of Telesource. (4) "Employee Pension Plan" means any Employee Plan for the provision of retirement income to employees or which results in the deferral of income by employees extending to the termination of covered employment or beyond as defined in Section 3(2) of ERISA. (5) "Employee Welfare Plan" means any Employee Plan other than an Employee Pension Plan. (6) "Compensation Arrangement" means any plan or compensation arrangement other than an Employee Plan, whether written or unwritten, which provides to employees of Telesource, former employees, officers, directors or shareholders of Telesource any compensation or other benefits, whether deferred or not, in excess of base salary or wages, including, but not limited to, any bonus or incentive plan, stock rights plan, deferred compensation arrangement, life insurance, stock purchase plan, severance pay plan and any other employee fringe benefit plan. (b) Telesource has disclosed all (1) employment agreements and collective bargaining agreements to which Telesource is a party; (2) Compensation Arrangements of Telesource; (3) Employee Welfare Plans; (4) Employee Pension Plans; and (5) consulting agreements under which Telesource has or may have any monetary obligations to employees or consultants of Telesource or their beneficiaries or legal representatives or under which any such persons may have any rights. Telesource has previously made available to SBSG true and complete copies of all of the foregoing employment contracts, collective bargaining agreements, Employee Plans and Compensation Arrangements, including descriptions of any unwritten contracts, agreements, Compensation Arrangements or Employee Plans, as amended to date. In addition, with respect to any Employee Plan which continues after the Closing Date, Telesource has previously delivered or made available to SBSG (1) any related trust agreements, master trust agreements, annuity contracts or insurance contracts; (2) certified copies of all Board of Directors' resolutions adopting such plans and trust documents and amendments thereto; (3) current investment management agreements; (4) custodial agreements; (5) fiduciary liability insurance policies; (6) indemnification agreements; (7) the most recent determination letter (and underlying application thereof and correspondence and supplemental material related thereto) issued by the Internal Revenue Service with respect to the qualification of each Employee Plan under the provisions of Section 401(a) of the Code; (8) copies of all "advisory opinion letters," "private letter rulings," "no action letters," and any similar correspondence (and the underlying applications therefor and correspondence and supplemental material related thereto) that was issued by any governmental or quasigovernmental agency with respect to the last plan year; (9) Annual Reports (Form 5500 Series) and Schedules A and B thereto for the last plan year; (10) all actuarial reports prepared for the last plan year; (11) all certified Financial Statements for the last plan year; and (12) all current Summary Plan Descriptions, Summaries of Material Modifications and Summary Annual Reports. 4.19 Business Locations. Telesource does not nor does it own or lease any real or personal property in any state except as already disclosed. 4.20 Intellectual Property. Telesource has disclosed all of the Intellectual Property (as hereinafter defined) used by Telesource which constitutes a material patent, trade name, trademark, service mark or application for any of the foregoing. "Intellectual Property" means all of Telesource's right, title and interest in and to all patents, trade names, assumed names, trademarks, service marks, and proprietary names, copyrights (including any registration and pending applications for any such registration for any of them), together with all the goodwill relating thereto and all other intellectual property of Telesource. . To the best knowledge of Telesource, it is not infringing upon, or otherwise violating, the rights of any third party with respect to any Intellectual Property. No proceedings have been instituted against or claims received by Telesource, nor to its best knowledge are any proceedings threatened alleging any such violation, nor does Telesource know of any valid basis for any such proceeding or claim. To the best knowledge of Telesource, there is no infringement or other adverse claims against any of the Intellectual Property owned or used by Telesource. To the best knowledge of Telesource, its use of software does not violate or otherwise infringe the rights of any third party. 4.21 Warranties. Telesource has disclosed for inclusion in Form s-4 a true and complete list of the forms of the express warranties and guaranties made by Telesource to third parties with respect to services rendered by Telesource. 4.22 Suppliers. Telesource knows and has no reason to believe that, either as a result of the transactions contemplated hereby or for any other reason (exclusive of expiration of a contract upon the passage of time), any present material supplier of Telesource will not continue to conduct business with Telesource after the Closing Date in substantially the same manner as it has conducted business prior thereto. 4.23 Accounts Receivable. The accounts receivable reflected on the balance sheets included in the Financial Statements, or thereafter acquired by Telesource, consists, in the aggregate in all material respects, of items which are collectible in the ordinary and usual course of business. 4.24 Governmental Approvals. To its best knowledge, other than as set forth herein, no authorization, license, permit, franchise, approval, order or consent of, and no registration, declaration or filing by Telesource with, any governmental authority, federal, state or local, is required in connection with Telesource's execution, delivery and performance of this Agreement. 4.25 No Omissions or Untrue Statements. None of the information relating to Telesource supplied or to be supplied in writing by it specifically for inclusion in the Registration Statement, at the respective times that the Registration Statement becomes effective (or any registration statement included therein), the Proxy Statement is first mailed to SBSG's shareholders and the meeting of SBSG's shareholders takes place, as the case may be, contains or will contain any untrue statement of a material fact or omits or will omit 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. SBSG shall give notice to Telesource in advance of the dates of such effectiveness, mailing and meeting sufficient to permit Telesource to fulfill its obligations under the second sentence of this Section. 4.26 Telesource Disclosure Complete. Telesource shall promptly disclose any events occur prior to the Closing Date that would have been required to be disclosed had they existed at the time of executing this Agreement. V. REPRESENTATIONS AND WARRANTIES OF SBSG SBSG represents and warrants to Telesource as follows, with the best knowledge and understanding that Telesource is relying materially on such representations and warranties: 5.1 Organization and Standing of SBSG. SBSG is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida, and has the corporate power to carry on its business as now conducted and to own its assets and it not required to qualify to transact business as a foreign corporation in any state or other jurisdiction. Prior to the Effective Date, SBSG will become a Delaware corporation and file a Certificate of Continuity with the Delaware Secretary of State with Articles of Incorporation mirroring those of Telesource. The copies of the Articles of Incorporation and Bylaws of SBSG, delivered to Telesource, are true and complete copies of those documents as now in effect. SBSG does not own any capital stock in any other corporation, business trust or similar entity, and is not engaged in a partnership, joint venture or similar arrangement with any person or entity. The minute books of SBSG contain accurate records of all meetings of its incorporator, shareholders and Board of Directors since its date of incorporation. 5.2 SBSG's Authority. SBSG's Board of Directors has approved and adopted this Agreement and the Merger and has resolved to recommend approval and adoption of this Agreement and the Merger by SBSG's shareholders. This Agreement constitutes, and all other agreements contemplated hereby will constitute, when executed and delivered by SBSG in accordance herewith (and assuming due execution and delivery by the other parties hereto), the valid and binding obligations of SBSG, enforceable in accordance with their respective terms, subject to general principles of equity and bankruptcy or other laws relating to or affecting the rights of creditors generally. 5.3 Reserved. 5.4 No Breaches. To its best knowledge, the making and performance of this Agreement (including, without limitation, the issuance of the SBSG Stock) by SBSG will not (i) conflict with the Articles of Incorporation or the Bylaws of SBSG; (ii) violate any order, writ, injunction, or decree applicable to SBSG; or (iii) result in any breach or termination of, or constitute a default under, or constitute an event which, with notice or lapse of time, or both, would become a default under, or result in the creation of any encumbrance upon any asset of SBSG under, or create any rights of termination, cancellation or acceleration in any person under, any agreement, arrangement or commitment, or violate any provisions of any laws, ordinances, rules or regulations or any order, writ, injunction or decree to which SBSG is a party or by which SBSG or any of its assets may be bound. 5.5 Capitalization. The SBSG Stock consists of 50,000,000 shares of common stock, no par value per share, of which 1,000,000 shares are issued and outstanding. All of the outstanding SBSG Stock is duly authorized, validly issued, fully paid and nonassessable, and was not issued in violation of the preemptive rights of any person. The SBSG Stock to be issued upon effectiveness of the Merger, when issued in accordance with the terms of this Agreement shall be duly authorized, validly issued, fully paid and nonassessable. Other than as stated in this Section 5.5, there are no outstanding subscriptions, options, warrants, calls or rights of any kind issued or granted by, or binding upon, SBSG, to purchase or otherwise acquire any shares of capital stock of SBSG, or other equity securities or equity interests of SBSG or any debt securities of SBSG. There are no outstanding securities convertible or exchangeable, actually or contingently, into shares of SBSG Stock or other stock of SBSG. 5.6 Business. SBSG, since its formation, has engaged in no business other than to seek to serve as a vehicle for the acquisition of an operating business, and, except for this Agreement, is not a party to any contract or agreement for the acquisition of an operating business. 5.7 Governmental Approval; Consents. To its best knowledge, except for the reports required to be filed in the future by SBSG, as a reporting company, under the Exchange Act and under the Securities Act, the filing of the Registration Statement under the Securities Act, the Proxy Statement under the Exchange Act for the purpose of seeking stockholder approval of the Merger referred to in Section 2.1 and the issuance of the SBSG Stock pursuant to the Merger and the filing of the S-4 Registration Statement (or other form of registration statement as agreed by the parties), no authorization, license, permit, franchise, approval, order or consent of, and no registration, declaration or filing by SBSG with, any governmental authority, federal, state or local, is required in connection with SBSG's execution, delivery and performance of this Agreement. No consents of any other parties are required to be received by or on the part of SBSG to enable SBSG to enter into and carry out this Agreement. 5.8 Financial Statements. To its best knowledge, the financial statements of SBSG included in SBSG's SEC Reports, as hereinafter defined (collectively, the "SBSG Financial Statements") present fairly, in all material respects, the financial position of SBSG as of the respective dates and the results of its operations for the periods covered in accordance with GAAP. Without limiting the generality of the foregoing, (i) except as set forth in the SBSG Disclosure Schedule, there is no basis for any assertion against SBSG as of the date of said balance sheets of any material debt, liability or obligation of any nature not fully reflected or reserved against in such balance sheets or in the notes thereto; and (ii) there are no assets of SBSG, the value of which (in the reasonable judgment of SBSG) is materially overstated in said balance sheets. Except as disclosed therein, SBSG has no known material contingent liabilities (including liabilities for taxes), unusual forward or long-term commitments or unrealized or anticipated losses from unfavorable commitments. SBSG is not a party to any contract or agreement for the forward purchase or sale of any foreign currency. 5.9 Adverse Developments. Except as expressly provided or set forth in, or required by, this Agreement, or as set forth in the SBSG Financial Statements, since March 1997, there have been no materially adverse changes in the assets, liabilities, properties, operations or financial condition of SBSG, and no event has occurred other than in the ordinary and usual course of business or as set forth in SBSG's SEC Reports or in the SBSG Financial Statements which could be reasonably expected to have a materially adverse effect upon SBSG, and SBSG does not know of any development or threatened development of a nature that will, or which could be reasonably expected to, have a materially adverse effect upon SBSG's operations or future prospects. 5.10 SBSG's U.S. Securities and Exchange Commission Reports. The SBSG Stock was registered under Section 12 of the Exchange Act on Form 10. Since its inception, SBSG and each of its officers and directors has filed all reports, registrations and other documents, together with any amendments thereto, required to be filed under the Securities Act and the Exchange Act, including, but not limited to, proxy statements and reports on Form 10-KSB, Form 10-QSB and Form 8-K, and SBSG and each of its officers and directors will file all such reports, registrations and other documents required to be filed by it from the date of this Agreement to the Closing Date (all such reports, registrations and documents, including registrations and documents voluntarily filed or to be filed with the SEC, with the exception of the Registration Statement and the Proxy Statement, are collectively referred to as "SBSG's SEC Reports"). As of their respective dates, SBSG's SEC Reports complied or will comply in all material respects with all rules and regulations promulgated by the SEC and did not or will not contain any untrue statement of a material fact or omit 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. As part of the SBSG Disclosure Schedule, SBSG has provided to Telesource a true and complete copy of all of SBSG's SEC Reports filed on or prior to the date hereof, and will promptly provide to Telesource a true and complete copy of any such reports filed after the date hereof and on or prior to the Closing Date. 5.11 Contracts Listed; No Default. All material contracts, agreements, licenses, leases, easements, permits, rights of way, commitments, and understandings, written or oral, connected with or relating in any respect to the present operations of SBSG shall be disclosed to Telesource. All of such contracts, agreements, leases, commitments and understandings, written or oral, and any other contract, agreement, lease, commitment or understanding, written or oral, binding upon SBSG, are listed in the SBSG Disclosure Schedule (the "SBSG Contracts"). To the best knowledge of SBSG, the SBSG Contracts are valid, binding and enforceable by SBSG against the other parties thereto in accordance with their terms. Neither SBSG nor, to the best knowledge of SBSG, any of the other parties thereto is in default or breach of any material provision of the SBSG Contracts. SBSG shall furnish Telesource by the effective date of this agreement with a true and complete copy of each SBSG Contract, as amended. 5.12 Taxes. SBSG has duly filed all Returns required by any law or regulation to be filed by it except for extensions duly obtained. All such Returns were, when filed, and to the best of SBSG's best knowledge are, accurate and complete in all material respects and were prepared in conformity with applicable laws and regulations. SBSG has paid or will pay in full or has adequately reserved against all Taxes otherwise assessed against it through the Closing Date, and the assessment of any material amount of additional Taxes in excess of those paid and reported is not reasonably expected. SBSG is not a party to any pending action or proceeding by any governmental authority for the assessment of any Tax, and no claim for assessment or collection of any Tax has been asserted against SBSG that has not been paid. There are no Tax liens upon the assets of SBSG (other than the lien of personal property taxes not yet due and payable). There is no valid basis, to the best of SBSG's best knowledge, except as set forth in the SBSG Disclosure Schedule, for any assessment, deficiency, notice, 30-day letter or similar intention to assess any Tax to be issued to SBSG by any governmental authority. 5.13 Litigation. Except as disclosed in the SBSG Disclosure Schedule, there is no claim, action, proceeding or investigation pending or, to SBSG's best knowledge, threatened against or affecting SBSG before or by any court, arbitrator or governmental agency or authority which, in the reasonable judgment of SBSG, could have a materially adverse effect on SBSG. There are no decrees, injunctions or orders of any court, governmental department, agency or arbitration outstanding against SBSG. 5.14 Compliance with Laws and Regulations. To its best knowledge, SBSG is in compliance, in all material respects, with all laws, rules, regulations, orders and requirements (federal, state and local) applicable to it in all jurisdictions in which the business of SBSG is currently conducted or to which SBSG is currently subject, which may have a material impact on SBSG, including, without limitation, all applicable civil rights and equal opportunity employment laws and regulations, all state and federal antitrust and fair trade practice laws and the Federal Occupational Health and Safety Act. SBSG does not know of any assertion by any party that SBSG is in violation of any such laws, rules, regulations, orders, restrictions or requirements with respect to its current operations, and no notice in that regard has been received by SBSG. To SBSG's best knowledge, there is not presently pending any proceeding, hearing or investigation with respect to the adoption of amendments or modifications of existing laws, rules, regulations, orders, restrictions or requirements which, if adopted, would materially adversely affect the current operations of SBSG. 5.15 Compliance with Laws. (a) To its best knowledge, the business operations, property and assets of SBSG (and to the best knowledge of SBSG, the business of any sub-tenant or license which is occupying or has occupied any space on any premises of SBSG and the activities of which could result in any material adverse liability to SBSG) (i) conform with and are in compliance in all material respects with all, and are not in material violation of any applicable federal, state and local laws, rules and regulations, including, but not limited to, CERCLA and RCRA, as well as any other laws, rules or regulations relating to tax, product liability, controlled substances, product registration, environmental protection, hazardous or toxic waste, employment, or occupational safety matters; and (ii) have been conducted and operated in a manner such that, to SBSG's best knowledge, SBSG has no foreseeable potential liabilities for environmental clean-up under CERCLA, RCRA or under any law, rule, regulation or common or civil law doctrine. (b) To its best knowledge, no predecessor-in-title to any real property now or previously owned or operated by SBSG, nor any predecessor operator thereof conducted its business or operated such property in violation of CERCLA and RCRA or any other applicable, federal, state and local laws, rules and regulations relating to environmental protection or hazardous or toxic waste matters. (c) Except as disclosed in the SBSG Disclosure Schedule, no suit, action, claim, proceeding nor investigation review or inquiry by any Government Entity (as defined in Section 4.9) concerning any such possible violations by SBSG is pending or, to SBSG's best knowledge, threatened, including, but not limited to, matters relating to diagnostic tests and products and product liability, environmental protection, hazardous or toxic waste, controlled substances, employment, occupational safety or tax matters. SBSG does not know of any reasonable basis or ground for any such suit, claim, investigation, inquiry or proceeding. 5.16 Governmental Licenses, Permits, Etc. To its best knowledge, SBSG has all governmental licenses, permits, authorizations and approvals necessary for the conduct of its business as currently conducted. All such licenses, permits, authorizations and approvals are in full force and effect, and no proceedings for the suspension or cancellation of any thereof is pending or threatened. 5.17 Brokers. SBSG has not made any agreement or taken any action with any person or taken any action which would cause any person to be entitled to any agent's, broker's or finder's fee or commission in connection with the transactions contemplated by this Agreement. 5.18 Employee Plans. Except as listed in SBSG's SEC Reports, SBSG has no employees, consultants or agents, and SBSG has no Employee Plans or Compensation Arrangements. 5.19 Registration Statement and Proxy Statement. To its best knowledge, the Registration Statement and the Proxy Statement will comply with, and will be distributed in accordance with, as applicable, the BCA, the Securities Act and the Exchange Act and all rules and regulations of the SEC promulgated under such acts, and state securities or blue sky laws. At the time that the Registration Statement (or any registration statement included therein) becomes effective, the Proxy Statement is first mailed to SBSG's shareholders and the meeting of SBSG's shareholders takes place, as the case may be, neither the Registration Statement nor the Proxy Statement will contain any untrue statement of a material fact or omit 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; provided, however, that this representation shall not be deemed to apply to information included in the Registration Statement or the Proxy Statement relating to Telesource which was furnished by Telesource to SBSG for use in the Registration Statement and the Proxy Statement and which was made in conformity with the information so furnished. 5.20 Accounts. SBSG has previously disclosed to Telesource a list of all banks and other institutions in which SBSG maintains an account (including checking, savings, cash management, brokerage, money market or any other type of account) or safe deposit box, the address and telephone of such bank or other institution, the name of SBSG's contact person with respect to such account or safe deposit box, the account number of each such account, and the names of all person authorized to make draws on such accounts or who have access to such safe deposit boxes. 5.21 No Omissions or Untrue Statements. No representations or warranties made by SBSG to Telesource in this Agreement or in any certificate of a SBSG officer required to be delivered to Telesource pursuant to the terms of this Agreement contains or will contain any untrue statement of a material fact, omits or will omit to state a material fact necessary to make the statement contained herein or therein not misleading as of the date hereof and as of the Closing Date. 5.22 Reserved. 5.23 Reserved. 5.24 SBSG Disclosure Schedule Complete. SBSG shall promptly supplement the SBSG Disclosure Schedule if events occur prior to the Closing Date that would have been required to be disclosed had they existed at the time of executing this Agreement. The SBSG Disclosure Schedule, as supplemented prior to the Closing Date, will contain a true, correct and complete list and description of all items required to be set forth therein. The SBSG Disclosure Schedule, as supplemented prior to the Closing Date, is expressly incorporated herein by reference. Notwithstanding the foregoing, any such supplement to the SBSG Disclosure Schedule following the date hereof shall not in any way affect Telesource's right not to consummate the transactions contemplated hereby as set forth in Section 6.2 hereof. VI. STOCKHOLDER APPROVAL; CLOSING DELIVERIES 6.1 Stockholder Approval. SBSG shall submit the Merger and this Agreement to its shareholders for approval and adoption at the Meeting to be held as soon as practicable following the date or this Agreement in accordance with Section 3.7 hereof. Subject to the Merger and this Agreement receiving all approvals of SBSG and Telesource shareholders and regulatory approvals and the absence of 30% or more of the non-affiliated shareholders of SBSG (i) voting against the Merger; and (ii) requesting redemption of their shares of SBSG Stock in the manner to be set forth in the Proxy Statement, and subject to the other provisions of this Agreement, the parties shall hold a closing (the "Closing") no later than the fifth business day (or such later date as the parties hereto may agree) following the later of (a) the date of the Meeting of Shareholders of SBSG to consider and vote upon the Merger and this Agreement and the Name Change or (b) the business day on which the last of the conditions set forth in Articles VII and VIII hereof is fulfilled or waived (such later date, the "Closing Date"), at 10:00 A.M. at the offices of WILLIAMS LAW GROUP, P.A., or at such other time and place as the parties may agree upon. 6.2 Closing Deliveries of Telesource. At the Closing, Telesource shall deliver, or cause to be delivered, to SBSG: (a) A certificate dated as of the Closing Date, to the effect that the representations and warranties of Telesource contained in this Agreement are true and correct in all material respects at and as of the Closing Date and that Telesource has complied with or performed in all material respects all terms, covenants and conditions to be complied with or performed by Telesource on or prior to the Closing Date; (b) Intentionally Deleted; (c) a certificate, dated as of the Closing Date, certifying as to the Articles of Incorporation and Bylaws of Telesource, the incumbency and signatures of the officers of each of Telesource and copies of the directors' and shareholders' resolutions of Telesource approving and authorizing the execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby; (d) Such other documents, at the Closing or subsequently, as may be reasonably requested by SBSG as necessary for the implementation and consummation of this Agreement and the transactions contemplated hereby. 6.3 Closing Deliveries of SBSG. At the Closing, SBSG shall deliver to Telesource: (a) A certificate of SBSG, dated as of the Closing Date, to the effect that the representations and warranties of SBSG contained in this Agreement are true and correct in all material respects and that SBSG has complied with or performed in all material respects all terms, covenants and conditions to be complied with or performed by SBSG on or prior to the Closing Date; (b) A certificate, dated as of the Closing Date, executed by the Secretary of SBSG, certifying the Articles of Incorporation, Bylaws, incumbency and signatures of officers of SBSG and copies of SBSG's directors' and shareholders' resolutions approving and authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; (c) An opinion of SBSG's counsel, WILLIAMS LAW GROUP, P.A., in form and substance reasonably satisfactory to Telesource, in a form to be mutually agreed to prior to the Closing; (d) The written resignations of all officers, and all directors of SBSG. (e) Certificates representing the SBSG Stock issuable upon consummation of the Merger; (f) The books and records of SBSG; and (h) Documentation satisfactory to Telesource evidencing the fact that the signatories on all relevant bank accounts of SBSG have been changed to signatories designated by Telesource. VII. CONDITIONS TO OBLIGATIONS OF Telesource The obligation of Telesource to consummate the Closing is subject to the following conditions, any of which may be waived by Telesource in its sole discretion: 7.1 Compliance by SBSG. SBSG shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by SBSG prior to or on the Closing Date. 7.2 Accuracy of SBSG's Representations. SBSG's representations and warranties contained in this Agreement (including the SBSG Disclosure Schedule) or any schedule, certificate or other instrument delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects at and as of the Closing Date (except for such changes permitted by this Agreement) and shall be deemed to be made again as of the Closing Date. 7.3 Material Adverse Change. No material adverse change shall have occurred subsequent to March 1999 in the financial position, results of operations, assets, liabilities or prospects of SBSG, nor shall any event or circumstance have occurred which would result in a material adverse change in the financial position, results of operations, assets, liabilities or prospects of SBSG within the reasonable discretion of Telesource. 7.4 Documents. All documents and instruments delivered by SBSG to Telesource at the Closing shall be in form and substance reasonably satisfactory to Telesource and its counsel. 7.5 Capitalization. At the Closing Date, SBSG shall have not more than 210,000 shares of SBSG Stock issued and outstanding. 7.6 Effectiveness of Registration Statement; No Stop Order. The Registration Statement shall be effective under the Securities Act and shall not be subject to a stop order or any threatened stop order. 7.7 Reorganization. The Merger shall qualify as a tax-free reorganization under Section 368 of the Code. 7.8 Litigation. No litigation seeking to enjoin the transactions contemplated by this Agreement or to obtain damages on account hereof shall be pending or, to Telesource's best knowledge, be threatened. 7.9 Certain Consents. Telesource shall have received from Pender & Newkirk a consent in writing, in form and substance acceptable for filing with the SEC, to Telesource's entry into this Agreement and consummation of the Merger. VIII. CONDITIONS TO SBSG'S OBLIGATIONS SBSG's obligation to consummate the closing is subject to the following conditions, any of which may be waived by SBSG in its sole discretion: 8.1 Compliance by Telesource. Telesource shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with prior to or on the Closing Date. 8.2 Accuracy of Telesource's Representations. Telesource's representations and warranties contained in this Agreement or any schedule, certificate or other instrument delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects at and as of the Closing Date (except for such changes permitted by this Agreement) and shall be deemed to be made again as of the Closing Date. 8.3 Material Adverse Change. No material adverse change shall have occurred subsequent to September 30, 1999 in the financial position, results of operations, assets, liabilities or prospects of Telesource taken as a whole, nor shall any event or circumstance have occurred which would result in a material adverse change in the business, assets or condition, financial or otherwise, of Telesource taken as a whole, within reasonable discretion of SBSG. 8.4 Litigation. No litigation seeking to enjoin the transactions contemplated by this Agreement or to obtain damages on account hereof shall be pending or, to SBSG's best knowledge, be threatened. 8.5 Reorganization. The Merger shall qualify as a tax-free reorganization under Section 368 of the Code and there are no material adverse tax consequences to the Merger. 8.6 Documents. All documents and instruments delivered by Telesource to SBSG at the Closing shall be in form and substance reasonably satisfactory to SBSG and its counsel. IX. INDEMNIFICATION 9.1 By Telesource. Subject to Section 9.4, Telesource shall indemnify, defend and hold SBSG, its directors, officers, shareholders, attorneys, agents and affiliates, harmless from and against any and all losses, costs, liabilities, damages, and expenses (including legal and other expenses incident thereto) of every kind, nature and description, including any undisclosed liabilities (collectively, "Losses") that result from or arise out of (i) the breach of any representation or warranty of Telesource set forth in this Agreement or in any certificate delivered to SBSG pursuant hereto; or (ii) the breach of any of the covenants of Telesource contained in or arising out of this Agreement or the transactions contemplated hereby. 9.2 By SBSG. Subject to Section 9.4, SBSG shall indemnify, defend and hold Telesource, its directors, officers, shareholders, attorneys, agents and affiliates, harmless from and against any and all losses, costs, liabilities, damages, and expenses (including legal and other expenses incident thereto) of every kind, nature and description, including any undisclosed liabilities (collectively, "Losses") that result from or arise out of (i) the breach of any representation or warranty of SBSG set forth in this Agreement or in any certificate delivered to Telesource pursuant hereto; or (ii) the breach of any of the covenants of SBSG contained in or arising out of this Agreement or the transactions contemplated hereby. 9.3 Claims Procedure. Should any claim covered by Sections 9.1 or 9.2 be asserted against a party entitled to indemnification under this Article (the "Indemnitee"), the Indemnitee shall promptly notify the party obligated to make indemnification (the "Indemnitor"); provided, however, that any delay or failure in notifying the Indemnitor shall not affect the Indemnitor's liability under this Article if such delay or failure was not prejudicial to the Indemnitor. The Indemnitor upon receipt of such notice shall assume the defense thereof with counsel reasonably satisfactory to the Indemnitee and the Indemnitee shall extend reasonable cooperation to the Indemnitor in connection with such defense. No settlement of any such claim shall be made without the consent of the Indemnitor and Indemnitee, such consent not to be unreasonably withheld or delayed, nor shall any such settlement be made by the Indemnitor which does not provide for the absolute, complete and unconditional release of the Indemnitee from such claim. In the event that the Indemnitor shall fail, within a reasonable time, to defend a claim, the Indemnitee shall have the right to assume the defense thereof without prejudice to its rights to indemnification hereunder. 9.4 Limitations on Liability. Neither Telesource nor SBSG shall be liable hereunder as a result of any misrepresentation or breach of such party's representations, warranties or covenants contained in this Agreement unless and until the Losses incurred by each, as the case may be, as a result of such misrepresentations or breaches under this Agreement shall exceed, in the aggregate, $2,000.00 (in which case the party liable therefor shall be liable for the entire amount of such claims, including the first $2,000.00). X. TERMINATION 10.1 Termination Prior to Closing. (a) If the Closing has not occurred by 31 December 1999, subject to a 30 day extension by Telesource, or any other extension as agreed by the parties (the "Termination Date"), any of the parties hereto may terminate this Agreement at any time thereafter by giving written notice of termination to the other parties; provided, however, that no party may terminate this Agreement if such party has willfully or materially breached any of the terms and conditions hereof. (b) Prior to the Termination Date either party to this Agreement may terminate this Agreement following the insolvency or bankruptcy of the other, or if any one or more of the conditions to Closing set forth in Article VI, Article VII or Article VIII shall become incapable of fulfillment and shall not have been waived by the party for whose benefit the condition was established, then either party may terminate this Agreement. (c) Prior to the Closing Date, Telesource shall be able to terminate this Agreement for its convenience, subject to a 30 day notice. 10.2 Consequences of Termination. Upon termination of this Agreement pursuant to this Article X or any other express right of termination provided elsewhere in this Agreement, the parties shall be relieved of any further obligation to the others except as specified in Section 12.3. No termination of this Agreement, however, whether pursuant to this Article X hereof or under any other express right of termination provided elsewhere in this Agreement, shall operate to release any party from any liability to any other party incurred before the date of such termination or from any liability resulting from any willful misrepresentation made in connection with this Agreement or willful breach hereof. XI. ADDITIONAL COVENANTS 11.1 Mutual Cooperation. The parties hereto will cooperate with each other, and will use all reasonable efforts to cause the fulfillment of the conditions to the parties' obligations hereunder and to obtain as promptly as possible all consents, authorizations, orders or approvals from each and every third party, whether private or governmental, required in connection with the transactions contemplated by this Agreement. 11.2 Changes in Representations and Warranties of Telesource. Between the date of this Agreement and the Closing Date, Telesource shall not, directly or indirectly, except as contemplated in the Telesource Disclosure Schedule, enter into any transaction, take any action, or by inaction permit an event to occur, which would result in any of the representations and warranties of Telesource herein contained not being true and correct at and as of (a) the time immediately following the occurrence of such transaction or event or (b) the Closing Date. Telesource shall promptly give written notice to SBSG upon becoming aware of (i) any fact which, if known on the date hereof, would have been required to be set forth or disclosed pursuant to this Agreement and (ii) any impending or threatened breach in any material respect of any of the representations and warranties of Telesource contained in this Agreement and with respect to the latter shall use all reasonable efforts to remedy same. 11.3 Changes in Representations and Warranties of SBSG. Between the date of this Agreement and the Closing Date, SBSG shall not, directly or indirectly, enter into any transaction, take any action, or by inaction permit an event to occur, which would result in any of the representations and warranties of SBSG herein contained not being true and correct at and as of (a) the time immediately following the occurrence of such transaction or event or (b) the Closing Date. SBSG shall promptly give written notice to Telesource upon becoming aware of (i) any fact which, if known on the date hereof, would have been required to be set forth or disclosed pursuant to this Agreement and (ii) any impending or threatened breach in any material respect of any of the representations and warranties of SBSG contained in this Agreement and with respect to the latter shall use all reasonable efforts to remedy same. XII. MISCELLANEOUS 12.1 Expenses. (a) Prior to the Closing Date, SBSG will pay in full for its counsel and financial consultant and all their costs. As of the Closing Date, SBSG shall have zero accounts payable and no liabilities, accrued or otherwise. SBSG will be responsible for costs incurred to respond to any SEC comments on the Registration Statement and Proxy Statement prepared in connection with this merger. (b) Telesource will pay for its accountants and attorneys and its costs. Telesource will be responsible for paying the SEC filing fee, and state filing fees and all costs of converting its documents so they can be filed with the SEC. 12.2 Survival of Representations, Warranties and Covenants. All statements contained in this Agreement or in any certificate delivered by or on behalf of Telesource or SBSG pursuant hereto or in connection with the transactions contemplated hereby shall be deemed representations, warranties and covenants by Telesource or SBSG, as the case may be, hereunder. All representations, warranties and covenants made by Telesource and by SBSG in this Agreement, or pursuant hereto, shall survive for two years beyond the Closing Date. 12.3 Nondisclosure. SBSG will not at any time after the date of this Agreement, without Telesource' consent, divulge, furnish to or make accessible to anyone (other than to its representatives as part of its due diligence or corporate investigation) any knowledge or information with respect to confidential or secret processes, inventions, discoveries, improvements, formulae, plans, material, devices or ideas or know-how, whether patentable or not, with respect to any confidential or secret aspects (including, without limitation, customers or suppliers) ("Confidential Information") of Telesource. Telesource will not at any time after the date of this Agreement, without SBSG's consent (except as may be required by law), use, divulge, furnish to or make accessible to anyone any Confidential Information (other than to its representatives as part of its due diligence or corporate investigation) with respect to SBSG. The undertakings set forth in the preceding two paragraphs of this Section 12.3 shall lapse if the Closing takes place as to SBSG and Telesource, but shall not lapse as to the officers and directors of SBSG, individually. Any information, which (i) at or prior to the time of disclosure by either of Telesource or SBSG was generally available to the public through no breach of this covenant, (ii) was available to the public on a non-confidential basis prior to its disclosure by either of Telesource or SBSG or (iii) was made available to the public from a third party, provided that such third party did not obtain or disseminate such information in breach of any legal obligation to Telesource or SBSG, shall not be deemed Confidential Information for purposes hereof, and the undertakings in this covenant with respect to Confidential Information shall not apply thereto. 12.4 Succession and Assignments; Third Party Beneficiaries. This Agreement may not be assigned (either voluntarily or involuntarily) by any party hereto without the express written consent of the other party. Any attempted assignment in violation of this Section shall be void and ineffective for all purposes. In the event of an assignment permitted by this Section, this Agreement shall be binding upon the heirs, successors and assigns of the parties hereto. Except as expressly set forth in this Section, there shall be no third party beneficiaries of this Agreement. 12.5 Notices. All notices, requests, demands or other communications with respect to this Agreement shall be in writing and shall be (i) sent by facsimile transmission, (ii) sent by the United States Postal Service, registered or certified mail, return receipt requested, or (iii) personally delivered by a nationally recognized express overnight courier service, charges prepaid, to the addresses specified in writing by each party. Any such notice shall, when sent in accordance with the preceding sentence, be deemed to have been given and received on the earliest of (i) the day delivered to such address or sent by facsimile transmission, (ii) the fifth (5th) business day following the date deposited with the United States Postal Service, or (iii) twenty-four (24) hours after shipment by such courier service. 12.6 Construction. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Florida without giving effect to the principles of conflicts of law thereof, except to the extent that the Securities Act or the Exchange Act applies to the Registration Statements and the Proxy Statement. 12.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same Agreement. 12.8 No Implied Waiver; Remedies. No failure or delay on the part of the parties hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. All rights, powers and privileges granted herein shall be in addition to other rights and remedies to which the parties may be entitled at law or in equity. 12.9 Entire Agreement. This Agreement, including the Exhibits and Schedules attached hereto, sets forth the entire understandings of the parties with respect to the subject matter hereof, and it incorporates and merges any and all previous communications, understandings, oral or written, as to the subject matter hereof, and cannot be amended or changed except in writing, signed by the parties. 12.10 Headings. The headings of the Sections of this Agreement, where employed, are for the convenience of reference only and do not form a part hereof and in no way modify, interpret or construe the meanings of the parties. 12.11 Severability. To the extent that any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted herefrom and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. 12.12 Public Disclosure. From and after the date hereof through the Closing Date, SBSG shall not issue a press release or any other public announcement with respect to the transactions contemplated hereby without the prior consent of Telesource, which consent shall not be unreasonably withheld or delayed. It is understood by Telesource that SBSG is required under the Exchange Act to make prompt disclosure of any material transaction. THE PARTIES TO THIS AGREEMENT HAVE READ THIS AGREEMENT, HAVE HAD THE OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOICE, AND UNDERSTAND EACH OF THE PROVISIONS OF THIS AGREEMENT. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. TELESOURCE: Telesource International, Incorporated By: /s/ Nidal Z. Zayed -------------------------------------------- Nidal Z. Zayed Executive Vice President Attest: _/s/ Bud Curley___________________ SIXTH BUSINESS: Sixth Business Service Group, Incorporated By: /s/ Mike Williams -------------------------------------------- Mike Williams President , Treasurer and Director Attest: _/s/ Mike Williams________________ EX-3.1 3 ARTICLES Exhibit 3.1 Articles ARTICLES OF INCORPORATION OF Sixth Business Service Group, Inc. ARTICLE I - NAME AND MAILING ADDRESS The name of this corporation is Sixth Business Service Group, Inc. and the mailing address of this corporation is 2503 W. Gardner Ct. Tampa Fl 33611. ARTICLE II - DURATION This corporation shall have perpetual existence. ARTICLE III - PURPOSE This corporation is organized to include the transaction of any or all lawful business for which corporations may be incorporated under Chapter 607, Florida Statutes (1975) as presently enacted and as it may be amended from time to time. ARTICLE IV - CAPITAL STOCK This corporation is authorized to issue 50,000,000 shares of no par value common stock, which shall be designated as "Common Shares" and Twenty Million shares of no par value preferred stock, which shall be designated as "Preferred Shares." The Preferred Shares may be issued in such series and with such rights, privileges, and preferences as determined solely by the Board of Directors. ARTICLE V - INITIAL REGISTERED OFFICE AND AGENT The street address of the initial registered office of this corporation is 2503 W. Gardner Ct. Tampa Fl 33611, and the name of the initial registered agent of this corporation at that address is Michael T. Williams. ARTICLE VI - INITIAL BOARD OF DIRECTORS This corporation shall have One director(s) initially. The number of directors may be either increased or decreased from time to time by the Bylaws, but shall never be less than one (1). The name(s) and address(es) of the initial director(s) of this corporation are: NAME ADDRESS Michael T. Williams 2503 W. Gardner Ct. Tampa Fl 33611 ARTICLE VII - INCORPORATOR(S) The name and address of the person(s) signing these Articles of Incorporation is (are): NAME ADDRESS Michael T. Williams 2503 W. Gardner Ct. Tampa Fl 33611 ARTICLE VIII - INDEMNIFICATION The corporation shall indemnify any officer or director, or any former officer or director, to the full extent permitted by law. ARTICLE IX - AMENDMENT This corporation reserves the right to amend or repeal any provisions contained in these Articles of Incorporation, or any amendment thereto, and any right conferred upon the shareholders is subject to this reservation. ARTICLE X - AFFILIATED TRANSACTIONS AND CONTROL SHARE ACQUISITIONS The Corporation expressly elects not to be governed by Sections 607.0901 and 607.0902 of the Florida Business Corporations Act, relating to affiliated transactions and control share acquisitions, respectively. IN WITNESS WHEREOF, the undersigned incorporator(s) has (have) executed these Articles of Incorporation this March 11, 1999. ------------------------------- Michael T. Williams CERTIFICATE DESIGNATING REGISTERED AGENT AND STREET ADDRESS FOR SERVICE OF PROCESS WITHIN FLORIDA Pursuant to Florida Statutes Section 48.091, Sixth Business Service Group, desiring to organize under the laws of the State of Florida, hereby designates Michael T. Williams, located at 2503 W. Gardner Ct. Tampa Fl 33611 as its registered agent to accept service of process within the State of Florida. ACCEPTANCE OF DESIGNATION The undersigned hereby accepts the above designation as registered agent to accept service of process for the above-named corporation, at the place designated above, and agrees to comply with the provisions of Florida Statutes Section 48.091(2) relative to maintaining an office for the service of process. ------------------------------- Michael T. Williams EX-3.2 4 BY-LAWS EXHIBIT 3.2 BY-LAWS BYLAWS OF Sixth Business Service Group, Inc. ARTICLE I - MEETINGS OF SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of the shareholders of this corporation shall be held at the time and place designated by the Board of Directors of the corporation. The annual meeting of shareholders for any year shall be held no later than thirteen (13) months after the last preceding annual meeting of shareholders. Business transacted at the annual meeting shall include the election of directors of the corporation. Section 2. Special Meetings. Special meetings of the shareholders shall be held when directed by the Board of Directors, or when requested in writing by the holders of not less than ten percent (10%) of all the shares entitled to vote at the meeting. A meeting requested by shareholders shall be called for a date not less than ten (10) or more than sixty (60) days after the request is made, unless the shareholders requesting the meeting designate a later date. The call for the meeting shall be issued by the Secretary, unless the President, Board of Directors, or shareholders requesting the meeting designate another person to do so. Section 3. Place. Meetings of shareholders may be held within or without the State of Florida. Section 4. Notice. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the meeting, either personally or by first class mail, by or at the direction of the President, the Secretary, or the officer or persons calling the meeting to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. If, however, after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in this section to each shareholder of record on the new record date entitled to vote at such meeting. Section 6. Closing of Transfer Books and Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholder of any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any determination of shareholders, such date in any case to be not more than sixty (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. Section 7. Voting Record. The officers or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number and class and series, if any, of shares held by each. The list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation, at the principal place of business of the corporation or at the office of the transfer agent or register of the corporation and any shareholder shall be entitled to inspect the list at any time during usual business hours. The list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder at any time during the meeting. If the requirements of this section have not been substantially complied with, the meeting on demand of any shareholder in person or by proxy, shall be adjourned until the requirements are complied with. If no such demand is made, failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. Section 8. Shareholder Quorum and Voting. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. When a specified item of business is required to be voted on by a class or series a majority of the shares of such class or series shall constitute a quorum for the transaction of such item of business by that class or series. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders unless otherwise provided by law. After a quorum has been established at a shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shareholders entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. Section 9. Voting of Shares. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Treasury shares, shares of stock of this corporation owned by another corporation the majority of the voting stock of which is owned or controlled by this corporation, and shares of stock of this corporation held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. A shareholder may vote either in person or by proxy executed in writing by the shareholder or his duly authorized attorney-in-fact. At each election for directors, every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected at that time and for whose election he has a right to vote. Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent, or proxy designated by the bylaws of the corporate shareholder; or, in the absence of any applicable bylaw, by such person as the Board of Directors of the corporate shareholder may designate. Proof of such designation may be made by presentation of a certified coy of the bylaws or other instrument of the corporate shareholder. In the absence of any such designation, or in case of conflicting designation by the corporate shareholder, the chairman of the board, president, any vice president, secretary and treasurer of the corporate shareholder shall be presumed to possess, in that order, authority to vote such shares. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing gin the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee or his nominee shall be entitled to vote the shares so transferred. On and after the date on which written notice of redemption of redeemable shares has been mailed to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the redemption price to the holders thereof upon surrender of certificates therefor, such shares shall not be entitled to vote on any matter and shall not be deemed to be outstanding shares. Section 10. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting or a shareholders' duly authorized attorney-in-fact may authorize another person or persons to act for him by proxy. Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by the corporate officer responsible for maintaining the list of shareholders. If a proxy for the same shares confers authority upon two (2) or more persons and does not otherwise provide, a majority of them present at the meeting, or if only one (1) is present then that one, may exercise all the powers conferred by the proxy; but if the proxy holders present at the meeting are equally divided as to the right and manner of voting in any particular case, the voting of such shares shall be prorated. If a proxy expressly provides, any proxy holder may appoint in writing a substitute to act in his place. Section 11. Voting Trusts. Any number of shareholders of this corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, as provided by law. Where the counterpart of a voting trust agreement and the copy of the record of the holders of voting trust certificates has been deposited with the corporation as provided by law, such documents shall be subject to the same right of examination by a shareholder of the corporation, in person or by agent or attorney, as are the books and records of the corporation, and such counterpart and such copy of such record shall be subject to examination by any holder or record of voting trust certificates either in person or by agent or attorney, at any reasonable time for any proper purpose. Section 12. Shareholders' Agreements. Two (2) or more shareholders, of this corporation may enter an agreement providing for the exercise of voting rights in the manner provided in the agreement or relating to any phase of the affairs of the corporation as provided by law. Nothing therein shall impair the right of this corporation to treat the shareholders of record as entitled to vote the shares standing in their names. Section 13. Action by Shareholders Without a Meeting. Any action required by law, these bylaws, or the articles of incorporation of this corporation to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If any class of shares is entitled to vote thereon as a class, such written consent shall be required of the holders of a majority of the shares of each class of shares entitled to vote as a class thereon and of the total shares entitled to vote thereon. Within ten (10) days after obtaining such authorization by written consent, notice shall be given to those shareholders who have not consented in writing. The notice shall fairly summarize the material features of the authorized action and, if the action be a merger, consolidated or sale or exchange of assets for which dissenters rights are provided under this act, the notice shall contain a clear statement of the right of shareholders dissenting therefrom to be paid the fair value of their shares upon compliance with further provisions of this act regarding the rights of dissenting shareholders. ARTICLE II - DIRECTORS Section 1. Function. All corporate powers shall be exercised by or under the authority of, and business and affairs of the corporation shall be managed under the direction of, the Board of Directors. Section 2. Qualification. Directors need not be residents of this state or shareholders of this corporation. Section 3. Compensation. The Board of Directors shall have authority to fix the compensation of directors. Section 4. Duties of Directors. A director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. In performing his duties, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by: (a) one (1) or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented, (b) counsel, public accountants or other persons as to matters which the director reasonably believes to be within such person's professional or expert competence, or (c) a committee of the board upon which he does not serve, duly designated in accordance with a provision of the articles of incorporation or the bylaws, as to matters within its designated authority, which committee the director reasonable believes to merit confidence. A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause such reliance described above to be unwarranted. A person who performs his duties in compliance with this section shall have no liability by reason of being or having been a director of the corporation. Section 5. Presumption of Assent. A director of the corporation who is present at a meeting of its Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless he votes against such action or abstains from voting in respect thereto because of an asserted conflict of interest. Section 6. Number. The corporation shall have at least one (1) director. The minimum number of directors may be increased or decreased from time to time by amendment to these bylaws, but no decrease shall have the effect of shortening the terms of any incumbent director and no amendment shall decrease the number of directors below one (1), unless the stockholders have voted to operate the corporation. Section 7. Election and Term. Each person named in the articles of incorporation as a member of the initial board of directors shall hold office until the first annual meeting of shareholders, and until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death. At the first annual meeting of shareholders and at each annual meeting thereafter, the shareholders shall elect directors to hold office until the next succeeding annual meeting. Each director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death. Section 8. Vacancies. Any vacancy occurring in the Board of Directors, including any vacancy created by reason of an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall hold office only until the next election of directors by the shareholders. Section 9. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Section 10. Quorum and Voting. A majority of the number of directors fixed by these bylaws shall constitute a quorum for the transaction of business. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 11. Director Conflicts of Interest. No contract or other transaction between this corporation and one (1) or more of its directors or any other corporation, firm, association or entity in which one (1) or more of the directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose, if: (a) The fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; or (b) The fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (c) The contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the board, a committee or shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction. Section 12. Executive and Other Committees. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one (1) or more other committees each of which, to the extent provided in such resolution shall have and may exercise all the authority of the Board of Directors, except that no committee shall have the authority to: (a) approve or recommend to shareholders actions or proposals required by law to be approved by shareholders, (b) designate candidates for the office of director, for purposes of proxy solicitation or otherwise, (c) fill vacancies on the Board of Directors or any committee thereof, (d) amend the bylaws, (e) authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors, or (f) authorize or approve the issuance or sale of, or any contract to issue or sell, shares or designate the terms of a series of a class of shares, except that the Board of Directors, having acted regarding general authorization for the issuance or sale of shares, or any contract therefor, and, in the case of a series, the designation thereof, may, pursuant to a general formula or method specified by the Board of Directors, by resolution or by adoption of a stock option or other plan, authorize a committee to fix the terms of any contract for the sale of the shares and to fix the terms upon which such shares may be issued or sold, including, without limitation, the price, the rate or manner of payment of dividends, provisions for redemption, sinking fund, conversion, voting or preferential rights, and provisions for other features of a class of shares, or a series of a class of shares, with full power in such committee to adopt any final resolution setting forth all the terms thereof and to authorize the statement of the terms of a series for filing with the Department of State. The Board of Directors, by resolution adopted in accordance with this section, may designate one (1) or more directors as alternate members of any such committee, who may act in the place and stead of any member or members at any meeting of such committee. Section 13. Place of Meetings. Regular and special meetings by the Board of Directors may be held within or without the State of Florida. Section 14. Time, Notice and Call of Meetings. Regular meetings by the Board of Directors shall be held without notice. Written notice of the time and place of special meetings of the Board of Directors shall be given to each director by either personal delivery, telegram or cablegram at least two (2) days before the meeting or by notice mailed to the director at least five (5) days before the meeting. Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors. Meetings of the Board of Directors may be called by the chairman of the board, by the president of the corporation, or by any two (2) directors. Members of the Board of Directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 15. Action Without a Meeting. Any action required to be taken at a meeting of the directors of a corporation, or any action which may be taken at a meeting of the directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so to be taken, signed by all of the directors, or all the members of the committee, as the case may be, is filed in the minutes of the proceedings of the board or of the committee. Such consent shall have the same effect as a unanimous vote. ARTICLE III - OFFICERS Section 1. Officers. The officers of this corporation shall consist of a president, a secretary and a treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors from time to time. Any two (2) or more offices may be held by the same person. The failure to elect a president, secretary or treasurer shall not affect the existence of this corporation. Section 2. Duties. The officers of this corporation shall have the following duties: The President shall be the chief executive officer of the corporation, shall have general and active management of the business and affairs of the corporation subject to the directions of the Board of Directors, and shall preside at all meetings of the stockholders and Board of Directors. The Secretary shall have custody of, and maintain, all of the corporate records except the financial records; shall record the minutes of all meetings of the stockholders and Board of Directors, send all notice of meetings out, and perform such other duties as may be prescribed by the Board of Directors or the President. The Treasurer shall have custody of all corporate funds and financial records, shall keep full and accurate accounts of receipts and disbursements and render accounts thereof at the annual meetings of stockholders and whenever else required by the Board of Directors or the President, and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 3. Removal of Officers. Any officer or agent elected or appointed by the Board of Directors may be removed by the board whenever in its judgment the best interest of the corporation will be served thereby. Any officer or agent elected by the shareholders may be removed only by vote of the shareholders, unless the shareholders shall have authorized the directors to remove such officer or agent. Any vacancy, however occurring, in any office may be filled by the Board of Directors, unless the bylaws shall have expressly reserved such power to the shareholders. Removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed; however, election or appointment of an officer or agent shall not of itself create contract rights. ARTICLE IV - STOCK CERTIFICATES Section 1. Issuance. Every holder of shares in this corporation shall be entitled to have a certificate, representing all shares to which he is entitled. No certificate shall be issued for any share until such share is fully paid. Section 2. Form. Certificates representing shares in this corporation shall be signed by the President or Vice-President and the Secretary or an Assistant Secretary and may be sealed with the seal of this corporation or a facsimile thereof. The signatures of the President or Vice-President and the Secretary or Assistant Secretary may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the corporation itself or an employee of the corporation. In case any officer who signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. Every certificate representing shares which are restricted as to the sale, disposition or other transfer of such shares shall state that such shares are restricted as to transfer and shall set forth or fairly summarize upon the certificate, or shall state that the corporation will furnish to any shareholder upon request and without charge a full statement of, such restrictions. Each certificate representing shares shall state upon the fact thereof: the name of the corporation; that the corporation is organized under the laws of this state; the name of the person or persons to whom issued; the number and class of shares, and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate, or a statement that the shares are without par value. Section 3. Transfer of Stock. The corporation shall register a stock certificate presented to it for transfer if the certificate is properly endorsed by the holder or record of by his duly authorized attorney, and the signature of such person has been guaranteed by a commercial bank or trust company or by a member of the New York or American Stock Exchange. Section 4. Lost, Stolen, or Destroyed Certificates. The corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of record of the certificate (a) makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; (b) requests the issue of a new certificate before the corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) gives bond in such form as the corporation may direct, to indemnify the corporation, the transfer agent, and registrar against any claim that may be made on account of the alleged loss, destruction, or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the corporation. ARTICLE V - BOOKS AND RECORDS Section 1. Books and Records. This corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders, board of directors and committees of directors. This corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a records of its shareholders, giving the names and addresses of all shareholders, and the number, class and series, if any, of the shares held by each. Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time. Section 2. Shareholders' Inspection Rights. Any person who shall have been a holder of record of shares or of voting trust certificates therefor at least six (6) months immediately preceding his demand or shall be the holder of record of, or the holder of record of voting trust certificates for, at least five percent (5%) of the outstanding shares of any class or series of the corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person or by agent or attorney, at any reasonable time or times, for any proper purpose its relevant books and records of accounts, minutes and records of shareholders and to make extracts therefrom. Section 3. Financial Information. Not later than four (4) months after the close of each fiscal year, this corporation shall prepare a balance sheet showing in reasonable detail the financial condition of the corporation as of the close of its fiscal year, and a profit and loss statement showing the results of the operations of the corporation during its fiscal year. Upon the written request of any shareholder or holder of voting trust certificates for shares of the corporation, the corporation shall mail to such shareholder or holder of voting trust certificates a copy of the most recent such balance sheet and profit and loss statement. The balance sheets and profit and loss statements shall be filed in the registered office of the corporation in this state, shall be kept for at least five (5) years, and shall be subject to inspection during business hours by any shareholder or holder of voting trust certificates, in person or by agent. ARTICLE VI - DIVIDENDS The Board of Directors of this corporation may, from time to time, declare and the corporation may pay dividends on its shares in cash, property or its own shares, except when the corporation is insolvent or when the payment thereof would render the corporation insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in the articles of incorporation, subject to the following provisions: (a) Dividends in cash or property may be declared and paid, except as otherwise provided in this section, only out of the unreserved and unrestricted earned surplus of the corporation or out of capital surplus, howsoever arising but each dividend paid out of capital surplus, and the amount per share paid from such surplus shall be disclosed to the shareholders receiving the same concurrently with the distribution. (b) Dividends may be declared and paid in the corporation's own treasury shares. (c) Dividends may be declared and paid in the corporation's own authorized but unissued shares out of any unreserved and unrestricted surplus of the corporation upon the following conditions: (1) If a dividend is payable in shares having a par value, such shares shall be issued at not less than the par value thereof and there shall be transferred to stated capital at the time such dividend is paid an amount of surplus equal to the aggregate par value of the shares to be issued as a dividend. (2) If a dividend is payable in shares without a par value, such shares shall be issued at such stated value as shall be fixed by the Board of Directors by resolution adopted at the time such dividend is declared, and there shall be transferred to stated capital at the time such dividend is paid an amount of surplus equal to the aggregate stated value so fixed in respect of such shares; and the amount per share so transferred to stated capital shall be disclosed to the shareholders receiving such dividend concurrently with the payment thereof. (d) No dividend payable in shares of any class shall be paid to the holders of shares of any other class unless the articles of incorporation so provide or such payment is authorized by the affirmative vote or the written consent of the holders of at least a majority of the outstanding shares of the class in which the payment is to be made. (e) A split-up or division of the issued shares of any class into a greater number of shares of the same class without increasing the stated capital of the corporation shall not be construed to be a share dividend within the meaning of this section. ARTICLE VII - CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation as it appears on page 1 of these bylaws. ARTICLE VIII - AMENDMENTS These bylaws may be repealed or amended, and new bylaws may be adopted, by the Board of Directors. End of bylaws adopted by the Board of Directors. EX-5.01 5 OPINION OF COUNSEL Exhibit 5.01 Opinion of Counsel WILLIAMS LAW GROUP, P.A. 2503 West Gardner Court Tampa, FL 33611 December 7, 1999 Sixth Business Service Group, Inc. Via Telefax Re: Registration Statement on Form S-4 Gentlemen: I have acted as your counsel in the preparation on a Registration Statement on Form S-4 (the "Registration Statement") filed by you with the Securities and Exchange Commission covering shares of Common Stock of Sixth Business Service Group, Inc. (the "Stock"). In so acting, I have examined and relied upon such records, documents and other instruments as in our judgment are necessary or appropriate in order to express the opinion hereinafter set forth and have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us certified or photostatic copies. Based on the foregoing, I am of the opinion that: The Stock, when issued and delivered in the manner and/or the terms described in the Registration Statement (after it is declared effective), will duly and validly issued, fully paid and nonassessable; I hereby consent to the reference to my name in the Registration Statement under the caption "Legal Matters" and to the use of this opinion as an exhibit to the Registration Statement. In giving this consent, I do not hereby admit that I come within the category of a person whose consent is required under Section7 of the Act, or the general rules and regulations thereunder. Very truly yours, Michael T. Williams EX-10.01 6 AGREEMENT FOR DESIGN, SUPPLY OF PLANT 2.a 02 CUC Phase I CUC-PG-97-C057 PRIVATE AGREEMENT FOR DESIGN, SUPPLY OF PLANT AND EQUIPMENT, CONSTRUCTION, MAINTENANCE AND OPERATION, AND TRANSFER OF OWNERSHIP This Agreement dated as of June 10, 1997 (`Agreement') is made and entered into between: The Commonwealth Utilities Corporation, P.O. Box 1220 Lower Base, Saipan, MP 96950, its successors and assigns (`CUC"), and Telesource CNMI, Inc. its successors and assigns ("Contractor"). WITNESSETH: Whereas, CUC desires to have built a fully operational 10 Megawatt expandable (`MW") Power Plant (the "Plant") on the Island of Tinian in the Commonwealth of the Northern Mariana Islands (`CNMI") and to ultimately own and operate the Plant; Whereas, CUC represents that it has the authority and power to enter into this Agreement and to fully and faithfully comply with its terms and conditions,. but not limited to, those governing CUC's payment obligations, and that CUC and its representatives are aware of no reason why CUC is, may or will be prevented from fulfilling all terms of this Agreement Whereas, Contractor represents that it has the authority and power to enter into this Agreement and to fully and faithfully comply with its terms and conditions and that Contractor and its authorized representatives are aware of no reason why Contractor is, may or will be prevented from fulfilling all terms of this Agreement. Whereas, Contractor desires and is willing, in accordance with the terms of this Agreement, to: design and construct the Plant; procure necessary equipment and materials; arrange all shipping to the CNMI and then to the Site; initially own and maintain and operate the Plant; prepare all operating manuals for the Plant; provide for training and start-up of the Plant; and transfer ownership of the Plant to CUC (all such work and activities shall hereinafter be referred to as the "Project"); and Whereas, CUC and Contractor both desire to proceed with the Project on the basis of trust, good faith and fair dealing. Now therefore, in consideration of the mutual promises and agreements hereinafter set forth, the parties agree as follows: 1) INTERPRETATION. 1.1) In this Agreement, expressions defined in Schedule I shall bear the respective meanings set out therein; 1.2) In the event of any conflict, inconsistency or variation between this document and any of the Exhibits, Schedules or drawings attached hereto, the teams and provisions of this document shall prevail; 1.3) headings and paragraph numbers are for convenience only and shall be ignored in construing this Agreement; 146 1.4) the singular includes the plural and vice versa; 147 1.5) references to Clauses, Recitals and schedules are, unless the context otherwise requires, references to Causes of, and Schedules and Recitals to, this Agreement; and 1.6) references to any agreement, enactment, ordinance or regulation include any amendment thereof or any agreement, enactment, ordinance or regulation replacing or superseding the same in whole or in part. 2) SCOPE OF WORK 2.1) Scope of Work. "Scope of Work" means the following obligations of Contractor in complete accordance with this Agreement, including the Description of Plant Equipment, Capabilities and Related Services set forth in Exhibit A. The scope of the Project and the Work to be performed under this Agreement shall be in accordance with this Agreement, including Exhibits A through D hereof. 2.2) Contractor's Services Prior to Substantial Completion. 2.2.1) Site Preparation. (i) Basic Site Preparation. Contractor shall be responsible for all site preparation of the Site. Site preparation shall include, preparation of the Site for construction of the Plant (including setting out the Work and protecting and preserving all material reference points, aids and other data used in laying out the Work in accordance with this Agreement) and all offsite construction and the provision of all excavation and backfill, temporary and permanent drainage and drainage structures (implementing any requirements necessitated by historic flood conditions and patterns in the region and at the Site), removal of debris, all necessary investigation, analysis, testing and determination concerning the condition, contents or integrity of the foundation and substructure of any part thereof, and all reasonable investigation, analysis, testing and determination concerning the condition, contents or integrity of the subsurface, underground and/or soils conditions of the Site. Except for unknown or Pre-Existing Hazardous Materials, Contractor, in performance of site preparation. shall be responsible for and assumes the cost of any construction, engineering or structural conditions, including, without limitation, those caused by the presence of organic materials other than Pre-Existing Hazardous Materials. (ii) Hazardous and Toxic Conditions. To the extent Contractor encounters subsurface Pre-Existing Hazardous Materials during construction, Contractor shall promptly provide written notice to CUC of such condition(s) and shall endeavor to minimize the consequences to the Project schedule of dealing with such condition(s). Consistent with considerations of safety and prudence, Contractor shall take appropriate action to mitigate further contamination caused by such hazardous or toxic substances. Contractor shall not be responsible for or have any obligations pursuant to this Contract or otherwise with respect to the removal, handling, transportation, or disposal of any Pre-Existing Hazardous Materials or other pre-existing hazardous, unsafe, or unhealthful or environmentally unsound condition or activity or materials on e Site. Contractor shall be responsible for the removal, handling, transportation, or disposal of any Hazardous Material or other hazardous, unsafe, or unhealthful or environmentally unsound condition or activity or materials which causes to be present or occur on the Site. (iii) Oil Spills. Contractor shall assume full control of and responsibility for the safe storage and handling of all fuel oil transported to or located at the Site. Contractor shall be strictly liable ad shall defend, indemnify and hold harmless CUC against any losses, liabilities, damages or claims arising out of any spill, seepage, leakage or discharge of such fuel oil, no matter how arising, from the Day Contractor assumes control of the Site until Final Plant Turnover. Page2 148 2.2.2) Construction and Installation. Contractor shall provide and furnish to CUC the following services in accordance with all terms, conditions, drawings, specifications and standards set forth in this Agreement. (i) Within forty-five (45) Days after the execution of this Agreement, Contractor shall prepare and deliver to CUC, for CUCs reference, a draft comprehensive Project implementation plan, which shall include a Schedule of Work, an organizational chart and a document distribution chart; (ii) Contractor shall prepare and update all progress schedules and include such in written progress reports to CUC each month; (iii) Contractor shall provide all design and engineering for the Project and the Site, including the preparation of all drawings; (iv) Contractor shall furnish all labor, supervision and all tools necessary to perform the Work and construct the Project, and shall construct the Project and direct and support start-up and operation of the Plant as delineated in this Agreement; (v) Contractor shall procure and provide all Plant Equipment (together with all services in relation thereto), transport all Plant Equipment and materials to the Site, including the cost of ocean freight and the fulfillment of all applicable import and customs requirements, procedures and formalities; (vi) With the cooperation of CUC, Contractor shall use reasonably prudent construction practices to (a) perform the Work, (b)coordinate all Work with CUC, (c) coordinate all Work performed by its Subcontractors, (d) keep to Work on schedule, (e) timely report the status of the progress of the Work to CUC, (f) pay its Subcontractors in a timely manner, and (g) cause all of its Subcontractors to comply with all applicable terms of this Agreement; (vii) Contractor shall provide Plant inspection, Plant start-up, Plant testing, and operations training; (viii) In accordance with Section 12 hereof, Contractor shall correct all nonconforming Work and any deficiencies in the Plant. During construction, inadequate, nonconforming or damaged equipment and materials shall be replaced or repaired by Contractor after full consultation with CUC; (ix) Subject to the provisions of Section 5, Contractor shall perform all Change Orders and all other necessary acts to fulfill Contractor's obligations under this Agreement; and (x) Contractor shall provide all necessary housing facilities and construction utilities, including power and water, necessary to fulfill Contractor's obligations to provide the Plant as set forth in this Agreement. CUC shall assist Contractor fulfilling in fulfilling this obligation. 2.2.3) Drawings. (i) Design Documents. Upon CUC's request, Contractor shall furnish to CUC copies of: all drawings prepared (including revisions, addenda and modifications); all Subcontractor and vendor/supplier furnished drawings; Plant operating manuals; maintenance manuals; performance data for all Plant engineered equipment; civil, electrical, mechanical. and Plant structural and construction drawings; Plant piping and instrumentation diagrams ("PID's"); all general arrangement drawings; Plant electrical one-line diagrams; Plant relay and metering drawings and all other drawings and documents prepared by Contractor or Subcontractors relating to the Project; complete documentation of Plant control systems logic and programs including distributed controls; and Plant design calculations, excluding proprietary information not reasonably required for CUC's use of the drawings as intended. Page 3 149 (ii) Operations and Maintenance Manuals; Other Documentation/Information. Contractor shall provide to CUC: Plant operating and maintenance manuals prior to Plant operations training and all other documentation and information reasonably necessary for obtaining all required Permits and for compliance with the applicable standards. All Plant operating and maintenance manuals shall be in Contractor's standard form and style; content and format are to be in accordance with Good Utility Practice. (iii) As-Builts. Contractor shall maintain a set of drawings and the other manuals, drawings, diagrams and other documents at the Site, and such drawings shall be maintained and updated as appropriate to reflect the "as built" conditions of the Work. 2.2.4) Permits. (i) Required Permits. Contractor shall make every reasonable effort to obtain and maintain, at its sole cost and expense, (a) all Permits necessary for the conduct of Contractor's business and for its operations (insofar as such business and/or operations relate to this Project) on Saipan and Tinian, (b) all Permits required for construction, building, transportation. water and power (during construction and building) of and for the Project, (c) all Permits necessary for temporary utility hookup and provision for the entire Project, and (d) all Permits required for the shipment, transport and entry (including customs clearance) of machinery, equipment and materials in the CNMI and to the Site, (e) all Permits, including additional future Permits as may required pertaining to the operation and maintenance of the Plant, excluding only those Permits that CUC may be required to obtain or assist in obtaining pursuant to this Section 2.2.4 or Section 10. (ii)Application by Contractor. All applications for the issuance and renewal of Permits required to be obtained by Contractor pursuant to this Agreement from any governmental authority, agency or court (federal, national, provincial, municipal, local or other) of the CNMI, Saipan or Tinian shall be made by the Contractor in the form, if any, prescribed by applicable laws and regulations. (iii) Support of CUC. CUC shall in good faith: assist Contractor in obtaining any of the Permits that Contractor is required to obtain and maintain as specified in Paragraph (i) above; provide Contractor with any information which is required in connection with the application for such Permits; and directly assist Contractor throughout the processing of Contractor's application for Permits. In the case of applications submitted to CUC, CUC shall ensure their approval. 2.2.5) Plant Equipment and Materials. Contractor shall be responsible for procurement of all Plant Equipment and all parts, components and materials necessary for construction and operation of the Plant. When procuring Plant Equipment, Contractor shall also be responsible for providing to CUC a list of spare parts for all Plant Equipment incorporated into the Plant (which list shall identify the supplier of such spare parts). 2.2.6) Subcontractors, Suppliers and Vendors. Unless otherwise specifically provided in this Agreement, Contractor shall be solely responsible for coordinating and handling all communications and negotiations with and the supervision, administration and control of its own Subcontractors, suppliers and vendors. During construction, Contractor shall be fully responsible for all Plant Equipment, materials, labor or other matters related to the Work and any part of the Work accomplished by its own Subcontractors, suppliers and vendors; provided, however, that in no event shall Contractor be obligated to assist in the administration of such obligations or perform under this Agreement beyond the date that is ten (10) years after the date of Substantial Completion of the Project. 2.2.7) Security. From the date that Authorization to Proceed is issued to Contractor and until the date of Substantial Completion, Contractor shall provide all security at the Site for all Work and for Work performed in the vicinity of the Site, including but not limited to, security for all personnel, Page 4 150 Plant Equipment materials and other items thereon, the Plant, and for all equipment and personnel being transported by Contractor to and from the Site. 2.2.8) Contractor's Safety Program. During the construction process, Contractor shall initiate, maintain, and supervise all reasonable safety precautions and programs in connection with the performance of this Agreement. Contractor shall take all reasonable precautions for the safety of and shall provide reasonable protection against damage, injury or loss to: (i) Contractor's employees performing the Work and all persons who may reasonably be anticipated to be affected thereby (ii) the Work and Plant Equipment to be incorporated therein, whether in storage off or on the Site, under the care custody or control of Contractor and/or its Subcontractors; (iii) all other property on the Site or adjacent thereto, such as trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, or replacement in the course of construction and (iv) public road and rail systems used in performing the Work. 2.2.9) Waste Materials and Debris. Subject to the provisions of Section 2.2.1(ii) relating to hazardous materials, Contractor shall keep the Site and surrounding area reasonably free from accumulation of waste materials or rubbish caused by the Work and, at completion of the Work, Contractor shall remove from and about the Site all waste materials, debris, rubble, rubbish, and remove from and about the Site Contractor's tools, construction equipment, machinery and surplus materials. If Contractor fails to clean up as so provided herein, CUC may do so and the cost thereof shall be charged to Contractor. 2.2.10) Operator Training Program. At any time during this Agreement upon (90) Days' written notice provided by CUC, Contractor shall provide one (1) session of up to one hundred ten (110) hours of operations training for up to six (6) CUC designated personnel. The training shall be conducted by qualified instructors and Contractor representatives and shall be conducted on the Site in a classroom lecture format. Training will be hands-on and address Plant Equipment manufacturers' operating instructions and instruction on the operation of the Plant. Contractor shall utilize schematic diagrams and illlustrations to instruct the trainees how to start-up, operate, troubleshoot and shutdown the Plant and its various Systems. In addition, training programs offered by Contractor, its Subcontractors and equipment vendors on specific major Plant equipment is included and may be conducted at Contractor's, Subcontractor's or vendor's facility. 2.2.11) Commissioning and Testing. Contractor shall provide CUC with advance notice of at least ten (10) Days before Plant Completion Testing and shall allow CUC to observe such testing. Contractor shall perform all tests as are reasonably required to ensure the adequate completion and commissioning of and the safe and orderly start-up of the Plant. 2.3) CUC Jobsite Access and Inspection. 2.3.1) Quality Control and CUC's Right to Inspect the Work. CUC and Contractor agree to coordinate their efforts and work to achieve the successful implementation of all Plant facilities. Contractor shall notify CUC of the results of any quality control and quality assurance related to the construction of the Plant. CUC shall be notified and allowed to observe testing that Contractor may conduct at all stages of Plant construction. Contractor, upon CUC's request and authorization, shall allow CUC to inspect and review all Work (including, without limitation. requisite drawings, plans and specifications) in connection with the design and construction of the Plant; provided that such inspection and review do not unreasonably interfere with the normal performance and progress of the Work. 2.3.2) Office Facilities. Contractor shall provide a temporary office area on the Site with furnishings (and air-conditioning and heating equipment as appropriate) until thirty (30) Days after Substantial Completion of the associated permanent office facilities described in Exhibit A. Page 5 151 2.4) Compliance with Plans and Specifications. Contractor shall design, engineer and construct the Plant in accordance with this Agreement so that the Plant satisfies in all material respects the applicable requirements and standards of care, and is capable of accepting and operating on the fuel (including without limitation, the components comprising the fuel and the specifications of range of quality, pressure, and measurement) required for Plant operation pursuant to Exhibit A. 2.5) Taxes and Duties. Contractor and CUC shall cooperate with and assist each other in order to minimize liability for any taxes, duties or similar charges imposed. 2.6) Site inspection. Contractor, by executing and entering into this Agreement with CUC, represents that it has visited and inspected the proposed Site and has familiarized itself with the general and local conditions and circumstances under which the Work is to be performed, including, but not limited to, the following: water supply and quality conditions affecting transportation, harbor conditions, access, disposal, handling and storage of materials at the; availability of labor (skilled and unskilled); availability of housing; climatic conditions and seasons; and all equipment and facilities needed for performance of the Work. CUC has provided the estimated location of Interconnection Points. The final Interconnection Points shall be located in the vicinity of the Site. 3.) CONTRACT TIME. 3.1) Commencement of the Work. The Work shall commence on or about the date CUC satisfies the conditions to Contractor's obligations as set forth in Section 9 and so notifies Contractor in writing, and shall proceed in general accordance with the Schedule of Work prepared by Contractor as such schedule may be amended from time to time. 3.2) Substantial Completion. The date of Substantial Completion of the Work shall be no later than Fourteen (14) months after the Commencement of the Work as set forth in Section 3.1, subject to adjustment in accordance with the provisions of Sections 4 and 5 hereof 3.3) Final Plant Turnover. Final Plant Turnover shall be the date that Contractor turns over all title and interest in the Plant to CUC in accordance with Section 24.2 hereof. Final Plant Turnover shall occur on the date falling ten (10) years after the date of Substantial Completion of the Plant assuming that at such time Contractor has received all payments required pursuant to Section 24.2 hereof. 4) DELAYS IN THE WORK. 4.1) If causes beyond Contractor's control delay the progress of the Work, then Contractor shall be entitled to a Change Order in accordance with Section 5.1, which shall modify the date of Substantial Completion and assess additional charges due to such delay as appropriate. Such causes shall include but not be limited to: changes ordered in the Work; acts or omissions of CUC or separate contractors employed by CUC; actions by CUC to prevent Contractor from performing the Work pending dispute resolution; hazardous and toxic materials; differing site conditions, adverse weather conditions not reasonably anticipated, fire, unusual transportation delays, labor disputes, or unavoidable accidents or circumstances; and any causes that are beyond the control and without the fault of Contractor. Contractor shall be entitled to additional compensation and an extension of time for all events or actions that are in whole or in part caused by CUC. At minimum, Contractor shall be entitled to an extension of time and equitable adjustment in compensation for all delay events that are beyond its control 4.2) In the event delays to the Project are encountered for any reason, the parties hereto agree to undertake reasonable steps to mitigate the effect of such delays. Page 6 152 5) CHANGES IN THE WORK. 5.1) Change Orders. A Change Order is a written instrument, issued after execution of this Agreement, signed by CUC and Contractor stating their agreement upon a change and any adjustment in the Work, the price therefor and the date of Substantial Completion. Payment for a Change Order shall be made by CUC promptly upon CUC's receipt of an invoice unless otherwise agreed in writing. 5.2) No Obligation to Perform. Contractor shall not be obligated to perform changed Work until a Change Order has been executed by CISC and Contractor. 5.3) Unknown or Hazardous Conditions. If in the performance of the Work Contractor finds (i) Pre-Existing Hazardous Materials and/or (ii) latent, concealed or subsurface physical conditions which differ from the conditions Contractor could have reasonably anticipated, or are materially different from those normally encountered and generally recognized as inherent in the kind of work provided for in this Agreement, then CUC shall issue a change order to reflect increased costs attributable to the conditions encountered and shall extend the date of Substantial Completion. 6) CONTRACT PRICE AND PAYMENT TERMS. 6.1) Guaranteed Price and Fee For Associated Services. 6.1.1) Guaranteed Price. (i) CUC shall pay Contractor for the performance of the Work the total sum of Twenty-One Million Six Hundred Thousand Dollars ($21,600,000) ("Guaranteed Price") payable in one hundred and twenty (120) consecutive, equal monthly installments of One Hundred Eighty ($180,000), each represented by a separate promissory note in accordance with Section 6.1.2, and each payable on the last day of each month, commencing with the first month that follows the date of Substantial Completion. (ii) The Guaranteed Price shall be inclusive of Nine Million Nine Hundred Fifty-Nine Thousand Dollars ($9,959,000) for construction and installation costs, and Eleven Million Six Hundred Forty-One Thousand Dollars ($11,641,000) for financing costs and fees for associated services. provided by this Agreement (iii) Said Guaranteed Price for the Work shall be a fixed sum and not subject to any alteration except as provided in Section 6.1.3 (Prepayment). 6.1.2) Promissory Notes. (i) Execution of Promissory Notes. Concurrently with the execution of this Agreement, CUC shall execute and deliver to Contractor one hundred twenty (120) promissory notes substantially in the form of Exhibit "B' (the `Note"). Each Note shall be in the amount of One Hundred Eighty Thousand Dollars ($180,000) and shall be due and payable in accordance with the monthly payments scheduled in Section 6.1.1, supra. Each Note shall serve to further evidence CUC's corresponding obligation to tender monthly payments on the Guaranteed Price, but any failure by CUC to execute and deliver the Notes shall not affect CUC's obligations under this Section 6. (ii) Retirement of Promissory Notes. Upon receipt of the required payment in accordance with this Section 6.1, the Note evidencing such monthly obligation shall thereupon be retired and cancelled Page 7 153 (iii) Incorporation by Reference. The terms and conditions of the Notes are hereby incorporated by reference into this Agreement with the same force and effect as if fully set forth herein 6.1.3) Prepayment. Notwithstanding any other provision of this Agreement to the contrary, upon at least ninety (90) days notice prior to Substantial Completion or the applicable anniversary date CUC may without penalty discharge the entire outstanding balance of the Guaranteed Price by paying a discounted amount equal to the Adjusted Guaranteed Price in accordance with the attached Schedule II. Upon Contractor's receipt of the prepayment amount as required by this Section 6.1.3, all then outstanding Notes executed by CUC pursuant to Section 6.1.2 (i) shall be retired. 6.2) Operation, Production and Maintenance Fees. In addition to the Guaranteed Price, CUC shall pay Contractor the following fees: 6.2.1) Operations and Maintenance Fee. CUC shall pay an Operations and Maintenance Fee in the amount of Fifty Thousand Dollars ($50,000) per month for services rendered by Contractor in managing power production and operating the Plant from the date of Substantial Completion and for as long as the Operations and Maintenance portion of this Agreement is in effect in accordance with Section 16.1 hereof. Such Fees shall be due and payable to Contractor on the first day of the mouth following completion of the prior month's service 6.2.2) Production Fee. CUC shall pay a Production Fee of Two Cents ($0.02) per Plant produced kilowatt hour to cover the costs of lubricant oils consumables and spare parts from the date of Substantial Completion and for as long as the Operations and Maintenance portion of this Agreement is in effect in accordance with Section 16.1 hereof. CUC, at its own cost, shall be responsible for providing all fuel necessary for operating the facility at full capacity through the period of Final Plant Turnover. Such Production Fee shall be due upon CUC's receipt of Contractor's invoice therefore, but in no event in excess of twice per month. 6.2.4) GDPIPD Adjustment. The fees due under this Section 6.2 shall be fixed for the first two (2) years after Substantial Completion. Beginning on the third anniversary date of Substantial Completion and on each anniversary date thereafter, the Operations and Maintenance and Production Fees shall be adjusted at a rate equal to One percent (1%) over the previous year's Gross Domestic Product Implicit Price Deflector. 6.3) General Provisions as to Payments. CUC shall pay each installment of to Guaranteed Price not later than 3:00 P.M. (Local line) on the date when due, in immediately available U.S. Dollars, to Contractor at Contractor's CNMI address in Section 23 hereof. Whenever any installment of the Guaranteed Price (or any payment of an Operations and Maintenance Fee, Production Fee, late charge or other amount) is due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. 6.4) Late Charges. If CUC fails to pay any installment of the Guaranteed Price, or fails to pay any fee or other amount due with respect to this Agreement, any Note, the Security Agreement or the Escrow Agreement, within ten (10) Days after the date such payment was due, CUC shall pay to Contractor a late charge equal to five percent (5%) of the amount of such payment. Page 8 154 7) SECURITY. The obligation of CUC to pay the Guaranteed Price, applicable late charges, and all other debts, liabilities and obligations of CUC under this Agreement, the Notes, and all other agreements to which CUC is a party, shall be secured and supported, as provided in this Section 7, by: 7.1)Security Agreement. Concurrently with the execution of this Agreement, CUC shall duly execute and deliver to Contractor a Pledge and Security Agreement (with appropriate financing statements), in the form of Exhibit C (the "Security Agreement"), pursuant to which Contractor shall obtain a valid, first, prior and perfected Lien upon all personal property and fixtures of CUC which may constitute any part of the Site, the Plant and Plant Equipment, whether now owned or hereafter acquired, and all accounts, accounts receivable, and contract rights, in any way derived from or connected with any part of the Plant and Plant Equipment or the operation thereof, including all revenues from the production and sale of power and all proceeds and products of the foregoing. 7.2) EscrowAgreement. Concurrently with the execution of this Agreement, CUC shall duly execute and deliver to Contractor an Escrow, Pledge and Security Agreement (with appropriate financing statements) in the form of Exhibit D (the "Escrow Agreement"), pursuant to which CISC shall be obligated to establish and maintain an escrow account of not less than $360,000 at a bank satisfactory to CUC and Contractor as to which escrow account Contractor shall have a valid first, prior and perfected Lien. 7.3) Rights to Plant on the Occurrence of a CUC Event of Default Upon and during to continuance of a CUC Event of Default, and notwithstanding the obligation of Contractor to transfer title to the Plant and Plant Equipment pursuant to Section 24, Contractor may, in its sole and absolute discretion, sell, lease, assign, transfer or otherwise dispose of all or any part of the Plant and Plant Equipment in accordance with to provisions of Section 7.2 of the Security Agreement, free and clear of any claims, rights or Liens of CUC. In such event, the proceeds realized by Contractor from any such disposition shall be applied in accordance with the provision of Section 7.5 of the Security Agreement; and in connection therewith, Contractor shall be entitled to the benefit of the provisions of Sections 7.3,7.4,7.8,8.1 and 8.2 of the Security Agreement as if the Plant and Plant Equipment were Collateral thereunder. 7.4) Incorporation by Reference. The terms and conditions of the Notes, the Security Agreement, the Escrow Agreement and all related documents and instruments are hereby incorporated by reference into this Agreement with the same force and effect as if fully set forth herein. 8) CONDITIONS TO CUC'S OBLIGATIONS. CUC's obligation to commence and continue performance of its duties under this Agreement is subject to the execution and delivery to CUC or Contractor, as the case may be, of a legal and valid leasehold interest in the Site, provided however, that CUC shall put forth its best efforts to obtain or cause Contractor to be vested with such leasehold interest. In the event no leasehold is obtained within commercially reasonable time after the execution of this Agreement, this Agreement shall be of no force and effect. Page 9 155 9) CONDITIONS TO CONTRACTOR'S OBLIGATIONS. Contractor's obligation to commence and continue performance of its duties under this Agreement is subject to the satisfaction of the following conditions: (i) the due execution and delivery by CUC of the Notes, the Security Agreement, and the Escrow Agreement; (ii)the due execution and delivery by CUC or the Government, as the case may be, of such documentation as Contractor shall reasonably require providing Contractor with the right to occupy and utilize the Site for the construction, operation and maintenance of the Plant and Plant Equipment at least through and up to Final Payment Date and the transfer of title pursuant to Section 24.2 hereof; (iii) the receipt by Contractor, of a title insurance policy satisfactory to Contractor ensuring that Contractor is vested with good and marketable fee title to the Plant (subject to no Liens or exceptions to title except as agreed to by Contractor) and containing such affirmative insurance coverage and endorsement as Contractor may reasonably require; (iv) evidence satisfactory to Contractor and Contractor's counsel that Contractor holds a valid, first, prior and perfected Lien upon, and security interest in, all of the Collateral; and (v) such other documentation and satisfaction of such other conditions as Contractor shall reasonably require. 10) CUC'S RESPONSIBILITY;INFORMATION AND SERVICES PROVIDED BY CUC. 10.1) Information. CUC shall provide full information in a timely manner regarding requirements for the Project, including CUC's operations program and other relevant information. Contractor shall be entitled to rely on the completeness and accuracy of the following information and services which shall be provided by CUC to Contractor. 10.1.1) all necessary, available and requested information describing the physical characteristics of the Site, including surveys, Site evaluations, legal descriptions, existing conditions, subsurface and environmental studies, reports and Investigations in CUC's possession; 10.1.2) inspection and testing services during construction as required by Law or as mutually agreed to enable CUC to inspect or witness the Work in accordance with Section 11.1 of this Agreement. 10.2) On request, CUC will deliver to Contractor a sworn written assurance indicating that funds will be available to make payments to Contractor as provided by this Agreement and the Escrow Agreement. 10.3) CUC Responsibilities During Construction. 10.3.1) Subject to Section 2.2.1 of this Agreement regarding the disposal of Pre-Existing Hazardous Materials, CUC shall provide the Site "as is". 10.3.2) CUC shall allow access to the Site so as to allow Contractor to perform the Work. 10.3.3) CUC shall review the Schedule of Work and respond to its obligations in a timely manner. Page 10 156 10.3.4) If CUC becomes aware of an error, omission or failure to meet the requirements of the Agreement or any document or instrument executed in connection with this Agreement or the Project or any fault or defect in the Work, CUC shall give prompt written notice to Contractor. 10.3.5) CUC shall communicate with Contractor's Subcontractors, suppliers and architect/engineers only through Contractor. 10.3.6) Where reasonably requested by Contractor, CUC shall assist Contractor in obtaining all required Permits, including obtaining written authorization from the Government of the CNMI, or any other Public Sector Entity which has lawful authority to regulate CUC. To the extent a permit is obtainable only by CUC us a matter of law, then CUC shall be required to promptly obtain such Permit. Contractor shall provide CUC with any information in Contractor's possession or control which is required in connection with CUC's application for such Permits. 10.3.7) Contractor shall pay applicable CNMI sales taxes (if any) based on the costs of the Work, the Plant Equipment or any portion thereof. 10.4) CUC Responsibilities During Commissioning and Testing. 10.4.1) CUC shall provide fuel to the Interconnection Points on the Day that is one hundred eighty (180) Days prior to the scheduled date of Substantial Completion of the Plant. Such fuel shall be of sufficient quantity and quality for Contractor to conduct commissioning and testing and such related Work as Contractor is obligated and/or entitled to undertake during such time pursuant to this Agreement 10.4.2) On the Day that is one hundred eighty (180) Days prior to the scheduled date of Substantial Completion of the Plant and every Day thereafter, CUC shall ensure that all interconnection facilities and transmission facilities are sufficiently complete to be able to receive electrical energy generated by the Plant in an amount up to 10 MW for 24 hour per day continuous operation. 11) CUC REVIEW. 11.1) CUC reserves the right throughout the term of this Agreement to review all drawings prepared as soon as such drawings become available and to inspect Work at all stages at the Site; or to witness inspections and test at Contractor's premises or its Subcontractors' premises; and to designate others to review to drawings and inspect or witness the Work as may be necessary. On reasonable notice, Contractor shall provide access to the Site as may be necessary or appropriate for CUC inspection and for the servicing, maintaining, modifying, or upgrading of the land or facilities located thereon provided that such access does not interfere with Contractor's performance of Work. Notwithstanding the foregoing, Contractor shall have the right to maintain the security of its property at the Site. 11.2) Before starting certain Work identified in any Drawing, Contractor may submit such Drawing to CUC for review. CUC shall respond within five (5) Business Days of actual receipt by CUC of the Drawing. After such review CUC shall return one copy of each such Drawing to Contractor marked "Reviewed", "Reviewed with comments" or "Comments" as appropriate and with sufficient explanation to enable Contractor to determine the basis for any such comments. Contractor may proceed to implementation in the case of Drawings marked "Reviewed". Such Drawings marked "Reviewed with Comments" may be corrected by Contractor as appropriate but need not be re-submitted to CUC. Drawings marked "Comments" shall be corrected by Contractor and re-submitted to CUC. CUC, in reviewing such re-submitted Drawings shall be limited to review of matters related to or affected by the previous "Comments'. If CUC does not respond within five (5) Business Days of actual receipt of a Drawing by CUC, Contractor shall proceed as Page 11 157 though CUC has no comments and CUC shall be deemed to have returned the Drawing to Contractor marked "Reviewed". 12) DEFECTS LIABILITY; CERTAIN REPRESENTATIONS, COVENANTS AND GUARANTEES. Contractor's obligations to provide the Plant free of material defects or deficiencies are set forth below: 12.1) Plant. Contractor covenants and agrees that the Plant (and all other portions of Plant Work) shall be provided to CUC free of any material defects or deficiencies. 12.2) Engineering Design and Performance. 12.2.1) The engineering and design of the Project, including, without limitation, the preparation of the drawings, shall meet the requirements of this Agreement. Contractor shall, to the extent required by Good Utility Practice, verify the completeness and accuracy of the requirements for Plant design, and any other information used by Contractor in connection with performance of the Work. 12.2.2) Without prejudice to any of Contractor's obligations under this Agreement, Contractor will use reasonable effort to obtain from its Subcontractors and suppliers a commitment that the Work provided by such Subcontractors shall be free of material defects or deficiencies. 12.2.3) The performance of the Plant equipment and related systems shall meet in all material respects or exceed the performance requirements referred in Exhibit A. Contractor shall be deemed to have complied with and satisfied its obligations herein upon achieving Substantial Completion as set forth in this Agreement 12.3) Equipment and Materials. 12.3.1) Contractor covenants and represents that all Plant Equipment and material shall be new when first installed in the Project. 12.3.2) Contractor covenants and represents that the Plant will be fit for the purposes of generating electricity. 12.4) Defects Liability Period. Except as otherwise specifically provided in this Agreement, Contractor shall provide to CUC the Plant free of material defects or deficiencies, and ensure compliance with the requirements of this Section 12 as they relate to the Plant Work for a period commencing on the date the Work or Plant Equipment is completed or installed, and continuing for a period of twelve (12) months after the date of Substantial Completion. 12.5) Remedy Limitation. 12.5.1) Contractor does not covenant or guarantee the Project, the Plant, the Plant Equipment, Systems, or any components of any thereof against normal wear and tear. Nor does Contractor covenant or guarantee any equipment not in the Work. However, with respect to the Project Contractor shall remedy at Contractor's expense any damage to real or personal property owned or controlled by CUC when that damage is the result of (i) Contractor's failure to conform to the requirements of this Agreement, including damage caused by Contractor's failure to conform to the Page 12 158 Minimum Operations and Maintenance Requirements submitted to CUC pursuant to Section 16.1.2 of this Agreement or (ii) any martial defect or deficiency with respect to the Plant. 13) Suspension by Contractor. 13.1) At any time prior to the daze of Substantial Completion, in the event of CUC's failure to pay Contractor any undisputed amounts when due pursuant to the terms of this Agreement or any change order issued pursuant to the reams of this Agreement, Contractor shall have the right to suspend the Work. 13.2) If Contractor elects to suspend the Work and such suspension is subsequently removed and the Work is continued by Contractor, Contractor shall be entitled to a Change Order in accordance with Section 5.1, which shall modify the date of Substantial Completion and assess additional costs due to such delay. 14) Suspension By CUC For Convenience. 14.1) CUC may order Contractor in writing to suspend, delay or interrupt all or any part of the Work without cause for such period of time as CUC may determine to be appropriate for its convenience. 14.2) Adjustments caused by any such suspension, delay or interruption shall be made by Change Order in accordance with Section 5.1. which shall assess additional charges due to such delay and/or extend the date of Substantial Completion. 15)COMPLETION TESTING. 15.1) Plant Completion Test Procedures. 15.1.1) Specific test procedures for all necessary completion testing of the Plant (the "Completion Testing") will be developed by Contractor in cooperation with CUC. Completion Testing will demonstrate, among other things, that the Plant satisfies in all material respects the requirements of this Agreement as amended from time to time by written agreement of the Parties. 15.1.2) Proposed test procedures for all Completion Testing will be prepared by Contractor in cooperation with CUC and submitted to CUC for final approval at least one hundred eighty (180) Days prior to the anticipated scheduled start of Completion Testing. 15.2) Completion Test Notification. 15.2.1) The Plant will be deemed ready for Completion Testing when all of the following have been completed: (i) all required Systems are ready for normal and continuous operation; (ii) all applicable written operating procedures, troubleshooting manuals and operator training as required by this Agreement are substantially complete; and (iii) all required Permits to be obtained by Contractor are complete and in the possession of Contractor. 15.2.2) At least ten (10) Days prior to the commencement of Completion Testing, Contractor shall deliver to CUC a "Completion Test Notice" proposing the date upon which Completion Testing will begin, a list of all Systems and major components thereof to be tested, and a Completion Testing schedule. Page 13 159 15.2.3) Within ten (10) Days of receipt of the Completion Test Notice, CUC shall deliver to Contractor: (i) confirmation that the Completion Testing will be conducted on the proposed date; or (ii) notice denying Completion Testing stating with particularity the facts upon which denial is based, and the specific conditions which must be met before Completion Testing can proceed. 15.2.4) CUC's failure to respond to the Completion Test Notice in accordance with Section 15.2.3 shall act as CUC's confirmation that Completion Testing shall proceed as planned by Contractor. 15.3) Reapplication for Completion Testing. 15.3.1) Upon receipt of CUC's notice denying Completion Testing pursuant to Section 15.2.3(ii), Contractor shall take such action as is appropriate to remedy the conditions described in such notice from CUC. 15.3.2) After Contractor has taken action to remedy the noticed condition, Contractor shall deliver to CUC a new Completion Test Notice conforming to the requirements of this Section 15 and the provisions of this subsection shall apply with respect to such new Completion Test Notice in the same manner as they applied to the original Completion Test Notice, except as follows: (i) the date for the Completion Testing shall be no earlier than seventy-two (72) hours later than the time of delivery of such new Completion Test Notice to CUC; and (ii) the time within which CUC must give a new notice verifying or denying the requested Completion Testing is no more than forty-eight (48) hours after CUC's receipt of the new Completion Test Note from Contractor. 15.3.3) The foregoing procedure shall be repeated as often as necessary until CUC no longer reasonably rejects the Completion Test Notice. 15.4) Completion Testing. 15.4.1) It is CUC's s responsibility to notify all other Persons that are required to witness any such testing. 15.4.2) Contractor shall provide CUC and all persons receiving the Completion Test Notice the opportunity to observe the Completion Testing at the time specified in such Completion Test Notice. 15.4.3) If Completion Testing fails or is terminated prior to completion of such testing by Contractor and testing is not restarted within twenty four (24) hours, the notice requirements of Section 15.2.3 above, shall apply prior to restarting testing. 16) SUBSTANTIAL COMPLETION OF PLANT. If the Plant has passed to Completion Testing procedure, or the Plant is ready for normal and continuous operation or the Plant it ready for beneficial occupancy, then CUC shall, upon written request by Contractor, issue to Contractor a Certificate of Substantial Completion evidencing that all Work has been completed except for punch list Items. When all Plant Punch List items have been completed by Contractor, CUC shall issue a Certificate of Final Acceptance. CUC's failure to issue a Certificate of Substantial Completion or a Certificate of Final Acceptance shall not Page 14 160 preclude a finding that the Plant is substantially complete or ready for a Certificate of Final Acceptance. 16.1) Operation and Maintenance of System/Plant. 16.1.1) It is contemplated by the parties that the operation and maintenance of the Plant shall remain under the care, custody and control of Contractor from the date of Substantial Completion through the date of Final Plant Turnover by Contractor to CUC unless otherwise terminated by CUC as specified herein. As long as Contractor is operating and maintaining the Plant, Contractor shall be responsible for operation and maintenance of the Plant and all Systems including start-up scheduling and directing all System operations for the Plant. 16.1.2) Contractor shall perform all maintenance and operation work in accordance with Good Utility Practice and in accordance with the Minimum Operations and Maintenance Requirements as subsequently agreed to in writing by CUC and Contractor. Contractor shall operate the Plant in accordance with the manufacturers' fuel consumption specifications as set forth in Exhibit E, which is hereby incorporated by reference. 16.1.3) Refitting of Plant. Contractor is responsible for carrying our its obligations so that the Plant operates safely and compiles with all applicable law and regulation and Permits; however in the event any future Permit requirement coming into effect after the date of Substantial Completion shall require a material alteration in the structure of the Plant or Plant equipment in order to insure compliance, the cost of such refitting shall be borne solely by CUC. 16.1.4) Contractor may subcontract to other parties some or all of its obligations under this Section 16 only with the express written consent at CUC, which consent shall not be unreasonably withheld. 16.1.5) CUC may terminate the Operations and Maintenance portion of this Agreement for its own convenience upon issuing a six (6) month notice of termination provided that the date of actual termination falls on the end of any given project fiscal year. The first project fiscal year will commence on to date that Contractor assumes responsibility of the maintenance and operation of the Plant. Otherwise the Operations and Maintenance portion of this Agreement will be automatically renewed every project fiscal year. 17) INSURANCE. 17.1) Contractor's Insurance. 17.1.1) Contractor shall obtain and maintain insurance coverage for the following claims which may arise out of the performance of this Agreement, whether resulting from Contractor's operations or the operations of any Subcontractor, anyone in the employ of any of them, or by an individual or entity for whose acts they may be liable: a) Workers' compensation, disability benefit and other employee benefit claims under acts applicable to the Work; b) Bodily injury, occupational sickness, disease or death claims of Contractor's employees as required by applicable employers' liability law; c) Bodily injury, sickness, disease or death claims for damages to persons not employed by Contractor; d) Personal injury liability claims for damages directly or indirectly related to the person's employment by Contractor or for damages to any other person; 161 e) Damage to or destruction of tangible property, including resulting loss of use, claims for property other than the Work itself; f) Bodily Injury, death or property damage claims resulting from motor vehicle liability in the use, maintenance or ownership of any motor vehicle; and g) Contractual or professional liability claims involving Contractor's obligations under this Agreement h) Claims made and required to be insured against by Contractor pursuant to Paragraph 17.4 hereof. 17.2) Policy Limits. Contractor's Commercial General, Automobile, and Professional Liability Insurance as required by Paragraph 17.1 shall be written for not less than the following limits of liability: 17.2.1) Commercial General Liability Insurance, a. Each Occurrence Limit $ 1,000,000.00 b. General Aggregate: $ 2,000,0000.00 17.2.2) Comprehensive Automobile Liability Insurance. a. Combined Single Limit Bodily Injury and Property Damage: $ 500.000.00 Each Occurrence or b. Bodily Injury: $25,000.00 Each Person, $500,000.00Each Occurrence c.Property Damage: $ 1,000,000.00 Each Occurrence 17.2.3) Professional Liability Insurance: $ 250,000.00 . 17.3) CUC's Liability Insurance. CUC shall be responsible for obtaining and maintaining its own liability Insurance. Insurance for claims arising out of the performance of this Agreement may be purchased and maintained at CUC's discretion. 17.4) Insurance to Protect Project 17.4.1) Contractor shall obtain and maintain property insurance covering the entire Project for the full cost of replacement at the time of any loss in a form acceptable to CUC. This insurance shall include as named insureds CUC, Contractor, and Subcontractors. Insurance coverage shall include loss from the perils of fire and extended coverage, and shall include "all risk" insurance for physical loss or damage including without duplication of coverage loss due to theft, vandalism, malicious mischief, transit, collapse, falsework, temporary buildings, debris removal, flood, typhoon, tropical storm, windstorm, earthquake, testing, and damage resulting from defective design, workmanship or material. Page 16 162 17.4.2) Contractor shall increase limits of coverage, if necessary, to reflect estimated replacement cost. 17.4.3) Contractor shall be responsible for any co-insurance penalties or deductibles. 17.4.4) If CUC intends to occupy or use a portion of the Plant prior to the date of Substantial Completion, such occupancy or use shall not commence prior to a time mutually agreed to by CUC and Contractor or prior to the time the insurance company or companies providing the property insurance have consented by endorsing the policy or policies. This insurance shall not be canceled or lapse on account of partial occupancy. Consent of Contractor to such early occupancy or use shall not be unreasonably withheld. 17.4.5) Contractor shall obtain and maintain boiler and machinery insurance as necessary. The interests of CUC, Contractor and its Subcontractors shall be protected under this coverage. 17.4.6) Contractor shall purchase and maintain insurance to protect CUC, Contractor, and Subcontractors against loss of use of CUC's property due to those perils insured pursuant to Section 17.1.1(e). Such policy will provide coverage for expediting the payment of expenses for materials, overhead of CUC, Contractor, and Subcontractors, necessary expense including overtime, loss of income by CUC and other determined exposures. Exposures of CUC, Contractor, and Subcontractors shall be determined by mutual agreement with separate limits of coverage fixed for each item. 17.4.7) Upon contract award, Contractor shall provide CUC with a copy of all required policies. Copies of any subsequent endorsements shall be furnished to CUC. CUC shall be given thirty (30) Days' notice of cancellation, non-renewal, or any endorsements restricting or reducing coverage. 17.4.8) Contractor shall give written notice to CUC before commencement of the Work if C Contractor will not be obtaining property insurance. In that case CUC may obtain insurance in order to protect its interest in the Work as well as the interest of any Subcontractors in the Work. Contractor shall provide a change order to CUC for the cost of this insurance. 17.4.9) If CUC is damaged by failure of Contractor to purchase or maintain property insurance or to so notify CUC, Contractor shall bear all reasonable costs incurred by CUC arising from the damage. 17.5) Property Insurance Loss Adjustment. - 17.5.1) Any insured loss shall be adjusted with CUC and Contractor and made payable to CUC and Contractor as trustees for to insureds, as their interests may appear. 17.5.2) Upon the occurrence of an insured loss, monies received will be deposited in a separate account and the trustees shall make distribution in accordance with the agreement of the parties in interest, or in the absence of such agreement, in accordance with an arbitration award pursuant to Section 25. If the trustees are unable to agree between themselves on the settlement of the loss, such dispute shall also be submitted for resolution pursuant to Section 25. 17.6) Waiver Of Subrogation. 17.6.1) CUC and Contractor waive all rights against each other, and any of their respective employees, consultants, and Subcontractors for damages caused by risks covered by insurance as provided in this Section 17 to the extent they are covered by that insurance, except such rights as they may have to the proceeds of such insurance held by CUC and Contractor as trustees. Page 17 163 Contractor shall require similar waivers from all Subcontractor and shall require each of them to include similar waivers in their subsubcontracts and consulting agreements. 17.6.2) CISC waives subrogation against Contractor, and Subcontractors on all property and consequential loss policies carried by CUC on adjacent properties and under property and consequential loss policies purchased for the Project after its completion. 17.6.3) If the policies of insurance referred to in Section 17.2 require an endorsement to provide for continued coverage where there is a waiver of subrogation, the insured parties under such policies shall cause them to be so endorsed. 18) INDEMNITY: LIABLIIY. 18.1) Contractor's Indemnity. Contractor shall defend, indemnify and hold harmless CUC against any losses, liabilities, damages or claims against CUC arising out of (i) any failure of Contractor promptly to perform any obligations of Contractor under this Agreement provided such failure was not caused by any act or omission of CUC, the failure of CUC to take reasonable steps to mitigate such loss, liability, damage or claims or by events beyond the reasonable control of Contractor; (ii) any misconduct, negligence, malfeasance or misfeasance on the part of the Contractor, or of its officers, employees or its Subcontractors; or (iii) any acts of Contractor or Subcontractors or their respective employees beyond the scope of Contractor's authority hereunder not authorized or ratified by CUC. 18.2) CUC Indemnity. CUC shall defend, indemnify and hold harmless Contractor against any losses, liabilities, damages or claims against Contractor or its Subcontractors arising out of failure of CUC promptly to perform any obligations of CUC under this Agreement provided such failure was not caused by any act or omission of Contractor or its Subcontractors, the failure of Contractor or its Subcontractors to take reasonable steps to mitigate such loss, liability, damage or claims, or by events beyond the reasonable control of CUC; (ii) any misconduct, negligence, malfeasance or misfeasance on the part of CUC, or of its officers or employees; or (iii) any acts of CUC or its employees beyond the scope of CUC's authority not authorized or ratified by Contractor. 18.3) Double Jeopardy. Both CUC and Contractor shall be entitled to an indemnity under this Section 18 only to the extent that they have not received payment for the same loss, damage, death or injury under a policy of insurance. 18.4) Consequential Losses. In no case shall the indemnities in Sections 18.1 and 18.2 extend to indirect or consequential loss or damage, including but not limited to loss of use, loss of profits, and loss of production. 19) TERMINATION. 19.1) CUC Events of Default. 19.1.1) Each of the following shall constitute a CUC Event of Default: 19.1.1.1) Work has been suspended or a thirty (30) Day period: (a) under court order, or order of other governmental authority having jurisdiction, as a result of any action or inaction by CUC; Page 18 164 (b) pursuant to Section 13 because of CUC's failure to pay Contractor; 19.1.1.2) Work is suspended by CUC for sixty (60) Days; 19.1.1.3) CUC's failure to cure a CISC action or omission which Contractor reasonably determines will delay Contractor in the performance of the Work for a period of at least sixty (60) Days, within five (5) Days of Contractor's notice to CUC of such determination; 19.1.1.4) CUC fails to furnish reasonable evidence that sufficient funds are available and committed for the entire cost of the Project; 19.1.1.5) CUC shall fail to pay when due or within five (5) Days thereafter any installment of the Guaranteed Price or any other amount payable to CUC under this Agreement, any of the Notes, the Security Agreement, the Escrow Agreement, or any related document or instrument; 19.1.1.6) CUC shall fail to observe or perform any covenant or agreement contained in this Agreement, any of the Notes, the Security Agreement, the Escrow Agreement or any other related document or instrument (other than those covered by Subsection 19.1.1.6 immediately above) and shall fail to cut such failure within fifteen (15) Days after written notice thereof shall have been given to CUC by Contractor; 19.1.1.7) any material misrepresentation regarding any warranty, certification or statement made by CUC in this Agreement, any Note, the Security Agreement, the Escrow Agreement or any related document or instrument, or in any certificate, financial statement or other document delivered pursuant hereto or thereto; 19.1.1.8) CUC takes any affirmative action that causes the Security Agreement, the Escrow Agreement or any related document or instrument to cease to create a valid and perfected first priority pledge and security interest in and to all or any part of the Collateral or causes any such document or instrument to cease to be of full force and effect; 19.1.1.9) CUC shall (aa) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for itself or any substantial part of its property, or shall (bb) consent to the appointment of or the taking of possession by any such offcial in an involuntary case or other proceeding commenced against it, or shall (cc) make a general assignment for the benefit of creditors, or shall (dd) take any action to authorize any of the foregoing; 19.1.1.10) an involuntary case or other proceeding shall be commenced against CUC seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for CUC or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) Days, and an order for relief shall be entered against CUC under applicable bankruptcy laws as now or hereafter in effect; or 19.1.1.11) a material adverse change has occurred in the financial condition of CUC since the date of this Agreement, such adverse change gives rise to a reasonable possibility that CUC will not be able to perform its obligations hereunder or carry on its business substantially as now being conducted, and CUC shall fail to correct such change to the satisfaction of Contractor within fifteen (15) Days after written notice thereof shall have been given to CUC by Contractor; 19.1.2.) If any CUC Event of Default referenced in Section 19.1.1 shall occur and be continuing, then in each and every such event Contractor shall at its option by written notice to Page19 165 CUC declare the present value of the outstanding principal portion of the Guaranteed Price as of the date of default, in addition to the balance of all payments then due and owing on the Guaranteed Price to be due and payable; provided however, that upon the occurrence of any CUC Event of Default specified in Subsection 19.1.9 or 19.1.1.10, the entire balance of Guaranteed Price shall immediately become due and payable. 19.1.3) Termination by Contractor For Cause. Upon written notice to CUC, Contractor may terminate this Agreement upon any of the CUC Events of Default referenced in Section 19.1.1. 19.1.4) Upon termination by Contractor in accordance with Section 19.1, Contractor shall be entitled to recover from CUC all damages as set forth in Section 19.3. 192) Contractor Event of Default. 19.2.1) If Contractor shall fail to observe or perform any covenant or agreement contained in this Agreement and shall fail to cure such failure within fifteen (15) Days after written notice thereof shall have been given to CUC by Contractor 19.2.2) If any material misrepresentation regarding any warranty, certification or statement in this Agreement or any related document or instrument, or in any certificate, financial statement or other document delivered pursuant hereto or thereto; 192.2) Upon a Contractor Event of Default CUC may, after ten (10) Days' written notice to Contractor, during which period Contractor fails to use its best efforts to perform such obligation, undertake to perform such obligations for Contractor. CUC shall be entitled to any proven loss, cost or expense incurred or paid by CUC in connection with Contractor's default under this Agreement, including but not limited to any additional cost to CUC of performing any of Contractor's obligations hereunder and all actual and consequential damages. 19.2.3) Termination by CUC For Cause. CUC may terminate this Agreement for any of the following reasons if upon ten (10) Days' written notice to Contractor fails to take any action to remedy the any of the following: 19.2.3. 1) In the event Contractor persistently fails to abide by the orders, regulations, roles, ordinances or laws of governmental authorities having jurisdiction; or 19.2.3.2) In the event Contractor otherwise materially breaches any material provision of this 19.2.3.3) Contractor shall (aa) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for itself or any substantial part of its property, or shall (bb) consent to the appointment of or the taking of possession by any such official in an involuntary case or other proceeding commenced against it or shall (cc) make a general assignment for the benefit of creditors, or shall (dd) take any action to authorize any of the foregoing; 19.2.4) In the event CUC properly terminates this Agreement pursuant to this Section 19.2. CUC shall be entitled to any proven loss, cost or expense incurred or paid by CUC in connection with this Agreement, including but not limited to any additional cost to CUC of performing any of Contractor's obligations hereunder and all actual and consequential damages. 19.2.4.1) If such event occurs prior to Substantial Completion, CUC without prejudice to any other right or remedy, may take possession of the Site and complete the Work utilizing any Page 20 166 reasonable means and CUC shall be entitled to reduce the outstanding principal portion of the Guaranteed Price to an amount equivalent to its present value as of the date of termination calculated upon a rate of 11.5% and further reduced by the cost to CUC of performing the remainder of Contractor's obligations hereunder; provided, however that in no event shall CUC entitled to reduce such amount by the cost to CUC of performing any of Contractor's obligations to manage and operate the Plant after the date of Substantial Completion. 19.2.4.2). If such event occurs after Substantial Completion, CUC shall he entitled to reduce the outstanding principal portion of the Guaranteed Price to an amount equivalent to its present value as of the date of termination calculated upon rate of 11.5%; provided Contractor shall be entitled to the balance of all payments then due and owing on the Guaranteed Price plus all Operations and Maintenance Fees and Production Fees currently due and owing under Sections 6.2 and 6.3 hereof including all lam charges pursuant to Section 6.4. 19.2.4.3) In the event CUC terminates this Agreement, CUC shall be obligated to mitigate Its damages and minimize all costs incurred in its continued performance abandonment of the Project, or delay in reprocuring or identifying substitute performance. 19.2.5). In the event CUC exercises its rights under Subsection 19.2.1 or 19.2.3, CUC shall provide Contractor a detailed accounting of all costs incurred by CUC under Subsection 19.2.2 or 19.2.4, as the case may be. 19.3) Wrongful Termination By CUC 19.3.1) If CUC terminates this Agreement other than as set forth in Subsection 19.2.2 or Section 19.4, CUC shall pay Contractor all Work performed through the date of termination based upon the Schedule of Values which CUC and Contractor shall negotiate and agree upon following execution of this Agreement, and for any other proven loss, cost or expense incurred or paid by Contractor in connection with the Work, including but not limited to all proposal/contract preparation costs, all demobilization costs, all accrued Business Gross Revenue Tax, all incurred construction financing fees and costs, all incurred Insurance and loan management expenses, and Contractor's actual and consequential damages. In addition, Contractor shall be paid an amount calculated as set forth below: 19.3.1.1) 1f CUC terminates this Agreement prior to the date of Substantial Completion, Contractor shall be paid ten percent (10%) of the unpaid portion of the Schedule of Values (lost profit). 193.1.2) [Reserved.] 19.3.1.3) If CUC terminates this Agreement after the date of Substantial Completion, CUC shall pay Contractor in addition to the balance of all payments then due and owing on the Guaranteed Price, an amount equivalent to the present value of the outstanding principal portion of the Guaranteed Price as of the date of termination calculated at a rate of 11.5% per annum plus all Operations and Maintenance Fees and Production Fees due and owing under Sections 6.2 and 6.3 hereof, including all late charges pursuant to Section 6.4, and the balance of the Operations and Maintenance Fee and Production Fee payable under Sections 6.2 and 6.3 up through the end of the then current project fiscal year as set forth in Subsection 16.1.2. 19.3.1.4) CUC shall also pay to Contractor fair compensation either by purchase or rental at the election of CUC for any equipment retained, plus interest. CUC shall assume and become liable for obligations, commitments and unsettled claims that Contractor has previously undertaken or incurred in good faith in connection with the Work or as a result of the termination of this Agreement. Contractor shall cooperate wit CUC by taking all steps necessary to accomplish the legal assignment of Contractor's rights and benefits to CUC including the execution and delivery of all required permits, documents and instruments. Page 21 167 19.4) Termination by Mutual Consent. Contractor's receipt of prepayment by CUC of the balance of the Guaranteed Price pursuant to Subsection 6.1.3 and proper termination of the Operations and Maintenance portion of this Agreement with due notice pursuant to Section 16.1. shall operate as a termination of this entire Agreement by consent of the parties; provided however, that such termination shall not prejudice any rights or remedies of the parties which shall have accrued prior to such termination. 19.5) Acceleration of Debt Due to Default or Termination. 19.5.1) In the event Contractor is entitled to payment by CUC of any amount specified in Sections 19.1, 19.2 or 19.3 (depending on the basis therefor) such amounts shall immediately become due and payable to Contractor. 19.5.2) All amounts due and payable under this Section 19.4 shall bear interest at a rate of 11.5% from the date of written notice of the declaration of default or the date of termination, as the case may be, until the date payment is received. Such amount shall immediately become due and payable without any further notice to CUC or any other act by Contractor, and without presentment, demand, protest or other notice of any kind, all of which ate hereby waived by CUC. 19.6) Other Remedies in the Event of Default or Termination. If a Event of Default shall occur and be continuing, or if the Agreement is terminated, then in each and every such event Contractor and CUC may proceed to protect ad enforce their respective rights under this Agreement, any and each Note, the Security Agreement, the Escrow Agreement and any related document or instrument by exercising such remedies as are available to each of them in respect thereof under applicable law, either by suit in equity or by action at law or both, for specific performance of any covenant or other agreement contained In this Agreement, any of the Notes, or any such other document or in aid of the exercise of any power granted herein or therein. No failure or delay by Contractor or CUC in exercising any right power or privilege under this Agreement or any of such other documents or instruments shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude my other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not excessive of any rights or remedies provided by law. 20) KEY PERSONNEL. Contractor shall ensure that there are at all times at the Site sufficient suitably qualified ad experienced staff to supervise the Work In particular, but without limitation, Contractor shall appoint suitably qualified and experienced persons to fill the posts of Contractor Project Manager and Contractor Site Representative in accordance with the provisions of Section 22 hereof 21) ASSIGNMENT. 21.1) Neither CUC nor Contractor shall assign their respective rights and obligations under this Agreement in whole or in part to any Person, without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. Consent may be withheld if any assignee proposed is not in the opinion of the consenting parry reasonably able to fulfill the terms and obligations of this Agreement. including the payment of any unpaid obligations owed or which may become due pursuant to this Agreement 21.2) All Contractor's subcontracts, including. without limitation, material supply contracts, orders for Plant Equipment, and permitted assignments, shall be in writing and assignable by Contractor to CUC, without the execution of any documents by the other party to any such contracts or assignments. Page 22 168 22) CUC AND CONTRACTOR REPRESENTATIVES. 22.1) CUC Project Manager. 22.1.1) The CUC Project Manager shall be the primary representative of CUC and shall exercise such authority as is specified in this Agreement or is delegated to him by CUC. The general duties of the CUC Project Manager shall be, inter alia, to act on behalf of CUC as follows (i) to review, comment, audit and monitor the design, construction, commissioning and performance of the Work (u) to inspect, examine and/or witness, the materials. Plant Equipment, testing and workmanship used or carried out in connection with the Work; and iii) to certify payments and testing, in each case in order to report to CUC on the progress of the Work and to report whether the Work is being carried out in accordance with this Agreement. 22.1.2) The CUC Project Manager shall also carry out the following duties (i) other duties that CUC designates are to be performed by the CUC Project Manager; and (ii) any other duties which we specified in this Agreement. 22.2) CUC Site Representative CUC shall designate a CUC Site Representative who shall represent CUC at the Site during construction and shall communicate with the CUC Project Manager the Contractor Project Manager and the Contractor Site Representative, and shall exercise all other authority of CUC as permitted or required by this Agreement. 22.3) Designation of CUC Representatives. 22.3.l) The CUC Project Manger shall be: Name: Timothy P. Villagomez or his Designee Address: Lower Base, Post Office Box 1220, Saipan, MP 96950 223.2) The CUC Site Representative promptly shall be identified in writing to Contractor 22.4) The Contractor Project Manager Contractor shall designate a Contractor Project Manager who shall communicate with the CUC Project Manager or the CUC Site Representative. The Contractor Project Manager shall be responsible for Contractor's performance of this Agreement and shall assist CUC whenever necessary to ensure complete and satisfactory performance of this Agreement The Contractor Project Manager will have authority to act on behalf of Contractor and to bind Contractor on all matters relating to this Agreement. 22.5) The Contractor Site Representative. 22.5.1) The Contractor Site Representative will represent Contractor on the Site during construction. The Contractor Site Representative will maintain an office on the Site for purposes of remaining, in close proximity to the Work and communicating with the CUC Project Manager and/or the CUC Site Representative. The Contractor Site Representative will advise and consult Page23 169 with the CUC Project Manager and the CUC Site Representative as to the performance of the Work under this Agreement. (22.5.2) The Contractor Site Representative shall have knowledge of the Work, the construction means, methods, techniques, sequences or procedures, and for safety precautions and programs in connection with the Work. 22.6) Designation of Contractor's Representatives 22.6.1) The Contractor Site Representative shall be identified in writing to CUC. 22.6.2) The Contractor Project Manager shall be: Name: ___________________________________ Address: ___________________________________ 23) NOTICES. 23.1) All notices, requests, directions, or other communications required by this Agreement, required or permitted, shall be in writing and shall be considered properly given when: i) delivered in person: (ii) sent via confirmed fax: (iii) sent certified mall confirmed by a signed return receipt; or (iv) delivered to an express courier, correctly addressed and postage prepaid. 23.2) Notices or other communications given in accordance with this Section 23 shall be deemed effective on the date delivered or fax confirmed in this case of Sections 23(i) and (ii) above or upon actual receipt in the case of Sections 23 (iii) and (iv). Horiguchi Building, 5th Floor, PPP 402, Box 10000, Saipan, MP 96950, 23.3) Notice shall be given to Contractor as follows: Name: Telesource CNMI Attn: General Manager Address: Horiguchi Building, 5th Floor PPP 402, Box 10000, Saipan, MP 96950 Phone: (670) 233-4501 Fax: (670) 233-4505 Page 24 170 23.4) Notice shall be given to CUC as follows: Name: Commonwealth Utilities Corporation Attn: Executive Director Address: Lower Base Post Office Box 1220, Saipan, MP 96950 Phone: (670) 322-4033 Fax: (670) 3224323 24) TITLE AND RISK OF LOSS. 24.1) Title in Contractor. 24.1.1) Unencumbered legal title in and to the Plant and each piece of Plant Equipment and all material used in connection with the Plant, including all Work and Systems and all components and items which are ancillary to all of same, including all machinery, apparati, materials equipment and other things to be provided in connection with the construction, operation and maintenance of the Plant, including but not limited to the power generation system, the sewer treatment plant, all utilities at the Site and all connections to utilities not on the Site, transformers and grid interconnectors, the fuel storage system the waste oil storage and disposal system and the SCADA system, whether such property be real or personal, tangible or intangible, shall be vested in Contractor from the moment of its acquisition, procurement, installation or construction by or at the instruction of Contractor for and throughout the period expiring on the date as of which CUC has paid Contractor the full amount of the Guaranteed Price, and all other amounts then owing to Contractor under this Agreement (the "Final Payment Date") 24.1.2) Legal title to all work in progress and all construction and other services related to the Plant will be vested in Contractor so long as services are being performed in connection with the construction of the Plant by or at the instruction of Contractor, during the period set forth in this Section 24.1. Throughout such period, it is fully understood that Contractor shall retain responsibility for risk of loss of the Plant, Plant Equipment, Systems, materials and work in progress related to the construction, operation or maintenance of the Plant, including the responsibility for claims for damage or loss to any of same, and Contractor shall provide CUC with satisfactory evidence of liability and extended coverage insurance for all of same as shall be in such amounts and against such risks as shall be standard customary in similar circumstances, and in accordance with Section 17 hereof which insurance shall name CUC as additional insured and loss payee to the extent of its interest pursuant to the terms of this Agreement. During such period as Contractor shall have legal title as aforesaid, neither Contractor, CUC nor any other person shall allow any such property to be subject to any Lien, except for government tax Liens or labor or materialmen or other Liens which may arise by virtue of Law. 24.2) Title In CUC. Subject to Section 7 of this Agreement, legal title in and to the revenue from sale of power produced by operation of the Plant from the Date of Substantial Completion shall be vested in CUC. 24.3) Transfer of Title. 24.3.1) Within thirty (30) Days following the Final Payment Date and provided no CUC Event of Default then exists, Contractor shall effect the immediate delivery and transfer of unencumbered legal title to CUC (or its affiliate or designee), in and to the Plant, Plant, Equipment, Work Systems and all of the above-referenced related property and materials without further Page25 171 consideration payable to Contractor and CUC and Contractor agree to execute such documentation and do all such further actions as may be necessary or appropriate to effect same. 24.3.2) Immediately upon transfer of legal title pursuant to this Section 24.2, the risk of loss for all property so transferred shall immediately pass to CUC, and CUX shall be responsible for carrying all requisite liability and extended coverage insurance in connection therewith; provided, however, that CUC shall name Contractor as additional insured and loss payee to the extent of its interest pursuant to the terms of this Agreement and any other agreement related to the Plant to which Contractor is a party. 24.3.4) At the time that delivery and legal title are transferred by Contractor in accordance with the terms of this Section 24.2, Contractor shall contemporaneously assign to CUC or such other person all right tide and interest which Contractor may at such time have in any lease or sublease for the Site. CUC shall pay all taxes, filing fees and recording, legal and other fees necessary to effect such deliveries and assignments and transfer of legal title. 24.4) Transfer of Title; No Release. It is understood and agreed that the possession or transfer of legal title as set forth in this Agreement shall not release Contractor's or CUC's lawful responsibility, respectively, to fully carry out all of its obligations under this Agreement and all other referenced agreements to which it is a party or otherwise affect the provisions on risk of loss set forth in this Agreement 25) RESOLUTION OF DISPUTES. 25.1) In General. Claims disputes or other matters in question between the parties to this Agreement shall first be subject to mediation before arbitration. A demand for mediation shall be made within a reasonable time after the dispute or claim has arisen. 25.2) Mediation. Any mediation shall be held in accordance with the Construction Industry Mediation Rules of the American Arbitration Association currently in effect unless the parties mutually agree otherwise. The mediation shall take place at a mutually convenient location in Saipan. Demand for mediation shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. In no event shall the demand for mediation be made after the date when institution of legal or equitable proceedings based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 25.3) Arbitration. Any dispute or difference arising out of, or in connection with, this Agreement which cannot be amicably settled between the parties by mediation shall be finally settled under the Rules of Construction Arbitration of the American Arbitration Association. The arbitration shall take place at a mutually convenient location in Saipan The resulting arbitral decision shall be final and binding on the parties. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The prevailing party in any arbitration shall be entitled to recover from the other petty all attorneys' fees, expenses and other costs incurred in asserting or defending any claim arising under or related to this Agreement Page 26 172 25.4) Administrative Review. Any disputes arising under this contract between CUC and Contractor shall be submitted to administrative review and appeal as provided for in Section 5-201 of the CUC Procurement Regulations (Commonwealth Register Vol. 12, No.6 (June 15, 1990))before any action may be brought at law or equity for a remedy. 26) MISCELLANEOUS. 26.1) Severability of Provisions. 26.1.1) In the event that any provision of this Agreement, or the application thereof, is held by any court of competent jurisdiction to be illegal or unenforceable, the parties shall attempt in good faith to agree upon an equitable adjustment to this Agreement in order to overcome to the extent possible the effect of such illegality or unenforceability. 26.1.2) The provisions of this Agreement are intended to be performed in accordance with, and only to the extent permitted by, all applicable requirements of law. 26.13) If any provision of any of the Agreement or the application thereof to any Persons or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the Agreement nor the application of such provision to other Person or circumstances or other instruments referred to in the Agreement shall be affected thereby but, rather, the same shall be enforced to the greatest extent permitted by law. 26.2) Entire Agreement. This Agreement including all schedules, exhibits, attachments and drawings referenced herein, represents the entire understanding between the parties in relation to the subject matter hereof and supersedes any and all previous agreements or arrangements between the parties in respect of this Project (whether Oral or written), including without limitations all letters of intent and clarifications submitted in response to requests for proposals or otherwise. 26.3) Counterparts. This Agreement may be executed in any number of counterparts, or by use of counterpart or faxed counterpart signature pages, each of which shall be an original, but all of which together shall constitute but one instrument. 26.4) Applicable Law. This Agreement shall be governed by and construed according to Laws of Commonwealth of the Northern Mariana Islands excluding any conflict of laws provisions which would result in the application of the Laws of another jurisdiction to the interpretation of this Agreement, and any action whatsoever for the enforcement of, or for damages under this Agreement shall be brought exclusively In the Federal or Commonwealth Courts of the Northern Mariana Islands. 26.5) Successors and Assigns. All of the terms of this Agreement shall apply to, be binding upon and inure to the benefit of the parties hereto, their respective successors, permitted assigns and all other Persons claiming by, through or under them. Page27 173 26.6) Non-Objection by CNMI. The effectiveness of this Agreement shall be conditioned upon delivery by CUC to Contractor of written notice stating that the Government of the Commonwealth of the Northern Mariana Islands has not objected to the terms of this Agreement and all related documents and instruments. 26.7) Inspection of Book and Records. As required by Section 404 of Public Law 3-91, Contractor warrants and agrees chat Contractor and any Subcontractor at any level shall provide the Public Auditor of the Commonwealth of the Northern Mariana Islands with access to, and the right to examine and copy, any records, data or papers relevant to this Agreement for a period beginning with the execution of this Agreement and continuing for a period of three (3) years from the date of Final Plant Turnover. 26.8) No Waiver. Any failure at any time by either party to enforce any provision of this Agreement shall not constitute a waiver of such provision or prejudice the right of either parry to enforce such provision at any subsequent time. 26.9) No Third Parry Beneficiary. Except as otherwise provided elsewhere herein, this Agreement and all rights hereunder are intended for the sole benefit of the parties hereto and shall not imply or create any rights on the part of, or obligations to, any other entity or individual not a party to this Agreement. 26.10) Regulations Controlling. This Contract is null and void if either the procurement processes or contract execution fails to comply with the CUC Procurement Regulations. Any procurement action of a government official or employee in violation of said regulations is not authorized by the government and is an act for which the government will not take responsibility or be liable for in any manner. Contractor and CUC's Contracting Officer hereby certify that they have both read and understand said procurement regulations and have complied with all such regulations. 26.11) Penalties for Violation of Regulations If this Agreement is in violation of the procurement regulations referred to above, Contractor may be subject to debarment or suspension from government contracting and CUC's Contracting Officer may be personally liable for any damages incurred, in addition to other penalties provided for by law or regulations. 26.12) Gratuities. It shall be a breach of this Agreement for Contractor to offer, give or agree to give, any employee or former employee, or for any employee or former employee to solicit, demand, accept or agree to accept from Contractor, a gratuity or an offer of employment in connection with any decision approval, disapproval, recommendations or preparation of any part of a program requirement or a purchase request, influencing the content of any specification or procurement standard, rendering of advice, investigation, auditing or in any other advisory capacity in any proceeding or application, request for ruling, determination, claim or controversy, or other particular matter, pertaining to any program requirement or a contract or subcontract or to any solicitation or proposal therefore. Page 28 174 26.13) Kickbacks. It shall be a breach of this Agreement for any payment, gratuity or offer of employment to be made on behalf of a Subcontractor under a contract to Contractor or any person associated therewith as an adducement for the award of a subcontract or order. 26.14) Representation of Telesource Concerning Contingent Fees. Contractor hereby represents that it has not retained any person to solicit or secure government contracts upon an agreement or understanding for a commission, percentage, brokerage or contingent fee, except for the retention of bona fide employees or bona fide established commercial selling agencies for the purpose of securing business. 26.15) Relationship. For the purpose of this Agreement, Contractor shall be considered as an independent entity and not as a agent or representative of CUC, and it is understood that neither Contractor nor its employees or Subcontractor(s) shall act for, represent or bind CUC in any capacity or manner whatsoever, except as specified elsewhere in this Agreement or as authorized in writing by the Contracting Officer. 26.16) Attorney Fees. Notwithstanding, and in addition to any other remedy available under this Agreement, in the event court action is initiated for enforcement of, or damages under, this Agreement; the prevailing party shall be entitled to receive from the non-prevailing party all reasonable cost and expenses incurred by the party with respect to such action, including (without limitation) all costs and expenses of investigating the circumstances and events surrounding or relating to the action, and any and all fees charged by, and expenses of, professional consultants and advisers, including but not limited to attorneys, accountants or engineers. Attorneys' fees shall include, but not be limited to, cost and expenses of attorneys, expect witnesses, paralegals, secretaries, office support, document production and copying and other miscellaneous expenses reasonably incurred before trial, at trial, and on appeal. 26.17) Representation of Counsel. CUC and Contractor each acknowledge that it was represented by counsel in the negotiation and execution of this Agreement. Both CUC and Contractor shall be deemed to have drafted this Agreement for purposes of resolving ambiguities in this Agreement. Page 29 175 IN WITNESS WEREOF, the parties have executed this Agreement as of the date first set forth above. The Commonwealth Utilities Corporation Chief Procurement Officer I hereby certify that to the best of my knowledge and belief this contract is in compliance with the CUC Procurement Regulations, is for a public purpose and dose not waste or abuse public funds. /s/ Frank T. Flores 5/19/97 ------------------------------------------------------ ----------------- ------------------------------------------------------ ----------------- By: Frank T. Flores Date Title: Special Advisor, Procurement & Supply The Commonwealth Utilities Corporation Corporate Comptroller, CUC /s/ Yenny Tom 6/10/97 ------------------------------------------------------ ----------------- ------------------------------------------------------ ----------------- By: Yenny Tom Date Title: Comptroller The Commonwealth Utilities Corporation Attorney General /s/ Robert B. Dunlap II 6/10/97 ------------------------------------------------------ ----------------- ------------------------------------------------------ ----------------- By: Robert B. Dunlap II Date Title: Acting Attorney General The Commonwealth Utilities Corporation /s/ Timothy P. Villagomez 5/16/97 ------------------------------------------------------ ----------------- ------------------------------------------------------ ----------------- By: Timothy P. Villagomez Date Title: Executive Director Page 30 176 /s/ Benjamin A. Sahian 5/16/97 ------------------------------------------------------ ----------------- ------------------------------------------------------ ----------------- By: Benjamin A. Sahian Date Title: Chairman, Board of Directors /s/ Juan S. Tenorio 9/17/97 ------------------------------------------------------ ----------------- ------------------------------------------------------ ----------------- By: Juan S. Tenorio Date Title: Chairperson of the Board Page 31 177 LIST OF EXHIBITS EXHIBIT A Description of Plant Equipment, Capabilities and Related Services EXHIBIT B Form of Promissory Note EXHIBIT C Form of Pledge and Security Agreement EXHIBIT D Form of Escrow, Pledge and Security Agreement EXHIBIT E Manufacturer's Fuel Consumption Specifications LIST OF SCHEDULES Schedule I Definitions Schedule II Prepayment Schedule Page32 178 SCHEDULE 1: DEFINITIONS The defined terms used in this Agreement and in all Exhibits shall have the meanings specified In this Schedule I. "Adjusted Guaranteed Price" has the meaning set forth in Section 6.1.3 and Schedule II. "Agreement" means this document, the attached Schedules, and the attached Exhibits "A" through "D," inclusive. In the event of any conflict, inconsistency or variation between this document and any of the Schedules or Exhibits, the terms and provisions of this document shall prevail. "Authorization to Proceed" shall mean written notice from CUC to Contractor warranting to Contractor that CUC has fulfilled all conditions precedent as set forth in Section 9 and authorizing Contractor to begin Commencement of the Work as set forth in Section 3.1. "Business Day" means each Day on which banks are legally permitted to be open for business in the Commonwealth of the Northern Mariana Islands. "Certificate of Final Acceptance" has the meaning set forth in Section 14. "Certificate of Substantial Completion" has the meaning set forth in Section 14. "Change Order" has the meaning set fort in Section 5.1. "CNMI" has the meaning set forth in the first "Whereas" clause of this Agreement. "Collateral" means all property which is subject or is to be subject to a Lien created by the Security Agreement. "Complete Testing" has the meaning set forth in Section 13.1.1. "Completion Test Notice" has the meaning set forth in Section 13.2.2. "Contractor" has the meaning set forth in the preamble to this Agreement. "Contractor Project Manager" means the Person identified in Section 20.6.2 and designated by Contractor as agent to perform those responsibilities and duties set forth in Section 20.5. "Contractor Site Representative" means the Person designated by Contractor as agent to perform those responsibilities and duties set forth in Section 20.4.. "Contractor's Commercial General, Automobile, and Professional Liability Insurance" means the required insurance coverages set forth in Section 15.1. "CUC" has the meaning set forth in the preamble to this Agreement. "CUC Events of Default" are the events enumerated in Section 17.1. "CUC Project Manager" means the Person identified in Section 20.3.1 and whose duties are described in Section 20.2. Schedule 1 Page 1 179 "CUC Site Representative" means the Person to be identified by CUC pursuant to Section 20.3.2. "Day" or "Days" means calendar days unless otherwise specifically defined. "Dollars" means United States of America (U.S.) dollars. "Environmental Laws" shall mean all Federal, state, and local statutes, laws, codes, rules, regulations, ordinances, orders and decrees, including without limitation, the Clean Water Act, the Rivers and Harbors Act, the Coastal Zone Management Act, the Comprehensive Environmental Response, Compensation and Recovery Act of 1980, the Resource Conservation and Recovery Act of 1976, the Toxic Substances Control Act, the Hazardous Materials Transportation Act and any other statutes regulations and ordinances which pertain to the protection of human health or animal habitats, environmentally sensitive areas or the quality, use or condition of air, soil, water, shorelines or wetlands. "Escrow Agreement" has the meaning set forth in Section 7.2. "Exhibit" means each of the exhibits attached to this Agreement and marked "A" through "D." "Final Acceptance" has the meaning set forth in Section 14. "Final Payment Date" has the meaning set forth in Section 22.1.1. "Final Plant Turnover" has the meaning set forth in Section 3.3. "Good Utility Practice" means that the Work and Contractor's performance with respect to the Work shall be in accordance with all applicable Laws, the professional practices, standards and codes of the electric power generating industry of the United States and shall be performed in a workmanlike manner consistent with those used by a reasonable, prudent construction contractor under contracts for the design, supply of plant and equipment and construction of electric power generation facilities under similar circumstances and conditions. Good Utility Practice is not intended to be limited to the optimum practice or method to the exclusion of all others, but rather to be a spectrum of reasonable and prudent practices and methods of the industry and Contractor. In applying the standard to any matter under this Agreement, equitable consideration should be given to the circumstances, requirements and obligations of each the Parties. "Guaranteed Price" has the meaning set forth in Section 6.1.1. "Hazardous Material" means all hazardous toxic; infectious, or radioactive substances, hazardous wastes, or materials listed, defined or regulated by any Environmental Law and specifically shall include petroleum, oil and its fractions, asbestos, urea formaldehyde, radon and any other hazardous, toxic or dangerous waste, substance or material. "Interconnection Points" means the tie-points of the Plant to facilities owned or under the control of Parsons other than CUC or Contractor. "Law" means any law, including, without limitation, any act, requirement, ordinance, rule, order, statutory revisionary order, executive order, decree, judicial decision, notification or other similar directive (to the extent any such notification or directive is mandatory), resolution or regulation of any governmental authority or agency (federal, national, provincial, municipal, local or other), court or tribunal that is at any time applicable to the Project, the Premises or the Work or any part Schedule 1 Page2 180 thereof, and shall include, without limitation, the Standards and all applicable environmental and hazardous waste laws, as any such law, act, requirement, ordinance, rule, resolution, regulation or Standard may be amended from time to time. "Lien" means, with respect to any asset, any material mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect to such asset (including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset). "Local Time" means the time in the CNMI. "MW" has the meaning set forth in the first "Whereas" clause of this Agreement. "Note" has the meaning set forth in Section 6.1.2(i). "Operation and Maintenance Fee" has the meaning set forth in Section 6.2.1. "Party" means one of the parties to this Agreement "Permits" means all approvals, consents, authorization, notifications, concessions, acknowledgments, agreements, licenses, decisions or similar items legitimately and lawfully required to be obtained from any Person for Contractor to perform its obligations under this Agreement. "Person" means an individual, partnership, corporation, business trust, joint stock company, limited liability company, trust, trustee, unincorporated association, joint venture, governmental entity or authority or agency. "PID's" has the meaning set fort in Section 2.2.3(i). "Plant" means the complete power generation facility to be constructed on the Premises as contemplated by this Agreement, including all Work and Systems and all ancillaries of all such works and such facilities to be constructed pursuant to this Agreement (including all machinery, apparatus, materials and other things to be provided under this Agreement for incorporation into such power generation facility). "Plant Equipment" means the generators, buildings, other structures and all other engineered, manufactured and produced items, materials, supplies and goods required to be incorporated into the Plant for the construction and operation of the Plant in accordance with this Agreement. "Plant Fixtures" has the meaning set forth in the Security Agreement "Plant Punch List" unfinished items of Plant construction which do not affect the operation, safety or integrity of the Plant and do not impact the performance or life of the Plant Equipment, but are included in the Work. "Pre-Existing Hazardous Material" means any and all Hazardous Material on the Site, whether known or unknown, before the date of the issuance of the Authorization to Proceed hereunder. "Production Fee" has the meaning set forth in Section 6.2.2 hereof. Schedule I Page 3 181 "Project" has the meaning set forth in the third "Whereas" clause of this Agreement. "Public Sector Entity" means any governmental authority, agency or court (federal, national, provincial, municipal, local or other) of the CNMI and Tinian Island that has lawful jurisdiction over the Project, the Work or any part thereof. "Schedule of Values" means the listing of: (a) all Work to be performed and Plant Equipment to be provided on the Project, and (b) the corresponding amount of the construction and installation costs set forth in Section 6.1.1(ii) hereof that Contractor shall be entitled to for providing such Work and Plant Equipment. The Schedule of Values shall identify both principal portion of the construction and installation costs as well as those additional interest amounts which represent construction phase financing. "Schedule of Work" means the schedule developed by CUC and Contractor to govern their performance of this Agreement, as amended from time to time. "Scope of Work" has the meaning set forth in Section 2.1. "Security Agreement" has the meaning set forth in Section 7.1. "Site" means the location where the Plant is to be constructed. "Subcontractor" means any Person, including without limitation, all suppliers, vendors and manufacturers of Plant Equipment, and permitted assignees of Contractor, any other subcontractor or such Person, who has a contract with, agreement with, or order from, Contractor. "Substantial Completion" has the meaning set forth in Section 3.2. "System" means the Plant Equipment and all associated components, including, but not limited to, piping, valves, wiring, controls and supports and other equipment and components agreed to in writing by the Parties, which are required to perform a given function or combination of functions on or with respect to the Plant. "Work" means all Plant Work to be provided and all work and services to be carried out by Contractor under and in accordance with this Agreement (including without limitation, the design, engineering, construction, completion, commissioning, testing, training and start-up, including the manufacture , procurement, delivery, installation and respective testing of the Project), and the Description of Plant Equipment, Capabilities and Related Services set forth in Exhibit A. Schedule I Page4 182 SCHEDULE 2 (Inclusive of Construction Financing Costs) Prepayment Date Amount In U.S.$ Substantial Completion 12,250,000.00 End of Year 3 9,783,000.00 End of Year 4 8,821,000.00 End of Year 5 7,750,000.00 End of Year 6 6,540,000.00 End of Year 7 5,200,000.00 End of Year 8 3,900,000.00 183 EXHIBIT "A" Design construction of Power Generation Plant on the island of Tinian, consisting of the following: 1. The design, engineering and erection of a power generation facility capable of self-sustained operation with 10MW load. 2. Performance of all site civil works and related services. 3. Supply, installation, testing, and commissioning of four 2.5MW, 4.6KV, 720 RPM, 60Hz diesel generator sets with all required auxiliaries for a fully integrated operational system, in addition to a 300KW, 1800RPM, housekeeping diesel generator, and SCADA system for the automatic control of the power plant. 4. Provision and installation of station transformers. 5. Provision and installation of 420,000 gal. capacity fuel storage tank. 6. Design and construction of adequate buildings to house the diesel generators and auxiliaries, storage and administration facilities as per CUC requirements. 7. Insure adequacy and compliance with all relevant regulations. 8. Operation and maintenance of the station (as an option) based on manufacturers recommendations and applicable international codes and standards to insure efficient and safe operation. 9. Provision of all necessary documentation and training to CUC personnel. 184 EXHIBIT "B" NEGOTIABLE PROMISSORY NOTE $180,000.00 ___________________, 1997 FOR VALUE RECEIVED, the undersigned, The Commonwealth Utilities Corporation, a ___________________ (the "Maker"), promises to pay to the order of Telesource CNMI, Inc. (the "Holder"), at Horiguchi Building, 5th Floor, PPP4O2, Box 10000, Saipan, MP 96950, or such other place as the Holder may later designate to Maker in writing, in lawful money of the United States, the amount of One Hundred Eighty Thousand Dollars ($180,000.00) (the "Note Amount"), which Note Amount comprises principal and interest thereon, in accordance with the terms set forth herein (this "Note"). Section 1. Payments and Maturity. The Note Amount shall be due and payable , [1st day of each month, for a period of 120 months, commencing the first month following Substantial Completion, as defined in the Contract]. Section 2. Late Charges. To the extent permitted by applicable law, if Maker shall fail to make a payment due under the terms of this Note within fifteen (15) calendar days after the date such payment is due, Maker shall pay Holder, on demand, a late charge equal to three percent (3%) of the Note Amount. Section 3. Application and Place of Payments. All payments made on account of this Note shall be applied first to the payment of any expenses or late charges then due hereunder, and second to the unpaid Note Amount. All payments on account of this Note shall be paid in lawful money of the United States of America in immediately available funds during regular business hours at Holder's aforestated address. Section 4. Prepayment Upon ten (10) days written notice to Holder, Maker may, at any time, prepay all (but not less than all) of the Note Amount by paying to Payee an amount equal to the aggregate balance of all then outstanding promissory notes (the "Other Notes") executed and delivered to Holder in connection with the construction of a power plant on Tinian, Commonwealth of the Northern Mariana Islands, as such balance may be discounted in accordance with the attached Schedule. Maker acknowledges and agrees that such prepayment values represent a reasonable and fair estimate of compensation for the loss that Holder may sustain from the prepayment of this Note. Section 5. Events of Default. The following shall constitute Events of Default hereunder: Promissory Note Page 1 185 (a) If Maker fails to pay to Holder when due the Note Amount or any other amount due under this Note; (b). If Maker falls to pay the Holder when due any amount owing under any of the Other Notes; (c) If Maker breaches or violates any covenant or agreement contained herein, in any of the Other Notes, or in the Security Agreement (as defined in Section 7 below) or in any document or instrument referenced herein or therein. (d) If Maker shall (i) make a general assignment for the benefit of creditors, or (ii) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its assets, or (iii) be adjudicated a bankrupt or insolvent, or (iv) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding relating to relief of debtors, or (v) suffer or permit to continue unstayed and in effect for sixty (60) consecutive days any judgment, decree or order entered by a court of competent jurisdiction, which approves an involuntary petition seeking reorganization of Maker or appoints, pursuant to such a petition, a receiver, trustee or liquidator for it or all or a substantial part of its assets. Section 6. Remedies. (a) Upon the happening of an Event of Default, Holder may, in Holder's sole and absolute discretion and without notice or demand to Maker, declare the entire Note Amount, together with all amounts owing under the Other Notes, immediately due and payable, whereupon, the same shall forthwith become and be due and payable without any presentment, protest, demand or notice of any kind, all of which are expressly waived by Maker. (b) If an. Event of Default shall occur, the Maker shall pay the Holder, on demand by the Holder, all reasonable costs and expenses incurred by the Holder in connection with the collection and enforcement of this Note and/or all of the Other Notes, including reasonable attorneys' fees, and Holder shall have all of the rights, power and remedies available under the terms of this Note and all applicable documents, instruments and laws. Section 7. Security. This is one of the Notes referred to in that certain Pledge and Security Agreement by and between Maker and Holder, dated of even date herewith (the "Security Agreement"), and the indebtedness evidenced by this Note is secured pursuant to the Security Agreement. All terms, covenants, provisions, conditions and promises contained in the Security Agreement to be kept, observed and performed by Maker are incorporated in and made a part of this Note, by this reference, to the same extent and force as if they were fully set forth in this Note, and Maker unconditionally agrees to keep, observe and perform them strictly in accordance with the terms and provisions of the Security Agreement. Section 8. Miscellaneous. (a) This Note shall be deemed to be made and entered into under the laws of the Commonwealth of the Northern Mariana Islands and for all purposes shall be construed and enforced in accordance with the laws of the said jurisdiction. Promissory Note Page 2 186 (b) This Note shall be binding upon Maker and Maker's successors and assigns and shall inure to the benefit of Holder and Holder's successors and assigns; except that Maker may not assign or otherwise transfer any of its obligations under this Note without prior written consent of Payee. Each reference herein to Maker or to Payee shall, except where the context shall otherwise require, be deemed to include its respective successors and assigns. (c) Any notice, request, or demand to or upon Maker or Holder shall be deemed to have been properly given or made when delivered. (d) In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note; but this Note shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent that such provision, or part thereof, is invalid, illegal, or unenforceable. (e) The captions herein set forth are for convenience of reference only and shall not be deemed to define, limit or describe the scope or intent of this Note. (f) Maker consents, without notice, to any and all extensions in the maturity of this Note, to the acceptance of partial payments before or after maturity, and to the acceptance, release and substitution of security, all without prejudice to Holder. (g) Maker agrees that in the event this Note, or the obligations evidenced by this Note, shall at any time be held to be subject to the payment of any documentary stamp, intangible or other tax (other than income taxes of Holder), Maker will pay such tax, together with interest and penalties thereon, if any. (h) Holder shall have the right to transfer or convey this Note or transfer, assign or sell participations in this Note to any Person; provided that no participation shall adversely affect Maker's or Holder's obligations hereunder. (i) Maker certifies that this Note evidences a commercial obligation of Maker to Holder. (j) Any failure or delay by Holder to exercise any right or remedy hereunder shall not constitute a waiver of the right to exercise the same or any other right or remedy at any subsequent time, and no single or partial exercise of any right or remedy shall preclude other or further exercise of the same or any other right or remedy. (k) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder. (1) THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THIS NOTE. THE PAYEE FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. THE FOREGOING WAIVER OF A TRIAL BY JURY IS A MATERIAL INDUCEMENT FOR THE PAYEE TO MAKE Promissory Note Page 3 187 THE LOAN EVIDENCED BY THIS NOTE. Any legal action or proceeding with respect to this Note or any document related hereto shall be brought in the Superior Court of the Commonwealth of the Northern Mariana Islands, and by execution and delivery of this Note, the Holder hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of aforesaid courts. The Holder hereby knowingly, voluntarily, irrevocably and unconditionally waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of the forum non conveniens which it now or hereafter may have to the bringing of an action or proceeding in such respective jurisdictions. TN WITNESS WHEREOF, Maker has caused this Note to be executed by its duly authorized officers as of the day and year first above written. THE COMMONWEALTH UTILITIES CORPORATION By: __________________________________________ Promissory Note Page 4 188 EXHIBIT "C" PLEDGE AND SECURITY AGREEMENT Dated as of , 1997 between The Commonwealth Utilities Corporation, as Obligor, and Telesource CNMI, Inc. as the Secured Party Pledge & Security Agreement Page 1 189 TABLE OF CONTENTS Article Section Page I. DEFINITIONS 1.1. Definitions II. SECURITY INTERESTS 2.1. Grant of Security Interests 2.2. Power of Attorney III. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS 3.1. Necessary Filings 3.2. No Liens; Other Financing Statements 3.3. Chief Executive Office; Name; Records 3.4. Location of Equipment, Inventory, Records and Fixtures 3.5. No Warehouse Receipts, Bills of Lading or Other Document of Title 3.6. Fair Labor Standards Act 3.7. Vehicles 3.8. Additional Covenants 3.9. Further Documentation 3.10. Further Actions IV. SPECIAL PROVISIONS CONCERNING ACCOUNTS, ASSIGNED AGREEMENTS AND GOVERNMENT CONTRACTS 4.1. Additional Representations and Warranties 4.2. Maintenance of Records 4.3. Modifications of Terms, etc. 4.4. Collection 4.5. Remedies V. SPECIAL PROVISIONS CONCERNING ASSIGNED AGREEMENTS, 5.1. Rights and Duties of Obligor under Assigned Agreements, Government Contracts and Insurance Contracts 5.2. Obligor Remains Liable 5.3. Remedies VI. [Reserved] VII. REMEDIES UPON OCCURRENCE OF CUC EVENT OF DEFAULT 7.1. Remedies; Obtaining the Collateral upon Default 7.2. Remedies; Disposition of the Collateral 7.3. Waiver 7.4. Expenses of Disposition of Collateral 7.5. Application of Proceeds; Obligor Liable for Deficiency 7.6. Remedies Cumulative; No Waiver 7.7. Discontinuance of Proceedings 7.8. Secured Party's Duty as to Collateral Pledge & Security Agreement Page 2 190 VIII. INDEMNITY 8.1. Indemnity 8.2. Contract Obligations, Survival IX. MISCELLANEOUS 9.1. Notices 9.2. Amendments, Waivers, etc. 9.3. Successors and Assigns 9.4. Severability 9.5. Heading Descriptive 9.6. Counterparts 9.7. Expenses 9.8. Governing Law 9.9. Submission to Jurisdiction 9.10. Waiver of Trial by Jury 9.11. Obligor's Duties 9.12. Termination and Reinstatement 9.13. Security Interest Absolute 9.14. Recourse 9.15. Conflicting Terms List of Schedules Schedule A Assigned Agreements Schedule B Insurance Contracts Schedule C Locations of Collateral Pledge & Security Agreement Page 3 191 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT, dated as of ________, 1997, is made by The Commonwealth Utilities Corporation (the "Obligor"), in favor of Telesource CNMI, Inc., a corporation of the Commonwealth of the Northern Mariana Islands (the "Secured Party"). WITNESSSETH: WHEREAS, pursuant to that certain Agreement for Design, Supply of Plant and Equipment, Construction, Maintenance and Operation and Transfer of Ownership (as amended, restated, supplemented or otherwise modified from time to time, the "Contract"), dated as of the date hereof, by and between the Secured Party and the Obligor, the Secured Party has agreed to design, construct and finance, operate and maintain the Plant (as defined herein); and WHEREAS, it is a condition precedent to the Secured Party's design, construction, financing, operation and maintenance of the Plant that the Obligor executes and delivers this Agreement to the Secured Party; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular. All capitalized terms used herein and not otherwise defined herein shall have the meaning provided in the Contract. "Account Obligor" shall mean "account obligor," as defined in Section 9-105(1)(a) of the UCC. "Account Records" shall mean (a) all original copies of all documents, instruments or other writings evidencing the Accounts, (b) all books, correspondence, credit or other files, records, ledger sheets or cards, invoices and other papers relating to the Accounts (including, without limitation, all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Accounts) whether in the possession or under the control of the Obligor or any computer bureau or agent from time to time acting on behalf of the Obligor, (c) all evidences of the filing of financing statements and the registration of other instruments in connection with any Accounts and amendments, supplements or other modifications thereto, notices to other creditors or secured parties and certificates, acknowledgments, or other writings, including, without limitation, lien search reports, from filing or other registration officers, (d) all credit information, reports and memoranda relating to any Accounts and (e) all other written or non-written forms of information related in any way to the foregoing or any Accounts. "Accounts" shall mean those "accounts" in which the Obligor has any right, title or interest, as defined in Section 9-106 of the UCC and which represent all of the Obligor's rights to payment for goods sold or leased or services rendered, whether or not earned by performance, which are related in any way to the Plant, including, without limitation, all rights to payment for the sale or Pledge & Security Agreement Page 4 192 production of power by the Plant, and (i) all such rights evidenced by an account, note, contract, security agreement, chattel paper or other evidence of indebtedness or security, (ii) all amounts and claims for amounts payable to or for the account of the Obligor under the Assigned Agreements or the other Collateral, (iii) all claims, rights, privileges and remedies on the part of the Obligor, whether arising under the Assigned Agreements or the other Collateral or by statue or at law or in equity or otherwise or arising out of or in connection with any failure by any party to any Assigned Agreements or the other Collateral, to receive any payment assigned hereunder, (iv) all amounts payable by any party pursuant to any Assigned Agreements or the other Collateral as a result of the exercise of any such claim, right, privilege or remedy, including, without limitation, all rights and claims of the Obligor under any bonding, insurance, indemnities, guaranties, warranties and liquidated damages arising out of or in connection therewith, (v) all security pledged, assigned, hypothecated or granted to or held by the Obligor to secure any and all of the foregoing and (vi) all rights of the Obligor to exercise any election or option or to give or receive any notice, consent, waiver or approval under or in respect of the Assigned Agreements or the other Collateral and the right (but not the obligation) to exercise or enforce any and all covenants, remedies, powers and privileges thereunder and to do any and all other things the Obligor is entitled to do thereunder, together with full power and authority, in the name of the Obligor or otherwise, to enforce, collect, receive and give receipt for any and all of the foregoing. "Agreement" shall mean this Pledge and Security Agreement as the same may from time to time hereafter be amended, restated, supplemented or modified in accordance with its terms. "Assigned Agreements" shall mean each of the agreements set forth on Schedule A hereto as the same may from time to time be amended, restated, supplemented or modified in accordance with their respective terms. "Chattel Paper" shall mean all "chattel paper" related in any way to the Plant in which the Obligor has any right, title or interest, as defined in Section 9-105(1)(b) of the UCC. "Collateral" shall have the meaning provided in Section 2.1. "Contract" shall have the meaning provided in the first "Whereas" clause of this Agreement. "Contract Obligations" means any and all of the Obligor's obligations, financial or otherwise, under the Contract and each and all of the Assigned Agreements, including, but not limited to, the payment of the Guaranteed Price and all accrued interest thereon. "Contract Proceeds" shall mean any and all proceeds from the Contract and the Assigned Agreements, in which the Obligor has any right, title or interest. "CUC Event of Default" shall have the meaning provided in the Contract. "Deposit Accounts" shall mean each and every deposit account and each and every securities account (general or special) relating to the design, construction, financing, operation, maintenance or ownership of the Plant, including, without limitation, "deposit accounts," as defined in Section 9-105(1)(e) of the UCC, together with all funds, instruments and other items credited to any such account from time to time, and all interest or other distribution thereon and all claims of the Obligor with respect thereto. "Documents" shall mean all "documents" related in any way to the Plant in which the Obligor has any right, title or interest, as defined in Section 9-105(l)(f) of the UCC. Pledge & Security Agreement Page 5 193 "Equipment" shall mean all "equipment" related in any way to the Plant in which the Obligor has any right, title or interest, as defined in Section 9-109(2) of the UCC and which shall include, but shall not be limited to, all (i) Plant Equipment and Systems, (ii) all machinery, office equipment, furniture, appliances, tools, furnishings, Vehicles and any other goods and equipment used in connection with the design, engineering, construction, maintenance, operation or ownership of the Plant, (iii) any manuals, instructions, blueprints, computers, data processing equipment, computer software and similar items which relate to any of the foregoing and (iv) any and all additions, substitutions and replacements of any of the foregoing, together with all improvements thereon and all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Fixtures" shall mean all "fixtures" related in any way to the Plant in which the Qbligor has any right, title or interest, as defined in Section 9-313(1)(a) of the UCC. "General Intangibles" shall mean all "general intangibles" related in any way to the Plant in which the Obligor has any right, title or interest, as defined in Section 9-106 of the UCC and, which shall include, but shall not be limited to, (i) rights to the payment of money (other than Accounts), (ii) all limited and general partnership interests and joint venture interests, (iii) all Federal, state and local income tax refunds and all claims therefor, (iv) all trade secrets and other proprietary rights, (v) all payments due in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of Governmental Authority), (vi) all residual interests in trusts and credits with and other claims against any Person and (vii) any collateral for any of the foregoing and the rights under any security agreement granting a security interest in such collateral. "Governmental Authority" means the government of the United States of America, the government of the Commonwealth of the Northern Mariana Islands, and all local and municipal governments on the Island of Tinian, including any department, division, organziation, agency or branch thereof. "Guaranteed Price" shall have the meaning provided in the Contract "Indemnitee" shall have the meaning provided in Section 8.1. "Instruments" shall mean all "instruments" related in any way to the Plant in which the Obligor has any right, title or interest, as defined in Section 9-105(1)(i) of the UCC. "Insurance Contracts" shall mean all insurance contracts and policies procured or maintained by the Obligor related in any way to the Plant, including, but not limited to, those set forth on Schedule B hereto, and all amendments, renewals and modifications thereof. "Inventorv" shall mean all "inventory" related in any way to the Plant in which the Obligor has any right, title or interest, as defined in Section 9-109(4) of the UCC and which shall include, but shall not be limited to, inventory, goods, mobile goods, merchandise and other personal property (whether such inventory, goods, mobile goods, merchandise and other personal property are in the possession of the Obligor or of a bailee or other Person for sale, lease, storage, transit, processing, use or otherwise and whether consisting of whole goods, spare parts, components, supplies, materials or consigned or returned or repossessed inventory, goods, mobile goods, merchandise and other personal property), including, without limitation, all such inventory, goods, mobile goods, merchandise and other personal property which are held for sale or lease or are furnished or to be furnished under any contract of service, which are raw materials or work in progress or material used or consumed in the Obligor's business. Pledge & Security Agreement Page 6 194 "Obligor" shall have the meaning provided in the introductory paragraph to this Agreement. "Permits" shall mean all applicable authorizations, certificates, licenses, approvals, waivers, exemptions, variances, franchises, permissions and permits of any Governmental Authority required or obtained in connection with (i) the purchase, acquisition, design, construction, testing, maintenance, ownership, maintenance and operation of the Plant and the Plant Equipment and Systems, and (ii) the transactions contemplated by the Construction Contract or the Assigned Agreements. "Permitted Encumbrance(s)" shall mean . "Plant" shall have the meaning provided in the Contract. "Plant Equipment" and "System" shall have the meanings provided in the Contract. "Proceeds" shall mean all "proceeds" in which the Obligor has any right, title or interest, as defined in Section 9-306(1) of the UCC and which shall include, but not be limited to, (i) any and all proceeds of any Insurance Contracts, indemnity, warranty or guaranty payable to the Secured Party or the Obligor from time to time, and claims for insurance under any Insurance Contracts, indemnity, warranty or guaranty effected or held for the benefit of the Obligor, with respect to any of the Collateral except to the extent that any proceeds of Collateral described in this clause (i) are payable to a Person other than the Secured Party or the Obligor as permitted by the terms of the Construction Contract, (ii) any and all proceeds of any of the Deposit Accounts, (iii) any and all payments (in any form whatsoever) made or due and payable to the Obligor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any person acting under color of Governmental Authority) and (iv) any and all other amounts from time to time paid or payable to or for the benefit of the Obligor under or in connection with any of the Collateral. "Property" or "Site" means that certain parcel of real property located at ___________, and on which the Plant will be situated. "Records" shall mean all books, records, computer software, computer printouts, customer lists, blueprints, technical specifications, manuals and similar items in which the Obligor has any right, title or interest, and which relate to any Collateral. "Secured Party" shall have the meaning provided in the introductory paragraph to this Agreement. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the Commonwealth of the Northern Mariana Islands. "Vehicles" shall mean all cars, trucks, trailers, construction equipment and other vehicles covered by a certificate of title law which are used in connection with the construction, maintenance, operation or ownership of the Plant, and in which the Obligor has any right, title or interest, and all tires and other appurtenances to any of the foregoing. Pledge & Security Agreement Page 7 195 ARTICLE II SECURITY INTERESTS 2.1. Grant of Security Interests. As security for the prompt and complete payment and performance in full of Obligor's Contract Obligations, the Obligor hereby grants, mortgages, assigns, pledges and transfers to the Secured Party a continuing security interest in all of the Obligor's right, title and interest in, to and under the following property, in each case, whether now owned or existing or hereafter acquired or arising, and wherever located (all of which being hereinafter collectively called the "Collateral"): (a) all Accounts; (b) all Account Records; (c) all Assigned Agreements; (d) all Chattel Paper; (e) all Deposit Accounts; (f) all Documents; (g) all Equipment; (h) all Fixtures; (i) all General Intangibles; (j) all Contract Proceeds; (k) all Instruments; (1) all Insurance Contracts; (n) all Inventory; (n) all Records; (o) all Permits owned by or granted to or for the benefit of the Obligor or related to the design and Construction of the Plant; (p) all replacements, substitutions, additions or accessions to or for any of the foregoing; and (q) all Proceeds and products of any or all of the foregoing and, to the extent not otherwise included, all cash constituting proceeds of the Collateral. The assignment of the payments and rights and the grant of the security interests provided for in this Section 2.1 shall be effective concurrently with the execution and delivery of this Agreement and shall not be conditioned upon the occurrence of any default hereunder, under the Contract or under any Assigned Agreements or of any other contingency or event. 2.2. Power of Attorney. (a) The Obligor hereby irrevocably constitutes and appoints the Secured Party, with full power of substitution, as the Obligor's true and lawful attorney, with irrevocable power and authority in the place and stead of the Obligor and in the name of the Obligor or in its own name, from time to time, after a CUC Event of Default has occurred and so long as it is continuing, in its sole discretion, to take, at the Obligor's sole expense, any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the Secured Party the power and tight, on behalf of the Obligor, without notice to or assent by the Obligor, to do, at the Obligor's sole expense, the following after a CUC Event of Default has Pledge & Security Agreement Page 8 196 occurred and so long as it is continuing: (i) to pay or discharge taxes or Liens levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Agreement, the Contract or the Assigned Agreements and to pay all or any part of the premiums therefor and the costs thereof; (ii) to require, demand, receive and give acquittance for any sums or moneys due or received in connection with the Contract or any of the Assigned Agreements or Accounts, to exercise the rights, powers and remedies relating thereto, to endorse any checks or other instruments or orders in connection therewith or to file any claims or to take any action or institute any proceedings which the Secured Party may deem to be necessary or advisable and to exercise any election or option or give any notice, consent, waiver or approval under, or deliver any requisition for payment under, or take any other action in respect of, the Contract or any of the Assigned Agreements or Accounts; (iii) (A) to direct any party liable for any payment under any Collateral, including, without limitation, any Account Obligor, to make payment of any and all monies due and to become due thereunder directly to the Secured Party or as the Secured Party shall direct, (B) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due and to become due under, arising out of, in respect of, or in connection with any Collateral and, in the name of the Obligor or its own name or otherwise, to take possession of and endorse, sign, assign, deliver and collect any checks, drafts, notices, acceptances or other instruments for the payment of monies due under any Collateral, (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents relating to the Collateral, (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction or to take any other action deemed appropriate by the Secured Party to enforce the Contract or any of the Assigned Agreements, Accounts or Insurance Contracts or to collect the Collateral or any portion thereof or any amounts due thereunder whenever payable and to enforce any other right in respect of any Collateral, (E) to defend any suit, action or proceeding brought against the Obligor with respect to any Collateral, (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Secured Party may deem appropriate and (G) generally to sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Secured Party were the absolute owner thereof for all purposes, and to do, at the Secured Party's option and the Obligor's expense, at any time, or from time to time, all acts and things which the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as the Obligor might do; and (iv) to execute and file any financing or continuation statements without the signature of the Obligor to the extent permitted by applicable law, under the Uniform Commercial Code in effect in any relevant jurisdiction, to perfect, or to maintain the perfection of, the security interests granted hereby; the Obligor hereby acknowledges that a carbon, photostatic or other reproduction of a security agreement shall be sufficient as a financing statement. The Obligor hereby ratifies all that the said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable so long as any of the Collateral is subject to the security interest granted hereunder. (b) The powers conferred on the Secured Party are solely to protect the interests of the Pledge & Security Agreement Page 9 197 Secured Party in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. ARTICLE III GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS The Obligor represents, warrants and covenants, which representations, warranties and covenants shall survive the execution and delivery of this Agreement, as follows: 3.1. Necessary Filings. All filings, registrations, recordings and other actions necessary or appropriate to create, preserve, protect and perfect the security interest granted by the Obligor to the Secured Party hereby in respect of the Collateral have been accomplished and, to the extent necessary, will be accomplished within the applicable statutory grace periods in order to obtain the date hereof as the effective date of recordation of such filing. The security interest granted to the Secured Party pursuant to this Agreement in and to the Collateral shall constitute a valid and enforceable perfected first priority security interest therein superior and prior to the rights of all other Persons (other than to the rights of the persons holding any Permitted Encumbrance there in) and subject to no other liens, charge or other encumbrance (other than Permitted Encumbrances) and shall be entitled to all the rights, priorities and benefits afforded by the UCC or other relevant law as enacted in any relevant jurisdiction applicable to perfected security interests or pledge and assignments in the Collateral. 3.2. No Liens: Other Financing Statements. (a) Except for the Liens granted to the Secured Party hereunder, the Obligor is, and as to all Collateral acquired by it from time to time after the date hereof, the Obligor will be, the sole and absolute owner of each item of the Collateral free and clear of any and all Liens, rights, interests and claims of any person (other than Permitted Encumbrances), and the Obligor shall defend such Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party. (b) There is no financing statement executed by or on behalf of the Obligor (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (except those executed by Obligor in connection with the Construction Contract and the Assigned Agreements), and the Obligor will not (except as aforesaid and as is otherwise provided herein) execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral. 3.3. Chief Executive Office: Name: Records. The chief executive office of the Obligor is located at _________________________________. The Obligor will not (a) move its chief executive office or (b) change its name from, or carry on business under any name other than, "unless it has complied with the requirements of the last sentence of this Section 3.3. The originals of all documents evidencing the Collateral and the only original books of account and records of the Obligor relating thereto are, and will continue to be, kept at, and controlled and directed (including, without limitation, for general accounting purposes) from, such chief executive office, or at such new location for such chief executive office as the Obligor may establish in accordance with the last sentence of this Section 3.3. The Obligor shall not establish a new location for its chief executive office or change its name or the name under which it conducts its business or effect any change in its corporate structure until (i) it has given to the Secured Party not less than 60 days' prior written notice of its Pledge & Security Agreement Page 10 198 intention to do so, clearly describing such new location or specifying such new name, as the case may be, and providing such other information in connection therewith as the Secured Party may reasonably request and (ii) with respect to such new location or such new name, as the case may be, it shall have taken all action, satisfactory to the Secured Party, necessary to maintain the security interest of the Secured Party in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 3.4. Location of Equipment. Inventory. Records and Fixtures. All Equipment, Inventory, Records, Fixtures and other goods now or from time to time included in the Collateral are located in the Commonwealth of the Northern Mariana Islands. The Obligor agrees that all Equipment, Inventory, Records, Fixtures and other goods now or from time to time included in the Collateral shall be kept at (or shall be in transport to) the Commonwealth of the Northern Mariana Islands, or such new location as the Obligor may establish in accordance with the last sentence of this Section. The Obligor may establish a new location for Equipment, Inventory, Records, Fixtures and other goods only if (i) it shall have given to the Secured Party at least 60 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Secured Party may request and (ii) with respect to such new location, it shall have taken all action, satisfactory to the Secured Party, to maintain the security interest of the Secured Party in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 3.5. No Warehouse Receipts. Bills of Lading or Other Document or Title. No Inventory or Equipment is covered by or otherwise subject to any warehouse receipt, bill of lading or other document of title (as each such term is defined in Section 1-201 of the UCC), and the Obligor agrees that any Inventory or Equipment that from time to time is included in the Collateral will either (i) not be covered by or otherwise subject to any such warehouse receipt, bill of lading or other document of title or (ii) if any such Inventory or Equipment is so covered by or otherwise subject to any such warehouse receipt, bill of lading or other document of title, then the Obligor shall immediately give notice thereof to the Secured Party in detail reasonably satisfactory to the Secured Party, and the Obligor shall promptly deliver such warehouse receipt, bill of lading or other document of title to the Secured Party in pledge under and on the terms of this Agreement, and the Obligor shall take all such other actions and deliver all such other documents or instruments as the Secured Party may deem necessary or appropriate to perfect its security interest in such warehouse receipt, bill of lading or other document of title and in the Inventory and Equipment covered thereby, and the Obligor hereby agrees that the Secured Party may take all such actions and file all such financing statements on behalf of the Obligor; provided, however that no such warehouse receipt, bill of lading or other documents of title shall in any event be "negotiable" as such term is used in Section 7-104 of the UCC or under other relevant law. 3.6. Fair Labor Standards Act. All Inventory produced by the Obligor has been, and all Inventory hereafter produced by the Obligor and included in the Collateral will be, produced in compliance with all applicable requirements of the Fair Labor Standards Act, as amended. 3.7. Vehicles. As of the Closing Date, the Obligor owns no Vehicles. With respect to any Vehicles acquired by the Obligor on or after the date hereof, within 15 days after the date of acquisition thereof, all applications for certificates of title or ownership indicating the Secured Party's first priority Lien on the Vehicle covered by such certificate, and any other documentation, shall be filed in each office in each jurisdiction which the Secured Party may deem necessary or advisable to perfect its Liens on the Vehicles. No Vehicle shall be removed from the the political jurisdiction which has issued the certificate of title or ownership therefor for a period in excess of 48 days. Pledge & Security Agreement Page 11 199 3.8. Additional Covenants. The Obligor covenants and agrees that, so long as this Security Agreement is in effect and until the Contract Obligations are paid in full or otherwise terminated, it will: (a) Pay (i) all taxes, assessments and governmental charges imposed upon it or upon its property and (ii) all claims (including, without limitation, claims for labor, materials, supplies or services) which might, if unpaid, become a Lien upon its property, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and the Obligor has maintained adequate reserves with respect thereto; (b) Allow any representative of the Secured Party to visit and inspect any of the Obligor's properties, to examine its books of record and account and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Secured Party may reasonably request; (c) Ensure that its property, Inventory and Equipment used or useful in its business, in whosoever possession they may be, are kept in good repair, working order and condition (normal wear and tear excepted), and that from time to time there are made in such properties, Inventory and Equipment all necessary and proper repairs, renewals, replacements, extensions, additions, betterments and improvements thereto, to the extent and in the manner customary for companies in similar lines of business under similar circumstances; and (d) Execute and deliver to the Secured Party, from time to time, solely for the Secured Party's convenience in maintaining a record of the Collateral, such written statements and schedules as the Secured Party may reasonably require, designating, identifying or describing the Collateral. 3.9. Further Documentation. At any time and from time to time, upon the written request of the Secured Party, and at the sole expense of the Obligor, the Obligor will promptly execute and deliver any and all such further instruments and documents and take such further action as the Secured Party may deem desirable in order to obtain the full benefits of this Agreement and of the rights and powers granted or purported to be granted hereby, including, without limitation, the filing of any financial or continuation statements under the Uniform Commercial Code (or equivalent law) in effect in any relevant jurisdiction or any additional evidence of the security interest created hereby with any patent, trademark or copyright registry, necessary or advisable (in the Secured Party's sole discretion) to perfect, or to maintain the perfection of, the security interests granted hereby. The Obligor also hereby authorizes the Secured Party to file any such financing or continuation statement without the signature of the Obligor to the extent permitted by applicable law. A carbon, photographic or other reproduction of a security agreement or a financing statement shall be sufficient as a financing statement. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Chattel Paper, Document or Instrument, such Chattel Paper, Document or Instrument shall be immediately pledged and delivered to the Secured Party, duly endorsed in a manner satisfactory to the Secured Party. 3.10. Further Actions. The Obligor will, at its own expense, make, execute, endorse, acknowledge, file and deliver to the Secured Party from time to time such lists, descriptions and designations of its Collateral, bills of lading, documents of title, vouchers, invoices, schedules, powers of attorney, certificates, additional security agreements, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which are necessary or desirable to create, perfect, preserve, protect or validate (under the Assignment of Claims Act of 1940, as amended, or Pledge & Security Agreement Page 12 200 otherwise, to the extent applicable), any security interest granted pursuant to this Security Agreement or to enable the Secured Party to exercise and enforce its rights under this Agreement with respect to such security interest. ARTICLE IV SPECIAL PROVISIONS CONCERNING ACCOUNTS AND ASSIGNED AGREEMENTS 4.1. Additional Representations and Warranties. As of the time when each of its Accounts arises, the Obligor shall be deemed to have represented and warranted that such Accounts are genuine and in all respects what they purport to be, and that all papers and documents (if any) relating, thereto (i) will (subject to dispute, return, replacement, settlement or compromise) represent, to the best knowledge of the Obligor, the legal, valid and binding obligation of the Account Obligor for the indebtedness owing by such Account Obligor arising out of the performance of labor or services or the sale or lease and delivery of the merchandise or services, subject to no defense, offset or counterclaim by the Account Obligor, (ii) will be the only original writings containing original signatures evidencing and embodying such obligation of the Account Obligor named therein and (iii) will be in compliance and will conform with all applicable laws and governmental rules and regulations, including, without limitation, the Assignment of Claims Act of 1940, as amended, to the extent applicable. 4.2. Maintenance of Records. The Obligor will keep and maintain, at its own expense, complete records of its Accounts reasonably satisfactory to the Secured Party, including, but not limited to, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and the Obligor will make the same available to the Secured Party, for inspection at the Obligor's chief executive office, at the Obligor's own expense, at any and all reasonable times upon demand. The Obligor shall, at its own expense, deliver all tangible evidence that the Secured Party may request of its Accounts (including, without limitation, all documents evidencing the Accounts) and books and records to the Secured Party or to its representatives (copies of which evidence and books and records may be retained by the Obligor) at any and all times during business hours upon demand. If an Event of Default shall have occurred and be continuing, and if the Secured Party so directs, the Obligor shall legend, in form and substance satisfactory to the Secured Party, the Accounts, as well as books, records and documents of the Obligor evidencing or pertaining to the Accounts with an appropriate reference to the fact that the Accounts have been assigned to the Secured Party and that the Secured Party has a security interest therein. 4.3. Modification of Terms. etc. The Obligor shall not rescind or cancel any indebtedness evidenced by any of the Accounts or modify any term thereof or make any adjustment with respect thereto, or extend or renew the same, without the prior written consent of the Secured Party, which consent shall not be unreasonably withheld or compromise or settle any dispute, claim, suit or legal proceeding relating thereto, or sell any Accounts or interest therein. The Obligor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Accounts and will do nothing to impair the rights of the Secured Party in the Accounts. 4.4. Collection. The Obligor shall endeavor to cause to be collected from each Account Obligor or obligor under the Accounts, and the Assigned Agreements, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted collection procedures in accordance with all applicable laws), any and all amounts owing under or on account of the applicable Account or Assigned Agreement, and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Account or Assigned Agreement. The costs and expenses (including, without limitation, all Pledge & Security Agreement Page 13 201 reasonable attorneys' fees and disbursements) of collection, whether incurred by the Obligor or the Secured Party, shall be borne by the Obligor. 4.5. Remedies. In addition to, and not in limitation of, the remedies set forth in Article VII hereof, if a CUC Event of Default shall have occurred and be continuing and if the Secured Party so directs, the Obligor agrees (a) to cause all payments on account of the Accounts and the Assigned Agreements to be made directly to the Secured Party and (b) that the Secured Party may, at its option, directly notify any or all Account Debtors and obligors under the Assigned Agreements to make payments with respect thereto directly to the Secured Party. The Secured Party may collect, compromise, forgive or extend or take any other action with respect to any right to receive any payment under any of the Accounts or the Assigned Agreements, and the Secured Party may take any other action with respect to any of the Accounts or Assigned Agreements, and the Obligor agrees to be bound by any such collection, compromise, forgiveness, extension or other action taken by the Secured Party with respect to any such Accounts or Assigned Agreements. Without notice to or assent by the Obligor, if a CUC Event of Default shall have occurred and be continuing, the Secured Party may apply any or all amounts then in its possession, or thereafter deposited with it, in the manner provided in Section 7.5 hereof. The costs and expenses (including, without limitation, all reasonable attorneys' fees and disbursements) of collection, whether incurred by the Obligor or the Secured party, shall be borne by the Obligor. ARTICLE V SPECIAL PROVISIONS CONCERNING ASSIGNED AGREEMENTS AND INSURANCE CONTRACTS 5.1. Rights and Duties of Obligor under Assigned Agreements and Insurance Contracts. So long as no CUC Event of Default shall have occurred and be continuing and except as otherwise provided in Article IV hereof or in other provisions of this Agreement or in the Contract or the Assigned Agreements, the Obligor may exclusively exercise all of the Obligor's rights, powers, privileges and remedies under the Assigned Agreements and the Insurance Contracts. Anything herein to the contrary notwithstanding, the Obligor shall not (unless otherwise permitted under the Contract) exercise any right to terminate, amend, supplement or otherwise modify any of the Assigned Agreements or Insurance Contracts provided, however, that if the Obligor fails to perform any provision of any of the Assigned Agreements or Insurance Contracts, each in accordance with its respective terms, and the failure to effect such performance is likely to adversely affect the value of the security granted to the Secured Party hereunder or under the Contract or the Assigned Agreements, the Secured Party may, upon written notice to the Obligor, unless the Obligor is itself diligently pursuing a cure for such failure that cannot be obtained more quickly by the Secured Party's performance as specified herein, itself perform (including, without limitation, by satisfying any payment obligation), or cause the performance of, any such Assigned Agreements or Insurance Contracts, in accordance with the terms thereof, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Obligor pursuant to Article VIII hereof. The Obligor shall, at its sole expense, fully perform and comply with all of the terms of each of the Assigned Agreements and the Insurance Contracts to be performed or complied with by it, and will do all things necessary, on its part to maintain each such Assigned Agreement and Insurance Contract in full force and effect, will do all things necessary to keep unimpaired all of its rights, powers and remedies thereunder and to prevent any forfeiture or impairment thereof, will enforce each such Assigned Agreement and Insurance Contract, in accordance with its respective terms, and will take all such action to that end or to enforce any such Assigned Agreement and Insurance Contract as from time to time may be requested by the Secured Party. No settlement on account of any loss, in excess of $25,000 per each such loss and $125,000 in the aggregate, related to any property covered by any of the Insurance Contracts shall be made without the written consent of the Secured Party, which consent shall not be unreasonably withheld. Pledge & Security Agreement Page 14 202 5.2. Obligor Remains Liable. Anything herein to the contrary notwithstanding, except as set forth in the next succeeding sentence, the Obligor shall remain liable under each of the Assigned Agreements and Insurance Contracts and all other contracts and agreements included in the Collateral and shall fully perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed. The exercise by the Secured Party of any of its rights hereunder shall not release the Obligor from any of its duties or obligations under any of the Assigned Agreements or Insurance Contracts or any other contracts and agreements included in the Collateral, except that in the event of foreclosure upon any Collateral by the Secured Party and the exercise by the Secured Party of its rights to sell such Collateral as between the Obligor and the Secured Party, the Obligor shall be under no further obligation to the Secured Party to perform its obligations under such Collateral after such event. The Secured Party shall not have any obligation or liability under any of the Assigned Agreements or Insurance Contracts or any other contracts and agreements included in the Collateral solely by reason of this Agreement or the Construction Contract, nor shall the Secured Party be obligated to perform any of the obligations or duties of the Obligor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 5.3. Remedies. In addition to and not in limitation of the remedies set forth in Article VII hereof, if a CUC Event of Default shall have occurred and be continuing, the Secured party may, upon notice to the Obligor in compliance with any mandatory requirements of applicable law, take any or all of the following actions: (a) enforce all remedies, rights, powers and privileges of the Obligor under any or all of the Assigned Agreements and Insurance Contracts or (b) substitute itself or any nominee or trustee in lieu of the Obligor as party to any or all of the Assigned Agreements and Insurance Contracts and (c) notify the Account Obligor of any or all Accounts, Assigned Agreements, Insurance Contracts or General Intangibles (the Obligor hereby agreeing to deliver, at its own expense, any such notice at the request of the Secured Party) that all payments and performance under the relevant Accounts, Assigned Agreements, Insurance Contracts and General Intangibles shall be made or rendered to the Secured Party or such other person as the Secured Party may designate. ARTICLE VI [RESERVED] ARTICLE VII REMEDIES UPON OCCURRENCE OF CUC EVENT OF DEFAULT 7.1. Remedies: Obtainin2 the Collateral Upon Default. The Obligor agrees that if a CUC Event of Default shall have occurred and be continuing, then, and in every such case, the Secured Party may exercise, in addition to all other rights and remedies granted to the Secured Party in this Agreement, the Contract, any of the Assigned Agreements, and any other instrument or agreement securing, evidencing or relating to any of the foregoing, all rights and remedies of a secured party under the Uniform Commercial Code in effect in any relevant jurisdiction or under other applicable law in any relevant jurisdiction. Without limiting the generality of the foregoing, the Secured Party may do any or all of the following: (a) personally, or by trustees or attorneys, immediately take possession of the Collateral or any part thereof from the Obligor or any other Person who then has possession of any part thereof, with or without notice or process of law, and for that purpose may enter upon the Obligor's premises, or, to the extent permitted by applicable law, such other Person's premises, Pledge & Security Agreement Page 15 203 where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of the Obligor; and (b) take possession of the Collateral or any part thereof by directing the Obligor to deliver (to the extent such Collateral is a physical nature so that it may be so delivered) the same to the Secured Party at any place or places designated by the Secured Party and reasonably convenient to both parties, in which event the Obligor shall, at its own expense: (i) forthwith cause the same to be moved to the place or places so designated by the Secured Party and there delivered to the Secured Party; (ii) store and keep any Collateral so delivered to the Secured Party at such place or places pending further action by the Secured Party as provided in Section 7.2; and (iii) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition. The Obligor's obligation to deliver the Collateral is of the essence of this Agreement and, accordingly, upon application to a court of equity having jurisdiction, the Secured Party shall be entitled to obtain a decree requiring specific performance by the Obligor of the said obligation. 7.2. Remedies: Disposition of the Collateral. Any Collateral seized by the Secured Party pursuant to this Agreement, and any other Collateral, whether or not so seized by the Secured Party, may be sold, leased, assigned, transferred or otherwise disposed of under one or more agreements or as an entirety, and without the necessity of gathering at the place of sale of the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as may be commercially reasonable and in compliance with any mandatory requirements of applicable law. Any of the Collateral may be sold, leased, assigned, transferred or otherwise disposed of, in the condition in which the same existed when taken by the Secured Party or after any overhaul or repair which may be commercially reasonable and in compliance with any mandatory requirements of applicable law. Any such disposition shall be made upon not less than 10 days' written notice to the Obligor (which the Obligor agrees is reasonable notification within the meaning of Section 9-504(3) of the UCC) specifying the time such disposition is to be made and, if such disposition shall be a public sale, specifying the place of such sale. Any such sale may be adjourned by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by law, the Secured Party may itself bid for and become the purchaser of the Collateral or any item thereof offered for sale at a public auction without accountability to the Obligor (except to the extent of surplus money received as provided in Section 7.5). 7.3. Waiver. (a) Except as otherwise provided in this Agreement, THE OBLIGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JTJDICIAL HEARING IN CONNECTION WITH THE SECURED PARTY'S TAKING POSSESSION OR THE SECURED PARTY'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE OBLIGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and the Obligor hereby further waives: Pledge & Security Agreement Page 16 204 (i) all damages occasioned by such taking of possession, except any damages which are determined to have been the result of the Secured Party's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and the Obligor, for itself and all who may claim under it, insofar as it or they may now or hereafter lawfully do so, hereby waives the benefit of such laws. (b) Without limiting the generality of the foregoing, the Obligor hereby: (i) acknowledges that the Secured Party, in the sole discretion of the Secured Party and without notice to or demand upon the Obligor and without otherwise affecting the obligations of the Obligor hereunder, from time to time may take and hold other collateral (in addition to the Collateral) for payment of any of the Contact Obligations or any part thereof, may exchange, enforce or release such other collateral or any part thereof, may accept and hold any endorsement or guarantee of payment of the Contract Obligations or any part thereof and may release or substitute any endorser or guarantor or any other Person granting security for or in any way obligated upon any Contract Obligations or any part thereof; and (ii) waives and releases any and all right to require the Secured Party to collect any of the Contract Obligations from any specific item or items of Collateral or from any other party liable as guarantor or in any other manner in respect of any of the Contract Obligations or from any collateral (other than the Collateral) for any of the Contract Obligations. (c) Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Obligor therein and thereto and shall be a perpetual bar both at law and in equity against the Obligor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any party thereof, from, through and under the Obligor. 7.4. Expenses of Disposition of Collateral. The Obligor agrees to pay all costs and expenses of the Secured Party (including, without limitation, all reasonable attorneys' fees and disbursements) incurred by the Secured Party in connection with the collection of any of the Contract Obligations and the enforcement of any of its rights, remedies and privileges hereunder, under the Contract, any of the Assigned Agreements, and under any other instrument or agreement securing, evidencing or relating to any of the foregoing. 7.5. Application of Proceeds; Obligor Liable for Deficiency. The proceeds of any Collateral realized upon pursuant hereto or disposed of pursuant to Section 7.2 shall be applied as follows: (a) to the payment of any and all expenses and fees (including, without limitation, all reasonable attorneys' fees and disbursements) incurred by the Secured Party in obtaining, taking possession of, removing, insuring, repairing, storing and disposing of Collateral and any and all amounts incurred by the Secured Party in connection therewith; (b) next, to the payment of the Contract Obligations in such order as the Secured Party may determine; and (c) next, if no Contract Obligation is outstanding, any surplus then remaining shall be paid to the Obligor (or whoever shall be lawfully entitled thereto) subject, however, to the rights of Pledge & Security Agreement Page 17 205 the holders of any existing Liens of which the Secured Party has actual notice (without any investigation required); it being understood that the Obligor shall remain liable to the Secured Party to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in clauses (a) and (b) of this Section. 7.6. Remedies Cumulative: No Waiver. Each and every right, power, privilege and remedy hereby specifically given to the Secured Party shall be in addition to every other right, power, privilege and remedy specifically given under this Agreement or under the Contract or any of the Assigned Agreements or now or hereafter existing at law or in equity, or by statute, and each and every right, power, privilege and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Secured Party. All such rights, powers, privileges and remedies shall be cumulative, and the exercise or the partial exercise of one shall not be deemed a waiver of the right to exercise of any other. No failure, delay or omission on the part of the Secured Party in the exercise of any of its rights, remedies, powers and privileges hereunder or under the Contract or any of the Assigned Agreements and no course of dealing between the Obligor and the Secured Party shall operate as a waiver thereof; nor shall any partial or single exercise thereof preclude any other or further exercise thereof or any other right, remedy, power or privilege hereunder or thereunder, and no renewal or extension of any of the Contract Obligations shall impair any such right, remedy, power or privilege or shall constitute a waiver thereof. No notice to or demand on the Obligor in any case shall entitle the Obligor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Secured Party to any other or further action in any circumstances without notice or demand. 7.7. Discontinuance of Proceedings. In the case where the Secured Party shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Secured Party, then, in every such case, the Obligor, the Secured Party and each holder of any of the Contract Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral, subject to the security interest created under this Agreement, and all rights, remedies and powers of the Secured Party shall continue as if no such proceeding had been instituted. 7.8. Secured Party's Duty as to Collateral. The Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Secured Party's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar securities and property for its own account. Neither the Secured Party nor any of its partners, nor its or their directors, officers, equity holders, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Obligor or any other Person. Any increase or profits (except money) received from any Collateral in connection with the exercise of such powers shall become part of the Collateral, and any money so received shall be applied in accordance with Section 7.5. Pledge & Security Agreement Page 18 206 ARTICLE VIII INDEMNITY 8.1. Indemnity. (a) The Obligor agrees to indemnify, defend and hold harmless the Secured Party and their respective successors, assigns, directors, partners, officers, employees, agents, attorneys, trustees and servants (each an "Indemnitee" and, collectively, the "Indemnitees") from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs and expenses (including, without limitation, all reasonable attorneys' fees and disbursements) (such expenses, the "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to, connected with or arising out of (i) this Agreement, the Contract, the Assigned Agreements, or other documents executed in connection herewith or therewith, or in any way connected with the enforcement of any of the terms hereof or thereof, or the preservation of any rights hereunder or thereunder, (ii) the ownership, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of, the Collateral, (iii) the violation by the Obligor of any law or governmental rule, (iv) any tort of the Obligor or its agents (including, without limitation, claims arising or imposed under the doctrine of strict liability or products liability, or for or on account of injury to or the death of any person (including any Indemnitee), or property damage or (v) any contract claim against the Obligor or its agents, excluding any of the foregoing in (i) - (v) determined to have arisen from the gross negligence or willful misconduct of any Indemnitee. The Obligor agrees that, upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, judgment or suit, the Obligor shall assume full responsibility for the defense thereof. (b) Without limiting the application of Section 8.1(a), the Obligor agrees to pay each Indemnitee for any and all reasonable fees, costs and expenses of whatever kind or nature (including, without limitation, all reasonable attorneys' fees and disbursements) incurred in connection with the creation, preservation, protection or validation of the Secured Party's Liens on, and security interest in, the Collateral, including, without limitation, all fees, taxes and other governmental charges in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Secured Party's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) If and to the extent that the obligations of the Obligor under this Section 8.1 are unenforceable for any reason, the Obligor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 8.2. Contract Obligations: Survival. Any amounts paid by an Indemnitee as to which such Indemnitee has the right to reimbursement and any amounts paid by the Secured Party in preservation of any of its rights, remedies and interest in the Collateral, together with interest on such amounts from the date paid until reimbursement in full at a rate per annum equal to [20%], shall constitute Contract Obligations secured by the Collateral. The indemnity obligations of the Obligor contained in this Article VIII shall continue in full force and effect, notwithstanding the full payment of the Contract Obligations and notwithstanding the discharge thereof (but only in respect of those claims, any of the basis of which arises before such full payment and discharge). Pledge & Security Agreement Page 19 207 ARTICLE IX MISCELLANEOUS 9.1. Notices. All notices and other communications provided for hereunder shall be given in accordance with, and shall be effective as provided in, Section 21 of the Contract and at the address and telecopy number specified below their respective names on the signature pages hereof. 9.2. Amendments. Waivers. etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by any party from the provisions hereof shall in any event be effective unless the same shall be in writing and signed by the parties hereof, and then in such case such amendment, waiver or consent shall be effective only in the specific instance and for the specified purpose for which given. 9.3. Successors and Assigns. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until payment in full of the Contract Obligations, (ii) be binding upon the Obligor, its successors and assigns and (iii) inure, together with the rights and remedies of the Secured Party hereunder, for the benefit of the Secured Party and their respective successors, transferees and assigns. 9.4. Severability. In the case where any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 9.5. Headings Descriptive. Headings used herein are for convenience of reference only and shall not in any way affect the meaning or construction of any provision of this Agreement. 9.6. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 9.7. Expenses. The Obligor agrees to pay on demand to the Secured Party all reasonable costs and expenses of collection (including, without limitation, the fees and disbursements of counsel) incident to the enforcement, protection or preservation of any right, remedy, power or privilege of the Secured Party under this Agreement. 9.8. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW). 9.9 SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT RELATED HERETO OR THERETO AND ANY ACTION OR PROCEEDING FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF OR THEREOF MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS, AND THE OBLIGOR HEREBY ACCEPTS FOR ITSELF AND IN Pledge & Security Agreement Page 20 208 RESPECT OF ITS PROPERTY, GENERALLY AN]) UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION FOR THE AFORESAID COURTS. THE OBLIGOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF THE PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH OBLIGOR AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW. THE OBLIGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS IN RESPECT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT RELATED HERETO OR THERETO BROUGHT IN THE AFOREMENTIONED COURTS AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE SECURED PARTY TO SERVE PROCESS IN ANY MANNER PERMITED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE OBLIGOR IN ANY OTHER JURISDICTION. 9.10. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT RELATED HERETO OR THERETO OR ANY MATTER ARISING HEREUNDER OR THEREUNDER 9.11. Obligor's Duties. Except as provided in Section 5.2, the Obligor shall remain liable to perform all of its obligations under or with respect to the Collateral, and the Secured Party shall not have any obligations or liabilities under or with respect to any Collateral by reason of or arising out of this Agreement (except any duty to act in a commercially reasonable manner expressly imposed hereunder or by applicable law), nor shall the Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of the Obligor under or with respect to any Collateral. 9.12.Termination and Reinstatement. (a) When all Contract Obligations have been terminated or indefeasibly paid in full in cash or cash equivalent, this Agreement shall terminate (except as otherwise provided in the Contract), and the Secured Party, at the request and expense of the Obligor, will promptly execute and deliver to the Obligor the proper instruments acknowledging the termination of this Agreement, and will duly assign, transfer and deliver to the Obligor (without recourse and without any representation or warranty of any kind) such of the Collateral as may be in the possession of the Secured Party and has not theretofore been sold or otherwise applied or released pursuant to this Agreement. (b) This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Secured Party in respect of the Contract Obligations is rescinded or must otherwise be restored or returned by the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Obligor or upon the appointment of any intervenor or conservator of, or trustee or similar official for, the Obligor or any substantial part of its assets, or otherwise, all as though such payments had not been made. Pledge & Security Agreement Page 21 209 9.13.Security Interest Absolute. All rights of the Secured Party, and the security interests granted hereunder, shall be absolute, irrespective of: (a) any lack of validity or enforceability of the Contract or any other agreement or instrument relating hereto or thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Contract Obligations or any other amendment or waiver of or any consent to any departure from the Contract or any other agreement or instrument relating hereto or thereto; (c) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Contract Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Obligor or a third party other than the full and indefeasible discharge of all of the Contract Obligations. 9.14. Recourse. This Agreement is made with full recourse to the Obligor and pursuant to and upon all warranties, representations, covenants and agreements on the part of the Obligor contained herein, in the Contract, the Assigned Agreements and otherwise in writing in connection herewith and therewith; provided, however, that no person other than the Obligor (nor any officer, employee, servant, controlling person, executive, director, agent, authorized representative or affiliate of the Obligor or of any other person (herein referred to as "Operatives")) shall be personally liable for payments due hereunder or under the Contract or any of the Assigned Agreements or for the performance of any obligation hereunder or thereunder. The sole recourse of the Secured Party for satisfaction of the obligations of the Obligor hereunder and under the Contract or any of the Assigned Agreements shall be against the Obligor (and not against any assets or property of any Operatives) and to the security interest and remedies provided hereunder and thereunder as may be provided in any documents relating hereto or thereto. In the event that a default occurs in connection with such obligations, no action shall be brought against any such other person or the Operatives of the Obligor or such other person by virtue of its direct or indirect ownership interest in the Obligor, and any judicial proceeding and the Secured Party may institute against the Obligor shall be limited to seeking the preservation, enforcement, foreclosure or other sale or disposition of the security interests now or any time hereafter securing the repayment of the Contract Obligations and performance by the Obligor of its other covenants and obligations hereunder and under the Contract or any of the Assigned Agreements. In the event of foreclosure or other sale or disposition of the Collateral or any part thereof, no judgment for any deficiency upon the obligations hereunder or under the Contract shall be obtainable by the Secured Party against any person or the Operatives of the Obligor or such other person by virtue of its direct or indirect ownership interest in the Obligor. 9.15. Conflicting Terms. To the extent a term or provision of this Agreement conflicts with the Contract, the Contract shall control with respect to such term or provision. Pledge & Security Agreement Page 22 210 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. The Commonwealth Utilities Corporation Telesource CNMI, Inc. By: ___________________________ By:________-_________________ Title: ___________________________ Title: ______________________ Pledge & Security Agreement Page 23 211 Schedule A Assigned Agreements [to be reviewed] [Ground] Lease of Real Property Tranmission/ Wheeling Agreements Power Distribution Agreements Power Sales Agreements Interconnect Agreements Power Purchase Agreements Invoices for Sales of Power Fuel Supply Contracts Insurance Contracts Pledge & Security Agreement Page 24 212 EXHIBIT "D" - ------------------------------------------------------------------------------- ESCROW, PLEDGE AND SECURITY AGREEMENT among TELESOURCE CNMI INC. and THE COMMONWEALTH UTILITIES CORPORATION and [AGENT] Dated as of , 1997 ESCROW, PLEDGE AND SECURITY AGREEMENT AN AGREEMENT, dated as of the _____day of___________ 1997, among Telesource CNMI, Inc., Horiguchi Building, 5th Floor, PPP4O2, Box 10000, Saipan, MP 96950 ("Telesource"), The Commonwealth Utilities Corporation, P.O. Box 1220 Lower Base, Saipan, MP 96950 ("CUC") and _______________________________ having an address ("Agent"). WITNESSETH: WHEREAS, Telesource and CUC have entered into an Agreement for Design, Supply of Plant and Equipment, Construction, Maintenance and Operation, and Transfer of Ownership (the "Contract") and related instruments, including a series of 120 promissory notes (the "Notes," or each "Note") and related Pledge and Security Agreement; and WHEREAS, Telesource has requested and CUC has agreed to provide additional security for its obligations under the Contract and the Notes by arranging for the deposit by CUC of certain assets in a collateral account, on which Telesource shall have a first secured lien, to be administered by the Agent for the benefit of Telesource; and Escrow, Pledge and Security Agreement Page 1 213 WHEREAS, the Agent agrees for an on behalf of Telesource as its agent to hold and invest such assets and administer an account in accordance with the terms and conditions agreed upon by the parties. NOW, THEREFORE, in consideration of the covenants and conditions herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agency Relationship. Telesource and the Agent hereby agree that during the term of this Agreement the Agent shall serve as Agent for and on behalf of Telesource and shall hold and invest the funds to be deposited with it in an account in accordance with all of the terms and conditions of this Agreement, which account and all assets of whatever type are herein collectively referred to as the "Escrow Account." 2. Compensation and Expenses. The Agent shall receive as compensation during the term of this Agreement a fee of $___________ per calendar year payable annually in advance by Telesource on or before ____________ of each calendar year (commencing). In addition, the Agent shall be paid by Telesource $______ per transaction and shall be reimbursed for any reasonable out-of-pocket expenses incurred by the Agent in order to perform its duties as outlined herein. No funds shall be distributed by the Agent in accordance with the terms of this Agreement unless and until the Agent has received all funds required to be paid or reimbursed to it in accordance with Sections 2 and 4 of this Agreement. 3. Term. The term of this Agreement shall commence on _____________ and shall terminate upon the full payment and delivery by the Agent of all funds on deposit, together with all interest earned thereon (net of losses) to CUC or Telesource, pursuant to the terms of this Agreement. Such term shall not exceed twenty-seven years unless the Agent shall be holding funds pursuant to a court order or pending instructions from a court regarding the distribution of funds. 4. Indemnification and Reimbursement of Agent and Telesource. a. Telesource expressly agrees to indemnify, reimburse and hold harmless the Agent for all liabilities, obligations, claims, suits, costs, damages, judgments and expenses, including reasonable attorneys' fees, imposed on, asserted against, or suffered or incurred by the Agent to third parties relating to, arising from or in connection with the performance of its duties under this Agreement or its enforcement of any of the terms hereof or the investment of the Escrow Account, including, without limitation, any suit or proceeding in the nature of an inter-pleader brought by or against the Agent or the proceeds of part or all of the Escrow Account; provided, however, that Telesource shall not be liable to the Agent for any costs, damages, judgments or expenses which arise as a result of or in connection with the negligence, breach of this Agreement, willful failure or willful misconduct or bad faith of the Agent or its employees, agents or representatives, respectively. b. CUC expressly agrees to indemnify, reimburse and hold harmless Telesource for all liabilities, obligations, claims, suits, cost, damages, judgments and expenses, including reasonable attorneys fees, imposed on, asserted against, or suffered or incurred by Telesource to the Agent or to any third party relating to, arising from or in connection with the performance by Telesource of the terms of this Agreement or its enforcement of any of the terms hereof or its investment through the Agent of the Escrow Account, including, without limitation, any suit or proceeding in the nature of an interpleader brought by or against Telesource or the proceeds of part or all of the Escrow Account, provided, however, that CUC shall not be liable to Telesource for Escrow, Pledge and Security Agreement Page 2 214 any costs, damages, judgments or expenses which arise as a result of or in connection with Telesource's willful failure or willful misconduct or gross negligence of Telesource or its employees, agents or representatives, respectively. c. The obligations and indemnities contained in this Section 4 shall continue in force notwithstanding the termination of this Agreement. 5. Liability of Agent and Telesource. The duties of the Agent and Telesource are only such as are herein expressly and specifically provided, and neither the Agent nor Telesource shall be liable or accountable hereunder, to any party except for the liability arising from (i) in the case of Telesource, the willful failure or willful misconduct or gross negligence of Telesource, its employees, agents or representatives, and (ii) in the case of the Agent, the willful misconduct, negligence, breach of this Agreement or bad faith of the Agent, its employees, agents or representatives. The Agent shall not be bound or in any way affected by any notice of any modification, cancellation, abrogation or rescission of this Agreement, or of any facts or circumstances affecting or alleged to affect the rights or liabilities of the parties hereto, other than as herein set forth, or affecting or alleged to affect the rights or liabilities of any other persons, unless certified to it in writing, delivered to it, and signed by the appropriate parties; nor, in the case of a modification, unless such a modification shall be satisfactory to the Agent, as evidenced by its written consent thereto. The Agent shall not be required to recognize any person, firm or corporation as an assign or successor of either Telesource or CUC unless there shall be presented to the Agent evidence reasonably satisfactory to the Agent of such valid assignment or succession. The Agent shall not have any duty to insure that funds required to be deposited by CUC pursuant to paragraph 10 of this Agreement are in fact deposited with the Agent, or to insure or determine that any funds disbursed to CUC or to Telesource in accordance with the terms of this Agreement are properly applied or used by CUC or Telesource. 6. Right to Interplead. In the event that the Agent or Telesource shall be subject to any conflicting demand as to the disposition of any assets placed in its hands pursuant to this Agreement, the Agent or Telesource, as the case may be, shall have the tight to interplead any or all of such assets in its hands into a court of competent jurisdiction for the purpose of determining the party or parties entitled thereto. 7. Resignation of Agent. The Agent shall have the right to resign at any time by giving forty-five (45) days' written notice to CUC and Telesource. The Agent shall resign immediately upon receipt of written request therefor from an Authorized Officer of Telesource. Contemporaneously with any resignation, the Agent shall assign, transfer, deliver and pay over the Escrow Account and all documents in its possession relating to the Escrow Account or this Agreement to the successor agent, as provided in Section 8 thereof, and the Agent shall execute all documents and do all such things as shall be reasonably required by Telesource to effect same. The Agent shall be paid any monies owing to it pursuant to Section 2 or Section 4 thereof prior to effecting its resignation in accordance with the foregoing terms. 8. Successor Agent. In the event that, prior to the termination of this Agreement, the Agent shall become unable or unwilling to serve in such capacity, then a successor agent shall be selected by Telesource, and Telesource shall pay all fees and expenses charged by such successor agent, subject to the right to reimbursement of same pursuant to the provisions of Section 4(b) hereof. Any successor agent shall be a commercial bank or trust company authorized to do business in the United States and having a combined capital and surplus of not less than $100 million. The rights and obligations of the Agent shall be assigned to and binding upon such successor agent, and the successor agent shall execute and instrument accepting such appointment and agreeing to serve as "Agent" in accordance with the terms of this Agreement. Escrow, Pledge and Security Agreement Page 3 215 If the Agent, or any successor agent thereto, resigns for any reason in accordance with the terms of this Agreement, CUC agrees to take all such action reasonably requested of it to renegotiate the terms of this Agreement, to record or revise the recordation of Telesource's' security interest in the Escrow Account and to obtain any approvals and consents which may be required. If Telesource cannot find a commercial bank or trust company to qualify and serve as a successor agent pursuant to this Agreement, and, during such time, if any, as there shall be no successor agent installed and acting pursuant to this Agreement, Telesource may, if it so elects, hold the Escrow Account in Telesource's' name in an institution selected by Telesource until such a successor agent is secured, which institution shall have a combined capital and surplus of not less than $100 million. In the event that for any reason CUC is prevented from taking any action required by this Section 8, CUC hereby appoints Telesource as its attorney-in-fact solely for purposes of taking any actions and signing any documents required by this Section 8. 9. Authorized Officer of Telesource. The term "Authorized Officer of Telesource" as used in this Agreement shall mean any officer of Telesource whose name, title and signature appears on Exhibit A to this Agreement as long as such officer continues to hold the title listed. Telesource at any time may provide to the Agent a substitute Exhibit A, provided such substitute is in the form of the original Exhibit A and executed by at least one officer listed on the Exhibit A which is being replaced or by the President of Telesource. The Agent shall have no obligation to verify any replacement Exhibit A or to determine whether any individual holds any office which he purports to hold. 10. Deposit of Funds to the Escrow Account. On or before ______________________ the Agent shall receive _______________ ($ ), which shall constitute the original deposit in the Escrow Account. Additional deposits to the Escrow Account shall be made from time to time by CUC such that at all times during the term of this Agreement the Escrow Account shall contain not less than $360,000. The Agent shall advise each of CUC and Telesource if the balance of the Escrow Account at any time is less than $360,000, and CUC shall provide such additional funds as are necessary to replenish the Escrow Account within one (1) business day thereafter. Failure by CUC to maintain the balance of the Escrow Account in accordance with this Section 10 shall constitute a "CUC Event of Default" under the Contract. All funds deposited with the Agent at all times shall be owned beneficially and of record by CUC and shall be deposited in a separate account with the Agent to be identified as the "Telesource CNMI, Inc. Secured Account (The Commonwealth Utilities Corporation)," or by a similar designation. The Agent shall keep accurate records setting forth the amount deposited and the date of such deposit. 11. Investment of Funds. a. All funds deposited with the Agent shall be invested and reinvested by the Agent at the direction of an Authorized Officer of Telesource in (i) bills, bonds, notes, or other obligations issued or guaranteed by the United States of America or agencies thereof, (ii) Federal Farm Credit consolidated issues, bonds or notes, or (iii) repurchase agreements having a maturity of 90 days or less with any bank or trust company organized under the laws of any state of the United States or any national banking association or government bond dealer reporting to, trading with and recognized as a primary dealer by the Federal Reserve Bank of New York, which such agreements are (A) secured solely by obligations described in clause (i) above or (B) the obligations of a commercial bank the senior debt securities of which are rated by a nationally recognized rating agency in their highest category. Telesource may instruct the Agent to sell any investment prior to its maturity. Escrow, Pledge and Security Agreement Page 4 216 b. If the Agent does not receive investment instructions from Telesource, after the Agent's written notice of same to Telesource and to CUC, the Agent may accept investment instructions from CUC to invest in securities or instruments described in clauses (i), (ii) or (iii) of Section 11(a) hereof. c. If the Agent does not receive investment instructions, the Agent, at its own discretion, may invest in instruments described in clause (i) or (ii) of Section 11(a) hereof. d. Neither Telesource nor the Agent shall be liable for losses incurred on any authorized investments, except as set forth in Section 5 hereof. The Agent shall not be liable for any failure to make investments if the Agent receives no instructions from Telesource or from CUC. CUC hereby authorizes and grants its power of attorney to the Agent and Telesource o make all decisions from time to time during the term of this Agreement for the investment, in whole or in part, of the Escrow Account in accordance with the terms of this Agreement, and CUC ratifies and confirms each and every such investment decision made by the Agent or Telesource during the term of this Agreement. CUC hereby releases the Agent and Telesource from any and all loss or liability which arises or which may arise by virtue of the Agent's or Telesources' investment in whole or in part of the Escrow Account in accordance with the terms of this Agreement at any time during the term of this Agreement. 12. Balance of the Escrow Account. The phrase "balance of the Escrow Account" shi.i21 mean at any time the fair market value of all funds and assets held by the Agent in the Escrow Account. The fair market value of any security held in the Escrow Account shall mean, is determined as of the date of valuation thereof, (i) as to obligations which mature within six months from the date of valuation, the par value of such obligations, and (ii) as to obligations which mature more than six months after the sate of valuation, the lesser of (1) the amortized cost of such obligations, or (2) the bid quotation price thereof as reported in The Wall Street Journal as of tie date of valuation, or in the event such newspaper is not published or such price is not reported in said newspaper, in a newspaper of general circulation or a financial journal published in Mw York, New York selected by Telesource, or (3) the price at which such obligations are then redeemable by the holder at his option; provided however, if the balance of the Escrow Accounts to be determined for purposes of distributing the entire amount of the Escrow Account, then tie proceeds received from the disposition of any securities contained in the Escrow Account or recognized market therefor plus any cash in the Escrow Account so distributed, less commission.. shall be the fair market value of the Escrow Account. The computations made under the preceding. sentence shall include accrued interest. The Agent and Telesource shall not be liable for any gold faith determination of the balance of the Escrow Account, and any such determination shall be presumed to be correct. Upon receipt of a request from an Authorized Officer of Telesource at any time, the Agent shall advise such person of the balance of the Escrow Account or give the such person sufficient information for such person to determine the balance of the cash collateral account. 13. Payments from the Escrow Account. Upon receipt of a written certification of in Authorized Officer of Telesource that there is an amount in the Escrow Account in excess of tie balance required by Section 10 hereof and that CUC is entitled to be paid such excess amount from the Escrow Account, the Agent shall release from the Escrow Account and pay to CUC an amount which equals such excess amount. a. Upon receipt of written certification of an Authorized Officer of Telesource that CUC is no longer obligated to Telesource under the Contract or any of the Notes, the Agent shall distribute the balance of the Escrow Account in the manner described in the following sentence. The Agent shall distribute to Telesource an amount equal to the lesser of (i) the balance of tie Escrow, Pledge and Security Agreement Page 5 217 Escrow Account or (ii) the amount certified by an Authorized Officer of Telesource as the sum of all outstanding and unpaid obligations of CUC to Telesource pursuant to the Contract and the Notes; the Agent shall distribute to CUC the remainder, if any, of the balance of the Escrow Account. b. If the Agent has not received notice described in the foregoing paragraph (b) on or before ________________ the balance of the Escrow Account shall be distributed by the Agent to CUC. c. Any payments or distributions required to be made pursuant to this Section 13 shall be made by the Agent five (5) business days after written notification requesting such payment, or at such later date as may be requested by the party entitled to receive such payment and approved by an Authorized Officer of Telesource. The Agent may, if so requested by the party receiving the distribution, distribute securities in which the funds have been invested in lieu of disbursing cash. d. If the Agent receives a certified notice of an Authorized Officer of Telesource that a CUC Event of Default has occurred under the Contract and that, as a result of such CUC Event of Default, Telesource is entitled to a remedy described in the Contract or in any of the Notes, the Agent shall not make any distribution to CUC pursuant to Section 13(a) hereof until such time as an Authorized Officer of Telesource gives written notice to the Agent that such CUC Event of Default has been timely remedied. e. Notwithstanding any provision herein contained to the contrary, at any time, upon the receipt of a written certification and request signed by an Authorized Officer of Telesource, the Agent shall distribute the balance of the Escrow Account (or any portion thereof) in accordance with such request. f. In the event that, in accordance with Section 8 hereof, no successor agent has been appointed by Telesource, the balance of the Escrow Account shall be delivered by the Agent to Telesource or, in Telesource's name, to such financial institution as shall be selected by Telesource, as provided for in Section 8 hereof. g. The Agent shall be protected in acting upon any written notice, request, waiver, consent, receipt or other paper or document furnished to it, not only as to the document's due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained which the Agent in good faith believes to be genuine and what it purports to be. h. Notwithstanding the terms and provisions of this Section 13, if the Agent shall have been served with or otherwise subjected to a court order, injunction or other process or decree restraining or seeking to restrain the Agent from making any payment from the Escrow Account required by the terms hereof, such payment shall be made upon, but not prior to, the Agent's receipt of an opinion from its counsel to the effect that a final and unappealable judgment or order has been rendered or issued either terminating the order, injunction or the process or decree restraining the Agent from making payment under this Section 13 or permanently enjoining the Agent from paying out the Escrow Account in accordance with the terms of this Agreement. i. For purposes of this Agreement, the term "business day" shall mean any day other than a Saturday, Sunday, public holiday or bank holiday (or the equivalent for banks generally) under the laws of the Commonwealth of the Northern Marinas Islands. Escrow, Pledge and Security Agreement Page 6 218 14. Incomes Taxes. Any and all federal income taxes and any state or local income or franchise taxes payable with respect to income or capital gains earned on or by -reason of the Escrow Account shall be paid by CUC from its own assets outside the Escrow Account. CUC indemnifies and agrees to hold harmless the Agent and Telesource for the amount of any such taxes, and any penalties or interest associated therewith, if such taxes, penalties or interest are imposed on the Agent or Telesource. 15. Pledge and Security Interest. CUC hereby pledges and lawfully grants to Telesource a security interest in and to the Escrow Account and all funds and assets at any time contained therein, whether in the form of cash, bonds, bills, notes, securities, other instruments, or other obligations, regardless of where or by which person or entity the Escrow Account or such funds or assets shall be held. For purposes of this Agreement and Telesource's continuing security interest in the Escrow Account, the Agent shall maintain at its principal office at the address stated above in ________________, ________________, the funds and other assets comprising the Escrow Account or evidence of record and/or beneficial ownership thereof in accordance with the terms of this Agreement. This Agreement and the Escrow Account shall secure, for the benefit of Telesource and its successors and assign, all current and future obligations of CUC to Telesource pursuant to the Contract and the Notes and any successor instrument thereto. Each party hereto agrees and covenants to take all such action as may be reasonably requested of it to perfect Telesource's first priority security interest in the Escrow Account; provided however, that such security interest shall not be superior to the Agent's rights to be compensated or indemnified in accordance with the terms hereof. Without the prior written consent of Telesource, CUC will not sell, assign, transfer or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber to any person other than Telesource all or part of the Escrow Account or any interest therein. If there occurs any change in the law, rules or regulation or any judicial decision or any other event or circumstance pertaining to or affecting rights of creditors in bankruptcy or insolvency proceedings the result of which would be to increase the likelihood in Telesource's view that the Escrow Account would not or may not be available to Telesource for the purposes described herein and in the Contract, CUC agrees, upon Telesource's request, (i) to negotiate in good faith with Telesource changes in this Agreement and/or the entire mechanism by which CUC's obligations under the Contract and the Notes are secured and (ii) to permit Telesource to hold the balance of the Escrow Account in an account in Telesource's name in an institution selected by Telesource, which institution shall have a combined capital and surplus of not less than $100 million. Telesource shall bear its own costs of such negotiations and associated document preparation. CUC shall not be obligated to accept any new arrangement which increases the amount of collateral that it must provide to secure its repayment and payment obligations under this Agreement. In the event that there is any change in the location of all or part of the Escrow Account, CUC agrees to take all action requested by Telesource to amend, modify or replace Telesource's filings perfecting its security interest in the Escrow Account, or to enable Telesource to effect any required new or additional filing to perfect its said security interest. 16. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assign. 17. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. Escrow, Pledge and Security Agreement Page 7 219 18. Notices. Notices under this Agreement shall be in writing and addressed as set forth above in this Agreement, and shall be deemed given and received upon receipt. Notices to the Agent shall be addressed Attention: Escrow Department. 19. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of the Northern Marianan Islands. 20. Amendments. No amendment or modification to this Agreement shall be effective unless in writing and signed by all parties hereto. 21. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Escrow, Pledge and Security Agreement Page 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized TELESOURCE CNMI, INC. By: Khajadour J. Semikian Title: President THE COMMONWEALTH UTILITIES CORPORATION By: ___________________________________ Title: __________________________________ By: ----------------------------------- Title: __________________________________ Escrow, Pledge and Security Agreement Page 9 220 EXHIBIT A To the Escrow, Pledge and Security Agreement TELESOURCE CNMI, INC. AUTHORIZED OFFICERS NAME POSITION SIGNATURE Khajadour J. Semikian President ___________________ Escrow, Pledge and Security Agreement Page 10 221 EXHIBIT "E" CUC D/G FUEL CONSUMPTION PER KWT
A B C D E F G H - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- FUEL FUEL FUEL % LOAD BHP KW BSFC CONMPT. CONSMPT. CONSMPT. COST PER PER HOUR PER KW IN KWT OUTPUT GAL/KWT lb/BHP-HR E=DXB(lb) F=E/C H=GX$0.72 (lb/Kw) G=FX0.137 (cents/kwt) - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- 100 3600 2580 0.341 1227 0.476 0.065 4.68 - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- 75 2700 1935 0.345 931 0.481 0.0659 4.74 - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------- 50 1800 1290 0.360 648 0.502 0.0688 4.95 - ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
222 Architectural Drawing of CADASTRAL PLAT 223 GRANT OF PUBLIC DOMAIN LANDS This Grant, is made and entered into this 23rd day of March , 1998, by the Division of Public Lands of the Department of Lands and Natural Resources, established under Public Law 10-57, having the authority and responsibility over the management arid disposition of Northern Marianas public lands, hereinafter referred to as the "GRANTOR," and the COMMONWEALTH UTILITIES CORPORATION, hereinafter referred to as the "GRANTEE." WITNESSETH: WHEREAS, all public lands in the Northern Mariana Islands belong collectively to the people of the Commonwealth and it is intended that the management and disposition of public lands should ultimately benefit the people of the Commonwealth; and WHEREAS, the Grantor desires that certain parcels of public land be used exclusively for the construction and operation of a ten (10) megawatt (MW) electric power plant; and WHEREAS, pursuant to Public Law 4-47, Grantee is a public corporation responsible for providing the people of the Commonwealth with electrical utility service; and WHEREAS, Grantee requires the real property. described herein for the construction and operation of a 10 MW electrical power plant that will provide electrical utility service to the people of the Commonwealth; and WHEREAS, Grantee, in developing and constructing an electrical power plant, has agreed to work in cooperation with those other governmental agencies necessary to construct and operate. such facility; and 224 NOW, THEREFORE, in view of the above recitals, together with the public objectives to be accomplished, and for and in consideration of the substantial benefits that the CNMI people will derive from the Grantee's construction and operation of an electric power plant to be located on the public lands described hereinbelow, Grantor does by these presents hereby grants to the Grantee, for its use, the below-described properties, as follows: Beginning at the corner which is designated as Corner No. 1 having plane rectangular coordinates of 28,598.0707 meters North and 39,788.9639 meters East of the Mariana Islands District Coordinates System of 1996. Thence; N 56(Degree) 46' 23" W, 200.000 m to Cor. 2, thence; 33(Degree) 13' 37" E, S 33(Degree) 13' 37" W, 100.000 m Cor. 1 the point of beginning. TO HAVE AND TO HOLD, the above-described properties, together with the hereditaments and appurtenances thereunto, but reserving and excepting therefrom all existing roadways, easements and rights-of-way. Any other uses inconsistent with the above-stated purposes shall nullify this Grant, and said land shall revert to Grantor. IN WITNESS WHEREOF, the Grantor hereby affixes its hand on the day and year first above written, at Saipan, Northern Mariana Islands. BOARD OF PUBLIC LANDS /s/ Tomas B. Aldan 3/23/98 ----------------------------------------------------- --------------- ----------------------------------------------------- --------------- TOMAS B. ALDAN DATE Chairman, Board of Public Lands APPROVED AS TO FORM AND LEGAL SUFFICIENCY: /s/Alvin S. Slome for Robert Dunlap 3/23/98 ----------------------------------------------------- --------------- ----------------------------------------------------- --------------- ATTORNEY GENERAL AS LEGAL COUNSEL FOR DATE Division of Public Lands COMMONWEALTH OF THE ) ) 55: ACKNOWLEDGMENT NORTHERN MARIANA ISLANDS ) ---------------------------------) 225 ON THIS 23 day of March, 1998, before me, a Notary Public in and for the Commonwealth of the Northern Mariana Islands, personally appeared Tomas B. Aldan, Chairman of the Board of Public Lands, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same on his free and voluntary act and deed for the purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ Gregory Stephen P. Clavo, Jr. NOTARY PUBLIC SEAL Gregory Stephen P. Clavo, Jr. NOTARY PUBLIC Commonwealth of the Northern Mariana Islands My Commission Expires on the 25 day of June, 1999 226 EX-10.02 7 AGREEMENT FOR DESIGN, SUPPLY OF PLANT Exhibit 10.02 Agreement for Design, Supply of Plant and Equipment 227 CHANGE ORDER Change Order Date: November 30. 1998 Change Order No.01 Contractor: Telesource CNMI. Inc. CUC Contract No. CUC-PG-97-C057 - -------------------------------------------------------------------------------- This CHANGE ORDER NO.01 is made in reference to the AGREEMENT FOR DESIGN, SUPPLY OF PLANT AND EQUIPMENT, PRIVATE CONSTRUCTION, MANINTENANCE AND OPERATION, AND TRANSFER OF OWNERSHIP (Contract No. CUC-PG-97-C057) effective as of September 17, 1997 between the COMMONWEALTH UTILITIES CORPORATION and TELESOURCE CNMI, INC. (the "Original Agreement"). To the extent the terms and conditions of the Original Agreement are not in conflict with the terms and conditions of this Change Order No. I the provisions of both the Original Agreement and this Change Order No. 1 shall hereafter govern the rights and obligations of the parties (collectively the "Expanded Agreement"). RECITALS A. On October 11, 1996 CUC issued Request for Proposal No. 97-0002 (the "RFP"), which solicited responses from independent power producers for the design engineering, erection and operation of a power production facility on the island of Tinian which was capable of sustaining a 10 MW load expandable up to 30 MW. B. On March 6, 1997, after discussions with those responsible offerors who responded to the RFP, CUC awarded the project to the Contractor and on September 17, 1997 executed the Original Agreement for the construction, ownership, operation and eventual transfer to CUC of the 10 MW expandable Plant C. During a special session of the Tinian Delegation and Municipal Council on September 2, 1998, a Joint Resolution was passed recommending that as per the intent and spirit of the project RFP, the 10 MW Plant be expanded as quickly as possible in order to meet the growing power needs of the island. D. On September 19, 1995, the CUC Operations Committee after discussions with the Contractor and the Tinian leadership, made a determination that it was in the best interests of CUC and the people of Tinian for the expansion the Plant to be undertaken before the current phase of construction is completed. 228 E. On September 25, 1998, after a Special Meeting of the CUC Board of Directors acting upon the recommendation of the CUC Operations Committee, the Board of Directors determined after a complete review of all the circumstances surrounding this project, the terms and conditions of the original RFP and the Original Contract, and the Contractor's unique position as general contractor, owner and operator of the Plant, there was a demonstrated benefit to CUC for the Contractor to commence, the immediate expansion the Plant pursuant to Change Order in accordance with Paragraph 5.1 of the Original Agreement "Changes in the Work," and the terms and conditions of this Change Order No.1. AGREEMENT 1. Definitions. Unless otherwise defined, all capitalized terms used in this Change Order No. 1 are defined in the Original Agreement and are used herein as so defined. CHANGE IN THE SCOPE OF WORK 2. Expansion of the Plant Facilities. Subject to the provisions of Paragraphs 5 and 9 of this Change Order No. 1, Contractor shall perform all services and furnish all equipment tools, materials and supplies needed for the fabrication, installation, assembly, testing, and commissioning of such additional facilities as are necessary to increase the load of the Plant and Plant Equipment (collectively the "Plant Facilities") from 10 MW to 30 MW (the "Expansion"). 3. Expansion of Existing Physical Plant. The Expansion shall include but shall not be limited to all necessary additions and modifications to the fuel tanks and the building which houses the generation units, which are currently being built under the Original Agreement. No additions or modifications to the warehouse or Plant office shall be included in the Expansion as these facilities, as currently designed, are adequate for post-Expansion use. 4. Addition of 30 MW Substation. The Expansion shall include the construction, testing and commissioning of a new 30 MW substation to be located on the Site adjacent to the Plant Facilities (the "Substation"). The Substation addition shall include all buildings, structures, switchgears, transformers and other equipment necessary to fully integrate the expanded Plant Facilities with CUC's existing distribution system, as generally described in the attached Exhibit "A" which is hereby incorporated by this reference. 5. Addition of Generation Units. Within fourteen (14) months after the execution of this Change Order No. 1. Contractor shall furnish, install, test and commission two (2) five (5) MW, 720 RPM power generation units which, 229 in conjunction with the four (4) two and one-half (2.5) MW generation units provided under the Original Agreement, shall increase Plant power generation capacity to a load of twenty (20) MW. In addition to the installation of the two (2) five (5) MW units as mentioned above, in the event Contractor in its sole discretion determines that the Plant Facilities require expansion in order to satisfy any additional demand for power, Contractor may install from time to time throughout the Extended Term as set forth in Paragraph 9 of this Change Order No.1, one or more additional five (5) MW generation units; provided, however, that at no time shall the load of the expanded Plant Facilities exceed thirty (30) MW and in no event shall the replacement or refurbishment of any previously installed generation unit be counted as an additional unit. 1. Expanded Operation and Maintenance Services. Throughout the Extended Term, as set forth in Paragraph 9, Contractor shall provide all services necessary to operate and maintain the Plant Facilities in the most efficient manner practical under the manufacturer's specifications and in coordination with CCC (the "Plant Operations"). At a minimum, Plant Operations shall include all services necessary to operate the Plant Facilities within the parameters set forth in the Original Agreement as well as any additional services necessary for the operation of the expanded Plant Facilities, as its maximum capacity is increased from time to time, upon the same terms. 2. Fuel Consumption and Generator Efficiency. Contractor shall operate the Plant in accordance with the manufacturers' fuel consumption specifications for each generation unit and shall perform all maintenance and operation work in accordance with Good Utility Practice and the Minimum Operations and Maintenance Requirements as subsequently agreed to in writing by CUC and Contractor in accordance with the terms and conditions of the Original Agreement. 8. Fuel Oil. CUC shall, at its own cost, provide all fuel oil necessary for the operation of the Plant at its maximum capacity, as such capacity may be increased from time to time throughout the Extended Term. Fuel shall at a minimum meet the specifications as set forth in Exhibit A of the Original Agreement. CHANGE IN CONTRACT TERM 9. Extended Term. This Extended Agreement shall become effective upon the execution of this Change Order No.1, and shall remain in full force and effect until the expiration of ten (10) years after the successful testing and commissioning of the last power generation unit installed under Paragraph 5, unless sooner terminated under Paragraph 11 of this Change Order or Paragraph 19 of the Original Agreement. Notwithstanding any other provision in this Change Order No. 1, no additional units shall be installed, 230 tested or commissioned so as to allow the Extended Term to continue beyond the Term of the Lease for the Site, recorded at File No. 98-2806, Commonwealth Recorder. CHANGE IN CONTRACT PRICE 10. Payment. Upon receipt of Contractor's monthly invoice, CUC shall pay each of the following production fees to Contractor: (a) For a period of ten (10) years from the date of Substantial Completion as defined in the Original Agreement, CUC shall pay for the first 5,140,000 kilowatt-hours produced each month (the "Base Load") in the manner set forth in Paragraph 6.2 of the Original Agreement. (b) For a period of ten (10) years commencing upon the completion of the expanded 30 MW Plant Facilities and the successful testing and commissioning of the first two additional 5 MW generation units, CUC shall pay in addition to payment under Paragraph (a) above, a fixed fee of $0.065 (six and a half cents) (the "Expansion Rate") per each kilowatt-hour produced each month in excess of the Base Load (the "Second Phase Load"). (c) In the event any additional generation unit(s) are added by Contractor pursuant to Paragraph 5, and for a period of ten (10) years commencing upon the their successful testing and commissioning, CCC shall pay in addition to payment under Paragraphs (a) and (b) above, an additional fee for power produced in excess of the Base and Second Phase Loads, at a rate of $0.065 (six and a half cents) per each kilowatt-hour or as mutually agreed upon by the parties. (d) From the expiration of each ten year period as set forth in Paragraphs (a) and (b) above through the end of the Extended Term, the fee due from CUC to contractor for each kilowatt- hour produced under such Paragraph shall be reduced to $0.03 (three cents) per kilowatt-hour, adjusted to reflect the annual increase in the Gross Domestic Product Implicit Price Deflector for each year commencing as of 1999. This reduced fee shall represent the cost of operation and maintenance, including manpower, consumables, spare parts and lubricating oil, but shall not include the cost of CUC provided fuel. 11. Prepayment. CUC shall be entitled to terminate this Expanded Agreement for convenience upon pre-payment of the sum of the pre-payment purchase price for the applicable period as set forth in Schedule 2 to the Original Agreement and the pre-payment purchase price for the expansion as set forth in Schedule 2.1, which is attached to this Change Order No. 1 as Exhibit "B" and is hereby incorporated by reference. CUC's option to terminate for convenience by pre-payment may be exercised by giving written notice to Contractor at least ninety (90) days prior to the applicable buy-out date listed 231 in Schedule 2.1, and by payment of the sum of the applicable pre-payment purchase prices as set forth in Schedule 2 and Schedule 2.1. Pre-payment shall be possible only in those years in which pre-payment is allowed under both Schedule 2 and Schedule 2.1. EQUITABLE ADJUSTMENTS TO ORIGINAL AGREEMENT 12. Final Payment Date. Title and risk of loss shall pass from Contractor to CUC in the manner set forth in Paragraph 24.1 of the Original Agreement; provided however that title and risk of loss shall remain in Contractor, to protect Contractor's security interest in the expanded Plant Facilities, until all payments owing under this Extended Agreement are paid in full. Notwithstanding any other provision in this Change Order No. 1, after the final payment is made by CUC pursuant to sub-Paragraph 10(b) of this Change Order No. 1, Contractor shall not have nor allow any third party liens or any other third party encumbrances to remain or be placed on the Plant or Plant Facilities constructed under the Original Agreement, or the Plant or Plant Facilities comprising the expansion to twenty (20) MW pursuant to Paragraphs 2, 3,4 and 5 of this Change Order No.1. 13. Damages. In addition to all rights and remedies available to the parties under the Original Agreement, each party shall be entitled to recover any proven loss, cost, expense, or damages incurred, including lost profits, attributable to a breach by the other party of this Extended Agreement; provided that the damages provisions of the Original Agreement shall be applicable as set forth In Paragraph 14 below. 14. Savings Clause. All rights and obligations of the parties as set forth in the Original Agreement shall apply to this Extended Agreement to the extent they do not conflict with the express terms of this Change Order No. 1. To the extent there is an ambiguity between this Change Order No. 1 and the Original Agreement, the Original Agreement shall be deemed to express the over-all intent of the Parties in interpreting the express provisions of this Change Order No.1. [This space intentionally left blank] 232 IN WITNESS WHEREOF, the parties have executed this Change Order No. 1 as on the date(s) set forth below. Procurement and Supply I hereby certify that to the best of my information and belief this Change Order is in compliance with the CUC Procurement Regulations, is for a public purpose, and does not waste or abuse public funds. /s/ Mariano Dlg. Fajardo Date: 12/4/98 ------------------------------- ------------------------- ------------------------------- ------------------------- Mariano DLG. Fajardo Manager, Procurement & Supply Commonwealth Utilities Corporation Comptroller I hereby certify that there are sufficient funds available for the execution of this Change Order. /s/ Yenny Tom Date: 12/3/98 -------------------------------- ----------------------- -------------------------------- ----------------------- Yenny Tom Comptroller Attorney General I hereby certify that this Change Order has been numbered, reviewed and approved as to form and legal capacity. /s/ Willaim J. Ohli for Maya B. Kara Date: 12/3/98 ---------------------------------------- ---------------------- ---------------------------------------- ---------------------- Maya B. Kara Attorney General (Acting) 233 Commonwealth Utilities Corporation /s/ Timothy P. Villagomez Date: 12/3/98 ------------------------------- ----------------------------- ------------------------------- ----------------------------- Timothy P. Villagomez Executive Director /s/ Juan S. Dela Cruz Date: 12/3/98 ------------------------------ ---------------------------- ------------------------------ ---------------------------- Juan S. Dela Cruz Chairman, Board of Directors Commonwealth Development Authority /s/ Juan S. Tenorio Date: 12/9/98 ------------------------------- ----------------------------- ------------------------------- ----------------------------- Juan S. Tenorio Chairman, Board of Directors Telesource CNMI, Inc. On behalf of Telesource CNMI, Inc., I represent that I am authorized to bind Telesource CNMI Inc. to the terms of this Change Order, and by my signature I do so hereby accept for Telesource, CNMI, Inc., and bind Telesource CNMI, Inc. to, the terms of this Change Order. I further represent for Telesource CNMI, Inc. that no person associated with Telesource CNMI, Inc. has retained any person in violation of Section 6-205 of the CUC Procurement Regulations. /s/ Khajardour S. Semikian Date: 11/30/98 --------------------------------- ----------------------------- --------------------------------- ----------------------------- Khajadour S. Semikian President - ------------------------------------------------------------------------------ CERTIFICATION OF CONTRACT COMPLETION I hereby certify that this contract bears all signatures and is therefore complete. /s/ Mariano DLG. Fajardo Date: 12/10/98 ----------------------------------- ---------------------------- ----------------------------------- ---------------------------- Mariano DLG. Fajardo Manager, Procurement & Supply SCHEDULE OF EQUIPMENT 234 (General Description of Equipment, Subject to Modification and Elaboration) The following lists a general description of the equipment making up the major components of the first expansion from a 10 MW facility to a 30 MW facility capable of a 20 MW maximum load: 1. 2 X 5 MW Diesel Generator Sets 2. Cooling System 3. Breeching System with Mufflers 4. Stack Suitable for Four (4) Exhaust Units 5. Building Expansion Suitable for Thirty (30) MW 6. Extension of Existing Switchgear 7. Main 420,000 Gallon Fuel Storage Tank 8. Daily Fuel Tanks with Fuel Accessories 9. Compressed Air Starting System 10. Lube Oil Distribution System Ii. Waste Oil Disposal System 12. Substation 13. Ventilation Fans and Air Intake System Please see the attached layout drawings and schematics for further detail. PAGE 8 235 EXHIBIT "B" SCHEDULE 2.1 PREPAYMENT FOR EXPANSION PHASE (To Be Paid in Addition to the Prepayment Price Set Forth in Schedule 2) EXPANDED 20 MW PHASE AMOUNT IN US$ Commissioning & Testing 12,250,000.00 End of Year 3 9,783,000.00 End of Year 4 8,821,000.00 End of Year 5 7,750,000.00 End of Year 6 6,540,000.00 End of Year 7 5,200,000.00 End of Year 8 3,900,000.00 EXHIBIT "B" PAGE l OF 1 236 EX-10.03 8 AGREEMENT FOR DESIGN, SUPPLY OF PLANT 237 Exhibit 10.03 Agreement for Desgin, Supply of Plant CHANGE ORDER Change Order Date: November 3O, 1998 Change Order No. 02 Contractor: Telesource CNMI, Inc. CUC Contract No. CUC-PG-97-CO57 - -------------------------------------------------------------------------------- This CHANGE ORDER NO.02 is made in reference to the AGREEMENT FOR DESIGN, SUPPLY OF PLANT AND EQUIPMENT, PRIVATE CONSTRUCTION, MAINTENANCE AND OPERATION, AND TRANSFER OF OWNERSHIP (Contract No. CUC-PG-97-COS7) effective as of September 17, 1997 between the COMMONWEALTH UTILITES CORPORATION and TELESOURCE CNMI, INC. (the "Original Agreement"). To the extent the terms and conditions of the Original Agreement and Change Order No. 1 are not in conflict with the terms and conditions of this Change Order No. 2 the provisions of both the Original Agreement, Change Order No. 1 and this Change Order No. 2 shall together hereafter govern the rights and obligations of the parties. RECITALS A The parties to the Original Agreement desire to implement a more detailed procedure for submission and review of the drawings and technical specifications used in the performance of the Work, including a procedure to facilitate communications between CUC and the Contractor in the event that there is a need to clarify the technical portions of the Original Agreement or any change order issued thereunder. B. The parties further desire to amend and clarify Paragraph 11.2 of the Original Contract, which sets forth CUC rights regarding the review, comment and approval of all Drawings. AGREEMENT 1. Definitions. Unless otherwise defined, all capitalized terms used in this Change Order No. 2 are defined in the Original Agreement and are used herein as so defined. 2. Reference to Paragraph 11.2. Reference is hereby made to Paragraph 11.2 of the Original Agreement, which states in its entirety: 11.2) Before starting certain Work identified in any Drawing. Contractor may submit such Drawing to CUC for review. CUC shall respond within five (5) Business Days of 238 actual receipt by CUC of the Drawing. After such review CUC shall return one copy of each such Drawing to Contractor marked "Reviewed", "Reviewed with Comments" or "Comments" as appropriate and with sufficient explanation to enable Contractor to Determine the basis for any such comments. Contractor may proceed to implementation in the case of Drawings marked "Reviewed". Such Drawings marked "Reviewed with Comments" may be corrected by Contractor as appropriate but need not be re-submitted to CUC. Drawings marked "Comments" shall be corrected by Contractor and re-submitted to CUC. CUC, in reviewing such resubmitted Drawings shall be limited to review of matters related to or affected by the previous "Comments". If CUC does not respond within five (5) Business Days of Actual receipt of a Drawing by CUC, Contractor shall proceed as though CUC has no comments and CUC be deemed to have returned the Drawing to Contractor marked "Reviewed". CLARIFICATION OF GENERAL PROVISIONS 3. Amendment to Paragraph 11.2. Paragraph 11.2 of the Original Agreement, is hereby replaced in its entirety by the following: 11.2) Review of Drawings and Specifications. 11.2.1) Submittals. Before starting the Work identified in any Drawing or technical Specification (each a "Submittal"), Contractor shall submit three (3) copies of such Submittal to the CUC Project Manager for review. Submittals shall be delivered to the CUC Project Manager in a timely fashion so as to allow time for review, as set forth in Section 11.2.3) below, without impeding the progress of the Work. 11.2.2) Form of Submittal. Each Submittal shall clearly identify the following, as appropriate: a) Date of submission and dates of any previous submissions. b) Project title and number. c) Contact identification. d) Names of Contractor, Supplier and Manufacturer. e) Identification of product, with Specification section number. f) Field dimensions, clearly identified as such. g) Relation to adjacent or critical features of the Work or materials. h) Applicable standards, such as ASTM or federal specification numbers. i) Identification of deviations from the Scope of Work. j) Identification of revisions on resubmittal. k) A blank space for the Contractor and CUC Project Manager stamps. l) Contractor shall initial or sign each Submittal, and by so-doing he shall be deemed to have represented to CUC that Contractor has either determined and verified all quantities, 239 dimensions, field construction criteria, materials, catalog number, and similar data, or assumes full responsibility for doing so and has reviewed or coordinated each Submittal with the requirements of the Scope of Work. m) If the Scope of Work includes performance specifications stating required results which can be verified as meeting stipulated criteria, so that further detailed design by Contract prior to fabrication is necessary, such Submittal must be prepared under the seal of a professional engineer registered in the appropriate jurisdiction and contain a certification in a form substantially as follows: "I hereby certify that this Submittal was prepared by me or under my direct personal supervision or that I have personally reviewed this Submittal which was prepared by others, and I accept responsibility for the adequacy of the Submittal to meet the criteria stipulated in the Scope of Work to the same degree that I would If I had prepared it, and that I am a duly registered professional engineer, under the laws of the Commonwealth of the Northern Mariana Islands, and that I am competent to prepare or review this Submittal." 11.2.3) CUC Review. CUC shall respond within ten (10) Business Days of actual receipt by CUC of the Submittal. CUC's review shall be limited to the Submittal's general conformance to the design concept of the Plant and compliance with information set forth in the Scope of Work. CUC review shall not extend to means, methods, sequences, techniques or procedures of construction or to safety precautions or programs incident thereto. Review of a separate item as such will not indicate approval of the assembly in which the item functions. After such review CUC shall return one copy of each such Drawing to Contractor marked "Reviewed", "Reviewed with Comments", "Comments" or "Returned" as appropriate and with sufficient explanation to enable Contractor to Determine the basis for any such designation. 11.2.3.1) "Reviewed". Submittals marked "Reviewed" has been designated by CUC to be in conformance to the design concept of the Plant and Scope of Work. Contractor may proceed to implementation in the case of "Reviewed" Submittals. 11.2.3.2) "Reviewed with Comments". Submittals marked "Reviewed with Comments" have been reviewed by CCC and appear to be in conformance to the design concept of the Plant and Scope of Work, except as noted by the CCC Project Manager. Contractor may proceed with the implementation in the case of Submittals "Reviewed with Comments" with the modifications and corrections as indicate by the CUC Project Manager. Submittals "Reviewed with Comments" need not be resubmitted to CUC. 240 11.2.3.3) "Comments". Submittals marked "Comments" have been reviewed by CUC and appear to fail to conform to the design concept of the Plant and Scope of Work. The Contractor shall not implement the Work related to such "Returned" Submittals, but shall cure the defects and resubmit such Submittal for CUC review in the same manner as set forth in this Section 11.2). All changes from the previous submittal shall be clearly identified by Contractor. CUC, in reviewing such resubmittals shall be limited to review of matters related to or affected by the previous "Comments". 11.2.3.4) "Returned". Submittals marked "Returned" have not been reviewed due to a defect in the form required under Section 11.2.2) or are substantially contrary to the design concept of the Plant and Scope of Work. The Contractor shall not implement the Work related to such "Returned" Submittals, but shall cure the defects and resubmit such Submittal for CUC review, if required. 11.2.3.5) CUC's Failure to Respond. If CUC does not respond within ten (10) Business Days of Actual receipt of a Submittal by CUC, or before the expiration of any extension thereof, Contractor shall proceed as though CUC has no comments and CUC shall be deemed to have returned the Submittal to Contractor marked "Reviewed". 11.2.4) Request for Extension. For good cause demonstrated by CUC, Contractor shall grant, and CUC shall be entitled to, one (1) extension of reasonable length to the response period set forth in Paragraph 11.2.3), above, the length of such extension to be mutually agreed upon by the parties on a case by case basis; provided CUC shall have requested such extension in writing within the original ten (10) day response period; and provided further that Contractor shall be entitled to a Change Order under Section 5 of the Original Agreement, equitably adjusting the Contract Term and/or Price to reflect any delays caused by CUC's failure to respond within the original ten (10) day response period. 1125) Deviations. CUC's review of Submittals under this Section 11.2) shall not relieve Contractor from its responsibility for any deviations from the Scope of Work unless Contractor has, in writing, called the CUC Project Manager's attention to the deviation at the time of submission, and the CUC Project Manager has given his written concurrence to such deviation through a change in the Scope of Work evidenced by a Change Order executed under Section 5 of the Original Agreement. CUC consent under this Section 11.2.5) shall not relieve Contractor from its responsibility for errors or omissions in Submittals. 11.2.1) Work in Progress. All Submittals under which Work is currently on-going as of the date of this Change Order No. 2 shall be deemed to be 241 marked "Reviewed". All other Submittals, including those Submittals related to Change Order No. 1 shall be subject to the amended review procedures of this Section 11.2). 4. Procedure for Clarifying Drawings and Technical Specifications. Paragraph 11.3 shall be added to the Original Agreement setting forth the procedure for obtaining clarifications to the Drawings and technical Specifications as follows: 11.3) Requests for Information. 11.3.1) RFI Procedure. In the event Contractor requires technical or other information from CUC relating to the Work, he may request such information from CUC through a "Request For Information". CUC shall respond to all Requests For Information within ten (10) Business Days of their receipt, including in their response all detail necessary for the completion of the Work. 11.3.2) Contractor Action. Responses to Requests for Information which do not involve a change in the Contract Price or Term, and which are consistent with the overall intent of the Original Agreement including the provisions of Change Order No. 1, shall be preformed by Contractor without additional claim or charge. 11.3.3) Change Orders. In the event any response to a Request for Information necessitates a change or adjustment in the Work, other than a change under Section 11.3.2, above, Contractor shall be entitled a Change Order which references the applicable Request for Information and adjusts the Contract Price and/or Term in accordance with Section 5 of the Original Agreement. 11.3.4) CUC's Failure to Respond. If CUC does not respond within ten (10) Business Days of Actual receipt of the Request for Information by CUC, unless an extension is granted under the same procedure as provided in Paragraph 11.2.4, above, Contractor shall be entitled to a Change Order under Section 5 of the original Agreement, which makes an equitable adjustment to the Contract Term and/or Price to reflect any delays caused by CUC's failure to act. (This space intentionally left blank] 242 IN WITNESS WHEREOF, the parties have executed this Change Order No.2 as of the date(s) set for the below. Procurement and Supply I hereby certify that to the best of my information and belief this Change Order is in compliance with the CUC Procurement Regulations, is for a public purpose, and does not waste or abuse public funds. /s/ Mariano DLG. Fajardo Date: 12/4/98 ------------------------------ ----------------------- ------------------------------ ----------------------- Mariano DLG. Fajardo Manager, Procurement & Supply Commonwealth Utilities Corporation Comptroller I hereby certify that there are sufficient funds available for the execution of this Change Order. /s/ Yenny Tom Date: 12/3/98 ------------------------------ ---------------------- ------------------------------ ---------------------- Yenny Tom Comptroller Attorney General I hereby certify that this Change Order has been numbered, reviewed and approved as to form and legal capacity. /s/ William J. Ohile for Maya B. Kara Date: 12/3/98 ------------------------------------ ----------------------- ------------------------------------ ----------------------- Maya B. Kara Attorney General (Acting) 243 Commonwealth Utilities Corporation /s/ Timothy P. Villagomez Date: 12/3/98 ------------------------- ---------------------------- ------------------------- ---------------------------- Timothy P. Villagomez Executive Director /s/ Juan S. Dela Cruz Date: 12/3/98 -------------------------- ---------------------------- -------------------------- ---------------------------- Juan S. Dela Cruz Chairman, Board of Directors Commonwealth Development Authority /s/ Juan S. Tenorio Date: 12/9/98 -------------------------- -------------------------- -------------------------- -------------------------- Juan S. Tenorio Chairman, Board of Directors Telesource CNMI, Inc. On behalf of Telesource CNMI, Inc., I represent that I am authorized to bind Telesource CNMI Inc. to the terms of this Change Order, and by my signature I do so hereby accept for Telesource, CNMI, Inc., and bind Telesource CNMI, Inc. to, the terms of this Change Order. I further represent for Telesource CNMI, Inc. that no person associated with Telesource CNMI, Inc. has retained any person in violation of Section 6-205 of the CUC Procurement Regulations. /s/ Khajarour S. Semikian Date: 11/30/98 -------------------------- -------------------------- -------------------------- -------------------------- Khajadour S. Semikian President - -------------------------------------------------------------------------------- CERTIFICATION OF CONTRACT COMPLETION I hereby certify that this contract bears all signatures and is therefore complete. /s/ Mariano DLG. Fajardo Date: 12/10/98 ------------------------- ----------------------------- ------------------------- ----------------------------- Mariano DLG. Fajardo Manager, Procurement & Supply 244 EX-10.04 9 KLOBERVILLE AGREEMENT Exhibit 10.04 Kloberville Agreement 245 COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS DEPARTMENT OF PUBLIC WORKS Saipan, MP 96950 CONTRACT NO. NMHC KEP-9907-001 AGREEMENT and CONTRACT for CONSTRUCTION This Agreement and Contract is entered into between the Commonwealth of the Northern Mariana Islands (the "Commonwealth"), represented by the Contracting Officer, and TELESOURCE CNMI, INC., P.0. Box PPP 402, Box 10000, Saipan. MP 96950 (the "Contractor") for the construction of the KOBLERVILLE EXPANSION PROJECT (the "Project"). The Commonwealth and the contractor agree as follows-- ARTICLE 1. THE CONTRACTOR SHALL furnish all materials, labor, equipment, tools and services necessary to perform in a workmanlike manner all work required for the completion of the Project, as described in the Scope of Work and in strict compliance with the Contract Documents, for the firm fixed price of Six Million Three Hundred Ten US Dollars ($6,310,000.00). (a)Payments to Contractor. The Commonwealth shall make progress payments to the Contractor in accordance with the General Conditions. No other payments will be made. (b)Contract Time. The Contractor shall commence work on the date stated in the written Notice to Proceed issued by the Contracting Officer, and shall complete the Project ready for use within four hundred fifty (450) calendar days of commencement, exclusive of any review time or suspension time imposed by the government that delays the orderly prosecution of the work. (c)Subcontractors. The Contractor agrees to bind every subcontractor by the terms of the Contract Documents. The Contract Documents shall not be construed as creating any contractual relation between any subcontractor and the Government. ARTICLE 2. LIQUIDATED DAMAGES. The Contractor shall pay to the Commonwealth the sum of One Thousand U.S. Dollars ($1000.00) Daily, not as a penalty but as reasonable liquidated damages for breach of this Contract by the Contractor, by his failing, neglecting or refusing to complete the work within the time herein specified, and said sums shall be paid for each consecutive calendar day that the Contractor shall be in default beyond the time stipulated in the Contract for completing the work. ARTICLE 3. RECORDS. The Contractor and subcontractors at all levels shall provide the Public Auditor of the Commonwealth of the Northern Mariana Islands access to examine and copy any records, data, or papers relevant to the Contract until three (3) years have passed since the final payment under the Contract. (Reference 1 CMC ss.7845.) ARTICLE 4. DEBARMENT AND SUSPENSION. In addition to other causes set forth in the CNMI Procurement Regulations ss.6-212(2), a breach of ethical standards under any of the following sections of the CNMI Procurement Regulations can be cause for (i) debarment or suspension of the Contractor and/or (ii) termination of the Contractor for default. Section 6-205 Gratuities and Kickbacks. (I) Gratuities. It shall be a breach of ethical standards for any person to offer, give or agree to give any employee or former employee, or for any employee or former employee to solicit, demand, accept, or agree to accept from another person, a gratuity - -------------------------------------------------------------------------------- DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 1 OF 5 246 or an offer of employment in connection with any decision, approval, disapproval, recommendation, preparation of any part of a program requirement or a purchase request, influencing the content of any specification or procurement standard, rendering of advice, investigation, auditing or in any other advisory capacity in any proceeding or application, request for ruling, determination, claim or controversy, or other particular matter, pertaining to any program requirement or a contract or subcontract or to any solicitation or proposal therefor. (2) Kickbacks. It shall be a breach of ethical standards for any payment, gratuity or offer of employment to be made by or on behalf of a subcontractor under a contract to the prime contractor or higher tier subcontractor or any person associated therewith as an inducement for the award of a subcontract or order. Section 6-206 Prohibition Against Contingent Fees. (1) Contingent fees. It shall be a breach of ethical standards for a person to be retained, or to retain a person, to solicit or secure government contracts upon an agreement or understanding for a commission, percentage, brokerage or contingent fee, except for retention of bona fide employees or bona fide established commercial selling agencies for the purpose of securing business. (2) Representation of contractor. Every person, before being awarded a government contract, shall represent, in writing that such person has not retained anyone in violation of this section. Failure to do so constitutes a breach of ethical standards. ARTICLE 5. CONTRACT DOCUMENTS. The following instruments (if checked) constitute the Contract Documents, and collectively evidence and constitute the Contract. ("Future Documents" will become Contract Documents by operation of the Contract at a later date.) - ----------------------------------- -------------------------------------------- Existing Documents Future Documents - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Agreement and Contract X Notice to Proceed - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Scope of Work Performance and Payment Bonds - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X General Conditions - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Technical Specifications - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Contractor's Proposal - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Labor Standards Provisions - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Special Provisions - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- X Request for Proposals REP 98-07 - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- Invitation for Bids - ----------------------------------- -------------------------------------------- - ----------------------------------- -------------------------------------------- Minutes of Pre-award meetings X Contract management documents issued by the Contracting Officer - ----------------------------------- -------------------------------------------- - -------------------------------------------------------------------------------- DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 2 OF 5 247 ARTICLE 6. SIGNATURE REQUIREMENTS. No contract can be formed prior to the approval of all required Government officials, as evidenced by the signature affixed hereto, of each of them. The signature of the Contractor shall be the last in time to be affixed hereto. The Contract shall become effective upon the execution by all required signatories. - -------------------------------------------------------------------------------- Contracting Officer for the Commonwealth /s/ MaryLou S. Ada Date: July 27, 1999 ----------------------------- ----------------------------- ----------------------------- ----------------------------- MaryLou S. Ada Executive Director, Northern Marianas Housing Corporation - ------------------------------------------------------------------------------ Expenditure Authority I declare that I have complied with the construction procedures of the CNMI Procurement Regulations in the procurement of this contract, that this contract is for a public purpose, and that the contract docs not waste or abuse public funds. I declare that I, personally, have the authority to obligate the expenditure of funds for this contract. I declare under penalty of perjury that the foregoing is true and correct and that this declaration was executed this day on Saipan, Commonwealth of the Northern Marianas Islands. /s/ Juan S. Tenorio Date: July 27, 1999 - ------------------------------ ----------------------------- - ------------------------------ ----------------------------- Juan S. Tenorio Chairman of the Board, Northern Marianas Housing Corporation - -------------------------------------------------------------------------------- Procurement and Supply I hereby certify that to the best of my information and belief this contract is in compliance with the CNMI Procurement Regulations, is for a public purpose, and docs not waste or abuse public funds. /s/ Herman S. Sablan Date: July 27, 1999 - ------------------------------ ----------------------------- - ------------------------------ ----------------------------- Herman S. Sablan Director of Procurement and Supply Northern Marianas Housing Corporation Total $6,310,000.00 I hereby certify that there are sufficient funds available in Account Number NMHC General Funds in the amount of ____________________ for the execution of this contract. s/ Jean Y. Aldan Date: July 29, 1999 ----------------------------- ----------------------------- ----------------------------- ----------------------------- Jean Y. Aldan Chief Accountant, NMHC A/C#11101 $1,220,000.00 #21600 $1,100,000.00 #11114 $315,000.00 #22200 $3,675,000.00 - --------------------------------------------------------------------------- DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 3 OF 5 248 Attorney General I hereby certify that this contract has been numbered, reviewed and approved as to form and legal capacity. /s/ Maya Kara Date: July 30, 1999 at 3:45PM -------------------------- ----------------------------- -------------------------- ----------------------------- Maya Kara Attorney General (Acting) - -------------------------------------------------------------------------------- Governor /s/ Jesus R. Sablan Date: August 3, 1999 --------------------------- ----------------------------- --------------------------- ----------------------------- Jesus R. Sablan, Acting Govenor - -------------------------------------------------------------------------------- Commonwealth of the Northern Mariana Islands Contractor: Contractor's Name On behalf of the Contractor, I represent that I am authorized to bind the Contractor to the terms of this Contract, and by my signature I do so hereby accept for the Contractor, and bind the Contractor to, the terms of this Contract. I further represent for the Contractor that no person associated with the Contractor has retained any person in violation of Section 6-205 of the CNMI Procurement Regulations. /s/ K. J. Semikian Date: August 13, 1999 --------------------------- ----------------------------- --------------------------- ----------------------------- K. J. Semikian Title: President - -------------------------------------------------------------------------------- Affiliation: Telesource CNMI, Inc. Other Contractor Information: Telephone number: 322-4501 CERTIFICATION OF CONTRACT COMPLETION I hereby certify that this contract bears all signatures and is therefore complete. /s/ Herman S. Sablan Date: August 13, 1999 --------------------------- ----------------------------- --------------------------- ----------------------------- Herman S. Sablan Director of Procurement and Supply - -------------------------------------------------------------------------------- END OF CONTRACT and AGGREMENT - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 4 OF 5 249 PROCUREMENT INFORMATION For Government Use Only Method of Procurement (Check one only) Competitive Sealed Bids X Competitive Sealed Proposals 7-27-99 Small Purchase Sole Source Emergency Expedited Type of Procurement (Check one only) X Initial Procurement 7-27-99 Subsequent Procurement Following Bid Protest Government's Option Replacement for Defaulted Contractor Government contract numbers of all related contracts with the Vendor: "NONE" - -------------------------------------------------------------------------------- DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 5 OF 5 250 STATE OF ) ) ILLINOIS ) S.S. ) - SPECIAL POWER OF ATTORNEY Know all men by these presents, that I, KHAJADOUR SEMIKIAN, the undersigned; of PPP 184 Box 10000, Garapan, Saipan MP 96950, do hereby make, constitute, and appoint VICTOR BALIAN,whose address is PPP 184 Box 10000, Garapan, Saipan MP 96950, my true and lawful attorney in fact for me and in my name, place and stead and on my behalf, and for my use and benefit: 1. To enter into, execute and deliver any contract, proposal, offer, agreement, loan document, lease, conveyance or any other instrument that may be deemed to be necessary and proper for the conduct of business of Telesource CNMI, Inc. 2. To make, receive, sign, indorse, execute, acknowledge, deliver, and possess all checks, drafts, withdrawal receipts and deposit instruments relating to accounts or deposits in, or certificates of deposit of, savings and loan or other institutions or associations, and such other instruments in writing of whatever kind and nature as may be necessary or proper to carry out the business of Telesource CNMI, Inc 3. I grant to said attorney in fact full power and authority to do, take and perform all and every act and thing whatsoever requisite, proper, or necessary to be done, in the exercise of any of the rights and powers hereingranted, as fully to all intents and purposes as I might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that said attorney in fact, or his substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted. AND I HEREBY DECLARE that any act or thing lawfully done hereunder by my said attorney shall be binding on myself and my heirs, and personal representatives, and assigns. FURTHER, this Special Power of Attorney shall remain in full force and effect for three years from the date of its execution unless earlier rescinded by me. IN WITNESS WHEREOF, I have hereunto set my hand on the 4th day of August 1999. /s/ Khajadour Semikian ------------------------------------- ------------------------------------- KHAJADOUR SEMIKIAN SPECIMEN SIGNATURE "OFFICAL SEAL" /s/ Victor Balian Christina L. Xydis - --------------------------------------- - --------------------------------------- VICTOR BALIAN Notary Public, State of Illinois My Commission Expires 2-5-00 /s/ Christina L. Xydis --------------------------------- --------------------------------- August 4, 1999 251 General Conditions -- Construction Contract Contents - -------------------------------------------------------------------------------- Clause Page 1. ENTIRE AGREEMENT 3 2. CONTRACT NOT ASSIGNABLE 3 3. INDEPENDENT CONTRACTOR 3 4. NO WAIVER BY COMMONWEALTH 3 5. INTERPRETATION AMD VALIDITY 3 6. DEFINITIONS 4 7. AUTHORITIES AND LIMITATIONS 4 8. PAYMENT TO CONTRACTOR 5 9. ASSIGNMENT OF CLAIMS 6 10. STATUS OF ARCHITECTURAL/ENGINEERING DESIGNS AND DATA 6 11. ADDITIONAL REQUIREMENTS FOR "DESIGN-BUILD" PROJECTS 7 12. CONTRACT AND BONDS 8 13. CONSTRUCTION PROGRESS CHART 8 14. FEES AND CHARGES 8 15. CONTRACT TIME 8 16. LIQUIDATED DAMAGES 9 17. DISPUTES AND REMEDIES 9 18. SUSPENSION OF WORK 12 19. CHANGES 12 20. EQUITABLE ADJUSTMENT 14 21. TERMINATION FOR DEFAULT 16 22. TERMINATION FOR THE CONVENIENCE OF THE COMMONWEALTH 15 23. LIABILITY TO THIRD PERSONS; INDEMNIFICATION; INSURANCE 16 24. SUPERINTENDENCE BY CONTRACTOR 17 25. RIGHTS-OF-WAY 17 26. APPROPRIATENESS OF EQUIPMENT 18 27. LAWS TO BE OBSERVED 18 28. PERFORMANCE OF WORK BY CONTRACTOR 19 29. CONDITIONS AFFECTING THE WORK 19 30. SITE INVESTIGATION 20 31. DIFFERING SITE CONDITIONS 19 - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--l 252 32. AS-BUILT DRAWINGS 20 33. SHOP DRAWINGS, COORDINATION DRAWINGS, AND SCHEDULES 20 34. SAMPLES 21 35. INSPECTION AND ACCEPTANCE 22 36. MATERIAL AND WORKMANSHIP 23 37. OTHER CONTRACTS 23 38. SUBCONTRACTS 24 39. COMMONWEALTH OCCUPANCY 24 40. GUARANTEES 24 41. MAINTENANCE OF TRAFFIC 25 42. PERMITS AND RESPONSIBILITIES 24 43. PROJECT SIGNS 24 44. SPECIFICATIONS AND DRAWINGS 24 45. STANDARD REFERENCES 25 46. STANDARD DETAILS 25 47. MEASUREMENTS 25 48. SURVEY MONUMENTS AND BENCH MARKS 26 49. PATENT INDEMNITY 26 50. CONVICT LABOR 26 51. EQUAL OPPORTUNITY 26 52. UTILIZATION OF SMALL BUSINESS CONCERNS 27 53. WORKING HOURS 27 54. SOCIAL SECURITY 27 55. ACCIDENT PREVENTION - PUBLIC SAFETY 28 56. DEBRIS AND CLEANING 28 57. SANITATION 28 58. PROTECTION OF EXISTING VEGETATION, STRUCTURES, UTILITIES, AND IMPROVEMENTS 28 59. STORM PROTECTION 29 60. FAILURE TO FURNISH INFORMATION AND RECORDS 29 61. PERMISSION TO ENTER THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS 29 62. TRANSPORTATION AND LODGING EXPENSE 29 63. OFFICIALS NOT TO BENEFIT 30 - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--2 253 General Conditions -- Construction Contract 1. ENTIRE AGREEMENT (a) With respect to the subject matter of the Contract, the Contract, as expressed in the Contract Documents, represents the entire agreement between the Commonwealth and the Contractor, and supersedes all prior agreements and understandings. No revision to the express terms of the contract shall be implied, except as required by law. 2. CONTRACT NOT ASSIGNABLE (a) The Contract and all of its covenants shall inure to the benefit of and be binding respectively upon the Commonwealth and the Contractor and its partners, successors, assigns and legal representatives. The Contractor may not assign, transfer, encumber, or sublet its interest or obligations under the Contract without written consent of the Commonwealth. No mechanic, subcontractor, supplier, or other person shall be permitted to contract for or in any other manner have or acquire any lien upon the services covered by the Contract, or the construction to which the services pertain, or the land upon which the construction is situated. 3. INDEPENDENT CONTRACTOR (a) For purposes of the application of Article 6, "Ethics in Public Contracting" of the CNMI Procurement Regulations, the Contractor and its employees, agents, subcontractors, and representatives shall be considered employees of the Commonwealth government, as provided by ss. 1-201(8) of the CNMI Procurement Regulations. (b) Except as stated in the CNMI Procurement Regulations or authorized in writing by the Contracting Officer and only under the terms so stated or authorized, neither the Contractor nor its employees or subcontractors shall act for, represent, or bind the Commonwealth in any capacity or manner whatsoever, or be deemed or considered an employee, agent, or representative of the Commonwealth, or be deemed to have any relationship with the Commonwealth other than that of independent contractor. 4. NO WAIVER BY COMMONWEALTH (a) The failure of the Commonwealth in any one or more instances to insist upon strict performance of any of the items of the Contract, or to exercise any option herein conferred, shall not be construed as a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or options on any future occasion. 5. INTERPRETATION AND VALIDITY (a) This contract shall be interpreted under the laws of the Commonwealth of the Northern Mariana Islands. Where no local law is available to resolve a particular issue, reference shall be had to U.S. federal procurement law and cases similar to the matter in dispute, including the Federal Acquisition Regulation and decisions interpreting it, as well as scholarly treatises on U.S. federal procurement law. (b) All provisions of this Contract shall, to the extent practical, be interpreted to be consistent with the CNMI Procurement Regulations. In the event of an unresolvable conflict between any provision of the contract and the CNMI Procurement Regulations, the CNMI Procurement Regulations shall govern the Contract. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC-3 254 (c) In the event of a conflict between any provision of the Contract and Agreement document and these General Conditions, the Contract and Agreement document shall govern the Contract. (d) If the contract documents include a "Special Conditions" document, that document shall be interpreted to supplement these General Conditions and shall prevail in the event of a conflict. (e) In the event the contract or the procurement action resulting in the contract is found to be in violation of the CNMI Procurement Regulations, then the Contract will not be valid under the laws of the Commonwealth of the Northern Mariana Islands, and may be found to be legally voidable. The Commonwealth will seek to have any liability asserted against it by a contractor which directly results from improper acts of a government employee to be determined judicially to be the individual liability of the employee who committed the wrongful acts. (Reference CNMI Procurement Regulations ss. ss. 1-107, 1-108.) 6. DEFINITIONS (a) The term "Commonwealth" as used in all Contract Documents shall mean the government of the Commonwealth of the Northern Mariana Islands. (b) The term "Contracting Officer" as used in all Contract Documents shall mean the person executing the Contract as Contracting Officer and includes a duly appointed successor or authorized representative. If the Secretary of Public Works executes the contract as Contracting Officer, the Secretary may, from time to time, in writing, designate another individual to be Contracting Officer. 7. AUTHORITIES AND LIMITATIONS (a) All work under the Contract shall be performed under the general direction of the Contracting Officer, who alone shall have the power to bind the Commonwealth and to exercise the rights, responsibilities, authorities and functions vested in him by the contract documents, except that he shall have the right to designate authorized representatives to act for him. The authorized representatives are responsible for guiding the technical aspects of the project and for general surveillance of the work performed. The authorized representatives shall not make any commitments or authorize any changes which constitute work not within the general scope of the Contract, change the expressed terms and conditions hereof or specifications incorporated or included herein, or by any act or omission authorize expressly or otherwise, a basis for any increase in the contract price or time for performance. Whenever any provisions in the Contract specify an individual (such as, but not limited to, Construction Engineer, Inspector, or Custodian) or an organization (whether government or private) to perform any act on behalf of, or in the interest of the Commonwealth, that individual or organization shall be deemed to be the Contracting Officer's authorized representative under the Contract but only to the extent so specified. A copy of each document vesting authority in an authorized representative or designating an additional authorized representative shall be furnished to the Contractor. (b) The Contractor shall perform the Contract in accordance with any order (including but not limited to instruction, direction, interpretation or determination issued by an authorized representative in accordance with his authority to act for the Contracting Officer; but the Contractor assumes all the risks and consequences of performing the contract in accordance with any order (including but not limited to, instruction, direction, interpretation, or determination) of anyone not authorized to issue such order. (c) The work of the Contractor is subject to inspection to insure strict compliance with the terms of the Contract. No inspector is authorized to change any provision of the specifications without the written authority of the Contracting Officer, nor shall the presence or absence of an inspector relieve the Contractor from any requirements of the work. - ------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--4 255 8. PAYMENTS TO THE CONTRACTOR (a) The Commonwealth will pay the contract price as provided in this clause. (b) The Commonwealth will make progress payments monthly as the work proceeds or at more frequent intervals as determined by the Contracting Officer, on estimates approved by the Contracting Officer. (c) Before the first progress payment under the Contract becomes due, the Contractor shall prepare a breakdown of the contract price acceptable to the Contracting Officer showing the amount included therein for each principal category of the work, in such detail as requested. The values in the breakdown will be used to provide a basis for determining progress payments. The Contractor's overhead, profit and cost of bonds shall be prorated throughout the life of the contract. (d) Except as may be otherwise provided in the Contract, the contract price shall include all applicable Federal, Commonwealth of the Northern Mariana Islands, and local taxes and duties. (e) Estimates on which progress payments are based shall include the value (as determined by the Contracting Officer) of satisfactory in place work performed pursuant to change orders. (f) Preparatory work done will not be taken into consideration in preparing estimates upon which progress payments are based. (g) The Contracting Officer, at his discretion, may authorize payments for materials delivered and stored on the work site. The Contractor is fully responsible for the materials delivered and stored by him. (h) The Contractor, prior to receiving a progress or final payment under the Contract, shall submit to the Contracting Officer a certification that the Contractor has made payments from the proceeds of prior payments, or that he will make timely payment from the proceeds of the progress payments or final payment due him, to his workers, subcontractors, and suppliers in accordance with the Contractor's contractual agreement with them. (i) In making each progress payment, there shall be retained ten percent (10%) of the estimated amount until final completion and acceptance of the contract work. However, if the Contracting Officer, at any time after fifty percent (50%) of the work has been completed, finds that satisfactory progress is being made, the Contracting Officer may authorize any of the remaining progress payments be made in full with not retainage. Also, whenever the work is substantially complete, the Contracting Officer, if he considers the amount retained to be in excess of the amount adequate for the protection of the Commonwealth, at his discretion, may release to the Contractor all or a portion of such excess amount. Furthermore, upon completion and acceptance of each separate building, public work, or other division of the contract on which the price is stated separately in the contract, payment may be made therefore without retention of a percentage. (j) All material and work covered by progress payments made shall thereupon become the sole property of the Commonwealth, but this provision shall not be construed as relieving the Contractor from the sole responsibility for all material and work upon which the payments have been made or the restoration of any damaged work, or as waiving the right of the Commonwealth to require the fulfillment of all of the terms of the contract. (k) Upon completion and acceptance of all work, the amount due the Contractor under the Contract shall be paid upon the presentation of a properly executed voucher and after the Contractor shall have furnished the Commonwealth with a written release of all claims against the Commonwealth arising by virtue of the Contract, other than claims stated in amounts as may be specifically excepted by the Contractor from the operation of the release. If the Contractor's claim to amounts payable under the Contract has been assigned under the "Assignment of Claims" clause, a release may also be required of the assignee. - ------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC-5 256 (a) If the Contract provides for payments aggregating One Thousand Dollars (US$1,000.00) or more, claims for monies due or to become due the Contractor from the Commonwealth under the Contract may be assigned to a bank, trust company or other financing institution, including any U.S. federal lending agency, and may thereafter be further assigned or reassigned to any such institution. Any such assignment or reassignment shall cover all amounts payable under the Contract and not already paid, and shall not be made to more than one party, except that any such assignment or reassignment may be made to one party as agent or trustee for two or more parties participating in such financing. (b) In no event shall copies of the Contract Documents or of any drawings, specifications, or other similar documents relating to work under the Contract, if marked "Secret", "Top Secret" or "Confidential", be furnished to any assignee, nor may any part of all the Contract so marked be disclosed to such assignee without the prior written authorization of the Contracting Officer. 10. STATUS OF ARCHITECTURAL/ENGINEERING DESIGNS AND DATA (a) Confidential Information. All information contained in any architectural/engineering design studies, reports, and drawings and all parts thereof, submitted to the Commonwealth pursuant to the Contract, are to be treated as strictly confidential and for official use of the Commonwealth only. The Contractor shall take all reasonable steps to unsure that no member of its staff or organization shall divulge any information concerning the studies, reports and drawings except to a duly authorized representative of the Commonwealth, without prior written permission of the Commonwealth. This confidential restriction shall apply for five (5) years after completion of the work under the Contract. The foregoing does not apply to any information falling into any of the following categories: (i) Information which at the time of disclosure is or thereafter becomes within the public domain other than by reason of Contractor's breach of the Contract. (ii) Information which prior to disclosure hereunder was already in the Contractor's possession without violation of any secrecy obligation to the Commonwealth either directly or indirectly. (iii) Information which subsequent to disclosure hereunder is obtained by the Contractor from a third party who is lawfully in possession of such information and which information is not subject to the secrecy obligation to the Commonwealth or to others. (iv) Information which is developed by the Contractor independently of its work under the Contract. (b) Commonwealth Rights. The Commonwealth shall have unlimited rights, for the benefit of the Commonwealth, to the architectural/engineering work product of the Contractor created pursuant to the Contract, including all drawings, specifications, architectural/engineering designs, notes, and other architectural/engineering work developed in the performance of the Contract, including the right to use some or all of the architectural/engineering work product on any other Commonwealth work without additional cost to the Commonwealth. The Commonwealth shall have and enjoy a royalty-free license to all architectural/engineering work product which the Contractor may cover by copyright and to all engineering and architectural designs as to which the Contractor may assert any rights to or establish any claim under the design patent or copyright laws. The Contractor shall submit to the Commonwealth all original copies of reports, completed drawings, notes, and other documents developed in the performance of the Contract after completion and acceptance of the work. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--6 257 11. ADDITIONAL REQUIREMENTS FOR "DESIGN-BUILD" PROJECTS. (a)Applicability of Provisions. This clause shall apply in design-build projects to the extent the provisions herein are not expressly covered or contradicted by the Contract and Agreement or Scope of Work documents. (b) Site Visits and Conference. The Contractor shall, if necessary, visit the project site and shall hold conferences with representatives of the Commonwealth and take such other action as may be necessary to obtain the data required to accomplish the Project. (c) Preliminary Sketches. Preliminary sketches shall include studies, reports, and plans, elevations and sections developed to the extent as will clearly indicate the proposed planning and a reasonable estimate of the cost. Preliminary sketches, along with an estimate of the cost of the project shown on the sketches, shall be submitted for the approval of the Contracting Officer. The Contractor shall change the preliminary sketches or reports for the Project to the extent necessary to meet the requirements of the Commonwealth, and after review and approval by the Contracting Officer, the Contractor shall furnish necessary prints of the approved preliminary sketches and reports to the Contracting Officer. (d) Final Drawings and Specifications. After preliminary sketches and estimates have been approved, the Contractor shall proceed with the preparation of reports, drawings, and specifications as required by the Contracting Officer in connection with the Project. Reports, drawings, specifications, and estimates shall be delivered to the Contracting Officer in such sequence and at such times as required by the Contracting Officer. Following review by the Contracting Officer, the Contractor shall make such corrections as are required to obtain the Contracting Officer's approval, and shall submit prints of the final reports, drawings, and specifications. (e) Deficiencies in the Work. The Contractor shall be responsible for the professional quality, technical accuracy and coordination of all services furnished by the Contractor under the Contract. The Contractor shall, without additional compensation, correct or revise any errors or deficiencies in the work, including both the design and the construction of the Project. (f) Work to be Continuous. Unless directed otherwise by the Contracting Officer, work on the Project shall not be suspended during periods of design review by the Contracting Officer. 12. CONTRACT AND BONDS (a) If the Contractor fails to satisfactorily execute the required forms of contract, performance bond, and payment bond, within the time established in the Instruction To Bidders, the Commonwealth may proceed to have the required work performed by contract or otherwise, and the Contractor shall be liable for any excess cost to the Commonwealth and the Contractor's bid guarantee shall be available toward off-setting such excess cost. 13. CONSTRUCTION PROGRESS CHART (a) Within ten (10) days after receipt of the Notice to Proceed, the Contractor shall prepare and submit to the Contracting Officer for approval six (6) copies of a practicable progress chart. The chart shall show the principal categories of work corresponding with those used in the breakdown on which progress payments are based, the order in which the Contractor proposes to carry on the work, the date on which it will start each of the categories of work, and the contemplated date for completing the same. If the Project includes a design component that is the responsibility of the Contractor, the progress chart shall include provisions for the design and review elements specified in the Scope of Work document and in the "Additional Requirements for Design-Build Projects" - ------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--7 258 clause. The chart shall be in suitable scale to indicate graphically the total percentage of work scheduled to be in place at any time. At the end of each progress payment period, or at such intervals as directed by the Contracting Officer, the Contractor shall: (1) adjust the chart to reflect any changes in the contract work, completion time, or both, as approved by the Contracting Officer; (2) enter on the chart the total percentage of work actually in place; and (3) submit three copies of the adjusted chart to the Contracting Officer. (b) If, in the opinion of the Contracting Officer, work actually in place falls behind that scheduled, the Contractor shall take such action as necessary to improve his progress. In addition, the Contracting Officer may require the Contractor to submit a revised chart demonstrating his program and proposed plan to make up a lag in schedule progress and to ensure completion of work within the contract time. If the Contracting Officer finds the proposed plan not acceptable, he may require the Contractor to increase the work force, the construction plan or equipment, or the number of work shifts without additional cost to the Commonwealth. (c) Failure of the Contractor to comply with these requirements shall be considered grounds for determination by the Contracting Officer that the Contractor is failing to prosecute the work with such diligence as will ensure its completion within the time specified. 14. FEES AND CHARGES (a) The Contractor shall pay all fees and charges pertaining to temporary connection to utilities for construction. The Contractor will apply for permanent utility connections with the assistance of the Commonwealth. The Commonwealth will pay all fees and charges regarding permanent utility connections. The Contractor shall pay all charges for the use of property outside of the work site. 15. CONTRACT TIME (a) The Contractor shall perform fully, entirely, and in a satisfactory and acceptable manner the work contracted, within the number of calendar days set forth in the contract documents, which number (adjusted by the exclusions and extensions described below, and by any applicable amendments, addenda, or change order to the Contract) shall be the "contract time". Time will be assessed against the Contractor beginning with the date of the Notice to Proceed. All strikes, lockouts, unusual delays in transportation, or any condition over which the Contractor has no control, and also any suspensions ordered by the Contracting Officer for causes not the fault of the Contractor, shall be excluded from the computation of the contract time. If the satisfactory execution and completion of the contract shall require work or materials in greater amounts or quantities than those set forth in the original contract, then the contract time shall be extended in the same proportion as the cost of the additional work bears to the original work contracted for. No allowances will be made for delays or suspensions of the prosecution of the work due to the fault of the Contractor. In order to secure an extension of time for delays beyond his control, the Contractor shall within ten (10) days from the beginning of any such delay, notify the Contracting Officer in writing of the causes of delay, whereupon the Contracting Officer will ascertain the facts and the extent of the delay and extend the contract time when, in his judgement, the findings of fact justify such an extension, and his findings of fact thereon shall be final and conclusive. (b) In design-build projects that require periods of time for government review of design elements submitted by the Contractor, the government review time will not be added to the total time for contract completion unless such review so disrupts the orderly prosecution of the work by the Contractor that normal progress is materially impeded, or the Contracting Officer orders the work suspended pending review. The Contracting Officer shall, by written order, adjust the contract time in an equitable fashion to account, if necessary, for delay resulting from government review time. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--8 259 16. LIQUIDATED DAMAGES (a) The amount per day of liquidated damages, as referred to in these General Conditions, is the sum stated as "Liquidated Damages" in the Contract and Agreement document, or, if no amount is stated in the Contract and Agreement, then in any document in the bid package, or, if no amount is stated in these documents, then in the Proposal, if any. In the event no amount for liquidated damages may be determined from the application of the first sentence of this paragraph, then the daily amount of liquidated damages shall be the greater of (i) one hundred dollars ($100), or (ii) two percent (2%) of the contract price divided by the number of calendar days of the contract time, the contract time and contract price being determined at the time of the assessment of liquidated damages. This amount is considered to be liquidated damages to reimburse the Commonwealth for loss and damages suffered by the Commonwealth and is in no case a penalty. (b) In the event the Contractor shall fail fully to perform and complete the work in conformity with the Contract within the contract time, the Contractor shall pay to the Commonwealth for each and every day of the additional time in excess of the contract time liquidated damages as specified in paragraph (a) of this clause. (c) Liquidated damages may also be assessed against the Contractor under other provisions of the Contract, and shall be determined in accordance with paragraph (a) of this clause. (d) The Commonwealth may recover the amount of liquidated damages by deducting the amount thereof out of any monies which may be due or become due the Contractor under the Contract or under any other existing or future contract between the Commonwealth and the Contractor, or by an action at law against the Contractor or his surety, or by any or all of these methods. 17. DISPUTES AND REMEDIES (a) Notwithstanding any other provision of the Contract, before the contractor may bring any action law equity relating to any dispute relating to the Contract, including but not limited to claims for wrongful termination or breach, the Contractor must first submit the dispute to administrative resolution and appeal as provided by this clause. (b) Any dispute between the Commonwealth and the Contractor relating to the performance, interpretation of, or compensation due under the Contract, must be filed in writing with the Director of Procurement and Supply and with the Secretary of Public Works within ten calendar days after the Contractor obtains knowledge of the facts surrounding the dispute. (c) The Secretary of Public Works will attempt to resolve the dispute by mutual agreement. If the dispute cannot be settled, either the Contractor or the Contracting Officer may request a decision on the dispute from the Director of Procurement & Supply. The Director shall review the facts pertinent to the dispute, secure necessary legal assistance and prepare a decision that shall include: (i) Description of the dispute; (ii) Reference to pertinent contract terms; (iii) Statement of the factual areas of disagreement or agreement; and (iv) Statement of the decision as to the factual areas of disagreement and conclusion of the dispute with any supporting rationale. (d) The Director of Procurement and Supply may require a hearing or that information be submitted on the record, in his discretion. (e) Whenever the Contractor has a dispute pending before the Secretary of Public Works or the Director of Procurement and Supply, the Contractor must continue to perform according to the - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--9 260 terms of the contract, and failure to so continue shall be deemed to be a material breach of the contract unless the Contractor obtains a waiver of this provision by the Secretary of Public Works. (f) Paragraphs (b) through (e) are derived from ss.5-20 1 of the CNMI Procurement Regulations, and shall be interpreted so as not to be in conflict with the CNMI Procurement Regulations. If an officer of the Commonwealth other than the Secretary of Public Works executes the Contract and Agreement as "expenditure authority", then that officer shall be substituted for "Secretary of Public Works" in paragraphs (b) through (e). (g) Disputes arising out of the Labor Standards Provisions of this Contract (if any) shall be subject to this clause, except, to the extent such disputes involve classifications or wage rates contained in the CNMI Title and Pay Plan, which questions shall be referred to the Contracting Officer. (h) Nothing in this clause shall serve to limit any remedies at law or equity available to the Commonwealth. 18. SUSPENSION OF WORK (a) The Contracting Officer may order the Contractor in writing to suspend, delay, or interrupt all or any part of the work for such period of time as he may determine to be appropriate for the convenience of the Commonwealth, including, but not limited to suspensions for unfavorable weather or other essential conditions, failure on the part of the Contractor to prosecute properly the work in accordance with the contract, or failure of the Contractor to carry out orders or to remove defective materials or work. (b) In the event of a suspension of work by the Contracting Officer under paragraph (a), for any reason over which the Contractor has or had no control, the contractor may be reimbursed for actual money expended on the job during the period of suspension. No allowance will be made for anticipated profits. The period of suspension shall be computed from the date set out in written order for work to cease until the date of the order for work to resume. Claims for such compensation shall be filed with the Contracting Officer within 10 days after the date of the order to resume work, or such claim will not be considered. The Contractor shall submit with its claim substantiating papers covering the entire amount shown on the claim. The Contracting Officer shall take the claim under consideration, and may make such investigations as are deemed necessary, and shall be the sole judge as to the equitability of such claim and such decision shall be final. (c) If the performance of all or any part of the work, for an unreasonable period of time, is suspended, delayed, or interrupted by an act of the Contracting Officer in the administration of the Contract, or by his failure to act within the time specified in the Contract (or if no time is specified, within a reasonable time), an adjustment shall be made for any increase in the cost of performance of the Contract (excluding anticipated profit) necessarily caused by such unreasonable suspension, delay, or interruption, and the contract shall be modified in writing accordingly. However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent: (1) that performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor; or (2) for which an equitable adjustment is provided for or excluded under any other provision of the Contract. (d) No claim under paragraph (c) shall be allowed: (1) for any costs incurred more than twenty (20) days before the Contractor shall have notified the Contracting Officer in writing of the act or failure to act involved (but this requirement shall not apply as to a claim resulting from a suspension order); and (2) unless the claim, in an amount stated, is asserted in writing as soon as practicable after the termination of such suspension, delay, or interruption, but not later than the date of final payment under the contract. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--l0 261 (e) The Contractor shall not suspend the work without written approval by the Contracting Officer, and prior to resuming work shall give the Contracting Officer forty-eight (48) hours notice to afford opportunity to re-establish inspection. (f) No provision of this clause shall be construed as entitling the Contractor to compensation for delays due to inclement weather, delays due to failure for surety, for suspensions made at the request of the Contractor, or for any other delay provided for in the contract documents, including all amendments, addenda, and change orders. 19. CHANGES (a) The Contracting Officer may, at any time and without notice to the sureties, by written order designated or indicated to be a change order, make any change in the work within the general scope of the contract, including but not limited to changes in: (i) The specifications (including drawings and designs); (ii) The method or manner of performance of the work; (iii) The Commonwealth-furnished facilities, equipment, materials, services, or site; or (iv) The directing of acceleration in performance of the work. (b) Any other written order or an order (which terms as used in this paragraph shall include direction, instruction, interpretation, or determination) from the Contracting Officer, which causes any such change, shall be treated as a change order under this clause, provided that the Contractor gives the Contracting Officer written notice stating the date, circumstances, and source of the order and that the Contractor regards the order as a change order. (c) Except as herein provided, no order, statement, or conduct of the Contracting Officer shall be treated as a change under this clause or entitle the Contractor to an equitable adjustment hereunder. (d) If any change under this clause causes an increase or decrease in the Contractor's cost of, or the time required for, the performance of any part of the work under the Contract, whether or not changed by any order, an equitable adjustment shall be made and the contract modified in writing accordingly; provided, however, that except for claims based on defective specifications, no claim for any change under (b) above shall be allowed for any costs incurred more than twenty (20) days before the Contractor gives written notice as therein required: and provided further, that in the case of defective specifications for which the Commonwealth is responsible, the equitable adjustment shall include any increased cost reasonably incurred by the Contractor in attempting to comply with such defective specifications. (e) If the Contractor intends to assert a claim for an equitable adjustment under this clause, he must, within thirty (30) days after receipt of a written change order under paragraph (a) of this clause, or the furnishing of a written notice under paragraph (b) of this clause, submit to the Contracting Officer a written statement setting forth the general nature and monetary extent of such claim, unless this period is extended by the Contracting Officer. The statement of claim hereunder may be included in the notice under paragraph (b) of this clause. (f) No claim by the Contractor for an equitable adjustment under this clause shall be allowed if asserted after final payment under this contract. (g) Additional performance and payment bond protection shall be furnished by the Contractor in connection with any modification affecting an increase in the price under the Contract if: (i) The modification is for new or additional work which is beyond the scope of the existing contract; or - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--11 262 (ii) The modification is pursuant to an existing provision of the Contract and increases the contract price by $5000 or twenty five percent (25%) of the basic contract price whichever is less. 20. EQUITABLE ADJUSTMENT (a) The Contractor's written statement of the monetary extent of a claim for equitable adjustment shall be submitted in the form of a lump sum proposal (unless otherwise requested by the Contracting Officer) with an itemized breakdown of all increases or decreases in the cost of the Contractor's and all subcontractors' work, in at least the following detail: (i) Material quantities and unit costs, (ii) Labor costs (identified with specific item of material to be placed or operation to be performed), (iii) Workmen's Compensation and Public Liability Insurance overhead, and - (iv) Employment taxes under FICA, FUTA, and CNMI Social Security System. - (b) The percentage for overhead, profit, and commission shall be negotiated and may vary according to the nature, extent, and complexity of the work involved, but in no case shall exceed fifteen percent (15%) of the estimated cost of the work, and shall be considered to include, but is not limited to, insurance other than that mentioned in this clause, bonds, use of small tools, incidental job burdens, and general office expense. No percentages for overhead, profit or commission, will be allowed on employment taxes under FICA, FUTA, and CNMI Social Security System. (c) The Contractor shall submit with the proposal, any request for time extension related to the claim for equitable adjustment. (d) In considering a proposal, the Contracting Officer will make check estimates in detail, utilizing unit prices where specified or agreed upon, with a view to arriving at an equitable adjustment. (e) After receipt of a proposal with a detailed breakdown, the Contracting Officer shall act promptly thereon. Provided, however, that when the necessity to proceed with a change does not allow sufficient time to properly check a proposal, or in the event of failure to reach an agreement on a proposal, the Contracting Officer may order the Contractor to proceed on the basis of price to be determined at the earliest practicable date but not to be more than the increase or less than the decrease proposed. (f) Except in unusual cases where neither the Contractor nor the Commonwealth can ascertain the full extent of the work which will be required pursuant to a change until the work involved therein has been substantially completed, final agreement on a proposal shall be effected no later than the time when the work involved is estimated by the Contracting Officer to be 50% complete; in the event final agreement cannot be reached by that time, the Contracting Officer shall issue a unilateral determination as to the equitable adjustment of the contract price and the time required for performance. 21. TERMINATION FOR DEFAULT (a) If the Contractor refuses or fails to prosecute the work, or any separable part thereof, with such diligence as will ensure its completion within the contract time, or fails to complete said work within the contract time, the Commonwealth may, by written notice to the Contractor from the Contracting Officer, terminate the Contractor's right to proceed with the work or such part of the work as to which there has been delay, after providing ten day's written notice and an opportunity to the Contractor to show cause why such action should not be taken. In the event of a termination - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--12 263 for default under this clause, the Commonwealth may take over the work and prosecute the same to completion, by contract or otherwise, and may take possession of and utilize in completing the work such materials, appliances, and plans as may be on the site of the work and necessary therefor. Whether or not the Contractor's right to proceed with the work is terminated, the Contractor and his sureties shall be liable for any damage to the Commonwealth resulting from the Contractor's refusal or failure to complete the work within the contract time. (b) The Contractor's right to proceed shall not be so terminated nor the Contractor charged with resulting damage if: (i) The delay in the completion of the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor, including but not restricted to acts of nature, acts of the public enemy, acts of the Commonwealth in either its sovereign or contractual capacity, acts of another contractor in the performance of a contract with the Commonwealth, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, unusually severe weather, or delays of subcontractors or suppliers of any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and such subcontractors or suppliers; and (ii) The Contractor, within ten (10) days from the beginning of any such delay (unless the Contracting Officer grants a further period of time before the date of final payment under the contract), notify the Contracting Officer in writing of the cause of delay. The Contracting Officer shall ascertain the facts and the extent of the delay and extend the time for completing the work when, in his judgement, the findings of fact justify such an extension and his findings shall be final, subject only to appeal as provided in the "Disputes and Remedies" clause. (c) If the Commonwealth terminates the Contractor's right to proceed under paragraph (a), the resulting damage will consist of liquidated damages until such reasonable time as may be required for final completion of the work, together with any increased costs occasioned the Commonwealth in completing the work. (d) If the Contractor is in default under paragraph (a), but the Commonwealth does not terminate the Contractor's right to proceed, the resulting damage will consist of applicable liquidated damages until the work is completed or accepted. (e) The Contractor shall be in default of the Contract, and the Contracting Officer may immediately and without other notice, terminate the Contractor's right to proceed with the Contract through written notice to the Contractor of default termination, upon a determination by the Contracting Officer that, related to this particular contract, any of the following has occurred-- (i) The Contractor has committed any breach of ethical standards as defined in the Contract Documents, the CNMI Procurement Regulations, or other applicable law. (ii) The Contractor has participated in any violation of the rules or regulations in the CNMI Procurement Regulations to the disadvantage of the Commonwealth. (iii) The Contractor has colluded with other potential awardees of the Contract or with government employees to the disadvantage of the Commonwealth. (iv) The Contractor knowingly requests and/or receives payment to which it is not entitled under the specific terms of the Contract. (v) The Contractor accepts payment with knowledge that government employees or officials authorizing the payment have not complied with the terms of the Contract or applicable law. (f) If, after notice of termination of the contractor's right to proceed under any-of the provisions of this clause, it is subsequently determined by the Contracting Officer (or, upon review of the Contracting Officer's decision, by an authorized administrative or judicial body) that the Contractor - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--l3 264 was not in default under the provisions of this clause, or that the delay was excusable under the provisions of this clause, then the rights and obligations of the parties shall be the same as if the notice of termination had been issued pursuant to the "Termination for the Convenience of the Commonwealth" clause. This paragraph shall provide the exclusive remedy for a wrongful termination for default. (g) Any disagreement of the Contractor to any action taken by the Commonwealth under this clause shall be a dispute within the meaning of the "Disputes and Remedies" clause. (h) The rights and remedies of the Commonwealth provided in this clause are in addition to any other rights and remedies provided by law or under the Contract. 22. TERMINATION FOR THE CONVENIENCE OF THE COMMONWEALTH (a) Termination. The Contracting Officer may, when the interests of the Commonwealth so require, terminate this contract in whole or in part, for the convenience of the Commonwealth. The Contracting Officer shall give written notice of the termination to the Contractor specifying the part of the contract terminated and when the termination becomes effective. (b) Contractor's Obligations. The Contractor shall incur no further obligations in connection with the terminated work and, on the date set in the notice of termination, the Contractor will stop work to the extent specified. The Contractor shall also terminate outstanding orders and subcontracts as they relate to the terminated work. The Contractor shall settle the liabilities and claims arising out of the termination of subcontracts and orders connected with the terminated work. The Contracting Officer may direct the Contractor to assign the Contractor's right, title, and interest under terminated orders or subcontracts to the Commonwealth. The Contractor must still complete the work not terminated by the notice of termination and incur obligations as are necessary to do so. (c) Right to Supplies. The Contracting Officer may require the Contractor to transfer title and deliver to the Commonwealth in the manner and to the extent directed by the Director of Procurement and Supply: (i) Any completed supplies; and (ii) Such partially completed supplies and materials, parts, tools, dies, jigs, fixtures, plans, drawings, information, and contract rights (hereinafter called "manufacturing material") as the Contractor has specifically produced or specially acquired for the performance of the terminated part of the Contract. (d) The Contractor shall, upon direction of the Contracting Officer, protect and preserve property in the possession of the Contractor in which the Commonwealth has an interest. If the Contracting Officer does not exercise the right specified in paragraph (c) , the Contractor shall use his best efforts to sell such supplies and manufacturing materials in accordance with the standards of the Uniform Commercial Code of the Northern Mariana Islands, 5 CMC ss. 2706. Utilization of this procedure in no way implies that the Commonwealth has breached the contract by exercise of the "Termination For Convenience of the Commonwealth" clause. (e) Compensation. The Contractor shall submit to the Contracting Officer a termination claim specifying the amount due because of the Termination For Convenience together with cost and pricing data to the extent required. If the Contractor fails to file a termination claim within one (1) year from the effective date of the termination, the Contracting Officer may pay the Contractor, if at all, an amount set in accordance with paragraph (g). (f) The Contracting Officer and the Contractor may agree to a settlement provided the Contractor has filed a termination claim and that the settlement does not exceed the total contract price plus settlement costs reduced by payments previously made by the Commonwealth, the proceeds of any - ------------------------------------------------------------------------------ DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC-14 265 sales and supplies and manufacturing materials under paragraph (d), and the contract price of the work not terminated. (g) Absent complete agreement under paragraph (f), the Contracting Officer shall pay the Contractor the following amounts, provided payments agreed to under paragraph (f) shall not duplicate payments under this paragraph: (i) contract prices for supplies or services accepted under the contract. (ii) costs incurred in preparing to perform and performing the terminated portion of the work plus a fair and reasonable profit on such portion of the work (such profit shall not include anticipatory profit or consequential damages) less amounts paid or to be paid for accepted supplies or services; provided, however, that if it appears that the Contractor would have sustained a loss if completed, no profit shall be allowed or included and the amount of compensation shall be reduced to reflect the anticipated rate of loss. (iii) cost of settling and paying claims arising out of termination of subcontracts or orders pursuant to paragraph (b). These costs must not include cost paid in accordance with subparagraph (g)(ii). (iv) the reasonable settlement costs of the Contractor including accounting, legal, clerical, and other expenses reasonably necessary for the preparation of settlement claims and supporting data with respect to the terminated portion of the contract for the termination and settlement of the contracts thereunder, together with reasonable storage, transportation, and other costs incurred in connection with the protection or disposition of property allocable to the terminated portion of the Contract. The total sum to be paid the Contractor under this subparagraph shall not exceed the total contract price plus reasonable settlement costs of the Contractor reduced by the amount of payments otherwise made from the proceeds of any sales of supplies and manufacturing materials under paragraph (d), and the contract price of work not terminated. 23. LIABILITY TO THIRD PERSONS; INDEMNIFICATION; INSURANCE (a) The Contractor shall be liable for the torts and wrongful acts of its employees and staff members, and shall carry insurance necessary for the protection of its employees and staff members during the life of the Contract, and shall indemnify and hold harmless the Commonwealth from any and all claims, demands, suits, and causes of action whatsoever involving third parties arising out of or connected with the negligent performance of the Contract. (b) The Contractor and his subcontractors shall procure and thereafter maintain workmen s compensation, general liability, builder's risk, and comprehensive automobile liability (bodily damage) insurance, with respect to performance under the Contract; provided, that the Contractor may, with approval of the Contracting Officer, maintain a self-insurance program. All insurance required pursuant to the provisions of this paragraph shall be in such form, in such amounts, and for such periods of time, as the Contracting Officer may, from time to time, require or approve, and with insurers approved by the Contracting Officer. (c) Workmen's Compensation Insurance: The Contractor's employees engaged in any work under the Contract shall be afforded the same coverage as that which is extended to the employees of the Commonwealth of the Commonwealth of the Northern Mariana Islands. (d) Comprehensive General Liability Insurance: Coverage shall have the following minimum amounts: Personal injury, $100,000.00 each person, and $300,000.00 each occurrence; Property damage, $50,000.00 each occurrence, and $100,000.00 aggregate. (e) Builder's Risk (fire and extended coverage): The Contractor shall carry Builder's Risk (fire and extended coverage) Insurance on all work in place and materials stored at the work site, including - ---------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--15 266 foundations and building equipment. The Builder's Risk Insurance shall be for the benefit of the Contractor and the Commonwealth of the Northern Mariana Islands as their interests may appear and each shall be named in the policy or policies as an assured. Builder's Risk insurance need not be carried on excavations, piers, footings, or foundations until such time as work on the super structure is started and it need not be carried on landscape work. Policies shall be in effect at all times for the full cash value of all completed construction work, as well as materials in place and stored at the site, whether or not partial payment has been made by the Commonwealth of the Northern Mariana Islands. The Contractor may terminate this insurance on building(s) taken over for occupancy by the Commonwealth of the Northern Mariana Islands as of the date said building(s) is accepted. (f) Comprehensive Automobile Liability Insurance: Coverage of this insurance for all owned, non-owned and hired vehicles shall have the following minimum amounts: Personal injury, $100,000.00 each person, and $300,000.00 each occurrence; Property damage, $50,000.00. (g) The comprehensive general and automobile liability policies shall contain a provision worded as follows: "The insurance company waives any right of subrogation against the Government of the Commonwealth of the Northern Mariana Islands which may arise by reason of any payment under this policy". (h) Prior to commencement of work under the Contract, the Contractor shall furnish to the Contracting Officer a certificate or written statement of the above required insurance. The policies evidencing required insurance shall contain an endorsement to the effect that cancellation or any material change in the policies adversely affecting the interests of the Commonwealth in such insurance shall not be effective until 30 days after the Contracting Officer has received written notice from the insurer, as evidenced by return receipt of registered or certified letter. 24. SUPERINTENDENCE BY CONTRACTOR (a) The Contractor shall give his personal superintendence to the work or have a competent foreman or superintendent, satisfactory to the Contracting Officer, on the work at all times during progress, with authority to act for him. (b) The Contractor shall employ such superintendent, foreman and workmen as are careful and competent, and the Contracting Officer may demand the dismissal of any person employed by the Contractor in, about, or upon the work who shall engage in misconduct or be incompetent or negligent in the proper performance of duties, or neglects or refuses to comply with the directions given, and such person shall not be employed again thereon without the written consent of the Contracting Officer. Should the Contractor continue to employ, or again employ any person for whom the Contracting Officer has demanded dismissal under this clause, the Contracting Officer may withhold all payments, which are or may become due, or the Contracting Officer may suspend the work until such orders are complied with. 25. RIGHTS-OF-WAY (a) The Commonwealth will furnish all lands, easements, and rights-of-way required for completion of the work. In acquiring easements or rights-of-way the Government will proceed as expeditiously as possible, but in the event all rights-of-way or easements are not acquired prior to the beginning of construction, the Contractor shall begin work on such lands and rights-of-way as have been acquired. No claim for damage will be allowed by reason of the Commonwealth's delay in obtaining lands, easements, or rights-of-way. In the event of litigation or other delays in - ----------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--16 267 acquiring rights-of-way, the time allowed herein for completion of the work will be extended to compensate the Contractor for time actually lost by such delay. 26. APPROPRIATENESS OF EQUIPMENT (a) The Contractor shall furnish such equipment as is considered necessary for the prosecution of the work in an acceptable manner and at a satisfactory rate of progress. All equipment, tools, and machinery used for handling materials and executing any part of the work shall be subject to the approval of the Contracting Officer and shall be maintained in a satisfactory working condition. Equipment used on any portion of the work shall be such that no injury to the work, roadways, adjacent property, or other objects will result from its use. The contract may be terminated if the Contractor fails to provide adequate and proper equipment for the work. 27. LAWS TO BE OBSERVED (a) The Contractor is assumed to be familiar with all federal and local laws, codes, ordinances, and regulations which, in any manner, affect those engaged or employed in the work or the material or equipment used in or upon the site, or in any way affect the conduct of the work. No pleas of misunderstanding or ignorance on the part of the Contractor will, in any way, serve to modify the provisions of the contract. (b) The Contractor, at all times, shall observe and comply with all Federal and local laws, codes, ordinances, and regulations in any manner affecting the conduct of the work, and the Contractor and his surety shall indemnify and save harmless the Commonwealth and all its officers, agents and servants any claim or liability arising from or based on the violation of any such law, code, ordinance, regulation, order, or decree, whether by himself or his employees. (c) The Contractor shall be responsible for reporting to the Commonwealth Historical Preservation Office for verification and determination any discovery encountered during execution of this contract bearing archaeological, cultural, or historical content. 28. PERFORMANCE OF WORK BY CONTRACTOR (a) The Contractor shall perform on the site and with his own organization, work equivalent to at least twelve percent (12%) of the total amount of work to be performed under the contract. If, during the progress of the work hereunder, the Contractor requests a reduction in such percentage and the Contracting Officer determines that it would be to the advantage of the Commonwealth, the percentage of the work required to be performed by the Contractor may be reduced with the written approval of the Contracting Officer. 29. CONDITIONS AFFECTING THE WORK (a) The Contractor shall be responsible for having taken steps reasonably necessary to ascertain the nature and location of the work, and the general and local conditions which can affect the work or the cost thereof. Any failure by the Contractor to do so will not relieve him from responsibility for successfully performing the work without additional expense to the Commonwealth. The Commonwealth assumes no responsibility for any understanding or presentations concerning conditions made by any of its officers or agents prior to the execution of the Contract, unless so stated in the contract. (b) The Contractor shall request assistance from appropriate Commonwealth authorities to indicate the actual locations of existing utilities to preclude damage during construction. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--17 268 (c) The Contractor shall inquire about construction requirements from the Technical Services Division, Department of Public Works prior to beginning work on the project. 30. SITE INVESTIGATION (a) The Contractor acknowledges that he has investigated and satisfied himself as to the conditions affecting the work, including but not restricted to those bearing upon transportation, disposal, handling and storage of materials, availability of labor, water, electric power, roads and uncertainties of weather, river stages, tides, or similar physical conditions at the site, the conformations and conditions of the ground, the character of equipment and facilities needed preliminary to and during prosecution of the work. The Contractor further acknowledges that he has satisfied himself as to the character, quality and quantity of surface and subsurface materials or obstacles to be encountered insofar as this information is reasonably ascertainable from an inspection of the site, including all exploratory work done by the Commonwealth, as well as from information presented by the drawings and specifications made as part of this contract. Any failure by the Contractor to acquaint himself with the available information will not relieve him from responsibility for estimating properly the difficulty or cost of successfully performing the work. The Commonwealth assumes no responsibility for any conclusions or interpretations made by the Contractor on the basis of the information made available by the Commonwealth. 31. DIFFERING SITE CONDITIONS (a) The Contractor shall promptly, and before such conditions are disturbed, notify the Contracting Officer in writing of: (i) Subsurface or latent physical conditions at the site differing materially from those indicated in the Contract, or; (ii) Unknown physical conditions at the site, of an unusual nature, differing materially from those ordinarily encountered, and generally recognized as hindering work of the character provided for in the Contract. (b) The Contracting Officer shall promptly investigate the conditions, and if he finds that such conditions do materially so differ and cause an increase or decrease in the Contractor's cost of, or the time required for performance of, any part of the work under the Contract, whether or not changed as a result of such conditions, an equitable adjustment shall be made and the contract modified in writing accordingly. (c) No claim by the Contractor under this clause shall be allowed unless the Contractor has given notice required in (a) above; provided, however, the time prescribed therefore may be extended by the Commonwealth. (d) No claim by the Contractor for an equitable adjustment hereunder shall be allowed if asserted after final payment under this contract. (e) The contractor shall submit all claims for equitable adjustment in accordance with, and subject to the requirements and limitations set out in paragraph (a) of the "Equitable Adjustment" clause. (f) Upon written request by the Contracting Officer, the Contractor shall submit a proposal, in accordance with the requirements and limitations set out in paragraph (a) of the "Equitable Adjustment" clause, for work involving contemplated changes covered by the request, within the time limit indicated in the request or any extension of such limit as may be subsequently granted. If, within a reasonable time after receipt of such a proposal, the Contracting Officer orders the Contractor to proceed with the performance of the work contemplated, the proposal submitted prior - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--18 269 to the order shall constitute the Contractor's statement of the monetary extent of claim for equitable adjustment. 32. AS-BUILT DRAWINGS (a) Upon completion of the work to be performed under the Contract, and before final payment is made, the Contractor shall furnish the Commonwealth with two complete sets of "as-built" drawings. These sets shall include "marked up" prints of the contract drawings and such additional drawings as may be necessary to reflect the complete "as-built" work accomplished under the Contract. The "as-built" drawings shall be initiated at the beginning of the work and shall be maintained and kept current by the Contractor on the job site as the work progresses and until final completion and acceptance by the Commonwealth. Markings shall be accomplished in red and shall be complete and legible to assure that the information presented is readily usable. The "as-built" drawings submitted by the Contractor will be subject to review and approval of the Contracting Officer. 33. SHOP DRAWINGS, COORDINATION DRAWINGS, AND SCHEDULES (a) The Contractor shall submit shop drawings, coordination drawings, and schedules for approval as required by the specifications or requested by the Contracting Officer as follows: (i) Shop drawings shall include fabrication, erection and setting drawings, schedule drawings, manufacturer's scale drawings, wiring and control diagrams, cuts or entire catalogs, pamphlets, descriptive literature, and performance and test data. (ii) Drawings and schedules, other than catalogs, pamphlets and similar printed material, shall be submitted in reproducible form with two prints made by a process approved by the Contracting Officer. Upon approval, the reproducible form will be returned to the Contractor, who shall then furnish the number of additional prints, not to exceed 10, required by the Contracting Officer. (b) The Contractor shall submit shop drawings in catalog, pamphlet and similar printed form in a minimum of four copies plus as many additional copies as the Contractor may desire or need for his use or use by his subcontractors. (c) Before submitting shop drawings on the mechanical and electrical work, the Contractor shall submit and obtain the Contracting Officer's approval of such lists of mechanical and electrical equipment and materials as may be required by the specifications. (d) The Contractor shall check the drawings and schedules, shall coordinate them (by means of coordination drawings wherever required by the Contracting Officer) with the work of all trades involved before submission and shall indicate thereon his approval. Drawings and schedules submitted without evidence of the Contractor's approval may be returned for resubmission. (e) Each shop drawing or coordination drawing shall have a blank area 5" x 5", located adjacent to the title block. The title block shall display the following: (i) Number and title of drawing, (ii) Date of drawing or revision, (iii) Name of project building or facility, (iv) Name of Contractor and (if appropriate) name of subcontractor submitting the drawing, (v) Clear identity of contents and location of work, and (vi) Project title and contract number. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--19 270 (f) Unless otherwise provided in this contract or otherwise directed by the Contracting Officer, shop drawings, coordination drawings, and schedules shall be submitted to the Contracting Officer sufficiently in advance of construction requirements to permit no less than 10 working days for checking and appropriate action. (g) Except as otherwise provided in paragraph (h), approval of drawings and schedules will be general and shall not be construed as: (i) Permitting any departure from the contract requirements; (ii) Relieving the Contractor of the responsibility for any errors including details, dimensions, materials, etc.; or (iii) Approving departures from full-size details furnished by the Contracting Officer. (h) If drawings or schedules show variations from the contract requirements because of standard shop practice or for other reasons, the Contractor shall describe such variations in his letter of transmittal. If acceptable, the Contracting Officer may approve any or all such variations and issue an appropriate change order. If the Contractor fails to describe such variations, he shall not be relieved of the responsibility for executing the work in accordance with the contract, even though such drawings or schedules may have been approved. 34. SAMPLES (a) After award of the contract, the Contractor shall furnish, for the approval of the Contracting Officer, samples required by the specifications or by the Contracting Officer. Samples shall be delivered to the Contracting Officer or to the Architect/Engineer as specified or directed by the Contracting Officer. The Contractor shall prepay all shipping charges on samples. Materials or equipment for which samples are required shall not be used in the work unless approved in writing by the Contracting Officer. (b) Each sample shall have a label indicating the following: (i) Name of project building or facility, (ii) Project title and contract number, (iii) Name of Contractor and (if appropriate) the name of the subcontractor, (iv) Identification of material or equipment with specification requirement, (v) Place of origin, (vi) Name of sample producer and brand (if any), and (vii) Samples of finished materials shall be identified with the finished schedule requirements. (c) The Contractor shall mail (under separate cover) a letter submitting each sample shipment and the label information required in paragraph (b). He shall enclose a copy of the letter with the sample shipment and send a copy of the letter to the Commonwealth representative on the project site. Approval of the sample shall be only for the characteristics of use named in such approval and shall not be construed to change or modify any contract requirement. Substitutions will not be permitted unless they are approved in writing by the Contracting Officer. (d) Approved samples not destroyed in testing will be sent to the Commonwealth representative at the project site. Approved samples of hardware in good condition will be marked for identification and may be used in the work. Materials and equipment incorporated in the work shall match the approved samples. Other samples not destroyed in testing or not approved will be returned to the Contractor at his expense if so requested at the time of submission. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--20 271 (e) Failure of any material to pass the specified test will be sufficient cause for refusal to consider, under the Contract, any further samples of the same brand or make of the material. The Commonwealth reserves the right to disapprove any material or equipment which previously has proven unsatisfactory in service. (f) Samples of various materials or equipment delivered on the site or in place may be taken by the Commonwealth representative for testing. Samples failing to meet contract requirements will automatically void previous approvals of the item tested. The Contractor shall replace such materials or equipment found not to have met contract requirements, or there shall be adjustment of the contract price as determined by the Contracting Officer. (g) Unless otherwise specified, when tests are required, only one test of each sample proposed for use will be made at the expense of the Commonwealth. Samples which do not meet specification requirements will be rejected. Testing of additional samples will be made by the Commonwealth at the expense of the Contractor. 35. INSPECTION AND ACCEPTANCE (a) Except as otherwise provided in the Contract, inspection and test by the Commonwealth of material and workmanship required by the Contract shall be made at reasonable times and at the site of the work, unless the Contracting Officer determines that such inspection or test of material which is to be incorporated in the work shall be made at the place of production, manufacture, or shipment of such material. To the extent specified by the Contracting Officer, at the time of determining to make off-site inspection or test, such inspection or test shall be conclusive as to whether the material involved conforms to the contract requirements. Such off-site inspection or test shall not relieve the Contractor of responsibility for damage to or loss of the material prior to acceptance, nor in any way affect the continuing rights of the Commonwealth after acceptance of the completed work under the terms of paragraph (f) of this clause, except as provided in this paragraph. (b) The Contractor shall, without charge, replace any materials or correct any workmanship found by the Commonwealth not to conform to the contract requirements unless, in the public interest, the Commonwealth consents to accept such material or workmanship with an appropriate adjustment in contract price. The Contractor shall promptly segregate and remove rejected material from the premises. (c) If the Contractor does not promptly replace such material or correct such workmanship, the Commonwealth may: (1) by contract or otherwise, replace such material or correct such workmanship and charge the cost thereof to the Contractor; or (2) terminate the Contractor's right to proceed in accordance with the "Disputes and Remedies" clause. (d) The Contractor shall furnish promptly, without additional charge, all facilities, labor and material reasonably needed for performing the safe and convenient inspection and test as may be required by the Contracting Officer. All inspection and testing by the Commonwealth shall be performed in such manner so as to not delay the work unnecessarily. Special, full size, and performance tests shall be performed as described in the Contract. The Contractor shall be charged with any additional cost of inspection when material and workmanship are not ready at the time specified by the Contractor for its inspection. (e) Should it be considered necessary or advisable by the Commonwealth, at any time before acceptance of the entire work, to make an examination of work already completed, by removing or tearing out same, the Contractor shall, on request, promptly furnish all necessary facilities, labor, and material. If such work is found to be defective or nonconforming in any material respect, due to the fault of the Contractor or his subcontractors, he shall defray all the expenses of such examination and of satisfactory reconstruction. If, however, such work is found to meet the requirements - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--21 272 of the contract, an equitable adjustment shall be made in the contract price to compensate the Contractor for the additional services involved in such examination and reconstruction and, if completion of the work has been delayed thereby, he shall, in addition, be granted a suitable extension of time. (f) Unless otherwise provided in the Contract, acceptance by the Commonwealth shall be made as promptly as practicable after completion and inspection of all work required by the Contract. Acceptance shall be final and conclusive except as regards latent defects, fraud, or such gross mistakes as may amount to fraud, or as regards the Commonwealth's right under any warranty or guarantee. (g) The Contractor shall give the Contracting Officer at least 10 days advance written notice of the date the work will be fully complete and ready for final inspection and tests will be started within 10 days from the date specified in the aforesaid notice unless the Contracting Officer determines that the work is not ready for final inspection and so informs the Contractor. (h) The Contractor shall submit to the Contracting Officer, in writing, a letter request for a prefinal inspection not less than 72 hours (3 days) prior to the date of the requested inspection. The Contractor should provide a copy of this letter to the Director, Technical Services Division, with a date stamp mark affixed by the Contracting Officer's office. 36. MATERIAL AND WORKMANSHIP (a) Unless otherwise specifically provided in the Contract, all equipment, material, and articles incorporated in the work covered by the Contract are to be new and of the most suitable grade for the purpose intended. Unless otherwise specially provided in the Contract, reference to any equipment, material, article, or patented process, by trade name, make or catalog number, shall not be construed as limiting competition, and the Contractor may, at his option, use any equipment, material, article or process which, in the judgment of the Contracting Officer, is equal to that named. The Contractor shall furnish to the Contracting Officer for his approval the name of the manufacturer, the model number, and other identifying data and information respecting the performance, capacity, nature, and rating of the machinery and mechanical and other equipment which the Contractor contemplates incorporating in the work. When so directed, samples shall be submitted for approval at the Contractor's expense, with all shipping charges prepaid. Machinery, equipment, material, and articles installed or used without required approval shall be at the risk of subsequent rejection. (b) All work under the Contract shall be performed in a skillful and workmanlike manner. The Contracting Officer may, in writing, require the Contractor to remove from the work any employee the Contracting Officer deems incompetent, careless, or otherwise objectionable. 37. OTHER CONTRACTS (a) The Commonwealth may undertake or award other contracts for additional work, and the Contractor shall fully cooperate with such other contractors and Commonwealth employees and carefully fit his own work to such additional work as may be directed by the Contracting Officer. The Contractor shall not commit or permit any act which will interfere with the performance of work by any other Contractor, or with the performance of work by any Commonwealth employee. 38. SUBCONTRACTS (a) Nothing contained in this contract shall be construed as creating any contractual relationship between any subcontractor and the Commonwealth. The divisions or sections of the specifications - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--22 273 are not intended to direct the Contractor in dividing the work among subcontractors, or to limit the work performed by any trade. (b) Within ten (10) days after award of any subcontract by either the Contractor or any of his subcontractors, the Contractor shall deliver to the Contracting Officer a statement setting forth the name and address of the subcontractor and a summary description of the work subcontracted. (c) The Contractor shall be responsible to the Commonwealth for acts and omissions of his own employees and of subcontractors and their employees. He shall also be responsible for the coordination of the work of the trades, subcontractors, and suppliers. (d) The Commonwealth will not undertake to settle any differences between or among the contractor, subcontractors, and suppliers. 39. COMMONWEALTH OCCUPANCY (a) The Contracting Officer reserves the right of partial occupancy or use of facilities, services, and utilities, prior to final acceptance, without implying compliance or acceptance of any part of the project by the Commonwealth. Prior to such occupancy or use, the Contracting Officer shall furnish the Contractor with an itemized list of work remaining to be performed or corrected. (b) Costs incurred as a result of such partial occupancy or use of facilities, services and utilities are subject to equitable adjustment under the provisions of the "Changes" and the "Equitable Adjustment" clauses. (c) Necessary restoration and repair of damage resulting from partial occupancy or use shall not be at the expense of the Contractor. 40. GUARANTEES (a) Unless otherwise provided in the specifications, the Contractor guarantees all mechanical and electrical work to be in accordance with the contract requirements and free from defective and inferior materials, equipment, and workmanship for one year after the final acceptance date the equipment or work was placed in use by the Commonwealth. (b) If, within any guarantee period, the Contracting Officer finds that guarantee work needs to be repaired or changed because of the use of materials, equipment, or workmanship which, in his opinion, are inferior, defective, or not in accordance with the terms of the contract, he shall so inform the Contractor in writing and the Contractor shall promptly and without additional expense to the Commonwealth: (i) Place in satisfactory condition all of such guaranteed work; (ii) Satisfactorily correct all damage to equipment, the site, the building or contents therein, which is the result of unsatisfactory guaranteed work; and (iii) Satisfactorily correct any work, material, or equipment that is disturbed in fulfilling the guarantee, including any disturbed work, materials and equipment that may have been guaranteed under another contract. c) Should the Contractor fail to proceed promptly in accordance with the guarantee, the Commonwealth may have such work performed at the expense of the Contractor. (d) Any special guarantees that may be required under the contract shall be subject to the stipulations set forth above, insofar as they do not conflict with the provisions of such special guarantees. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--23 274 (e) The Contractor shall obtain each transferable guarantee or warranty of equipment, material, and installation thereof which is furnished by any manufacturer, supplier or installer in the ordinary course of the manufacturer's, supplier's, or installer's business or trade. In addition, the Contractor shall obtain and furnish to the Commonwealth all information which is required in order to make any such guarantee or warranty to the Commonwealth in sufficient time to permit the Commonwealth to meet any time limit requirement specified in the guarantee or warranty or, if no time limit is specified, prior to completion and acceptance of all work under the Contract. (f) This clause is not intended to limit any rights that the Commonwealth may have as provided elsewhere in the Contract, or by law. 41. MAINTENANCE OF TRAFFIC (a) Unless the contract specifically provides for the closing of any local road or highway to traffic while construction is in progress, all roads or highways shall be kept open to all traffic by the Contractor. The Contractor shall also provide and maintain in a safe condition, temporary approaches, crossings, and intersections with roads and highways. The Contractor shall bear all expenses for maintaining traffic over the section of road affected by work to be done under the Contract, and for constructing and maintaining such approaches, crossings, intersections and any accessory features without additional compensation, except as otherwise provided in the Contract. 42. PERMITS AND RESPONSIBILITIES (a) Unless otherwise agreed, the Contractor shall, without additional expense to the Commonwealth, be responsible for obtaining all necessary licenses and permits and for complying with all applicable Federal, Commonwealth of the Northern Mariana Islands, and municipal codes and regulations in connection with prosecution of the work. The Contractor shall take proper safety and health precautions to protect the work, the workers, the public, and the property of others. The Contractor shall be responsible for all materials delivered and work performed until completion and acceptance of the entire construction work, except for any completed unit of construction thereof which therefore has been accepted. 43. PROJECT SIGNS (a) The Contractor shall provide, place, and maintain a project sign at each site where construction operations are underway. Each sign shall be placed as directed by the Contracting Officer. Each sign shall be 4'-0" by 8'-0" in size, be made of 3/4" marine plywood (or approved equal). The signs shall state thereon the name of the owner, job number, job title, Contractor, Contracting Agency, and Design Consultant. All wording and type, and size of lettering shall be approved by the Contracting Officer. Upon completion of the work the signs shall become the property of the Contractor and shall be removed from the sites. 44. SPECIFICATIONS AND DRAWINGS (a) The Contractor shall keep on the work site a copy of the drawings and specifications and shall at all times give the Contracting Officer access thereto. Anything mentioned in the specifications and not shown on the drawings, or shown on the drawings and not mentioned in the specifications shall be of like effect as if shown or mentioned in both. In case of difference between drawings and specifications, the specifications shall govern. In case of discrepancy either in the figures, on the drawings, or in the specifications, the matter shall be promptly submitted to the Contracting Officer, who shall promptly make a determination in writing. Any adjustment by the Contractor without such determination shall be at his own risk and expense. The Contracting Officer shall furnish from - ------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--24 275 time to time such detail drawings and other information as he may consider necessary, unless otherwise provided. (b) In case of difference between small and large scale drawings, the large scale drawings shall govern. Schedules on any contract drawing shall take precedence over conflicting information on that or any other contract drawing. On any of the drawings where a portion of the work is detailed or drawn out and the remainder is shown in outline, the parts detailed or drawn out shall apply also to all other like portions of the work. (c) Where the word "similar" occurs on the drawings, it shall have a general meaning and not be interpreted as being identical, and all details shall be worked out in relation to their location and their connection with other parts of the work. 45. STANDARD REFERENCES (a) All documents and publications (such as, but not limited to, handbooks, codes, standards, and specifications) which are cited in the Contract for the purpose of establishing requirements applicable to equipment, materials, or workmanship under the Contract, shall be deemed to be incorporated herein as fully as if printed and bound with the specifications of the Contract, in accordance with the following: (b) Wherever reference is made to Interim Federal Specifications, Interim Amendments to Federal Specifications, Interim Federal Standards, the Contractor shall comply with the requirement set out in the issue or edition identified in the Contract except as modified or as otherwise provided in the specifications of the Contract. (c) Wherever reference is made to any document other than those specified in paragraph 45(b) above, the Contractor shall comply with the requirements set out in the edition specified in the Contract, or, if not specified, the latest edition or revision thereof, as well as the latest amendment or supplement thereto, in effect on the date of the Invitation for Bids on this project, except as modified by, as otherwise provided in, or as limited to type, class or grade by the specifications of the Contract. (d) Federal Specifications and Federal Standards may be obtained from the Commonwealth Printing Office, Washington, D.C. 20420. Inquiries regarding "Commercial Standards", "Products Standards", and "Simplified Practice Recommendations" should be addressed to the Office of Product Standards, National Bureau of Standards, Washington, D.C. 20234. Publications of associations referred to in the specifications may be obtained directly from the associations. (e) Upon request, the Contractor shall make available at the job site within a reasonable time, a copy of each trade manual and standard which is incorporated by reference in the Contract and which governs quality and workmanship. 46. STANDARD DETAILS (a) Standard Details are applicable when listed, bound with the specifications, noted on the drawings or referenced elsewhere in the specifications. Where the notes on the drawings indicate modifications, such modifications shall govern. 47. MEASUREMENTS (a) All dimensions shown on existing work and all dimensions required for work that is to connect with work now in place shall be verified by the Contractor by actual measurement of the existing work. Any discrepancies between the contract requirements and the existing conditions shall be referred to the Contracting Officer before any work affected thereby has been performed. - ------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--25 276 48. SURVEY MONUMENTS AND BENCH MARKS (a) The Commonwealth has established, or will establish, such general reference points as will enable the Contractor to proceed with work under the Contract. The Contractor will provide new monuments, where shown or specified. If the Contractor finds that any previously established reference points have been destroyed or displaced, or that none have been established, he shall promptly notify the Contracting Officer. (b) The Contractor shall protect and preserve established bench marks and monuments and shall make no changes in locations without written approval of the Contracting Officer. Established reference points which may be lost, covered, destroyed, or disturbed in the course of performance of the work under the Contract or which require shifting because of necessary changes in grades or locations shall, subject to prior approval of the Contracting Officer, be replaced and accurately located (as appropriate) at the Contractor's expense by a CNIVII licensed land surveyor. (c) The Contractor shall verify the figures shown on the survey and site plan before undertaking any construction work and shall be responsible for the accuracy of the finished work. 49. PATENT INDEMNITY (a) Except as otherwise provided, the Contractor agrees to indemnify the Commonwealth and its offices, agents, and employees against liability, including costs and expenses, for infringement upon any Letters Patent of the United States and /or foreign country (except Letters Patent issued upon an application which is now or may hereinafter be, for reasons of national security, ordered by the Commonwealth to be kept secret or otherwise withheld from issue) arising out of the performance of the Contract or out of the use or disposal by or for the account of the Commonwealth of supplies furnished or construction work performed hereunder. 50. CONVICT LABOR (a) In connection with the performance of work under the Contract, the Contractor agrees not to employ any person undergoing sentence of imprisonment at hard labor. 51. EQUAL OPPORTUNITY (a) During the performance of the Contract- (i) The Contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin. The Contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex or national origin. Such action shall include, but not be limited to the following layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices setting forth the provisions of this nondiscrimination clause. (ii) The Contractor will in all solicitations or advertisements for employees placed by or on behalf of the Contractor, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, or national origin. (iii) The Contractor will send to each labor union or representative of workers with which he has a collective bargaining agreement for the Contract, a notice, to be provided by the Contracting Officer, advising the labor union or worker's representative of the Contractor's commitments under this clause, and shall post copies of the notice in conspicuous places available to employees and applicants for employment. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--26 277 (iv) The Contractor will comply with all provisions of Executive Order No. 11246 of September 28, 1965, as amended, and of the rules, regulations, and relevant orders of the President's Committee on Equal Employment Opportunity created thereby. (v) The Contractor will furnish all information and reports required by Executive Order No. 11246 of September 28, 1965, as amended, and by the rules, regulations and orders of the said President's Committee, or pursuant thereto, and will permit access to his books, records, and accounts by the Contracting Officer and the Committee for purposes of investigation to ascertain compliance with such rules, regulations, and orders. (b) In the event of the Contractor's noncompliance with paragraph (a), the Contract may be summarily cancelled, terminated for default, or indefinitely suspended in whole or in part, and the Contractor may be declared ineligible for further Commonwealth contracts, in accordance with the applicable procedures in the Contract and the CNMI Procurement Regulations (c) The Contractor will include the provisions of paragraph (a) in every subcontract or purchase order unless exempted by rules, regulations, or orders of the President's Committee on Equal Employment Opportunity issued pursuant to Section 303 of Executive Order No. 11246 of September 28, 1965, as amended, so that such action with respect to any subcontractor purchase order as the contracting agency may direct as a means of enforcing such provisions including sanctions for noncompliance. Provided, however, that in the event the Contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the contracting agency, the Contractor may request the Commonwealth to enter into such litigation to protect the interests of the Commonwealth. 52. UTILIZATION OF SMALL BUSINESS CONCERNS (a) It is the policy of the Commonwealth as declared by the U.S. Congress that a fair proportion of the purchase and contracts for supplies and services for the Commonwealth be placed with small business concerns. (b) The Contractor shall accomplish the maximum amount of subcontracting to small business concerns that the Contractor finds to be consistent with the efficient performance of the Contract. 53. WORKING HOURS (a) It is contemplated that all work will be performed during the regular working hours of the trades involved unless otherwise specified in the Contract. "Regular working hours" shall mean from 7:30 a.m. to 4:30 p.m., Monday through Friday, except holidays. (b) If the Contractor desires to carry on work outside regular working hours, he shall submit an application to the Contracting Officer, and shall allow ample time to enable satisfactory arrangements to be made by the Contracting Officer for inspecting the work in progress. The cost of inspection outside of regular working hours shall be borne by the Contractor. Work performed by the Contractor at his own volition outside of regular working hours shall be at no additional expense to the Commonwealth. (c) If the Contractor chooses and the Contracting Officer approves work at night, the Contractor shall light the different parts of the work in an approved manner. 54. SOCIAL SECURITY (a) All employees of the Contractor or his subcontractors shall be covered under the Commonwealth of the Northern Mariana Islands Social Security System. The employee withholding is 7.65% of the first $62,700.00 of wages earned. The employer contribution is a like - ------------------------------------------------------------------------------ DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--27 278 amount. Additional information can be obtained from the Social Security Office, Commonwealth of the Northern Mariana Islands, Saipan. 55. ACCIDENT PREVENTION - PUBLIC SAFETY (a) In the performance of the contract, the Contractor shall comply with the applicable provisions of the "Commonwealth of the Northern Mariana Islands Safety Manual", and the provisions of the U.S. Occupational Safety and Health Act (OSHA), and shall take all precautions necessary to protect persons and property; including, but not limited to, providing, erecting, and maintaining all necessary barricades, suitable and sufficient red lights, danger signals, and signs. Roads subject to interference by the work shall be kept open or suitable detours shall be provided and maintained by the Contractor. If directed, the Contractor shall erect such additional warning and directional signs in connection with the work as may be furnished by the Commonwealth. Roads closed to traffic shall be protected by effective barricades on which shall be placed acceptable warning and detour signs. All barricades and obstructions shall be illuminated at night, and all lights shall be kept burning from sunset until sunrise. The cost of compliance with this clause shall be borne by the Contractor. 56. DEBRIS AND CLEANING (a) The Contractor shall, during the progress of the work, remove and dispose of the resultant dirt and debris and keep the job site clean. (b) Upon completion of the work, the Contractor shall remove from the vicinity of the work all plant, buildings, rubbish, unused materials, concrete forms and other like material and construction equipment belonging to him or used under his direction during construction, except as otherwise directed, and in the event of his failure to do so to the satisfaction of the Commonwealth, the same may be removed by the Commonwealth or otherwise, at the expense of the Contractor, and his surety or sureties shall be liable therefore. 57. SANITATION (a) Adequate sanitary conveniences of an approved type for the use of persons employed on the work, and properly secluded from public observation, shall be provided and maintained by the Contractor in such a manner and at such points as shall be required or approved by the Contracting Officer. These conveniences shall be maintained at all times without nuisance, and this shall be strictly enforced. Upon completion of the work, they shall be removed from the premises, leaving the premises clean and free from nuisance. 58. PROTECTION OF EXISTING VEGETATION, STRUCTURES, UTILITIES, AND IMPROVEMENTS (a) The Contractor shall preserve and protect all existing vegetation such as trees, shrubs and grass on, or adjacent to, the site of work which is not to be removed and which does not reasonably interfere with the construction work. Care shall be taken in removing trees authorized for removal to avoid damage to vegetation deemed to be in place. Any limbs or branches of trees broken during such operations or by the careless operation of equipment, or by workmen, shall be trimmed with a clean cut and painted with an approved tree pruning compound as directed by the Contracting Officer. (b) The Contractor shall protect from damage all existing improvements and utilities at or near the site of the work, the location of which is made known to him, and will repair or restore any damage to such facilities resulting from failure to comply with requirements of the Contract or the failure to - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--28 279 exercise reasonable care in the performance of the work. If the Contractor fails or refuses to repair any such damage promptly, the Contracting Officer may have the necessary work performed and charge the cost thereof to the Contractor. 59. STORM PROTECTION (a) The Contractor, at no additional cost to the Commonwealth, shall be responsible for the security and safety of the construction work and the site, including the Contractor's camp site, when warnings of winds of gale force are issued. Gale winds are defined as having a sustained velocity of 34 knots (39 MPH) or greater and include winds of tropical storms and typhoon intensity. (b) Satisfactory job site clean-up is the initial, basic, day-to-day minimal preparation the Contractor can make for winds of destructive force. When warnings of winds of gale force are issued, the Contractor shall carry out, without delay, all directives concerning securing action to be taken which may be issued to him by the Contracting Officer or his designated representative. This preparation is in accordance with the contract terms and every practicable precaution shall be taken to minimize the danger to persons; to prevent damage to work in place, materials, supplies, equipment, adjacent structures, and property of others; and in the public interest. 60. FAILURE TO FURNISH INFORMATION AND RECORDS (a) If the Contractor or any subcontractor or the officers or agents of the Contractor or any subcontractor shall refuse or have refused, expect as provided otherwise by the terms Contract, to furnish to any Commonwealth agency, or any establishment in the legislative or judicial branch of the Commonwealth, information or records reasonably pertinent to the Contract or any other Commonwealth contract in connection with which the Contractor or any such subcontractors has or shall have performed work or furnished materials or supplies or undertaken so to do, the following action may be taken: (b) In the case of a refusal by the Contractor, its officers or agents, the Commonwealth may, after affording an opportunity to explain or justify such refusal, terminate the Contractor's right to proceed with the work under the Contract and thereupon the Commonwealth may avail itself of the rights and remedies provided in the "Termination for Default" clause, in addition to any other rights and remedies provided by law or under the Contract. (c) In the case of a refusal by a subcontractor, its officers or agents, the Commonwealth may, after affording an opportunity to explain or justify such refusal, require the Contractor to terminate the subcontract without cost to the Commonwealth, or if the Contractor fails or refuses to effect such termination, the Commonwealth may terminate the Contractor's right to proceed with the work under the Contract and thereupon the Commonwealth may avail itself of the rights and remedies referred to in the "Termination for Default" clause. 61. PERMISSION TO ENTER THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS (a) Permission to enter the Commonwealth of the Northern Mariana Islands must be secured from the CNMI Department of Commerce and the CNMI Department of Labor and Immigration, by filling out the requisite CNMI standard forms. 62. TRANSPORTATION AND LODGING EXPENSE (a) If the Contractor utilized nonresident labor as defined in Title 49 of the CMI Code, and if the Contractor provides either transportation, lodging or lodging expense, or room or board expenses to any such employee, then such Contractor shall provide the same benefits to resident employees, as defined in - ------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--29 280 Title 49; provided, however, that transportation, lodging, or lodging expenses; or room or board expenses need not be provided when a resident employee maintains his principal place of residence within normal commuting distance, as defined by regulations implementing Public Law No. 4C-49, from his place of employment with such Contractor. 63. OFFICIALS NOT TO BENEFIT (a) No member of Congress of the United States, member of the Commonwealth of the Northern Mariana Islands Legislature or the Governor of the Commonwealth of the Northern Mariana Islands shall be admitted to any share of the Contract, or to any benefit that may arise therefrom; but this provision shall not be construed to extend to the Contract if made with a corporation for its general benefit. - -------------------------------------------------------------------------------- DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--30 281 EX-10.05 10 AGREEMENT BETWEEN SAYED HAMID BEHBEHANI 284 Exhibit 10.05 Agreement between Sayed Hamid Behbehani SHBC-TELESOURCE CONTRACT OF AGREEMENT This agreement is hereby entered into by and between Sayed Hamid Behbehani & Sons Co. which is a corporation duly organized and existing under the laws of the State of Kuwait (herein after referred to as "Company"), and Telesource CNMI Inc. (herein after referred to as "Subcontractor"). Witnesseth that, whereas Company desires to utilize the services of the Subcontractor and the Subcontractor desires to provide those services, now therefore in consideration of the promises contained herein Company and the Subcontractor do mutually agree as follows. 1. The Subcontractor, acting as an independent contractor and not as an agent, representative, or employee of Company, shall build on a turn-key basis all the necessary facilities (as described in the attached VOA RFP), with its own personnel and building equipment and shall otherwise do all things necessary or incident to the performance of the services as agreed upon herein. Attached hereto and made a part hereof is the latest version of the Request for Proposal issued by the United States Information Agency. All parts of this RFP which are relevant to Subcontractors scope of work are hereby identified as the Statement of Work. The Subcontractors scope of work excludes the provision of all major equipment and supplies necessary for the completion of the project: such as buildings, transmitters, fuel tanks, towers, antennas, cable, diesel generators, water treatment systems, etc., and all related ancillary equipment and supplies. These items will be provided by the Company and shipped to Saipan/Tinian by the Company for the "custody" of Subcontractor. It is acknowledged by both parties that by the time the referenced equipment arrives in the CNMI it has been paid for by the Voice Of America, and that rightful title to said equipment lies with the Voice Of America. Upon receipt of said equipment, Subcontractor will act in a fiduciary capacity to the Voice Of America and the Company, and will handle the equipment accordingly. Subcontractor will transport the equipment to the project site and commence with the erection and installation process as per the terms and conditions of this Agreement. 2. The services to be performed by the Subcontractor shall commence on November 1,1996 and shall continue through March 1,1999. This period includes time for the delivery of all required items including the final report unless otherwise specifically stated elsewhere in this agreement. 3. This is a cost-plus-fixed-fee technical services agreement. It is estimated that the total cost of the work under this agreement will be $ 2,000,000 (Two Million Dollars), which includes an estimated cost of $1,850,000,( One Million Eight Hundred and Fifty Thousand Dollars) and a fixed fee of $ 150,000 (One Hundred and Fifty Thousand Dollars). Unless the agreement is incrementally funded as noted elsewhere, this is the amount presently authorized. For performance of this agreement, Company shall pay to the Subcontractor in consideration for its efforts the incurred costs and fixed fee thereof determined to be allowable in accordance with Federal Acquisition Regulation 52.216-07 and 52.216-08. Payment on account of allowable costs shall not in the aggregate exceed the amount authorized. Whenever the Subcontractor has reason to believe that the total cost of the work under this agreement will be greater or substantially less than the amount authorized, the 286 Subcontractor shall promptly notify the Company in writing when the aggregate of expenditures plus outstanding commitments and liabilities allowable is equal to 85 percent of the amount then authorized. When such expenditures and outstanding commitments and liabilities equal 100 percent of such amount, the Subcontractor shall make no further commitments or expenditures and shall be excused form further performance of the work unless and until the Company thereafter shall by written notice increase the amount authorized. The Subcontractor may bill on each invoice the amount of fee bearing the same percentage to the total fixed fee as the amount of cost billed bears to the total estimated cost. After payment of 85 percent of the fixed fee set forth above, Company will temporarily withhold further payment of fee. This reserve will not be paid until the Subcontractor has complied with all material requirements of this agreement. The reserve will not accrue any interest. 4. This agreement is a completion type wherein the technical effort and deliverables are required to be provided as part of the effort. In the event that the technical effort and one or more of the deliverables cannot be provided within the estimated cost, Company can elect to provide additional funds in an amount mutually agreed to so that the technical effort can be completed and the deliverables provided. In no event, however, will any additional fee/profit be paid on any such additional funds. 5. This agreement is incrementally funded. Total funds in the amount of $1,000,000 (One Million Dollars). are presently available for payment of allowable costs. Until such time that additional funds are committed, the Subcontractor shall not incur costs nor will Company be liable for costs in excess of this amount. Costs referred to in this paragraph include a proportionate profit/fee, if applicable to this agreement. 6. The Subcontractor's obligation under this agreement is to diligently pursue all required work and to provide all required reports and other deliverables, if any, within the parameters of the level of effort described herein. 7. The Subcontractor shall submit invoices to Company in its Kuwait office. Invoices shall reflect the agreement number. Invoice terms are net 30 days. Each item of equipment having an acquisition cost of $500 or more that is purchased shall be itemized separately. The final invoice should be marked "Final Invoice." 8. Company may at any time, by written notice to the Subcontractor, terminate this agreement, in whole or in part, either for the convenience of Company or Company's prime contract sponsor or because of the failure of the Subcontractor to fulfill its obligations. Any such action shall be in accordance with the FAR termination clause of this agreement. However, in order to allow Company time to complete its final termination settlement proposal, the Subcontractor shall submit its proposal promptly but no later than nine (9) months from the effective date of termination unless this period is extended in writing by Company. In no event will payments be made for anticipatory profits or consequential damages as a result of a termination of this agreement. This is in conformance with the Federal Government's policy as set forth in Federal Acquisition Regulation 49.108-3(a) and 49.108-5(a). 287 9. Any controversy upon a question of fact and/or law pertaining to this agreement or the performance thereof, which cannot be satisfactorily adjusted between the parties hereto, shall be decided by recourse to any available legal, equitable, or administrative remedies. Pending final resolution of any request for relief, claim, appeal, or action arising under the agreement, the Subcontractor shall diligently proceed with the performance of this agreement unless directed by Company. This article shall to be considered to give the Subcontractor any Rights under the "Disputes" clause of Company's prime government contract. If as a result of any decision or judgment (including a government audit of the Subcontractor's books and records) which is binding upon the Subcontractor and Company, Company is unable to obtain reimbursement from the Government under the prime contract for, or if required to refund or credit to the Government, any amount with respect to any item of cost or fee for which Company has reimbursed Subcontractor, the Subcontractor shall, on demand, promptly repay such amount to Company. The rights and obligations described herein shall survive completion of and final payment under this agreement. 10. Company, through any authorized representative, has the right, at all reasonable times, to inspect, or otherwise evaluate the work performed or being performed hereunder and the premises where it is being performed. . All inspections and evaluations shall be performed in such a manner as will not unduly delay the work. 11. Company may at any time, by written order to the Subcontractor, require the Subcontractor to stop all, or any part, of the work called for by this agreement for a period of up to ninety days. Upon receipt of such an order, the Subcontractor shall forthwith comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. Within the ninety-day period or any extension of that period to which the parties shall have agreed, Company shall either (i) cancel the stop work order, or (ii) terminate the work covered by such order. If a stop work order is canceled in writing, the Subcontractor shall resume work. If the period of the order or any extension thereto merely expires, the Subcontractor shall contact Company and ask for directions before resuming work or treating the silence as a termination for convenience. An equitable adjustment shall be made in the delivery schedule and/or estimated cost and fixed fee, and the agreement shall be modified in writing accordingly, if (I) the stop work order results in an increase in the time required for, or in the Subcontractor's costs properly allocable to, the performance of any part of this agreement within twenty (20) days after the end of the period of work stoppage. If a stop work order is not canceled and the work covered is terminated for the convenience of Company and/or its prime contract sponsor, the reasonable costs resulting from the stop work order shall be allowed in arriving at the termination settlement in accordance with FAR 52.249-06. 12. This agreement shall be governed and construed in all respects by federal contract law as enunciated and applied by federal statutes and regulations and by federal judicial bodies, boards of contract appeals, and other judicial and quasi-judicial agencies of the federal government. 288 13. The attached close-out report must be filled out, signed, dated, and returned to the Company at the end of the period of performance of the agreement. 14. If requested by the Company, Subcontractor agrees to close out this agreement in accordance with the procedures established in Federal Acquisition Regulation (FAR) 42.708. As such, the Subcontractor will negotiate the settlement of indirect costs in advance of the determination of its final indirect costs rates if (a) the agreement is physically complete; (b) the amount of unsettled indirect cost to be allocated to the agreement is relatively insignificant; and (c) agreement can be reached on a reasonable estimate of allocable dollars. The provisions providing for allowable costs and payments that are a part of this agreement will be applied, as necessary, in this procedure. 15. It is agreed that this effort is not of a research and development nature and there is no expectation that any "invention" (defined as any discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code) of the Subcontractor will be conceived or first actually reduced to practice in the performance of work under this agreement. 16. The sponsor of Company's prime contract under which this work is being funded is The United States Information Agency. The prime contract number is IA 2101-C 6234574. 17. FAR 52.243-2, Changes - Cost Reimbursement, is hereby changed to the extent that the time for submitting a proposal is 20 days, not 30, so that Company will have time to prepare the proposal under its prime contract. 18. This agreement may not be assigned, in whole or in part, nor may any assignment of any money due or to become due be made by the Subcontractor without, in each case, the prior written consent of Company. 19. The provisions of the FAR listed below and other attached articles and provisions, if any, as applicable, and as in effect on the date of the award of this agreement by Company (except as required to be changed by statute), are incorporated in this agreement by reference with the same force and effect as though herein set forth in full. All such clauses shall, with respect to the rights, duties and obligations of Company and the Subcontractor hereunder, be interpreted and construed in such manner as to recognize and give effect to the contractual relationship between Company and the Subcontractor under this agreement and the rights of the U.S. Government with respect thereto under the Prime Contract from which the agreement is being funded. As used therein the term "the Contractor" and equivalent terms shall mean the Subcontract and the terms "the Government" and "the Contracting Officer" and equivalent terms shall include the Company and the Company's authorized representative hereunder, respectively, except under those clauses relating to the rights to audit or examine the Subcontractor's financial records, and all other clauses noted with an asterisk (*), in which 289 case the terms "the Government" and "the Contracting Officer" shall mean the U.S. Government and the Contracting Officer under the Prime Contract, respectively. The word "contract" and like terms shall mean this agreement. Federal Acquisition Regulations (FAR) Cost-Plus-Fixed-Fee 52.202-01 Definitions 52.203-01 Officials Not to Benefit 52.203-03 Gratuities 52.203-05 Covenant Against Contingent Fees 52.212-08 Priorities, Allocations, and Allotments 52.215-01 Examination of Records by Comptroller General 52.215-02 Audit - Negotiation 52.215-22 Price Reduction for Defective Cost or Pricing Data 52.215-23 Price Reduction for Defective Cost or Pricing Data- Modification 52.215-24 Subcontractor Cost or Pricing Data 52.215-25 Subcontractor Cost or Pricing Data - Modification 52.215-30 Waiver of Facilities Capital Cost of Money 52.216-07 Allowable Cost and Payment 52.216-08 Fixed Fee 52.219-08 Utilization of Small Business Concerns and Small Disadvantaged Business Concerns 52.219-13 Utilization of Women-Owned Small Businesses 52.220-01 Preference for Labor Surplus Area Concerns 52.220-03 Utilization of Labor Surplus Area Concerns 52.222-02 Payment for Overtime Premiums "overtime premium cost does Not exceed ZERO." 52.222-03 Convict Labor 52.222-26 Equal Opportunity 52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans 52.222-36 Affirmative Action for Handicapped Workers 52.227-01 Authorization and Consent - Alternative I 52.227-02 Notice and Assistance Regarding Patent and Copyright Infringement 52.227-7013 Rights in Technical Data and Computer Software 52.227-7018 Restrictive Markings on Technical Data 52.227-7029 Identification of Technical Data 52.227-7030 Technical Data - Withholding of Payment 52.228-07 Insurance - Liability to Third Persons 52.230-3 Cost Accounting Standards 52.230-4 Administration of Cost Accounting Standards 52.231-7000 Supplemental Cost Principles 52.232-09 Limitation on Withholding of Payments 52.232-17 Interest 52.232-20 Limitation of Cost 290 52.232-23 Assignment of Claims 52.242-01 Notice of Intent to Disallow Costs 521.242-7000 Submission of Commercial Freight Bills to the General Services Administration for Audit 52.243-2 Changes - Cost Reimbursement - Alternative V 52.243-7001 Pricing of Adjustments 52.244-02 Subcontracts under Cost-Reimbursement and Letter Contracts 52.245-05 Government Property (Cost Reimbursement, Time-and-Material, or Labor-Hour Contracts) 52.247-01 Commercial Bill of Lading Notations 52.249-06 Termination (Cost Reimbursement) 52.249-14 Excusable Delays 52.251-7000 Ordering from Government Supply Sources 291 APPENDIX Close-out Report SUBCONTRACTOR NO.: SUBCONTRACTOR: INSTRUCTIONS: Complete and return to: Sayed Hamid Behbehani & Sons Co. C/O Nidal Z. Zayed 180 North LaSalle St. Chicago II. USA 60601, at the end of the period of performance of the agreement. A. Property Certificate The Subcontractor hereby certifies that, with respect to any property furnished by Company and/or the Government or purchased under this agreement and in compliance with any and all agreement provisions relating to such property, the following applied (check one as appropriate): --- The Subcontractor has Government and/or Company property or scrap. (A property inventory form will be provided to the Subcontractor by Company when this form is returned.) --- The Subcontractor has disposed of all Government and/or Company property and any generated scrap in accordance with Company instructions and the terms of this agreement. --- No Government or Company property was furnished, purchased, or otherwise acquired by the Subcontractor or his lower tier subcontractors under this agreement. Signed: _____________________ Date: ____________________ Printed Name and Title: _________________________________________ B. Subcontractor's Release of Claims and Assignments of Refunds, Rebates, and Credits. 1. Pursuant to the terms of this agreement and in consideration thereof which has been or is to be paid under the said agreement, the Subcontractor or its assignees, if any, upon payment of said consideration, does remise, release, and discharge Company and the U.S. Government (including their officers, agents, and employees) of and from all liabilities, obligations, claims, and demands whatsoever under or arising from this agreement except: a. Specified claims in stated amounts or in estimated amounts where the amounts are not susceptible of exact statements by the Subcontractor, as follows. b. Claims, together with reasonable expenses incidental thereto, based upon the liabilities of the Subcontractor to third parties arising out of the performance of 292 this agreement, which are not known to the Subcontractor on the date of the execution of this release and of which the Subcontractor gives notice in writing to Company within the period specified in said agreement, and provided further, that the Subcontractor gives notice of such claims in writing to Company not more than five (5) years after the date of this release or the date of any notice to the Subcontractor that Company is prepared to make final payment, whichever is earlier. c. Claims for reimbursement of costs, including reasonable expenses incidental thereto, incurred by the Subcontractor under any provision of this agreement relating to patents. d. If there is included in the agreement a provision concerning "Data Requirements," claims pursuant to such provision where a written request by Company and/or the U.S. Government to furnish data is made within the one-year period after final payment. The Subcontractor agrees, in connection with patent matters and with claims which are not released as set forth above, that it will comply with all provisions of this agreement, including without limitations those provisions relating to notification to Company and relating to the defense or prosecution of litigation. 2. Further, in consideration of the reimbursement of costs and payment of fee under this agreement and any assignment thereunder, the Subcontractor does hereby: a. Assign, transfer, set over and release to Company all right, title, and interest to all refunds, rebates, credits, or other amounts (including any interest thereon) arising out of the performance of said agreement, together with all the rights of action accrued or which may hereafter accrue thereunder. b. Agree to take whatever action may be necessary to effect prompt collection of all refunds, rebates, credits or other amounts (including any interest thereon); due or which may become due, and to promptly forward to Company checks, made payable to Company, for any proceeds so collected. The reasonable costs of any such action to effect collection shall constitute allowable costs when approved by Company as stated in said subcontract and may be applied to reduce any amounts otherwise payable to Company under the terms hereof. c. Agree to cooperate fully with Company as to any claim or suit in connection with refunds, rebates, credits, or other amounts due (including any interest thereon); to execute any protest, pleading, application, power of attorney, or other papers in connection therewith; and to permit Company to represent it at any hearing, trial, or other proceeding arising out of such claim or suit. 293 IN WITNESS HEREOF, the parties hereto have accepted and executed this agreement as of the latest date noted below. SAYED HAMID TELESOURCE CNIMI, Inc. BEHBEHANI & SONS CO. W.L.L. Signature: /s/ Fouad S. H. Behbehani Signature: /s/ K. J. Semikian Printed Name and Title: Fouad S. H. Behbehani Printed Name and Title: K. J. Semikian Chairman President Date: January 6, 1997 Date: January 6, 1997 294 ADDENDUM The following is an addendum to the agreement dated 6th January 1997 between Sayed Humid Behbehani & Sons Co. (herein after referred to as "Company" and Telesource CNMI, Inc (herein after referred to as "Subcontractor") Witnesseth that, whereas Company desires to continue utilizing the services of the subcontractor and the Subcontractor desires to provide those services, now therefore in consideration of the promises contained herein Company and the Subcontractor do mutually agree as follows: l- All terms and conditions and statements of the January 6, 1997 contract not specifically addressed in this addendum are still valid. 2- Subcontractor shall raise a single invoice per month covering the activities carried out on a fix price bases as follows: 2.1 Manpower . . $ 30,000.00 2.2 Construction Equipment rentals $ 35,000.00 2.3 Tower Crane rental $ 50,000.00 2.4 Misc. expenses for all services Provided, such as: housing, food, Communications, fuel, etc.. $ 45,000.00 Total of monthly lump-sum cost $ 160,000.00 Overhead and profit $ 12,000.00 Grand total of monthly invoice $ 172,000.00 3- In addition all local purchases and procurements shall be invoiced to the Company on monthly bases plus 7.5% overhead and profit. 4- This Addendum shall be effective from September 1st 1998. IN WITNESS HEREOF, the parties hereto have accepted and executed this agreement as of the latest date noted below. SAYED HAMID TELESOURCE CNIMI, Inc. BEHBEHANI & SONS CO. W.L.L. Signature: /s/ Fouad S. H. Behbehani Signature: /s/ K. J. Semikian Printed Name and Title: Fouad S. H. Behbehani Printed Name and Title: K. J. Semikian Chairman President Date: August 27, 1998 Date: August 27, 1998 295 EX-10.06 11 MENMORANDUM OF UNDERSTANDING - FIRST RIGHT Exhibit 10.06 Memordandum of understanding - first right October 15, 1999 Via Fax Mr. Nasrallah Behbehani General Manager Sayed Hamid Behbehani & Sons Co. W.L.L. Dasman Complex, Block 3, 3rd Floor, Sharq P.O. Box 3065, Safat 13021, Kuwait Re: Memorandum of Understanding Dear Mr. Behbehani: Per our telephone conversations, this letter will memorialize that as of October 1999, Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC") will give Telesource International, Inc. ("Telesource") the right of first refusal on projects which come to SHBC's attention in the following geographic regions: 1. The United States and its Territories; an 2. The Pacific Rim; and 3. The Indian Ocean. However, it is specifically agreed that such right of first refusal will not apply to projects or modifications for the International Broadcasting Bureau's stations outside the continental United States, which both SHBC and Telesource may freely bid and execute. If the above corresponds to your understanding, kindly sign below and return this letter to us in Chicago by fax. As always, should you have any questions or comments, please do not hesitate to contact us. With Best Regards, KJ Semikian Director & President/CEO Acknowledged: - ----------------------- --------------------- Nasrallah Behbehani Date General Manager 297 EX-10.07 12 MEMORANDUM OF UNDERSTANDING - COMMISSION FEES Exhibit 10.07 Memorandum of understanding - commission fees September 1, 1999 Via Fax Mr. Fouad Behbehani Chairman Sayed Hamid Behbehani & Sons Co. W.L.L. Dasman Complex, Block 3, 3rd Floor, Sharq P.O. Box 3065, Safat 13021, Kuwait Re: Memorandum of Understanding Dear Mr. Behbehani: Per our telephone conversations, this letter will memorialize that as of October 1999, Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC") will discontinue paying Telesource International, Inc. ("Telesource") a monthly advance commission fee. Furthermore, as of October 1999, SHBC will purchase goods and services from Telesource on a "need be" basis. Such purchases will be subject to a 7.5% commission. Finally, as of October 1999, SHBC will pay Telesource's reasonable travel and per diem expenses associated with any SHBC purchases from Telesource. If the above corresponds to your understanding, kindly sign below and return this letter to us by fax. As always, should you have any questions or comments, please do not hesitate to contact us. Telesource appreciates the opportunity to be of service to SHBC and will continue to provide SHBC with quality products and services at low prices. With Best Regards, Nidal Z. Zayed Director & Executive VP Acknowledged: - ----------------------- --------------------- Fouad Behbehani Date Chairman, SHBC 299 EX-10.08 13 AGREEMENT TO SUPPLY Exhibit 10.08 Agreement to supply PAGE 19 JPK:Comm:Doors:SubK:Final November 24, 1999 17:17 PM 300 Series of Doors and Associated Equipment Agreement made this 31st day of August, 1999, ("Agreement") by and between Telesource International, Inc., a corporation formed under the laws of the State of Illinois ("Contractor") and P.W.S. International, Inc., a corporation formed under the laws of North Carolina ("Supplier"). Whereas Sayed Hamid Behbehani and Sons Co. W.L.L ("Developer") has entered into a contract with the United States Department of State ("Owner"), for the construction of Diplomatic Housing (the "Project") in the Country of Kuwait, which contract includes the Series of Doors and Associated Equipment to be done under and pursuant to this subcontract agreement (the "Work"); Whereas Contractor will be providing the Developer with various items, including the Series of Doors and Associated Equipment component of the Project; and Whereas Supplier desires and is willing to furnish all necessary materials, equipment and labor to provide the Series of Doors and Associated Equipment component of the Project in accordance with the specifications of the Owner; Now therefore, in consideration of the mutual promises and covenants expressed in this agreement, the Contractor and Supplier agree as follows: 1) Scope of the Work. Supplier shall furnish all necessary labor, material, supervision and all other services as may be required to perform all of the necessary and required design, engineering, manufacturing, assembly, testing and fabrication as may be required to provide the Contractor with a Series of Doors and Associated Equipment in strict accordance with the specifications, drawings and documents enumerated in the attached Exhibit "A ", which specifications, drawings and documents are incorporated herein by reference and hereby become an integral part of this Agreement. In performance of this Agreement, Supplier shall adhere to the requirements and specifications which relate to the equipment and services provided pursuant to this Agreement and which are contained in the Department of State Request for Proposals attached as Exhibit "B" and the Federal Acquisition Regulations applicable to this Agreement as scheduled in Exhibit "C", both of which are incorporated by this reference and hereby become an integral part of this Agreement. Nothing in this Agreement shall deprive the Owner or Developer of any rights they may have under the Federal Acquisition Regulations or the contract between the Owner and the Developer. In particular, but in no way limiting Supplier's duties as set forth in this Section 1, Supplier shall provide the services as set forth as follows: 301 1.1) Supply Of Items. Supplier shall supply and deliver to the Contractor all items as enumerated in the attached Exhibit "D". 1.1.1) Intentionally Deleted. 1.1.2) Goods are to be shipped C&F Kuwait. 1.2) Shop Drawings, Submittals, Support Manuals and Certifications. Supplier shall furnish the following drawings, submittals and manuals to Contractor for approval prior to use in connection with the Project. All submissions shall be identified as the Project Manager may require. At the time of each submission, the Supplier shall give the Project Manager specific written notice of each variation that the drawing, sample, manuals certification may have from the requirements of this Agreement. No review or approval of any drawing, submittal or manual shall constitute acceptance of Work not in accordance with this Agreement, nor shall it serve to release Supplier of its obligation to perform the Work in accordance with this Agreement. 1.2.1) Shop Drawings. Supplier shall prepare and submit to Contractor the required number of copies of all working drawings, prints, sepias and mylars (including revisions, addenda and modifications) to be used in connection with the Work. The data shown on the drawings shall be complete with respect to quantities, dimensions, specified performance and design criteria, materials and similar data to enable meaningful review by the Project Manager. 1.2.2) Submittals. Supplier shall prepare and submit the required number of representative samples of all proposed materials and equipment to be furnished by Supplier for use in the Work. Detailed specifications of proposed materials and equipment may be submitted in lieu of actual samples only with Contractor's prior written consent. Each submittal shall be clearly identified as to material, manufacturer, supplier, trade name, model or catalog designation, reference standards and all other data pertinent to the use for which it is intended. 302 1.2.3) Support Manuals. Suppliers shall prepare and submit the required number of copies of all owner's manuals, installation manuals, illustrated parts breakdowns and operations, maintenance and repair manuals, spare parts schedules and any other data as may be required under Exhibit B in regard to the operation of the Work. 1.2.4) Test and Compliance Certificates. Supplier shall prepare and submit the required number of copies of all manufacturer's test certificates and certificates of compliance as required by the contract specifications. Such certificates shall indicate that the materials and/or equipment conform to or exceed the requirements as specified by this Agreement, and shall be accompanied by supporting reference data, affidavits, or additional certifications as appropriate. 1.3) As-Built Drawings. Supplier shall maintain one (1) set of all drawings, specifications, addenda, written amendments, Change Orders and written interpretations, clarifications and annotations to show all changes made during construction. Such drawings and documents shall be maintained and updated as appropriate to reflect the current "as built" conditions of the Work. Upon completion of the Work, these drawings and documents shall reflect the final "as built" condition of the Work and shall be delivered to the Contractor. 1.4) Intentionally Deleted. 1.5) Insurance and Indemnification for Loss or Injury. Supplier shall maintain such Public Liability, Property Damage, and Employee's Liability and Compensation insurance as will protect Contractor from all customarily insurable risks of loss which may result in any way from any act or omission of Supplier, its agent, employees, or subcontractors, including any injury to person or property during the progress of the Work, and from any claims under any applicable Workmen's Compensation and Occupational Disease Acts. 303 2) Commencement and Progress of the Work. 2.1) Commencement of the Work. Supplier shall commence performance of the Work immediately upon execution of this Agreement and shall proceed in accordance with the Delivery and Completion Schedule, as may be adjusted from time to time in accordance with Section 2.2 and Section 2.3 of this Agreement. 2.2) Delivery and Completion Schedule; Monthly Status Reports. 2.2.1) Within two (2) weeks after the execution of this Agreement, Supplier shall prepare and deliver to Contractor a comprehensive delivery schedule (the "Delivery Schedule") showing expected shipping ex-factory dates of materials and all relevant activities. Where necessary, the dates shall be based on time from the date that Contractor approves Supplier's submittals. Each of Supplier's activities shall be allocated a price, and the sum of these prices shall equal the total contract price. 2.3) Progress and Completion. 2.3.1) All time limits stated in this Agreement, including those stated in the Delivery Schedule, are of the essence of this Agreement. Supplier is aware that Developer is liable to Owner for Developer's delays, with minimum liquidated damages payable by Developer to Owner of $4,500.00 per day. In turn, Contractor is liable to Developer for Contractor's delays. Similarly, the Supplier will be liable to Contractor for Supplier's delays to the extent and only to the extent the delays were caused by the Supplier or his suppliers. 2.3.2) Contractor may, at any time, by written order to Supplier, require the Supplier to stop all or any part of the Work. However the Contractor will only order the work stopped if the Owner issues a Stop Order. Supplier has all of the rights and remedies against the Owner available to the Contractor, incluing rights to equitable adjustment or time of performance or Contract Price. 304 2.4) Responsibility for Progress and Completion. 2.4.1) Supplier shall at all times furnish such employees, materials, facilities and equipment and shall work such hours, including extra shifts and overtime as necessary, to ensure the prosecution and completion of the Work in accordance with the Delivery Schedule. 2.4.2) If the Work is not being performed in accordance with the Supplier's Delivery Schedule, or if it becomes apparent to the Contractor that the Work shall not be completed within the scheduled time, Contractor shall notify Supplier in writing of such nonconformity, at which time Supplier shall immediately take all necessary actions to improve its progress, including the following, at no additional cost: (a) Increase the number of employees in such crafts as shall regain the lost schedule progress; (b) Increase the number of working hours per shift, shifts per working day, working days per week, and the amount of equipment or any combination thereof to regain lost schedule progress; and (c) Expediting shipments of materials and supplies, including shipping by a method other than that originally anticipated by this Agreement. 2.4.3) Intentionally Deleted. 2.4.4) Intentionally Deleted. 3) Contract Price and Application For Payment. 3.1) Contract Price. Contractor agrees to pay Supplier the lump sum of the unit prices in Exhibit "G" for Supplier's performance of all the Work (the "Contract Price") as per the attached Purchase Order which is made an integral part of this Agreement. No additional claims or charges will be entertained except as specifically provided by this Agreement. 3.2) Clear Title. Supplier warrants and guarantees that title to all Work, materials and equipment covered by any application for payment, whether incorporated in the Project or not, shall pass to the Owner free and clear of all liens, charges, security interests and encumbrances no later than at the time of payment. In addition, the Supplier's final invoice warrants that he has obtained a waiver of liens for all work performed under the contract. 305 3.3) Payment Withheld. Upon the occurrence of any of the following events, the Project Manager may deny Supplier's application for payment and withhold payment until such event of failure is cured: (a) Failure to remedy a defect in the Work; (b) Failure of Supplier to pay lower tier contractors or vendors; (c) Failure to adhere to the Delivery Schedule; (d) Failure to perform the Work in accordance with this Agreement; (e) Project Manager's reasonable determination that liens or claims against the Supplier and Supplier furnished materials have been filed or shall be asserted; 3.4) Set-Off. Contractor shall be entitled at all times to set-off any amount owing at any time from Supplier to Contractor or any of its affiliated companies against any amount payable at any time by Contractor in connection with this order. Any set-off will be first made against retainage. 4) Changes In the Work. Upon the instructions of the Developer or the Owner, Contractor may from time to time order additions, deletions, deductions or revisions in the Work, including adjustments due to performance of any part of the Work by one other than the Supplier, pursuant to a mutually agreed upon change order. 4.1) Change Orders. A Change Order is a written instrument, issued after the execution of this Agreement, signed by the Contractor and the Supplier stating their agreement upon a change and any adjustment in the Work, the price therefor and the Suppliers Delivery Schedule. Adjustments which do not involve a change in the Contract Price and which are consistent with the overall intent of this Agreement shall be promptly performed by Supplier without additional claim or charge. 306 4.2) Change Order Request. 4.2.1) Within ten (10) days of the receipt of Contractor's proposed change in the Work, the Supplier shall submit to the Contractor a request for a Change Order, which shall detail information concerning the cost and time adjustments, if any, necessary to perform the proposed change (Change Order Request). When approved by the Owner, the Contractor shall authorize the adjustment to the Work contained in the Change Order Request by issuing a Change Order. Such Change Order shall thereupon be incorporated into the Suppliers Delivery Schedule. 4.3) Valuation of Change. The value of any work included in any Change Order or Change Order Request, which increases or decreases the Contract Price shall be negotiated in good faith by the parties. 5) Supplier's Warranties; Non-Conforming Work. 5.1) Warranty. In addition to any warranties provided by law, Supplier warrants that the equipment and services provided pursuant to this Agreement shall be free from defects in material and workmanship and shall completely meet all the terms and conditions of Exhibit "B" and the Federal Acquisition Regulations scheduled in Exhibit "C". This warranty shall remain in full force for the period reflected in Exhibit "B" (Owner's Request for Proposal). 5.2) Non-Conforming Work. Supplier understands it is bidding on the exact specifications of the Owner. If any of the materials or services provided by Supplier are found to be defective in workmanship or otherwise not in conformity with the requirements of this Agreement, Contractor, in addition to any other rights which it may have under warranties or otherwise, shall have the right to reject and return such goods or services at Supplier's expense (including Supplier's shipping and handling charges), or require that such articles or materials be corrected or replaced promptly with satisfactory material or workmanship at Supplier's expense, including shipping and handling. 307 6) Indemnification. 6.1) Indemnification for Loss. If Supplier causes damage to the Work or property of the Owner, the Developer, the Contractor, or any other subcontractor, or if any claim arises out of Supplier's performance of the Work including delay due to Supplier, Supplier shall act promptly to remedy such damage and/or attempt to settle any such claim. Supplier shall have the right to timely repair or replace any defective items before any field charges occur. Supplier shall indemnify Contractor against all loss, direct or indirect, which may result in any way from any act or omission of Supplier, its agent, employees, or subcontractors, including delay or any injury to person or property during the progress of such work provided such loss is foreseeable by Supplier or his suppliers/subcontractors relating to the work, except to the extent that any such injury is due solely and directly to Contractor's or Developer's or Owner's negligence or willful acts as the case may be. 6.2) Patent Indemnity. 6.2.1) Supplier shall handle all claims and defend any suit or proceeding brought against Contractor or its customers (which term throughout this paragraph shall include without limitation the Owner, the Developer, Contractor's lessees, bailees, transferees and assigns) so far as based on any claim that the manufacture or furnishing of goods under this order, or the use or sale of such goods constitutes infringement of any patent of any country. Supplier shall indemnify and save Contractor and its customers harmless from and against any expense or liability in connection therewith, including costs and damages arising out of such claim, suit or proceeding. In case said goods are enjoined, Supplier shall, at its own expense and option, procure for Contractor and its customers the right to continue using said goods, or modify them so they become non-infringing, or with the written approval of Contractor, remove said goods and refund the purchase price and the transportation and installation costs thereof. The foregoing patent indemnity and warranty obligations shall be inapplicable: (a) where the alleged infringement results from detail designs supplied by Contractor, unless goods embodying such designs are normally sold or advertised for sale to others by Supplier, or (b) to the extent that a suit based on said infringement claim may be maintained only against the U.S. Government and Contractor has not indemnified the U.S. Government. 308 6.2.2) The above patent warranty and indemnity obligations are in lieu of all other patent warranties and indemnities whatsoever, whether oral, written, express or implied. 7) Title and Risk of Loss. 7.1) Drawings and Specifications. 7.1.1)The Contractor shall be furnished the required number of sets of the documents set forth in Exhibit "A". Additional copies shall be furnished upon request for the cost of reproduction. 7.1.2) All specifications, drawings, technical information and data furnished by Contractor to Supplier hereunder shall remain the property of the Contractor. None shall be copied, duplicated in any manner, nor shall extract be taken therefrom for a purpose of use unrelated to the Work without Contractor's advance written consent. Such documents shall be used only in the manufacture and production of supplies for Contractor and shall be returned to Contractor at Contractor's request. 8) Intentionally Deleted. 9) Termination. 9.1) Termination by Contractor for Cause. 9.1.1) Contractor may terminate this Agreement upon ten (10) days written notice to Supplier upon the following events of Supplier default, provided however that Supplier shall be afforded reasonable time to cure: (a) Supplier ceases to conduct its operations in the normal course of business (including inability to meet its obligations as they mature); (b) A proceeding under the bankruptcy or insolvency laws is brought by or against Supplier, or a receiver is appointed or applied for; (c) Supplier makes a general assignment for the benefit of creditors; (d) Supplier disregards the laws and regulations of any government entity having jurisdiction over any activity performed in connection with the Work or this Agreement; (e) Supplier disregards the authority or instructions of the Project Manager; 309 (f) Supplier persistently fails to perform the Work in accordance with this Agreement, including but not limited to, failure to adhere to the Delivery Schedule or the CPM, and failure to provide conforming equipment and materials; or (g) Supplier otherwise materially breaches this Agreement. 9.1.2) Intentionally Deleted. 9.1.3) Termination for cause pursuant to this Section 9.1 shall be without liability to Contractor except for payment of amounts due for materials and equipment previously delivered to the Site or previously completed and subsequently delivered to the Site in accordance with the terms of this Agreement or work in progress; provided however that such amount shall not be due and payable until completion of the Work by substitute performance and shall be reduced by the following: (a) Costs incurred by Contractor in the performance of the Work terminated, including but not limited to preparatory expenses, additional engineering and design professional costs, and incidental costs, and all additional expenses incurred in acquiring or undertaking substitute performance; and (b) Contractor's reasonable costs of termination and settlement, including but not limited to accounting costs, legal fees and arbitration expenses. Nothing in this Agreement shall obligate Contractor to obtain the lowest price for costs incurred or work performed pursuant to this Section 9.1.3. 9.2) Termination by Contractor upon Owner Stop Order. 9.2.1) Contractor may, by written notice, terminate this Agreement in whole or in part upon issuance of a Stop Order by Owner. 9.2.2) Termination pursuant to this Section 9.2 shall be without liability to Contractor except for payment of amounts due pursuant to Sections 9.3.2 and 9.3.3 of this Agreement. 310 9.3) Termination by Supplier for Cause. 9.3.1) Supplier may terminate this Agreement upon ten (10) days written notice to Contractor upon the following events of Contractor default, provided however that Contractor shall have reasonable time to cure: (a) Contractor ceases to conduct its operations in the normal course of business (including inability to meet its obligations as they mature); (b) A proceeding under the bankruptcy or insolvency laws is brought by or against Contractor, or a receiver is appointed or applied for; (c) Contractor makes a general assignment for the benefit of creditors; (d) Contractor disregards the laws and regulations of any government entity having jurisdiction over this Agreement; (e) Contractor fails to pay Supplier amounts due Supplier pursuant to this Agreement within ten (10) days of the due date; or (f) Contractor otherwise materially breaches this Agreement. 9.3.2) Upon Supplier's termination for cause pursuant to this Section 9.3 Supplier shall be entitled to payment for all Work performed, and for all materials and equipment previously delivered to the Site or previously completed and subsequently delivered to the Site, and for work in progress in accordance with the terms of this Agreement. 311 9.3.3) In addition to payment pursuant to Section 9.3.2, Supplier shall within ten (10) days of the date of the notice of termination be entitled to claim for damages from Contractor arising out of such termination, which claim shall be subject to negotiation between Contractor and Supplier. Any negotiated settlement of Supplier's claim shall be reduced to writing by Contractor and signed by Supplier prior to payment of settlement damages. Damages claimed pursuant to this Section 9.3.3 shall be restricted to actual out of pocket damages. 10) On-Site Representatives. 10.1) Contractor's Project Manager. 10.1.1) Contractor's Project Manager shall be the primary representative of Contractor and shall exercise such authority as is specified in this Agreement or is delegated to him by Contractor. The general duties of the Project Manager shall be, inter alia, to act on behalf of contractor as follows: (a) to review, comment, audit and monitor the design, construction, commissioning and performance of the Work; (b) to inspect, examine, and witness the materials, equipment, testing and workmanship used or carried out in connection with the Work; and (c) to certify applications for payment and to report to Contractor on the progress of the Work and to report whether the Work is being carried out in accordance with this Agreement. 10.1.2) The Project Manager shall also carry out the following duties: (a) other duties that Contractor designates are to be performed by the Project Manager; and (b) any other duties which are specified in this Agreement. 10.2) Designation of Representatives. 10.2.1) The Contractor's Project Manager shall be promptly identified in writing to Supplier. 10.2.2) The Supplier's Site Representative (if any) shall be promptly identified in writing to Contractor. 312 11) Notices. 11.1)All notices, requests, directions, or other communications required by this Agreement, required or permitted, shall be in writing and shall be considered properly given when: (a) delivered in person; (b) sent via confirmed fax; (c) sent certified mail confirmed by a signed return receipt; or (d) delivered to an express courier, correctly addressed and postage prepaid. 11.2)Notices or other communications given in accordance with this Section 11 shall be deemed effective on the date delivered or fax confirmed in the case of Sections 11(a) and (b) above; or upon actual receipt in the case of Sections 11(c) and (d). 11.3) Notice shall be given to Contractor as follows: Name: Telesource International, Inc. Attn: Larry Stiff Address: 860 Parkview Boulevard Lombard, Illinois 60148 Phone: (630) 620-4787 Fax: (630) 620-4753 11.4) Notice shall be given to Supplier as follows: Name: P.W.S. International, Inc. Attn: Fred Parker Address: P.O. Box 410081 Charlotte, NC 28241 Phone: (704) 588-3013 Fax: (704) 588-3017 313 12) Compliance With Laws. Supplier agrees to comply with all federal, state and local laws, standards, rules regulations and directions (hereafter collectively Laws) applicable to and in effect at the time of the execution of this Agreement. Supplier's failure to comply with such Laws will be considered a material breach of this Agreement and may be grounds for termination by Contractor, provided however that Supplier shall have reasonable time to cure. In particular, but in no way limiting Supplier's duties as set forth in this Section 12, Supplier shall comply with the following: 12.1) Fair Labor Standard Act. In accepting this order, Supplier shall be deemed to represent that the goods to be furnished hereunder were or will be produced in compliance with the requirements of the Fair Labor Standards Act as amended, and unless otherwise agreed in writing, Supplier shall insert a certificate on all invoices submitted in connection with this order stating that the goods covered by the invoice were produced in compliance with the requirements of said Act, as amended, and of regulations and orders of the United States Department of Labor issued pursuant thereto. 12.2) Chemical Substances. Notwithstanding anything to the contrary heretofore or hereafter represented by either party to the other, Supplier warrants that each and every chemical substance sold or otherwise transferred by Supplier pursuant to this Agreement, as of the time of such sale or transfer, is on the list of chemical substances compiled and published by the Administrator of the Environmental Protection Administration pursuant to the Toxic Substance Control Act (PL 94-469). Supplier further warrants that each an every chemical substance constituting or contained in the product(s) sold or otherwise transferred pursuant to this Agreement is on the list of chemical substances compiled and published by the Administrator of the Environmental Protection Administration pursuant to the Toxic Substance Control Act (PL 94-469). 314 12.3) Radiation Control for Health and Safety Act. Supplier warrants that goods to be furnished under this order will meet all requirements established under standards issued pursuant to authority contained in the Radiation Control for Health and Safety Act of 1968. Supplier further agrees to indemnify and hold harmless Contractor for all damages assessed against Contractor as a result of Supplier's failure to comply with the laws, regulations and standards issued thereunder and for the failure of the items furnished under this Agreement to so comply. 12.4) Occupational, Health and Safety-Radiation Control. Supplier agrees to comply with the provisions of the Occupational Safety and Health Act of 1970 and the standards and regulations issued thereunder and certifies that all items furnished pursuant to this Agreement will conform to and comply with said standards and regulations. 12.5) Intentionally Deleted. 12.6) Intentionally Deleted. 12.7) Equal Employment and Minority Suppliers. Unless exempt, the Equal Opportunity Clause required by Executive Order 11246, as amended, Section 503 of the Rehabilitation Act of 1973, as amended, and the Vietnam Era Veterans Readjustment Assistance Act of 1974, as amended (38 U.S.C. 2012), and any rules, orders, or regulations issued thereunder, are incorporated by Reference, and Supplier shall be bound by and shall comply with them as if the same were fully set forth naming Supplier as "contractor". 12.8) Small Business Concern Utilization. The Supplier agrees to accomplish the maximum amount of subcontracting to small business concerns that the Supplier finds to be consistent with the efficient performance of this Agreement. 315 13) Assignment. Supplier shall not assign this Agreement in whole or in part, nor any interest herein nor any payment due or to become due hereunder, to any Person, without the prior written consent of Contractor, which consent shall not be unreasonably withheld or delayed. Consent may be withheld if any assignee proposed is not in the opinion of Contractor reasonably able to fulfill the terms and obligations of this Agreement. Nothing in this paragraph 13 shall be construed to prevent Supplier as a consolidator from contracting with his suppliers and subcontractors. 14) Arbitration. 14.1) In General. Claims, disputes or other matters in question between the parties to this Agreement shall first be subject to mediation before arbitration. A demand for mediation shall be made within a reasonable time after the dispute or claim has arisen. 14.2) Mediation. Any mediation shall be held in accordance with the Construction Industry Mediation Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise. The mediation shall take place at a mutually convenient location in Illinois. Demand for mediation shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. In no event shall the demand for mediation be made after the date when institution of legal or equitable proceedings based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 316 14.3) Arbitration. Any dispute or difference arising out of, or in connection with, this Agreement which cannot be amicably settled between the parties by mediation shall be finally settled under the Rules of Construction Arbitration of the American Arbitration Association. The arbitration shall take place at a mutually convenient location in Illinois. The resulting arbitral decision shall be final and binding on the parties. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The prevailing party in any arbitration shall be entitled to recover from the other party all reasonable attorneys' fees, expenses and other costs incurred in asserting or defending any claim arising under or related to this Agreement. 15) General Provisions. 15.1) Severability of Provisions. 15.1.1) In the event that any provision of this Agreement, or the application thereof, is held by any court of competent jurisdiction to be illegal or unenforceable, the parties shall attempt in good faith to agree upon an equitable adjustment to this Agreement in order to overcome to the extent possible the effect of such illegality or unenforceability. 15.1.2) The provisions of this Agreement are intended to be performed in accordance with, and only to the extent permitted by, all applicable requirements of law. 15.1.3) If any provision of any of the Agreement or the application thereof to any Persons or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the Agreement nor the application of such provision to other Person or circumstances or other instruments referred to in the Agreement shall be affected thereby but, rather, the same shall be enforced to the greatest extent permitted by law. 15.2) Entire Agreement. This Agreement, including all schedules, exhibits, attachments, and drawings referenced herein, represents the entire understanding between the parties in relation to the subject matter hereof and supersedes any and all previous agreements or arrangements between the parties in respect of the Work (whether oral or written), including without limitation all letters of intent and clarifications submitted in response to requests for proposals or otherwise. 317 15.3) Counterparts. This Agreement may be executed in any number of counterparts, or by use of counterpart or faxed counterpart signature pages, each of which shall be an original, but all of which together shall constitute but one instrument. 15.4) Applicable Law. This Agreement shall be governed by and construed according to the Laws of the State of Illinois excluding any conflict of laws provisions which would result in the application of the Laws of another jurisdiction to the interpretation of this Agreement. 15.5) Successors and Assigns. All of the terms of this Agreement shall apply to, be binding upon and inure to the benefit of the parties hereto, their respective successors, permitted assigns and all other Persons claiming by, through or under them. 15.6) No Waiver. Any failure at any time by either party to enforce any provision of this Agreement shall not constitute a waiver of such provision or prejudice the right of either party to enforce such provision at any subsequent time. 15.7) No Third Party Beneficiary. Except as otherwise provided elsewhere herein, this Agreement and all rights hereunder are intended for the sole benefit of the parties hereto and shall not imply or create any rights on the part of, or obligations to, any other entity or individual not a party to this Agreement. 15.8) Publications. Supplier and Contractor agree that no acknowledgment or other information concerning this Agreement and the supplies or services provided hereunder will be made public without the prior written agreement of the other party. 318 IN WITNESS WHEREOF, we have hereunto set our hands as of this 31st day of August, 1999. General Contractor Supplier Telesource International, Inc. P.W.S. International, Inc. By: ____________________Signatory, By: ____________________ Signatory, Printed: _________________ Printed: _________________ Its: ____________________ Title Its: ____________________ Title 319 PAGE 27 Jpk:Comm:Doors SubK:Final November 24, 1999 17:17 PM Schedule of Exhibits Exhibit "A" Plans, Drawings, Specifications and Design Documents Exhibit "B" Applicable Provisions of RFP for Department of State Contract Exhibit "C" Schedule of Applicable Federal Acquisition Regulations Exhibit "D" Items Included In The Scope Of Work Exhibit "E" [Intentionally Deleted] Exhibit "F" [Intentionally Deleted] Exhibit "G" Unit Price Breakdown 320 Plans, Drawings, Specifications and Design Documents Exhibit "A" The following engineering specifications and documents are incorporated herein by reference and hereby become an integral part of this Agreement: 1. [The bidding documents provided to date to the Supplier in connection with this agreement, which both parties acknowledge to be in their possession]. 1. 321 Department of State Request for Proposal Exhibit "B" [The Department of State Request for Proposal is in the possession of both parties and is incorporated herein by reference and hereby become an integral part of this Agreement.] 322 Exhibit "C" Federal Acquisition Regulations The provisions of the Federal Acquisition Regulations (FAR) listed below and any other attached articles and provisions, if any, as applicable, and as in effect on the date of this Agreement (except as required to be changed by statute), are incorporated in this Agreement by reference with the same force and effect as though herein set forth in full. All such clauses shall, with respect to the rights, duties and obligations of Contractor and the Supplier hereunder, be interpreted and construed in such manner as to recognize and give effect to the contractual relationship between Contractor and the Supplier under this agreement and the rights of the U.S. Government with respect thereto under the prime contract from which the agreement is being funded. As used therein the term "the Contractor" and equivalent terms shall mean the Subcontract and the terms "the Government" and "the Contracting Officer" and equivalent terms shall include the Contractor and the Contractor's authorized representative hereunder, respectively, except under those clauses relating to the rights to audit or examine the Supplier's financial records, and all other clauses noted with an asterisk (*), in which case the terms "the Government" and "the Contracting Officer" shall mean the U.S. Government and the Contracting Officer under the prime contract, respectively. The word "contract" and like terms shall mean this agreement. 52.202-01 Definitions 52.203-01 Officials Not to Benefit 52.203-03 Gratuities 52.203-05 Covenant Against Contingent Fees 52.212-08 Priorities, Allocations, and Allotments 52.215-01 Examination of Records by Comptroller General 52.215-02 Audit - Negotiation 52.215-22 Price Reduction for Defective Cost or Pricing Data 52.215-23 Price Reduction for Defective Cost or Pricing Data - Modification 52.215-24 Supplier Cost or Pricing Data 52.215-25 Supplier Cost or Pricing Data - Modification 52.215-30 Waiver of Facilities Capital Cost of Money 52.216-07 Allowable Cost and Payment 323 52.216-08 Fixed Fee 52.219-08 Utilization of Small Business Concerns and Small Disadvantaged Business Concerns 52.219-13 Utilization of Women-Owned Small Businesses 52.220-01 Preference for Labor Surplus Area Concerns 52.220-03 Utilization of Labor Surplus Area Concerns 52.222-02 Payment for Overtime Premiums "overtime premium cost does not exceed ZERO." 52.222-03 Convict Labor 52.222-26 Equal Opportunity 52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans 52.222-36 Affirmative Action for Handicapped Workers 52.227-01 Authorization and Consent - Alternate I 52.227-02 Notice and Assistance Regarding Patent and Copyright Infringement 52.227-7013 Rights in Technical Data and Computer Software 52.227-7018 Restrictive Markings on Technical Data 52.227-7029 Identification of Technical Data 52.227-7030 Technical Data - Withholding of Payment 52.228-07 Insurance - Liability to Third Persons 52.230-3 Cost Accounting Standards 52.230-4 Administration of Cost Accounting Standards 52.231-7000 Supplemental Cost Principles 52.232-09 Limitation on Withholding of Payments 52.232-17 Interest 52.232-20 Limitation of Cost 52.232-23 Assignment of Claims 52.242-01 Notice of Intent to Disallow Costs 52.242-7000 Submission of Commercial Freight Bills to the General Services Administration for Audit 324 52.243-2 Changes - Cost Reimbursement - Alternate V 52.243-7001 Pricing of Adjustments 52.244-02 Subcontracts under Cost-Reimbursement and Letter Contracts 52.245-05 Government Property (Cost Reimbursement, Time-and- Material, or Labor-Hour Contracts) 52.247-01 Commercial Bill of Lading Notations 52.249-06 Termination (Cost Reimbursement) 52.249-14 Excusable Delays 52.251-7000 Ordering from Government Supply Sources 325 Items Included In The Scope Of Work Exhibit "D" The Work shall include the supply, required testing, and delivery to Contractor of the following items: [See Exhibit "G".] 326 Unit Price Breakdown Exhibit "G" The following supplier Quotes (in the possession of both parties) include unit prices which comprise all direct and indirect costs, overhead, profit, supervision, shop drawings, testing, and incidental costs. It is understood that these unit prices represent the total cost to the Supplier for determining progress payments, and shall be the basis of good faith negotiated additions or deductions from the Contract Price at any time during the Work. The Quotes include one or more unit price Alternate Options which may or may not be exercised by the Contractor. In the event that the Quotes contradict each other, the newest Quote shall govern. 2. Supplier Quote Dated October 17, 1998 and consisting of eleven pages. 3. Supplier Quote Dated August 4, 1998 and consisting of three pages. 4. Supplier Quote Dated July 31, 1998 and consisting of eleven pages. 5. Supplier Quote Dated July 17, 1998 and consisting of eleven pages. 6. Supplier Quote Dated July 8, 1998 and consisting of one page. 7. Developer Correspondence Dated August 4, 1999 (a null and void Purchase Order) and August 7, 1999. 327 - -------------------------------------------------------------------------------- TELESOURCE INT'L., INC. PURCHASE ORDER - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ 860 Parkview Boulevard Lombard, Illinois 60148 (630) 620-4787 Fax: (630) 620-4753 Page One of Five TO: P.O. NUMBER 3404 Change Order No.1 P.W.S. International, Inc. P.O. DATE October 12, 1999 340 Crompton Street Charlotte, NC 28241 Attention: Mr. Fred Parker Phone: 704-588-3013 Fax: 704-588-3017 ------------------------------------------------ REQUISITIONED BY SHBC Elias Deeb SHIP BY November 18, 1999 SHIP VIA Ocean Freight F.O.B. C & F Kuwait SHBC P.O. USH/166-A/4/99 Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit Consigned To: American Embassy Kuwait, State of Kuwait Attn: FBO / H.P. Contract No. S-FBOAD95COO65 Bayan, Kuwait Notifying Party: Sayed Hamid Behbehani & Sons C.O. W.L.L. P.O. BOX 3065 Safat - 13031, Kuwait Phone: (965) 245-4501/2/3 Fax: (965) 244-6820 or 242-6276 Attention: Mr. Elias Deeb Shipping Marks: American Embassy Kuwait State of Kuwait Purchase order number must appear on all forms relating to this order. - QTY UNIT DESCRIPTION PRICE AMOUNT THIS CHANGE ORDER IS SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT DATED AUGUST 31, 1999 WHICH IS MADE A NECESSARY AND INTEGRAL PART OF THIS CHANGE ORDER AND WHICH IS MODIFIED AS NECESSARY TO ENCOMPASS THIS CHANGE ORDER L.S. L.S. Supply of Steel Doors & Frames as per the Section $ 36,778.00 $ 36,778.00 # 08110 and approved Drawings and Schedules L.S. L.S. Supply of Wood Doors as per Section # 08211 and $104,538.00 $104,538.00 approved Drawings and Schedules L.S. L.S. Supply of Aluminum Entrances & Windows as per $738,387.00 $738,387.00 Section #08410 and approved Drawings and Schedules Schedules S (doors and windows to be Factory Glazed) 1 No. Supply of Overhead Coiling Doors, Section #08331 $5,666.00 $5,666.00 Door Type 45, 2500mm x 2670mm 328 TELESOURCE INT'L., INC. PURCHASE ORDER 860 Parkview Boulevard Lombard, Illinois 60148 (630) 705-4020 Fax: (630) 705-4025 Page Two of Five TO: P.O. NUMBER 3404 Change Order No. 1 P.W.S. International, Inc. P.O. DATE October 12, 1999 340 Crompton Street Charlotte, NC 28241 Attention: Mr. Fred Parker Phone: 704-588-3013 Fax: 704-588-3017 REQUISITIONED BY SHBC Elias Deeb SHIP BY November 18, 1999 SHIP VIA Ocean Freight F.O.B. C & F Kuwait SHBC P.O. USH/166-A/4/99 Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit Consigned To: American Embassy Kuwait, State of Kuwait Attn: FBO / H.P. Contract No. S-FBOAD95COO65 Bayan, Kuwait Notifying Party: Sayed Hamid Behbehani & Sons C.O. W.L.L. P.O. BOX 3065 Safat - 13031, Kuwait Phone: (965) 245-4501/2/3 Fax: (965) 244-6820 or 242-6276 Attention: Mr. Elias Deeb Shipping Marks: American Embassy Kuwait State of Kuwait Purchase order number must appear on
all forms relating to this order. QTY UNIT DESCRIPTION PRICE AMOUNT 3 No. Roof Hatches as per Section #07720, MS-50 3'0 x 2'6 and L.S. $2,818.00 L.S. L.S. Finish Hardware as per Section #08410 & #08710 and $84,056.00 $84,056.00 approved Hardware Schedules Ref: PWS Int'l Quotation dated Oct 17-98 (copy attached) L.S. L.S. C/S Model A4115 4" deep extruded aluminum louvers with $2,865.00 Kynar 500 finish color Yorktown. Louvers to have blank off panels and screens as indicated. 2 EA 980mm dia. round louvers with blank off panel 1 EA 410 x 2025mm louver with blank off panel 2 EA 590mm dia. round louvers with bird screen (Ref: Your fax dated 13 Sept-99) L.S. L.S. 2 EA Bilco D-50 Hatches 2m x 2m Aluminum Hatch $6,818.00 12" Curb Zinc Hardware (Ref: Your fax dated 4 Oct-99)
- ------------------------------------------------------------------------------- 329 TELESOURCE INT'L., INC. PURCHASE ORDER 860 Parkview Boulevard Lombard, Illinois 60148 (630) 620-4787 Fax: (630) 620-4753 Page Three of Five TO: P.O. NUMBER 3404 Change Order No. 1 P.W.S. International, Inc. P.O. DATE October 12, 1999 340 Crompton Street Charlotte, NC 28241 Attention: Mr. Fred Parker Phone: 704-588-3013 Fax: 704-588-3017 REQUISITIONED BY SHBC Elias Deeb SHIP BY November 18, 1999 SHIP VIA Ocean Freight F.O.B. C & F Kuwait SHBC P.O. USH/166-A/4/99 Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit Consigned To: American Embassy Kuwait, State of Kuwait Attn: FBO / H.P. Contract No. S-FBOAD95COO65 Bayan, Kuwait Notifying Party: Sayed Hamid Behbehani & Sons C.O. W.L.L. P.O. BOX 3065 Safat - 13031, Kuwait Phone: (965) 245-4501/2/3 Fax: (965) 244-6820 or 242-6276 Attention: Mr. Elias Deeb Shipping Marks: American Embassy Kuwait State of Kuwait Purchase order number must appear on all forms relating to this order.
QTY UNIT DESCRIPTION PRICE AMOUNT L.S. L.S. Architectual Pottery $3,165.00 3 EA KP-19B Classic Greek 33" x 26" 3 EA KP-6A Classic Greek 24" x 26" 3 EA KP-4C Classic Greek 16" x 20" (Ref: Your fax dated 5 Sept-99) L.S. L.S. 4 EA Windermire Benches Style 4503 $3,455.00 (Ref: Your fax dated 5 Sept-99) L.S. L.S. Furnish and Install specified Glass in all the exterior $160,344.00 Windows and Doors to have 5/16" clear heat strengthened Lamintated Glass with .060 PVB Vinyl Inner Layer as per attached Specifications (3 pages) C & F Kuwait Subtotal $1,148,890.00 Total $1,148,890.00
- -------------------------------------------------------------------------------- 330 TELESOURCE INT'L., INC. PURCHASE ORDER 860 Parkview Boulevard Lombard, Illinois 60148 (630) 620-4787 Fax: (630) 620-4753 Page Four of Five TO: P.O. NUMBER 3404 Change Order No. 1 P.W.S. International, Inc. P.O. DATE October 12, 1999 340 Crompton Street Charlotte, NC 28241 Attention: Mr. Fred Parker Phone: 704-588-3013 Fax: 704-588-3017 REQUISITIONED BY SHBC Elias Deeb SHIP BY November 18, 1999 SHIP VIA Ocean Freight F.O.B. C & F Kuwait SHBC P.O. USH/166-A/4/99 Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit Consigned To: American Embassy Kuwait, State of Kuwait Attn: FBO / H.P. Contract No. S-FBOAD95COO65 Bayan, Kuwait Notifying Party: Sayed Hamid Behbehani & Sons C.O. W.L.L. P.O. BOX 3065 Safat - 13031, Kuwait Phone: (965) 245-4501/2/3 Fax: (965) 244-6820 or 242-6276 Attention: Mr. Elias Deeb Shipping Marks: American Embassy Kuwait State of Kuwait Purchase order number must appear on all forms relating to this order.
QTY UNIT DESCRIPTION PRICE AMOUNT Terms of Payment By L/C in favor of P.W.S. International Inc., P.O. Box 410081, Charlotte N.C. 28241, USA, to cover 95% of Value of P.O. against submission of Shipping Documents. 5% Payable via Wire Transfer within 30 Days of receipt of the Materials on Site and their inspection. Notes Fabrication of Wooden Doors & Steel Doors and Frame, Overhead Coiling Door, Aluminum Windows and Roof Hatches can be commenced. PWS has to resolve FBO's comments for Aluminum Doors and Hardware and provide us the approved Submittals before fabrication and procuments. Hardware Samples to be provied to US Government for final acceptance and complete set of specialized tools and maintance instructions to be provived as per Section # 08710-1.6. Glazing to be provided as per Section #08800 and approved samples and drawings.
- ------------------------------------------------------------------------------ 331 TELESOURCE INT'L., INC. PURCHASE ORDER 860 Parkview Boulevard Lombard, Illinois 60148 (630) 620-4787 Fax: (630) 620-4753 Page Five of Five TO: NUMBER 3404 Change Order No. 1 P.W.S. International, Inc. P.O. DATE October 12, 1999 340 Crompton Street Charlotte, NC 28241 Attention: Mr. Fred Parker Phone: 704-588-3013 Fax: 704-588-3017 REQUISITIONED BY SHBC Elias Deeb SHIP BY November 18, 1999 SHIP VIA Ocean Freight F.O.B. C & F Kuwait SHBC P.O. USH/166-A/4/99 Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit Consigned To: American Embassy Kuwait, State of Kuwait Attn: FBO / H.P. Contract No. S-FBOAD95COO65 Bayan, Kuwait Notifying Party: Sayed Hamid Behbehani & Sons C.O. W.L.L. P.O. BOX 3065 Safat - 13031, Kuwait Phone: (965) 245-4501/2/3 Fax: (965) 244-6820 or 242-6276 Attention: Mr. Elias Deeb Shipping Marks: American Embassy Kuwait State of Kuwait Purchase order number must appear on all forms relating to this order.
QTY UNIT DESCRIPTION PRICE AMOUNT List of Documents: 3 Sets of Original Invoices One Original Certificate of Origin 3 Original sets of Packing List 3 Original sets of On-Board Bill of Lading The shipping documents shall be consigned to:12 American Embassy Kuwait State of Kuwait Attn: FBO/H.P. The On-Board Bill of Lading and Invoice should be: "Staff Diplomatic Housing U.S. Embassy", Bayan, Kuwait, Contract No. S-FBOAD95C0065. Also description of Goods should be "Building Materials". Notifying party must be Sayed Hamid Behbehani & Sons Co., P.O. Box 3065, Safat-13031, Kuwait Tel: (965) 245-4501/2/3 Fax: (965) 244-6820/242-6276 Copy of all shipping documents should be sent to SHBC by DHL as soon as the shipments is on board. Shipment must be through US Flag Ships.
Authorized by: Jeffrey P. Karandjeff Dated: 10-12-99 Accepted by: Fred Parker at PWS Int'l., Inc. Dated: - -------------------------------------------------------------------------------- 332 EX-10.09 14 AGREEMENT TO SUPPLY ELECTRICAL ITEMS Exhibit 10.09 Agreement to supply electrical items 333 Electrical Items for Power Plant Subcontract Agreement made this 10th day of June, 1998, ("Agreement") by and between Commsource international, Inc., a corporation formed under the laws of the State of Illinois ("Contractor") and Wheeler Power Systems, a corporation formed under the laws of ("Subcontractor"). Whereas Contractor is supplying items pursuant to a contract between Telesource CNMI, Inc. ("Owner") and Commonwealth Utilities Corporation for the construction of a 10 MegaWatt Diesel Power Plant (the "Project") on the island of Tinian in the Commonwealth of the Northern Mariana Islands, which contract includes the Electrical Items for Power Plant to be done under and pursuant to this subcontract agreement (the "Work"); and Whereas Subcontractor desires and is willing to furnish all necessary materials, equipment and labor to provide the Electrical Items for Power Plant component of the Project; Now therefore, in consideration of the mutual promises and covenants expressed in this agreement, the Contractor and Subcontractor agree as follows: 1) Scope of the Work. Subcontractor shall furnish all necessary labor, material, supervision and all other services as may be required to perform all of the necessary and required design, engineering, manufacturing, assembly, testing and fabrication as may be required to provide the buyer with Electrical Items for Power Plant to the satisfaction of the Contractor and the Owner and in strict accordance with the specifications, drawings and documents enumerated in the attached Exhibit "A ", which specifications, drawings and documents are incorporated herein by reference and hereby become an integral part of this Agreement. In performance of this Agreement, Subcontractor shall adhere to the requirements and specifications which relate to the equipment and services provided pursuant to this Agreement. In the event of any inconsistency between the provisions of the Exhibits and this Agreement, the provisions of this Agreement shall control. In particular, but in no way limiting Subcontractor's duties as set forth in this Section 1, Subcontractor shall provide the services as set forth as follows: 1.1) Supply and Installation Of Machinery and Equipment. Subcontractor shall supply, install, commission, conduct the proof of performance and hand over to Owner all items as enumerated in the attached Exhibit "B". 1.1.1) [Intentionally Deleted] 334 1.1.2) Goods are to be shipped F.O.B. Origin (Edelstein, Illinois). Risk of loss shall be Subcontractor's responsibility until delivery to applicable F.O.B. point. 1.1.3) Subcontractor understands that the maximum lifting capacity of any of the cranes on the ship or on the island of Tinian is forty thousand (40,000) pounds. No single lift can exceed said weight. Said weight is inclusive of all equipment, packing, and crating material and the weight of the container. 1.2) Shop Drawings, Submittals, Support Manuals and Certifications. Subcontractor shall furnish the required drawings, submittals and manuals to Contractor for approval prior to use in connection with the Project. At the time of each submission, the Subcontractor shall give the Project Manager specific written notice of each variation that the drawing, sample, manuals, or certification may have from the requirements of this Agreement. No review or approval of any drawing, submittal or manual shall constitute acceptance of Work not in accordance with this Agreement, nor shall it serve to release Subcontractor of its obligation to perform the Work in accordance with this Agreement. 1.2.1) Shop Drawings. Subcontractor shall prepare and submit to Contractor six (6) copies of all working drawings, prints, sepias and mylars (including revisions, addenda and modifications) to be used in connection with the Work, along with one (1) ACAD (revision No. 14) computer diskette for each drawing. The data shown on the drawings shall be complete with respect to quantities, dimensions, specified performance and design criteria, materials and similar data to enable meaningful review by the Project Manager. 335 1.2.2) Submittals. Subcontractor shall prepare and submit six (6) representative samples of all proposed materials and equipment to be furnished by Subcontractor for use in the Work. Detailed specifications of proposed materials and equipment may be submitted in lieu of actual samples only with Contractor's prior written consent. Each submittal shall be clearly identified as to material, manufacturer, supplier, trade name, model or catalog designation, reference standards and all other data pertinent to the use for which it is intended. 1.2.3) Support Manuals. Subcontractors shall prepare and submit six (6) copies (with the equipment to the port of destination) of all owner's manuals, installation manuals, illustrated parts breakdowns and operations, maintenance and repair manuals, spare parts schedules, catalogs, and any other data as may be requested by Contractor in regard to the operation of the Work. Catalogs shall indicate the proper method of ordering spare parts at a later date with contact address. 1.2.4) Test and Compliance Certificates. Subcontractors shall prepare and submit six (6) copies of all manufacturer's test certificates and certificates of compliance as required for Items enumerated in the attached Exhibit "B". Such certificates shall be in a form acceptable to Contractor, shall indicate that the materials and/or equipment conform to or exceed the requirements as specified by this Agreement, and shall be accompanied by supporting reference data, affidavits, and additional certifications as appropriate. 1.2.5) Packing Lists and Bills of Lading Subcontractor shall provide three (3) original sets of the Packing List, one (1) packed with the shipment and two (2) to Contractor. Subcontractor shall provide three (3) original sets of Bills Of Lading to Contractor. 1.3) As-Built Drawings. Subcontractor shall maintain one (1) set of all drawings, specifications, addenda, written amendments, Change Orders and written interpretations, clarifications and annotations to show all changes made during construction. Such drawings and documents shall be maintained and updated as appropriate to reflect the current "as built" conditions of the Work. Upon completion of the Work, these drawings and documents shall reflect the final "as built" condition of the Work and six (6) sets shall be delivered to the Contractor. 336 1.4) Quality Assurance and Quality Control Program. Within thirty (30) days after the execution of this Agreement, Subcontractor shall prepare and deliver to Contractor, a quality assurance and quality control program inclusive of all phases of the Work. 1.5) Insurance and Indemnification for Loss or Injury. Subcontractor shall maintain such Public Liability, Property Damage, and Employee's Liability and Compensation insurance as will protect Contractor from all risks of loss which may result in any way from any act or omission of Subcontractor, its agent, employees, or subcontractors, including any injury to person or property during the progress of the Work, and from any claims under any applicable Workmen's Compensation and Occupational Disease Acts. Coverage shall apply to the indemnity clause in Paragraph 6 below. Prior to commencing performance of any work or site mobilization, Subcontractor shall furnish Contractor with Certificates of Insurance as evidence of the above required insurance. Contractor and Owner shall be named an additional insured on such coverage.2) Commencement and Progress of the Work. 2.1) Commencement of the Work. Subcontractor shall commence performance of the Work upon execution of this Agreement and shall proceed in accordance with the Delivery and Completion Schedule, as may be adjusted from time to time in accordance with Section 2.2 and Section 2.3 of this Agreement. 2.2) Delivery and Completion Schedule; Monthly Status Reports. 2.2.1) Within one (1) week after the execution of this Agreement, Subcontractor shall prepare and deliver to Contractor a comprehensive delivery and completion schedule (the "Delivery and Completion Schedule") in the form of a scheduled bar chart showing expected delivery dates of materials and all relevant activities. Each of Subcontractor's activities shall be allocated a price, and the sum of these prices shall equal the total contract price. 337 2.2.2) The Delivery and Completion Schedule shall adhere and conform in all respects to the Critical Path Method Project Plan (the "CPM") attached hereto as Exhibit "C", including all future updates and amendments thereto. Subcontractor shall be responsible for adherence to Subcontractor's Delivery and Completion Schedule, the CPM and the instructions of Contractor's Project Manager. Subcontractor shall prepare and submit a written project status report to Contractor on the first day of each month, detailing Subcontractor's performance under the Delivery and Completion Schedule and the CPM. 2.2.3) Contractor reserves the right to make any adjustment to Subcontractor's Delivery and Completion Schedule to insure suitability with Site conditions and conformance with the CPM. 2.3) Progress and Completion. 2.3.1) All time limits stated in this Agreement, including those stated in the associated CPM and the Delivery and Completion Schedule, are of the essence of this Agreement. 2.3.2) Contractor may, at any time, by written order to Subcontractor, require the Subcontractor to stop all or any part of the Work for a period of up to 90 days after the order is given. Upon receipt of the order, Subcontractor shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the Work covered by the order. If a stop-work order is subsequently canceled or expires, Subcontractor shall resume the Work and if necessary shall be entitled to an equitable adjustment in the time of performance or Contract Price or both, upon application therefore under Section 2.3 and/or Section 4 of this Agreement, as the case may be. 2.4) Responsibility for Progress and Completion. 2.4.1) Subcontractor shall at all times furnish such employees, materials, facilities and equipment and shall work such hours, including extra shifts and overtime as necessary, to ensure the prosecution and completion of the Work in accordance with the CPM and the Delivery and Completion Schedule. 338 2.4.2) If the Work is not being performed in accordance with the Subcontractor's Delivery and Completion Schedule, or if it becomes apparent to the Contractor that the Work shall not be completed within the scheduled time, Contractor shall notify Subcontractor in writing of such nonconformity, at which time Subcontractor shall immediately take all necessary actions to improve its progress, including the following, at no additional cost: (a) Increase the number of employees in such crafts as shall regain the lost schedule progress; (b) Increase the number of working hours per shift, shifts per working day, working days per week, and the amount of equipment or any combination thereof to regain lost schedule progress; and (c) Expediting shipments of materials and supplies, including shipping by a method other than that originally anticipated by this Agreement. 2.4.3) In addition, Contractor may require Subcontractor to prepare and submit a recovery schedule in a form acceptable to Contractor, demonstrating Subcontractor's proposed plan to regain lost schedule progress and to ensure completion of the Work within the time required by the CPM. Subcontractor agrees to bear all additional charges incurred in executing the recovery schedule at no additional cost to Contractor. 2.4.4) Time is of the essence of this contract. Inasmuch as a delay in the complete and total delivery of items (in condition ready to use at the job site) will cause serious and substantial damage to Contractor, and because it will be difficult if not impossible to prove the amount of such damage, Subcontractor agrees that in the case of a delay attributable to Subcontractor in the complete and total delivery of items (in condition ready to use at the job site), Subcontractor will pay Contractor one-quarter of one percent of the total value of this order per day of such delay as liquidated damages, and it is agreed that such sums shall, without proof, be deemed to represent minimum damages actually sustained by Contractor by reason of such delay, provided, however, that such provision in reference to liquidated damages is intended to be, and shall be cumulative, and shall be in addition to every other remedy now or hereafter existing at law or in equity, or by statute. 2.4.5) Subcontractor will not be liable for damages or delays due to causes beyond its reasonable control, provided Subcontractor shall have notified Contractor and submitted a Change Order Request pursuant to Section 2.3 of this Agreement. 339 3) Contract Price and Application For Payment. 3.1) Contract Price. Contractor agrees to pay Subcontractor the lump sum of One Million Six Hundred Twelve Thousand Eight Hundred Ninety Two Dollars and Eighty Four Cents U.S. (US$ 1,612,892.84), as detailed in Exhibit B, for Subcontractor's performance of all the Work (the "Contract Price"). No additional claims or charges will be entertained except as specifically provided by this Agreement. This sum includes a two percent (2%) discount offered because of wire transfer of funds and because no provision for retention of funds has been made. 3.2) Application for Payment. 3.2.1) Materials. 3.2.1.1) Approved Invoice. Upon the furnished materials, equipment and supplies being ready to ship from the continental United States, Subcontractor shall present Contractor with an application for payment accompanied by the applicable invoices, bills of sale, or other documents evidencing receipt of the materials. Contractor's Project Manager shall review the application and supporting documents, and where appropriate, the materials themselves, and shall either approve the application for payment or deny the application for payment stating the reason therefore. Subcontractor warrants and guarantees that title to all Work, materials and equipment covered by any application for payment, whether incorporated in the Project or not, shall pass to the Owner free and clear of all liens, charges, security interests and encumbrances no later than at the time of payment. In addition, the Subcontractor's final invoice warrants that he has obtained a waiver of liens for all work performed under the contract. 3.2.1.2) Time of Payment. Contractor shall pay Subcontractor one hundred percent (100%) of the Contract Price within thirty (30) days of the Subcontractor's application for payment certifying that the Equipment is ready to ship from the continental United States. 340 3.3) Place of Payments. Payments shall be made via Wire Transfer to: First Security Bank of Utah Main at 1st South Office Salt Lake City, Utah Attention: Steve Kohler Bank; Routing #: 124000012 Account #: 51 00050 10 3.4) Intentionally Deleted. .3.5) Payment Withheld. Upon the occurrence of any of the following events of default, the Project Manager may deny Subcontractor's application for payment and withhold payment until such event of default is cured: (a) Failure to remedy a defect in the Work; (b) Failure of Subcontractor to pay lower tier contractors or vendors; (c) Failure to adhere to the Delivery and Completion Schedule or the CPM; (d) Failure to perform the Work in accordance with this Agreement; (e) Project Manager's reasonable determination that liens or claims against the Subcontractor and Subcontractor furnished materials have been filed or shall be asserted; (f) Project Manager's reasonable determination that the Work will not be completed within the Contract Price. 3.6) Set-Off. Contractor shall be entitled at all times to set-off any amount owing at any time from Subcontractor to Contractor or any of its affiliated companies against any amount payable at any time by Contractor in connection with this order. 341 4) Changes In the Work. Upon the instructions of the Owner, Contractor may from time to time order additions, deletions, deductions or revisions in the Work, including adjustments due to performance of any part of the Work by one other than the Subcontractor. 4.1) Change Orders. A Change Order is a written instrument, issued after the execution of this Agreement, signed by the Contractor and the Subcontractor stating their agreement upon a change and any adjustment in the Work, the price therefor and the Subcontractors Delivery and Completion Schedule. Adjustments which do not involve a change in the Contract Price and which are consistent with the overall intent of this Agreement shall be promptly performed by Subcontractor without additional claim or charge. 4.2) Change Order Request. 4.2.1) Within ten (10) days of the receipt of Contractor's proposed change in the Work, the Subcontractor shall submit to the Contractor a request for a Change Order, which shall detail information concerning the cost and time adjustments, if any, necessary to perform the proposed change (Change Order Request). When approved by the Owner, the Contractor shall authorize the adjustment to the Work contained in the Change Order Request by issuing a Change Order. Such Change Order shall thereupon be incorporated into the Subcontractors Development and Completion Schedule. 4.3) Valuation of Change. The value of any work included in any Change Order or Change Order Request, which increases or decreases the Contract Price shall be determined by application of the unit prices to quantities of the items involved in accordance with the Unit Price Breakdown. 342 5) Subcontractor's Warranties; Non-Conforming Work. 5.1) Warranty. In addition to any warranties provided by law, Subcontractor warrants that the equipment and services provided pursuant to this Agreement shall be free from defects in material and workmanship. This warranty shall remain in full force and effect for a period of one (1) year from the date of final written acceptance of the Project by Owner. 5.2) Non-Conforming Work. If any of the materials or services provided by Subcontractor are found to be defective in workmanship or otherwise not in conformity with the requirements of this Agreement, Contractor, in addition to any other rights which it may have under warranties or otherwise, shall have the right to reject and return such goods or services at Subcontractor's expense (including Subcontractor's handling charges), or require that such articles or materials be corrected or replaced promptly with satisfactory material or workmanship. Such equipment and materials are not to be replaced, however, without suitable written authorization from Contractor. If Contractor so rejects the goods or if Subcontractor, when requested by Contractor, fails to proceed promptly with the replacement or correction thereof, Contractor either may terminate this order for default or may charge Subcontractor the cost of damages occasioned Contractor thereby. Title to all rejected goods shall pass to Subcontractor upon Contractor's notification to Subcontractor of rejection and all such goods held by Contractor after such notification shall be held at Subcontractor's risk. 343 6) Indemnification. 6.1) Indemnification for Loss. If Subcontractor causes damage to the Work or property of the Owner, the Contractor, or any other subcontractor, or if any claim arises out of Subcontractor's performance of the Work, Subcontractor shall act promptly to remedy such damage and/or attempt to settle any such claim. Subcontractor shall have the right to timely repair or replace any defective items before any field charges occur. Subcontractor shall indemnify Contractor against all loss which may result in any way from any act or omission of Subcontractor, its agent, employees, or subcontractors, including any injury to person or property during the progress of such work, except to the extent that any such injury is due solely and directly to Contractor's or Owner's negligence as the case may be. 344 6.2) Patent Indemnity. 6.2.1) Subcontractor shall handle all claims and defend any suit or proceeding brought against Contractor or its customers (which term throughout this order shall include without limitation the Owner, Contractor's lessees, bailees, transferees and assigns) so far as based on any claim that the manufacture or furnishing of goods under this order, or the use or sale of such goods constitutes infringement of any patent of any country. If notified promptly in writing and giving information, assistance and such authority as is afforded by applicable laws, rules, or regulations for the handling or defense of such claim, suit or proceeding (all at Subcontractor's expense); and Subcontractor shall indemnify and save Contractor and its customers harmless from and against any expense or liability, including costs and damages arising out of such claim, suit or proceeding. In case said goods are enjoined, Subcontractor shall, at its own expense and option, procure for Contractor and its customers the right to continue using said goods, or modify them so they become non-infringing, or with the written approval of Contractor, remove said goods and refund the purchase price and the transportation and installation costs thereof. The foregoing patent indemnity and warranty obligations shall be inapplicable: (a) where the alleged infringement results from detail designs supplied by Contractor, unless goods embodying such designs are normally sold or advertised for sale to others by Subcontractor, or (b) to the extent that a suit based on said infringement claim may be maintained only against the U.S. Government and Contractor has not indemnified the U.S. Government. 6.2.2) The above patent warranty and indemnity obligations are in lieu of all other patent warranties and indemnities whatsoever, whether oral, written, express or implied. 7) Title and Risk of Loss. 7.1) Drawings and Specifications. 7.1.1)The Subcontractor has been furnished the documents set forth in Exhibit "A". Additional copies shall be furnished upon request. 7.1.2) All specifications, drawings, technical information and data furnished by Contractor to Subcontractor hereunder shall remain the property of the Contractor. None shall be copied, duplicated in any manner, nor shall extract be taken therefrom for a purpose of use unrelated to the Work without Contractor's advance written consent. Such documents shall be used only in the manufacture and production of supplies for Contractor and shall be returned to Contractor at Contractor's request. 345 8) Proprietary Information. Any knowledge or information concerning Subcontractor's product, methods, or manufacturing processes which Subcontractor may disclose to Contractor incident to the provision of the Work shall, unless otherwise specifically agreed in writing, be deemed to have been disclosed as a part of the consideration for this Agreement, and Subcontractor agrees not to assert any claim (other than a claim for patent infringement) against Contractor by reason of Contractor's use or alleged use thereof. 9) Termination. 9.1) Termination by Contractor for Cause. 9.1.1) Contractor may terminate this Agreement upon ten (10) days written notice to Subcontractor upon the following events of Subcontractor default: (a) Subcontractor ceases to conduct its operations in the normal course of business (including inability to meet its obligations as they mature); (b) A proceeding under the bankruptcy or insolvency laws is brought by or against Subcontractor, or a receiver is appointed or applied for; (c) Subcontractor makes a general assignment for the benefit of creditors; (d) Subcontractor disregards the laws and regulations of any government entity having jurisdiction over any activity performed in connection with the Work or this Agreement; (e) Subcontractor disregards the authority or instructions of the Project Manager; (f) Subcontractor persistently fails to perform the Work in accordance with this Agreement, including but not limited to, failure to adhere to the Delivery and Completion Schedule or the CPM, failure to supply sufficiently skilled workers, and failure to provide conforming equipment and materials; or (g) Subcontractor otherwise materially breaches this Agreement. 9.1.2) Upon termination for cause pursuant to this Section 9.1 Contractor shall be entitled to take immediate possession of the Work and all of Subcontractor's tools, machinery and equipment at the Site or paid for pursuant to this Agreement but stored elsewhere, without liability to Subcontractor for trespass or conversion. 346 9.1.3) Termination for cause pursuant to this Section 9.1 shall be without liability to Contractor except for payment of amounts due for materials and equipment previously delivered to the Site or previously completed and subsequently delivered to the Site in accordance with the terms of this Agreement; provided however that such amount shall not be due and payable until completion of the Work by substitute performance and shall be reduced by the following: (a) Costs incurred by Contractor in the performance of the Work terminated, including but not limited to preparatory expenses, additional engineering and design professional costs, consequential and incidental costs, and all additional expenses incurred in acquiring or undertaking substitute performance; and (b) Contractor's reasonable costs of termination and settlement, including but not limited to accounting costs, legal fees and arbitration expenses. Nothing in this Agreement shall obligate Contractor to obtain the lowest price for costs incurred or work performed pursuant to this Section 9.1.3. 9.2) Termination by Contractor for Convenience. 9.2.1) Contractor may terminate this Agreement in whole or in part for its own convenience by written notice at any time. 9.2.2) Termination for convenience pursuant to this Section 9.2 shall be without liability to Contractor except for payment of amounts due pursuant to Sections 9.3.2 and 9.3.3 of this Agreement. 9.3) Termination by Subcontractor for Cause. 9.3.1) Subcontractor may terminate this Agreement upon ten (10) days written notice to Contractor upon the following events of Contractor default: (a) Contractor ceases to conduct its operations in the normal course of business (including inability to meet its obligations as they mature); (b) A proceeding under the bankruptcy or insolvency laws is brought by or against Contractor, or a receiver is appointed or applied for; (c) Contractor makes a general assignment for the benefit of creditors; (d) Contractor disregards the laws and regulations of any government entity having jurisdiction over this Agreement; (e) Contractor fails to pay Subcontractor undisputed amounts finally determined to be due Subcontractor pursuant to this Agreement within sixty (60) days of the due date; or 347 (f) Contractor otherwise materially breaches this Agreement. 9.3.2) Upon Subcontractor's termination for cause pursuant to this Section 9.3 Subcontractor shall be entitled to payment for all Work performed, and for all materials and equipment previously delivered to the Site or previously completed and subsequently delivered to the Site in accordance with the terms of this Agreement. 9.3.3) In addition to payment pursuant to Section 9.3.2, Subcontractor shall within ten (10) days of the date of the notice of termination present Contractor with a claim for costs arising out of such termination which claim shall be subject to negotiation between Contractor and Subcontractor. The negotiated settlement of Subcontractor's claim shall be reduced to writing by Contractor and signed by Subcontractor prior to payment of settlement costs. Costs claimed pursuant to this Section 9.3.3 shall be restricted to actual costs incurred and commitments made on account of termination. 348 10) On-Site Representatives. 10.1) Contractor's Project Manager. 10.1.1) Contractor's Project Manager shall be the primary representative of Contractor and shall exercise such authority as is specified in this Agreement or is delegated to him by Contractor. The general duties of the Project Manager shall be, inter alia, to act on behalf of contractor as follows: (a) to review, comment, audit and monitor the design, construction, commissioning and performance of the Work; (b) to inspect, examine, and witness the materials, equipment, testing and workmanship used or carried out in connection with the Work; and (c) to certify applications for payment and to report to Contractor on the progress of the Work and to report whether the Work is being carried out in accordance with this Agreement. 10.1.2) The Project Manager shall also carry out the following duties: (a) other duties that Contractor designates are to be performed by the Project Manager; and (b) any other duties which are specified in this Agreement. 349 10.2) Designation of Representatives. 10.2.1) The Contractor's Project Manager shall be: Name: Nazih Abdul Rahman Address: Telesource CNMI, Inc. Horiguchi Building, 5th Floor PPP402 Box 10000 Saipan, MP 96950 Commonwealth of the Northern Mariana Islands Saipan Phone:(670) 233-4501, (670) 233-4502 Saipan Fax: (670) 233-4505 Tinian Phone:(670) 433-9326, (670) 433-0845, (670) 433-0846 Tinian Fax: (670) 433-9327 Email: nna@shbc.com.kw 10.2.2) The Subcontractor's Site Representative shall be: Name: Ken Green Address: Wheeler Power Systems 4899 West 2100 South Salt Lake City, Utah 84120 Phone: (801) 975-4240 Fax: (801) 975-1550 10.3) Site Work by Subcontractor 10.3.1) Owner will provide room and board for Subcontractor employees at site. The quality shall be equal to that provided for Owner management at Site 10.3.2) Owner will provide skilled workers to assist Subcontractor employees when at Site. 11) Notices. 11.1)All notices, requests, directions, or other communications required by this Agreement, required or permitted, shall be in writing and shall be considered properly given when: 350 (a) delivered in person; (b) sent via confirmed fax; (c) sent certified mail confirmed by a signed return receipt; or (d) delivered to an express courier, correctly addressed and postage prepaid. 11.2)Notices or other communications given in accordance with this Section 11 shall be deemed effective on the date delivered or fax confirmed in the case of Sections 11(a) and (b) above; or upon actual receipt in the case of Sections 11(c) and (d). 11.3) Notice shall be given to Contractor as follows: Name: Commsource International, Inc. Attn: Larry Stiff Address: 860 Parkview Boulevard Lombard, Illinois 60148 Phone: (630) 705-4020 Fax: (630) 705-4025 11.4) Notice shall be given to Subcontractor as follows: Name: Ken Green Address: Wheeler Power Systems 4899 West 2100 South Salt Lake City, Utah 84120 Phone: (801) 975-4240 Fax: (801) 975-1550 12) Compliance With Laws. Subcontractor agrees to comply with all federal, state and local laws, standards, rules regulations and directions (hereafter collectively "Laws") applicable to and in effect at the time of the execution of this Agreement. Subcontractor's failure to comply with such Laws will be considered a material breach of this Agreement and may be grounds for termination by Contractor. 351 In particular, but in no way limiting Subcontractor's duties as set forth in this Section 12, Subcontractor shall comply with the following: 12.1) Compliance with Rules, Regulations and Customs of the CNMI. Subcontractor shall be responsible for complying with all local laws, including but not limited to compliance with the rules, regulations and customs of the CNMI. In particular, Subcontractor agrees to comply with all immigration and labor laws, licensing and permit requirements, and customs and import rules. 12.2) Brown Tree Snake Prevention Plan. Subcontractor agrees to comply with requirements of the Brown Tree Snake Prevention Plan implemented by Contractor in accordance with the Commonwealth Department of Natural Resources Regulations To Prevent Introduction Of The Brown Tree Snake Into The CNMI (Comm. Reg. Vol. 15 No.8). In particular Subcontractor agrees to be responsible for inspecting all equipment and materials at the port of entry on the island of Tinian, including all equipment and materials from the island of Guam and Saipan. Inspections are to be done at the port, whether unloading or not, and at the Site if unloading occurs there. 13) Assignment. Subcontractor shall not assign this Agreement in whole or in part, nor any interest herein nor any payment due or to become due hereunder, to any Person, without the prior written consent of Contractor, which consent shall not be unreasonably withheld or delayed. Consent may be withheld if any assignee proposed is not in the opinion of Contractor reasonably able to fulfill the terms and obligations of this Agreement. 14) Arbitration. 14.1) In General. Claims, disputes or other matters in question between the parties to this Agreement shall first be subject to mediation before arbitration. A demand for mediation shall be made within a reasonable time after the dispute or claim has arisen. 352 14.2) Mediation. Any mediation shall be held in accordance with the Construction Industry Mediation Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise. The mediation shall take place at a mutually convenient location in Illinois. Demand for mediation shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. In no event shall the demand for mediation be made after the date when institution of legal or equitable proceedings based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 14.3) Arbitration. Any dispute or difference arising out of, or in connection with, this Agreement which cannot be amicably settled between the parties by mediation shall be finally settled under the Rules of Construction Arbitration of the American Arbitration Association. The arbitration shall take place at a mutually convenient location in Illinois. The resulting arbitral decision shall be final and binding on the parties. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The prevailing party in any arbitration shall be entitled to recover from the other party all attorneys' fees, expenses and other costs incurred in asserting or defending any claim arising under or related to this Agreement. 15) General Provisions. 15.1) Severability of Provisions. 15.1.1) In the event that any provision of this Agreement, or the application thereof, is held by any court of competent jurisdiction to be illegal or unenforceable, the parties shall attempt in good faith to agree upon an equitable adjustment to this Agreement in order to overcome to the extent possible the effect of such illegality or unenforceability. 15.1.2) The provisions of this Agreement are intended to be performed in accordance with, and only to the extent permitted by, all applicable requirements of law. 15.1.3) If any provision of this Agreement or the application thereof to any Persons or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the Agreement nor the application of such provision to other Person or circumstances or other instruments referred to in the Agreement shall be affected thereby but, rather, the same shall be enforced to the greatest extent permitted by law. 353 15.2) Entire Agreement. This Agreement, including all schedules, exhibits, attachments, and drawings referenced herein, represents the entire understanding between the parties in relation to the subject matter hereof and supersedes any and all previous agreements or arrangements between the parties in respect of the Work (whether oral or written), including without limitation all letters of intent and clarifications submitted in response to requests for proposals or otherwise. 15.3) Counterparts. This Agreement may be executed in any number of counterparts, or by use of counterpart or faxed counterpart signature pages, each of which shall be an original, but all of which together shall constitute but one instrument. 15.4) Applicable Law / Jurisdiction. This Agreement shall be governed by and construed according to the Laws of the State of Illinois excluding any conflict of laws provisions which would result in the application of the Laws of another jurisdiction to the interpretation of this Agreement. The Parties agree to submit to Jurisdiction in the State of Illinois. 15.5) Successors and Assigns. All of the terms of this Agreement shall apply to, be binding upon and inure to the benefit of the parties hereto, their respective successors, permitted assigns and all other Persons claiming by, through or under them. 15.6) No Waiver. Any failure at any time by either party to enforce any provision of this Agreement shall not constitute a waiver of such provision or prejudice the right of either party to enforce such provision at any subsequent time. 354 15.7) No Third Party Beneficiary. Except as otherwise provided elsewhere herein, this Agreement and all rights hereunder are intended for the sole benefit of the parties hereto and shall not imply or create any rights on the part of, or obligations to, any other entity or individual not a party to this Agreement. 15.8) Publications. Subcontractor agrees that no acknowledgment or other information concerning this Agreement and the supplies or services provided hereunder will be made public by Subcontractor without the prior written agreement of Contractor. IN WITNESS WHEREOF, we have hereunto set our hands as of this 10th day of June, 1998. Contractor Subcontractor Commsource International, Inc. Wheeler Power Systems Name: Jeffrey P. Karandjeff, Name:_______________________, Signed:______________________, Signed:______________________, Its: General Counsel Its: ______________________ Title 355 JPK:Comm:TPower:SubK November 24, 1999 17:21 PM Schedule of Exhibits Exhibit "A" Plans, Drawings, Specifications and Design Documents Exhibit "B" Items Included In The Scope Of Work Exhibit "C" Critical Path Method Project Plan 356 Plans, Drawings, Specifications and Design Documents Exhibit "A" The following engineering specifications and documents are attached hereto and are incorporated herein by reference and hereby become an integral part of this Agreement: Revised Quotation from Wheeler Power Systems ("Wheeler") to SHBC dated April 23, 1998. "CUC Tinian D/G Spare Parts," Excel file prepared by Wheeler Power Systems, dated 5/6/98 and 4/30/98. "Spare Parts For CUC Tinian; 400KW, 208 Volt, 60 Hz, STANDBY GENERATOR", Excel file prepared by Wheeler, undated. "Spare Parts For CUC Tinian", Excel file prepared by Wheeler, dated 5/6/98 and 4/30/98. "Spare Parts For CUC Tinian; Medium Voltage Switchgear," undated Excel file prepared by Wheeler. 357 Purchase Order (Items Included In The Scope Of Work) Exhibit "B" [See Attached Purchase Order 3247] 358 Critical Path Method Project Plan Exhibit "C" [Attached] 359 Exhibit "A" Supplemental Commercial Terms and Conditions of Purchase Telesource Purchase Order No. 3374 Dated May 10, 1999 Supplemental Commercial Terms and Conditions of Purchase: The following supplemental commercial terms and conditions of purchase are attached hereto and are incorporated herein by reference and hereby become an integral part of this purchase order: 1. All of the Terms and Conditions stated in Commsource International, Inc.'s "Subcontract for Electrical Items Tinian CUC Power Plant" with Wheeler Power Systems dated June 10, 1998 are incorporated herein by reference (modified to read Telesource International, Inc. instead of Commsource International, Inc. as necessary) and hereby become an integral part of Telesource International, Inc.'s Purchase Order 3374. However, when the said subcontract contradicts any part of Purchase Order 3374, the stated terms of Purchase Order 3374 will govern. 2. The maximum lifting capacity of any of the cranes on the ship or on the island of Tinian is 52,000 pounds. No lift can exceed 52,000 pounds (dependent on ship capability). No single lift can exceed said weight. Said weight is inclusive of all equipment, packing, and crating material and the weight of the container. 3. Please indicate discount terms for early payment: ----------------------------------------------------------------------- --------------------------------------------------------------------. 4. Time is of the essence. Inasmuch as a delay in the complete and total delivery of items (in condition ready to use at the job site) will cause serious and substantial damage to Telesource International, Inc. ("Contractor"), and because it will be difficult if not impossible to prove the amount of such damage, Wheeler Power Supply ("Supplier") agrees that in the case of a delay attributable to Supplier in the complete and total delivery of items (in condition ready to use at the job site), Supplier will pay Telesource one-quarter of one percent of the total value of this order per day of such delay as liquidated damages, and it is agreed that such sums shall, without proof, be deemed to represent minimum damages actually sustained by Telesource by reason of such delay, provided, however, that such provision in reference to liquidated damages is intended to be, and shall be cumulative, and shall be in addition to every other remedy now or hereafter existing at law or in equity, or by statute. Page 1 of 2 360 5. If Supplier causes damage to the Work or property of the Owner, the Contractor, or any other subcontractor, or if any claim arises out of Supplier's performance of the Work, Supplier shall act promptly to remedy such damage and/or attempt to settle any such claim. Supplier shall have the right to timely repair or replace any defective items before any field charges occur. Supplier shall indemnify Contractor against all loss which may result in any way from any act or omission of Supplier, its agent, employees, or subcontractors, except to the extent that any such injury is due solely and directly to Contractor's or Owner's negligence as the case may be. Supplier shall indemnify Contractor against any injury to person or property during the progress of such work which may result in any way from any act or omission of Supplier, its agent, employees, or subcontractors, except to the extent that any such injury is due solely and directly to Contractor's or Owner's negligence as the case may be. 6. As this Purchase Order is part of a larger project with a chain of supply, third party claims by parties higher on the chain than Constractor are allowed. However, third party claims by parties lower on the chain (e.g., suppliers to Supplier) than Supplier are disallowed. 7. Due to the current difficulties with the SCADA system ordered in Commsource International, Inc.'s "Subcontract for Electrical Items Tinian CUC Power Plant" with Wheeler Power Systems dated June 10, 1998 ("Phase I SCADA system"), the following terms will apply to the SCADA system ordered in this Purchase Order ("Phase II SCADA system"): 1. If the Phase I SCADA system is not signed off as fully functional by Contractor prior to the Phase II SCADA scheduled shipment, Contractor will not take delivery of the Phase II SCADA and Contractor will not be responsible for paying its associated line item ($260,180.00). 2. Further, if Contractor does not take delivery of the Phase II SCADA as per M.1. above, not only will Contractor not be responsible for paying its associated line item ($260,180.00), there will also be a $250,000.00 deduction from the PO in our favor. This will serve as liquidated damages that will allow us to obtain a functional SCADA system elsewhere. Page 2 of 2 361 EX-10.10 15 NOTE AGREEMENT WITH KUWAIT Exhibit 10.10 Note agreement with Kuwait 375 [GRAPHIC OMITTED][GRAPHIC OMITTED] Commercial Bank of Kuwait FACILITY(S) CONTRACT This contract is concluded on 20/08/98 between: 1-The: COMMERCIAL BANK OF KUWAIT ------------------- ----------------------------------------- First Party: The Bank ------------------- ------------------------------------------ Address: P.O BOX 2861, SAFAT 13029, KUWAIT 2-Mr/Messrs: TELESOURCE CNMI INC. ------------------- ------------------------------------------ Second Party: The Customer ------------------- ------------------------------------------ Address: P.O. Box 3065, SAFAT 13031, KUWAIT ------------------- ------------------------------------------ Both being fully eligible to agree and enter into contract agreed as follows: Item 1: Description of Facilities & Limits The Bank hereby agrees to offer accommodation and banking facilities to the Customer unto the limit of KB $ 25,000,000.00 $ TWENTY FIVE MILLION ) and an amount of - - for foreign exchange trading( ________________________ ) on his Account No. 01-11-01670-5 with ________________________________ Branch and - -------------------------------------------------------------------------------- subject to the conditions stated below: Types of Facilities 1. LOAN for $25,000,000/ maximum to be used for a period of_________________________ at 3 % p.a. IN ADDITION TO 3/6 MONTH LIBOR_______________________________________________ 2. for maximum to be used for a period of_________________________ at % p.a. ---------------------------------------------------------------------------- 3. for maximum to be used for a period of_________________________ at % p.a. ---------------------------------------------------------------------------- 4. for maximum to be used for a period of_________________________ at % p.a. ---------------------------------------------------------------------------- 5. for maximum to be used for a period of_________________________ at % p.a. --------------------------------------------------------------------------- 6. for maximum to be used for a period of_________________________ at % p.a. ---------------------------------------------------------------------------- 7. for maximum to be used for a period of_________________________ at % p.a. --------------------------------------------------------------------------- 8. for maximum to be used for a period of_________________________ at % p.a. ---------------------------------------------------------------------------- Item 2 : Purpose of Facilities The Customer shall use the facilities subject of this Contract for the purpose provided for i.e. FINANCE CONSTRUCTION OF POWER GENERATION STATION________________________________________________________ Item 3: Period of Facilities 1. The facilities subject of this contract shall become operative on / / and shall fall due for repayment on / / without prejudice to the validity of this contract and the enforceability of all the provisions herein contained upon the Customer until the full satisfaction of all his obligations hereunder. 2. The Bank may renew this contract upon its expiry date for further similar period(s) unless the Customer notifies the Bank otherwise one month at least prior to the expiry date. In the event at renewal, this contract shall remain valid and fully binding upon the Customer until such date when he fulfils all his obligations hereunder without prejudice to the authorities granted to the Bank under items (4) and (7) hereof and its right to take the necessary action to obtain its entire rights. 3.The Bank is entitled at any time to cease or cancel the accommodation and facilities hereby granted to the Customer and to require the immediate payment of all outstanding amounts related thereto without indicating the reasons or giving notice or warning or the Customer having the right to oppose thereto, in such event, sit the rights at the Bank towards the Customer shall fall due and become immediately payable without any notice, warning or judicial judgment or any other legal proceeding, whatsoever. Item 4:Interests 1. The Bank will charge to the daily balance of any overdrawn account related to the aforesaid facilities the interest rate hereby specified in accordance with the Bank's usual practice, in the event that the daily overdrawn balances exceed the KD cash limits agreed on hereunder, the Bank may calculate interest based on the maximum limit of the contractual interest rate specified by the Central Bank of Kuwait being on that date % p.s. or the rate to be specified, in future, by the Central Bank of Kuwait, whichever higher. In respect of the daily overdrawn foreign currency balances where the Customer exceed the agreed limits, interest shall be at the rate of % p.a. over the rate stated in item (1) above. Interest shall be calculated tram the date on which the facility limits were exceeded until lull settlement without prejudice to the Bank's right to take the necessary action to recover the excess amount plus accrued interests. 376 2. Interests calculated in accordance with the preceding paragraph shall become payable and charged to the Customer's account quarterly/semi-annually/annually as per the applicable banking regulations without prejudice to the conditions of the loan(s) stated in paragraph(2) of item (6) below. 3. It is explicitly agreed that the Bank shall not pay any Interest to the Customer on the credit balances of his accounts on which these facilities have been granted. 4. Throughout the validity of this contract, the Bank shall reserve the right to amend or increase the agreed Interest rare In respect of the accommodation and facilities subject of this contract at any time particularly in any of the following events: A. if the proceeds of foreign exchange trading operations were credited to the Customers account. B. If any amount owing from the Customer from loan installments, value of promissory notes. bearer bonds, bills of lading and others plus accrued interests were, charged to his account. C. lf the amounts resulting from the Customer's usage of credit and ATM cards were charged to his account D. If the maximum limit of the contractual interest rates specified by the Central Bank of Kuwait has been increased. The revised Interest rate becomes operative from the date specified by the Bank and advised to the Customer, in any form, including the interest debit advice. 5. The Bank may, in respect of any amounts which the Customer defaults the timely payment thereof, calculate delay interest based on the maximum contractual interest rate specified by the Central Bank of Kuwait on the date of such default or the maximum limit specified throughout this contract whichever higher. Delay interest for foreign currencies shall be calculated at % p.a. over the interest rate herein stated. Calculation of delay interest shall be in the same manner as applicable to the contractual interest rate stipulated above in accordance with the applicable banking practice without prejudice to the Bank's right to stop or cancel these facilities pursuant Item 7 hereof. Item 5: Commissions Without prejudice to the other items herein stated, the Bank charges a front-end commitment fee (commitment Interest) at % pa. on the entire amounts of the overdraft facilities granted hereunder. The Bank shall also charge on the non-cash facilities the commissions specified in accordance with the banking rules applicable in the Bank and the Customer acknowledges his full agreement thereto. These commissions shall be charged In advance upon the utilization and extension of these facilities from the date of such utilization up to the expiry date. Item 6: Repayment 1. The Customer undertakes to repay the outstanding debt balance, interests, commissions and expenses owing from him hereunder on the due date pursuant to the provisions of this contract without prejudice to the following paragraph of this item. 2. The Customer shall settle the loan (a) covered by these facilities amounting to KD $ 25,000,000/ -- ($ TWENTY FIVE MILLION ONLY____________________________________________________________________________ in the following manner or according to the attached payment schedule which forms an integral part hereof: In lump sum/by ______________________________installments for KD each (________________________________________ _____________ The first installment shall fall due on / / and the last installment for KD ________________ ( ) on / / . Interests are payable on a monthly basis or _____________________. 3. The Bank may claim the Customer for any difference In exchange rates in addition to expenses, compensations and others incurred as a result of being granted or utilizing the facilities subject of this contract The Bank may, inrespect of entering into foreign currency forward sale contracts, also decide at any time to cancel this type of facility and claim the Customer to pay the difference in exchange rates in addition to related expenses, compensations and any other dues. Item 7: Default If the Customer defaults the timely payment of any amount or the satisfaction of any other obligation hereunder, whatsoever, the Bank may cease or cancel the accommodation and facilities subject of this contact without notice or warning or any other action, taking into consideration that all amounts incurred hereunder and owing from the Customer shall become immediately payable and the Bank may charge delay interests on the outstanding amounts pursuant to Item (4) above. Item 8: Acknowledgement of Account Balance The Customer acknowledges that the balance of his account(s) No. 01-11-01670-5 with the Bank is in debit/credit for KD $ 3,086.96 ($ THREE THOUSAND EIGHTY SIX & CENTS 96) on 19 / 08 / 98 plus interest accrued on the said overdrawn balance as of / / . Item 9: Bank Books & Entries The Customer acknowledges the correctness of the Bank's books and accounts which he accepts as conclusive evidence of his obligations hereunder. He may not oppose to their correctness in any manner, whatsoever, and waives his right to request the auditing of the Bank's books, accounts and entries under these obligations by force of a court order. Item 10: Acknowledgement of Account Statements 1. In the event that the Bank had not received a written objection from the Customer as to the correctness of the account statement within 15 days from the date such statement has been forwarded to him by ordinary mail It shall be deemed as an acknowledgement on his part of the correctness of the details contained In this statement and a final agreement to ail the entries therein contained. 2. If the Customer had not received the account statement within 15 days from the date of despatch (quarterly or as agreed) and had not requested the Bank for same in writing within one week from that date, he may not oppose against not having received it nor to the entries therein contained in any manner, whatsoever. Item 11: Non Assignment The Customer may not assign or waive his obligations hereunder In favor of others without the Bank's prior approval in writing. Item 12: Other Conditions & Provisions 1. All types of accounts, whatsoever, opened and existing in the Customers name & to be opened in his name in future with the Bank or any of Its branches whether In Kuwait or abroad shall be deemed as securing each other, regardless of their titles. The Bank may combine or consolidate all or any of these accounts or apply the credit balance in any of them to set off a debit balance in another or freeze the credit balance In any of these accounts until the Customer fulfills all his obligations towards the Bank. The Customer shall authorize the Bank to effect any set-off debit the credit balance and make any entries, settlements or transfers in any accounts existing at present or to be opened in the Customers name with any of the Batik's branches in Kuwait or abroad. 2. All monies, securities, commercial papers, precious metals, goods and other rights, whatsoever, registered or deposited at present or to be registered or deposited in future in the Customers name with the Bank or any of its branches in Kuwait or abroad are deemed as possessorily mortgaged in favor of the Bank against all the obligations towards the Bank without the need to acknowledge same The Bank may recover Its debt directly from the monies mentioned above by priority set-off and precedence over any other creditor without any notice, warning or legs proceeding. The Customer undertakes to sign end execute alt transfers, assignments mortgages, powers of attorney and any other documents which the Bank may require for perfecting the Bank's title to any securities subject of this contract. The Customer authorizes the Bank to sign on his behalf in respect of any action required to finalize these documents. 377 3. The Customer undertakes to provide the Bank within 3 months from the end of the fiscal year with his annual balance sheet duly examined by an authorized auditor with his networth declaration on a semi-annual or annual basis as may be determined by the Bank at its sole discretion together with full reports on his financial status in the forthcoming stage. He also undertakes to satisfy any queries made by the Bank it this respect substantiated with evidencing documents. Item 13: Indulgence The customer acknowledges that any indulgence on part of the Bank in respect of the limits, terms or due dates of the facilities hereby granted shall not affect the binding effect of all the conditions and provisions of this contract upon the customer. Indulgence on part of the Bank shall not be deemed a waiver of any of its rights nor shall it diminish such rights. Item 14: Selected Domicile The Customer acknowledges that all correspondence, account statements, legal and judicial notices forwarded to him by the Bank to his address stated herein or to the address last known to the Bank In a registered letter with acknowledgement of receipt are correct and binding upon him and producing an legal effects. Any change in the Customer's address becomes effective only from the date of receiving an advice from the Customer on changing this address. Item 15: Law & Judicial Jurisdiction: This contract shall be subject to the provisions of the laws applicable in the State of Kuwait. The Arabic version shall be deemed as the legally binding text in the event of dispute. The courts of Kuwait City shall have the sole jurisdiction for any legal disputes arising hereunder. First Party Second Party TELESOURCE CNMI INC. Name: K.J. SEMIKIAN Signature:/s/ K. J. Semikian______ Name:____________________ Signature:___________________ Name:____________________ Signature: __________________ Name:____________________ Signature:___________________ Loan Installment Repayment Schedule
Installment Amount ( ) Due Date Installment Amount ( ) Due Date IN LUMP SUM, 36 MONTHS ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- AFTER DATE OF LAST DRAW ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- DOWN ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- -------------------- ---------------------------- -------------------------- --------------------- --------------------
Name:___________________________ Signature: __________________________ Name:___________________________ Signature: __________________________ Name:___________________________ Signature: __________________________ Name:___________________________ Signature: __________________________ 378 Acknowledgement of Irrevocable Joint and Several Guarantee We have reviewed the conditions and provisions of the Facility Contract dated 20/08/98 signed between the Commercial Bank of Kuwait (hereinafter referred to as the "Bank") and its customer mr/Messrs TELESOURCE CNMI INC.__________________________________ (hereinafter referred to as the "Debtor"). We hereby acknowledge that we agree to be bound towards you jointly with the Debtor for all obligations and amounts, whatsoever, owing to the Bank under the above contract for any reason, whatsoever. This guarantee covers all amounts charged to the account(s) on which the facilities have been granted in any form and the overdrawn balance existing in the account upon closing it or any other account on which the facilities are being used. This guarantee is continuous, unconditional and irrevocable. Under this guarantee, the Bank may claim us for the outstanding debt balance arising from the above contract and all related interests, expenses, commissions and others without us having the right to oppose thereto. Our guarantee shall remain valid, continuous and legally binding in the event of renewal, extension or amendment of the facility contract for any reason, whatsoever until the Bank recovers all its rights from the guaranteed debtor. It is understood that all monies, securities, commercial papers, precious metals, goods and other rights, whatsoever, registered or deposited in our name at present or to be registered or deposited in our name in future with the Bank or any of its branches in Kuwait or abroad guarantee the fulfillment of our obligations hereunder without the need to acknowledge the same. The Bank may recover its debt directly from me monies mentioned above byway of priority set-off and precedence over any other creditor without notice, wanting or any other action, whatsoever, and without prejudice to the Bank's right to take the necessary actions to recover its rights in full. The Bank may deduct the debt guaranteed by us from any accounts open at present or to be opened in our name in future with any of Its branches in Kuwait abroad without any notice, warning or any other action, whatsoever. We understand that we submit to all the provisions stipulated in the facility contract mentioned above. We also undertake to provide the Bank with any statements they may require at any time on current financial position or balance sheet provided we substantiate our responses with evidencing documents. This guarantee shall be governed by law applicable in Kuwait and to the sole jurisdiction of the Kuwaiti courts. We accept the local jurisdiction of the city courts in respect of any depute arising hereunder. Joint Guarantor
- ----------------------------------------------------------------- ----------------- ------------------------------------------------ Name of Joint Guarantor(s) Account No. Signatures - ----------------------------------------------------------------- ----------------- ------------------------------------------------ - ----------------------------------------------------------------- ----------------- ------------------------------------------------ FOUAD SAUD HAMID BEHBEHANI /s/ Fouad Saud Hamid Behbehani - ----------------------------------------------------------------- ----------------- ------------------------------------------------ NASRALLAR SAUD HAMID BEHBEHANI /s/ Nasrallar Saud Hamid Behbehani - ----------------------------------------------------------------- ----------------- ------------------------------------------------ SAYED HAMID BEHBEHANI & SONS CO. W.L.L. /s/ Sayed Hamid Behbehani & Sons Co. W.L.L. - ----------------------------------------------------------------- ----------------- ------------------------------------------------
Guarantor(s) Address: - ------------ ----------------- ------------------------------------------------- - ------------ ----------------- ------------------------------------------------- - ------------ ----------------- ------------------------------------------------- - ------------ ----------------- ------------------------------------------------- - ------------ ----------------- ------------------------------------------------- - -------------------------------------------------------------------------------- Date: 379 EX-10.12 16 LINE OF CREDIT AGREEMENT Exhibit 10.12 Line of credit agreement TBPBA 381 EX-10.13 17 CREDIT AGREEMENT - HONGKONG AND SHANGHAI CREDIT AGREEMENT This Credit Agreement is entered into this 24th day of January, 2000 by and between TELESOURCE CNMI, INC. ("Borrower") and THE HONGKONG AND SHANGHAI BANKING CORPORATION, LIMITED, ("Bank") with reference to that commitment letter entered into between Bank and Borrower dated 21 JANUARY 2000 (the "commitment letter"). Borrower desires Bank to extend credit facilities to Borrower referenced in the Commitment Letter, subject to the conditions set forth in this Credit Agreement. In consideration of the premises and the mutual promises hereinafter contained, and in consideration of Bank granting the financial accommodations described hereunder. Borrower hereby warrants, represents, and agrees as follows: - ARTICLE I DEFINITIONS Section 1.01. Certain Definitions. As used in this Agreement, the following terms have the following respective meanings (such meanings to be equally applicable to both the singular and plural of the terms defined unless otherwise indicated): "Affiliate" means any Person, directly or indirectly controlling, controlled by, or under common control with, any other Person. "Applicable Interest Rate" means the rate of interest set forth in Section 2.01 (c) hereof. "Banking Day" means days on which dealings in Dollar deposits arc carried on in the London and New York Intrabank Markets and on which commercial banks are open for business in Saipan. Commonwealth of the Northern Mariana Islands. "Base Lending Rate" means the base index rate of interest established by the New York office of the Bank from time to time in good faith in its discretion for general pricing of its short term loans to ordinary commercial borrowers, which rate may be established and changed from time to time. "Documentary Credit Instruments" means the letters of credit, drafts, short term notes and any other standard instruments issued in connection with the Line of Credit as provided for in Section 2.01 below. `Encumbrance" means any mortgage, lien, security interest, pledge, charge, encumbrance or other type of preferential arrangement. "Event of Default" has the meaning attributed thereto in Section ~JM hereof. "Governmental Agency" means any agency, department, ministry, authority, statutory corporation or other statutory body, political subdivision or judicial entity of the Commonwealth of the Northern Mariana Islands now existing or hereafter created, acid any corporation or other legal entity the majority of whose capital or voting stock is now or hereafter owned or controlled directly or indirectly by the Commonwealth of the Northern Mariana Islands or any corporation or other legal entity otherwise controlled directly or indirectly by the Commonwealth of the Northern Mariana Islands. "Governmental Approval" means any consent, license, approval, authorization, exemption, registration, filing, opinion or declaration from or with, as the case may be, the Commonwealth of the Northern Mariana Islands or any Governmental Agency. "Guarantor" means any and all persons executing guaranties of the obligations of Borrower required under Section 3.04 hereof. "Guaranty" means the guaranty or guaranties of the obligations of Borrower required under Section 3.04 hereof. "Interest Period" means the period of months as specified in Section 2.01(c) hereof. "Libor" means, in respect of any Interest Period an interest rate per annum equal to the average rate of interest per annum offered in the London interbank Market to Lender by reference banks in the London Interbank Market at approximately I 1:00 am. (London time) on the date which is two (2) Banking Days prior to the first day of such interest Period for a period of time comparable.1o,thc.nammber of days in such Interest.. Period and in an amount substantially equal the principal amount of the note scheduled to be outstanding for such Interest Period. "Loan Documents" means any and all instruments and documents, the execution of which is contemplated herein including, without limitation, any an all Security Agreements, Guaranty, the Note, any Documentary Credit Instruments, and this Credit Agreement. All Loan Documents shall be in form and substance satisfactory to the Bank. "Loan" means collectively, the credit facilities extended hereunder. "New York" means New York, New York, United States. -------- "Note" means the promissory notes and any renewals, extensions or replacement notes evidencing the advances provided for in this Agreement. "Person" means an individual, corporation. partnership, joint venture, trust, unincorporated organization or any judicial entity or a national state or any agency or political subdivision thereof. "Security Agreements" mean all of the documents and instruments provided for herein as support and security for the Loan. Section 1.02. Section Headlines. The section headings used herein are for reference and for convenience only and shall not enter into the interpretations hereof. ARTICLE II LOANS Section 2.01. Line of Credit. Subject to the conditions and upon the terms herein provided, Bank will make available to Borrower an amount not to exceed a total amount of USD TWO MILLION AND NO/l00 DOLLARS ($USD2,000,000. 00) on a line of credit basis (the "Line of Credit" or "Credit Line") to be extended for the purposes as set forth in the Bank's commitment letter. The Line of Credit facilities expire 31 JANUARY 2001. (a) Type and Amount of Facilities. The Line of Credit may be allocated among any of the following types of facilities as marked, up to the aggregate maximum amount set forth above: [ ] Documentary credits/bills receivable due at sight up to an aggregate amount of Not Applicable. [ ] Trust receipts/clean import loans of a duration up to but not exceeding _______ (___) days up to an aggregate amount of $ Not Applicable. [ ] Promissory note advances of a duration up to. but not exceeding _______ (____) days up to an aggregate amount of $ Not Applicable. [ ] Standby letters of credit up to an aggregate amount of $ Not Applicable. [X] Revolving line evidenced by an OPTIONAL TIME OR DEMAND GRID NOTE DATED up to an aggregate amount of $ USD TWO MILLION DOLLARS ($USD 2,000,000.00) - ------------------------ ----------------- Foreign exchange contracts up to an aggregate amount of $ Not Applicable and [X] Overdraft line not to exceed an aggregate amount as specified in the overdraft agreement entitled "Credit Agreement (Overdraft Facility)." Provided however, that the total amount outstanding at any one time under the above Line of Credit shall in all events not exceed a total aggregate principal amount for all credit facilities of USD TWO MILLION AND NO/100 DOLLARS ($ USD2,000,000. 00). As to any overdraft agreement, letter of credit agreement, or similar credit agreement executed by Borrower in connection with the Line of Credit. such agreements are hereby made subject to all conditions, agreements and covenants contained herein to the same extent as if they were fully set forth in and made a part of this Agreement. In the event of a conflict between the terms hereof and the terms of such agreements, the terms hereof shall control. (b) Documentary Credit Instruments. All credit documents under the Line of Credit (including, without limitation, all letters of credit and the short term promissory notes) shall be on standard instruments in form and content satisfactory to the Bank. For each and every letter of credit requested by Borrower an application and agreement in form and content satisfactory to Bank, containing such standard commercial provisions as Bank may require (including, without limitation, the commitment by Borrower to pay all drafts, commissions, charges and expenses and the recognition of Bank's security interest and right to possession of the shipping documents and property shipped in connection with the letter of credit) will be executed by Borrower. All such standard documentary credit instruments, plus any short term promissory notes issued pursuant to Section 2.01(a) are herein sometimes referred to as the "Documentary Credit Instruments." Borrower will provide Bank with signature cards and corporate resolutions designating what persons shall, from time to time, be authorized to execute Documentary Credit Instruments. 2 (c) Applicable Interest Rate. Interest on the various Documentary Credit Instruments and facilities under the Line of Credit shall be payable: (i) at rate per annum equal to the following as marked: [X] Bank's Base Lending Rate plus ONE AND ONE HALF OF ONE (1.50%) percent per annum, adjusted from time to time as to all note drawings; [ ] Libor Plus Not Applicable ( %) adjusted at the commencement of each Interest Period as to all drawings for Interest Periods of________ months; [ ] Libor Plus Not Applicable ( %), adjusted _____________ as to all note drawings; [3] The rate of interest paid by Bank on time certificate(s) of deposit with a maturity of Not Applicable ( ), months ___________, adjusted ____________as to all note drawings. (ii) as provided in Bank's commitment letter as to all other extensions of credit. (d) Review Date. The Line of Credit shall mature as of the close of business on 31 JANUARY 2002, and no Documentary Credit Instrument shall be issued or accepted which expires or matures beyond the maturity date of the Line of Credit, Bank shall have no obligation to extend any advances or facilities under the Line of Credit from and after the maturity date. Provided, however, the Bank may from time to time, upon request of Borrower and at the sole option of Bank, renew and extend the credit facilities under the Line of Credit for additional periods of such duration as the Bank may from time to time fix. In all events, and not withstanding the above, the Bank retains the right to terminate the Credit Line at any time upon notice to Borrower and cease to permit any further drawings thereunder. (e) Availability. The Line of Credit shall be available to Borrower only so long as Borrower shall not he in default hereunder or under any of its other obligations to Bank, the Bank has not exercised its right to demand repayment, and only prior to the maturity date provided in Section 2,02(d) and any extensions or renewals thereof. (f) Renewal. The terms and conditions of this Agreement shall continue to apply as to any renewal or extension hereof notwithstanding the issuance of a new commitment letter by Bank. Upon any renewal and issuance of a, new commitment letter accepted by Borrower, the terms of the commitment letter as to she review date, applicable interest rate, types and amount of credit facilities and security shall be incorporated herein as fully as if originally contained herein and shall supersede any conflicting terms hereof Upon request of Bank. Borrower shall execute an amendment so this Agreement confirming the amendment of this Agreement by the new commitment letter. Section 2.02. Repayment. The principal amount of the Line of Credit and interest thereon shall be paid as specified in the promissory notes as to note drawings and at sight for Documentary Credits other than TR/CIL which mature on a Not Applicable ( ) day basis. ARTICLE III SECURITY/SUPPORT Section 3.01. Security. Borrower shall deliver to the Bank the following as marked as security for the credit facilities extended to Batik hereunder. [ ] Security Interest. Borrower shall execute and deliver to Bank security agreements granting to Bank a first security interest in Borrower's receivables, inventory, stock in trade, furniture and fixtures and equipment. Borrower shall also execute and deliver to Bank for filing one or more financing statements in form and content satisfactory to Bank relative to the security interest granted under the security agreement. [ ] Real Estate Mortgages. Borrower will duly execute and deliver or cause to he executed and delivered in form satisfactory to Bank a mortgage or mortgages granting and conveying to Bank as mortgagee a lien on all the right, title and interest of Borrower and or Guarantor in various fee simple/leasehold properties as described in Bank's commitment letter to Borrower, including also all buildings now and hereafter constructed on said properties and any fixtures and equipment therein. [ ] Assignment of Rental income, Borrower will duly execute and deliver or cause to be executed and delivered in form satisfactory to Bank an assignment of rental income from the mortgaged property. [X] Other. ASSIGNMENT OF RECEIVABLES/PROMISSORY NOTES. Borrower will duly execute and deliver or cause to be executed and delivered in form and content satisfactory to Bank a pledge and assignment of Borrower's accounts receivables and/or promissory notes from Common wealth Utilities Corporation. 3 The value of the security to be a minimum of 125% of the total facility amount. Original promissory notes under pledge to be held under lien at the Bank. Section 3.02. Additional Documents. Borrower and any mortgagor at any time or times that it is requested to do so by Bank, will execute and deliver or provide to Bank in recordable form, if appropriate, such other documents as Bank may reasonable request to effectuate and protect its security for the Loan provided for herein including without limitation estoppel certificates, non-disturbance agreements and financing statements. Section 3.03. Security Agreements. All -the Security Agreements shall be in form and content satisfactory to Bank and shall constitute valid first liens upon the respective real property, buildings, receivables, equipment, furniture and fixtures to which the respective Security Agreements relate (provided, however, that Bank may, in writing, consent to specific liens or exceptions as to specific properties). All Security Agreements shall be duly and properly recorded or filed as necessary to protect and preserve the priority of the Bank's liens thereunder Section 3.04. Guaranty. Borrower will-cause to be provided the guarantee of TELESOURCE INTERNATIONAL, INC. guarantying to Bank repayment by Borrower of the Loan, which Guaranty shall be in form and content satisfactory to Bank. ARTICLE IV CONDITIONS OF LOAN/WARRANTIES Section 4.01. Conditions of Loan. The obligation of the Bank to extend the Loan, including all future advances, is subject to: (i) the condition precedent that Borrower shall be in full compliance with all the terms and conditions of this Agreement to be performed or observed by Borrower, and (ii) the condition precedent that the Bank shall have received the following (each of which shall be in form and substance satisfactory to the Bank): (a) Insurance. Evidence of the insurance required by the terms of this Agreement. (b) Collateral. The Security Agreement required under Article ill. (c) Guaranty. The Guaranty required tinder Section 3.04. (d) Borrowing Resolutions. Certified copies of resolutions of the board of directors of Borrower and any corporate Guarantor approving each Loan Document to which the Borrower or Guarantor is a party and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to each such Loan Document. (e) Opinion or Counsel. The opinion of the Borrower's counsel required under Section 4.03 and certificates of good standing for Borrower required under Section 4.04. (I) Additional Documents. Such additional documents as. may. be specifically required hereunder or as the Bank may from time to time otherwise reasonably require. (g) Evidence of Compliance. Such evidence as Bank may require that Borrower is in compliance with all the terms and conditions of this Agreement. (h) Appraisals. Prior to disbursement of any funds, and from time to time thereafter (but in no event less than every two years), such appraisals as Bank may request in the Bank's reasonable discretion, and at Borrower's cost, which appraisals shall be done by an appraiser who shall who shall be satisfactory to Bank. Section 4.02. Warranties. The Loan and the accommodations given hereunder to Borrower by Bank are specifically made upon the following representations and warranties by Borrower and each Guarantor executing this Agreement, each of which shall constitute a continuing covenant hereunder: (a) Compliance wish Loan Documents. The Borrower and Guarantor have fully complied with all of the provisions of this Agreement, the Notes, and any Documentary Credit Instruments and Security Agreements and Borrower is entitled to disbursement, it being understood that the making of such disbursement when Borrower is not so entitled will not constitute a waiver of such compliance. (b) Documents Authorized and Valid. The Notes, any Documentary Credit Instruments, the Security Agreements, the Guaranty, this Agreement, and all other documents contemplated to be executed and delivered hereby have been fully authori2ed and executed and constitute valid obligations of the obligors or persons executing such documents and are enforceable in accordance with their respective terms. (c) Security Agreements. The Security Agreements provided herein create valid liens upon the secured property, free and clear of all encumbrances except as may be expressly waived by Bank and except as provided for herein; and has full, valid and complete 4 title to all secured property, except as to those properties held in leasehold, as to which properties has full and valid leasehold title. (d) Corporate Resolutions. Bank has been furnished with proper corporate resolutions of Borrower and any corporate Guarantor authorizing all the transactions contemplated in this Agreement and With such documents, reports, certificates, affidavits and other information (including, without limitation, an opinion of Borrower's counsel) in form and substance satisfactory to Bank, as the Bank may reasonably require to evidence compliance by Borrower with all of the provisions of this Agreement, and such documents, reports, certifications, and other information are true and correct. (e) No Pending Litigation. There are no actions, suits or proceedings pending or, to Borrower's or Guarantor's knowledge, threatened against or affecting the Borrower or Guarantor or any secured property, at law or in equity, or before or by any Governmental Agency, which, if adversely determined, would impair the ability of Borrower and/or Guarantor to continue its business in the ordinary course or to pay when due any amounts which may become payable on the Notes. Borrower shall furnish to the Bank satisfactory evidence of compliance with this subparagraph upon request by Bank. (I) Licenses. Borrower possess all trade names, franchises, licenses and certificates and other rights, free from burdensome restrictions that are necessary in tiny material respect for the ownership, maintenance and operation of its. properties and assets, and Borrower is not in violation thereof. Section 4.03. Opinion of Counsel. As a condition precedent to obtaining the Loan, Borrower shall deliver to Bank an opinion of counsel of Borrower and any corporate Guarantor (which counsel shall be satisfactory to Bank) addressed to Bank stating that: (i) The Borrower and said Guarantor are corporations duly incorporated according the laws of the Commonwealth of the Northern Mariana Islands and are in good standing therein, and are duly authorized, respectively, to transact business in the Commonwealth of the Northern Mariana Islands; (ii) The documents required hereunder to be executed by the Borrower and/or Guarantor, including the Notes, and Documentary Credit Instruments, the Security Agreements and this Agreement have been duly authorized, executed and delivered by Borrower and/or Guarantor and constitute valid, enforceable and binding obligations of the respective obligors in accordance with their respective terms; (iii) The execution and delivery of this Agreement and the Notes, the Documentary Credit Instruments and the security Agreements and the doing and performance of all acts herein and in said documents provided to be done by the respective obligors do not and will not violate any provision of the Articles of Incorporation or By-Laws of the Borrower or Guarantor and will not result in the breach of, or constitute a default under, or require any consent under, any indenture, bank loan or credit agreement, mortgage or other agreement or instrument to which Borrower, or any corporation of which Borrower is a subsidiary, or Guarantor is a party or by which Borrower, any such corporation or their respective properties may be bound or affected, to the extent that counsel is aware of the existence of any such agreement or instrument; (iv) No license, authorization. consent or approval of any governmental authority is required for the Borrower and/or Guarantor to perform its agreements contained in said documents, Or if any such license, authorization, consent or approval is required, the same has been obtained; (v)That to she best knowledge, information and belief of counsel all representations contained in this Agreement or made to Bank on the part of Borrower or Guarantor are true and correct. Section 4.04. Certificates of Good Standing. Upon request of Bank from time to time, Borrower shall provide to Bank certificates of good standing for itself and the corporate Guarantor. ARTICLE V FINANCIAL STATEMENTS AND RECORDS Section 5.01. Maintenance of Records. Borrower and Guarantor shall maintain complete and accurate books of account and business and accounting records in accordance with generally accepted accounting principles as recogniled by the American Institute of Certified Public Accountants. Borrower shall provide to Bank from time to time upon requesL by Bank such records, financial information and business information as Bank may reasonably require. Section 5.02. Annual Statements. (If checked here [X ]) Borrower and the corporate Guarantor shall furnish to Bank within ONE HUNDRED TWENTY (120) days after the end of each annual fiscal period of Borrower or said Guarantor, audited financial statements of the Borrower for such fiscal period, including a balance sheet and a statement of net worth, all prepared in accordance with generally accepted principles of accounting practices currently employed by Borrower or Guarantor and all certified by an independent certified public accountant acceptable to Bank. Section 5.03. Quarterly Statements. (If checked here [ ]) Borrower and Guarantor shall furnish to Bank within_Not Applicable (___) days after the end of each quarterly fiscal period of Borrower and Guarantor unaudited financial statements for such quarter, including a balance sheet and a statement of net worth, all prepared in accordance with generally accepted principles of accounting practices currently employed by Borrower and certified by a financial officer of Borrower or Guarantor. 5 Section 5.04. Individual Guarantors. (If checked here [ ]) each individual Guarantor shall provide to Bank prior to closing of the Loan, personal net worth statements in form and content satisfactory to Bank, which statements shall be updated annually and submitted prior to any designated review date of the credit facilities. Section 5.05. OTHER. Not Applicable. ----- --------------- ARTICLE VI INSURANCE Section 6.01. Insurance. Borrower will maintain or cause to be maintained the insurance set forth below in a company or companies satisfactory to Bank. The property damage policy or policies shall name the Bank as loss payee and shall provide that there shall be no termination or reduction in coverage without prior notice to the Bank. Section 6.02. Insurance on improvements. (If checked here [ ]) Borrower will maintain or cause to be maintained fire, typhoon, earthquake and extended coverage on all improvements constructed upon the properties which are mortgaged to secure the Loan to Borrower hereunder. Such insurance policy or policies shall be in an amount equal to replacement cost or appraised value (whichever is less) or in such other amount as the parties may agree. Section 6.03. General Insurance Requirements. Without limitation of the foregoing, and without reducing the insurance required above, Borrower shall in all events maintain commercially adequate insurance in such amounts and covering such risks as is usually carried by prudent companies engaged in similar businesses and owning similar properties as does Borrower. Such insurance shall include, without limitation, the following as marked: [__] workmen's compensation; [__] public third-party liability; [__] property damage insurance; [__] Keyman life insurance on __________________ _________ assigned to Bank; [__] business interruption; and [--] ----------------------------------------------- Borrower shall annually review all insurance coverage to insure that the dollar amount of its insurance coverage is maintained at a proper level, taking into account, but without limitation, inflation, any increases in risks and any changes in circumstances. Section 6.04. Title Insurance. To the extent that a mortgage or mortgages are to be given as security fur the Loan and as a condition of disbursement of the Loan, Borrower will deliver to Bank ALTA mortgagee's policies of title insurance (mortgagee's coverage) which shall be in form and content satisfactory to Bank insuring that title to all of the real property mortgaged to secure the Loan is valid and marketable and that the mortgage(s) is a valid first lien on the mortgaged property, subject to no encumbrances other than those specifically acceptable t~ the Bank in writing and the lien of current real estate taxes, if applicable, not delinquent and any normal easements shown of record. ARTICLE VII COVENANTS Section 7.01. Affirmative Covenants. As a condition of the Loans and so long as the Notes and all other obligations remain unpaid, the Borrower and the Guarantor shall (unless Bank shall otherwise waive `n writing any other requirements contained herein as marked): [X ]Litigation. Promptly advise Bank in writing of all litigation (including threatened litigation and any matter which may become the subject of litigation) involving the Borrower or Guarantor or their business or any of their property, and of all complaints and charges made by any Governmental Agency which may have any substantial effect on Borrower or Guarantor or their business or their property. [X ] Compliance with Law. Comply promptly with all laws and regulations of the federal government and the Government of the Commonwealth of the Northern Mariana Islands and any Governmental Agency affecting Borrower or Guarantor, their business and properties. [X ] Payment of Taxes. Pay when due all taxes, assessments and governmental charges levied or assessed upon it and levied or assessed upon their operations and against any of their properties as they become due and payable. [X }] Corporate Existence. At all times do or cause to be done all things necessary to maintain, preserve and renew their 6 corporate existence and their rights, patents and franchises. [X ] Propertv. Insofar as it is not prevented by causes beyond its control, at all times maintain, preserve, protect and keep, or cause to be maintained, preserved protected and kept, its property in good repair, working order and condition and from time to time make or cause to be made all repairs, renewals, replacements, additions, betterments and improvements to their property as are needful and proper so that the business carried on in connection therewith may be conducted properly and efficiently at all times. [ ] Maintenance of Working Capital and Net Worth. Maintain at all times during the term of the Loans a positive working capital (an excess of current assets over current liabilities) and a positive net worth Not Applicable ,all as determined in accordance with generally acceptable accounting standards consistently applied, on all consolidated financial statements. [ ] Subordination of Inter-Company Debts. Obtain subordination as to any and all inter-company debts and payments of any kind whereby such debts and payments shall be subordinated to the loans provided for in this Agreement. The term "inter-company debts or payments" shall mean any debts or payments owed by Borrower to any corporation which Borrower or Guarantors own stock or to any corporation which owns any interest in Borrower. [ ] Other. Not Applicable Section 7.02. Negative Covenants. During the term of the Loan, the Borrower and Guarantor will not, without the written consent of the Bank, do or attempt to do any of the following as marked: [X ] Liens. Create, incur or suffer to exist any Encumbrance of any kind upon any of the property or assets of the Borrower and Guarantor which are subject to the Security Agreements provided for herein, except liens or encumbrances expressly authorized by Bank in writing and liens for current real estate taxes, if applicable. [ ] Corporate Change. Merge or consolidate with any other corporation or dissolve or enter into any dissolution proceedings. [ ] Dispose of Assets. Sell, encumber, lease, transfer or otherwise dispose of any substantial portion of their property or assets other than in the ordinary course of business. - [ ] Loans. Make any advances or loans to any person, firm or corporation other than in the ordinary course of business, except loans to stockholders or affiliates or related companies which (i) shall not in any event exceed in the aggregate the amount of Not Applicable AND___ /100 DOLLARS ($__________) annually, and (ii) shall not exceed in the aggregate a total outstanding amount at any one time in excess of _____________ AND /100 DOLLARS ($------------------). I X] Adverse Action. Take any action that would adversely affect their financial condition or impair their ability to repay their obligations to the Bank under this Agreement or the Notes or the Guarantee. [ ]Other. Not Applicable ARTICLE VII DEFAULT Section 8.01. Default. The Bank may. at its option, declare immediately due and payable without presentation, protest or notice of any kind, all of which are hereby waived, the balance remaining unpaid on any Loan and/or Note or any other sums payable pursuant hereto or pursuant to any other Loan Document and to cease to make any further advances, upon the happening of any of the following events of default: (a) Monetary Default. Any default (by failure to make payment on or before the due date) in the payment of principal or interest on the Notes or any Documentary Credit Instrument or in the payment of any other sums now or hereafter owned to Bank by Borrower pursuant hereto or to any other Loan Agreement or transaction: or (b) Performance of Agreements. Any event specified in any Note or Documentary Credit Instrument or in an Security Agreement which would permit the Bank to cause the indebtedness evidenced or secured thereby to become due prior to its stated maturity or to foreclose the Security Agreement(s); or (c) Loan Agreement Default. Any default in any representations made or in the observance of any obligation undertaken by Borrower or Guarantor pursuant to this Agreement or any other loan agreement with Bank; or 7 (d) Third Party Default. Any default by Borrower or Guarantor in the payment of any sums due to any third parties; or (e) Representations/Warranties. Any representation or warranty made or deemed to have been made by the Borrower or the Guarantor under or in connection with this Agreement or any other Loan Document (including without limitation any certificate, notification or report furnished tinder this Agreement) shall prove to have been incorrect, incomplete or misleading in any material respect when made or when deemed to have been made; or (I) Enforceability of Loan Documents. Any Loan Document to which the Borrower or the Guarantor shall be a party shall for any reason cease to be binding upon and enforceable against the Borrower or the Guarantor, as the case may be, in accordance with its terms or the binding effect or enforceability hereof shall be contested by the Borrower or the Guarantor, as the case may be, or the Borrower or the Guarantor shall deny that it has any further liability or obligation under any such Loan Document; or (g) Adverse Chance in Financial Condition. There shall occur any substantial adverse change in the overall financial condition of the Borrower or the Guarantor, or any Governmental Agency or court shall take any action which adversely affects the financial condition of the Borrower or the Guarantor or the ability of either thereof to fulfill its obligations under any Loan Document; or (h) Validity of Loan Documents. Any of the loan Documents shall be terminated or any provision of any of the Loan Documents shall become illegal, invalid, void or unenforceable; or (i) Other Demand by the Bank. If for any reason not otherwise specified in this Section 8.01 the Bank shall demand repayment of the Loan. Section 8.02. Indemnification Costs. The parties hereto shall indemnify an hold Bank harmless from any liability, cost or damage arising out of the parties breach hereof Bank may appear in and defend any action or proceeding purporting to affect the rights or duties of the parties hereunder or any security given for the Loans, and Borrower shall pay all of Bank's costs and expenses. ARTICLE IX TAXES, INCREASED COSTS Section 9.01. Taxes. The Borrower warrants that all payments or reimbursements required to be made under this Agreement, the Notes or any other document required hereunder are exempt from the payment of any and all taxes, duties, fees, withholdings, deductions or other charges of any nature whatsoever (collectively, `Taxes") levied or imposed by any taxing authority, other than Taxes on the overall net income of the Bank imposed by the jurisdictions. or any political subdivision thereof in which the Bank's principal office or actual lending office is located. Section 9.02. Taxes for the Account of the Borrower. If any Taxes (other than taxes on net income) are at any time on any payments made on or in respect of the Loan (including, but not limited to, payments made pursuant to this paragraph), the Borrower shall pay such taxes and shall also pay to the Bank. at she time interest is paid, all additional amounts which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not been imposed. Section 9.03. Necessary Increases in Payments. tf any Taxes are imposed on any payments made on or in respect of the Loan (including, without limitation, payments made pursuant to this Paragraph), and if the Borrower is prohibited by operation of law from (i) making payments without deduction us provided in Section 9.02. or (ii) paying, causing to be paid, or reimbursing the Bank for the cost of, any and all Taxes as provided in Section 9.02, then the amounts payable so the Bank under this Agreement and the Note and Documentary Credit Instruments shall be increased to such amounts which, after provision for such Taxes, shall be necessary to yield and remit to the Bank payments of the amounts that would have been required to be paid hereunder if no such Taxes had been imposed. Section 9.04. Evidence of Tax Payment. The Borrower will provide the Bank with original tax receipts. notarized copies of tax receipts. or other documentation as will prove payment of tax, for all taxes paid by the Borrower pursuant to this Agreement. The Borrower will deliver receipts to the Bank within 30 days after the doe date for the related tax. Section 9.05. Survival. The obligations of the Borrower under this Article IX are independent of and additional to the other obligations of the Borrower under this Agreement and the Note and Documentary Credit Instruments, and shall survive the payment of such obligations. Section 9.06. Increased Costs. Without limiting she foregoing provisions of this Article IX, if after the date of this Agreement any law, rule or regulation, or any interpretation thereof by any governmental authority charged with the interpretation or administration thereof, or any request of directive by any governmental authority (whether or not having the force of law) either (i) subjects the Bank to any tax, duty or other charge of any jurisdiction with respect to this Agreement or the Note or Documentary Credit Instruments. or changes the basis of taxation of payments to the Bank, of the principal of or interest on the Note or in respect of any other amount due hereunder or under the Note or Documentary Credit Instruments (except any change in the rate of tax on the overall income of the Bank), or (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank. and the result of any of the foregoing is so increase the cost to the Bank of making or maintaining the Loan, or to reduce the amount of any payment received or receivable by the Bank, or to impose on the Bank an obligation to make any payment to any fiscal, monetary, regulatory or 8 other authority calculated on or by reference so any amount received or receivable by it under this Agreement or the Note, by an amount deemed by the Bank so be material, then the Borrower shall pay so the Bank, promptly upon demand, such additional amount or amounts as will compensate the Bank for such increased cost or reduction in the amount received or receivable. The Bank shall notify she Borrower of any event which will entitle the Bank to such additional amount or amounts pursuant to this Section as promptly as practicable after becoming aware of such event. A certificate of the Bank setting forth the basis for the determination of such additional amount or amounts necessary to compensate the Bank as provided herein shall be conclusive and binding, absent manifest error. ARTICLE X MISCELLANEOUS Section 10.01. Continuance of Agreement, Waiver. This Agreement shall continue as long as any obligations of the Borrower contemplated herein or any part thereof or renewal or extension thereof remain unpaid. No consent or waiver under this Agreement shall be effective unless in writing. No waiver of any breach or default shall be deemed a waiver of any breach or default thereafter occurring. Section 10.02. Fees and Costs. Borrower shall pay all fees and charges in connection with this transaction, including any charges for title insurance, appraisal fees, recording fees, preparation of documents, service fees, attorneys' fees and any other fees which maybe incurred by Bank in connection with the preparation of this Agreement and of any Loan Documents and which maybe incurred by Bank in exercising any right, power or remedy provided for herein or in any Loan Document. Section 10.03. Survival of Covenants. All representations and covenants of Borrower or Guarantor herein shall survive the making of all disbursements. The Note, the Security Agreements, Documentary Credit Instruments, and the Guaranty are hereby made subject so all conditions, agreements and covenants contained herein to the same extent as if they were fully set forth in and made a part of said Note, Security Agreements, Documentary Credit Instruments, and Guaranty. Section 10.04. Remedies Cumulative. All rights, powers and remedies given to Bank herein or in any other Loan Document are cumulative and are not alternative, and are in addition to all statutes or rules of law; and partial exercise or forbearance or delay by Bank in exercising the same shall not operate as any waiver thereof or of any other power or rights hereunder are granted by law, and the same shall continue in full force and effect until specifically waived by an instrument in writing executed by Bank. Section 10.05. Third Parties. Nothing herein contained shall be deemed to establish any trust fund for the benefit of any person or persons, nor to impose any liability upon Bank to pay or be chargeable with any claims of third persons against the Borrower. Section 10.06. Counterparts. This Agreement may he executed in as many counterparts as may be deemed necessary or convenient, and each counterpart shall be deemed an original. Section 10.07. Partial Invalidity,. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document shall for any reason be held to be invalid, illegal or unenforceable in any respect in any jurisdiction, such invalidity, unenforceability or illegality shall not affect any other provision of this Agreement and/or of such other Loan Document, and this Agreement and such Loan Document shall be construed as if such provision had never been contained herein or therein and shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 10.08. Extensions. Bank may at any time extend the time of payment of the principal and/or interest under the Nose and any extension so granted shall be deemed made in pursuance of this Agreement and not in modification hereof. Section 10.09. Governing Law. This Agreement and the Note shall be governed by and construed and interpreted in accordance with the law of the commonwealth of the Northern Mariana Islands. Section 10.10. Notices, Etc. Any notices and other communications hereunder shall be in writing and mailed or delivered, if to the Borrower: TELESOURCE CNMI, INC. BOX 100001 PPP 402 PMB SAIPAN, MP 96950 Attn.: K. J. SEMIKIAN ---------------------- if to any corporate Guarantors: TELESOURCE INTERNATIONAL, INC. 860 PARKVIEW BOULEVARD LOMBARD, IL 60148 Attn.: JEFF KARANDJEFF 9 if to any of the individual Guarantors: **Not Applicable** and if to Bank:: THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED HSBC BOX 10001 PMB SAIPAN, NIP 96950 Attn.: Branch Manager or as to each party, at such other address be designated by such party in a written notice to the other party. All such notices and communications to the Borrower shall be effective, when deposited in the mail addressed to the aforesaid, or upon personal delivery of such notices to the respective offices as above-described. Section 10.11. Successors and Assi~n5. This Agreement shall be binding upon and inure to the benefit of each parry hereto and its respective successors and assigns, except the Borrower shall not have the right to assign its rights hereunder or any interest herein. Section 10.12. Effectiveness. This Agreement shall be effective upon execution and delivery thereof by the Borrower and the Bank. IN WITNESS WHEREOF, the parties have executed this Agreement the day and date first above written. BORROWER: BANK: TELESOURCE CNMII INC. THE HONGKONG SHANGHAI BANKING CORPORATION LIMITED /s/ Khajadour Semikian /s/ Vickie N. Izuka By: Khajadour Semikian By: Vickie N. Izuka Its: President Its: Duly Authorized Representative GUARANTOR ACKNOWLEDGEMENT: TELESOURCE INTERNATIONAL, INC. /s/ Jeffrey Karandjeff By: Jeffrey Karandjeff Its: Secretary 10 EX-10.14 18 LEASE OF TINIAN LAND Exhibit 10.14 Lease of Tinian Land 382 ================================================================================ (FOR RECORDER'S USE ONLY) LEASE This Lease (the "Lease"), is made and entered into as of the ____ day of __________, 1998 by and between the Commonwealth Utilities Corporation, a Commonwealth of the Northern Mariana Islands public corporation, hereinafter referred to as "Lessor", and Telesource CNMI, Inc., a Commonwealth of the Northern Mariana Islands private corporation, hereinafter referred to as "Lessee". Recitals Whereas, Lessor is the current owner of a fee interest in certain real property (the "Premises") located in Tinian, Commonwealth of the Northern Mariana Islands; and Whereas, in 1997, Lessor and Lessee entered into a contract, more particularly described as Contract No. CUC-PG-97-C057, pursuant to which Lessee agreed to build a fully operational 10 Megawatt ("MW") expandable Power Plant (the "Plant") on the Island of Tinian; and Whereas, Lessor desires to have the Plant built on the Premises and to ultimately own and operate the Plant; and Whereas, Lessee desires and is willing, in accordance with Contract No. CUC-PG-97-C057, to design and construct the Plant; procure all necessary equipment and materials; initially own, maintain and operate the Plant; provide for training and start-up of the Plant; and transfer ownership of the Plant to Lessee; WITNESSETH: 383 NOW THEREFORE, In consideration of the rent hereinafter reserved and of the covenants herein contained to be observed and performed, Lessor does hereby demise and let unto Lessee, and Lessee does hereby lease from Lessor, the real property described in section 1: 1) Description of Premises. The Premises consists of improved and/or unimproved real property, lying and being situated in Tinian, Commonwealth of the Northern Mariana Islands, more particularly hereinafter described, together with Lessor's easements and appurtenances in adjoining and adjacent land, highways, roads, streets, lanes, whether public or private, reasonably required for the installation, maintenance, operation and service of sewer, water, gas, power and other utility lines and for driveways and approaches to and from abutting highways or streets for the use and benefit of the following described parcel(s) of real property, including any improvements now or hereinafter situated thereon: Lot No. 082 T 01, containing an area of 20,000 square meters, more or less, as shown on DLS Check No. 082 T 00, filed with the Commonwealth Recorder's Office as File No. 98-894 on March 30, 1998. The above-described parcel(s) of real property, together with any existing improvements and/or improvements subsequently erected thereon during the term of this Lease and the appurtenances and other incidents associated therewith are collectively referred to in this Lease as the "Premises". 2) Lessor's Warranties of Title. Lessor represents, warrants and covenants that it owns the Premises and possesses all right and authority to enter into this Lease for the purposes set forth herein. 3) Lessor's Warranty of Quiet Enjoyment. Lessor covenants and agrees that Lessor shall, upon the commencement date of the term of this Lease as hereinafter set forth, place Lessee in quiet possession of the Premises and that Lessee, upon paying the rent and other charges herein provided for and observing and keeping the covenants, conditions, and terms of this Lease on Lessee's part to be kept or performed, shall lawfully and quietly hold, occupy and enjoy the Premises during the term of this Lease without hindrance or molestation by Lessor or any other person claiming by, through or under Lessor. 384 4) Incorporation by Reference. The terms and conditions of Contract No. CUC-PG-97-C057 are hereby incorporated by reference into this Lease with the same force and effect as if fully set forth herein. 5) Term. The term of this Lease shall commence (the "Commencement Date") upon execution of this Lease and shall terminate on the date that Lessee turns over all title and interest in the Plant to Lessor in accordance with the provisions of Contract No. CUC-PG-97-C057. Under no circumstances, however, shall the term of this Lease continue beyond a period of twenty-five (25) years from the Commencement Date. 6) Rental and Time for Payment of Rental. Upon execution of this Lease, Lessee shall pay Lessor One Hundred Dollars ($100.00) as rent for the entire term of this Lease. No other sums shall be due and owing by Lessee to Lessor except as stated herein. 7) Utilities and Charges. Lessee will pay all charges for water, electricity, telephone and other utilities used upon the Premises during the term of this Lease. 8) Fire and Casualty Insurance. Lessee shall keep all improvements erected on the Premises insured against loss or damage by fire or other casualty in accordance with Section 17.4 of Contract No. CUC-PG-97-C057 9) Use of Premises. Lessee intends to erect a fully operational 10 MW expandable Power Plant on the Premises. 385 10) Removal of Improvements, Soil, Etc. Not to Constitute Waste; Crossing Boundaries. Lessee shall have the right at any time during the term of this Lease to alter, demolish or remove any and all improvements on the Premises so long as such action does not violate the terms of Contract No. CUC-PG-97-C057. Lessee shall also have the right in connection with any development of the property to remove vegetation and to excavate and to remove sand, soil, and other materials from the Premises. In no event shall any such action constitute waste and the Lessor hereby releases Lessee from any obligation to restore the Premises to the condition existing upon the commencement date of this Lease. Lessee may also build, alter, demolish or remove improvements which cross one or more boundary lines of the Premises, provided that Lessee first obtains any required governmental or regulatory approval. Lessor agrees to join, assist and cooperate with Lessee in applying for any such required approval at Lessee's expense. 11) Assignability and Subleasing - Consent Required Lessee may not assign this Lease or any part hereof nor sublet all or a portion of the Premises without the written consent of the Lessor. Such consent when requested shall not be unreasonably withheld or delayed. 12) Condemnation. If the entire Premises shall be taken by any lawful authority under the power of eminent domain then this Lease shall terminate. Eminent domain proceedings resulting in the condemnation of a part of the Premises, but leaving the remaining Premises usable by Lessee for the purposes described herein, will not terminate this Lease unless Lessee, at its option, terminates the Lease by giving written notice of termination to Lessor. Any condemnation award shall be apportioned between Lessor and Lessee as may be provided by law at the time of the execution of this Lease, except that Lessee shall be entitled to the entire award made with respect to the improvements on the Premises. 13) Unavoidable Delay--Force Majeure. If either party shall be delayed or prevented from the performance of any act required by this Lease by reason of acts of God, strikes, lockouts, labor troubles, inability to procure materials, or other cause, without fault and beyond the reasonable control of the party obligated (financial inability excepted) performance of such act shall be excused for the period of the delay; provided, however, nothing in this section shall excuse Lessee from the prompt payment of any rental or other charge required of Lessee except as may be expressly provided elsewhere in this Lease. 386 14) Termination. If Contract No. CUC-PG-97-C057 is terminated for any reason, then this Lease shall terminate as well. 15) Gender. The use of any gender shall include any and all genders and the use of any number shall be construed as singular or plural, as the case may be. 16) Paragraph Headings. The headings of paragraphs herein are inserted only for convenience and reference and shall in no way define or limit the scope or intent of any provision of this Lease. 17) Successors and Assigns. This Lease shall inure to the benefit of and be binding upon all of the parties hereto and their respective successors and assigns. 18) Counterparts. This Lease may be executed in several counterparts each of which shall be deemed an original but all of which shall constitute one and the same agreement, which shall be binding upon all parties hereto notwithstanding that all of the parties are not signatories to the same counterpart. 19) Computation of Time. The time in which any act provided by this Lease is to be done is computed by excluding the first day and including the last, unless the last day is a Saturday, Sunday, or holiday, and then it is also excluded. The term "holiday" shall mean all holidays specified by the laws of the Commonwealth of the Northern Mariana Islands or declared by executive authority. 387 20) Conditions and Covenants. All the provisions of this Lease shall be deemed as running with the land, and construed to be "conditions" as well as "covenants" as though the word specifically expressing or imparting covenants and conditions were used in separate provisions. Whenever in this Lease any words of obligation or duty are used in connection with either party, such words shall have the force and effect as though framed in the form of express covenants on the part of the party obligated. 21) No Waiver of Breach. No failure by either Lessor or Lessee to insist upon the strict performance by the other of any covenant, agreement, term, or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or such covenant, agreement, term, or condition. No waiver of any breach shall affect or alter this Lease but each and every covenant, condition, agreement and the term of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach. 22) Time of the Essence. Time is of the essence of this Lease, and of each provision. 23) Entire Agreement. This Lease, together with any exhibits or documents identified or referred to herein, contains the entire agreement of the parties with respect to the matters covered herein as of the date of execution hereof, and no other agreement, statement, or promise made by any party, or to any employee, officer, or agent of any party prior in time to the date of this Lease shall be binding or valid. 24) Attorneys' Fees. In the event either party shall bring any action or proceeding for damages on alleged breach of any provisions of this Lease, to recover rents, or to enforce, protect or establish any right or remedy hereunder, then the prevailing party shall be entitled to recover as a part of such action or proceeding, reasonable attorneys' fees incurred and court costs. 388 25) Modification. This Lease is not subject to modification except in writing, duly signed by the parties to be charged thereunder. 26) Effect of Partial Invalidity/Severability. If for any reason whatsoever any of the provisions herein shall be unenforceable or ineffective, the same shall be deemed severable from the remainder hereof and shall in no way impair the validity of this Lease, and the remaining provisions shall be and otherwise remain in full force and effect. 27) Governing Law. The laws of the Commonwealth of the Northern Mariana Islands shall govern the validity, construction and effect of this Lease. 28) Remedies Cumulative. The various rights, options, elections or remedies of Lessor and Lessee, respectively, contained in this Lease shall be cumulative and no one of them shall be construed as exclusive of any other, or of any other right, priority or remedy allowed or provided for by law or in equity and not expressly waived in this Lease. 29) Covenant to Execute Additional Instruments. The parties agree to execute and deliver any instruments in writing necessary to carry out the agreement, term, condition, or assurance in this Lease whenever the occasion shall arise and request for such instruments shall be made. 30) No Third Party Beneficiary. Except as otherwise provided elsewhere herein, this Lease and all rights hereunder are intended for the sole benefit of the parties hereto and shall not imply or create any rights on the part of, or obligations to, any other entity or individual not a party to this Lease. 389 IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written. LESSOR: COMMONWEALTH UTILITIES CORPORATION By: Name: Its: LESSEE: TELESOURCE CNMI, INC. By: Name: Its: 390 A C K N O W L E D G M E N T S COMMONWEALTH OF THE ) NORTHERN MARIANA ISLANDS ) ) ss: SAIPAN ) ON THIS day of , 19 , before me, a notary public in and for the Commonwealth of the Northern Mariana Islands, personally appeared ________________, known to me to be the of the Commonwealth Utilities Corporation, whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and considerations contained therein. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. (official signature and seal of notary) COMMONWEALTH OF THE ) NORTHERN MARIANA ISLANDS ) ) ss: SAIPAN ) ON THIS day of , 19 , before me, a notary public in and for the Commonwealth of the Northern Mariana Islands, personally appeared , known to me to be the of Telesource CNMI, Inc., whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same on behalf of said corporation, in such capacity, being fully authorized to do so, and for the purposes and considerations contained therein. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. (official signature and seal of notary) 391 EX-10.15 19 EMPLOYMENT AGREEMENT WITH K.J. Exhibit 10.15 Employment agreement with K.J. EMPLOYMENT CONTRACT This Agreement made and entered into this First day of July, 1999 by and between K.J. Semikian (hereinafter referred to as AEmployee@) and Telesource Intl. Inc., an Illinois corporation (hereinafter referred to as AEmployer@ or ATelesource@). WITNESSETH WHEREAS, the Employer is engaged in the business of construction and power production in the United States and Internationally; and WHEREAS, Employee believes that he is qualified to serve as President and Chief Executive Officer for the Employer; and WHEREAS, both parties hereto desire to enter into an employment relationship under the terms and conditions set forth hereunder. NOW, THEREFORE, in consideration of the foregoing mutual promises and covenants, it is agreed to between the parties as follows: ARTICLE I EMPLOYMENT RELATIONSHIP 1.1 EMPLOYMENT. The Employer hereby employs the Employee under the terms of this Agreement. Subject to any right of termination hereunder, this Agreement and said employment shall become effective on July 1, 1999, and shall continue in full force and effect until July 1, 2002. 1.2 EMPLOYEE RESPONSIBILITIES. During his employment hereunder, Employee shall have the title and responsibilities of President and Chief Executive Officer, reporting to the Board of Directors. Said responsibilities include the day to day direction of the organization and the formulation of plans and policies to achieve overall corporate objectives. 1.3 EXCLUSIVE EMPLOYMENT. During the continuation of his employment by the Employer hereunder, the Employee will devote his entire business time, energy, attention and skill to the services of the Employer and to the promotion of its interests and covenants. Similarly, Employee shall not engage in owning, operation or management of any business or activity competing with the business of the Employer nor shall Employee take part in any activity or activities detrimental to the best interest of the Employer. ARTICLE II BASE COMPENSATION, BENEFITS 2.1 SALARY. For the period from July 1, 1999 to December 31, 1999, Employee shall receive a base salary under this Agreement in the amount of TWO HUNDRED TWENTY THOUSAND DOLLARS ($220,000.00) per annum. Beginning January 1, 2000, Employee shall receive a base salary under this Agreement in the amount of TWO HUNDRED SEVENTY THOUSAND DOLLARS ($270,000.00) per annum until the expiration of this Agreement on July 1, 2002. 2.2 401K PLAN Eligible to participate after 90 days service. 2.3 BENEFITS. Employer agrees to provide Employee major medical insurance at a significantly reduced rate. In addition, the Employer will provide at no charge to the Employee, Short and Long Term Disability coverage. Dependant medical coverage is available at an additional expense to the employee through payroll deductions. Vacation of ______ days per year earned on a prorata basis. _______ sick days earned prorata per year. Standard company holidays. Note, benefits are subject to current company policies. 2.4 REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for reasonable out of pocket expenses expended by Employee in furtherance 363 of his duties. Employee will submit to Employer, on a bi-weekly basis, a detailed expense report showing amount of expense and reason for said expense. All extraordinary expenses shall be first approved by Employer prior to expenditure. ARTICLE III STOCK OPTIONS & BONUSES 3.1 STOCK OPTIONS. Should Telesource become publicly traded during the term of this agreement, the Board of Directors may provide stock option(s) to employee as it sees fit in its sole discretion. 3.2 BONUSES. The Board of Directors may provide bonuses to Employee as it sees fit in its sole discretion. ARTICLE IV TERMINATION/REVIEW 4.1 TERMINATION: Either party may immediately terminate this Agreement only for cause. At any time, the parties may mutually agree to terminate this Agreement. 4.2 EFFECT: Immediately upon the expiration or valid termination of this Agreement, Employee shall: i. Cease all services for Employer, and shall cease all relations with Employer and with all Employer employees, agents, contractors, representatives, Clients, Accounts, customers and others related to the business or matters of Employer, and shall cease making any representations about or on behalf of Employer; ii. Promptly deliver to Employer any and all originals and copies (either prepared by Employer or Employee) of all Confidential Information which has been supplied to Employee under this Agreement or which has been developed or created pursuant to this Agreement; iii. Promptly deliver to Employer any and all property and equipment of Employer in Employee's possession including, but not limited to, credit cards, financial instruments/advances, computers, hardware, software, phones, books, records, etc.; and iv. Immediately therewith resign from all offices and employment that he may have with Employer. 4.3 REVIEW: On or around each anniversary of this agreement, Employer shall review the services of Employee. ARTICLE V PROPRIETARY RIGHTS 5.1 COVENANT NOT TO USE OR DISCLOSE TRADE SECRETS. It is understood between the parties that during the term of his employment, Employee will be dealing with confidential information and processes which are Employer=s property, used in the course of its business. Employee agrees that he/she will not disclose to anyone, directly or indirectly, any of such confidential matters, or use them other than in the course of his employment. All documents that Employee prepares, or confidential information that might be given to his in the course of his employment, are the exclusive property of the Employer and shall remain in Employer=s possession on its premises. Under no circumstances shall any such information or documents be removed without Employer=s written consent to such removal first being obtained. For purposes of 364 this Agreement, persons properly entitled to such information shall be only employees and agents of Employer, attorneys and accountants employed by Employer, and such other persons as are legally entitled to such information. Employee further agrees that upon termination of this Agreement, Employee will not take with him or retain, without written authorization from Employer, any papers, lists, books, files or other documents or copies of such items or other information of any kind belonging to Employer and that Employer has designated as pertaining to the business or financial condition of Employer. ARTICLE VI NON-COMPETITION 6.1 In addition to, and not by way of limitation of Telesource's common-law rights, including those related to Employee's duties of care, obedience and loyalty, during the term of this Agreement and for a period of 360 days thereafter, whether or not termination is involuntary and without cause, Employee shall not directly or indirectly, on his own behalf or on behalf of another person or entity, engage in an activity competitive with Telesource=s product(s) or services(s) available for sale at the time of contract termination, or further such competitive activity by a third party, to the fullest extent and as permitted by law. Employee represents and agrees that Employee is qualified for and can obtain employment upon terms which will not result in a breach of this covenant, and that enforcement of this covenant will not, in any way, impose an undue hardship on Employee. ARTICLE VII NON-SOLICITATION 7.1 For a period of three (3) years after expiration or earlier termination of this Agreement, Employee will not directly or indirectly, either as an individual, proprietor, stockholder, partner, officer, director, employee or otherwise, solicit any employee, officer, director or other individual a) to leave his or his employment with Telesource b) to compete with the business of Telesource and/or c) to violate the terms of any employment, non-competition or similar agreement with Telesource ARTICLE VIII INTELLECTUAL PROPERTY 8.1 RIGHTS IN AND TO INTELLECTUAL PROPERTY: Employee shall not acquire any rights, title or interest in, to or deriving from any Employer "Intellectual Property" and all rights, title and interest shall be and become Employer's including those in, to and deriving from: i. information: including, but not limited to, developments, plans, lists, research, work-in-progress, data, information, designs, documents, records and other materials and information connected therewith or related thereto; ii. improvements: including, but not limited to, derivations, adaptations, variations, versions and/or modifications of any information; iii. intellectual property: including, but not limited to, all trademarks, service marks, copyrights, patents, certificates, applications thereto and all other intellectual property; iv. inventions; and v. items i. through iv. collectively referred to in this Agreement as Employer "Intellectual Property." During the term of this Agreement and for a period of twelve (12) months thereafter, if Employee directly or indirectly creates, authors, develops, receives, makes and/or discovers any information, improvements, intellectual property, and/or inventions arising from and/or connected with any "Confidential Information" (as hereinafter defined) pursuant to this Agreement, and/or acquires any rights related to Employer Intellectual Property, Employee shall 365 promptly inform Employer in writing of such information, improvements, intellectual property, inventions, and/or rights and shall assign to Employer, without cost or royalty to Employer, all rights to own, use disclose and commercialize such anywhere in the world. This provision does not apply to an invention of the Employee for which no equipment, supplies, facility, or trade secret information of Employer was used and which was developed entirely on the Employee's own time, unless i) the invention relates (1) to the business of Employer or (2) to Employer's actual or demonstrably anticipated research or development, or ii) the invention results from any work performed by the Employee for Employer. 8.2 WORK MADE FOR HIRE: Should any work performed pursuant to this Agreement fall within the definition of a "work for hire" as may be set forth in Public Law, 94-553, the Copyright Revision Act of 1976, as amended, the Employee hereby transfers and assigns to Employer full ownership of the copyright(s) to the work and all rights comprised therein. The Employee will assign all applications for registration of such copyright and will sign all other writings and perform all other actions necessary or convenient to carry out the term of this Agreement. 8.3 REGISTRATION/ENFORCEMENT: Employee shall further cooperate with Employer in obtaining any and all patents, certificates, trademarks, service marks, copyrights or other protection in any such information, improvements, intellectual property, Intellectual Property and/or rights. Nothing contained in this Agreement shall affect the right of Employer to seek or to refrain from seeking any such protection in any jurisdiction on any such information, improvements, intellectual property, Intellectual Property and/or rights. Employer shall, if it deems necessary, at its own cost and expense, prosecute and/or otherwise apply for registration of Employer Intellectual Property within or without the United States. 8.4 NO SUBLICENSES: Employee does not have the right to, and shall not, grant any licenses or sublicenses in Employer Intellectual Property in any case whatsoever except as specifically authorized in advance in writing by the Director(s) of Employer. 8.5 PROTECTION AND CLAIMS: Employee shall cooperate with Employer in the protection of the Employer Intellectual Property, and upon the request of Employer, shall sign all documents required for the effective protection, registration, patenting and/or other application of the same and for the filing of suits for infringement or misappropriation thereof by others. Employee shall without delay inform Employer of any known infringement or suspected infringement of Employer's present or future copyrights or trademarks or other Employer Intellectual Property rights. ARTICLE IX WAIVER 9.1 WAIVER. The failure by Employer to insist upon strict adherence to any provision of this Agreement on any occasion shall not be considered a waiver of any right hereunder nor shall it deprive Employer of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. ARTICLE X CONTRACTUAL AUTHORITY 10.1 AUTHORITY TO BIND. Employee shall not have the right to make any extraordinary contracts or commitments for or on behalf of Employer without first obtaining the express written consent of Employer. ARTICLE XI ASSIGNMENT 366 11.1 ASSIGNMENT. This Agreement is personal to the parties and may not be assigned by Employee, in whole or in part, without the prior written consent of the company. 11.2 AGREEMENT APPLICABLE TO SUCCESSORS OR ASSIGNS OF EMPLOYER. This Agreement shall inure to the benefit of, and be binding upon, any successor or assign of Employer having substantially the same ownership as Employer, and shall be assignable and transferable by the Employer, and shall inure to the benefit of and be binding upon the Employee. ARTICLE XII CHOICE OF LAW 12.1 CHOICE OF LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, and the parties agree to submit to jurisdiction and service in/for the courts of DuPage County, Illinois. ARTICLE XIII MISCELLANEOUS 13.1 ENTIRE AGREEMENT. This writing contains the entire agreement between Employer and Employee and shall not be changed, supplemented, or amended in any manner except by an instrument in writing properly executed by the parties to this agreement. Employer and Employee agree that all prior agreements, whether written or oral, relating to Employee=s employment by Employer are fully abrogated and of no further force or effect from and after the date of this Agreement. 13.2 SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. However, if any provision of this Agreement or the application of any provision to any party or circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition of invalidity without invalidating the remainder of the provisions of this Agreement or the application of the provision to other parties or other circumstances. 13.3 INJURY CAUSING IRREPARABLE HARM: Employee agrees that any breach of this Agreement or of Employee's fiduciary duties shall result in irreparable harm and injury to Employer and its interests. The remedy at law for any breach of the aforementioned duties and provisions may be inadequate and Employer shall be entitled to such equitable relief as may be necessary to protect it against any such breach. Such equitable relief shall not be exclusive, but shall be in addition to any other rights or remedies, including damages, costs, and attorneys' fees, which Employer may have for any such breach. ARTICLE XIV CAPACITY 14.1 CAPACITY OF EMPLOYEE TO ENTER INTO AGREEMENT. Employee represents and warrants that Employee has the full power and capacity to enter into this Agreement. Employee also represents and warrants that in entering into this Agreement Employee is not in violation of any contract or agreement, whether written or oral, with any other person to which Employee is a party or by which Employee is bound and that entering into this Agreement will not violate or interfere with the rights of any other person, firm, or corporation. In the event that such a violation or interference does occur, or is alleged to occur, Employee shall indemnify Employer from and against any and all manner of expenses and liabilities incurred by Employer or any affiliated company in connection with such violation or interference or alleged violation or interference. IN WITNESS WHEREOF; and in recognition of mutual consideration the parties hereto execute this Agreement which is effective on the date first mentioned above. 367 AEMPLOYER@ AEMPLOYEE@ TELESOURCE INTL., INC. K.J. SEMIKIAN By: K.J. Semikian Its: Date: Date: 368 EX-10.16 20 EMPLOYMENT AGREEMENT WITH NIDAL Exhibit 10.16 Employement agreement with Nidal 369 EMPLOYMENT CONTRACT This Agreement made and entered into this First day of July, 1999 by and between NIDAL Z. Zayed (hereinafter referred to as AEmployee@) and Telesource Intl. Inc., an Illinois corporation (hereinafter referred to as AEmployer@ or ATelesource@). WITNESSETH WHEREAS, the Employer is engaged in the business of construction and power production in the United States and Internationally; and WHEREAS, Employee believes that he is qualified to serve as Executive Vice President for the Employer; and WHEREAS, both parties hereto desire to enter into an employment relationship under the terms and conditions set forth hereunder. NOW, THEREFORE, in consideration of the foregoing mutual promises and covenants, it is agreed to between the parties as follows: ARTICLE I EMPLOYMENT RELATIONSHIP 1.1 EMPLOYMENT. The Employer hereby employs the Employee under the terms of this Agreement. Subject to any right of termination hereunder, this Agreement and said employment shall become effective on September 1, 1999, and shall continue in full force and effect until September 1, 2002. 1.2 EMPLOYEE RESPONSIBILITIES. During his employment hereunder, Employee shall have the title and responsibilities of Executive Vice President, reporting to the President and Chief Executive Officer. Said responsibilities comprise serving as the number two operating officer accountable for the full range of operations. ARTICLE II BASE COMPENSATION, BENEFITS 2.1 SALARY. Starting September 1, 1999, Employee shall receive a base salary under this Agreement in the amount of ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($125,000.00) per annum. 2.2 401K PLAN Eligible to participate after 90 days service. 2.3 BENEFITS. Employer agrees to provide Employee major medical insurance at a significantly reduced rate. In addition, the Employer will provide at no charge to the Employee, Short and Long Term Disability coverage. Dependant medical coverage is available at an additional expense to the employee through payroll deductions. Vacation of 15 days per year earned on a prorata basis. _______ sick days earned prorata per year. Standard company holidays. Note, benefits are subject to current company policies. 2.4 REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for reasonable out of pocket expenses expended by Employee in furtherance of his duties. Employee will submit to Employer, on a bi-weekly basis, a detailed expense report showing amount of expense and reason for said expense. All extraordinary expenses shall be first approved by Employer prior to expenditure. 2.5 COMPANY CAR. Employee shall have full time use of a company car. When a company car is not available, Employee will be given a fair car allowance. ARTICLE III STOCK OPTIONS & BONUSES 370 3.1 STOCK OPTIONS. Should Telesource become publicly traded during the term of this agreement, the Board of Directors may provide stock option(s) to employee as it sees fit in its sole discretion. 3.2 BONUSES. The Board of Directors may provide bonuses to Employee as it sees fit in its sole discretion. ARTICLE IV TERMINATION/REVIEW 4.1 TERMINATION: Employer may terminate this Agreement only for cause. At any time, the parties may mutually agree to terminate this Agreement. 4.2 EFFECT: Immediately upon the expiration or valid termination of this Agreement, Employee shall: i. Cease all services for Employer, and shall cease all relations with Employer and with all Employer employees, agents, contractors, representatives, Clients, Accounts, customers and others related to the business or matters of Employer, and shall cease making any representations about or on behalf of Employer; ii. Promptly deliver to Employer any and all originals and copies (either prepared by Employer or Employee) of all Confidential Information which has been supplied to Employee under this Agreement or which has been developed or created pursuant to this Agreement; iii. Promptly deliver to Employer any and all property and equipment of Employer in Employee's possession including, but not limited to, credit cards, financial instruments/advances, computers, hardware, software, phones, books, records, etc.; and iv. Immediately therewith resign from all offices and employment that he may have with Employer. 4.3 REVIEW: On or around each anniversary of this agreement, Employer shall review the services of Employee. ARTICLE V PROPRIETARY RIGHTS 5.1 COVENANT NOT TO USE OR DISCLOSE TRADE SECRETS. It is understood between the parties that during the term of his employment, Employee will be dealing with confidential information and processes which are Employer=s property, used in the course of its business. Employee agrees that he/she will not disclose to anyone, directly or indirectly, any of such confidential matters, or use them other than in the course of his employment. All documents that Employee prepares, or confidential information that might be given to his in the course of his employment, are the exclusive property of the Employer and shall remain in Employer=s possession on its premises. Under no circumstances shall any such information or documents be removed without Employer=s written consent to such removal first being obtained. For purposes of this Agreement, persons properly entitled to such information shall be only employees and agents of Employer, attorneys and accountants employed by Employer, and such other persons as are legally entitled to such information. Employee further agrees that upon termination of this Agreement, Employee will not take with him or retain, without written authorization from Employer, any papers, lists, books, files or other documents or copies of such items or other information of any kind belonging to Employer and that Employer has designated as pertaining to the business or financial condition of Employer. ARTICLE VI 371 > NON-COMPETITION 6.1 In addition to, and not by way of limitation of Telesource's common-law rights, including those related to Employee's duties of care, obedience and loyalty, during the term of this Agreement and for a period of 360 days thereafter, whether or not termination is involuntary and without cause, Employee shall not directly or indirectly, on his own behalf or on behalf of another person or entity, engage in an activity competitive with Telesource=s product(s) or services(s) available for sale at the time of contract termination, or further such competitive activity by a third party, to the fullest extent and as permitted by law. Employee represents and agrees that Employee is qualified for and can obtain employment upon terms which will not result in a breach of this covenant, and that enforcement of this covenant will not, in any way, impose an undue hardship on Employee. ARTICLE VII NON-SOLICITATION 7.1 For a period of three (3) years after expiration or earlier termination of this Agreement, Employee will not directly or indirectly, either as an individual, proprietor, stockholder, partner, officer, director, employee or otherwise, solicit any employee, officer, director or other individual a) to leave his or his employment with Telesource b) to compete with the business of Telesource and/or c) to violate the terms of any employment, non-competition or similar agreement with Telesource ARTICLE VIII INTELLECTUAL PROPERTY 8.1 RIGHTS IN AND TO INTELLECTUAL PROPERTY: Employee shall not acquire any rights, title or interest in, to or deriving from any Employer "Intellectual Property" and all rights, title and interest shall be and become Employer's including those in, to and deriving from: i. information: including, but not limited to, developments, plans, lists, research, work-in-progress, data, information, designs, documents, records and other materials and information connected therewith or related thereto; ii. improvements: including, but not limited to, derivations, adaptations, variations, versions and/or modifications of any information; iii. intellectual property: including, but not limited to, all trademarks, service marks, copyrights, patents, certificates, applications thereto and all other intellectual property; iv. inventions; and v. items i. through iv. collectively referred to in this Agreement as Employer "Intellectual Property." During the term of this Agreement and for a period of twelve (12) months thereafter, if Employee directly or indirectly creates, authors, develops, receives, makes and/or discovers any information, improvements, intellectual property, and/or inventions arising from and/or connected with any "Confidential Information" (as hereinafter defined) pursuant to this Agreement, and/or acquires any rights related to Employer Intellectual Property, Employee shall promptly inform Employer in writing of such information, improvements, intellectual property, inventions, and/or rights and shall assign to Employer, without cost or royalty to Employer, all rights to own, use disclose and commercialize such anywhere in the world. This provision does not apply to an invention of the Employee for which no equipment, supplies, facility, or trade secret information of Employer was used and which was developed entirely on the Employee's own time, unless i) the invention relates (1) to the business of Employer or (2) to Employer's actual or demonstrably anticipated research or development, or ii) the invention results from any work performed by the Employee for Employer. 372 > 8.2 WORK MADE FOR HIRE: Should any work performed pursuant to this Agreement fall within the definition of a "work for hire" as may be set forth in Public Law, 94-553, the Copyright Revision Act of 1976, as amended, the Employee hereby transfers and assigns to Employer full ownership of the copyright(s) to the work and all rights comprised therein. The Employee will assign all applications for registration of such copyright and will sign all other writings and perform all other actions necessary or convenient to carry out the term of this Agreement. 8.3 REGISTRATION/ENFORCEMENT: Employee shall further cooperate with Employer in obtaining any and all patents, certificates, trademarks, service marks, copyrights or other protection in any such information, improvements, intellectual property, Intellectual Property and/or rights. Nothing contained in this Agreement shall affect the right of Employer to seek or to refrain from seeking any such protection in any jurisdiction on any such information, improvements, intellectual property, Intellectual Property and/or rights. Employer shall, if it deems necessary, at its own cost and expense, prosecute and/or otherwise apply for registration of Employer Intellectual Property within or without the United States. 8.4 NO SUBLICENSES: Employee does not have the right to, and shall not, grant any licenses or sublicenses in Employer Intellectual Property in any case whatsoever except as specifically authorized in advance in writing by the Director(s) of Employer. 8.5 PROTECTION AND CLAIMS: Employee shall cooperate with Employer in the protection of the Employer Intellectual Property, and upon the request of Employer, shall sign all documents required for the effective protection, registration, patenting and/or other application of the same and for the filing of suits for infringement or misappropriation thereof by others. Employee shall without delay inform Employer of any known infringement or suspected infringement of Employer's present or future copyrights or trademarks or other Employer Intellectual Property rights. ARTICLE IX WAIVER 9.1 WAIVER. The failure by Employer to insist upon strict adherence to any provision of this Agreement on any occasion shall not be considered a waiver of any right hereunder nor shall it deprive Employer of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. ARTICLE X CONTRACTUAL AUTHORITY 10.1 AUTHORITY TO BIND. Employee shall not have the right to make any extraordinary contracts or commitments for or on behalf of Employer without first obtaining the express written consent of Employer. ARTICLE XI ASSIGNMENT 11.1 ASSIGNMENT. This Agreement is personal to the parties and may not be assigned by Employee, in whole or in part, without the prior written consent of the company. 11.2 AGREEMENT APPLICABLE TO SUCCESSORS OR ASSIGNS OF EMPLOYER. This Agreement shall inure to the benefit of, and be binding upon, any successor or assign of Employer having substantially the same ownership as Employer, and shall be assignable and transferable by the Employer, and shall inure to the benefit of and be binding upon the Employee. 373 > ARTICLE XII CHOICE OF LAW 12.1 CHOICE OF LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, and the parties agree to submit to jurisdiction and service in/for the courts of DuPage County, Illinois. ARTICLE XIII MISCELLANEOUS 13.1 ENTIRE AGREEMENT. This writing contains the entire agreement between Employer and Employee and shall not be changed, supplemented, or amended in any manner except by an instrument in writing properly executed by the parties to this agreement. Employer and Employee agree that all prior agreements, whether written or oral, relating to Employee=s employment by Employer are fully abrogated and of no further force or effect from and after the date of this Agreement. 13.2 SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. However, if any provision of this Agreement or the application of any provision to any party or circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition of invalidity without invalidating the remainder of the provisions of this Agreement or the application of the provision to other parties or other circumstances. 13.3 INJURY CAUSING IRREPARABLE HARM: Employee agrees that any breach of this Agreement or of Employee's fiduciary duties shall result in irreparable harm and injury to Employer and its interests. The remedy at law for any breach of the aforementioned duties and provisions may be inadequate and Employer shall be entitled to such equitable relief as may be necessary to protect it against any such breach. Such equitable relief shall not be exclusive, but shall be in addition to any other rights or remedies, including damages, costs, and attorneys' fees, which Employer may have for any such breach. ARTICLE XIV CAPACITY 14.1 CAPACITY OF EMPLOYEE TO ENTER INTO AGREEMENT. Employee represents and warrants that Employee has the full power and capacity to enter into this Agreement. Employee also represents and warrants that in entering into this Agreement Employee is not in violation of any contract or agreement, whether written or oral, with any other person to which Employee is a party or by which Employee is bound and that entering into this Agreement will not violate or interfere with the rights of any other person, firm, or corporation. In the event that such a violation or interference does occur, or is alleged to occur, Employee shall indemnify Employer from and against any and all manner of expenses and liabilities incurred by Employer or any affiliated company in connection with such violation or interference or alleged violation or interference. IN WITNESS WHEREOF; and in recognition of mutual consideration the parties hereto execute this Agreement which is effective on the date first mentioned above. AEMPLOYER@ AEMPLOYEE@ TELESOURCE INTL., INC. NIDAL Z. ZAYED By: K.J. Semikian Nidal Z. Zayed Its: President & CEO Date: Date: 374 EX-10.17 21 401K Exhibit 10.17 401K ADOPTION AGREEMENT FOR AETNA LIFE INSURANCE AND ANNUITY COMPANY STANDARDIZED 401(K) PROFIT SHARING PLAN AND TRUST The undersigned Employer adopts the Aetna Life Insurance and Annuity Company Sharing Plan for those Employees who shall qualify as Participants hereunder, to be known as the Al CommSource International Retirement Plan (Enter Plan Name) It shall be effective as of the date specified below. The Employer hereby selects the following Plan specifications: CAUTION: The failure to properly fill out this Adoption Agreement may result in disqualification of the Plan. EMPLOYER INFORMATION B1 Name of Employer CommSource International B2 Address 860 Parkview Blvd. Lombard, IL 60148 City State Zip Telephone 630-705-4020 B3 Employer Identification Number 36 - 3693505 B4 Date Business Commenced 1/1/ 88 B5 TYPE OF ENTITY a. S Corporation b. Professional Service Corporation c.[X]Corporation d. Sole Proprietorship e. Partnership f. Other ____________________________ AND, is the Employer a member of... g. a controlled group? Yes X No h. an affiliated service group? Yes X No 1990-N Aetna Life Insurance and Annuity Company B6 NAME(S) OF TRUSTEE(S) a. Robert Swihart b. C. B7 TRUSTEES' ADDRESS a. X Use Employer Address b. ----------------------------------------------------------------------- Street City State Zip 393 B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE: a. state b.commonwealth of c. Illinois and this Plan and Trust shall be governed under the same. B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period: Commencing on a. 1 1 (e.g., January 1st) month day and ending on b. 12 31 . month day PLAN INFORMATION C1 EFFECTIVE DATE This Adoption Agreement of the Aetna Life Insurance and Annuity Company Standardized 401(k) Profit Sharing Plan and Trust shall: a. X establish a new Plan and Trust effective as of January 1, 1999 (hereinafter called the "Effective Date"). b. constitute an amendment and restatement in its entirety of a previously established qualified Plan and Trust of the Employer which was effective ____________ (hereinafter called the "Effective Date"). Except as specifically provided in the Plan, the effective date of this amendment and restatement is ______________ (For TRA `86 amendments, enter the first day of the first Plan Year beginning in 1989). C2 PLAN YEAR means the 12 consecutive month period: Commencing on a. 1/1 (e.g., January 1st) and ending on b. 12/31 . IS THERE A SHORT PLAN YEAR? c. X No d. Yes, beginning_________________ and ending _________________________ C3 ANNIVERSARY DATE of Plan (Annual Valuation Date) a. 12 31 month day C4 PLAN NUMBER assigned by the Employer (select one) a. X 00l b. 002 c. 003 d. Other . C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint an Administrator. If none is named, the Employer will become the Administrator.) a. X Employer (Use Employer Address) b. Name Address _________________________________________________________ City State Zip Telephone ________________________________________ 394 Administrator's I.D. Number_______-____________ C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS a. X Employer (Use Employer Address) b. Name Address ____________________________________________________________ City State Zip ELIGIBILITY, VESTING AND RETIREMENT AGE Dl ELIGIBLE EMPLOYEES (Plan Section 1.16) shall mean all Employees who have satisfied the eligibility requirements except those checked below: a. N/A. No exclusions. b. X Employees whose employment is governed by a collective bargaining agreement between the Employer and "employee representatives" under which retirement benefits were the subject of good faith bargaining. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives of the Employer. C. X Employees who are nonresident aliens who received no earned income (within the meaning of Code Section 91 1(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)). NOTE: For purposes of this section, the term Employee shall include all Employees of this Employer, any Affiliated Employer, and any leased employees deemed to be Employees under Code Section 414(n) or 414(o). D2 HOURS OF SERVICE (Plan Section 1.32) will be determined on the basis of the method selected below. Only one method may be selected. The method selected will be applied to all Employees covered under the Plan. a. X On the basis of actual hours for which an Employee is paid or entitled to payment. b. On the basis of days worked. An Employee will be credited with ten (10) Hours of Service ifunder the Plan such Employee would be credited with at least one (1) Hour of Service during the day. c. On the basis of weeks worked. An Employee will be credited forty-five (45) Hours of Service if under the Plan such Employee would be credited with at least one (1) Hour of Service during the week. d. On the basis of semi-monthly payroll periods. An Employee will be credited with ninety-five (95) Hours of Service if under the Plan such Employee would be credited with at least one (1) Hour of Service during the semi-monthly payroll period. e. On the basis of months worked. An Employee will be credited with one hundred ninety (190) Hours of Service if under the Plan such Employee would be credited with at least one (1) Hour of Service during the month. D3 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b and c, and if applicable, d) Any Eligible Employee will be eligible to participate in the Plan if such Eligible Employee has satisfied the service and age requirements, if any, specified below: a. NO AGE OR SERVICE REQUIRED. 1. X None 2. 1/2 Year of Service 3. 1 Year of Service 4. Other 395 NOTE: If the Year(s) of Service selected is or includes a fractional year, an Employee will not be required to complete any specified number of Hours of Service to receive credit for such fractional year. If expressed in Months of Service, an Employee will not be required to complete any specified number of Hours of Service in a particular month. c. AGE REQUIREMENT (may not exceed 21) 1. N/A - No Age Requirement. 2. 20 1/2 3. X 21 4. Other _________________ d. FOR NEW PLANS ONLY - Regardless of any of the above age or service requirements, any Eligible Employee who was employed on the Effective Date of the Plan shall be eligible to participate hereunder and shall enter the Plan as of such date. D4 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible Employee shall become a Participant as of: a. the first day of the Plan Year in which he met the requirements. b. the first day of the Plan Year in which he met the requirements, if he met the requirements in the first 6 months of the Plan Year, or as of the first day of the next succeeding Plan Year if he met the requirements in the last 6 months of the Plan Year. c. the earlier of the first day of the seventh month or the first day of the Plan Year coinciding with or next following the date on which he met the requirements. d. the first day of the Plan Year next following the date on which he met the requirements. (Eligibility must be 1/2 Year of Service or less and age 201/2 or less.) e. the first day of the month coinciding with or next following the date on which he met the requirements. f. X Other: Quarterly ,provided that an Employee who has satisfied the maximum age and service requirements that are permissible in Section D3 above and who is otherwise entitled to participate, shall commence participation no later than the earlier of (a) 6 months after such requirements are satisfied, or (b) the first day of the first Plan Year after such requirements are satisfied, unless the Employee separates from service before such participation date. D5 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b)) The vesting schedule, based on number of Years of Service, shall be as follows: a. 100% upon entering Plan. (Required if eligibility requirement is greater than one (1) Year of Service.) b. 0-2years 0% c. 0-4 years 0% 3years 100% 5 years 100% d. 0-1 year 0% e. 1 year 0% 2 years 20% 2 years 50% 3 years 40% 3 years 75% 4 years 60% 4 years 100% 5 years 80% 6 years 100% f. X l year 20% g. 0-2 years 0% 2 years 40% 3 years 20% 396 3 years 60% 4 years 40% 4 years 80% 5 years 60% 5 years 100% 6 years 80% 7 years 100% h. Other - Must be at least as liberal as either c or g above. Years of Service Percentage D6 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has been amended to a less favorable schedule, enter the pre-amended schedule below: a. Vesting schedule has not been amended or amended schedule is more favorable in all years. b. Years of Service Percentage D7 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top Heavy Plan, the following vesting schedule, based on number of Years of Service, for such Plan Year and each succeeding Plan Year, whether or not the Plan is a Top Heavy Plan, shall apply and shall be treated as a Plan amendment pursuant to this Plan. Once effective, this schedule shall also apply to any contributions made prior to the effective date of Code Section 416 and/or before the Plan became a Top Heavy Plan. a. X N/A (D5a, b, d, e or f was selected) b. 0-l year 0% c. 0-2years 0% 2 years 20% 3years 100% 3 years 40% 4 years 60% 5 years 80% 6 years 100% NOTE: This section does not apply to the Account balances of any Participant who does not have an Hour of Service after the Plan has initially become top heavy. Such Participant's Account balance attributable to Employer contributions and Forfeitures will be determined without regard to this section. D8 VESTING (Plan Section 6.4(h)) In determining Years of Service for vesting purposes. Years of Service attributable to the following shall be EXCLUDED: a. Service prior to the Effective Date of the Plan or a predecessor plan. b. X N/A c. Service prior to the time an Employee attained age 18. d. X N/A D9 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER a. X No. b. Yes: Years of Service with _________________________shall be recognized for the purpose of this Plan. NOTE: If the predecessor Employer maintained this qualified Plan, then Years of Service with such predecessor Employer shall be recognized pursuant to Section 1.74 and b. must be marked. D10 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.43) means: a. X the date a Participant attains his 59 1/2 birthday. (not to exceed 65th) b. the later of the date a Participant attains his birthday (not to exceed 65th) or the c. not to exceed 5th) anniversary of the first day of the Plan Year in which participation in the Plan commenced. D11 NORMAL RETIREMENT DATE (Plan Section 1.44) shall commence: 397 a. X as of the Participant's "NRA". OR (must select b. or c. AND 1. or 2.) b. as of the first day of the month... c. as of the Anniversary Date... 1. coinciding with or next following the Participant's "NRA". 2. nearest the Participant's "NRA". D12 EARLY RETIREMENT DATE (Plan Section 1.13) means the: a. No Early Retirement provision provided. b. X date on which a Participant... c. first day of the month coinciding with or next following the date on which a Participant... d. Anniversary Date coinciding with or next following the date on which a Participant... AND, if b, c or d was selected... 1. X attains his 59 1/2 birthday and has 2. completed at least_____ Years of Service. CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS El a. COMPENSATION (Plan Section 1.9) with respect to any Participant means: 1. "415 Compensation." 2. X Compensation reportable as wages on Form W-2. b. COMPENSATION shall be 1. X actually paid (must be selected if Plan is integrated) 2. accrued c. FOR PURPOSES OF THIS SECTION El, Compensation shall be based on: 1. X the Plan Year. 2. the Fiscal Year coinciding with or ending within the Plan Year. 3. the Calendar Year coinciding with or ending within the Plan Year. NOTE: The Limitation Year shall be the same as the year on which Compensation is based. d. HOWEVER, for an Employee's first year of participation, Compensation shall be recognized as of: 1. X the first day of the Plan Year. 2. the date the Participant entered the Plan. e. IN ADDITION, COMPENSATION and "414(s) Compensation" 1. shall 2. X shall not include compensation which is not currently includible in the Participant's gross income by reason of the application of Code Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b). E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section 4.2) Each Employee may elect to have his Compensation reduced by: a. % b. up to ____% c. X from 1 % to 15 % 398 d. up to the maximum percentage allowable not to exceed the limits of Code Sections 401(k), 404 and 415. AND... e. X A Participant may elect to commence salary reductions as of quarterly (ENTER AT LEAST ONE DATE OR PERIOD). A Participant may modify the amount of salary reductions as of 1/1 (ENTER AT LEAST ONE DATE OR PERIOD). AND... Shall cash bonuses paid within 2 1/2 months after the end of the Plan Year be subject to the salary reduction election? f. Yes g. X No E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan Section 4.1(b)) a. N/A. There shall be no matching contributions. b. The Employer shall make matching contributions equal to ____% (e.g. 50%) of the Participant's salary reductions. c. X The Employer may make matching contributions equal to a discretionary percentage, to be determined by the Employer, of the Participant's salary reductions. d. The Employer shall make matching contributions equal to the sum of % of the portion of the Participant's salary reduction which does not exceed % of the Participant's Compensation plus % of the portion of the Participant's salary reduction which exceeds % of the Participant's Compensation, but does not exceed % of the Participant's Compensation. e. The Employer shall make matching contributions equal to the percentage determined under the following schedule: Participant's Total Matching Percentage Years of Service FOR PLANS WITH MATCHING CONTRIBUTIONS f. X Matching contributions g. shall h. X shall not be used in satisfying the deferral percentage tests. (If used, full vesting and restrictions on withdrawals will apply and the match will be deemed to be an Elective Contribution). i. For Plan Years beginning prior to 1990, a Year of Service j. shall k. shall not be required in order to share in the matching contributions. For Plan Years beginning after 1989, a Year of Service shall not be required in order to share in the matching contributions. j. In determining matching contributions, only salary reductions up to % of a Participant's Compensation will be matched. m. N/A. n. The matching contribution made on behalf of a Participant for any Plan Year shall not exceed $ . o. N/A. p. X Matching contributions shall be made on behalf of 1. X all Participants. 2. only Non-Highly Compensated Employees. E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan Section 4.1)? a. No. b. X Yes, the Employer may make a discretionary contribution out of its current or accumulated Net Profit. c. Yes, the Employer may make a discretionary contribution which is not limited to its current or accumulated Net Profit. IF YES (b. or c. is selected above), the Employer's discretionary contribution shall be allocated as follows: d. FOR A NON-INTEGRATED PLAN 399 The Employer discretionary contribution for the Plan Year shall be allocated in the same ratio as each Participant's Compensation bears to the total of such Compensation of all Participants. e. X FOR AN INTEGRATED PLAN The Employer discretionary contribution for the Plan Year shall be allocated in accordance with Plan Section 4.4(b)(3) based on a Participant's Compensation in excess of: f. X The Taxable Wage Base. g. The greater of $10,000 or 20% of the Taxable Wage Base. h. % of the Taxable Wage Base. (See Note below) i. $ . (see Note below) NOTE: The integration percentage of 5.7% shall be reduced to: 1. 4.3% if h. or i. above is more than 20% and less than or equal to 80% of the Taxable Wage Base. 2. 5.4% if h. or i. above is less than 100% and more than 80% of the Taxable Wage Base. E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 4.1) a. N/A. There shall be no Qualified Non-Elective Contributions except as provided in Section 4.6 and 4.8. b. The Employer shall make a Qualified Non-Elective Contribution equal to __% of the total Compensation of all Participants eligible to share in the allocations. c. X The Employer may make a Qualified Non-Elective Contribution in an amount to be determined by the Employer. E6 FORFEITURES (Plan Section 4.4(e)) a. X Forfeitures of contributions other than matching contributions shall be... 1. X added to the Employer's contribution under the Plan. 2. allocated to all Participants eligible to share in the allocations in the same proportion that each Participant's Compensation for the year bears to the Compensation of all Participants for such year. b. X Forfeitures of matching contributions shall be... 1. N/A. No matching contributions or match is fully vested. 2. X used to reduce the Employer's matching contribution. 3. allocated to all Participant's eligible to share in the allocations in proportion to each such Participant's Compensation for the year. 4. allocated to all Non-Highly Compensated Employee's eligible to share in the allocations in proportion to each such Participant's Compensation for the year. E7 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.4(1)) Any Participant who terminated employment during the Plan Year for reasons other than death, Total and Permanent Disability or retirement: a. With respect to the allocation of Employer Non-Elective Contributions (other than matching), Qualified Non-Elective Contributions, and Forfeitures for Plan Years beginning prior to 1990: 1. N/A 2. X shall share in such allocations provided such Participant completed a Year of Service. 3. shall not share in such allocations regardless of Hours of Service. NOTE: The Plan provides that for Plaza Years beginning after 1989, a terminated Participant shall share in such allocations provided such Participant completed more than 500 Hours of Service. 400 b. With respect to the allocation of Employer Matching Contributions, a Participant: 1. For Plan Years beginning after 1989, i. N/A, Plan does not provide for matching contributions. ii. shall share in the allocations, regardless of Hours of Service. iii. X shall share in the allocations provided such Participant completed more than 500 Hours of Service. 2. For Plan Years beginning before 1990, i. X N/A, new Plan, or same as Plan Years beginning after 1989. ii. shall share in the allocations, regardless of Hours of Service. iii. shall share in the allocations provided such Participant completed a Year of Service. E8 LIMITATIONS ON ALLOCATIONS (Plan Section 4.9) a. If any Participant is or was covered under another qualified defined contribution plan maintained by the Employer, other than a Master or Prototype Plan, or if the Employer maintains a welfare benefit fund, as defined in Code Section 419(e), or an individual medical account, as defined in Code Section 415(l)(2), under which amounts are treated as Annual Additions with respect to any Participant in this Plan: 1. X N/A. 2. The provisions of Section 4.9(b) of the Plan will apply as if the other plan were a Master or Prototype Plan. 3. Provide the method under which the Plans will limit total Annual Additions to the Maximu Permissable Amount, and will properly reduce any Excess Amounts, in a manner that precludes Employer discretion. b. If any Participant is or ever has been a Participant in a defined benefit plan maintained by the Employer: 1. X N/A. 2. In any Limitation Year, the Annual Additions credited to the Participant under this Plan may not cause the sum of the Defined Benefit Plan Fraction and the Defined Contribution Fraction to exceed 1.0. If the Employer's contribution that would otherwise be made on the Participant's behalf during the limitation year would cause the 1.0 limitation to be exceeded, the rate of contribution under this Plan will be reduced so that the sum of the fractions equals 1.0. If the 1.0 limitation is exceeded because of an Excess Amount, such Excess Amount will be reduced in accordance with Section 4.9(a)(4) of the Plan. 3. Provide the method under which the Plans involved will satisfy the 1.0 limitation in a manner that precludes Employer discretion. E9 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h)) Distributions upon the death of a Participant prior to receiving any benefits shall... a. X be made pursuant to the election of the Participant or beneficiary. b. begin within 1 year of death for a designated beneficiary and be payable over the life (or over a period not exceeding the life expectancy) of such beneficiary, except that if the beneficiary is the Participant's spouse, begin within the time the Participant would have attained age 70 1/2. c. be made within 5 years of death for all beneficiaries. d. other _______________________________________ 401 El0 LIFE EXPECTANCIES (Plan Section 6.5(t)) for minimum distributions required pursuant to Code Section 401(a)(9) shall... a. X be recalculated at the Participant's election. b. be recalculated. c. not be recalculated. Eli CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION Distributions upon termination of employment pursuant to Section 6.4(a) of the Plan shall not be made unless the following conditions have been satisfied: a. X N/A. Immediate distributions may be made at Participant's election. b. The Participant has incurred 1-Year Break(s) in Service. c. The Participant has reached his or her Early or Normal Retirement Age. d. Distributions may be made at the Participant's election on or after the Anniversary Date following termination of employment. e. Other E12 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) Distributions under the Plan may be made... a. 1. X in lump sums. 2. in lump sums or installments. b. AND, pursuant to Plan Section 6.13, 1. X no annuities are allowed (avoids Joint and Survivor rules). 2. annuities are allowed (Plan Section 6.13 shall not apply). NOTE: b.1. above may not be elected if this is an amendment to a plan which permitted annuities as a form of distribution or if this Plan has accepted a plan to plan transfer of assets from a plan which permitted annuities as a form of distribution. c. AND may be made in... 1. X cash only (except for insurance or annuity contracts). 2. cash or property. TOP HEAVY REQUIREMENTS Fl TOP HEAVY DUPLICATIONS (Plan Section 4.4(i)): When a Non-Key Employee is a Participant in this Plan and a Defined Benefit Plan maintained by the Employer, indicate which method shall be utilized to avoid duplication of top heavy minimum benefits. a. X The Employer does not maintain a Defined Benefit Plan.. b. A minimum, non-integrated contribution of 5% of each Non-Key Employee's total Compensation shall be provided in this Plan, as specified in Section 4.4(i). (The Defined Benefit and Defined Contribution Fractions will be computed using 100% if this choice is selected.) c. A minimum, non-integrated contribution of 7 1/2% of each Non-Key Employee's total Compensation shall be provided in this Plan, as specified in Section 4.4(i). (If this choice is selected, the Defined Benefit and Defined Contribution Fractions will be computed using 125% for all Plan Years in which the Plan is Top Heavy, but not Super Top Heavy.) d. Specify the method under which the Plans will provide top heavy minimum benefits for Non-Key Employees that will preclude Employer discretion and avoid inadvertent omissions, including any adjustments required under Code Section 415(e). 402 F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section.2.2) for Top Heavy purposes where the Employer maintains a Defined Benefit Plan in addition to this Plan, shall be based on... a. X N/A. The Employer does not maintain a defined benefit plan. b. Interest Rate: _________________________ Mortality Table: ______________________ F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined Contribution Plans (other than paired plans). a. X N/A. b. A minimum, non-integrated contribution of 3% of each Non-Key Employee's total Compensation shall be provided in the Money Purchase Plan (or other plan subject to Code Section 412), where the Employer maintains two (2) or more non-paired Defined Contribution Plans. c. Specify the method under which the Plans will provide top heavy minimum benefits for Non-Key Employees that will preclude Employer discretion and avoid inadvertent omissions, including any adjustments required under Code Section 415(e). MISCELLANEOUS G1 LOANS TO PARTICIPANTS (Plan Section 7.4) a. X Yes, loans may be made up to $50,000 or 1/2 Vested interest. b. No, loans may not be made. If YES, (check all that apply)... c. loans shall be treated as a Directed Investment. d. loans shall only be made for hardship or financial necessity. e. X the minimum loan shall be $l,000. f. $10,000 de minimis loans may be made regardless of Vested interest. (If selected, plan may need security in addition to Vested interest) NOTE: Department of Labor Regulations require the adoption of a separate written loan program setting forth the requirements outlined in Plan Section 7.4. G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.13) are permitted for the interest in any one or more accounts. a. Yes, regardless of the Participant's Vested interest in the Plan. b. Yes, but only with respect to the Participant's Vested interest in the Plan. c. Yes, but only with respect to those accounts which are 100% Vested. d. X No directed investments are permitted. G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.11). a. X Yes, transfers from qualified plans (and rollovers) will be allowed. b. No, transfers from qualified plans (and rollovers) will not be allowed. AND, transfers shall be permitted... c. X from any Employee, even if not a Participant. d. from Participants only. G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.12) a. Yes, Voluntary Contributions are allowed subject to the limits of Section 4.7. b. X No, Voluntary Contributions will not be allowed. 403 NOTE: TRA `86 subjects voluntary contributions to strict discrimination rules. GS HARDSHIP DISTRIBUTIONS (Plan Section 6.11) a. X Yes, from any accounts which are 100% Vested. b. Yes, from Participant's Elective Account only. c. Yes, but limited to the Participant's Account only. d. No. NOTE: Distributions from a Participant's Elective Account are limited to the portion of such account attributable to such Participant's Deferred Compensation and earnings attributable thereto up to December 31, 1988. Also hardship distributions are not permitted from a Participant's Qualified Non-Elective Account. G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10) a. If a Participant has reached the age of 59 1/2,distributions may be made, at the Participant's election, from any accounts which are 100% Vested without requiring the Participant to terminate employment. b. No pre-retirement distribution may be made. NOTE: Distributions from a Participant's Elective Account and Qualified Non-Elective Account are not permitted prior to age 59 1/2. G7 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased with Plan contributions. a. X No life insurance may be purchased. b. Yes, at the option of the Administrator. c. Yes, at the option of the Participant.. An Employer who has ever maintained or who later adopts any plan in addition to this Plan (including a welfare benefit fund, as defined in Code Section 419(e), which provides post-retirement medical benefits allocated to separate accounts for Key Employees, as defined in Code Section 419A(d)(3) or an individual medical account, as defined in Code Section 415(l)(2)) may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this Plan is qualified under Code Section 401. If the Employer who adopts or maintains multiple plans wishes to obtain reliance that the Employer's plan(s) qualified, application for a determination letter should be made to the appropriate key district director of Internal Revenue. This Adoption Agreement may be used only in conjunction with basic Plan document #03. This Adoption Agreement and the basic Plan document shall together be known as Aetna Life Insurance and Annuity Company Standardized 401(k) Profit Sharing Plan #03-002. The adoption of this Plan, its qualification by the IRS, and the related tax consequences are the responsibility of the Employer and its independent tax and legal advisors. Aetna Life Insurance and Annuity Company will notify the Employer of any amendments made to the Plan or of the discontinuance or abandonment of the Plan provided this Plan has been acknowledged by Aetna Life Insurance and Annuity Company or its authorized representative. Furthermore, in order to be eligible to receive such notification, we agree to notify Aetna Life Insurance and Annuity Company of any change in address. IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be executed on this day of NOVEMBER, 1998. Furthermore, this Plan may not be used unless acknowledged by Aetna Life Insurance and Annuity Company or its authorized representative. EMPLOYER: CommSource International TRUSTEE: Robert Swihart By: TRUSTEE 404 PARTICIPATING EMPLOYER: TRUSTEE Telesource International, Inc. (enter name) BY: This Plan may not be used, and shall not be deemed to be a Prototype Plan, unless an authorized representative of Aetna Life Insurance and Annuity Company has acknowledged the use of the Plan. Such acknowledgment is for administerial purposes only. It acknowledges that the Employer is using the Plan but does not represent that this Plan, including the choices selected on the Adoption Agreement, has been reviewed by a representative of the sponsor or constitutes a qualified retirement plan. Aetna Life Insurance and Annuity Company By: With regard to any questions regarding the provisions of the Plan, adoption of the Plan, or the effect of an opinion letter from the IRS, call or write (this information must be completed by the sponsor of this Plan or its designated representative): Name Address Telephone ( ) 405 EX-23.1 22 CONSENT OF ACCOUNTANTS Exhibit 23.01 Consent of Independent Certified Public Accountants We consent to the incorporation by reference in this Registration Statement on Form S-4 of our audit report dated February, 18, 2000 of Telesource International, Inc. for the years ended December 31, 1999, 1998 and 1997, and to the reference of our firm under the caption "Experts" in the Prospectus. /s/ Pender Newkirk & Company Certified Public Accountants Tampa, Florida March 27, 2000 EX-23.2 23 CONSENT OF WILLIAMS WILLIAMS LAW GROUP, P.A. 2503 West Gardner Court Tampa, FL 33611 March 27, 2000 Sixth Business Service Group, Inc. Via Telefax Re: Registration Statement on Form S-4 Gentlemen: I have acted as your counsel in the preparation on a Registration Statement on Form S-4 (the "Registration Statement") filed by you with the Securities and Exchange Commission covering shares of Common Stock of Sixth Business Service Group, Inc. (the "Stock"). In so acting, I have examined and relied upon such records, documents and other instruments as in our judgment are necessary or appropriate in order to express the opinion hereinafter set forth and have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us certified or photostatic copies. Based on the foregoing, I am of the opinion that: The Stock, when issued and delivered in the manner and/or the terms described in the Registration Statement (after it is declared effective), will duly and validly issued, fully paid and nonassessable; I hereby consent to the reference to my name in the Registration Statement under the caption "Legal Matters" and to the use of this opinion as an exhibit to the Registration Statement. In giving this consent, I do not hereby admit that I come within the category of a person whose consent is required under Section7 of the Act, or the general rules and regulations thereunder. Very truly yours, /s/ Michael T. Williams Michael T. Williams -----END PRIVACY-ENHANCED MESSAGE-----